State Street Corporation Reports Third-Quarter EPS up 10% Including Investors Financial Integration Costs. Record Operating EPS up 39% on Revenue Gain of 48% Compared to 2006

Business Wire, Oct 16, 2007

Strong Growth from Core Servicing and Management Businesses with Significant Wins This Quarter

Investors Financial Consolidation Exceeds Expectations; Projected 2007 EPS Dilution Significantly Reduced

BOSTON -- State Street Corporation announced today third-quarter earnings per share of $0.91, an increase from $0.83 earnings per share in the third quarter of 2006. Earnings per share in the third quarter of 2007 include $141 million, or $0.24 per share, of merger and integration costs associated with the July 2, 2007, acquisition of Investors Financial Services Corp. ("Investors Financial"). On an operating basis, which excludes these costs, record earnings are $1.15 per share, up 39% from the third quarter of 2006.

Revenue of $2.240 billion in the third quarter of 2007 is up 48%, or $725 million, compared to $1.515 billion in the year-ago quarter. Total expenses in the third quarter of 2007 are $1.689 billion. Excluding merger and integration costs associated with the Investors Financial acquisition, expenses are $1.548 billion, up 42%, or $458 million, compared to $1.090 billion in the year-ago quarter. For the third quarter of 2007, return on shareholders' equity is 12.6%, compared to 16.4% in the third quarter of 2006. The return on shareholders' equity reflects the increase in shareholders' equity due to the shares issued to shareholders of Investors Financial, net of shares repurchased in the quarter. Excluding the impact of the merger and integration costs, return on equity is 15.8%.

Ronald E. Logue, State Street's chairman and chief executive officer, said, "Our core revenue was strong across both investment servicing and investment management with significant new business from existing and new customers globally. On a year-over-year basis, excluding $221 million in revenue during the third quarter from the acquired Investors Financial business, revenue increased $512 million, or 34%. Servicing and management fees performed particularly well, up 34% (including Investors Financial) from last year's third quarter. We won $825 billion of assets in new business in servicing and $26 billion of net new business in asset management. Net interest revenue, also including Investors Financial, is up $198 million, or 74%. Net interest margin is 1.73%. Excluding merger and integration costs associated with the acquisition, we achieved significant positive operating leverage compared both to the year-ago quarter and to the second quarter."

Logue continued, "Both State Street and the acquired business from Investors Financial performed very well during the quarter. Due to the strong performance of Investors Financial, we now expect this year's dilution from the acquisition to be approximately $0.06 per share, reduced by more than half from our original outlook, and modestly accretive in 2008. Our improved outlook is due to our success in retaining revenue, converting accounts, and reducing costs."

Commenting on the impact of recent market activity affecting fixed-income investments, Logue added, "The fixed-income markets have experienced unprecedented disruption in this past quarter. We believe we are well positioned with both our portfolio and our asset-backed commercial paper conduits. While liquidity in the fixed income market remains challenging, our concentration in high-quality assets in our own portfolios as well as in the conduits, have limited the impact of this disruption on our business. We believe that we weathered the disruption in the fixed-income market well--without significantly affecting State Street's results. We're disappointed in the performance of a small number of fixed-income strategies at State Street Global Advisors which performed below our expectation."

Looking forward, Logue concluded, "Through nine months we are performing near or above the top of our ranges for growth in earnings per share (10% - 15%), revenue (20% - 22%), and achievement of return on equity (14% - 17%), all on an operating basis, which excludes merger and integration costs in 2007 and tax adjustments in the second quarter of 2006. We now expect to exceed the top of the ranges for the year for all three goals, assuming markets remain relatively stable."

In reporting its financial results for the third quarter of 2007, State Street has prepared information in four categories:

* "Baseline" results are operating results excluding the "Investors Financial contribution" 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. Per-share amounts reflect the effect of the acquisition on outstanding shares.

* "Operating" results are "reported" results excluding 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).

State Street believes that providing financial information in this format in addition to financial information prepared in accordance with GAAP, assists investors and others by providing them with financial trends of ongoing business activities on a comparable basis. Management believes that providing separate Investors Financial results and baseline financial information further assists investors and analysts in understanding the effect of that acquisition.