EX-99.1 2 a5585176ex99_1.htm EXHIBIT 99.1 a5585176ex99_1.htm
Exhibit 99.1
 
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One Lincoln Street
Boston, MA  02111-2900
United States of America
 
News Release
Contact: Edward J. Resch Investors:  Kelley MacDonald  Media: Hannah Grove
  +1 617/664-1110   +1 617/664-3477   +1 617/664-3377
 
 
STATE STREET REPORTS FOURTH-QUARTER EARNINGS PER SHARE OF $.57, INCLUDING A NET AFTER-TAX CHARGE OF $279 MILLION, OR $.71 PER SHARE
 
2007 REVENUE CLIMBS 32% COMPARED TO 2006
 
$300 BILLION IN ASSETS FROM WINS IN SERVICING AND $30 BILLION IN ASSETS FROM WINS IN ASSET MANAGEMENT SUSTAIN MOMENTUM IN CORE BUSINESS IN FOURTH QUARTER
 
Boston, MA ... January 15, 2008
 
State Street Corporation today announced 2007 fourth-quarter earnings per share of $0.57 on net income of $223 million, compared to earnings per share of $0.91 on net income of $309 million in the fourth quarter of 2006.  Revenue in the fourth quarter is $2.479 billion compared to $1.622 billion in the fourth quarter of 2006.  Return on shareholders’ equity is 7.7% in the fourth quarter of 2007 compared to 16.9% in the fourth quarter of 2006. Average shares outstanding for the fourth quarter of 2007 are 392 million shares.  For the full year 2007, earnings of $3.45 per share on net income of $1.261 billion compares with $3.26 per share on income from continuing operations of $1.096 billion in 2006.  Return on shareholders’ equity in 2007 is 13.4% compared with return on shareholders’ equity from continuing operations of 16.2% in 2006.   Average shares for the full year 2007 are 365 million shares.
 
Results presented on an “operating basis” for the fourth quarter of 2007 exclude a previously announced after-tax charge of $279 million ($467 million on a pre-tax operating basis) associated with the underperformance of certain active fixed-income strategies at State Street Global Advisors (SSgA) and $57 million, or $38 million of after-tax merger and integration costs related to the July 2, 2007, acquisition of Investors Financial Services Corp. (“Investors Financial”).  Results presented on an “operating basis” for the fourth quarter of 2006 exclude an $18 million adjustment to reduce income tax expense. Revenue for both quarters is presented on a fully taxable-equivalent basis.   Full-year 2007 results presented on an “operating basis” exclude the $279 million after tax charge associated with State Street Global Advisors and $198 million, or $129 million of after-tax merger and integration costs relating to the acquisition of Investors Financial.  Full-year 2006 results presented on an “operating basis” exclude a $65 million adjustment to increase income tax expense.  Revenue for both years is presented on a fully tax-equivalent basis.
 
 
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.
 
The following financial information is presented on an operating basis. Earnings per share in the fourth quarter are $1.38 per share on net income of $540 million, up 60% from $0.86 per share in the fourth quarter of 2006.  Revenue of $2.496 billion in the fourth quarter of 2007 is up 52.8% from $1.634 billion in the fourth quarter a year ago.  Expenses of $1.649 billion in the fourth quarter of 2007 are up 40.0% from $1.178 billion in the year-ago quarter.  For the fourth quarter of 2007, return on shareholders’ equity is 18.7%, compared to 15.9% for the fourth quarter of 2006.
 
The following financial information is presented on an operating basis. Earnings for the full-year 2007 is $4.57 per share on net income of $1.669 billion, up 32% from $3.46 per share on income from continuing operations of $1.161 billion in 2006.  Revenue in 2007 is up 32.1% to a record level of $8.394 billion from $6.356 billion in 2006.   Expenses in 2007 of $5.768 billion increased 27.0% from $4.540 billion in 2006.  Return on shareholders equity in 2007 is 17.7%, up from 17.1% in 2006.
 
Commenting on the performance, Ronald E. Logue, State Street's chairman and chief executive officer, said, "Nearly every revenue item on our income statement increased in double digits this year, compared to 2006, resulting in 32% growth in earnings per share on an operating basis. While investment servicing and investment management fees were both strong, revenue from trading services and securities finance benefited from continuing market volatility, particularly in the fixed-income markets in the second half of 2007. The consolidation of Investors Financial continues on schedule, and the impact on our bottom line in 2007 was dilution of $.06 per share, a significant improvement from our original model of $0.14 per share dilutive. Our strategy of more actively managing the balance sheet and the growth of our non-US business contributed to an annual increase of 55% in fully taxable-equivalent net interest revenue. Net interest margin equaled 1.71% for 2007. Additionally, our non-U.S. revenue now represents approximately 41% of total revenue, up from 39% in 2006.”
 
Logue added, “As we explained on our call earlier this month, we expect that by establishing the fourth-quarter reserve to address the legal exposure and other costs associated with the underperformance of certain active fixed-income strategies at State Street Global Advisors, we can address customer concerns and help to put the issue behind us, particularly given the current momentum in our business.  Management fee revenue at SSgA grew 21% in 2007 compared to 2006, and SSgA continues to be a strong contributor to State Street’s results.  Total assets under management as of December 31, 2007, grew 13% from the level at the end of 2006, and specifically SSgA’s fixed income assets increased 21% in the same period.”
 
 
Logue concluded, “During 2008 we will build on the progress we made in 2007, particularly outside the U.S.  We continue to target positive operating leverage on an annual basis.  For 2008, due to the acquisition of Investors Financial on July 2, 2007, our goal for growth in revenue is 14% to 17%, up from our long-term goal of 8% to 12%.  We expect earnings per share growth of 10% to 15% and return on equity of 14% to 17%, both on an operating basis.  Our 2008 target is to achieve near the lower end of these ranges.”
 
In reporting its financial results for the fourth quarter of 2007, State Street has prepared information in four categories:
 
§   
“Baseline” results are results on an operating basis excluding the “Investors Financial” results described below and are presented on a fully taxable-equivalent basis.
 
§   
“Investors Financial” results are the 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, all presented on a fully taxable-equivalent basis.  Per-share amounts reflect the effect of the acquisition on outstanding shares.
 
§   
“Operating-basis” results are “reported” results excluding the charge recorded in the fourth quarter of 2007 and merger and integration costs. They are presented on a fully taxable-equivalent basis.
 
§   
“Reported” results are in accordance with U.S. generally accepted accounting principles (GAAP).
 
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
  December 31, 2007
   
 
Baseline (a)
Investors Financial (b)
Operating (c)
Reported
Fee Revenue
$1,709
$201
1,910
1,910
All other revenue
546
40
586
569
Total revenue
2,255
241
2,496
2,479
Total expenses
1,482
167
1,649
2,173
Income taxes
279
28
307
83
Net income
$494
$46
$540
$223
Diluted EPS
$1.39
$(.01)
$1.38
$.57
 
(a) represents State Street results on an “operating basis,” further adjusted to exclude the “Investors Financial” results described in the adjoining column, all presented on a fully taxable equivalent basis.
(b) represents 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) excludes the charge recorded in the fourth quarter of 2007 and merger and integration costs, and presented on a fully taxable-equivalent basis.
 
 
 
FOURTH-QUARTER RESULTS VS. YEAR-AGO QUARTER
 
Total revenue on a fully taxable-equivalent basis is $2.496 billion in the fourth quarter of 2007 is up from $1.634 billion, or 52.8%, from the fourth quarter of 2006. Expenses on an operating basis are $1.649 billion, up 40.0% compared with $1.178 billion in the fourth quarter of 2006. As a result, on an operating basis, State Street generated about 1280 basis points of positive operating leverage.
 
Servicing fees are $967 million, up $269 million or 39%, from $698 million in the year-ago quarter. The increase is attributable to business from customers added from the Investors Financial acquisition, business from new and existing clients and higher average equity valuations. Total assets under custody at quarter end are $15.30 trillion, a record level, up 29%, compared with $11.85 trillion at the end of the year-ago quarter.
 
Daily average values for the S&P 500 Index are up 8%, for the MSCI® EAFE Indexsm are up 16%, and for the NASDAQ are up 13% during the fourth quarter of 2007 from the year-ago quarter.
 
Management fees, generated by State Street Global Advisors, are $297 million, up $44 million, or 17%, compared to $253 million in the year-ago quarter. The increase in management fees reflects new business from existing and new clients and an increase in average month-end equity valuations, offset partially by lower performance fees. Total assets under management at quarter end are $1.98 trillion, up 13%, compared to $1.75 trillion at the end of the year-ago quarter.
 
Average month-end values compared to the fourth quarter of 2006, are up 7% for the S&P 500 Index and up 13% for the NASDAQ; average month-end values for the MSCI® EAFE Indexsm are up 15%.  The total return of the Lehman US Aggregate bond index for the fourth quarter is 3.00%.
 
Trading services revenue, which includes foreign exchange trading revenue and brokerage and other fee revenue, is up 73%, from $203 million to $352 million. The increase is driven by improved volumes and higher volatility in foreign exchange, as well as an increase in brokerage and other revenue principally due to the acquisition of Currenex in March, 2007.
 
Securities finance revenue is $256 million in the quarter, compared to $90 million in the year-ago quarter, an increase of 184%.  The increase primarily reflects improved spreads and increased demand for securities on loan as a result of turmoil in the fixed-income markets.
 
 
Processing and other revenue is down 38%, or $23 million to $38 million primarily due to increased costs of funding for our asset-backed commercial paper.
 
Fully taxable-equivalent net interest revenue is $573 million, up 75% from $328 million in last year’s fourth quarter.  The increase is due to reinvestment of assets at higher rates and lower-cost funding, the impact of the Investors Financial acquisition, and favorable spreads and increased volumes of non-US deposits.
 
The increase in expenses on an operating basis to $1.649 billion in the fourth quarter of 2007 from $1.178 billion in the fourth quarter of 2006 is primarily due to the inclusion of Investors Financial’s operating expenses for the second half of 2007.  Baseline expenses increased 26%.
 
Salaries and employee benefits expense on an operating basis increased $240 million to $934 million, attributable to additions to headcount from the Investors Financial acquisition.  Transaction processing expense increased 52% to $184 million principally due to the acquisition.  Also primarily as a result of the acquisition, information systems and communications expense increased 24% to $148 million, and occupancy expenses of $107 million in 2007 quarter compare to $94 million in the 2006 quarter.  On an operating basis, other expenses increased 84%, or $126 million, to $276 million, primarily due to acquisition costs, fees, such as for professional services and recruiting, and securities processing costs.
 
The effective tax rate was 27.1% in the fourth quarter of 2007 compared with 30.4% in the fourth quarter of 2006.  We expect the rate for 2008 to be 34.5%.
 
 
FOURTH-QUARTER RESULTS VS. THIRD QUARTER
 
On an operating basis, fourth-quarter earnings are $1.38 per share as compared to third-quarter earnings of $1.15 per share, which excluded $91 million, or $0.24 per share of after-tax merger and integration costs. On an operating basis in both periods, earnings per share would have increased 20%. Total revenue on a fully tax-equivalent basis in the 2007 fourth quarter of $2.496 billion is up 10.6%, or $239 million compared to $2.257 billion in the third quarter. On an operating basis, expenses in the fourth quarter of 2007 are $1.649 billion up 6.5%, or $101 million, from third quarter expenses of $1.548 billion.
 
Servicing fee revenue is up 3% due to business from new and existing customers and higher average equity valuations.  Management fees are down 1% due to lower performance fees, offset partially by new business wins and higher equity valuations. Trading services revenue is up 10% to $352 million primarily due to higher volatility and increased volumes and higher volatility in FX. Securities finance revenue improved 55% to $256 million due to improved spreads.   Processing fees and other revenue declined 38% to $38 million due to lower results from the structured products business and lower earnings from joint-venture equity investments.  Fully taxable-equivalent net interest revenue increased 19% to $573 million due to reinvestment of assets at higher rates and a higher level of lower-cost funding and the impact of the Investors Financial acquisition.
 
 
Salaries and employee benefits expense isup 2% on an operating basis due to higher headcount added to service new business.  Occupancy expense was down 2% due to lower operating costs.  On an operating basis, other expense increased 30%, or $63million, to $276 million primarily due to acquisition costs, fees, such as for professional services and recruiting, and securities processing costs.
 
 
FULL YEAR 2007 VS. 2006
 
Total revenue on a fully taxable-equivalent basis increased 32.1% from $6.356 billion to $8.394 billion.  Servicing fees increased 24%, from $2.723 billion to $3.388 billion.  Management fees increased 21%, from $943 million to $1.141 billion.  Trading services revenue increased 34%, from $862 million to $1.152 billion and securities finance revenue increased 76%, from $386 million to $681 million.  Processing fees and other revenue decreased 13%, to $237 million from $272 million.   Fully taxable-equivalent net interest revenue increased 55%, from $1.155 billion to $1.788 billion.
 
On an operating basis, expenses increased 27.0%, from $4.540 billion to $5.768 billion, excluding merger and integration costs and the impact of the charge.  Operating expenses included an increase of 28% to $3.397 billion in salaries and employee benefits expense.  Transaction processing expense increased 25% to $619 million and information systems and communications increased 9% to $546 million.  Occupancy expense increased 9% to $408 million.  Other expenses increased 54% to $798 million.
 
 
ADDITIONAL INFORMATION
 
All per share amounts represent diluted earnings per share based on average shares outstanding for the respective period reported. State Street expects to complete the previously announced $1 billion accelerated share repurchase by January 18, 2008.
 
 
INVESTOR CONFERENCE CALL
 
State Street will webcast an investor conference call today, Tuesday, January 15, 2008, at 9:30 a.m. est, available at www.statestreet.com/stockholder. The conference call will also be available via telephone, at +1 719/457-2679 (confirmation code 4616472). 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. The telephone replay will be available for approximately two weeks following the conference call. 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 $15.30 trillion in assets under custody and $1.98 trillion in assets under management at December 31, 2007, State Street operates in 26 countries and more than 100 geographic markets worldwide and employs 27,110 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 the financial outlook and business environment, exposure to claims and the adequacy of our reserve. 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:
 
·      
State Street's ability to integrate and convert acquisitions into its business, including the acquisition of Investors Financial Services Corp.;
 
·      
the level and volatility of interest rates, particularly in the U.S. and Europe; the performance and volatility of securities, currency and other markets in the U.S. and internationally; and economic conditions and monetary and other governmental actions designed to address those conditions;
 
·      
the liquidity of the US and European securities markets, particularly the markets for fixed-income securities, including asset-backed commercial paper; and the liquidity requirements of our customers;
 
·      
the credit quality and credit agency ratings of the securities in our 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;
 
·      
State Street's ability to attract non-interest bearing deposits and other low-cost funds;
 
·      
the results of litigation and similar disputes and the effect that any such results may have on SSgA’s reputation and its ability to attract and retain customers;
 
·      
the possibility that the ultimate costs of the legal exposure associated with SSgA’s actively managed fixed-income strategies may exceed or be below the level of the 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 giving rise to the legal exposure associated with SSgA’s actively managed fixed-income and other investment strategies;
 
·      
the performance and demand for the investment products we offer;
 
·      
the competitive environment in which State Street operates;
 
·      
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 control systemic and operating risks;
 
·      
trends in the globalization of investment activity and the growth on a worldwide basis in financial assets;
 
·      
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 2006 Annual Report on Form 10-K and its subsequent SEC filings. State Street encourages investors to read its 10-K, particularly the section 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, January 15, 2008, and State Street will not undertake efforts to revise those forward-looking statements to reflect events after this date.
 
 
 
STATE STREET CORPORATION
Earnings Press Release Addendum
                       
Financial Highlights
December 31, 2007
                       
   
Quarters Ended
      
% Change
  
               
Q4 2007
Q4 2007
(Dollars in millions, except per share amounts
December 31,
September 30,
December 31,
vs.
  
vs.
  
or where otherwise noted)
  
2007(1)
  
2007(1)
  
2006
  
Q3 2007
Q4 2006
                       
Total Revenue
$
                2,479
$
                2,240
$
                1,622
  
                11
%
              53
%
Total Expenses (2) (3)
  
                2,173
  
                1,689
  
                1,178
  
                29
  
              84
  
Net Income
  
                    223
  
                    358
  
                    309
  
               (38)
  
            (28)
  
                       
Diluted Earnings Per Share (4)
$
                     .57
 $
                     .91
 $
                     .91
  
               (37)
  
            (37)
  
                       
Cash Dividends Declared Per Share
$
.23
 $
.22
 $
                     .21
          
Closing Price Per Share of Common Stock (at quarter end)
                81.20
  
                68.16
  
                67.44
          
                       
Return on Equity
  
7.7
%
12.6
%
16.9
%
        
                       
At Quarter End:
                      
Assets Under Custody (AUC) (in trillions)
$
                15.30
 $
                15.15
 $
                11.85
          
Assets Under Management (AUM) (in trillions)
                   1.98
  
                   2.00
  
                   1.75
          
 
 
Years Ended
% Change
       
2007
  
 
December 31,
December 31,
vs.
  
(Dollars in millions, except per share amounts)
2007 (5)
2006
  
2006
  
 
                   
Total Revenue
    $ 8,336      $ 6,311       32 %
Total Expenses (2) (3)
     6,433       4,540       42  
Income Tax Expense
     642       675       (5 )
Income from Continuing Operations
     1,261       1,096       15  
Income from Discontinued Operations
     -       10          
Net Income
     1,261       1,106          
                         
Diluted Earnings Per Share:
                        
From Continuing Operations
    $ 3.45      $ 3.26       6  
From Discontinued Operations
     -       .03          
Net Income
     3.45       3.29          
                         
Cash Dividends Declared Per Share
     .88       .80       10  
                         
Return on Equity from Continuing Operations
     13.4       16.2    
%
  
Return on Equity
     13.4       16.4          
 
(1) Quarters ended December 31 and September 30, 2007 include financial results of Investors Financial, which State Street acquired on July 2, 2007.
  
(2)  Total expenses for the quarters ended December 31 and September 30, 2007 include merger and integration costs of $57 million
and $141 million, respectively, or $38 million and $91 million after-tax, respectively, recorded in connection with the acquisition of Investors Financial.
 Total expenses for the year ended December 31, 2007 included merger and integration costs of $198 million, or $129 million after-tax.
(3)Total expenses for the quarter and year ended December 31, 2007 include a net charge of $467 million, or $279 million after-tax, associated with
certain active fixed-income strategies at State Street Global Advisors.
          
(4)Diluted earnings per share for the quarters ended December 31 and September 30, 2007 reflect the issuance of 60.8 million shares
on July 2, 2007 in connection with the completion of the acquisition of Investors Financial.
(5)Financial results for the year ended December 31, 2007 include results of Investors Financial for the quarters ended September 30 and
 December 31, 2007.
                      
 
 
 
STATE STREET CORPORATION
Earnings Press Release Addendum
                                   
SELECTED FINANCIAL INFORMATION
Quarters and Years Ended December 31, 2007 and December 31, 2006
                                   
   
Quarters Ended
        
Years Ended
   
December 31,
December 31,
    
December 31,
December 31,
(Dollars in millions, except per share amounts)
  
2007(1)
    
2006
  
 % Change
  
2007 (2)
    
2006
  
 % Change
                                   
Fee Revenue:
                                
Servicing fees
$
                  967
  
$
              698
  
               39
 %
$
              3,388
  
$
           2,723
  
               24
Management fees
  
                  297
    
              253
  
               17
      
              1,141
    
              943
  
               21
Trading services
  
                  352
    
              203
  
               73
      
              1,152
    
              862
  
               34
Securities finance
  
                  256
    
                 90
  
             184
      
                  681
    
              386
  
               76
Processing fees and other
  
                    38
    
                 61
  
             (38)
      
                  237
    
              272
  
             (13)
Total fee revenue
  
              1,910
    
1,305
  
               46
      
              6,599
    
5,186
  
               27
                                   
Net Interest Revenue:
                                
Interest revenue
  
              1,454
    
           1,226
  
               19
      
              5,212
    
           4,324
  
               21
Interest expense
  
                  898
    
              910
  
                (1)
      
              3,482
    
           3,214
  
                 8
Net interest revenue (3)
  
                  556
    
              316
  
               76
      
              1,730
    
1,110
  
               56
Provision for loan losses
  
                       -
    
                    -
          
                       -
    
                    -
    
Net interest revenue after provision for loan losses
                  556
    
              316
  
               76
      
              1,730
    
           1,110
  
               56
                                   
Gains on sales of available-for-sale investment securities, net
                    13
    
                   1
          
                      7
    
                 15
    
Total revenue
  
              2,479
    
           1,622
  
            52.8
      
              8,336
    
           6,311
  
            32.1
                                   
Operating Expenses:
                                
Salaries and employee benefits
  
                  793
    
              694
  
               14
      
              3,256
    
           2,652
  
               23
Information systems and communications
  
                  148
    
              119
  
               24
      
                  546
    
              501
  
                 9
Transaction processing services
  
                  184
    
              121
  
               52
      
                  619
    
              496
  
               25
Occupancy
  
                  107
    
                 94
  
               14
      
                  408
    
              373
  
                 9
Special charge
  
                  600
    
                    -
  
                  -
      
                  600
    
                    -
  
                  -
Merger and integration costs
  
                    57
    
                    -
  
                  -
      
                  198
    
                    -
  
                  -
Other
  
                  284
    
              150
  
               89
      
                  806
    
              518
  
               56
Total operating expenses
  
              2,173
    
           1,178
  
            84.5
      
              6,433
    
4,540
  
            41.7
Income from continuing operations before income tax expense
                  306
    
              444
  
             (31)
      
              1,903
    
           1,771
  
                 7
Income tax expense from continuing operations
  
                    83
    
              135
          
                  642
    
              675
    
Income from continuing operations
  
                  223
    
              309
  
             (28)
      
              1,261
    
1,096
  
               15
                                   
Income from discontinued operations before income tax expense
                       -
    
                    -
          
                       -
    
                 16
    
Income tax expense from discontinued operations
                       -
    
                    -
          
                       -
    
                   6
    
Income from discontinued operations
  
                       -
    
                    -
          
                       -
    
                 10
    
Net income
$
                  223
  
$
              309
        
$
              1,261
  
$
           1,106
    
                                   
Earnings Per Share From Continuing Operations:
                              
Basic
$
                   .58
  
$
                .93
  
             (38)
    
$
                 3.50
  
$
             3.31
  
                 6
Diluted
  
                   .57
    
                .91
  
             (37)
      
                 3.45
    
             3.26
  
                 6
                                   
Earnings Per Share From Discontinued Operations:
                            
Basic
$
                       -
  
$
                    -
        
$
                       -
  
$
                .03
    
Diluted
  
                       -
    
                    -
          
                       -
    
                .03
    
                                   
Earnings Per Share:
                                
Basic
$
                   .58
  
$
                .93
        
$
                 3.50
  
$
         3.34
    
Diluted
  
                   .57
    
                .91
          
                 3.45
    
         3.29
    
                                   
Average Shares Outstanding (in thousands):
                                
     Basic
  
          385,200
    
      331,421
          
          360,675
    
      331,350
    
     Diluted
  
          392,200
    
      337,429
          
          365,488
    
      335,732
    
 
Consolidated Selected Financial Information presented above was prepared in accordance with accounting principles generally accepted in the United States.
                               
(1) Quarter ended December 31, 2007 includes financial results of Investors Financial, which State Street acquired on July 2, 2007.
(2)  Year ended December 31, 2007 includes results of Investors Financial for the quarters ended September 30 and December 31, 2007.
(3)Net interest revenue on a fully taxable-equivalent basis was $573 million and $328 million for the quarters ended December 31, 2007 and 2006, respectively,
and $1.788 billion and $1.155 billion for the years ended December 31, 2007 and 2006, respectively. These amounts include taxable-equivalent adjustments
of $17 million and $12 million for the quarters ended December 31, 2007 and 2006, respectively, and $58 million and $45 million for the year ended
December 31, 2007 and 2006.
                            
 
 
STATE STREET CORPORATION
Earnings Press Release Addendum
                   
SELECTED FINANCIAL INFORMATION
Quarters Ended December 31, 2007 and September 30, 2007
                   
                   
   
Quarters Ended (1)
          
     
December 31,
    
September 30,
      
(Dollars in millions, except per share amounts)
  
2007
    
2007
  
 % Change
                   
Fee Revenue:
                
Servicing fees
$
                        967
  
$
                         937
  
                3
 %
Management fees
  
                        297
    
                         299
  
               (1)
  
Trading services
  
                        352
    
                         320
  
              10
  
Securities finance
  
                        256
    
                         165
  
              55
  
Processing fees and other
  
                           38
    
                           61
  
            (38)
  
Total fee revenue
  
                     1,910
    
                     1,782
  
                7
  
                   
Net Interest Revenue:
                
Interest revenue
  
                     1,454
    
                     1,383
  
                5
  
Interest expense
  
                        898
    
                         919
  
               (2)
  
Net interest revenue (2)
  
                        556
    
                         464
  
              20
  
Provision for loan losses
  
                              -
    
                              -
      
Net interest revenue after provision for loan losses
  
                        556
    
                         464
  
              20
  
                   
Gains (Losses) on sales of available-for-sale investment securities, net
                           13
    
                            (6)
      
Total revenue
  
                     2,479
    
                     2,240
  
           10.7
  
                   
Operating Expenses:
                
Salaries and employee benefits
  
                        793
    
                         916
  
            (13)
  
Information systems and communications
  
                        148
    
                         145
  
                2
  
Transaction processing services
  
                        184
    
                         165
  
              12
  
Occupancy
  
                        107
    
                         109
  
               (2)
  
Special charge
  
                        600
    
                              -
  
                 -
  
Merger and integration costs
  
                           57
    
                         141
  
            (60)
  
Other
  
                        284
    
                         213
  
              33
  
Total operating expenses
  
                     2,173
    
                     1,689
  
           28.7
  
Income before income tax expense
  
                        306
    
                         551
  
            (44)
  
Income tax expense
  
                           83
    
                         193
      
Net income
$
                        223
  
$
                         358
  
            (38)
  
                   
Earnings Per Share:
                
Basic
$
                          .58
  
$
                          .92
  
            (37)
  
Diluted
  
                          .57
    
                          .91
  
            (37)
  
                   
Average Shares Outstanding (in thousands):
                
     Basic
  
                385,200
    
                 386,843
      
     Diluted
  
                392,200
    
                 392,150
      
 
Consolidated Selected Financial Information presented above was prepared in accordance with accounting principles generally
accepted in the United States.
                  
                     
(1) Quarters ended December 31 and September 30, 2007 include financial results of Investors Financial, which State Street acquired on July 2, 2007.
(2) Net interest revenue on a fully taxable-equivalent basis was $573 million and $481 million for the quarters ended
December 31 and September 30, 2007, respectively. These amounts include taxable-equivalent adjustments of $17 million.
 
 
STATE STREET CORPORATION
Earnings Press Release Addendum
                                     
SELECTED OPERATING-BASIS FINANCIAL INFORMATION
Quarters and Years Ended December 31, 2007 and December 31, 2006
                                     
   
Quarters Ended (1)
        
Years Ended(1)
      
   
December 31,
December 31,
    
December 31,
December 31,
  
(Dollars in millions, except per share amounts)
  
2007
    
2006
  
 % Change
2007
    
2006
  
 % Change
                                     
Fee Revenue:
                                  
Servicing fees
$
                  967
  
$
              698
  
               39
 %
$
              3,388
  
$
           2,723
  
               24
%
Management fees
  
                  297
    
              253
  
               17
      
              1,141
    
              943
  
               21
  
Trading services
  
                  352
    
              203
  
               73
      
              1,152
    
              862
  
               34
  
Securities finance
  
                  256
    
                 90
  
             184
      
                  681
    
              386
  
               76
  
Processing fees and other
  
                    38
    
                 61
  
             (38)
      
                  237
    
              272
  
             (13)
  
Total fee revenue
  
              1,910
    
           1,305
  
               46
      
              6,599
    
           5,186
  
               27
  
                                     
Net Interest Revenue:
                                  
Interest revenue, operating basis
  
              1,471
    
           1,238
  
               19
      
              5,270
    
           4,369
  
               21
  
Interest expense
  
                  898
    
              910
  
                (1)
      
              3,482
    
           3,214
  
                 8
  
Net interest revenue, operating basis
  
                  573
    
328
  
               75
      
              1,788
    
1,155
  
               55
  
Provision for loan losses
  
                       -
    
                    -
          
                       -
    
                    -
      
Net interest revenue after provision for loan losses, operating basis
                  573
    
              328
  
               75
      
              1,788
    
           1,155
  
               55
  
                                     
Gains on sales of available-for-sale investment securities, net
                    13
    
                   1
          
                      7
    
                 15
      
Total revenue, operating basis
  
              2,496
    
           1,634
  
            52.8
      
              8,394
    
           6,356
  
            32.1
  
                                     
Operating Expenses:
                                  
Salaries and employee benefits, operating basis
  
                  934
    
              694
  
               35
      
              3,397
    
           2,652
  
               28
  
Information systems and communications
  
                  148
    
              119
  
               24
      
                  546
    
              501
  
                 9
  
Transaction processing services
  
                  184
    
              121
  
               52
      
                  619
    
              496
  
               25
  
Occupancy
  
                  107
    
                 94
  
               14
      
                  408
    
              373
  
                 9
  
Other, operating basis
  
                  276
    
              150
  
               84
      
                  798
    
              518
  
               54
  
Total operating expenses, operating basis
  
              1,649
    
1,178
  
            40.0
      
              5,768
    
4,540
  
            27.0
  
Income from continuing operations before income tax expense, operating basis
                  847
    
              456
  
               86
      
              2,626
    
           1,816
  
               45
  
Income taxes from continuing operations, operating basis
                  290
    
              153
          
                  899
    
              610
      
Taxable-equivalent adjustment
  
                    17
    
12
          
                    58
    
45
      
Net income from continuing operations, operating basis
$
                  540
  
$
291
  
               86
    
$
1,669
  
$
1,161
  
               44
  
                                     
                                     
Diluted earnings per share from continuing operations, operating basis
$
                 1.38
  
$
                .86
  
               60
    
$
                 4.57
  
$
             3.46
  
               32
  
                                     
Average diluted shares outstanding (in thousands)
  
          392,200
    
      337,429
          
          365,488
    
      335,732
      
                                     
Return on equity from continuing operations, operating basis
                 18.7
%
  
15.9
%
      
                 17.7
%
  
17.1
%
  
                                     
                                     
(1)Refer to the accompanying reconciliation of reported results to operating-basis results.
      
 
 
 
STATE STREET CORPORATION
  
Earnings Press Release Addendum
  
                   
SELECTED OPERATING-BASIS FINANCIAL INFORMATION
  
Quarters Ended December 31, 2007 and September 30, 2007
  
                   
                   
 
Quarters Ended
  
   
December 31,
    
September 30,
        
(Dollars in millions, except per share amounts)
  
2007 (1)
    
2007
    
% Change
  
                   
Fee Revenue:
                  
Servicing fees
   $ 967     $ 937       3 %
Management fees
     297       299       (1 )
Trading services
     352       320       10  
Securities finance
     256       165       55  
Processing fees and other
     38       61       (38 )
Total fee revenue
     1,910       1,782       7  
                         
Net Interest Revenue:
                        
Interest revenue, operating basis
     1,471       1,400       5  
Interest expense
     898       919       (2 )
Net interest revenue, operating basis
     573       481       19  
Provision for loan losses
     -       -          
Net interest revenue after provision for loan losses, operating basis
     573       481       19  
                         
Gains (Losses) on sales of available-for-sale investment securities, net
     13       (6 )        
Total revenue, operating basis
     2,496       2,257       10.6  
                         
Operating Expenses:
                        
Salaries and employee benefits, operating basis
     934       916       2  
Information systems and communications
     148       145       2  
Transaction processing services
     184       165       12  
Occupancy
     107       109       (2 )
Other, operating basis
     276       213       30  
Total operating expenses, operating basis
     1,649       1,548       6.5  
Income from continuing operations before income tax expense, operating basis
     847       709       19  
Income taxes from continuing operations
     290       243          
Taxable-equivalent adjustment
     17       17          
Net income from continuing operations, operating basis
   $ 540     $ 449       20  
                         
                         
Diluted earnings per share from continuing operations, operating basis
   $ 1.38     $ 1.15       20  
                         
Average diluted shares outstanding (in thousands)
     392,200       392,150          
                         
Return on equity from continuing operations, operating basis
     18.7 %     15.8 %        
 
(1)Refer to the accompanying reconciliation of reported results to operating-basis results.
    
 
 
 
STATE STREET CORPORATION
Earnings Press Release Addendum
                                         
RECONCILIATION OF REPORTED RESULTS TO OPERATING-BASIS RESULTS
Quarter and Year Ended December 31, 2007
                                         
                                         
(Dollars in millions, except per share amounts)
Quarter Ended December 31, 2007
    
Year Ended December 31, 2007
  
                                         
                                         
     
Reported
        
Operating
  
Reported
        
Operating
     
Results
  
Adjustments
Results
      
Results
  
Adjustments
Results
  
Fee Revenue:
                                        
Servicing fees
  
 $
                   967
        
$
                  967
    
 $
                3,388
        
$
            3,388
  
Management fees
    
                   297
          
                  297
      
                1,141
          
            1,141
  
Trading services
    
                   352
          
                  352
      
                1,152
          
            1,152
  
Securities finance
    
                   256
          
                  256
      
                   681
          
                681
  
Processing fees and other
    
                      38
          
                    38
      
                   237
          
                237
  
Total fee revenue
    
                1,910
          
               1,910
      
                6,599
          
            6,599
  
                                         
Net Interest Revenue:
                                        
Interest revenue
    
                1,454
  
 $
                17
 (1)
               1,471
      
                5,212
  
 $
                 58
 (1)
            5,270
  
Interest expense
    
                   898
    
                   -
    
                  898
      
                3,482
    
                     -
    
            3,482
  
Net interest revenue
    
                   556
    
                17
    
                  573
      
                1,730
    
                 58
    
            1,788
  
Provision for loan losses
    
                         -
    
                   -
    
                        -
      
                       -
    
                     -
    
                   -
  
Net interest revenue after provision for loan losses
                   556
    
                17
    
                  573
      
                1,730
    
                 58
    
            1,788
  
                                         
Gains on sales of available-for-sale investment securities, net
                      13
    
                   -
    
                    13
      
                        7
    
 -
    
                    7
  
Total revenue
    
                2,479
    
                17
    
               2,496
      
                8,336
    
                 58
    
            8,394
  
                                         
Operating Expenses:
                                        
Salaries and employee benefits
    
                   793
    
             141
 (2)
                  934
      
                3,256
    
               141
 (2)
            3,397
  
Information systems and communications
                   148
    
                   -
    
                  148
      
                   546
    
 -
    
                546
  
Transaction processing services
  
                   184
    
                   -
    
                  184
      
                   619
    
 -
    
                619
  
Occupancy
    
                   107
    
                   -
    
                  107
      
                   408
    
 -
    
                408
  
Special charge
    
                   600
    
            (600)
 (2)
                        -
      
                   600
    
             (600)
 (2)
                     -
  
Merger and integration costs
    
                      57
    
              (57)
 (3)
                        -
      
                   198
    
             (198)
 (3)
                     -
  
Other
    
                   284
    
                (8)
 (2)
                  276
      
                   806
    
                  (8)
 (2)
                798
  
Total operating expenses
    
                2,173
    
            (524)
    
               1,649
      
                6,433
    
             (665)
    
            5,768
  
Income from continuing operations before income taxes
                   306
    
             541
    
                  847
      
                1,903
    
               723
    
            2,626
  
Income taxes from continuing operations
                      83
    
             207
    
                  290
      
                   642
    
               257
    
                899
  
Taxable-equivalent adjustment
    
                         -
    
                17
 (1)
                    17
      
                         -
    
                 58
 (1)
                  58
  
Net income from continuing operations
 $
                   223
  
$
             317
  
$
                  540
    
 $
                1,261
  
$
               408
  
$
            1,669
  
                                         
Diluted earnings per share from continuing operations
 $
                 .57
  
$
           .81
  
$
             1.38
    
 $
              3.45
  
$
          1.12
  
$
               4.57
  
                                         
Average diluted shares outstanding (in thousands)
       392,200
    
 392,200
    
      392,200
      
       365,488
    
   365,488
    
        365,488
  
                                         
Return on equity from continuing operations
                     7.7
 %
  
            11.0
 %
  
                 18.7
 %
  
                  13.4
 %
                4.3
%
  
               17.7
 %
 
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 a net charge associated with certain active fixed-income strategies at State Street Global Advisors.
(3)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
Earnings Press Release Addendum
                                     
RECONCILIATION OF REPORTED RESULTS TO OPERATING-BASIS RESULTS
Quarter and Year Ended December 31, 2006
 
                                     
                                     
(Dollars in millions, except per share amounts)
Quarter Ended December 31, 2006
  
Year Ended December 31, 2006
                                     
                                     
   
Reported
        
Operating
    
Reported
        
Operating
   
Results
Adjustments
  
Results
      
Results
Adjustments
Results
Fee Revenue:
                                    
Servicing fees
 $
              698
        
$
                698
    
 $
         2,723
        
$
         2,723
Management fees
  
              253
          
                253
      
             943
          
             943
Trading services
  
              203
          
                203
      
             862
          
             862
Securities finance
  
                 90
          
                  90
      
             386
          
             386
Processing fees and other
  
                 61
          
                  61
      
             272
          
             272
Total fee revenue
  
           1,305
          
             1,305
      
         5,186
          
         5,186
                                     
Net Interest Revenue:
                                    
Interest revenue
  
           1,226
  
 $
                     12
 (1)
             1,238
      
         4,324
  
$
                45
 (1)
         4,369
Interest expense
  
              910
    
                        -
    
                910
      
         3,214
    
                    -
    
         3,214
Net interest revenue
  
              316
    
                     12
    
                328
      
         1,110
    
                45
    
         1,155
Provision for loan losses
  
                    -
    
                        -
    
                      -
      
                  -
    
                    -
    
                  -
Net interest revenue after provision for loan losses
              316
    
                     12
    
                328
      
         1,110
    
                45
    
         1,155
                                     
Gains on sales of available-for-sale investment securities, net
                   1
    
                        -
    
                     1
      
               15
    
                    -
    
               15
Total revenue
  
           1,622
    
                     12
    
             1,634
      
         6,311
    
                45
    
         6,356
                                     
Operating Expenses:
                                    
Salaries and employee benefits
  
              694
    
                        -
    
                694
      
         2,652
    
                    -
    
         2,652
Information systems and communications
              119
    
                        -
    
                119
      
             501
    
                    -
    
             501
Transaction processing services
  
              121
    
                        -
    
                121
      
             496
    
                    -
    
             496
Occupancy
  
                 94
    
                        -
    
                  94
      
             373
    
                    -
    
             373
Other
  
              150
    
                        -
    
                150
      
             518
    
                    -
    
             518
Total operating expenses
  
           1,178
    
                        -
    
             1,178
      
         4,540
    
                    -
    
         4,540
Income from continuing operations before income taxes
              444
    
                     12
    
                456
      
         1,771
    
                45
    
         1,816
Income taxes from continuing operations
              135
    
                     18
 (2)
                153
      
             675
    
               (65)
 (2)
             610
Taxable-equivalent adjustment
  
                    -
    
                     12
 (1)
                  12
      
                  -
    
                45
 (1)
               45
Net income from continuing operations
 $
              309
  
$
                   (18)
  
$
                291
    
 $
         1,096
  
$
                65
  
$
         1,161
                                     
Diluted earnings per share from continuing operations
 $
            .91
  
$
              (.05)
  
$
             .86
    
 $
        3.26
  
$
           .20
  
$
        3.46
                                     
Average diluted shares outstanding (in thousands)
  337,429
    
  337,429
    
    337,429
      
 335,732
    
  335,732
    
 335,732
                                     
Return on equity from continuing operations
             16.9
 %
                  (1.0)
 %
               15.9
 %
  
            16.2
 %
              .9
 %
            17.1
 
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 tax-related adjustments primarily related to the impact of TIPRA and issues associated with leveraged lease transactions.
 
 
 
STATE STREET CORPORATION
Earnings Press Release Addendum
                     
RECONCILIATION OF REPORTED RESULTS TO OPERATING-BASIS RESULTS
Quarter Ended September 30, 2007
                     
                     
(Dollars in millions, except per share amounts)
  
Quarter Ended September 30, 2007
                     
                     
     
Reported
          
Operating
  
     
Results
  
Adjustments
  
Results
  
Fee Revenue:
                    
Servicing fees
  
 $
                  937
        
$
                  937
  
Management fees
    
                  299
          
                  299
  
Trading services
    
                  320
          
                  320
  
Securities finance
    
                  165
          
                  165
  
Processing fees and other
    
                     61
          
                    61
  
Total fee revenue
    
               1,782
          
               1,782
  
                     
Net Interest Revenue:
                    
Interest revenue
    
               1,383
  
 $
                17
 (1)
  
               1,400
  
Interest expense
    
                  919
    
                   -
    
                  919
  
Net interest revenue
    
                  464
    
                17
    
                  481
  
Provision for loan losses
    
                        -
    
                   -
    
                        -
  
Net interest revenue after provision for loan losses
                  464
    
                17
    
                  481
  
                     
Gains on sales of available-for-sale investment securities, net
                     (6)
    
                   -
    
                     (6)
  
Total revenue
    
               2,240
    
                17
    
               2,257
  
                     
Operating Expenses:
                    
Salaries and employee benefits
    
                  916
    
                   -
    
                  916
  
Information systems and communications
    
                  145
    
                   -
    
                  145
  
Transaction processing services
    
                  165
    
                   -
    
                  165
  
Occupancy
    
                  109
    
                   -
    
                  109
  
Merger and integration costs
    
                  141
    
            (141)
 (2)
  
                        -
  
Other
    
                  213
    
                   -
    
                  213
  
Total operating expenses
    
               1,689
    
            (141)
    
               1,548
  
Income from continuing operations before income taxes
                  551
    
             158
    
                  709
  
Income taxes from continuing operations
    
                  193
    
                50
    
                  243
  
Taxable-equivalent adjustment
    
                        -
    
                17
 (1)
  
                    17
  
Net income from continuing operations
  
 $
                  358
  
$
                91
  
$
                  449
  
                     
Diluted earnings per share from continuing operations
 $
                .91
  
$
           .24
  
$
             1.15
  
                     
Average diluted shares outstanding (in thousands)
  
      392,150
    
 392,150
    
      392,150
  
                     
Return on equity from continuing operations
    
                 12.6
 %
  
               3.2
 %
  
                 15.8
 %
 
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, 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
                   
   
December 31,
September 30,
December 31,
(Dollars in millions, except per share amounts)
2007
  
2007
  
2006
                   
Assets
                
Cash and due from banks
$
4,733
  
$
4,610
  
$
2,368
Interest-bearing deposits with banks
  
5,579
    
6,559
    
5,236
Securities purchased under resale agreements
  
19,133
    
16,151
    
14,678
Federal funds sold
  
4,540
    
2,575
    
0
Trading account assets
  
589
    
1,305
    
785
Investment securities available for sale
  
70,326
    
72,789
    
60,445
Investment securities held to maturity
  
4,233
    
4,294
    
4,547
Loans and leases (net of allowance of $18)
  
15,784
    
11,292
    
8,928
Premises and equipment
  
1,894
    
1,824
    
1,560
Accrued income receivable
  
2,096
    
1,883
    
1,617
Goodwill
  
4,567
    
4,601
    
1,384
Other intangible assets
  
1,990
    
1,994
    
434
Other assets
  
7,079
    
10,011
    
5,371
Total assets
$
142,543
  
$
139,888
  
$
107,353
                   
Liabilities
                
Deposits:
                
Noninterest-bearing
$
       15,039
  
$
      13,779
  
$
    10,194
Interest-bearing -- U.S.
  
14,790
    
15,838
    
1,272
Interest-bearing -- Non-U.S.
  
65,960
    
63,384
    
54,180
Total deposits
  
95,789
    
93,001
    
65,646
                   
Securities sold under repurchase agreements
  
14,646
    
14,008
    
19,147
Federal funds purchased
  
425
    
320
    
2,147
Other short-term borrowings
  
5,557
    
4,802
    
2,835
Accrued taxes and other expenses
  
4,392
    
3,953
    
3,143
Other liabilities
  
6,799
    
8,938
    
4,567
Long-term debt
  
3,636
    
3,616
    
2,616
Total liabilities
  
131,244
    
128,638
    
100,101
                   
Shareholders' Equity
                
Preferred stock, no par: authorized 3,500,000; issued none
                
Common stock, $1 par: authorized 750,000,000 shares;
                
   issued 398,366,000, 398,370,000 and 337,126,000 shares
398
    
398
    
337
Surplus
  
4,630
    
4,616
    
399
Retained earnings
  
7,745
    
7,610
    
7,030
Accumulated other comprehensive loss
  
(575)
    
(369)
    
(224)
Treasury stock (at cost 12,082,000, 13,576,000 and 4,688,000 shares)
(899)
    
(1,005)
    
(290)
Total shareholders' equity
  
11,299
    
11,250
    
7,252
Total liabilities and shareholders' equity
$
142,543
  
$
139,888
  
$
107,353