State Street Corporation today announced third-quarter 2011
earnings per common share of $1.10, compared to $1.08 in the third
quarter of 2010. Revenue of $2.427 billion in the third quarter of
2011 increased 5% from $2.310 billion in the third quarter of 2010
and expenses were $1.798 billion, up 18% from $1.527 billion in the
third quarter of 2010. Third-quarter 2011 revenue included net
interest revenue of $46 million, or $0.06 per share, associated
with discount accretion related to former conduit securities
consolidated onto the Company’s balance sheet in 2009.
Third-quarter 2011 results also included a discrete tax benefit of
$91 million, or $0.18 per share, related to a restructuring of
former non-U.S. conduit assets and $85 million, or $0.10 per share,
attributable to acquisition and restructuring costs. Third-quarter
2010 results included net interest revenue of $189 million, or
$0.23 per share, associated with conduit-related discount accretion
and acquisition and restructuring costs of $23 million, or $0.03
per share. Return on average common shareholders’ equity was 11.2%
in the third quarter of 2011 compared to 12.9% in the third quarter
of 2010.
In the second quarter of 2011, the Company reported earnings per
common share of $1.00 on revenue of $2.491 billion. Expenses in the
second quarter of 2011 were $1.774 billion. Second-quarter 2011
revenue included net interest revenue of $51 million, or $0.06 per
share, associated with conduit-related discount accretion. Expenses
in that quarter included acquisition and restructuring costs of $17
million, or $0.02 per share. Return on average common shareholders’
equity was 10.6% in the second 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 earnings per common share in the third quarter
of 2011 were $0.96 compared to $0.86 in the third quarter of 2010
and $0.96 in the second quarter of 2011. Operating-basis revenue in
the third quarter of 2011 was $2.413 billion, up 12.0% from $2.154
billion in the third quarter of 2010 and down 2.4% from $2.473
billion in the second quarter of 2011. Operating-basis expenses
increased to $1.713 billion, up 12.8% from $1.518 billion in the
third quarter of 2010 and down 2.5% from $1.757 billion in the
second quarter of 2011. On an operating basis, return on average
common shareholders’ equity was 9.8% in the third quarter of 2011,
down from 10.2% in both the third quarter of 2010 and the second
quarter of 2011.
Joseph L. Hooley, State Street's chairman, president and chief
executive officer, said, “Our third-quarter results demonstrate the
resiliency of our business model as our operating-basis revenues
increased from last year’s third quarter by about 12%, supported by
prior period new business wins as well as stronger foreign exchange
revenue. On an operating basis, we achieved positive operating
leverage compared to the second quarter, reflecting effective
expense control and expense savings from the business operations
and information technology transformation program we launched last
November. Salaries and benefits expenses declined during the third
quarter from the second quarter, as a result of reductions in
incentive compensation and our success in executing this
transformation program.”
Hooley continued, “In the third quarter we purchased
approximately 5.8 million of our common shares which brought the
total shares purchased in 2011 to 10.7 million, leaving about $225
million remaining to complete the previously announced share
purchase program authorized by our Board of Directors in March. We
ended the third quarter with a tier 1 common ratio of 16.0%. With
our strong capital position, we believe we are well positioned as
we formulate our 2012 capital plan to be submitted to the Federal
Reserve early next year.”
Hooley concluded, “As we approach the end of 2011 and plan for
2012, we expect to face a prolonged, worldwide low interest-rate
environment, constrained economic growth, anticipated higher
capital requirements, and increased regulatory and compliance
costs. We are addressing these challenges by remaining focused on
our clients and growing our business, while controlling expenses
with a goal of continuing to generate positive operating
leverage.”
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 operating-basis financial
information and to the tier 1 common and TCE ratios.
Q3
2011
Q2
2011
Increase/(Decrease)
Q3
2010
Increase/(Decrease)
(Dollars in millions, exceptper share
amounts orwhere otherwise noted)
Operating-basis measures for the quarters ended:
Total revenue(1) $ 2,413 $ 2,473 $ (60) (2.4)% $ 2,154 $ 259 12.0%
Total expenses(1) 1,713 1,757 (44) (2.5)% 1,518 195 12.8% Earnings
per common share(1) $ 0.96 $ 0.96 $ -
-%
$ 0.86 $ 0.10 11.6% Return on average common equity(1)
9.8%
10.2%
(40) bps
10.2%
(40) bps
As of period end: Total assets $ 208,242 $ 190,455 $ 17,787 9.3% $
172,964 $ 35,278 20.4% Net unrealized loss on investment portfolio,
after-tax
(259)
(94)
(165)
(175.5%)
(281)
22
7.8%
AUCM (dollars in billions): Assets under custody and
administration(2)
$
21,510
$
22,762
$
(1,252)
(5.5)%
$
20,226
$
1,284
6.3%
Assets under management
1,877
2,116
(239)
(11.3)%
1,959
(82)
(4.2%)
Capital structure: Total capital ratio 19.6% 20.8% (120) bps 17.1%
250 bps Tier 1 capital ratio 18.0% 18.9% (90) bps 15.8% 220 bps
Tier 1 leverage ratio 7.8% 8.6% (80) bps 8.3% (50) bps Tier 1
common ratio 16.0% 16.9% (90) bps 13.9% 210 bps TCE ratio 7.1% 7.3%
(20) bps 6.9% 20 bps TCE/RWA ratio 15.7% 16.7% (100) bps 13.3% 240
bps
(1) Presented on an operating basis, a
non-GAAP presentation.
(2) Includes assets under custody of
$15,714 billion, $16,789 billion, and $14,860 billion,
respectively, as of period end Q3 2011, Q2 2011, and Q3 2010.
Total assets were $208.2 billion and $190.5 billion and included
$33.7 billion and $22.1 billion of excess deposits held at the
Federal Reserve and other central banks at September 30, 2011 and
June 30, 2011, respectively. The average balance sheet for the
third quarter of 2011 was $181 billion, compared to $164 billion
for the second quarter of 2011 and $154 billion for the third
quarter of 2010. State Street’s regulatory capital ratios continue
to be strong as of September 30, 2011, with the Company’s total
capital ratio at 19.6%, its tier 1 capital ratio at 18.0% and its
tier 1 leverage ratio at 7.8%. In addition, at that date, the
Company’s tier 1 common ratio was 16.0%, its TCE ratio was 7.1%,
and its TCE to risk-weighted assets ratio was 15.7%. September 30,
2011 ratios adjusted for the effects of the applicable
methodologies provided for in the Basel III capital requirements
are: total capital ratio of 14.5%, tier 1 capital ratio of 12.8%,
tier 1 leverage ratio of 6.0%, and tier 1 common ratio of 11.7%.
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 September 30, 2011, the net after-tax unrealized
mark-to-market losses in the investment portfolio were $259
million, an increase from net unrealized mark-to-market losses of
$94 million at June 30, 2011, primarily due to a modest widening in
spreads, offset partially by lower interest rates, but down from
$281 million as of September 30, 2010, primarily due to lower
rates.
The Company expects to record aggregate pre-tax conduit-related
accretion of about $1.14 billion in interest revenue from September
30, 2011 through the remaining terms of the former conduit
securities, of which it continues to expect to record approximately
$40 million in the fourth quarter and a total of approximately $200
million in 2011. These expectations are based on numerous
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)
Q3 2011
Q2 2011
%
Increase/(Decrease)
Q3 2010
%
Increase/(Decrease)
Servicing fees $ 1,106 $ 1,124 (1.6)% $ 1,006 9.9%
Investment management fees 229 250 (8.4) 196 16.8 Trading services
revenue 334 311 7.4 228 46.5 Securities finance revenue 85 137
(38.0) 68 25.0 Processing fees and other revenue 90 70 28.6 71 26.8
Net interest revenue, fully taxable- equivalent basis(1) 564 554
1.8 568 (0.7) Gains related to investment securities, net 5
27 17
Total Operating-Basis Revenue $ 2,413
$ 2,473 (2.4)% $
2,154 12.0%
(1) Operating-basis information for the third and second
quarters of 2011, and the third quarter of 2010, included $32
million, $33 million, and $33 million, respectively, of
tax-equivalent adjustments, and excluded $46 million, $51 million,
and $189 million, respectively, of conduit-related discount
accretion. GAAP-basis net interest revenue for these periods was
$578 million, $572 million, and $724 million, respectively.
Operating-Basis Expenses
(non-GAAP)
(Dollars in millions)
Q3 2011 Q2 2011
% Increase/(Decrease)
Q3 2010
% Increase/(Decrease)
Salaries and employee benefits $ 965 $ 1,009 (4.4)% $ 871 10.8%
Information systems and communications
191
199
(4.0)
181
5.5
Transaction processing services 180 193 (6.7) 165 9.1 Occupancy 119
113 5.3 112 6.3 Other 258 243 6.2 189 36.5
Total Operating-Basis Expenses $ 1,713
$ 1,757 (2.5)% $ 1,518
12.8%
THIRD-QUARTER 2011 RESULTS VS. THIRD
QUARTER 2010
Servicing fees were up 10% to $1.106 billion from $1.006 billion
in the third quarter of 2010. The increase was attributable
primarily to net new business and the improvement in daily average
equity valuations. Total assets under custody and administration
were $21.510 trillion at September 30, 2011, up 6% compared with
$20.226 trillion at September 30, 2010. Daily average values for
the S & P 500 Index and the MSCI® EAFE IndexES were up
approximately 12% and 4%, respectively, from the third quarter of
2010.
Investment management fees, generated by State Street Global
Advisors, were $229 million, up 17% from $196 million in the third
quarter of 2010. The increase in management fees was attributable
primarily to increases in the average of month-end valuations in
worldwide equity markets, the 2011 acquisition of the Bank of
Ireland asset management business, and net new business installed.
Total assets under management at September 30, 2011, were $1.877
trillion, down 4% compared to $1.959 trillion at September 30, 2010
due to scheduled redemptions by the Department of the U.S.
Treasury. Average month-end equity valuations increased about 11%
and 3%, respectively, compared to the third quarter of 2010 as
measured by the S & P 500 and the MSCI® EAFE IndexES.
Trading services revenue, which includes foreign exchange
trading revenue and brokerage and other fees, was $334 million for
the third quarter of 2011, an increase of 46% from $228 million in
the third quarter of 2010. Foreign exchange trading revenue
increased 91% primarily due to higher volatility, as well as higher
volumes. Brokerage and other fees were up about 7% due to stronger
revenue from electronic trading.
Securities finance revenue was $85 million in the quarter, up
25% from $68 million in the third quarter of 2010, due primarily to
improved spreads. Processing fees and other revenue was $90
million, up 27% from $71 million due to $22 million of gains
related to real estate and certain leases.
Net interest revenue on a fully taxable-equivalent basis, which
includes conduit-related discount accretion, was $610 million in
the third quarter of 2011, compared to $757 million in the third
quarter of 2010. On an operating basis, which excludes discount
accretion, net interest revenue was $564 million, a decrease of 1%
from $568 million in the third quarter of 2010 primarily due to
lower yields on the investment portfolio, offset partially by
growth in client deposits and lower funding costs. Clients placed
additional deposits with State Street during the third quarter of
2011, which we invested with central banks, the impact of which
contributed to a lower net interest margin than we would otherwise
have achieved. Including this unusually high level of deposits, the
fully taxable-equivalent net interest margin, including the
discount accretion, was 156 basis points in the third quarter of
2011 compared to 236 basis points in the third quarter of 2010.
Operating-basis net interest margin, including the excess central
bank deposits, was 144 basis points in the third quarter of 2011
and excluding the excess deposits was 157 basis points, compared to
177 basis points in the third quarter of 2010.
In the third quarter of 2011, we recorded $15 million of net
gains from sales of available-for-sale securities and, separately,
$10 million of losses from other-than-temporary impairment,
resulting in $5 million of net gains related to investment
securities.
Operating-basis expenses of $1.713 billion in the third quarter
of 2011 increased 13% compared to $1.518 billion in the third
quarter of 2010 for several reasons, including an increase in
salaries and benefits expenses. Salaries and benefits expenses
increased 11% from $871 million to $965 million, primarily due to
year-over-year salary adjustments and acquisitions, as well as
about $13 million of expenses associated with non-recurring costs
for staff supporting the business operations and information
technology transformation program. Information systems and
communications expenses were $191 million, an increase of 6% from
$181 million due primarily to the impact of infrastructure
improvements. Transaction processing services expenses were up 9%
to $180 million from $165 million due to higher volumes in the
investment servicing business. Occupancy expenses increased to $119
million from $112 million. Other expenses increased 37%, or $69
million, to $258 million, primarily as a result of the impact of a
$50 million insurance recovery in the third quarter of 2010.
The effective tax rate on third-quarter 2011 GAAP-basis earnings
was 11.7% due primarily to the benefit from a restructuring of
former non-US. conduit assets, compared to 30.1% in the third
quarter of 2010. The effective tax rate on operating-basis earnings
for the third quarter of 2011 was 27.0%, consistent with our
previously disclosed annual outlook. Our effective tax rate on
operating-basis earnings for the full year 2011 is expected to be
between 27% and 28%.
THIRD-QUARTER 2011 RESULTS VS. THE SECOND
QUARTER 2011
Servicing fees were $1.106 billion, down 2% from $1.124 billion
in the second quarter due primarily to declines in daily average
equity valuations, offset partially by net new business installed.
Daily average values as measured by the S & P 500 and the MSCI®
EAFE IndexES decreased about 7% and 10%, respectively. Management
fees were $229 million down 8% from $250 million, due primarily to
lower average month-end equity valuations, offset partially by net
new business installed. Average month-end equity valuations for the
S & P 500 and MSCI® EAFE IndexES were down about 10% and 13%,
respectively. Trading services revenue, which includes foreign
exchange trading and brokerage and other fees, was $334 million, up
7% from $311 million. Foreign exchange trading revenue of $204
million increased 21% due to higher volatility. Brokerage and other
fee revenue was $130 million, down 8% from the second quarter due
to lower revenue from transition management, offset partially by
higher revenue from electronic trading. Securities finance revenue
was $85 million, down 38% from $137 million, primarily due to
seasonality in the second quarter. Processing fees and other
revenue was up 29% to $90 million due to $22 million of gains
related to real estate and leases.
Fully taxable-equivalent net interest revenue in the third
quarter of 2011 totaled $610 million, including discount accretion,
compared to $605 million in the second quarter. On an operating
basis, fully taxable-equivalent net interest revenue in the third
quarter of 2011 was $564 million, up 2% from $554 million due to an
increase in earning assets driven by an increase in client
deposits.
Compared to the second quarter of 2011, salaries and benefits
expense decreased 4% to $965 million from $1.009 billion, due to
reductions in incentive compensation and benefits achieved from the
business operations and IT transformation program. Information
systems and communications expense was $191 million, down 4% from
$199 million. Transaction processing expense was $180 million down
7% from $193 million, primarily due to lower volumes in the
investment servicing business. Occupancy expense increased 5% to
$119 million from $113 million. Other expenses were $258 million,
up about 6% from the second quarter due to an increase in
securities processing 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 and reported 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 risk-based 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 currently 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
currently 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 currently applicable regulatory requirements.
Capital Ratios
The total capital, tier 1 risk-based capital, or 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 risk-based common, or tier 1 common, ratio is
sometimes used by the Federal Reserve in connection with its
capital assessment and review programs. The tangible common equity,
or TCE, and TCE/risk-weighted assets, or RWA, ratios are other
capital ratios management believes provide additional context for
understanding and assessing the Company’s capital adequacy.
- The total capital, tier 1 capital,
and tier 1 leverage ratios, as applicable, are each calculated
in accordance with applicable bank regulatory requirements.
- The 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 the tier 1 common ratios as of
September 30, 2011, June 30, 2011, and September 30, 2010 are
provided in the addendum at the end of this news release.
- The 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 September 30, 2011, June 30,
2011, and September 30, 2010 are provided in the addendum at the
end of this news release.
- The 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 September 30, 2011, June
30, 2011, and September 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, October 18, 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 #36968947). 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#36968947), 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 (including those concerning our business
operations and information technology transformation program and
our investment portfolio), and additional financial information are
available on State Street’s website, at
www.statestreet.com/stockholder under “Investor Relations--Investor
News & Events and under the title “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 $21.510 trillion in assets under custody and
administration and $1.877 trillion in assets under management at
September 30, 2011, State Street operates in 26 countries and more
than 100 geographic markets and employs 29,685 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 and
capital 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, but not
always, 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 October 18,
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 regulatory developments 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 information
technology 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 results of, and costs associated
with, government investigations, litigation, and similar claims,
disputes, or proceedings;
- 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;
- 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 news release speak only as of the date
hereof, October 18, 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 September 30, 2011
Quarters Ended
% Change Q3 2011 Q3 2011 (Dollars in millions, except per share
amounts
September 30, June 30, September 30, vs. vs. or
where otherwise noted)
2011 2011 2010
Q2 2011 Q3 2010 Revenue: Fee revenue
$ 1,844 $
1,892 $ 1,569 (3 ) % 18 % Net interest revenue (1)
578 572
724 1 (20 ) Net gains from sales of available-for-sale securities
15 62 91 Net losses from other-than-temporary impairment
(10 ) (35 ) (74 ) Total Revenue
2,427 2,491
2,310 (3 ) 5 Provision for Loan Losses
- 2 1 Total Expenses:
Expenses from operations
1,713 1,757 1,518 (3 ) 13
Acquisition and restructuring costs and U.K. bonus tax, net
85 17 9 Income tax expense (2)
74 202 236 Net Income
555 513 546 8 2 Net Income Available to Common
Shareholders
543 502 540 Diluted Earnings Per Common
Share
1.10 1.00 1.08 10 2 Average Diluted Common
Shares Outstanding (in thousands)
494,780 501,044 498,159
Cash Dividends Declared Per Common Share
$ .18
$ .18 $ .01 Closing Price Per Share of Common Stock (at quarter
end)
32.16 45.09 37.66 Ratios: Return on average
common equity
11.2 % 10.6 % 12.9 % Net interest
margin, fully taxable-equivalent basis
1.56 1.76 2.36 Tier 1
risk-based capital
18.0 18.9 15.8 Total risk-based capital
19.6 20.8 17.1 Tier 1 leverage
7.8 8.6 8.3 Tier 1
common to risk-weighted assets (3)
16.0 16.9 13.9 Tangible
common equity to tangible assets (3)
7.1 7.3 6.9
Tangible common equity to risk-weighted
assets (3)
15.7 16.7 13.3 At Quarter End: Assets Under Custody
and Administration (4) (in trillions)
$ 21.51 $ 22.76
$ 20.23 Assets Under Management (in trillions)
1.88 2.12
1.96 Nine Months Ended % Change 2011
September 30, September 30, vs. (Dollars in millions, except
per share amounts)
2011 2010 2010
Revenue: Fee revenue
$ 5,527 $ 4,805 15 %
Net interest revenue (1)
1,727 2,043 (15 ) Net gains from sales of available-for-sale
securities
81 286 Net losses from other-than-temporary
impairment
(56 ) (224 ) Total Revenue
7,279
6,910 5 Provision for Loan Losses
1 26 Total Expenses:
Expenses from operations
5,153 4,552 13 Securities lending
charge
- 414 Acquisition and restructuring costs and U.K.
bonus tax, net
121 84 44
Income tax expense (2), (5)
465 361 Net Income
1,539 1,473 4 Net Income
Available to Common Shareholders
1,511 1,459 Diluted
Earnings Per Common Share
3.03 2.93 3 Average Diluted
Common Shares Outstanding (in thousands):
498,417 497,715
Cash Dividends Declared Per Common Share
$ .54
$ .03 Return on Average Common Equity
10.8 %
12.4 % Net interest margin, fully taxable-equivalent basis
1.71 2.30
(1) Amounts included discount accretion
related to former conduit securities of $46 million, $51 million
and $189 million for the quarters ended September 30, 2011, June
30, 2011 and September 30, 2010, respectively, and $159 million and
$573 million for the nine months ended September 30, 2011 and 2010,
respectively.
(2) Amounts for the three and nine months
ended September 30, 2011 reflected a discrete tax benefit of $91
million generated by a restructuring of former non-U.S. conduit
assets completed during the quarter ended September 30, 2011.
(3) Refer to accompanying reconciliations
for additional information.
(4) Includes assets under custody of
$15.71 trillion, $16.79 trillion and $14.86 trillion,
respectively.
(5) Amount for the nine months ended
September 30, 2010 reflected a discrete tax benefit of $180 million
generated by a restructuring of former non-U.S. conduit securities
during the quarter ended June 30, 2010.
STATE STREET CORPORATION Earnings Release
Addendum
SELECTED CONSOLIDATED FINANCIAL INFORMATION Quarters and
Nine Months Ended September 30, 2011 and September 30, 2010
Quarters Ended Nine Months Ended
September 30,
September 30,
September 30, September 30, (Dollars in
millions, except per share amounts)
2011 2010
% Change
2011 2010 % Change
Fee Revenue: Servicing fees
$ 1,106 $
1,006 10 %
$ 3,325 $ 2,874 16 % Management fees
229 196 17
715 608 18 Trading services
334 228
46
947 796 19 Securities finance
85 68 25
288
249 16 Processing fees and other
90 71
27
252 278 (9 ) Total fee
revenue
1,844 1,569 18
5,527 4,805 15
Net
Interest Revenue: Interest revenue
728 904 (19 )
2,181 2,628 (17 ) Interest expense
150
180 (17 )
454 585 (22 )
Net interest revenue (1)
578 724 (20 )
1,727 2,043
(15 )
Gains (Losses) related to investment securities,
net: Net gains from sales of available-for-sale securities
15 91
81 286 Losses from other-than-temporary
impairment
(25 ) (132 )
(104 ) (612 )
Losses not related to credit
15 58
48 388 Gains related to
investment securities, net
5 17
25 62 Total revenue
2,427 2,310 5.1
7,279 6,910 5.3 Provision for
loan losses
- 1
1 26
Expenses: Salaries
and employee benefits
965 857 13
2,948 2,589 14
Information systems and communications
191 181 6
581
522 11 Transaction processing services
180 165 9
553
482 15 Occupancy
119 112 6
339 346 (2 ) Securities
lending charge
- -
- 414 Acquisition and
restructuring costs
85 23 270
121 77 57 Other
258 189 37
732
620 18 Total expenses
1,798
1,527 17.7
5,274 5,050
4.4 Income before income tax expense
629 782 (20 )
2,004 1,834 9 Income tax expense
74
236
465 361
Net
income $ 555 $ 546 2
$
1,539 $ 1,473 4
Adjustments to net
income: Dividends on preferred stock
$ (6
) $ (13 ) Earnings allocated to
participating securities
(6 ) $ (6 )
(15 ) $ (14 )
Net income available to common
shareholders $ 543 $ 540
$
1,511 $ 1,459
Earnings Per Common
Share: Basic
$ 1.11 $ 1.09 2
$ 3.05
$ 2.94 4 Diluted
1.10 1.08 2
3.03 2.93 3
Average Common Shares Outstanding (in thousands): Basic
490,840 495,729
495,015 495,312 Diluted
494,780 498,159
498,417 497,715 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 $610 million and $757 million for the quarters ended
September 30, 2011 and 2010, respectively, and $1.82 billion and
$2.14 billion for the nine months ended September 30, 2011 and
2010, respectively. These amounts included tax-equivalent
adjustments of $32 million and $33 million for the quarters ended
September 30, 2011 and 2010, respectively, and $96 million for each
of the nine months ended September 30, 2011 and 2010.
STATE STREET CORPORATION Earnings Release Addendum
SELECTED CONSOLIDATED FINANCIAL
INFORMATION Quarters Ended September 30, 2011 and June 30,
2011 Quarters Ended
September 30, June 30,
(Dollars in millions, except per share amounts)
2011
2011 % Change
Fee
Revenue: Servicing fees
$ 1,106 $ 1,124 (2 ) %
Management fees
229 250 (8 ) Trading services
334 311
7 Securities finance
85 137 (38 ) Processing fees and other
90 70 29 Total fee revenue
1,844 1,892 (3 )
Net Interest Revenue:
Interest revenue
728 719 1 Interest expense
150 147 2 Net interest revenue (1)
578 572 1
Gains (Losses) related to investment
securities, net: Net gains from sales of available-for-sale
securities
15 62 Losses from other-than-temporary impairment
(25 ) (44 ) Losses not related to credit
15 9 Gains related to investment
securities, net
5 27
Total revenue
2,427 2,491 (2.6 ) Provision for loan
losses
- 2
Expenses: Salaries and employee
benefits
965 1,009 (4 ) Information systems and
communications
191 199 (4 ) Transaction processing services
180 193 (7 ) Occupancy
119 113 5 Acquisition and
restructuring costs
85 17 400 Other
258
243 6 Total expenses
1,798
1,774 1.4 Income before income tax expense
629
715 (12 ) Income tax expense
74 202
Net income $ 555 $ 513 8
Adjustments to net income: Dividends on preferred stock
$ (6 ) $ (7 ) Earnings allocated to
participating securities
(6 ) (4 )
Net income available to common shareholders $
543 $ 502
Earnings Per Common
Share: Basic
$ 1.11 $ 1.01 10 Diluted
1.10
1.00 10
Average Common Shares Outstanding (in
thousands): Basic
490,840 496,806 Diluted
494,780
501,044 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 $610 million and
$605 million for the quarters ended September 30, 2011 and June 30,
2011, respectively. These amounts included tax-equivalent
adjustments of $32 million and $33 million for the quarters ended
September 30, 2011 and June 30, 2011, respectively.
STATE STREET CORPORATION Earnings Release Addendum
SELECTED CONSOLIDATED OPERATING-BASIS FINANCIAL
INFORMATION (NON-GAAP PRESENTATION) Quarters and Nine
Months Ended September 30, 2011 and September 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 and reported 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, referred to as "reported," is
included in this Earnings Release Addendum.
Quarters Ended (1)
Nine Months Ended (1)
September 30, September 30,
September 30, September
30, (Dollars in millions, except per share amounts)
2011
2010 % Change
2011 2010
% Change
Fee Revenue: Servicing
fees
$ 1,106 $ 1,006 10 %
$ 3,325 $
2,874 16 % Management fees
229 196 17
715 608 18
Trading services
334 228 46
947 796 19 Securities
finance
85 68 25
288 249 16 Processing fees and other
90 71 27
252
278 (9 ) Total fee revenue
1,844 1,569
18
5,527 4,805 15
Net Interest Revenue:
Interest revenue, operating basis
714 748 (5 )
2,118
2,151 (2 ) Interest expense
150 180
(17 )
454 585 (22 ) Net
interest revenue, operating basis
564 568 (1 )
1,664
1,566 6 Gains related to investment securities, net
5 17
25 62
Total revenue, operating basis (2)
2,413 2,154 12.0
7,216 6,433 12.2 Provision for loan losses
- 1
1 26
Expenses: Salaries and employee benefits
965 871 11
2,948 2,582 14 Information systems and
communications
191 181 6
581 522 11 Transaction
processing services
180 165 9
553 482 15 Occupancy
119 112 6
339 346 (2 ) Other
258
189 37
732 620 18
Total expenses, operating basis (2)
1,713
1,518 12.8
5,153 4,552
13.2 Income before income tax expense, operating basis
700 635 10
2,062 1,855 11 Income tax expense,
operating basis
181 170
541 492 Tax-equivalent
adjustment
32 33
96 96
Net income, operating
basis $ 487 $ 432 13
$
1,425 $ 1,267 12
Adjustments to net
income: Dividends on preferred stock
$ (6
) $ (13 ) Earnings allocated to
participating securities
(5 ) $ (5 )
(14 ) $ (12 )
Net income available to common
shareholders, operating basis $ 476 $ 427
$ 1,398 $ 1,255
Diluted earnings per common share, operating basis $
.96 $ .86 12
$ 2.80 $ 2.52 11
Average diluted common shares outstanding (in thousands)
494,780 498,159
498,417 497,715
Return on
average common equity, operating basis 9.8 % 10.2
%
10.0 % 10.7 % (1) Refer to the
accompanying reconciliation of operating-basis results to reported
results.
(2) For the quarter ended September 30,
2011, negative operating leverage in the year-over-year comparison
was 80 basis points, based on an increase in total operating-basis
revenue of 12.0% and an increase in total operating-basis expenses
of 12.8%. For the nine months ended September 30, 2011, negative
operating leverage in the year-over-year comparison was 100 basis
points, based on an increase in total operating-basis revenue of
12.2% and an increase in total operating-basis expenses of
13.2%.
STATE STREET CORPORATION Earnings Release
Addendum SELECTED CONSOLIDATED OPERATING-BASIS
FINANCIAL INFORMATION (NON-GAAP PRESENTATION)
Quarters Ended September 30, 2011 and June 30, 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 and reported 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, referred to as "reported," is
included in this Earnings Release Addendum.
Quarters Ended (1)
September 30, June 30,
(Dollars in millions, except per share amounts)
2011
2011 % Change
Fee Revenue: Servicing
fees
$ 1,106 $ 1,124 (2 ) % Management fees
229 250 (8 ) Trading services
334 311 7 Securities
finance
85 137 (38 ) Processing fees and other
90 70 29 Total fee revenue
1,844
1,892 (3 )
Net Interest Revenue: Interest revenue,
operating basis
714 701 2 Interest expense
150
147 2 Net interest revenue, operating basis
564 554 2 Gains related to investment securities, net
5 27 Total revenue, operating
basis (2)
2,413 2,473 (2.4 ) Provision for loan
losses
- 2
Expenses: Salaries and employee
benefits
965 1,009 (4 ) Information systems and
communications
191 199 (4 ) Transaction processing services
180 193 (7 ) Occupancy
119 113 5 Other
258 243 6 Total expenses, operating
basis (2)
1,713 1,757 (2.5 )
Income before income tax expense, operating basis
700 714 (2
) Income tax expense
181 187 Tax-equivalent adjustment
32 33
Net income, operating
basis $ 487 $ 494 (1 )
Adjustments to net income: Dividends on preferred stock
$ (6 ) $ (7 ) Earnings allocated to
participating securities
(5 ) (4 )
Net income available to common shareholders, operating basis
$ 476 $ 483
Diluted earnings
per common share, operating basis $ .96 $ .96 -
Average diluted common shares outstanding (in
thousands) 494,780 501,044
Return on average
common equity, operating basis 9.8 % 10.2 %
(1) Refer to the accompanying reconciliation of
operating-basis results to reported results.
(2) For the quarter ended September 30,
2011, positive operating leverage in the quarter-over-quarter
comparison was 10 basis points, based on a decrease in total
operating-basis revenue of 2.4% and a decrease in total
operating-basis expenses of 2.5%.
STATE STREET CORPORATION Earnings Release
Addendum RECONCILIATION OF REPORTED RESULTS TO
OPERATING-BASIS RESULTS Quarter and Nine Months Ended
September 30, 2011 The tables presented below reconcile
financial information prepared on a non-GAAP, or operating, basis
to financial information prepared and reported in accordance with
GAAP.
(Dollars in millions, except per share
amounts)
Quarter Ended September 30, 2011 Nine
Months Ended September 30, 2011
Reported Operating - Basis Reported
Operating - Basis Results
Adjustments Results Results
Adjustments Results Fee Revenue:
Servicing fees
$ 1,106 $ 1,106 $
3,325 $ 3,325 Management fees
229
229 715 715 Trading services
334
334 947 947 Securities finance
85
85 288 288 Processing fees and other
90 90 252
252 Total fee revenue
1,844
1,844 5,527 5,527 Net Interest
Revenue: Interest revenue
728 $ (14
)
(1)
714 2,181 $ (63 )
(6)
2,118 Interest expense
150
- 150 454
- 454 Net interest
revenue
578 (14 ) 564 1,727
(63 ) 1,664 Gains related to investment
securities, net:
5 -
5 25 -
25 Total revenue 2,427
(14 ) 2,413 7,279 (63 )
7,216 Provision for loan losses
- -
- 1 - 1 Expenses:
Salaries and employee benefits
965 965 2,948
2,948 Information systems and communications
191
191 581 581 Transaction processing services
180 180 553 553 Occupancy
119
119 339 339 Acquisition and restructuring
costs
85 (85 )
(2)
- 121 (121 )
(7)
- Other
258 -
258 732 -
732 Total expenses
1,798
(85 ) 1,713
5,274 (121 ) 5,153
Income before income tax expense
629 71
700 2,004 58 2,062 Income tax expense
74
107
(3)
181 465 76
(3)
541 Tax-equivalent adjustment
-
32
(4)
32 - 96
(4)
96 Net income $ 555
$ (68 ) $ 487
$ 1,539 $ (114 ) $
1,425 Adjustments to net income:
Dividends on preferred stock
$ (6 ) $
(6 ) $ (13 ) $ (13
) Earnings allocated to participating securities
(6 ) $ 1
(5)
(5 ) (15 ) $
1
(5)
(14 ) Net income available to common
shareholders $ 543 $ (67
) $ 476 $ 1,511
$ (113 ) $ 1,398
Diluted earnings per common share $ 1.10
$ (.14 ) $ .96 $
3.03 $ (.23 ) $ 2.80
Average diluted common shares outstanding (in
thousands) 494,780 494,780 494,780
498,417 498,417 498,417 Return on
average common equity 11.2 % (1.4 )
% 9.8 % 10.8 % (0.8
) % 10.0 %
(1) Represents tax-equivalent adjustment
of $32 million, not included in reported results, net of $46
million of discount accretion related to former conduit
securities.
(2) Represents $19 million of integration
costs and $66 million of restructuring charges related to the
business operations and information technology transformation
program.
(3) Represents a discrete tax benefit of
$91 million generated by a restructuring of former non-U.S. conduit
assets and the net tax effect of non-operating adjustments.
(4) Represents tax-equivalent adjustment,
not included in reported results.
(5) Represents effect of the difference
between reported and operating-basis earnings on allocation to
participating securities.
(6) Represents tax-equivalent adjustment
of $96 million, not included in reported results, net of $159
million of discount accretion related to former conduit
securities.
(7) Represents $46 million of integration
costs and $75 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 Nine Months Ended
September 30, 2010 The tables presented below reconcile
financial information prepared on a non-GAAP, or operating, basis
to financial information prepared and reported in accordance with
GAAP.
(Dollars in millions, except per share
amounts)
Quarter Ended September 30, 2010 Nine
Months Ended September 30, 2010
Reported Operating - Basis Reported
Operating - Basis Results
Adjustments Results Results
Adjustments Results Fee Revenue:
Servicing fees $ 1,006 $ 1,006 $ 2,874 $ 2,874 Management fees 196
196 608 608 Trading services 228 228 796 796 Securities finance 68
68 249 249 Processing fees and other 71 71
278 278 Total fee revenue 1,569
1,569 4,805 4,805
Net Interest Revenue: Interest
revenue 904 $ (156 )
(1)
748 2,628 $ (477 )
(7)
2,151 Interest expense 180 - 180
585 - 585 Net
interest revenue 724 (156 ) 568 2,043 (477 ) 1,566 Gains
related to investment securities, net: 17 -
17 62 - 62
Total revenue 2,310 (156 ) 2,154 6,910 (477 ) 6,433
Provision for loan losses 1 - 1 26 - 26
Expenses: Salaries and employee benefits 857 14
(2)
871 2,589 (7 )
(8)
2,582 Information systems and communications 181 - 181 522 - 522
Transaction processing services 165 - 165 482 - 482 Occupancy 112 -
112 346 - 346 Securities lending charge - - - 414 (414 )
(9)
- Acquisition and restructuring costs 23 (23 )
(3)
- 77 (77 )
(3)
- Other 189 - 189
620 - 620 Total expenses
1,527 (9 ) 1,518 5,050
(498 ) 4,552 Income before income tax expense
782 (147 ) 635 1,834 21 1,855 Income tax expense 236 (66 )
(4)
170 361 131
(10)
492 Tax-equivalent adjustment - 33
(5)
33 - 96
(5)
96
Net income $ 546 $ (114 ) $ 432
$ 1,473 $ (206 ) $ 1,267 Earnings
allocated to participating securities $ (6 ) $ 1
(6)
$ (5 ) $ (14 ) $ 2
(6)
$ (12 )
Net income available to common shareholders $ 540
$ (113 ) $ 427 $ 1,459 $ (204 ) $ 1,255
Diluted earnings per common share $ 1.08 $ (.22 ) $
.86 $ 2.93 $ (.41 ) $ 2.52
Average diluted common shares
outstanding (in thousands) 498,159 498,159 498,159 497,715
497,715 497,715
Return on average common equity 12.9
% (2.7 ) % 10.2 % 12.4 % (1.7 ) % 10.7 %
(1) Represents tax-equivalent adjustment
of $33 million, not included in reported results, net of $189
million of discount accretion related to former conduit
securities.
(2) Represents the partial reversal of
expense associated with a tax on bonus payments to employees in the
U.K.
(3) Represents integration costs.
(4) Represents net tax effect of
non-operating adjustments.
(5) Represents tax-equivalent adjustment,
not included in reported results.
(6) Represents effect of the difference
between reported and operating-basis earnings on allocation to
participating securities.
(7) Represents tax-equivalent adjustment
of $96 million, not included in reported results, net of $573
million of discount accretion related to former conduit
securities.
(8) Represents a tax on bonus payments to
employees in the U.K.
(9) Represents a charge, including
associated costs of $9 million, to provide for a one-time cash
contribution of $330 million to 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.
(10) Represents a discrete tax benefit of
$180 million generated by a restructuring of former non-U.S.
conduit securities and the net tax effect of non-operating
adjustments.
STATE STREET CORPORATION Earnings Release
Addendum RECONCILIATION OF REPORTED RESULTS TO
OPERATING-BASIS RESULTS Quarter Ended June 30, 2011
The table presented below reconciles financial information
prepared on a non-GAAP, or operating, basis to financial
information prepared and reported in accordance with GAAP.
(Dollars in millions, except per share amounts)
Quarter
Ended June 30, 2011 Reported
Operating - Basis Results
Adjustments Results Fee Revenue:
Servicing fees $ 1,124 $ 1,124 Management fees 250 250 Trading
services 311 311 Securities finance 137 137 Processing fees and
other 70 70 Total fee revenue 1,892
1,892
Net Interest Revenue: Interest revenue 719 $
(18 )
(1)
701 Interest expense 147 - 147
Net interest revenue 572 (18 ) 554 Gains related to
investment securities, net 27 -
27
Total revenue 2,491 (18 ) 2,473 Provision
for loan losses 2 - 2
Expenses: Salaries and employee
benefits 1,009 - 1,009 Information systems and communications 199 -
199 Transaction processing services 193 - 193 Occupancy 113 - 113
Acquisition and restructuring costs 17 (17 )
(2)
- Other 243 - 243 Total
expenses 1,774 (17 ) 1,757
Income before income tax expense 715 (1 ) 714 Income tax expense
202 (15 )
(3)
187 Tax-equivalent adjustment - 33
(4)
33
Net income $ 513 $ (19 ) $ 494
Dividends on preferred stock $ (7 ) $ - $ (7 )
Earnings allocated to participating securities (4 ) -
(4 )
Net income available to common
shareholders $ 502 $ (19 ) $ 483
Diluted earnings per common share $ 1.00 $ (.04 ) $ .96
Average diluted common shares outstanding (in
thousands) 501,044 501,044 501,044
Return on average
common equity 10.6 % (0.4 ) % 10.2 %
(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 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.
STATE STREET CORPORATION Earnings Release
Addendum CONSOLIDATED STATEMENT OF CONDITION
September 30, December 31, September
30, (Dollars in millions, except per share amounts)
2011
2010 2010
Assets Cash and due
from banks
$ 3,929 $ 3,311 $ 4,583 Interest-bearing
deposits with banks
41,820 22,234 24,560 Securities
purchased under resale agreements
6,058 2,928 3,941 Trading
account assets
1,936 479 1,485 Investment securities
available for sale
96,595 81,881 80,719 Investment
securities held to maturity
10,018 12,249 17,577 Loans and
leases (less allowance for losses of $22, $100 and $101)
11,445 11,857 13,665 Premises and equipment
1,818
1,843 1,835 Accrued income receivable
1,932 1,733 1,767
Goodwill
5,639 5,597 5,521 Other intangible assets
2,486 2,593 2,812 Other assets
24,566
13,800 14,499 Total assets
$
208,242 $ 160,505 $ 172,964
Liabilities Deposits: Noninterest-bearing
$
36,435 $ 17,464 $ 17,313 Interest-bearing -- U.S.
7,994 6,957 9,823 Interest-bearing -- Non-U.S.
90,468 73,924 77,898
Total deposits
134,897 98,345 105,034 Securities sold
under repurchase agreements
9,521 7,599 8,671 Federal funds
purchased
6,956 7,748 5,308 Other short-term borrowings
9,170 8,694 13,657 Accrued expenses and other liabilities
19,935 11,782 14,152 Long-term debt
8,112
8,550 8,573 Total liabilities
188,591 142,718 155,395
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; 504,000,556, 502,064,454 and
502,029,493 shares issued
504 502 502 Surplus
9,528
9,356 9,310 Retained earnings
9,889 8,634 8,556 Accumulated
other comprehensive loss
(315 ) (689 ) (782 )
Treasury stock, at cost (10,918,592, 420,016 and 437,953 shares)
(455 ) (16 ) (17 ) Total
shareholders' equity
19,651 17,787
17,569 Total liabilities and shareholders'
equity
$ 208,242 $ 160,505 $ 172,964
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
September 30, June 30, September 30, (Dollars
in millions)
2011 2011 2010
Consolidated Total Assets $ 208,242 $ 190,455
$ 172,964 Less: Goodwill
5,639 5,748 5,521 Other intangible
assets
2,486 2,616 2,812 Excess reserves held at central
banks
33,657 22,148 20,217 Adjusted
assets
166,460 159,943 144,414 Plus deferred tax liabilities
764 775 803 Total tangible assets
A $ 167,224 $ 160,718 $ 145,217
Consolidated Total Common Shareholders' Equity $
19,151 $ 19,334 $ 17,569 Less: Goodwill
5,639 5,748
5,521 Other intangible assets
2,486 2,616
2,812 Adjusted equity
11,026 10,970 9,236 Plus
deferred tax liabilities
764 775 803
Total tangible common equity
B $ 11,790 $
11,745 $ 10,039 Tangible common equity ratio
B/A
7.1% 7.3% 6.9% Ratio of tangible common equity to
total risk-weighted assets
B/D 15.7% 16.7% 13.3%
Tier 1 Capital $ 13,520 $ 13,333 $
11,964 Less: Trust preferred securities
950 950 1,450
Preferred stock
500 500 -
Tier 1
common capital C $ 12,070 $ 11,883 $
10,514
Total risk-weighted assets D $
75,262 $ 70,394 $ 75,625 Ratio of tier 1 common
capital to total risk-weighted assets
C/D 16.0% 16.9%
13.9%
STATE STREET CORPORATION BASEL III
CAPITAL RECONCILIATION September 30, 2011
(Dollars in millions) Current Requirements (1) Basel
III Requirements (2) Tier 1 capital
$ 13,520 A
$ 13,046 Less: Trust preferred securities
950
637 Preferred stock
500 500 Tier
1 common capital
12,070 B
11,909 Total capital
14,762 C
14,738 Total risk-weighted assets
75,262 D
101,767 Adjusted quarterly average assets
172,532 E
217,237 Tier 1 capital ratio
18.0% A/D
12.8% Total capital ratio
19.6% C/D
14.5% Tier 1 common ratio
16.0% B/D
11.7% Tier
1 leverage ratio
7.8% A/E
6.0%
(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 $474
million, as a result of applying estimated Basel III requirements
to tier 1 capital of $13.520 billion as of September 30, 2011.
Total capital used in the calculation of the total capital ratio
decreased by $24 million, as a result of applying estimated Basel
III requirements to total capital of $14.762 billion as of
September 30, 2011.
- Tier 1 common capital used in the
calculation of the tier 1 common ratio was $11.909 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 $13.046 billion
less non-common elements of capital, composed of trust preferred
securities of $637 million and preferred stock of $500 million as
of September 30, 2011, resulting in tier 1 common capital of
$11.909 billion. At September 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 $26.505 billion as a result of applying
estimated Basel III requirements to total risk-weighted assets of
$75.262 billion as of September 30, 2011.
- Consolidated adjusted quarterly average
assets used in the calculation of the leverage ratio increased by
$44.705 billion as a result of applying estimated Basel III
requirements to the actual consolidated adjusted quarterly average
assets of $172.532 billion as of September 30, 2011.
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