EX-99 3 a4490766ex991.txt EXHIBIT 99.1 PRESS RELEASE Exhibit 99.1 State Street Corporation Announces Third-Quarter Results Operating profit up 27% driven by revenue growth and expense reduction; Global Securities Services integration on track State Street Corporation announced today third-quarter earnings per share of $0.60, representing net income of $202 million on revenue of $1,126 million. Results for the third quarter include pre-tax merger and integration costs of $26 million related to the Global Securities Services business (GSS), as well as pre-tax restructuring charges of $3 million due to State Street's previously announced expense-reduction program, for a combined after-tax charge of $0.06 per share. In reporting its financial results for the third quarter of 2003, State Street has prepared information in four categories: -- "Reported" results are in accordance with generally accepted accounting principles (GAAP). -- "Operating" results are "reported" results excluding restructuring and merger-related charges. They are presented on a taxable-equivalent basis. -- "GSS contribution" results are the revenue and expenses, including financing costs and amortization of intangibles, attributable to the GSS business acquired on January 31, 2003, as well as revenue and expenses from "out-of-scope" GSS business that are closely related to Deutsche Asset Management, but that were not part of the acquisition. Per-share amounts reflect the effect on outstanding shares due to the acquisition. -- "Baseline" results are "operating" results excluding "GSS contribution" and are presented on a taxable-equivalent basis. State Street believes that providing non-GAAP financial information assists investors and others by providing them with financial information in a format that provides comparable financial trends of ongoing business activities. Baseline earnings per share were $0.65, up 20% compared to baseline earnings per share of $0.54 for the third quarter of 2002, and up 25% from $0.52 in the second quarter of 2003. Third quarter of 2002 baseline results exclude $8 million of pre-tax income, or $0.02 per share, attributable to the Corporate Trust business divested at the end of 2002. Baseline revenue of $976 million was up 3% from the third quarter of 2002, primarily due to increases in servicing and management fees, processing and other fees, and foreign exchange, partially offset by a loss on the sale of securities and lower net interest revenue. In the third quarter, the GSS business contributed $163 million in total revenue: $155 million of fee revenue, $10 million in "out-of-scope" fee revenue, and $3 million of interest revenue, offset by interest expense of $5 million attributable to the acquisition financing. The GSS business earned $0.01 in the third quarter on a per-share basis, including the "out-of-scope" results, the cost of financing and the impact of increased shares outstanding, but excluding one-time merger and acquisition costs. Operating earnings per share, which exclude the merger and integration and restructuring charges recorded in the third quarter of 2003, were $0.66, up 22% from $0.54 a year ago, and up 27% from $0.52 in the second quarter of 2003. Operating revenue increased 20%, or $190 million, to $1,139 million from the third quarter of 2002. Operating return on stockholders' equity was 17.4% for the quarter. The following table summarizes State Street's baseline, GSS, operating, and reported results for the third quarters of 2002 and 2003. Detailed information is available in the Addendum Selected Financial Information tables included with this press release. Dollars in millions except per share data; shares in millions Three months ended September 30, 2003 September 30, 2002 Base- Operat- Report- Operat- Report- line(a) GSS(b) ing(c) ed ing(c) ed Fee revenue $763 $165 $928 $928 $682 $702 All other revenue 213 (2) 211 198 267 254 Total revenue 976 163 1,139 1,126 949 956 Total expenses 650 142 792 821 669 684 Taxes 115 7 122 103 103 90 Net income $211 $14 $225 $202 $177 $182 Diluted eps $0.65 $0.01 $0.66 $0.60 $0.54 $0.56 Diluted shares 323 337 337 326 326 (a) excludes GSS contribution and charges; presented on a taxable-equivalent basis (b) revenue and expenses, including financing costs and amortization of intangibles, attributable to the GSS business acquired January 31, 2003, as well as revenue and expenses from "out-of-scope" business which was not part of the transaction, but excluding merger and integration costs. Per-share amounts reflect the effect on outstanding shares due to the acquisition (c) excludes merger and integration and restructuring charges in 2003 and in 2002, the results of the divested Corporate Trust business; in 2002, baseline and operating results are identical; presented on a taxable-equivalent basis David A. Spina, State Street's chairman and chief executive officer, said, "I am very pleased with our third quarter results. Our success in integrating the Global Securities Services business at the same time that we reduced our expenses and continued to win new business, demonstrates the depth of State Street's experience in managing complex business requirements. I am proud of our employees and their clear commitment to our clients and our company. "We are maintaining the high level of client service and innovation that institutional investors have come to expect from State Street. At the same time, we are making operations cost efficient and thereby creating value for our stockholders. We are laying an ever-stronger foundation for State Street's profitable growth." THIRD-QUARTER RESULTS VS. SECOND QUARTER On a reported basis, third quarter net income per share of $0.60 compares to a net loss per share of $0.07 in the second quarter, which included the impact of the corporate restructuring charge. Total revenue in the third quarter of $1,126 million is up 4% versus $1,082 million in the second quarter. On a baseline basis, third-quarter net income of $0.65 per diluted share is up 25% from $0.52 per share. Revenue rose 2%, from $958 million to $976 million, while expenses declined $39 million, or 6%, to $650 million, in line with the previously stated expense reduction target. THIRD-QUARTER RESULTS VS. YEAR-AGO QUARTER On a reported basis, the third-quarter income per share was $0.60, reflecting net income of $202 million, and total revenue of $1,126 million. In the third quarter of 2002, State Street earned $182 million, or $0.56 per share, on $956 million in revenue. On an operating basis, diluted earnings per share were $0.66. Net income was $225 million, and revenue was $1,139 million. In the third quarter of 2002, net income was $177 million, or $0.54 per share, on revenue of $949 million. On a baseline basis, third-quarter diluted earnings per share were $0.65, net income was $211 million, and revenue was $976 million. In the third quarter of 2002, net income was $177 million, or $0.54 per share, on revenue of $949 million. State Street generates revenue by providing sophisticated global investors with integrated products, services and strategies that support their investment and business goals. The following review of specific revenue and expense lines uses baseline results to provide consistent comparable data to the year-earlier period. Servicing fees are derived from accounting, administration, custody, daily pricing, performance and analytics, compliance monitoring, and operations outsourcing for investment managers. Baseline servicing fees were up 8%, to $400 million from $371 million. The increase was attributable to higher equity market valuations and new business from existing and new clients. Daily average values for the S&P 500 Index were up 12% from the third quarter of 2002; daily average values for the MSCI(R) EAFE Index(SM) were up 7%. Total assets under custody were $8.8 trillion, including $2.0 trillion attributable to the GSS business. Baseline investment management fees, generated by State Street Global Advisors, were $137 million, up 17% compared to $116 million a year ago. Management fees reflected continued new business success, complemented by an increase in average month-end equity valuations. Total assets under management were $965 billion, compared to $707 billion the previous year. Baseline foreign exchange trading revenue was $89 million for the quarter, compared to $78 million a year ago. The increase was attributable to improved volume reflecting higher cross-border investment activities. Baseline processing fees and other increased $21 million to $61 million due to improved performance of joint ventures, structured products and tax-advantaged financings. A loss of $5 million on sales of securities compared with a gain of $31 million. Baseline net interest revenue was $218 million, a decline of $19 million, or 8%, from a year ago. Lower yields on reinvested assets drove the decrease in net interest revenue. State Street provides repurchase agreements and deposit services for clients' investment activities, which generate net interest revenue. Baseline operating expenses were $650 million, down $19 million, or 3%, from $669 million a year ago. Lower salaries and benefits expenses and direct controllable expenses were due to the previously announced cost-reduction plans. As previously announced, the increase in occupancy reflects the cost associated with new office space. GSS ACQUISITION AND INTEGRATION UPDATE Based on the third quarter 2003 operations, the business as acquired, excluding "out-of-scope" revenue and expenses, is generating approximately $628 million of annualized revenue and about $520 million of annualized expenses. With most GSS clients having determined their service provider, we now expect to retain approximately 90% of the available client revenue acquired, which excludes "out-of-scope" revenue. State Street expects to meet its target in reducing GSS expenses in the acquired business. To date, State Street has completed 465 client conversions. After eight months of operation, the GSS business, excluding "out-of-scope" results and one-time costs, is operating at break even; we therefore believe we will meet or slightly better our previously announced expectation of $0.01 to $0.03 dilution per share for the year. The merger and restructuring costs associated with the acquisition in 2003 totaled $81 million for the first three quarters. EXPENSE CONTROL MEASURES The company has successfully reduced its workforce this year, now totaling 19,850 which includes the employees related to the GSS business. The Company first announced the expense reduction program in April 2003. Commenting on the program, David A. Spina, chairman and chief executive officer, said: "The short term goals of this program were largely achieved in the third quarter and we expect to receive continuing benefits in the future. Since revenue has resumed growing in the last several quarters, it is likely we may incur some increase in variable costs in the near term." INVESTOR CONFERENCE CALL State Street will webcast an investor conference call today, Tuesday, October 14, 2003, at 9:30 a.m. EDT, available at www.statestreet.com/stockholder. The conference call will also be available via telephone, at +1 719/457-2621. Recorded replays of the conference call will be available on the web site, and by telephone at +1 402/220-4230, beginning at noon today. This press release and additional financial information is available on State Street's website, at www.statestreet.com/stockholder, under "Financial Reports." State Street Corporation (NYSE: STT) is the world's leading specialist in providing sophisticated global investors with investment servicing and investment management. With $8.8 trillion in assets under custody and $965 billion in assets under management, State Street is headquartered in Boston, Massachusetts and operates in 23 countries and over 100 markets 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 +1 202/266-3340 outside those countries. This news announcement contains forward-looking statements as defined by United States securities laws, including statements about the financial outlook and business environment. Those statements are based on current expectations and involve a number of risks and uncertainties, including those related to the pace at which State Street adds new clients or at which existing clients use additional services, the value of global and regional financial markets, the pace of cross-border investment activity, changes in interest rates, the pace of worldwide economic growth and rates of inflation, the extent of volatility in currency markets, consolidations among clients and competitors, State Street's business mix, the dynamics of markets State Street serves, and State Street's success at integrating and converting acquisitions into its business. 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 2002 annual report and subsequent SEC filings. State Street encourages investors to read the corporation's annual report, particularly the section on factors that may affect financial results, 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 14, 2003, and the company will not undertake efforts to revise those forward-looking statements to reflect events after this date. STATE STREET CORPORATION Addendum Earnings Digest(a) (Dollars in millions, except per share data) Quarter ended September 30, 2003(b) 2002 % Change Revenue $1,126 $956 18 Earnings 202 182 10 Diluted earnings per share .60 .56 7 Nine Months ended September 30, 2003(b) 2002 % Change Revenue $3,228 $2,940 10 Earnings 275 538 (49) Diluted earnings per share .82 1.64 (50) (a) Information presented in accordance with accounting principles generally accepted in the United States (b) Includes the impact of restructuring, merger, and integration costs STATE STREET CORPORATION Addendum Selected Financial Information I. CONSOLIDATED STATEMENT OF INCOME PREPARED IN ACCORDANCE WITH ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE UNITED STATES Quarter ended Nine months ended September 30, September 30, (Dollars in millions, except per share data) 2003 2002 2003 2002 Fee Revenue Servicing fees $ 505 $ 390 $ 1,425 $ 1,143 Management fees 141 116 396 369 Global securities lending 61 45 192 177 Foreign exchange trading 101 78 276 238 Brokerage fees 28 32 85 86 Processing fees and other 92 41 225 131 Total fee revenue 928 702 2,599 2,144 Net Interest Revenue Interest revenue 364 475 1,162 1,509 Interest expense 161 251 562 755 Net interest revenue 203 224 600 754 Provision for loan losses - 1 - 3 Net interest revenue after provision for loan losses 203 223 600 751 Gains/losses on the sales of available-for-sale investment securities, net (5) 31 29 45 Total Revenue 1,126 956 3,228 2,940 Operating Expenses Salaries and employee benefits 407 398 1,294 1,243 Information systems and communications 140 92 410 279 Transaction processing services 80 63 231 181 Occupancy 84 62 231 182 Merger and integration costs 26 - 81 - Restructuring 3 - 295 20 Other 81 69 252 232 Total operating expenses 821 684 2,794 2,137 Income before income taxes 305 272 434 803 Income taxes 103 90 159 265 Net Income $ 202 $ 182 $ 275 $ 538 Earnings Per Share Basic $ .61 $ .57 $ .83 $ 1.66 Diluted .60 .56 .82 1.64 Average Shares Outstanding (in thousands) Basic 332,246 323,023 331,056 323,521 Diluted 336,568 326,163 334,160 327,713 Return on equity 12.0 % 17.0 % 8.7 % 17.5 % Cash dividends declared per share $ .14 $ .12 $ .41 $ .35 II.OTHER FINANCIAL INFORMATION Quarters ended September 30, (Dollars in millions, except per share data or where otherwise indicated) 2003 2002 Assets under custody (in billions) $ 8,752 $ 5,748 Assets under management (in billions) 965 707 Assets under trusteeship (in billions) - 693 Total assets $ 81,776 $ 77,556 Long-term debt 2,151 1,262 Stockholders' equity 5,244 4,349 Closing price per share of common stock $ 45.00 $ 38.64 STATE STREET CORPORATION Addendum Selected Financial Information III.INCOME STATEMENT INFORMATION Reconciliation of Financial Results (Dollars in millions) Three Months Ended September 30, 2003 Baseline GSS Operating Reported Results Results(a) Results Other Results Fee Revenue Servicing fees $ 400 $ 105 $ 505 $ 505 Management fees 137 4 141 141 Global securities lending 48 13 61 61 Foreign exchange trading 89 12 101 101 Brokerage fees 28 - 28 28 Processing fees and other 61 31 92 92 Total fee revenue 763 165 928 928 Net Interest Revenue 218 (2)(b) 216 $ (13)(d) 203 Provision for loan losses - - - - - Net interest revenue after provision for loan losses (taxable- equivalent basis) 218 (2) 216 (13) 203 Gains/losses on the sales of available-for- sale investment securities, net (5) - (5) - (5) Total Revenue 976 163 1,139 (13) 1,126 Operating Expenses Salaries and employee benefits 354 53 407 - 407 Information systems and communications 94 46 140 - 140 Transaction processing services 66 14 80 - 80 Occupancy 74 10 84 - 84 Merger and integration costs - - - 26 26 Restructuring - - - 3 3 Other 62 19(e) 81 - 81 Total operating expenses 650 142 792 29 821 Income before income taxes 326 21 347 (42) 305 Income taxes 102 7 109 (6) 103 Taxable- equivalent adjustment 13 - 13 (13)(d) - Net Income $ 211 $ 14 $ 225 $ (23) $ 202 Earnings Per Share $ .65 $ .01(c) $ .66 $ (.06) $ .60 Average Diluted Shares (in thousands) 322,501 14,067 336,568 336,568 Return on equity 16.4 % 17.4 % 12.0 % Notes: Reported results agree with the Corporation's Consolidated Statement of Income (a) Includes $10 million of revenue and $12 million of expenses related to out-of-scope client relationships (b) Includes $5 million of net interests costs attributable to the GSS acquisition financing (c) Includes ($.03) impact due to changes in shares outstanding attributable to the acquisition (d) Taxable-equivalent adjustment is not included in reported results (e) Includes amortization of intangibles expense of $7 million STATE STREET CORPORATION Addendum Selected Financial Information III.INCOME STATEMENT INFORMATION Reconciliation of Financial Results (Dollars in millions) Nine Months Ended September 30, 2003 Baseline GSS Operating Reported Results Results(a) Results Other Results Fee Revenue Servicing fees $ 1,170 $ 255 $ 1,425 $ 1,425 Management fees 384 12 396 396 Global securities lending 150 42 192 192 Foreign exchange trading 249 27 276 276 Brokerage fees 85 - 85 85 Processing fees and other 160 78 238 $ (13)(b) 225 Total fee revenue 2,198 414 2,612 (13) 2,599 Net Interest Revenue 648 (9)(c) 639 (39)(e) 600 Provision for loan losses - - - - - Net interest revenue after provision for loan losses (taxable- equivalent basis) 648 (9) 639 (39) 600 Gains/losses on the sales of available-for- sale investment securities, net 29 - 29 - 29 Total Revenue 2,875 405 3,280 (52) 3,228 Operating Expenses Salaries and employee benefits 1,153 141 1,294 - 1,294 Information systems and communications 294 116 410 - 410 Transaction processing services 194 37 231 - 231 Occupancy 203 28 231 - 231 Merger and integration costs - - - 81 81 Restructuring - - - 295 295 Other 200 52 (g) 252 - 252 Total operating expenses 2,044 374 2,418 376 2,794 Income before income taxes 831 31 862 (428) 434 Income taxes 269 10 279 (120)(f) 159 Taxable- equivalent adjustment 39 - 39 (39)(e) - Net Income $ 523 $ 21 $ 544 $(269) $ 275 Earnings Per Share $ 1.63 $ (.01)(d) $ 1.62 $ (.80) $ .82 Average Diluted Shares (in thousands) 320,093 14,067 334,160 334,160 Return on equity 13.7 % 14.3 % 8.7 % Notes: Reported results agree with the Corporation's Consolidated Statement of Income. (a) Includes $15 million of revenue and $19 million of expenses related to out-of-scope client relationships (b) Represents a valuation reserve on certain assets classified as available-for-sale (c) Includes $15 million of net interests costs attributable to the GSS acquisition financing (d) Includes ($.07) impact due to changes in shares outstanding attributable to the acquisition (e) Taxable-equivalent adjustment is not included in reported results (f) Reflects the impact of a certain Massachusetts tax legislation issue ($13 million tax expense) as well as the tax benefit related to the valuation reserve and restructuring, merger and integration costs (g) Includes amortization of intangibles expense of $19 million STATE STREET CORPORATION Addendum Selected Financial Information IV. INCOME STATEMENT INFORMATION - BASELINE YEAR OVER YEAR Baseline results are reported results excluding GSS contribution, restructuring, merger and integration costs, valuation reserves, tax legislation impact and results of a divested business and are presented on a taxable-equivalent basis. For the Quarter Ended For the Nine Months Ended September 30, September 30, (Dollars in millions, except per share data) 2003 2002(a)% Change 2003 2002(b)% Change Fee Revenue Servicing fees $400 $371 8 % $1,170 $1,085 8 % Management fees 137 116 17 384 369 4 Global securities lending 48 45 8 150 177 (15) Foreign exchange trading 89 78 13 249 238 5 Brokerage fees 28 32 (10) 85 86 (1) Processing fees and other 61 40 58 160 128 25 Total fee revenue 763 682 12 2,198 2,083 6 Net Interest Revenue 218 237 648 791 Provision for loan losses - 1 - 3 Net interest revenue after provision for loan losses (taxable- equivalent basis) 218 236 (8) 648 788 (18) Gains/losses on the sales of available-for-sale investment securities, net (5) 31 29 45 (35) Total Revenue 976 949 3 2,875 2,916 (1) Operating Expenses Salaries and employee benefits 354 390 (9) 1,153 1,218 (5) Information systems and communications 94 90 5 294 274 7 Transaction processing services 66 62 5 194 178 8 Occupancy 74 60 23 203 178 15 Other 62 67 (7) 200 225 (11) Total operating expenses 650 669 (3) 2,044 2,073 (1) Income before income taxes 326 280 17 831 843 (1) Income taxes 102 87 269 263 Taxable-equivalent adjustment 13 16 39 46 Net Income $211 $177 19 $523 $534 (2) Diluted Earnings Per Share $.65 $.54 20 $1.63 $1.62 1 (a) Reflects restatement of originally issued financial results to exclude the results of operations of the divested Corporate Trust activities (b) Reflects restatement of originally issued financial results to exclude the results of operations of the divested Corporate Trust activities and the reclassification of certain restructuring costs now shown as a component of reported results rather than baseline results STATE STREET CORPORATION Addendum Selected Financial Information IV.INCOME STATEMENT INFORMATION - OPERATING YEAR OVER YEAR Operating results are reported results excluding significant charges, restructuring, merger and integration costs and results of a divested business and are presented on a taxable-equivalent basis. For the Quarter Ended For the Nine Months Ended September 30, September 30, (Dollars in millions, except per share data) 2003 2002(a) %Change 2003 2002(b) %Change Fee Revenue Servicing fees $505 $371 36% $1,425 $1,085 31% Management fees 141 116 21 396 369 7 Global securities lending 61 45 36 192 177 9 Foreign exchange trading 101 78 27 276 238 16 Brokerage fees 28 32 (10) 85 86 (1) Processing fees and other 92 40 238 128 87 Total fee revenue 928 682 36 2,612 2,083 25 Net Interest Revenue 216 237 639 791 Provision for loan losses - 1 - 3 Net interest revenue after provision for loan losses (taxable- equivalent basis) 216 236 (9) 639 788 (19) Gains/losses on the sales of available-for- sale investment securities, net (5) 31 29 45 (35) Total Revenue 1,139 949 20 3,280 2,916 12 Operating Expenses Salaries and employee benefits 407 390 5 1,294 1,218 6 Information systems and communications 140 90 55 410 274 49 Transaction processing services 80 62 27 231 178 29 Occupancy 84 60 41 231 178 31 Other 81 67 21 252 225 12 Total operating expenses 792 669 18 2,418 2,073 17 Income before income taxes 347 280 24 862 843 2 Income taxes 109 87 279 263 Taxable-equivalent adjustment 13 16 39 46 Net Income $225 $177 27 $544 $534 2 Diluted Earnings Per Share $.66 $.54 22 $1.62 $1.62 (a) Reflects restatement of originally issued financial results to exclude the results of operations of the divested Corporate Trust activities (b) Reflects restatement of originally issued financial results to exclude the results of operations of the divested Corporate Trust activities and the reclassification of certain restructuring costs now shown as a component of reported results rather than operating results STATE STREET CORPORATION Addendum Consolidated Statement of Condition September December September 30, 31, 30, (Dollars in millions) 2003 2002 2002 Assets Cash and due from banks $ 1,691 $ 1,361 $ 1,628 Interest-bearing deposits with banks 22,333 28,143 24,176 Securities purchased under resale agreements and securities borrowed 8,737 17,215 20,144 Federal funds sold - - 300 Trading account assets 1,059 984 1,073 Investment securities 32,364 28,071 20,789 Loans (less allowance of $61, $61 and $61) 6,168 4,113 4,678 Premises and equipment 1,154 887 890 Accrued income receivable 1,010 823 792 Goodwill 1,301 462 523 Other intangible assets 508 127 151 Other assets 5,451 3,608 2,412 Total Assets $81,776 $85,794 $77,556 Liabilities Deposits: Noninterest-bearing $10,690 $ 7,279 $10,464 Interest-bearing -- U.S. 3,746 9,005 7,952 Interest-bearing -- Non-U.S. 28,722 29,184 24,768 Total Deposits 43,158 45,468 43,184 Securities sold under repurchase agreements 21,895 21,963 22,085 Federal funds purchased 1,778 3,895 2,100 Other short-term borrowings 1,842 3,440 1,192 Accrued taxes and other expenses 2,199 1,967 1,700 Other liabilities 3,509 3,004 1,684 Long-term debt 2,151 1,270 1,262 Total Liabilities 76,532 81,007 73,207 Stockholders' Equity Preferred stock, no par: authorized 3,500,000; issued none Common stock, $1 par: authorized 500,000,000; issued 337,135,000, 329,992,000 and 329,992,000 337 330 330 Surplus 336 104 107 Retained earnings 4,610 4,472 4,037 Accumulated other comprehensive income 126 106 125 Treasury stock at cost (3,738,000, 5,065,000 and 5,952,000 shares) (165) (225) (250) Total Stockholders' Equity 5,244 4,787 4,349 Total Liabilities and Stockholders' Equity $81,776 $85,794 $77,556 CONTACT: State Street Corporation Edward J. Resch, 617-664-1110 or Investors: Kelley MacDonald, 617-664-3477 or Media: Hannah Grove, 617-664-3377