STT State Street Corporation

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.