STT State Street Corporation

State Street Corporation announced today third-quarter 2008 earnings per share of $1.09, an increase from $0.91 per share in the third quarter of 2007. Earnings per share in the third quarter include a $0.48 per share gain on the July 2008 sale of CitiStreet, $0.01 per share from acting as an intermediary under the Federal Reserve Bank�s Asset-Backed Commercial Paper Money Market Liquidity Facility (�AMLF�), a $(0.31) per share charge related to an increase in our reserve for sale-in, lease-out transactions (�SILOs�), a $(0.28) per share charge to establish a reserve to address our estimated net exposure on an indemnification obligation associated with collateral repurchase agreements with Lehman Brothers (�Lehman�), and $(0.05) per share in merger and integration costs associated with the July 2, 2007, acquisition of Investors Financial Services Corp. (�Investors Financial�). Operating-basis results are reported excluding these items. Earnings per share in the third quarter of 2007 include $(0.24) per share of merger and integration costs. On an operating basis, earnings in the third quarter of 2008 are $1.24 per share, up 8% from $1.15 per share in the third quarter of 2007. Revenue of $2.771 billion in the third quarter of 2008 is up 24%, compared to $2.240 billion in the year-ago quarter. Excluding the $350 million gain we recognized on the sale of CitiStreet, $8 million in net interest revenue from the AMLF, and $(98) million for a reduction of net interest revenue related to SILO lease transactions, operating revenue is $2.536 billion, up 12.4% from $2.257 billion in last year�s third quarter. Total expenses in the third quarter of 2008 are $1.925 billion, up 14% from $1.689 billion in the third quarter of 2007. Excluding the $200 million reserve associated with our estimated net exposure on an indemnification obligation relating to collateralized repurchase agreements with Lehman, and merger and integration costs of $30 million in the third quarter of 2008 and $141 million in the third quarter of 2007 associated with the Investors Financial acquisition, expenses on an operating basis are $1.695 billion, up 9.5%, or $147 million, compared to $1.548 billion in the year-ago quarter. On an operating basis, State Street generated about 290 basis points of positive operating leverage. For the third quarter of 2008, return on shareholders� equity is 13.6%, compared to 12.6% in the third quarter of 2007. The return on shareholders� equity reflects the impact of the equity capital issuance in June 2008, as well as the non-operating items listed above. Excluding the non-operating items, operating return on equity is 15.4% in the third quarter of 2008 compared to 15.8% in the third quarter of 2007. Ronald E. Logue, State Street's chairman and chief executive officer, said, �We are pleased to be one of the nine financial institutions key to the infrastructure of the global financial markets, selected by the U.S. Treasury to initiate the TARP Capital Purchase Program, a program aimed at addressing the financial turmoil and restoring confidence in the markets. Our selection demonstrates the important role that State Street plays for its customers and in the global markets and reflects our core financial strengths. Although we have always been and remain well capitalized, the program adds additional capital and affords us additional flexibility to continue our leadership role in meeting the challenges and opportunities in current markets. It�s my belief that the companies that will emerge from this turmoil are those, like State Street, with the right mix of businesses, a focus on customer service, and a prudent plan for this environment. As part of this program, State Street will issue $2 billion of senior preferred shares to the U.S. Treasury along with warrants to purchase common stock with a total market price equal to about $300 million at the time of issuance, which we anticipate will be minimally dilutive to our shareholders.� He continued, �In the third quarter, the volatility of both the equity and fixed-income markets resulted in increased business for State Street as customers sought us out because of our reputation for stability and safety. Market events drove growth in our balance sheet from $146 billion at June 30, 2008, to $286 billion at quarter end. Our normalized balance sheet has grown to $155 billion, excluding a temporary balance of $77 billion due to the AMLF and $54 billion in excess balances held at central banks, which we believe reflect current market conditions. We bear no risk or any capital assessment relative to the AMLF balances. We are pleased to be a significant participant and one of the first banks to be fully operational in the AMLF program of the Federal Reserve. We are also pleased to have been appointed by the U.S. Treasury to manage a portion of the assets for its mortgage-backed securities portfolio.� Logue added, �The recently announced Commercial Paper Funding Facility, that the Federal Reserve Bank has also appointed us to service, will provide liquidity to the commercial paper markets. In addition to its primary role in providing liquidity in the commercial paper markets, we expect this program to provide an additional source of liquidity for State Street�s asset-backed commercial paper program in these disrupted markets with a substantial amount of the program�s asset-backed commercial paper qualifying for the program.� Logue noted, �Due to the unprecedented market illiquidity in the third quarter, the unrealized after-tax mark-to-market losses at quarter end on State Street�s investment portfolio have increased to $3.3 billion and in the asset-backed commercial paper conduits to $2.1 billion. However, as we have said in the past, the asset quality of both our investment portfolio and the conduit program remains high.� Speaking of the Company�s secured exposure to Lehman Brothers, Logue said, �As we announced on September 18, 2008, we have no unsecured exposure to Lehman. However, we held mortgages as collateral for certain repurchase agreements. Following the Lehman bankruptcy, we evaluated the collateral securing our obligations in light of current market conditions and established a reserve of $200 million to address our estimated net exposure on indemnification obligations relating to these agreements.� Addressing the future outlook, Logue concluded, �Due to our strong performance in the first nine months of 2008, we continue to confirm our earlier statements regarding our performance to our financial goals for 2008. We continue to expect our growth in operating earnings per share to be approaching the high end of the 10 to 15 percent range; growth in operating revenue to be above the high end of the 14 to 17 percent range and our operating return on equity to approach the high end of the 14 to 17 percent range.� As State Street has previously disclosed, the market value of the portfolios that State Street Global Advisors manages in accounts that have entered into contracts with third-party financial institutional guarantors, continues to be under pressure, reflecting the illiquidity in the fixed-income markets. While State Street is not contractually obligated to do so, the Company is evaluating various options including providing some form of support to these accounts. This decision could result in a pre-tax charge of between $400 and $450 million in the fourth quarter. State Street is still reviewing this issue and has not yet determined what action, if any, to take. Following are two tables that display specified reported-basis and operating-basis results for legacy State Street as well as for its Investors Financial business. The first table presents results reported in accordance with U.S. generally accepted accounting principles (GAAP) and the effects of the non-operating items excluded from operating-basis results. The second table describes the results in four categories: �Baseline,� �Investors Financial,� �Operating,� and �Reported.� Management presents results on an operating basis in order to provide financial information that is comparable from period to period and to present comparable financial trends with respect to our ongoing business operations. Management believes such presentation facilitates an investor�s understanding and analysis of our underlying performance and trends in addition to financial information prepared in accordance with GAAP. In addition, management believes that providing separate Investors Financial results and baseline financial information further assists investors and analysts in understanding the effect of that acquisition. $ in millions except per share data � For the three months ended � � For the three months ended September 30, 2008 � � September 30, 2007 � � Operatinga � Reportedb � Operatingc � Reportedb Fee revenue � $1,899 � $1,899 � $1,799 � $1,799 Net interest revenue from operations � 615 � 615 � 464 � 464 Taxable-equivalent adjustment � 25 � 0 � 17 � 0 Net interest revenue from AMLF � 0 � 8 � 0 � 0 SILO-related reduction in net interest revenue � 0 � (98) � 0 � 0 Total net interest revenue � 640 � 525 � 481 � 464 Gains (losses) related to investment securities, net � (3) � (3) � (23) � (23) Gain on sale of CitiStreet interest � 0 � 350 � 0 � 0 Total revenue � 2,536 � 2,771 � 2,257 � 2,240 Operating expenses � 1,695 � 1,695 � 1,548 � 1,548 Merger and integration costs � 0 � 30 � 0 � 141 Provision for Lehman reserve � 0 � 200 � 0 � 0 Total operating expenses � 1,695 � 1,925 � 1,548 � 1,689 Income before income tax expense � 841 � 846 � 709 � 551 Income tax expense from operations � 278 � 278 � 243 � 243 Taxable-equivalent adjustment � 25 � 0 � 17 � 0 Income tax expense on non-operating items � 0 � 52 � 0 � (50) SILO-related charge increasing income tax expense � 0 � 39 � 0 � 0 Total income tax expense � 303 � 369 � 260 � 193 Net income � $538 � $477 � $449 � $358 Diluted earnings per share � $1.24 � $1.09 � $1.15 � $0.91 a �Operating� results in the third quarter of 2008 are reported results, excluding the impact of the CitiStreet gain, the AMLF revenue, recording an additional charge associated with SILO leasing transactions, the impact of the reserve associated with the secured exposure to Lehman Brothers, and merger and integration costs associated with the acquisition of Investors Financial; and are presented on a fully taxable-equivalent basis. b �Reported� results are in accordance with U.S. generally accepted accounting principles (GAAP). C �Operating� results in the third quarter of 2007 exclude merger and integration costs associated with the acquisition of Investors Financial and are presented on a fully taxable-equivalent basis. $ in millions except per share data For the three months ended � � September 30, 2008 � September 30, 2007 � � Baseline (a) � Investors Financial (b) � Operating (c) � Reported (d) � Reported (d) Fee revenue � $1,731 � $168 � $1,899 � $1,899 � $1,799 All other revenue � 575 � 62 � 637 � 872 � 441 Total revenue � 2,306 � 230 � 2,536 � 2,771 � 2,240 Total expenses � 1,550 � 145 � 1,695 � 1,925 � 1,689 Income tax expense � 264 � 39 � 303 � 369 � 193 Net income � $492 � $46 � $538 � $477 � $358 Diluted EPS � $1.22 � $0.02 � $1.24 � $1.09 � $0.91 (a) �Baseline� results represent results of legacy State Street on an operating basis excluding the Investors Financial results described below and are presented on a fully taxable-equivalent basis. (b) �Investors Financial� results represent revenue and expenses, including financing costs and amortization of intangibles, attributable to the Investors Financial business acquired on July 2, 2007, but excluding merger and integration costs. Presented on a fully taxable-equivalent basis. Per-share amounts reflect the impact on outstanding shares from the issuance of approximately 61 million shares for the acquisition. (c) �Operating� results are reported results, excluding the impact of the CitiStreet gain, the AMLF revenue, recording an additional charge associated with SILO leasing transactions, the impact of the reserve associated with the secured exposure to Lehman Brothers, and merger and integration costs associated with the acquisition of Investors Financial and are presented on a fully taxable-equivalent basis. (d) �Reported� results are in accordance with GAAP. THIRD-QUARTER RESULTS VS. YEAR-AGO QUARTER Total operating revenue increased 12.4% compared to the third quarter of 2007. Total operating expenses grew 9.5% to $1.7 billion. Servicing fees are up 3%, to $966 million from $937 million in last year�s third quarter. The increase is attributable to business from new and existing customers, offset partially by lower average equity market valuations. Total assets under custody are $14.045 trillion at September 30, 2008, down 7%, compared with $15.148 trillion at September 30, 2007. Daily average values for the S&P 500 Index are down 16%, for the MSCI� EAFE IndexSM are down 19%, and for the NASDAQ are down 12% during the third quarter of 2008 from the year-ago quarter. Investment management fees, generated by State Street Global Advisors, are $261 million, down 13% from $299 million in last year�s third quarter. Management fees reflect the impact of lower average month-end equity valuations and lower performance fees. Total assets under management are $1.686 trillion at September 30, 2008, down 16%, compared to $1.998 trillion at September 30, 2007. Trading services revenue, which includes foreign exchange trading revenue and brokerage and other fees, is $363 million for the quarter, up 13% from $320 million a year ago, itself an unusually strong quarter. The increase is driven by higher FX volatility, especially at the end of the quarter, and higher revenue from brokerage and other fees. Securities finance revenue is $246 million in the quarter, up 49% compared to $165 million in the year-ago quarter, reflecting an improvement in spreads, partially offset by lower volumes. Processing fees and other revenue declined 19% at $63 million, compared to $78 million a year ago due to lower fees and lower contributions from joint ventures. Operating net interest revenue on a fully taxable-equivalent basis, is $640 million, an increase of $159 million, or 33% from $481 million a year ago. The increase in net interest revenue is due to lower funding costs as a result of the reductions in the Fed Funds rate in the first and second quarters, as well as a larger balance sheet. Net interest margin increased to 2.22% from 1.73% a year ago. During the quarter, the Company recorded $29 million in other-than-temporary impairment charges on five investment securities, offset partially by $26 million in security gains. Total expenses in the third quarter are $1.925 billion, up 14% compared to $1.689 billion in the year-ago quarter. Total operating expenses in the third quarter of 2008 increased from $1.548 billion to $1.695 billion, up $147 million, or 9.5%, from the year-ago quarter. On an operating basis, the Company achieved 290 basis points of positive operating leverage in the third quarter of 2008 compared to the third quarter of 2007. Salaries and benefits expenses are up 12% to $1.0 billion, primarily attributable to increases in headcount due to new business and higher benefits costs. Transaction processing expenses in the third quarter of $165 million were flat compared to the year-ago quarter. Expenses for information systems and communications increased $6 million, or 4%, to $151 million due to new product development. Occupancy expense increased 6% to $116 million due to costs associated with non-U.S. expansion. Other expenses, excluding the Lehman charge, were up 13% at $241 million due primarily to increased professional fees. On a reported basis the tax rate is 43.5% for the quarter, compared with 35.0% in the third quarter of 2007, and on an operating basis is 34.0%, compared with 35.0% in the third quarter of last year. RESULTS OF THE THIRD QUARTER OF 2008 VS. THE SECOND QUARTER OF 2008 Third-quarter earnings per share of $1.09 compares to earnings per share of $1.35 per share in the second quarter. Second quarter earnings per share include $0.05 of after-tax merger and integration costs associated with the acquisition of Investors Financial. Operating earnings per share in the third quarter are $1.24, down 11.4% from $1.40 in the second quarter of 2008. Total revenue on an operating basis in the third quarter is $2.536 billion, down 6.1% from the second quarter. Total expenses on an operating basis are $1.695 billion, down 6.3%, or $114 million, versus $1.809 billion in the second quarter. On an operating basis, the Company achieved 20 basis points of positive operating leverage. For the third quarter of 2008, return on shareholders� equity is 13.6% compared to 18.6% in the second quarter and is 15.4% excluding non-operating items compared to 19.3% on an operating basis in the second quarter. Servicing fees are down 1% at $966 million due to the lower daily average equity valuations, partially offset by business from existing and new customers. Management fees are down 7% at $261 million principally due to lower daily average equity valuations, offset partially by higher performance fees. Trading services revenue increased 13% to $363 million due to higher volatility near the end of the quarter and higher equity trading volumes. Securities finance revenue was down 30%, or $106 million, at $246 million, due to lower spreads and less demand, compared to a seasonally high second quarter. Processing fees and other decreased from $77 million to $63 million. Operating net interest revenue on a fully taxable-equivalent basis, was down 7% at $640 million, compared to the second quarter, due primarily to lower investment yields on assets and a decline in revenue from non-U.S. transaction deposits. On an operating basis, expenses declined 6% compared to the second quarter. Salaries and employee benefits expenses total $1.022 billion, a decrease of $38 million, or 4%, from $1.060 billion in the second quarter, attributable primarily to lower incentive compensation. Transaction processing services expense decreased $7 million, or 4%, to $165 million due to lower valuations. Information systems and communication expense was down 8%, or $13 million, to $151 million due to lower infrastructure spending, and occupancy expense was about flat at $116 million. Other expenses are down $57 million, or 19%, from $298 million to $241 million due primarily to reductions in professional fees, lower costs in bank operations, and lower securities processing costs. ADDITIONAL INFORMATION All per share amounts represent diluted earnings per share. INVESTOR CONFERENCE CALL State Street will webcast an investor conference call today, Wednesday, October 15, 2008, at 7:30 a.m. EDT, available at www.statestreet.com/stockholder. The conference call will also be available via telephone, at +1 706/679-5594 (Conference ID# 61961747). Recorded replays of the conference call will be available on the web site, and by telephone at +1 706/645-9291(Conference ID# 61961747), beginning approximately two hours after the call�s completion. The telephone replay will be available for two weeks following the conference call. This press release, presentation materials to be referred to on the conference call and additional financial information are available on State Street�s website, at www.statestreet.com/stockholder, under �Investor Information�Latest News,� �Annual Reports and Financial Trends�Financial Trends� and ��Investor Events and Presentations.� State Street Corporation (NYSE: STT) is the world's leading provider of financial services to institutional investors, including investment servicing, investment management and investment research and trading. With $14.0 trillion in assets under custody and $1.7 trillion in assets under management at September 30, 2008, State Street operates in 26 countries and more than 100 geographic markets worldwide and employs 28,950 worldwide. For more information, visit State Street�s web site at www.statestreet.com or call 877/639-7788 [NEWS STT] toll-free in the United States and Canada, or +1 678/999-4577 outside those countries. FORWARD-LOOKING STATEMENTS This news announcement contains forward-looking statements as defined by United States securities laws, including statements about State Street�s goals and expectations regarding its business, financial condition, results of operations and strategies, the financial and market outlook, governmental and regulatory initiatives and developments and the business environment. These statements are not guarantees of future performance, are inherently uncertain, are based on current assumptions that are difficult to predict and involve a number of risks and uncertainties. Therefore, actual outcomes and results may differ materially from what is expressed in those statements, and those statements should not be relied upon as representing State Street's expectations or beliefs as of any date subsequent to the date of this release. Important factors that may affect future results and outcomes include: the financial strength of the counterparties with which State Street or its clients does business and with whom State Street has investment or financial exposure; the liquidity of the U.S. and International securities markets, particularly the markets for fixed-income securities, and the liquidity requirements of State Street�s customers; potential changes to the competitive environment due to the effects of consolidation, regulation and perceptions of State Street as a suitable service provider or counterparty; the level and volatility of interest rates, particularly in the U.S., Europe and the Asia/Pacific region; the performance and volatility of securities, credit, currency and other markets in the U.S. and internationally; economic conditions and monetary and other governmental actions designed to address the level and volatility of interest rates and the volatility of securities, currency and other markets in the U.S. and internationally; State Street�s ability to measure the fair value of securities in its investment securities portfolio and in the asset-backed commercial paper conduits it sponsors, particularly given current market conditions for many of those securities; the credit quality and credit agency ratings of the securities in State Street�s investment securities portfolio, a deterioration or downgrade of which could lead to other-than-temporary impairment of the respective securities and the recognition of an impairment loss, the maintenance of the credit agency ratings for State Street�s own debt obligations as well as the level of credibility of credit agency ratings; State Street's ability to attract non-interest bearing deposits and other low-cost funds; the possibility that changes to accounting rules or in market conditions or asset performance may require any off-balance sheet activities, including State Street�s asset-backed commercial paper conduits, to be consolidated into State Street�s financial statements, requiring recognition of associated losses, if any; the results of litigation and similar disputes and, in particular, the effect that current or potential litigation may have on its reputation and that of State Street Global Advisors (�SSgA�) and State Street�s ability to attract and retain customers; the possibility that the ultimate costs of the legal exposure associated with certain of SSgA�s actively managed fixed-income strategies may exceed or be below the level of the related reserve, in view of the uncertainties of the timing and outcome of litigation, and the amounts involved; the possibility of further developments of the nature that previously gave rise to the legal exposure associated with certain of SSgA�s actively managed fixed-income and other investment strategies; State Street's ability to integrate acquisitions into its business, including the acquisition of Investors Financial; the performance and demand for the products and services State Street offers, including the level and timing of withdrawals from our collective investment products; the enactment of legislation and changes in regulation and enforcement that impact State Street and its customers, as well as the effects of legal and regulatory proceedings, including litigation; State Street's ability to continue to grow revenue, control expenses and attract the capital necessary to achieve its business goals and comply with regulatory requirements; State Street's ability to navigate systemic risks and control operating risks; State Street�s ability to obtain quality and timely services from third parties with which it contracts; trends in the globalization of investment activity and the growth on a worldwide basis in financial assets and the resulting sovereign and monetary policy risks; trends in governmental and corporate pension plans and savings rates; changes in accounting standards and practices, including changes in the interpretation of existing standards, that impact State Street's consolidated financial statements; and changes in tax legislation and in the interpretation of existing tax laws by U.S. and non-U.S. tax authorities that impact the amount of taxes due. Other important factors that could cause actual results to differ materially from those indicated by any forward-looking statements are set forth in State Street's 2007 Annual Report on Form 10-K and its subsequent SEC filings, including, in particular, its Current Report on Form 8-K dated October 15, 2008. State Street encourages investors to read these filings, particularly the sections on Risk Factors, and its subsequent SEC filings for additional information with respect to any forward-looking statements and prior to making any investment decision. The forward-looking statements contained in this press release speak only as of the date hereof, October 15, 2008, and State Street does not undertake efforts to revise those forward-looking statements to reflect events after this date. STATE STREET CORPORATION Press Release Addendum � � Financial Highlights September 30, 2008 � � Quarters Ended � � % Change Q3 2008 Q3 2008 (Dollars in millions, except per share amounts September 30, June 30, September 30, vs. vs. or where otherwise noted) � � 2008 � � 2008 � � 2007 � � Q2 2008 � � Q3 2007 � � Total Revenue (1) $ 2,771 $ 2,672 $ 2,240 4 % 24 % Total Expenses (2)(3) 1,925 1,841 1,689 5 14 Net Income 477 548 358 (13) 33 � Diluted Earnings Per Share (4) $ 1.09 $ 1.35 $ .91 (19) 20 � Cash Dividends Declared Per Share $ .24 $ .24 $ .22 Closing Price Per Share of Common Stock (at quarter end) 56.88 63.99 68.16 � Return on Equity 13.6 % 18.6 % 12.6 % � At Quarter End: Assets Under Custody (AUC) (in trillions) $ 14.05 $ 15.26 $ 15.15 Assets Under Management (AUM) (in trillions) 1.69 1.89 2.00 � Nine Months Ended � � % Change 2008 September 30, September 30, vs. (Dollars in millions, except per share amounts) � � 2008 � � 2007(5) � � 2007 � Total Revenue (1) $ 8,020 $ 5,857 37 % � Total Expenses (2)(6) 5,540 4,260 30 Income Tax Expense 925 559 65 Net Income 1,555 1,038 50 � Diluted Earnings Per Share (4) 3.78 2.91 30 � Cash Dividends Declared Per Share .71 .65 9 � Return on Equity 16.8 % � 15.9 % � � (1) Quarter and nine months ended September 30, 2008 include $350 million gain from sale of CitiStreet interest, net of exit and other associated costs. (2) Quarter and nine months ended September 30, 2008 include $200 million provision for potential secured exposure associated with collateralized repurchase agreements. (3) Quarters ended September 30, 2008, June 30, 2008 and September 30, 2007 include merger and integration costs of $30 million, $32 million and $141 million, respectively, recorded in connection with the acquisition of Investors Financial. (4) Quarter and nine months ended September 30, 2008 and quarter ended June 30, 2008 reflect the impact of the issuance of 40.5 million shares of common stock on June 3, 2008 in a public offering. (5) Nine months ended September 30, 2007 include results of Investors Financial business for the quarter ended September 30, 2007. (6) Nine months ended September 30, 2008 and September 30, 2007 include merger and integration costs of $88 million and $141 million, respectively, recorded in connection with the acquisition of Investors Financial. STATE STREET CORPORATION Press Release Addendum � SELECTED FINANCIAL INFORMATION Quarters and Nine Months Ended September 30, 2008 and September 30, 2007 � � � Quarters Ended � Nine Months Ended September 30, � September 30, � September 30, � September 30, � (Dollars in millions, except per share amounts) � 2008 � 2007 % Change � 2008 � 2007(1) % Change � Fee Revenue: Servicing fees $ 966 $ 937 3 % $ 2,903 $ 2,421 20% Management fees 261 299 (13) 819 844 (3) Trading services 363 320 13 1,049 800 31 Securities finance 246 165 49 901 425 112 Processing fees and other � 63 � 78 (19) � 194 � 216 (10) Total fee revenue 1,899 1,799 6 5,866 4,706 25 � Net Interest Revenue: Interest revenue 1,027 1,383 (26) 3,452 3,758 (8) Interest expense � 502 � 919 (45) � 1,645 � 2,584 (36) Net interest revenue (2) 525 464 13 1,807 1,174 54 Provision for loan losses � - � - � - � - Net interest revenue after provision for loan losses 525 464 13 1,807 1,174 54 � Losses relatedto inves-tment secur-ities, net (3) (23) (3) (23) Gain from sale of CitiStreet interest, net of exit and other associated costs � 350 � - � 350 � - Total revenue 2,771 2,240 23.7 8,020 5,857 36.9 � Operating Expenses: Salaries and employee benefits 1,022 916 12 3,144 2,463 28 Infor-mation systems and communi-cations 151 145 4 470 398 18 Transaction processing services 165 165 - 499 435 15 Occupancy 116 109 6 341 301 13 Merger and inte-gration costs 30 141 88 141 Other � 441 � 213 107 � 998 � 522 91 Total operating expenses � 1,925 � 1,689 14.0 � 5,540 � 4,260 30.0 Income before income tax expense 846 551 54 2,480 1,597 55 Income tax expense � 369 � 193 � 925 � 559 Net income $ 477 $ 358 33 $ 1,555 $ 1,038 50 � Earnings Per Share: Basic $ 1.11 $ .92 21 $ 3.82 $ 2.95 29 Diluted 1.09 .91 20 3.78 2.91 30 � Average Shares Out-standing (in thou-sands): Basic 430,872 386,843 407,186 352,410 Diluted 435,030 392,150 411,204 356,695 � Consolidated Selected Financial Information presented above was prepared in accordance with accounting principles generally accepted in the United States. � (1) Nine months ended September 30, 2007 include financial results of Investors Financial business for the quarter ended September 30, 2007. (2) Net interest revenue on a fully taxable-equivalent basis was $640 million and $481 million for the quarters ended September 30, 2008 and 2007, respectively, and $1.97 billion and $1.22 billion for the nine months ended September 30, 2008 and 2007, respectively. These amounts include taxable-equivalent adjustments of $25 million and $17 million for the quarters ended September 30, 2008 and 2007, respectively, and $76 million and $41 million for the nine months ended September 30, 2008 and 2007, respectively. STATE STREET CORPORATION Press Release Addendum � SELECTED FINANCIAL INFORMATION Quarters Ended September 30, 2008 and June 30, 2008 � � � � Quarters Ended September 30, June 30, (Dollars in millions, except per share amounts) � 2008 � � 2008 � % Change � � Fee Revenue: Servicing fees $ 966 $ 977 (1) % Management fees 261 280 (7) Trading services 363 320 13 Securities finance 246 352 (30) Processing fees and other � 63 � 77 (18) Total fee revenue 1,899 2,006 (5) � Net Interest Revenue: Interest revenue 1,027 1,137 (10) Interest expense � 502 � 480 5 Net interest revenue (1) 525 657 (20) Provision for loan losses � - � - Net interest revenue after provision for loan losses 525 657 (20) � Gains (Losses) related to investment securities, net (3) 9 Gain from sale of CitiStreet interest, net of exit and other associated costs � 350 � - Total revenue 2,771 2,672 3.7 � Operating Expenses: Salaries and employee benefits 1,022 1,060 (4) Information systems and communications 151 164 (8) Transaction processing services 165 172 (4) Occupancy 116 115 1 Merger and integration costs 30 32 (6) Other � 441 � 298 48 Total operating expenses � 1,925 � 1,841 4.6 Income before income tax expense 846 831 2 Income tax expense � 369 � 283 Net income $ 477 $ 548 (13) � Earnings Per Share: Basic $ 1.11 $ 1.36 (18) Diluted 1.09 1.35 (19) � Average Shares Outstanding (in thousands): Basic 430,872 402,482 Diluted 435,030 406,964 � Consolidated Selected Financial Information presented above was prepared in accordance with accounting principles generally accepted in the United States. � (1) Net interest revenue on a fully taxable-equivalent basis was $640 million and $685 million for the quarters ended September 30, 2008 and June 30, 2008, respectively. These amounts include taxable-equivalent adjustments of $25 million and $28 million. STATE STREET CORPORATION Press Release Addendum � SELECTED OPERATING-BASIS FINANCIAL INFORMATION Quarters and Nine Months Ended September 30, 2008 and September 30, 2007 � � � Quarters Ended (1) � Nine Months Ended (1) September 30, 2008 September 30, 2007 September 30, 2008 September 30, 2007 (Dollars in mill-ions, except pershare amounts) � � % Change � % Change � Fee Revenue: Servicing fees $ 966 $ 937 3 % $ 2,903 $ 2,421 20 % Manag-ement fees 261 299 (13) 819 844 (3) Trading services 363 320 13 1,049 800 31 Secur-ities finance 246 165 49 901 425 112 Proc-essing feesand other � 63 � 78 (19) � 194 � 216 (10) Total fee revenue 1,899 1,799 6 5,866 4,706 25 � Net Interest Revenue: Interest revenue, oper-ating basis 1,105 1,400 (21) 3,581 3,799 (6) Interest expense � 465 � 919 (49) � 1,608 � 2,584 (38) Net interest revenue, oper-ating basis 640 481 33 1,973 1,215 62 Provision for loan losses � - � - � - � - Net interest revenue after pro-vision for loan losses, oper-ating basis 640 481 1,973 1,215 62 � Losses related to inves-tment secur-ities, net � (3) � (23) � (3) � (23) Total revenue, oper-ating basis (2)(3) 2,536 2,257 12.4 7,836 5,898 32.9 � Oper-ating Exp-enses: Salaries and employee benefits 1,022 916 12 3,144 2,463 28 Inform-ation systems and communi-cations 151 145 4 470 398 18 Trans-action proc-essing services 165 165 - 499 435 15 Occupancy 116 109 6 341 301 13 Other � 241 � 213 13 � 798 � 522 53 Total oper-ating exp-enses, oper-ating basis (2)(3) � 1,695 � 1,548 9.5 � 5,252 � 4,119 27.5 Income before income tax expense, oper-ating basis 841 709 19 2,584 1,779 45 Income taxes, oper-ating basis 278 243 853 609 Taxable-equiv-alent adjus-tment � 25 � 17 � 76 � 41 Net income, oper-ating basis $ 538 $ 449 20 $ 1,655 $ 1,129 47 � � Diluted earn-ings per share, oper-ating basis $ 1.24 $ 1.15 8 $ 4.03 $ 3.15 28 � Average diluted shares outst-anding (in thous-ands) 435,030 392,150 411,204 356,695 � Return on equity, oper-ating basis 15.4 % 15.8 % 17.8 % 17.3 % � � (1) Refer to the accompanying reconciliation of reported results to operating-basis results. (2) For the quarter ended September 30, 2008, positive operating leverage in the year-over-year comparison was 290 basis points, based on growth in total operating-basis revenue of 12.4% and growth in total operating-basis expenses of 9.5%. (3) For the nine months ended September 30, 2008, positive operating leverage in the year-over-year comparison was 540 basis points, based on growth in total operating-basis revenue of 32.9% and growth in total operating-basis expenses of 27.5%. STATE STREET CORPORATION Press Release Addendum � SELECTED OPERATING-BASIS FINANCIAL INFORMATION Quarters Ended September 30, 2008 and June 30, 2008 � � � Quarters Ended (1) September 30, June 30, (Dollars in millions, except per share amounts) 2008 � 2008 � % Change � � Fee Revenue: Servicing fees $ 966 $ 977 (1) % Management fees 261 280 (7) Trading services 363 320 13 Securities finance 246 352 (30) Processing fees and other � 63 � 77 (18) Total fee revenue 1,899 2,006 (5) � Net Interest Revenue: Interest revenue, operating basis 1,105 1,165 (5) Interest expense � 465 � 480 (3) Net interest revenue, operating basis 640 685 (7) Provision for loan losses � - � - Net interest revenue after provision for loan losses, operating basis 640 685 (7) � Gains (Losses) related to investment securities, net � (3) � 9 Total revenue, operating basis (2) 2,536 2,700 (6.1) � Operating Expenses: Salaries and employee benefits 1,022 1,060 (4) Information systems and communications 151 164 (8) Transaction processing services 165 172 (4) Occupancy 116 115 1 Other, operating basis � 241 � 298 (19) Total operating expenses, operating basis (2) � 1,695 � 1,809 (6.3) Income before income tax expense, operating basis 841 891 (6) Income taxes 278 293 Taxable-equivalent adjustment � 25 � 28 Net income, operating basis $ 538 $ 570 (6) � � Diluted earnings per share, operating basis $ 1.24 $ 1.40 (11.4) � Average diluted shares outstanding (in thousands) 435,030 406,964 � Return on equity, operating basis 15.4 % 19.3 % � � (1) Refer to the accompanying reconciliation of reported results to operating-basis results. (2) For the quarter ended September 30, 2008, positive operating leverage in the quarter-over-quarter comparison was 20 basis points, based on decline in total operating-basis revenue of 6.1% and decline in total operating-basis expenses of 6.3%. STATE STREET CORPORATION Press Release Addendum � RECONCILIATION OF REPORTED RESULTS TO OPERATING-BASIS RESULTS Quarter and Nine Months Ended September 30, 2008 � � � � � � � � � � � � � � � � � � � � (Dollars in millions, except per share amounts) Quarter Ended September 30, 2008 Nine Months Ended September 30, 2008 � � � Reported Operating Reported Operating Results Adjust-ments Results � Results Adjust-ments Results Fee Revenue: Servicing fees $ 966 $ 966 $ 2,903 $ 2,903 Management fees 261 261 819 819 Trading services 363 363 1,049 1,049 Securities finance 246 246 901 901 Processing fees and other � 63 � 63 � 194 � 194 Total fee revenue 1,899 1,899 5,866 5,866 � Net Interest Revenue: Interest revenue 1,027 $ 78 (1) 1,105 3,452 $ 129 (1) 3,581 Interest expense � 502 � (37) (2) 465 � 1,645 � (37) (2) 1,608 Net interest revenue 525 115 640 1,807 166 1,973 Provision for loan losses � - � - � - � - � - � - Net interest revenue after provision for loan losses 525 115 640 1,807 166 1,973 � Losses related to investment securities, net (3) - (3) (3) - (3) Gain from sale of CitiStreet interest, net of exit and other associated costs � � 350 � (350) (3) - � 350 � (350) (3) - Total revenue 2,771 (235) 2,536 8,020 (184) 7,836 � Operating Expenses: Salaries and employee benefits 1,022 - 1,022 3,144 - 3,144 Infor-mation systems and communi-cations 151 - 151 470 - 470 Transaction processing services 165 - 165 499 - 499 Occupancy 116 - 116 341 - 341 Merger and integration costs 30 (30) (4) - 88 (88) (4) - Other � 441 � (200) (5) 241 � 998 � (200) (5) 798 Total operating expenses � 1,925 � (230) � 1,695 � 5,540 � (288) � 5,252 Income before income taxes 846 (5) 841 2,480 104 2,584 Income taxes 369 (91) (6) 278 925 (72) (7) 853 Taxable-equivalent adjustment � - � 25 (8) 25 � - � 76 (8) 76 Net income $ 477 $ 61 $ 538 $ 1,555 $ 100 $ 1,655 � Diluted earnings per share $ 1.09 $ .15 $ 1.24 $ 3.78 $ .25 $ 4.03 � Average diluted shares outstanding (in thousands) 435,030 435,030 435,030 411,204 411,204 411,204 � Return on equity 13.6 % 1.8 % 15.4 % 16.8 % 1.0 % 17.8 % � � Reported results reflect State Street's Consolidated Statement of Income prepared in accordance with accounting principles generally accepted in the United States. � (1) Represents taxable-equivalent adjustment of $25 million for the quarter ended September 30, 2008 and $76 million for the nine months ended September 30, 2008, which are not included in reported results, plus a $98 million charge associated with SILO leasing transactions, net of $45 million of revenue related to the Boston Federal Reserve Bank's Asset-Backed Commercial Paper Money Market Liquidity Facility (AMLF). (2) Represents $37 million of interest expense related to the Boston Federal Reserve Bank's AMLF. (3) Represents gain on the sale of CitiStreet interest, net of exit and other associated costs, which State Street divested on July 1, 2008. (4) Represents merger and integration costs recorded in connection with the acquisition of Investors Financial, which are direct and incremental costs associated with the acquisition and do not include ongoing expenses of the combined organization. (5) Represents a charge to provide for estimated net exposure to customers on an indemnification obligation associated with collateralized repurchase agreements. (6) Represents $3 million of income tax expense related to the Boston Federal Reserve Bank's AMLF, $39 million of income tax expense related to the reserve for SILO's, $140 million of income tax expense related to the gain from sale of CitiStreet interest, $11 million of income tax benefit related to merger and integration costs for the acquisition of Investors Financial, and $80 million of income tax benefit related to the provision for potential secured exposure associated with a collateralized repurchase agreement. (7) Represents $3 million of income tax expense related to the Boston Federal Reserve Bank's AMLF, $39 million of income tax expense related to the reserve for SILO's, $140 million of income tax expense related to the gain from sale of CitiStreet interest, $30 million of income tax benefit related to merger and integration costs for the acquisition of Investor's Financial, and $80 million of income tax benefit related to the provision for potential secured exposure associated with a collateralized repurchase agreement. (8) Represents taxable-equivalent adjustment, which is not included in reported results. STATE STREET CORPORATION Press Release Addendum � RECONCILIATION OF REPORTED RESULTS TO OPERATING-BASIS RESULTS Quarter and Nine Months Ended September 30, 2007 � � � � � � � � � � � � � � � � � � � � (Dollars in millions, except per share amounts) Quarter Ended September 30, 2007 Nine Months Ended September 30, 2007 � � � � Reported Oper-ating Reported Oper-ating Results Adjust-ments � Results Results Adjust-ments Results Fee Revenue: Servicing fees $ 937 $ 937 $ 2,421 $ 2,421 Management fees 299 299 844 844 Trading services 320 320 800 800 Securities finance 165 165 425 425 Processing fees and other � 78 � 78 � 216 � 216 Total fee revenue 1,799 1,799 4,706 4,706 � Net Interest Revenue: Interest revenue 1,383 $ 17 (1) 1,400 3,758 $ 41 (1) 3,799 Interest expense � 919 � - � 919 � 2,584 � - � 2,584 Net interest revenue 464 17 481 1,174 41 1,215 Provision for loan losses � - � - � - � - � - � - Net interest revenue after provision for loan losses 464 17 481 1,174 41 1,215 � Losses related to inves-tment secur-ities, net � (23) � - � (23) � (23) � - � (23) Total revenue 2,240 17 2,257 5,857 41 5,898 � Operating Expenses: Salaries and employee benefits 916 - 916 2,463 - 2,463 Infor-mation systems and communi-cations 145 - 145 398 - 398 Trans-action proc-essing services 165 - 165 435 - 435 Occupancy 109 - 109 301 - 301 Merger and Integr-ation costs 141 (141) (2) - 141 (141) (2) - Other � 213 � - � 213 � 522 � - � 522 Total operating expenses � 1,689 � (141) � 1,548 � 4,260 � (141) � 4,119 Income before income taxes 551 158 709 1,597 182 1,779 Income taxes 193 50 (2) 243 559 50 (2) 609 Taxable-equivalent adjus-tment � - � 17 (1) � 17 � - � 41 (1) � 41 Net income $ 358 $ 91 $ 449 $ 1,038 $ 91 $ 1,129 � Diluted earnings per share $ .91 $ .24 $ 1.15 $ 2.91 $ .24 $ 3.15 � Average diluted shares outst-anding (in thou-sands) 392,150 392,150 392,150 356,695 356,695 356,695 � Return on equity 12.6 % 3.2 % 15.8 % 15.9 % 1.4 % 17.3 % � � Reported results reflect State Street's Consolidated Statement of Income prepared in accordance with accounting principles generally accepted in the United States. � (1) Represents taxable-equivalent adjustment, which is not included in reported results. (2) Represents merger and integration costs recorded in connection with the acquisition of Investors Financial, which are direct and incremental costs associated with the acquisition and do not include ongoing expenses of the combined organization. STATE STREET CORPORATION Press Release Addendum � RECONCILIATION OF REPORTED RESULTS TO OPERATING-BASIS RESULTS Quarter Ended June 30, 2008 � � � � � � � � � � (Dollars in millions, except per share amounts) Quarter Ended June 30, 2008 � � Reported Operating Results Adjustments Results Fee Revenue: Servicing fees $ 977 $ 977 Management fees 280 280 Trading services 320 320 Securities finance 352 352 Processing fees and other � 77 � 77 Total fee revenue 2,006 2,006 � Net Interest Revenue: Interest revenue 1,137 $ 28 (1) 1,165 Interest expense � 480 � - � 480 Net interest revenue 657 28 685 Provision for loan losses � - � - � - Net interest revenue after provision for loan losses 657 28 685 � Gains related to investment securities, net � 9 � - � 9 Total revenue 2,672 28 2,700 � Operating Expenses: Salaries and employee benefits 1,060 - 1,060 Information systems and communications 164 - 164 Transaction processing services 172 - 172 Occupancy 115 - 115 Merger and integration costs 32 (32) (2) - Other � 298 � - � 298 Total operating expenses � 1,841 � (32) � 1,809 Income before income taxes 831 60 891 Income taxes 283 10 (2) 293 Taxable-equivalent adjustment � - � 28 (1) � 28 Net income $ 548 $ 22 $ 570 � Diluted earnings per share $ 1.35 $ .05 $ 1.40 � Average diluted shares outstanding (in thousands) 406,964 406,964 406,964 � Return on equity 18.6 % 0.7 % 19.3 % � � Reported results reflect State Street's Consolidated Statement of Income prepared in accordance with accounting principles generally accepted in the United States. � (1) Represents taxable-equivalent adjustment, which is not included in reported results. (2) Represents merger and integration costs recorded in connection with the acquisition of Investors Financial, which are direct and incremental costs associated with the acquisition and do not include ongoing expenses of the combined organization. STATE STREET CORPORATION Press Release Addendum � CONSOLIDATED STATEMENT OF CONDITION � � � � � � � � � � � � � September 30, � December 31, � September 30, (Dollars in millions, except per share amounts) � 2008 � 2007 � 2007 � Assets Cash and due from banks $ 58,263 $ 4,733 $ 4,610 Interest-bearing deposits with banks 18,430 5,579 6,559 Securities purchased under resale agreements 9,598 19,133 16,151 Federal funds sold 1,500 4,540 2,575 Trading account assets 6,332 589 1,305 Investment securities available for sale 68,881 70,326 72,789 Investment securities held to maturity purchased under money market liquidity facility 76,660 - - Investment securities held to maturity 3,945 4,233 4,294 Loans and leases (net of allowance of $18) 17,430 15,784 11,292 Premises and equipment 1,987 1,894 1,824 Accrued income receivable 1,915 2,096 1,883 Goodwill 4,516 4,567 4,601 Other intangible assets 1,890 1,990 1,994 Other assets � 14,217 � 7,079 � 10,011 Total assets $ 285,564 $ 142,543 $ 139,888 � Liabilities Deposits: Noninterest-bearing $ 70,033 $ 15,039 $ 13,779 Interest-bearing -- U.S. 9,988 14,790 15,838 Interest-bearing -- Non-U.S. � 70,848 � 65,960 � 63,384 Total deposits 150,869 95,789 93,001 � Securities sold under repurchase agreements 17,274 14,646 14,008 Federal funds purchased 1,984 425 320 Short-term borrowings under money market liquidity facility 76,627 - - Other short-term borrowings 4,289 5,557 4,802 Accrued taxes and other expenses 2,443 4,392 3,953 Other liabilities 14,908 6,799 8,938 Long-term debt � 4,106 � 3,636 � 3,616 Total liabilities 272,500 131,244 128,638 � Shareholders' Equity Preferred stock, no par: authorized 3,500,000; issued none Common stock, $1 par: authorized 750,000,000 shares; issued 431,951,000, 398,366,000 and 398,370,000 shares 432 398 398 Surplus 6,793 4,630 4,616 Retained earnings 9,002 7,745 7,610 Accumulated other comprehensive loss (3,146) (575) (369) Treasury stock (at cost 405,000, 12,082,000 and 13,576,000 shares) � (17) � (899) � (1,005) Total shareholders' equity � 13,064 � 11,299 � 11,250 Total liabilities and shareholders' equity $ 285,564 $ 142,543 $ 139,888