State Street Corporation today announced second-quarter 2011
earnings per common share of $1.00, compared to $0.87 in the second
quarter of 2010. Revenue of $2.491 billion increased 8% from $2.304
billion in the second quarter of 2010 and expenses were $1.774
billion, down 9% from $1.944 billion in the second quarter of 2010.
Second-quarter 2011 revenue included $51 million, or $0.06 per
share, of net interest revenue associated with discount accretion
related to asset-backed commercial paper conduit securities
consolidated onto the Company’s balance sheet in 2009.
Second-quarter 2011 expenses included $17 million, or $0.02 per
share, attributable to acquisition and restructuring costs. Return
on average common shareholders’ equity was 10.6% in the second
quarter of 2011 compared to 11.0% in the second quarter of
2010.
Second-quarter 2010 results included revenue of $172 million, or
$0.21 per share, associated with conduit-related discount accretion
and a pre-tax charge of $414 million, or $0.50 per share, related
to the securities lending programs, including certain common and
collective trust funds managed by State Street Global Advisors; $41
million, or $0.05 per share, of acquisition and restructuring
costs; a tax of $21 million, or $0.03 per share, on bonus payments
to employees in the United Kingdom; and a tax benefit of $180
million, or $0.31 per share, related to the restructuring of former
non-U.S. conduit assets.
In the first quarter of 2011, the Company reported earnings per
share of $0.93 on revenue of $2.361 billion. Expenses in the first
quarter of 2011 were $1.702 billion. First-quarter 2011 revenue
included $62 million, or $0.08 per share, of conduit-related
discount accretion. Expenses included acquisition and restructuring
costs of $19 million, or $0.03 per share. Return on average common
shareholders’ equity was 10.5% in the first quarter of 2011.
NON-GAAP BASIS
In addition to presenting State Street’s financial results in
conformity with U.S. generally accepted accounting principles
(GAAP), management also presents results on a non-GAAP basis, to
which management refers as “operating basis,” in order to highlight
comparable financial trends and other characteristics with respect
to State Street’s ongoing business operations from period to
period. Reconciliations of operating-basis results to GAAP-basis
results are provided in the addendum at the end of this news
release. Also see “Additional Information.” Operating-basis net
interest revenue for all periods is presented on a fully
taxable-equivalent basis and excludes discount accretion related to
former conduit securities.
Operating-basis earnings per share in the second quarter of 2011
were $0.96 compared to $0.93 in the second quarter of 2010.
Operating-basis revenue in the second quarter of 2011 was $2.473
billion, up 14.3% from $2.163 billion in the second quarter of
2010. Operating-basis expenses increased to $1.757 billion, up
19.7% from $1.468 billion in the second quarter of 2010. In the
second quarter of 2010, management reduced incentive compensation
expense as a result of the securities finance-related charge. On an
operating basis, comparing the second quarter of 2011 with the
second quarter of 2010, negative operating leverage was 540 basis
points. On an operating basis, return on average common
shareholders’ equity was 10.2% in the second quarter of 2011, down
from 11.8% in the second quarter of 2010.
Operating-basis earnings per share in the second quarter of 2011
were up 9.1% from $0.88 per share in the first quarter of 2011;
revenue on the same basis and in the same comparison was up 6.1%
from $2.330 billion; and expenses on the same basis and in the same
comparison were up 4.4% from $1.683 billion. On an operating basis,
comparing the second quarter of 2011 with the first quarter of
2011, positive operating leverage was 170 basis points. On an
operating basis, return on average common shareholders’ equity was
10.2% compared to 9.9% in the first quarter of 2011.
Joseph L. Hooley, State Street's chairman, president and chief
executive officer, said, “In the second quarter we achieved strong
growth in fee revenue due to continued momentum in servicing and
management fee revenues driven by global client demand, and
supported by seasonal factors affecting securities finance. We
achieved positive operating leverage on an operating basis,
comparing this year’s second quarter with the first quarter, based
on our continuing efforts to manage expenses.”
Hooley continued, “Our capital remains strong, and following the
Federal Reserve’s review of our comprehensive capital plan earlier
this year, we increased our quarterly dividend to $0.18 per share,
and we initiated our share purchase program, buying approximately
4.9 million of our common shares during the second quarter. As we
have emphasized for the past several quarters, based upon our
understanding of the proposed rules, we currently exceed the
capital ratios required under the Basel III proposal.”
Looking ahead, Hooley noted, “We are pleased with our strong
performance in the first half of the year. In addition to the usual
seasonal weakness in third-quarter trading revenue, we face
short-term challenges posed by the slower recovery and low
interest-rate environment in the U.S., the uncertainty in Europe,
and increased regulatory and compliance costs. We are addressing
these challenges by remaining focused on controlling expenses,
enhancing our risk management, and executing on our business
operations and IT transformation program, which is progressing well
and performing on track with the expectations we announced last
November.”
The table below provides a summary of selected financial
information and key ratios for the indicated periods, presented on
an operating basis where noted. Unless otherwise specified, all
capital ratios referenced in this news release refer to State
Street Corporation and not State Street Bank and Trust Company. See
“Additional Information” for a further description of these ratios
and the addendum at the end of this news release for
reconciliations applicable to the tier 1 common and TCE ratios.
Q2 2011
Q1 2011
Increase/(Decrease) Q2
2010 Increase/(Decrease)
(Dollars in millions, except per share amounts or where otherwise
noted) For the quarters ended: Total revenue(1) $
2,473 $ 2,330
$
143
6.1 % $ 2,163 $ 310 14.3 % Total expenses(1) 1,757 1,683
74
4.4 % 1,468 289 19.7 % Earnings per common share(1) $ 0.96 $ 0.88
$
0.08
9.1 % $ 0.93 $ 0.03 3.2 % Return on average common equity(1)
10.2
%
9.9
%
30 bps
11.8
%
(160) bps
As of period end: Total assets $ 190,455 $ 171,796
$
18,659
10.9 % $ 162,075 $ 28,380 17.5 % Net unrealized gain/(loss) on
investment portfolio, after-tax
(94
)
(352
)
258
73.3
%
(994
)
900
90.5
%
AUCM (dollars in billions): Assets under custody and
administration(2)
$
22,762
$
22,609
$
153
0.7
%
$
19,032
$
3,730
19.6
%
Assets under management
2,116
2,120
(4
)
(0.2)
%
1,835
281
15.3
%
Total capital ratio 20.7 % 21.6 % (90) bps 16.4 %
430 bps
Tier 1 capital ratio 18.9 % 19.6 % (70) bps 15.1 %
380 bps
Tier 1 leverage ratio 8.6 % 8.7 % (10) bps 7.8 %
80 bps
Tier 1 common ratio 16.8 % 17.5 % (70) bps 13.1 %
370 bps
TCE ratio 7.3 % 7.4 % (10) bps 6.2 %
110 bps
TCE/RWA ratio 16.6 % 16.7 % (10) bps 11.9 %
470 bps
(1) Presented on an operating basis, a non-GAAP
presentation.
(2) Includes assets under custody of $16,789 billion, $16,692
billion, and $13,999 billion, respectively, as of period end Q2
2011, Q1 2011, and Q2 2010.
Total assets were $190.5 billion and $171.8 billion and included
$22.1 billion and $13.3 billion of excess deposits held at the
Federal Reserve and other central banks at June 30, 2011 and March
31, 2011, respectively. The average balance sheet for the second
quarter of 2011 was $164 billion, compared to $159 billion for the
first quarter of 2011 and $151 billion for the second quarter of
2010. State Street’s regulatory capital ratios continue to be
strong as of June 30, 2011, with the Company’s total capital ratio
at 20.7%, its tier 1 capital ratio at 18.9% and its tier 1 leverage
ratio at 8.6%. In addition, at that date, the Company’s tier 1
common ratio was 16.8%, its TCE ratio was 7.3%, and its TCE to
risk-weighted assets ratio was 16.6%. June 30, 2011 ratios adjusted
for the effects of the applicable methodologies provided for in the
Basel III capital requirements are: total capital ratio of 14.6%,
tier 1 capital ratio of 12.9%, tier 1 leverage ratio of 6.3%, and
tier 1 common ratio of 11.8%. These ratios reflect State Street’s
estimates of the impact of the requirements under Basel III
affecting capital, based upon published statements of the Basel
Committee and the Federal Reserve. See “Additional Information”
below for information concerning the specified capital ratios and
the addendum at the end of this news release for reconciliations of
these ratios to ratios calculated under presently applicable
requirements.
At June 30, 2011, the net after-tax unrealized mark-to-market
losses in the investment portfolio were $94 million, improved from
net unrealized mark-to-market losses of $352 million at March 31,
2011, primarily due to the decline in interest rates, offset
partially by a modest widening in spreads and $994 million as of
June 30, 2010, primarily due to tighter spreads.
As of June 30, 2011, the Company expects to record aggregate
pre-tax conduit-related accretion of about $1.25 billion in
interest revenue over the remaining terms of the former conduit
securities, of which it expects to record approximately $200
million in 2011. These expectations are based on many assumptions,
including holding the securities to maturity, anticipated
pre-payment speeds, credit quality and sales.
The following tables provide the components of operating-basis
revenue and operating-basis expenses for the periods noted:
Operating-Basis Revenue
(non-GAAP)
(Dollars in millions)
Q2 2011
Q1 2011
% Increase(Decrease)
Q2 2010
% Increase/(Decrease)
Servicing fees $ 1,124 $ 1,095 2.6 % $ 973 15.5 % Investment
management fees 250 236 5.9 201 24.4 Trading services revenue 311
302 3.0 326 (4.6 ) Securities finance revenue 137 66 107.6 109 25.7
Processing fees and other revenue 70 92 (23.9 ) 87 (19.5 ) Net
interest revenue, fully taxable- equivalent basis(1) 554 546 1.5
517 7.2 Gains (losses) related to investment securities, net
27 (7 ) nm (50 ) nm
Total Operating-Basis
Revenue $ 2,473 $ 2,330
6.1 % $ 2,163 14.3
%
(1) Operating-basis information for the second and first
quarters of 2011, and the second quarter of 2010, included $33
million, $31 million, and $31 million, respectively, of
tax-equivalent adjustments, and excluded $51 million, $62 million,
and $172 million, respectively, of conduit-related discount
accretion. GAAP-basis net interest revenue for these periods was
$572 million, $577 million, and $658 million, respectively.
nm = not meaningful
Operating-Basis Expenses
(non-GAAP)
(Dollars in millions)
Q2
2011 Q1 2011
% Increase/(Decrease)
Q2 2010
% Increase/(Decrease)
Salaries and employee benefits $ 1,009 $ 974 3.6 % $ 828 21.9 %
Information systems and communications
199
191
4.2
174
14.4
Transaction processing services 193 180 7.2 164 17.7 Occupancy 113
107 5.6 116 (2.6 ) Other 243 231 5.2
186 30.6
Total Operating-Basis Expenses $
1,757 $ 1,683 4.4
% $ 1,468 19.7 %
SECOND-QUARTER 2011 RESULTS VS. SECOND
QUARTER 2010
Servicing fees were up 16% to $1.124 billion from $973 million
in the second quarter of 2010. The increase was attributable
primarily to net new business installed, the impact of the May 2010
acquisition of Intesa’s Securities Servicing business, and
increases in daily average equity valuations. Total assets under
custody and administration were $22.762 trillion at June 30, 2011,
up 19.6% compared with $19.032 trillion at June 30, 2010. Daily
average values for the S & P 500 Index and the MSCI® EAFE
IndexES were up approximately 16% and 17%, respectively, from the
second quarter of 2010.
Investment management fees, generated by State Street Global
Advisors, were $250 million, up 24% from $201 million in the second
quarter of 2010. The increase in management fees was attributable
primarily to increases in the average of month-end valuations in
worldwide equity markets and the impact of the January 2011
acquisition of the Bank of Ireland asset management business. Total
assets under management at June 30, 2011, were $2.116 trillion, up
15% compared to $1.835 trillion at June 30, 2010. Average month-end
equity valuations increased about 22% and 23% compared to the
second quarter of 2010 as measured by the S & P 500 and the
MSCI® EAFE indexES, respectively.
Trading services revenue, which includes foreign exchange
trading revenue and brokerage and other fees, was $311 million for
the second quarter of 2011, a decrease of 5% from $326 million in
the second quarter of 2010. Foreign exchange trading revenue
decreased 9% primarily due to lower volatility, offset partially by
higher volumes. Brokerage and other fees were up slightly.
Securities finance revenue was $137 million in the quarter, up
26% from $109 million in the second quarter of 2010 due primarily
to improved spreads in the seasonally strong second quarter,
partially offset by lower volumes. Processing fees and other
revenue was $70 million, down from $87 million primarily due to
lower revenue from joint ventures and structured products.
Net interest revenue on a fully taxable-equivalent basis, which
includes conduit-related discount accretion, was $605 million in
the second quarter of 2011, compared to $689 million in the second
quarter of 2010. On an operating basis, which excludes discount
accretion, net interest revenue was $554 million, an increase of 7%
from $517 million in the second quarter of 2010 primarily due to an
improvement in rates from the ECB and growth in customer deposits,
including the deposits added in connection with the Intesa
acquisition. Fully taxable-equivalent net interest margin,
including the discount accretion, was 176 basis points in the
second quarter of 2011 compared to 221 basis points in the second
quarter of 2010. Operating-basis net interest margin was 161 basis
points in the second quarter of 2011, compared to 166 basis points
in the second quarter of 2010.
In the second quarter of 2011, we recorded $62 million of net
gains from sales of available-for-sale securities. Separately, we
recorded $35 million of other-than-temporary impairment, resulting
in $27 million of net gains related to investment securities.
Operating-basis expenses of $1.757 billion in the second quarter
of 2011 increased 20% compared to $1.468 billion in the second
quarter of 2010 primarily related to increases in salaries and
benefits expenses. Salaries and benefits expenses increased 22%
from $828 million to $1.009 billion, primarily due to the impact of
the reduction in incentive compensation in the second quarter of
2010 related to the securities finance charge. In addition, the
second quarter of 2011 included merit increases, the ongoing impact
of the three acquisitions, and contract employee costs associated
with the business operations and IT transformation program.
Information systems and communications expenses were $199 million,
an increase of 14% from $174 million due primarily to the impact of
acquisitions. Transaction processing services expenses were up 18%
to $193 million from $164 million due to higher volumes in the
investment servicing business. Occupancy expenses decreased to $113
million from $116 million. Other expenses increased 31%, or $57
million, to $243 million, primarily as a result of the impact of an
insurance recovery in the second quarter of 2010 as well as the
impact of acquisitions in the second quarter of 2011.
The effective tax rate on second-quarter 2011 GAAP-basis
earnings was 28.2%, compared to (23.4)% in the second quarter of
2010, with the 2010 rate due to the benefit from the restructuring
of former non-US conduit assets recorded in the second quarter of
2010. The effective tax rate on operating-basis earnings for the
second quarter of 2011 was 27.5%, consistent with our previously
disclosed annual outlook. Our effective tax rate on operating basis
earnings for the full year 2011 is expected to be slightly below
28%.
SECOND-QUARTER 2011 RESULTS VS. THE FIRST
QUARTER 2011
Servicing fees were $1.124 billion, up 3% from $1.095 billion in
the first quarter due primarily to net new business installed and
slightly higher average equity valuations. Daily average values as
measured by the S & P 500 and the MSCI® EAFE indexES each
increased about 1%. Management fees were $250 million, up 6% from
$236 million, due primarily to net new business installed and
slightly higher average month-end equity valuations. Average
month-end equity valuations for the S & P 500 and MSCI® EAFE
indexES were each up about 2%. Trading services revenue, which
includes foreign exchange trading and brokerage and other fees, was
$311 million, up 3% compared to $302 million. Foreign exchange
trading revenue increased 6% due to higher volumes as well as
slightly higher volatility in foreign exchange. Brokerage and other
fee revenue was $142 million, flat with the first quarter.
Securities finance revenue was $137 million, up 108% from $66
million primarily due to seasonality. Processing fees and other
revenue was down 24% to $70 million due to lower revenues from
joint ventures and structured products.
Fully taxable-equivalent net interest revenue in the second
quarter of 2011 totaled $605 million, including discount accretion,
compared to $608 million in the first quarter. On an operating
basis, fully taxable-equivalent net interest revenue in the second
quarter of 2011 was $554 million, up from $546 million due
primarily to an increase in customer deposits and lower funding
costs.
Compared to the first quarter of 2011, salaries and benefits
expense increased 4% to $1.009 billion from $974 million, primarily
due to the impact of merit increases and higher contract employee
costs associated with the business operations and IT transformation
program. Information systems and communications expense was $199
million, up from $191 million in the first quarter of 2011.
Transaction processing expense was $193 million, up 7% from $180
million primarily due to increased volumes in the investment
servicing business. Occupancy expense increased 6% to $113 million
from $107 million. Other expenses were $243 million up 5% from $231
million primarily due to increased regulatory costs.
ADDITIONAL INFORMATION
All per share amounts represent fully diluted earnings per
common share. Return on average common shareholders’ equity is
determined by dividing full-year or annualized net income available
to common equity by average common shareholders’ equity for the
period. Operating-basis return on average common equity utilizes
full-year or annualized operating-basis net income available to
common equity in the calculation. Operating leverage is defined as
the rate of growth of total revenue less the rate of growth of
total expenses, each determined on an operating basis.
Non-GAAP Financial Measures
This news release includes financial information presented on a
GAAP basis as well as on an operating basis. Operating-basis
financial information is a non-GAAP presentation. Management
measures and compares certain financial information on an operating
basis, as it believes that this presentation supports meaningful
comparisons from period to period and the analysis of comparable
financial trends with respect to State Street’s normal ongoing
business operations. Management believes that operating-basis
financial information, which reports revenue from non-taxable
sources on a fully taxable-equivalent basis and excludes the impact
of revenue and expenses outside of the normal course of business,
facilitates an investor’s understanding and analysis of State
Street’s underlying financial performance and trends in addition to
financial information prepared in accordance with GAAP.
This news release also includes capital ratios in addition to,
or adjusted from, those calculated in accordance with applicable
regulatory requirements. These include capital ratios based on tier
1 common capital and tangible common equity as well as capital
ratios adjusted to reflect our estimate of the impact of the Basel
III capital requirements. These non-regulatory and adjusted capital
measures are non-GAAP financial measures. Management presently
evaluates the non-GAAP capital ratios presented in this news
release to aid in its understanding of State Street’s capital
position under a variety of standards, including presently
applicable and evolving regulatory requirements. Management
believes that the use of the non-GAAP capital ratios described in
this news release similarly aids in an investor's understanding of
State Street's capital position and therefore is of interest to
investors.
In addition to the reconciliations, described below, of the
capital ratios referenced in this news release, the addendum to
this news release also includes reconciliations of the following
other non-GAAP financial measures referenced in this news release:
operating-basis results to GAAP-basis results and Basel
III-adjusted capital ratios to capital ratios calculated under
presently applicable requirements.
Non-GAAP financial measures should be considered in addition to,
not as a substitute for or superior to, financial measures
determined in accordance with GAAP and capital ratios determined in
accordance with presently applicable regulatory requirements.
Capital Ratios
The total capital, tier 1 capital, and tier 1 leverage ratios
are capital ratios used regularly by bank regulatory authorities to
evaluate the Company’s capital adequacy. The tier 1 common ratio is
sometimes used by the Federal Reserve in connection with its
capital assessment and review programs. The TCE and
TCE/risk-weighted assets ratios are other capital ratios management
believes provide additional context for understanding and assessing
the Company’s capital adequacy.
- The total capital, tier 1 risk-based
capital, or tier 1 capital, and tier 1 leverage ratios, as
applicable, are each calculated in accordance with applicable bank
regulatory requirements.
- The tier 1 risk-based common, or
tier 1 common, ratio is calculated by dividing (a) tier 1
capital less non-common elements including qualifying perpetual
preferred stock, qualifying minority interest in subsidiaries and
qualifying trust preferred securities, by (b) total risk-weighted
assets, which assets are calculated in accordance with applicable
bank regulatory requirements. The tier 1 common ratio is not
required by GAAP or on a recurring basis by bank regulations.
Management is currently monitoring this ratio, along with the other
capital ratios described in this news release, in evaluating State
Street’s capital levels and believes that, at this time, the ratio
may be of interest to investors. Reconciliations with respect to
tier 1 common capital as of June 30, 2011, December 31, 2010, and
June 30, 2010 are provided in the addendum at the end of this news
release.
- The ratio of tangible common equity
to adjusted tangible assets, or TCE ratio, is calculated by
dividing consolidated total common shareholders’ equity by
consolidated total assets, after reducing both amounts by goodwill
and other intangible assets net of related deferred taxes. Total
assets reflected in the TCE ratio also exclude cash balances on
deposit at the Federal Reserve Bank and other central banks in
excess of required reserves. The TCE ratio is not required by GAAP
or by bank regulations, but is a metric used by management to
evaluate the adequacy of State Street’s capital levels. Since there
is no authoritative requirement to calculate the TCE ratio, our TCE
ratio is not necessarily comparable to similar capital measures
disclosed or used by other companies in the financial services
industry. Tangible common equity and adjusted tangible assets are
non-GAAP financial measures and should be considered in addition
to, not as a substitute for or superior to, financial measures
determined in accordance with GAAP. Reconciliations with respect to
the calculation of the TCE ratio as of June 30, 2011, December 31,
2010, and June 30, 2010 are provided in the addendum at the end of
this news release.
- The ratio of tangible common equity
to risk-weighted assets, or TCE/RWA ratio, is calculated by
dividing consolidated total common shareholders’ equity (reduced by
goodwill and other intangible assets net of related deferred taxes)
by total risk-weighted assets (determined in accordance with
applicable bank regulatory requirements). The TCE/RWA ratio is not
required by GAAP or by bank regulations, but is a metric used by
management to evaluate the adequacy of State Street’s capital
levels. Since there is no authoritative requirement to calculate
the TCE/RWA ratio, our TCE/RWA ratio is not necessarily comparable
to similar capital measures disclosed or used by other companies in
the financial services industry. Tangible common equity is a
non-GAAP financial measure and should be considered in addition to,
not as a substitute for or superior to, financial measures
determined in accordance with GAAP. Reconciliations with respect to
the calculation of the TCE/RWA ratio as of June 30, 2011, December
31, 2010, and June 30, 2010 are provided in the addendum at the end
of this news release.
INVESTOR CONFERENCE CALL
State Street will webcast an investor conference call today,
Tuesday, July 19, 2011, at 9:30 a.m. EDT, available at
www.statestreet.com/stockholder. The conference call will also be
available via telephone, at +1 706/679-5594 or +1 888/391-4233
(Conference ID #36966780). Recorded replays of the conference call
will be available on the web site, and by telephone at +1
706/645-9291 or +1 800/642-1687 (Conference ID#36966780), beginning
approximately two hours after the call’s completion. The telephone
replay will be available for approximately two weeks following the
conference call. This news release, presentation materials referred
to on the conference call, and additional financial information are
available on State Street’s website, at
www.statestreet.com/stockholder under “Investor Information--Latest
News, Annual Reports and Financial Trends—Financial Trends,” and
“Investor Events and Presentations.”
State Street Corporation (NYSE: STT) is the world's leading
provider of financial services to institutional investors including
investment servicing, investment management and investment research
and trading. With $22.762 trillion in assets under custody and
administration and $2.116 trillion in assets under management at
June 30, 2011, State Street operates in 26 countries and more than
100 geographic markets and employs 29,450 worldwide. For more
information, visit State Street’s web site at www.statestreet.com
or call +1 877/639-7788 [NEWS STT] toll-free in the United States
and Canada, or +1 678/999-4577 outside those countries.
Forward-Looking Statements
This news release contains forward-looking statements as defined
by United States securities laws, including statements relating to
our goals and expectations regarding our business, financial
condition, results of operations, investment portfolio performance
and strategies, the financial and market outlook, governmental and
regulatory initiatives and developments, and the business
environment. Forward-looking statements are often identified by
such forward-looking terminology as "plan," "expect," "look,"
"believe," "anticipate," "estimate," "seek," "may," "will,"
"trend," "target,” and "goal," or similar statements or variations
of such terms. 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 our
expectations or beliefs as of any date subsequent to July 19,
2011.
Important factors that may affect future results and outcomes
include, but are not limited to:
- the manner in which the Federal Reserve
and other regulators implement the Dodd-Frank Act and other
regulatory initiatives in the U.S. and internationally, including
any increases in the minimum regulatory capital ratios applicable
to us and adjustments that result in changes to our operating model
or other changes to the provision of our services in order to
comply with or respond to such regulations;
- required regulatory capital ratios
under Basel II and Basel III, in each case as fully implemented by
State Street and State Street Bank (and in the case of Basel III,
when finally adopted by the Federal Reserve), which may result in
the need for substantial additional capital or increased levels of
liquidity in the future;
- changes in law or regulation that may
adversely affect our, our clients’ or our counterparties’ business
activities and the products or services that we sell, including
additional or increased taxes or assessments thereon, capital
adequacy requirements and changes that expose us to risks related
to compliance;
- financial market disruptions and the
economic recession, whether in the U.S. or internationally;
- the liquidity of the U.S. and
international securities markets, particularly the markets for
fixed-income securities, and the liquidity requirements of our
clients;
- increases in the volatility of, or
declines in the levels of, our net interest revenue, changes in the
composition of the assets on our consolidated balance sheet and the
possibility that we may be required to change the manner in which
we fund those assets;
- the financial strength and continuing
viability of the counterparties with which we or our clients do
business and to which we have investment, credit or financial
exposure;
- the credit quality, credit agency
ratings, and fair values 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 in our
consolidated statement of income;
- delays or difficulties in the execution
of our previously announced business operations and IT
transformation program, which could lead to changes in our
estimates of the charges, expenses or savings associated with the
planned program, resulting in increased volatility of our
earnings;
- the maintenance of credit agency
ratings for our debt and depository obligations as well as the
level of credibility of credit agency ratings;
- the risks that acquired businesses will
not be integrated successfully, or that the integration will take
longer than anticipated, that expected synergies will not be
achieved or unexpected disynergies will be experienced, that client
and deposit retention goals will not be met, that other regulatory
or operational challenges will be experienced and that disruptions
from the transaction will harm relationships with clients,
employees or regulators;
- the ability to complete acquisitions,
divestitures and joint ventures, including the ability to obtain
regulatory approvals, the ability to arrange financing as required
and the ability to satisfy closing conditions;
- the performance of and demand for the
products and services we offer, including the level and timing of
redemptions and withdrawals from our collateral pools and other
collective investment products;
- the possibility that our clients will
incur substantial losses in investment pools where we act as agent,
and the possibility of significant reductions in the valuation of
assets;
- our ability to attract deposits and
other low-cost, short-term funding;
- potential changes to the competitive
environment, including changes due to the effects of consolidation,
and perceptions of State Street as a suitable service provider or
counterparty;
- the level and volatility of interest
rates and the performance and volatility of securities, credit,
currency and other markets in the U.S. and internationally;
- our ability to measure the fair value
of the investment securities on our consolidated balance
sheet;
- the results of litigation, government
investigations and similar disputes or proceedings;
- our ability to control operating risks,
data security breach risks, information technology systems risks
and outsourcing risks, and our ability to protect our intellectual
property rights, the possibility of errors in the quantitative
models we use to manage our business and the possibility that our
controls will prove insufficient, fail or be circumvented;
- adverse publicity or other reputational
harm;
- our ability to grow revenue, attract
and/or retain and compensate highly skilled people, control
expenses and attract the capital necessary to achieve our business
goals and comply with regulatory requirements;
- the potential for new products and
services to impose additional costs on us and expose us to
increased operational risk;
- changes in accounting standards and
practices; and
- changes in tax legislation and in the
interpretation of existing tax laws by U.S. and non-U.S. tax
authorities that affect 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 our 2010 Annual Report on Form 10-K and
our subsequent SEC filings. We encourage investors to read these
filings, particularly the sections on risk factors, for additional
information with respect to any forward-looking statements and
prior to making any investment decision. The forward-looking
statements contained in this presentation speak only as of the date
hereof, July 19, 2011, and we do not undertake efforts to revise
those forward-looking statements to reflect events after that
date.
STATE STREET CORPORATION Earnings Release
Addendum CONSOLIDATED FINANCIAL HIGHLIGHTS
June 30, 2011 Quarters Ended % Change
Q2 2011 Q2 2011 (Dollars in millions, except per share amounts or
where otherwise noted)
June 30, March 31, June 30, vs. vs.
2011 2011 2010 Q1 2011 Q2
2010 Revenue: Fee revenue
$ 1,892 $ 1,791 $
1,696 6
%
12
%
Net interest revenue (1)
572 577 658 (1 ) (13 ) Net gains
from sales of available-for-sale securities
62 4 3 Losses
from other-than-temporary impairment
(35 ) (11 ) (53
) Total Revenue
2,491 2,361 2,304 6 8 Provision for Loan
Losses
2 (1 ) 10 Total Expenses: Expenses from operations
1,757 1,683 1,468 4 20 Securities lending charge - - 414
Acquisition and restructuring costs and U.K. bonus tax, net
17 19 62 Net Income
513 471 432 9 19 Net
Income Available to Common Shareholders
502 466 427
Diluted Earnings Per Common Share
1.00 .93 .87 8 15
Average Diluted Common Shares Outstanding (in thousands)
501,044 500,980 498,886 Cash Dividends Declared Per
Common Share
$ .18 $ .18 $ .01 Closing Price Per
Share of Common Stock (at quarter end)
45.09 44.94 33.82
Ratios: Return on average common equity
10.6
%
10.5
%
11.0
%
Net interest margin, fully taxable-equivalent basis
1.76
1.85 2.21 Tier 1 risk-based capital
18.9 19.6 15.1 Total
risk-based capital
20.7 21.6 16.4 Tier 1 leverage
8.6
8.7 7.8 Tier 1 common to risk-weighted assets (2)
16.8 17.5
13.1 Tangible common equity to tangible assets (2)
7.3 7.4
6.2 Tangible common equity to risk-weighted assets (2)
16.6
16.7 11.9 At Quarter End: Assets Under Custody and
Administration (3) (in trillions)
$ 22.76 $ 22.61 $
19.03 Assets Under Management (in trillions)
2.12 2.12 1.84
Six Months Ended % Change 2011
June 30,
June 30, vs. (Dollars in millions, except per share amounts)
2011 2010 2010 Revenue: Fee revenue
$ 3,683 $ 3,236 14
%
Net interest revenue (1)
1,149 1,319 (13 ) Net gains from
sales of available-for-sale securities
66 195 Losses from
other-than-temporary impairment
(46 ) (150 ) Total
Revenue
4,852 4,600 5 Provision for Loan Losses
1 25
Total Expenses: Expenses from operations
3,440 3,034 13
Securities lending charge
- 414 Acquisition and
restructuring costs and U.K. bonus tax, net
36 75 (52 ) Net
Income
984 927 6 Net Income Available to Common
Shareholders
968 919 5 Diluted Earnings Per Common
Share
1.93 1.86 4 Average Diluted Common Shares
Outstanding (in thousands):
500,753 498,295 Cash
Dividends Declared Per Common Share
$ .36 $ .02
Return on Average Common Equity
10.6
%
12.2
%
Net interest margin, fully taxable-equivalent basis
1.80
2.27 (1) Amounts for quarters ended June 30, 2011, March 31,
2011 and June 30, 2010 included discount accretion related to
former conduit securities of $51 million, $62 million and $172
million, respectively, and $113 million and $384 million for the
six months ended June 30, 2011 and 2010, respectively. (2) Refer to
accompanying reconciliations for additional information. (3)
Includes assets under custody of $16.79 trillion, $16.69 trillion
and $14.00 trillion, respectively.
STATE STREET
CORPORATION Earnings Release Addendum
SELECTED CONSOLIDATED
FINANCIAL INFORMATION Quarters and Six Months Ended June 30,
2011 and June 30, 2010 Quarters Ended Six Months Ended
June 30, June 30,
June 30, June 30, (Dollars in
millions, except per share amounts)
2011 2010
% Change
2011 2010 % Change
Fee
Revenue: Servicing fees
$ 1,124 $ 973 16 %
$ 2,219 $ 1,868 19 % Management fees
250 201
24
486 412 18 Trading services
311 326 (5)
613
568 8 Securities finance
137 109 26
203 181 12
Processing fees and other
70 87 (20)
162 207 (22) Total fee revenue
1,892 1,696 12
3,683 3,236 14
Net Interest Revenue: Interest
revenue
719 846 (15)
1,453 1,724 (16) Interest
expense
147 188 (22)
304 405
(25) Net interest revenue (1)
572 658 (13)
1,149
1,319 (13)
Gains (Losses) related to investment
securities, net: Net gains from sales of available-for-sale
securities
62 3
66 195 Losses from
other-than-temporary impairment
(44) (240)
(79) (480)
Losses not related to credit
9 187
33 330 Gains (Losses) related to investment
securities, net
27 (50)
20
45 Total revenue
2,491 2,304 8.1
4,852
4,600 5.5 Provision for loan losses
2 10
1 25
Expenses: Salaries and employee benefits
1,009
849 19
1,983 1,732 14 Information systems and communications
199 174 14
390 341 14 Transaction processing services
193 164 18
373 317 18 Occupancy
113 116 (3)
220 234 (6) Securities lending charge
- 414
-
414 Acquisition and restructuring costs
17 41 (59)
36
54 (33) Other
243 186 31
474
431 10 Total expenses
1,774 1,944 (8.7)
3,476 3,523 (1.3) Income before income tax
expense
715 350 104
1,375 1,052 31 Income tax expense
(benefit)
202 (82)
391
125
Net income $ 513 $ 432 19
$
984 $ 927 6
Adjustments to net income:
Dividends on preferred stock
$ (7) $
-
$ (7) $
- Earnings allocated to participating
securities
(4) (5)
(9)
(8)
Net income available to common shareholders $
502 $ 427
$ 968 $ 919
Earnings Per
Common Share: Basic
$ 1.01 $ .87 16
$
1.95 $ 1.86 5 Diluted
1.00 .87 15
1.93 1.86 4
Average Common Shares Outstanding (in thousands):
Basic
496,806 495,606
497,137 495,099 Diluted
501,044 498,886
500,753 498,295 Selected
consolidated financial information presented above was prepared in
accordance with accounting principles generally accepted in the
U.S. (1) Net interest revenue on a fully taxable-equivalent
basis was $605 million and $689 million for the quarters ended June
30, 2011 and 2010, respectively, and $1.21 billion and $1.38
billion for the six months ended June 30, 2011 and 2010,
respectively. These amounts included tax-equivalent adjustments of
$33 million and $31 million for the quarters ended June 30, 2011
and 2010, respectively, and $64 million and $63 million for the six
months ended June 30, 2011 and 2010, respectively.
STATE
STREET CORPORATION Earnings Release Addendum
SELECTED CONSOLIDATED FINANCIAL
INFORMATION Quarters Ended June 30, 2011 and March 31,
2011 Quarters Ended
June 30, March 31,
(Dollars in millions, except per share amounts)
2011
2011 % Change
Fee Revenue: Servicing fees
$ 1,124 $ 1,095 3 % Management fees
250 236 6
Trading services
311 302 3 Securities finance
137 66
108 Processing fees and other
70 92 (24) Total
fee revenue
1,892 1,791 6
Net Interest
Revenue: Interest revenue
719 734 (2) Interest expense
147 157 (6) Net interest revenue (1)
572 577 (1)
Gains (Losses) related to investment
securities, net: Net gains from sales of available-for-sale
securities
62 4 Losses from other-than-temporary impairment
(44) (35) Losses not related to credit
9
24 Gains (Losses) related to investment securities, net
27 (7) Total revenue
2,491 2,361
5.5 Provision for loan losses
2 (1)
Expenses: Salaries and employee benefits
1,009 974 4
Information systems and communications
199 191 4 Transaction
processing services
193 180 7 Occupancy
113 107 6
Acquisition and restructuring costs
17 19 (11) Other
243 231 5 Total expenses
1,774
1,702 4.2 Income before income tax expense
715 660 8 Income
tax expense
202 189
Net income $
513 $ 471 9
Adjustments to net income:
Dividend on preferred stock
$ (7) $
- Earnings
allocated to participating securities
(4) (5)
Net income available to common shareholders $
502 $ 466
Earnings Per Common Share: Basic
$ 1.01 $ .94 7 Diluted
1.00 .93 8
Average Common Shares Outstanding (in thousands): Basic
496,806 497,471 Diluted
501,044 500,980
Selected consolidated financial Information presented above was
prepared in accordance with accounting principles generally
accepted in the U.S. (1) Net interest revenue on a fully
taxable-equivalent basis was $605 million and $608 million for the
quarters ended June 30, 2011 and March 31, 2011, respectively.
These amounts included tax-equivalent adjustments of $33 million
and $31 million for the quarters ended June 30, 2011 and March 31,
2011, respectively.
STATE STREET CORPORATION
Earnings Release Addendum SELECTED
CONSOLIDATED OPERATING-BASIS FINANCIAL INFORMATION (NON-GAAP
PRESENTATION) Quarters and Six Months Ended June 30, 2011
and June 30, 2010
State Street prepares its consolidated statement of income in
accordance with accounting principles generally accepted in the
U.S., or GAAP. In addition, State Street presents financial
information on a non-GAAP basis, referred to as “operating” basis.
Management measures and compares certain financial information on
an operating basis, as it believes that this presentation supports
meaningful comparisons from period to period and the analysis of
comparable financial trends with respect to State Street’s normal
ongoing business operations. Management believes that
operating-basis financial information, which reports revenue from
non-taxable sources on a fully taxable-equivalent basis and
excludes the impact of revenue and expenses outside of the normal
course of business, facilitates an investor’s understanding and
analysis of State Street’s underlying financial performance and
trends in addition to financial information prepared in accordance
with GAAP. The financial information presented below has been
prepared on an operating basis; reconciliations of this information
to financial information prepared in accordance with GAAP is
included in this Earnings Release Addendum.
Quarters Ended (1) Six Months Ended (1)
June 30, June 30,
June 30, June 30, (Dollars in
millions, except per share amounts)
2011 2010 %
Change
2011 2010 % Change
Fee Revenue:
Servicing fees
$ 1,124 $ 973 16 %
$
2,219 $ 1,868 19 % Management fees
250 201 24
486 412 18 Trading services
311 326 (5)
613
568 8 Securities finance
137 109 26
203 181 12
Processing fees and other
70 87 (20)
162 207 (22) Total fee revenue
1,892 1,696 12
3,683 3,236 14
Net Interest Revenue: Interest
revenue, operating basis
701 705 (1)
1,404 1,403 -
Interest expense
147 188 (22)
304 405 (25) Net interest revenue, operating basis
554 517 7
1,100 998 10 Gains (Losses) related
to investment securities, net
27 (50)
20 45 Total revenue, operating basis (2)
2,473
2,163 14.3
4,803 4,279 12.2 Provision for loan losses
2 10
1 25
Expenses: Salaries and
employee benefits
1,009 828 22
1,983 1,711 16
Information systems and communications
199 174 14
390
341 14 Transaction processing services
193 164 18
373
317 18 Occupancy
113 116 (3)
220 234 (6) Other
243 186 31
474 431 10 Total
expenses, operating basis (2)
1,757 1,468 19.7
3,440 3,034 13.4 Income before income tax
expense, operating basis
714 685 4
1,362 1,220 12
Income tax expense, operating basis
187 190
360 322
Tax-equivalent adjustment
33 31
64 63
Net income, operating basis $
494 $ 464 6
$ 938 $ 835 12
Adjustments to net income: Dividend on preferred stock
$ (7) $ -
$ (7) $ - Earnings allocated
to participating securities
(4) (5)
(9) (7)
Net income available to common
shareholders, operating basis $ 483 $ 459
$ 922 $ 828
Diluted earnings per common
share, operating basis $ .96 $ .93 3
$
1.84 $ 1.68 10
Average diluted common shares
outstanding (in thousands) 501,044 498,886
500,753 498,295
Return on average common equity,
operating basis 10.2 % 11.8 %
10.1
% 11.0 % (1) Refer to the accompanying
reconciliation of operating-basis results to reported results. (2)
For the quarter ended June 30, 2011, negative operating leverage in
the year-over-year comparison was 540 basis points, based on an
increase in total operating-basis revenue of 14.3% and an increase
in total operating-basis expenses of 19.7%. For the six months
ended June 30, 2011, negative operating leverage in the
year-over-year comparison was 120 basis points, based on an
increase in total operating-basis revenue of 12.2% and an increase
in total operating-basis expenses of 13.4%.
STATE STREET
CORPORATION Earnings Release Addendum
SELECTED CONSOLIDATED OPERATING-BASIS FINANCIAL INFORMATION
(NON-GAAP PRESENTATION) Quarters Ended June 30, 2011 and
March 31, 2011
State Street prepares its consolidated statement of income in
accordance with accounting principles generally accepted in the
U.S., or GAAP. In addition, State Street presents financial
information on a non-GAAP basis, referred to as “operating” basis.
Management measures and compares certain financial information on
an operating basis, as it believes that this presentation supports
meaningful comparisons from period to period and the analysis of
comparable financial trends with respect to State Street’s normal
ongoing business operations. Management believes that
operating-basis financial information, which reports revenue from
non-taxable sources on a fully taxable-equivalent basis and
excludes the impact of revenue and expenses outside of the normal
course of business, facilitates an investor’s understanding and
analysis of State Street’s underlying financial performance and
trends in addition to financial information prepared in accordance
with GAAP. The financial information presented below has been
prepared on an operating basis; reconciliations of this information
to financial information prepared in accordance with GAAP is
included in this Earnings Release Addendum.
Quarters Ended (1)
June 30, March 31, (Dollars
in millions, except per share amounts)
2011 2011
% Change
Fee Revenue: Servicing fees
$
1,124 $ 1,095 3 % Management fees
250 236 6 Trading
services
311 302 3 Securities finance
137 66 108
Processing fees and other
70 92 (24) Total fee
revenue
1,892 1,791 6
Net Interest Revenue:
Interest revenue, operating basis
701 703 - Interest expense
147 157 (6) Net interest revenue, operating
basis
554 546 1 Gains (Losses) related to investment
securities, net
27 (7) Total revenue,
operating basis (2)
2,473 2,330 6.1 Provision for
loan losses
2 (1)
Expenses: Salaries and
employee benefits
1,009 974 4 Information systems and
communications
199 191 4 Transaction processing services
193 180 7 Occupancy
113 107 6 Other
243
231 5 Total expenses, operating basis (2)
1,757 1,683 4.4 Income before income tax expense,
operating basis
714 648 10 Income tax expense
187 173
Tax-equivalent adjustment
33 31
Net income,
operating basis $ 494 $ 444 11
Adjustments to net income: Dividend on preferred stock
$ (7) $ - Earnings allocated to participating
securities
(4) (5)
Net income available to
common shareholders, operating basis $ 483 $ 439
Diluted earnings per common share, operating basis
$ .96 $ .88 9
Average diluted common shares
outstanding (in thousands) 501,044 500,980
Return on average common equity, operating basis 10.2
% 9.9 % (1) Refer to the accompanying
reconciliation of operating-basis results to reported results. (2)
For the quarter ended June 30, 2011, positive operating leverage in
the quarter-over-quarter comparison was 170 basis points, based on
an increase in total operating-basis revenue of 6.1% and an
increase in total operating-basis expenses of 4.4%.
STATE
STREET CORPORATION Earnings Release Addendum
RECONCILIATION OF REPORTED RESULTS TO OPERATING-BASIS
RESULTS Quarter and Six Months Ended June 30, 2011
The tables presented below reconcile financial information
prepared on a non-GAAP, or operating, basis to financial
information prepared in accordance with GAAP.
(Dollars in
millions, except per share amounts)
Quarter Ended June 30,
2011 Six Months Ended June 30, 2011
Reported Operating Reported Operating
Results Adjustments Results Results
Adjustments Results Fee Revenue: Servicing
fees
$ 1,124 $ 1,124 $
2,219 $ 2,219 Management fees
250
250 486 486 Trading services
311
311 613 613 Securities finance
137
137 203 203 Processing fees and other
70 70 162 162
Total fee revenue
1,892 1,892 3,683
3,683 Net Interest Revenue: Interest revenue
719 $ (18)
(1)
701 1,453 $ (49) (5)
1,404 Interest expense
147 -
147 304 -
304 Net interest revenue
572 (18) 554
1,149 (49) 1,100 Gains related to
investment securities, net:
27 -
27 20 - 20
Total revenue 2,491 (18) 2,473
4,852 (49) 4,803 Provision for loan
losses
2 - 2 1 - 1
Expenses: Salaries and employee benefits
1,009
1,009 1,983 1,983 Information systems and
communications
199 199 390 390
Transaction processing services
193 193 373
373 Occupancy
113 113 220 220
Acquisition and restructuring costs
17 (17)
(2) - 36 (36) (6) - Other
243 - 243 474
- 474 Total expenses
1,774 (17) 1,757
3,476 (36) 3,440 Income before
income tax expense
715 (1) 714 1,375
(13) 1,362 Income tax expense
202 (15)
(3) 187 391 (31) (3) 360
Tax-equivalent adjustment
- 33
(4) 33 - 64
(4) 64 Net income $ 513
$ (19) $ 494 $ 984
$ (46) $ 938 Adjustments to
net income: Dividend on preferred stock
$ (7)
$ (7) $ (7) $ (7)
Earnings allocated to participating securities
(4)
(4) (9)
(9) Net income available to common
shareholders $ 502 $ (19) $
483 $ 968 $ (46) $
922 Diluted earnings per common share $
1.00 $ (.04) $ .96 $
1.93 $ (.09) $ 1.84
Average diluted common shares outstanding (in thousands)
501,044 501,044 501,044 500,753
500,753 500,753 Return on average common
equity 10.6 % (0.4) % 10.2
% 10.6 % (0.5) % 10.1
% (1) Represents tax-equivalent adjustment of
$33 million, not included in reported results, net of $51 million
of discount accretion related to former conduit securities. (2)
Represents $13 million of merger and integration costs and $4
million of restructuring charges related to the business operations
and information technology transformation program. (3) Represents
net tax effect of non-operating adjustments.
(4) Represents tax-equivalent adjustment,
not included in reported results.
(5) Represents tax-equivalent adjustment of $64 million, not
included in reported results, net of $113 million of discount
accretion related to former conduit securities. (6) Represents $27
million of merger and integration costs and $9 million of
restructuring charges related to the business operations and
information technology transformation program.
STATE
STREET CORPORATION Earnings Release Addendum
RECONCILIATION OF REPORTED RESULTS TO OPERATING-BASIS
RESULTS Quarter and Six Months Ended June 30, 2010
The tables presented below reconcile financial information
prepared on a non-GAAP, or operating, basis to financial
information prepared in accordance with GAAP.
(Dollars in millions,
except per share amounts)
Quarter Ended June 30, 2010 Six
Months Ended June 30, 2010 Reported
Operating Reported Operating Results
Adjustments Results Results Adjustments
Results Fee Revenue: Servicing fees $ 973 $ 973 $
1,868 $ 1,868 Management fees 201 201 412 412 Trading services 326
326 568 568 Securities finance 109 109 181 181 Processing fees and
other 87 87 207 207 Total fee revenue
1,696 1,696 3,236 3,236
Net Interest Revenue:
Interest revenue 846 $ (141) (1) 705 1,724 $ (321) (7) 1,403
Interest expense 188 - 188 405 -
405 Net interest revenue 658 (141) 517 1,319 (321) 998
Gains (Losses) related to investment securities, net:
(50) - (50) 45 - 45
Total
revenue 2,304 (141) 2,163 4,600 (321) 4,279 Provision
for loan losses 10 - 10 25 - 25
Expenses: Salaries
and employee benefits 849 (21) (2) 828 1,732 (21) (2) 1,711
Information systems and communications 174 - 174 341 - 341
Transaction processing services 164 - 164 317 - 317 Occupancy 116 -
116 234 - 234 Securities lending charge 414 (414) (3) - 414 (414)
(3) - Acquisition and restructuring costs 41 (41) (4) - 54 (54) (4)
- Other 186 - 186 431 -
431 Total expenses 1,944 (476) 1,468
3,523 (489) 3,034 Income before income tax expense
350 335 685 1,052 168 1,220 Income tax expense (benefit) (82) 272
(5) 190 125 197 (5) 322 Tax-equivalent adjustment -
31 (6) 31 - 63 (6) 63
Net income
$ 432 $ 32 $ 464 $ 927 $ (92) $ 835 Earnings allocated to
participating securities (5) - (5) (8)
1 (8) (7)
Net income available to common
shareholders $ 427 $ 32 $ 459 $ 919 $ (91) $ 828
Diluted earnings per common share $ .87 $ .06 $ .93 $ 1.86 $
(.18) $ 1.68
Average diluted common shares outstanding
(in thousands) 498,886 498,886 498,886 498,295 498,295 498,295
Return on average common equity 11.0 % 0.8 % 11.8 %
12.2 % (1.2) % 11.0 % (1) Represents tax-equivalent
adjustment of $31 million, not included in reported results, net of
$172 million of discount accretion related to former conduit
securities. (2) Represents a tax on bonus payments to employees in
the U.K.
(3) Represents a charge, including
associated costs of $9 million, to provide for a one-time cash
contribution of $330 million to the SSgA lending fund collateral
pools and liquidating trusts and $75 million to establish a reserve
to address potential inconsistencies in the application of the
redemption policy for the agency lending collateral pools.
(4) Represents merger and integration costs. (5) Represents a
discrete tax benefit of $180 million generated by the restructuring
of former non-U.S. conduit securities and the net tax effect of
non-operating adjustments. (6) Represents tax-equivalent
adjustment, not included in reported results. (7) Represents
tax-equivalent adjustment of $63 million, not included in reported
results, net of $384 million of discount accretion related to
former conduit securities. (8) Represents effect of the difference
between reported and operating-basis earnings on allocation to
participating securities.
STATE STREET CORPORATION
Earnings Release Addendum RECONCILIATION OF
REPORTED RESULTS TO OPERATING-BASIS RESULTS Quarter Ended
March 31, 2011 The table presented below reconciles
financial information prepared on a non-GAAP, or operating, basis
to financial information prepared in accordance with GAAP.
(Dollars in millions, except per share amounts)
Quarter
Ended March 31, 2011 Reported Operating-Basis
Results Adjustments Results
Fee Revenue: Servicing fees $
1,095 $ 1,095 Management fees 236 236 Trading services 302 302
Securities finance 66 66 Processing fees and other 92
92 Total fee revenue 1,791 1,791
Net Interest
Revenue: Interest revenue 734 $ (31) (1) 703 Interest expense
157 - 157 Net interest revenue 577 (31) 546
Losses related to investment securities, net (7)
- (7)
Total revenue 2,361 (31) 2,330
Provision for loan losses (1) - (1)
Expenses:
Salaries and employee benefits 974 974 Information systems and
communications 191 191 Transaction processing services 180 180
Occupancy 107 107 Acquisition and restructuring costs 19 (19) (2) -
Other 231 - 231 Total expenses 1,702
(19) 1,683 Income before income tax expense 660 (12)
648 Income tax expense 189 (16) (3) 173 Tax-equivalent adjustment
- 31 (4) 31
Net income $ 471 $ (27) $
444 Earnings allocated to participating securities
(5) - (5)
Net income available to common
shareholders $ 466 $ (27) $ 439
Diluted earnings per
common share $ .93 $ (.05) $ .88
Average diluted
common shares outstanding (in thousands) 500,980 500,980
500,980
Return on average common equity 10.5 % (0.6)
% 9.9 % (1) Represents tax-equivalent
adjustment of $31 million, not included in reported results, net of
$62 million of discount accretion related to former conduit
securities. (2) Represents $14 million of merger and integration
costs and $5 million of restructuring charges related to the
business operations and information technology transformation
program. (3) Represents net tax effect of non-operating
adjustments. (4) Represents tax-equivalent adjustment, not included
in reported results.
STATE STREET CORPORATION
Earnings Release Addendum
CONSOLIDATED STATEMENT OF CONDITION June 30,
December 31, June 30, (Dollars in millions, except per share
amounts)
2011 2010 2010
Assets
Cash and due from banks
$ 4,572 $ 3,311 $ 5,312
Interest-bearing deposits with banks
30,899 22,234 20,298
Securities purchased under resale agreements
1,923 2,928
2,750 Trading account assets
2,427 479 203 Investment
securities available for sale
94,783 81,881 79,936
Investment securities held to maturity
11,131 12,249 18,166
Loans and leases (less allowance for losses of $54, $100 and $102)
12,878 11,857 11,687 Premises and equipment
1,853
1,843 1,839 Accrued income receivable
1,871 1,733 1,727
Goodwill
5,748 5,597 5,380 Other intangible assets
2,616 2,593 2,731 Other assets
19,754
13,800 12,046 Total assets
$ 190,455 $ 160,505
$ 162,075
Liabilities Deposits: Noninterest-bearing
$ 28,065 $ 17,464 $ 11,704 Interest-bearing -- U.S.
987 6,957 10,226 Interest-bearing -- Non-U.S.
96,357 73,924 73,813 Total deposits
125,409 98,345 95,743 Securities sold under
repurchase agreements
9,171 7,599 9,058 Federal funds
purchased
3,076 7,748 5,447 Other short-term borrowings
8,642 8,694 15,749 Accrued expenses and other liabilities
14,779 11,782 11,473 Long-term debt
9,544
8,550 8,546 Total liabilities
170,621 142,718
146,016
Shareholders' Equity Preferred stock, no par:
3,500,000 shares authorized; 5,001 shares issued and outstanding
500 - - Common stock, $1 par: 750,000,000 shares authorized;
504,051,907, 502,064,454 and 501,860,956 shares issued
504
502 502 Surplus
9,474 9,356 9,266 Retained earnings
9,430 8,634 8,015 Accumulated other comprehensive loss
160 (689) (1,707) Treasury stock, at cost (5,158,344,
420,016 and 433,556 shares)
(234) (16)
(17) Total shareholders' equity
19,834 17,787
16,059 Total liabilities and shareholders' equity
$
190,455 $ 160,505 $ 162,075
STATE STREET
CORPORATION Earnings Release Addendum Tangible Common
Equity and Tier 1 Common Ratios - Reconciliations As of
Period End The table set forth below
presents the calculations of State Street's ratios of tangible
common equity to total tangible assets and to total risk-weighted
assets, and its ratios of tier 1 common capital to total
risk-weighted assets. For the periods ended
June 30,
March 31, June 30, (Dollars in millions)
2011 2011 2010
Consolidated Total Assets $ 190,455 $
171,796 $ 162,075 Less: Goodwill
5,748 5,720 5,380 Other
intangible assets
2,616 2,644 2,731 Excess reserves held at
central banks
22,148 13,295
14,768 Adjusted assets
159,943 150,137 139,196
Plus deferred tax liabilities
775 781
788 Total tangible assets
A $
160,718 $ 150,918 $ 139,984
Consolidated Total Common Shareholders' Equity
$ 19,334 $ 18,680 $ 16,059 Less: Goodwill
5,748 5,720 5,380 Other intangible assets
2,616 2,644 2,731
Adjusted equity
10,970 10,316 7,948 Plus deferred tax
liabilities
775 781 788
Total tangible common equity
B $ 11,745
$ 11,097 $ 8,736 Tangible common equity
ratio
B/A 7.3 % 7.4 % 6.2 % Ratio of
tangible common equity to total risk-weighted assets
B/D
16.6 % 16.7 % 11.9 %
Tier 1 Capital
$ 13,333 $ 13,077 $ 11,107 Less: Trust preferred
securities
950 950 1,450 Preferred stock
500
500 -
Tier 1 common
capital C
$
11,883 $ 11,627 $ 9,657
Total
risk-weighted assets D
$
70,598
$
66,597
$
73,532 Ratio of tier 1 common capital to total risk-weighted
assets
C/D 16.8 % 17.5 % 13.1 %
STATE STREET CORPORATION BASEL III CAPITAL
RECONCILIATION June 30, 2011 Current
Requirements (1) Basel III Requirements (2) (Dollars in
millions) Tier 1 capital
$ 13,333 A
12,846
Less: Trust preferred securities
950
637
Preferred stock
500
500
Tier 1 common capital
11,883 B
11,709
Total capital
14,609 C
14,538
Total risk-weighted assets
70,598 D
99,476
Adjusted quarterly average assets
155,030 E
203,030
Tier 1 capital ratio
18.9 % A/D
12.9%
Total capital ratio
20.7
% C/D
14.6%
Tier 1 common ratio
16.8 % B/D
11.8%
Tier 1 leverage ratio
8.6 % A/E
6.3%
(1) Actual (unaudited) total capital, tier 1 capital and tier 1
leverage ratios were calculated in accordance with currently
applicable bank regulatory requirements. Tier 1 common ratio was
calculated by dividing (a) tier 1 capital less non-common elements
including qualifying perpetual preferred stock, qualifying minority
interest in subsidiaries and qualifying trust preferred securities
(tier 1 common capital), by (b) total risk-weighted assets, which
were calculated in accordance with currently applicable bank
regulatory requirements.
(2) For purposes of the calculations
in accordance with Basel III (see below), total capital, tier 1
capital and tier 1 leverage ratios and total risk-weighted assets
were calculated based on State Street’s estimates, based upon
published statements of the Basel Committee and the Federal
Reserve, of the effects of the requirements under Basel III
affecting capital. The tier 1 common ratio is calculated by
dividing (a) tier 1 common capital (as described in footnote (1)),
but with tier 1 capital calculated in accordance with Basel III by
(b) total risk-weighted assets, which are calculated in accordance
with Basel III. State Street reports its financial ratios in
accordance with the requirements of the Board of Governors of the
Federal Reserve System, which has not yet adopted Basel III. There
remains considerable uncertainty concerning the timing for adoption
and implementation of Basel III by the Federal Reserve. When
adopted, the Federal Reserve may implement Basel III with some or
more modifications or adjustments. Therefore, State Street’s
current understanding of Basel III, as reflected in the table
above, may be different from the ultimate application of Basel III
by the Federal Reserve to State Street.
• Tier 1 capital used in the
calculation of the tier 1 capital and tier 1 leverage ratios
decreased by $487 million, as a result of applying estimated Basel
III requirements to tier 1 capital of $13.333 billion as of June
30, 2011. Total capital used in the calculation of the
total capital ratio decreased by $71 million, as a result of
applying estimated Basel III requirements to total capital of
$14.609 billion as of June 30, 2011.
• Tier 1 common capital used
in the calculation of the tier 1 common ratio was $11.709 billion,
reflecting the adjustments to tier 1 capital described in the first
bullet above. Tier 1 common capital used in the calculation is
therefore calculated as adjusted tier 1 capital of $12.846 billion
less non-common elements of capital, composed of trust preferred
securities of $637 million and preferred stock of $500 million as
of June 30, 2011, resulting in tier 1 common capital of $11.709
billion. At June 30, 2011, there was no qualifying minority
interest in subsidiaries.
• Total risk-weighted assets
used in the calculation of the total capital, tier 1 capital and
tier 1 common ratios increased by $28.878 billion as a result of
applying estimated Basel III requirements to total risk-weighted
assets of $70.598 billion as of June 30, 2011.
• Consolidated adjusted
quarterly average assets used in the calculation of the leverage
ratio increased by $48.0 billion as a result of applying estimated
Basel III requirements to the actual consolidated adjusted
quarterly average assets as of June 30, 2011 of $155.030
billion.
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