-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WwxMDEiyf4Oialotmp99nQyxT77jurlMSVEfvRoIDJOFHG3ezKI6T/bD6jwz19ap osuiyBbrXdBUu2GcasNWfA== 0001157523-07-000313.txt : 20070117 0001157523-07-000313.hdr.sgml : 20070117 20070117082147 ACCESSION NUMBER: 0001157523-07-000313 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20070117 ITEM INFORMATION: Results of Operations and Financial Condition ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20070117 DATE AS OF CHANGE: 20070117 FILER: COMPANY DATA: COMPANY CONFORMED NAME: STATE STREET CORP CENTRAL INDEX KEY: 0000093751 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 042456637 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-07511 FILM NUMBER: 07533537 BUSINESS ADDRESS: STREET 1: STATE STREET FINANCIAL CENTER STREET 2: ONE LINCOLN STREET CITY: BOSTON STATE: MA ZIP: 02111 BUSINESS PHONE: 6177863000 MAIL ADDRESS: STREET 1: STATE STREET FINANCIAL CENTER STREET 2: ONE LINCOLN STREET CITY: BOSTON STATE: MA ZIP: 02111 FORMER COMPANY: FORMER CONFORMED NAME: STATE STREET BOSTON FINANCIAL CORP DATE OF NAME CHANGE: 19780525 8-K 1 a5311626.txt STATE STREET CORPORATION 8-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported): January 17, 2007 State Street Corporation -------------------------------------------------------- (Exact name of registrant as specified in its charter) Massachusetts 001-07511 04-2456637 (State of Incorporation) (Commission File Number) (IRS Employer Identifica- tion Number) One Lincoln Street, Boston, Massachusetts 02111 -------------------------------------------------------------------------- (Address of principal executive offices) (Zip code) Registrant's telephone number, including area code: (617) 786-3000 Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions: [ ] Written communications pursuant to Rule 425 under the Securities Act [ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act [ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act [ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act Item 2.02. Results of Operations and Financial Condition. On January 17, 2007, State Street Corporation issued a news release announcing its results of operations and related financial information for the fourth quarter and year ended December 31, 2006. A copy of that news release is furnished herewith as Exhibit 99.1, and is incorporated herein by reference. Item 9.01. Financial Statements and Exhibits. (d) Exhibits. State Street Corporation's news release dated January 17, 2007, announcing fourth quarter and year ended December 31, 2006 results of operations and related financial information is furnished herewith as Exhibit 99.1. Signatures Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. STATE STREET CORPORATION By: /s/ James J. Malerba ---------------------------------- Name: James J. Malerba Title: Senior Vice President and Corporate Controller Date: January 17, 2007 EXHIBIT INDEX Exhibit No. Description - --------- ----------- 99.1 News release dated January 17, 2007, announcing fourth quarter and year ended December 31, 2006 results of operations and related financial information. EX-99.1 2 a5311626ex99_1.txt EXHIBIT 99.1 Exhibit 99.1 State Street Reports Fourth-Quarter Earnings Per Share of $.86, up 16%; for 2006, Revenue up 15%; EPS from Continuing Operations up 14% and up 23% Excluding Q2 Tax Charges BOSTON--(BUSINESS WIRE)--Jan. 17, 2007--State Street Corporation today announced 2006 fourth-quarter earnings per share of $0.86 on net income of $291 million. Earnings per share increased 16% versus the 2005 fourth quarter's results of $0.74 per share on net income of $249 million. Total revenue of $1.622 billion in the fourth quarter of 2006 is up 15% from $1.416 billion in the fourth quarter a year ago. Expenses of $1.18 billion are up 13% from $1.04 billion in the year-ago quarter. For the fourth quarter of 2006, return on shareholders' equity of 15.9% is flat with the fourth quarter of 2005. For the full year, earnings per share from continuing operations of $3.21 per share, on net income of $1.1 billion, increased 14% from $2.82 per share from continuing operations in 2005. Earnings per share in 2006 includes $0.25 per share, or $83 million, of tax charges recorded in the second quarter. Excluding these charges, earnings per share from continuing operations would have been $3.46, up 23%, on net income of $1.2 billion, compared to $2.82 per share from continuing operations on income from continuing operations of $945 million in 2005. Return on shareholders' equity from continuing operations in 2006 of 16.0 %, or 17.1% excluding the tax charges, compares with return on equity from continuing operations of 15.3% in 2005. Total revenue, on a fully taxable-equivalent basis, is up 15%, from $5.52 billion in 2005 to a record level of $6.35 billion in 2006. Operating expenses in 2006 of $4.54 billion increased 12% from $4.04 billion in 2005. Commenting on the performance, Ronald E. Logue, State Street's chairman and chief executive officer, said, "I'm pleased that we exceeded the financial goals we set for the year, helped by a favorable operating environment. Nearly every revenue item on our income statement increased in double digits on a year-over-year basis, and we achieved positive operating leverage again this year. Our servicing fees continued strong. Revenue at State Street Global Advisors, our investment management arm, grew 26% in 2006 compared to 2005, and it is increasingly becoming a more meaningful contributor to State Street's results. Our strategy of more actively managing the balance sheet contributed to an annual increase of 21% in fully taxable-equivalent net interest revenue. Net interest margin equaled 1.24% for 2006. Additionally, our non-U.S. revenue now represents approximately 43% of total revenue, in line with our long-term goal of 50% over several years." Logue concluded, "During 2007 we will build on the progress we made in 2006, particularly internationally. We continue to target positive operating leverage on an annual basis. We will continue to execute against our long-term financial goals of revenue growth of 8% to 12%, earnings per share growth of 10% to 15%, and return on equity of 14% to 17%. Our 2007 target is to achieve in the top half of these ranges." FOURTH-QUARTER RESULTS VS. YEAR-AGO QUARTER Total revenue of $1.622 billion in the fourth quarter of 2006 is up from $1.416 billion, or 15%, from the fourth quarter of 2005. Servicing fees are $698 million, up $61 million or 10%, from $637 million in the year-ago quarter. The increase is attributable to new business from existing and new clients and higher equity valuations in 2006. Total assets under custody at quarter end are $11.85 trillion, a record level, up 17%, compared with $10.12 trillion in the year-ago quarter. Management fees, generated by State Street Global Advisors, are $253 million, up $40 million, or 19%, compared to $213 million in the year-ago quarter. The increase in management fees reflects new business from existing and new clients and higher equity valuations in 2006. Total assets under management at quarter end are at a record level, $1.7 trillion, up 21%, compared to $1.4 trillion in the previous year-ago quarter. Average month-end values compared to the fourth quarter of 2005, are up 13% for the S&P 500 Index and up 10% for the NASDAQ; average month-end values for the MSCI(R) EAFE Index(SM) are up 24%. The total return of the Lehman US Aggregate bond index for the fourth quarter is 1.24%. Trading services revenue, which includes foreign exchange trading revenue and brokerage services, is up 12%, from $182 million to $203 million. The increase is driven by higher volumes in foreign exchange, offset partially by lower volatility. Securities finance revenue is $90 million in the quarter, compared to $73 million in the year-ago quarter, an increase of 23%. The increase primarily reflects improving demand for securities on loan. Processing and other revenue is down 14%, or $10 million to $61 million partially due to the third-quarter transfer of tax-exempt investments onto the balance sheet. Fully taxable-equivalent net interest revenue is $325 million, up 28% from $253 million in last year's fourth quarter. The increase is due to a higher level of customer deposits, a more favorable non-US rate environment, and a higher level of lower-cost funding. Total expenses of $1.18 billion in the fourth quarter of 2006 are up 13% from expenses of $1.04 billion in the fourth quarter of 2005. Salaries and employee benefits expenses increased $105 million from $589 million to $694 million, driven principally by incentive compensation due to improved performance and a higher headcount. Transaction processing expense increased slightly to $121 million. Information systems and communications expense was down slightly at $119 million. Occupancy expenses of $94 million in 2006 compare to $89 million in 2005. Other expenses increased $29 million to $150 million, which includes costs to support growth initiatives. The effective tax rate was 34.6% in the fourth quarter of 2006 compared with 34% in the fourth quarter of 2005. We expect the rate for 2007 to be 35.0%. FOURTH-QUARTER RESULTS VS. THIRD QUARTER Fourth-quarter earnings per share of $0.86 is up 4%, or $0.03, compared to third quarter earnings per share of $0.83. The third-quarter results include a cumulative gain of $15 million, or $0.03 per share, in trading services revenue related to the Corporation's tax-exempt investment programs. Excluding this gain, earnings per share would have increased 8%. Total revenue in the fourth quarter of $1.6 billion is up 7%, or $107 million, or $122 million excluding the cumulative gain in the third quarter, versus $1.5 billion in the third quarter. Total expenses in the fourth quarter of $1.2 billion are up $88 million compared to $1.1 billion in the third quarter. Servicing fee revenue is up 2% and management fee revenue is up 6%, both improvements due to higher equity valuations and business from new and existing customers. Trading services revenue is up 19% to $203 million due to increased volumes in FX and improved fees from transition management, offset by lower volatilities in FX trading. Excluding the impact of the third-quarter $15 million cumulative gain noted above, the increase would have been 30%. Securities finance revenue increased 3% to $90 million. Processing fees and other revenue declined 6% to $61 million due to lower tax-advantaged investment income. Fully taxable-equivalent net interest revenue increased 18% to $325 million due to higher levels of customer deposits and lower-cost funds. Salaries and employee benefits expense is up 9% due to increased incentive compensation expense. Occupancy expense was up 3% due to higher operating costs. Other expense increased 27%, or $32 million, to $150 million partially due to higher professional fees to support growth initiatives. FULL YEAR 2006 VS. 2005 Total revenue on a fully taxable-equivalent basis increased 15% from $5.52 billion to $6.35 billion. Servicing fees increased 10%, from $2.47 billion to $2.72 billion. Management fees increased 26%, from $751 million to $943 million. Trading services revenue increased 24%, from $694 million to $862 million and securities finance revenue increased 17%, from $330 million to $386 million. Processing fees and other revenue decreased 10%, to $272 million from $302 million. Fully taxable-equivalent net interest revenue increased 21%, from $949 million to $1.15 billion. Expenses increased 12%, from $4.04 billion to $4.54 billion, including increases of 19% to $2.65 billion in salaries and employee benefits expense. Transaction processing expense increased 10% to $496 million and information systems and communications increased 3% to $501 million. Occupancy expense decreased 5% to $373 million. Other expenses increased 7% to $518 million. ADDITIONAL INFORMATION All per share amounts represent diluted earnings per share. On January 12, 2007, the IRS released guidance concerning the Tax Increase Prevention and Reconciliation Act, or "TIPRA". State Street previously reported a second-quarter 2006 tax-related charge of approximately $59 million, or $.18 per share, related to TIPRA. The Corporation is evaluating this new guidance and believes that it may result in a reduction in income tax expense as a result of a reversal of a portion of the previously recorded tax-related charge. The amount and timing of this potential tax reduction is still being evaluated. INVESTOR CONFERENCE CALL State Street will webcast an investor conference call today, Wednesday, January 17, 2007, at 9:30 a.m. EST, available at www.statestreet.com/stockholder. The conference call will also be available via telephone, at +1 719/457-2680 (confirmation code 4193234). Recorded replays of the conference call will be available on the web site, and by telephone at +1 402/220-4230, beginning at 2:00 PM 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 institutional investors with investment servicing, investment management and investment research and trading services. With $11.9 trillion in assets under custody and $1.7 trillion in assets under management at December 31, 2006, State Street operates in 26 countries and more than 100 geographic markets worldwide and employs 21,700 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. This news announcement contains forward-looking statements as defined by United States securities laws, including statements about our financial goals, 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 changes in interest rates, the value of global and regional financial markets, the extent of volatility in currency markets, the pace of cross-border investment activity, the pace at which State Street adds new clients or at which existing clients use additional services, State Street's business mix, State Street's success at integrating and converting acquisitions into its business, the pace of worldwide economic growth and rates of inflation, the dynamics of markets State Street serves, and consolidations among clients and competitors. 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 2005 Annual Report on Form 10-K and subsequent SEC filings. State Street encourages investors to read its 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, January 17, 2007, and we will not undertake efforts to revise those forward-looking statements to reflect events after this date. STATE STREET CORPORATION Press Release Addendum Financial Highlights December 31, 2006 Quarters Ended % Change --------------------------------------- December September December Q4 Q4 (Dollars in millions, except 31, 30, 31, vs. vs. per share amounts or where otherwise noted) 2006 2006 2005 Q3 Q4 - ---------------------------------------------------------------------- Total Revenue $ 1,622 $ 1,515 $ 1,416 7 % 15 % Total Expenses 1,178 1,090 1,039 8 13 Income Tax Expense 153 147 128 4 20 Net Income 291 278 249 5 17 Diluted Earnings Per Share $ .86 $ .83 $ .74 4 16 Closing Price Per Share of Common Stock $ 67.44 $ 62.40 $ 55.44 Cash Dividends Declared Per Share .21 .20 .19 Return on Equity 15.9 % 16.4 % 15.9 % Assets Under Custody (AUC) (in trillions) $ 11.85 $ 11.27 $ 10.12 Assets Under Management (AUM) (in trillions) 1.75 1.63 1.44 Years Ended % Change ---------------------------- 2006 December December 31, 31, vs. (Dollars in millions, except per share amounts) 2006 2005 2005 - ---------------------------------------------------------------------- Total Revenue $ 6,311 $ 5,473 15 % Total Expenses 4,540 4,041 12 Income Tax Expense 693 487 42 Income from Continuing Operations 1,078 945 14 Income (Loss) from Discontinued Operations 10 (107) Net Income 1,088 838 Diluted Earnings (Loss) Per Share: From Continuing Operations $ 3.21 $ 2.82 14 From Discontinued Operations .03 (.32) Net Income 3.24 2.50 Cash Dividends Declared Per Share $ .80 $ .72 11 Return on Equity from Continuing Operations 16.0 % 15.3 % Return on Equity 16.1 13.6 STATE STREET CORPORATION Press Release Addendum SELECTED FINANCIAL INFORMATION Quarters and years ended December 31, 2006 and December 31, 2005 Quarters Ended Years Ended ---------------------------- ---------------------------- December December December December 31, 31, 31, 31, (Dollars in 2006 2005 %Change 2006 2005 %Change millions, except per share amounts) - -------------------------------- ---------------------------- -------- Fee Revenue: Servicing fees $ 698 $ 637 10 % $ 2,723 $ 2,474 10% Management fees 253 213 19 943 751 26 Trading services 203 182 12 862 694 24 Securities finance 90 73 23 386 330 17 Processing fees and other 61 71 (14) 272 302 (10) --------- --------- --------- --------- Total fee revenue 1,305 1,176 11 5,186 4,551 14 Net Interest Revenue: Interest revenue 1,225 861 42 4,323 2,930 48 Interest expense 909 619 47 3,213 2,023 59 --------- --------- --------- --------- Net interest revenue (1) 316 242 31 1,110 907 22 Provision for loan losses - - - - --------- --------- --------- --------- Net interest revenue after provision for loan losses 316 242 31 1,110 907 22 Gains (Losses) on sales of available- for-sale investment securities, net 1 (2) 15 (1) Gain on sale of Private Asset Management business - - - 16 - ---------------------- --------- --------- --------- Total revenue 1,622 1,416 15 6,311 5,473 15 Operating Expenses: Salaries and employee benefits 694 589 18 2,652 2,231 19 Information systems and communi- cations 119 122 (2) 501 486 3 Transaction processing services 121 118 3 496 449 10 Occupancy 94 89 6 373 391 (5) Other 150 121 24 518 484 7 --------- --------- --------- --------- Total operating expenses 1,178 1,039 13 4,540 4,041 12 --------- --------- --------- --------- Income from continuing operations before income tax expense 444 377 18 1,771 1,432 24 Income tax expense from continuing operations 153 128 693 487 - ---------------------- --------- --------- --------- Income from continuing operations 291 249 17 1,078 945 14 Income (Loss) from discontinued operations before income tax expense - - 16 (165) Income tax expense (benefit) from discontinued operations - - 6 (58) - ---------------------- --------- --------- --------- Income (Loss) from discontinued operations - - 10 (107) --------- --------- --------- --------- Net income $ 291 $ 249 $ 1,088 $ 838 ========= ========= ========= ========= Earnings Per Share From Continuing Operations: Basic $ .87 $ .75 16 $ 3.25 $ 2.86 14 Diluted .86 .74 16 3.21 2.82 14 Earnings (Loss) Per Share From Discontinued Operations: Basic $ - $ - $ .03 $ (.33) Diluted - - .03 (.32) Earnings Per Share: Basic $ .87 $ .75 $ 3.28 $ 2.53 Diluted .86 .74 3.24 2.50 Average Shares Outstanding (in thousands): Basic 331,421 330,689 331,350 330,361 Diluted 337,429 337,061 335,732 334,636 Consolidated Statement of Income prepared in accordance with accounting principles generally accepted in the United States. (1) Net interest revenue on a fully taxable-equivalent basis was $325 million and $253 million for the three months ended December 31, 2006 and 2005, respectively, and $1.15 billion and $949 million for the years ended December 31, 2006 and 2005, respectively. STATE STREET CORPORATION Press Release Addendum SELECTED FINANCIAL INFORMATION Quarters ended December 31, 2006 and September 30, 2006 Quarters Ended ------------------------------- December September 31, 30, (Dollars in millions, except per share amounts) 2006 2006 % Change - ---------------------------------------------------------------------- Fee Revenue: Servicing fees $ 698 $ 685 2 % Management fees 253 238 6 Trading services 203 171 19 Securities finance 90 87 3 Processing fees and other 61 65 (6) --------- ---------- Total fee revenue 1,305 1,246 5 Net Interest Revenue: Interest revenue 1,225 1,103 11 Interest expense 909 837 9 --------- ---------- Net interest revenue (1) 316 266 19 Provision for loan losses - - --------- ---------- Net interest revenue after provision for loan losses 316 266 19 Gains on sales of available-for-sale investment securities, net 1 3 --------- ---------- Total revenue 1,622 1,515 7 Operating Expenses: Salaries and employee benefits 694 639 9 Information systems and communications 119 121 (2) Transaction processing services 121 121 - Occupancy 94 91 3 Other 150 118 27 --------- ---------- Total operating expenses 1,178 1,090 8 --------- ---------- Income before income tax expense 444 425 4 Income tax expense 153 147 --------- ---------- Net income $ 291 $ 278 5 ========= ========== Earnings Per Share: Basic $ .87 $ .84 4 Diluted .86 .83 4 Average Shares Outstanding (in thousands): Basic 331,421 330,440 Diluted 337,429 335,513 Consolidated Statement of Income prepared in accordance with accounting principles generally accepted in the United States. (1) Net interest revenue on a fully taxable-equivalent basis was $325 million and $275 million for the three months ended December 31, 2006 and September 30, 2006. STATE STREET CORPORATION Press Release Addendum CONSOLIDATED STATEMENT OF CONDITION - ---------------------------------------------------------------------- December 31, December 31, (Dollars in millions, except per share amounts) 2006 2005 - ---------------------------------------------------------------------- Assets Cash and due from banks $ 2,368 $ 2,684 Interest-bearing deposits with banks 5,236 11,275 Securities purchased under resale agreements 14,678 8,679 Trading account assets 785 764 Investment securities available for sale 60,445 54,979 Investment securities held to maturity 4,547 4,891 Loans and leases (net of allowance of $18) 8,928 6,464 Premises and equipment 1,560 1,453 Accrued income receivable 1,617 1,364 Goodwill 1,384 1,337 Other intangible assets 434 459 Other assets 5,371 3,619 ------------ ------------ Total assets $ 107,353 $ 97,968 ============ ============ Liabilities Deposits: Noninterest-bearing $ 10,194 $ 9,402 Interest-bearing -- U.S. 1,272 2,379 Interest-bearing -- Non-U.S. 54,180 47,865 ------------ ------------ Total deposits 65,646 59,646 Securities sold under repurchase agreements 19,147 20,895 Federal funds purchased 2,147 1,204 Other short-term borrowings 2,835 1,219 Accrued taxes and other expenses 3,162 2,632 Other liabilities 4,567 3,346 Long-term debt 2,616 2,659 ------------ ------------ Total liabilities 100,120 91,601 Shareholders' Equity Preferred stock, no par: authorized 3,500,000; issued none Common stock, $1 par: authorized 500,000,000 shares; issued 337,126,000 and 337,126,000 shares 337 337 Surplus 399 266 Retained earnings 7,011 6,189 Accumulated other comprehensive loss (224) (231) Treasury stock (at cost 4,688,000 and 3,501,000 shares) (290) (194) ------------ ------------ Total shareholders' equity 7,233 6,367 ------------ ------------ Total liabilities and shareholders' equity $ 107,353 $ 97,968 ============ ============ CONTACT: State Street Corporation Edward J. Resch +1 617-664-1110 or Investors: Kelley MacDonald +1 617-664-3477 or Media: Hannah Grove +1 617-664-3377 -----END PRIVACY-ENHANCED MESSAGE-----