State Street Corporation today announced full-year and
fourth-quarter 2011 earnings per common share of $3.79 and $0.76,
respectively, compared to full-year and fourth-quarter 2010
earnings per share of $3.09 and $0.16, respectively.
Revenue of $9.594 billion in full-year 2011 increased 7% from
$8.953 billion in 2010 and expenses were $7.058 billion, up 3% from
$6.842 billion in 2010. Return on average common shareholders’
equity was 10.0% in 2011 and 9.5% in 2010.
Fourth-quarter 2011 revenue of $2.315 billion increased 13% from
$2.043 billion in the fourth quarter of 2010 and decreased 5% from
$2.427 billion in the third quarter of 2011. Expenses of $1.784
billion compared to $1.792 billion in the fourth quarter of 2010
and decreased 1% from $1.798 billion in the third quarter of 2011.
Earnings per common share in the fourth quarter of 2011 were $0.76,
up from $0.16 in the fourth quarter of 2010 (which reflected the
effects of a fourth-quarter 2010 investment portfolio repositioning
and separate fourth-quarter 2010 restructuring charges) and down
from $1.10 in the third quarter of 2011. Return on average common
shareholders’ equity was 7.8% for the fourth quarter of 2011,
compared to 1.8% for the fourth quarter of 2010 and 11.2% for the
third quarter of 2011.
Consistent with its previously announced program, State Street
recorded $58 million ($0.08 per share) of pre-tax charges during
the fourth quarter associated with its business operations and
information technology transformation program.
Fourth-quarter 2011 results also reflected additional expense
control measures designed to better calibrate the Company’s
expenses to its outlook for its capital markets-facing businesses
in 2012, which resulted in pre-tax charges of $120 million ($0.15
per share). The majority of these charges related to our withdrawal
from our fixed-income trading initiative, and the remaining costs
were associated with severance and benefits costs for targeted
staff reductions.
Joseph L. Hooley, State Street's chairman, president and chief
executive officer, said, “Overall, 2011 was a very successful year
amid extremely challenging market conditions. Revenue in the year
was characterized by a strong first half followed by a weaker
second half, the result of volatile markets and risk-averse
investor behavior. Despite these conditions, comparing 2011 with
2010, we were able to achieve strong growth in both revenue and
earnings per share.”
He continued, “Our focus on delivering for our clients continues
to drive new opportunities for us. In 2011 we won mandates for $1.4
trillion in assets to be serviced, $270 billion of which are
scheduled for installation in 2012. State Street Global Advisors
(SSgA) continues to benefit from growth in ETF assets, adding 32
new ETF strategies in 2011.”
Hooley added, “Our results for 2011 also demonstrated the
positive impact of the expense controls we put in place, especially
the progress of the business operations and information technology
transformation program, relative to compensation and employee
benefits expenses. We will continue to manage our expenses in 2012
to address the impact of challenging capital markets.”
Hooley concluded, “We remain committed to delivering long-term
value to our shareholders and maintaining our strong capital
position. In the fourth quarter of 2011, we purchased approximately
5.6 million shares of our common stock, which brought the total
shares purchased in 2011 to 16.3 million. We ended the fourth
quarter with a tier 1 common ratio of 16.9%. We submitted our 2012
capital plan to the Federal Reserve Bank earlier this month as
required, and we continue to prioritize increasing return of
capital to shareholders through dividends and our share repurchase
program.”
(1)Operating basis is a non-GAAP presentation. Refer to
reconciliations of operating-basis information to GAAP-basis
information in the addendum included in this news release.
NON-GAAP FINANCIAL MEASURES
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 included in this news release.
The “Additional Information” section of this news release provides
further information about operating-basis financial measures.
Operating-basis earnings per common share in full-year 2011 were
$3.73, up 10% from $3.40 in 2010 on $9.502 billion in
operating-basis revenue, an increase of 9% from operating-basis
revenue of $8.714 billion in 2010. Operating-basis expenses were
$6.789 billion, an increase of 10 percent from operating-basis
expenses of $6.176 billion in 2010. Return on average common
shareholders’ equity on an operating basis in 2011 was 9.9%, down
from 10.4% in 2010.
Operating-basis earnings per common share in the fourth quarter
of 2011 were $0.93, compared to $0.87 in the fourth quarter of 2010
and $0.96 in the third quarter of 2011. Operating-basis revenue of
$2.286 billion in the fourth quarter of 2011 was approximately flat
with $2.281 billion in the fourth quarter of 2010 and declined 5%
from $2.413 billion in the third quarter of 2011. Operating-basis
expenses of $1.636 billion increased 1% from $1.624 billion in the
fourth quarter of 2010 and decreased 5% from $1.713 billion in the
third quarter of 2011. On an operating basis, fourth-quarter 2011
return on average common shareholders’ equity was 9.5%, down from
9.8% in both the fourth quarter of 2010 and the third quarter of
2011.
The table below provides a summary of selected financial
information and key ratios for the indicated periods, presented on
an operating (non-GAAP) basis where noted. Amounts are presented in
millions of dollars, except for per-share amounts or where
otherwise noted.
Q4
2011
Q3
2011
Increase/(Decrease)
Q4
2010
Increase/(Decrease)
Operating-basis (non-GAAP) measures for the
quarters ended: Total revenue(1) $ 2,286 $ 2,413 $ (127 ) (5.3 )% $
2,281 $ 5 0.2 % Total expenses(1) 1,636 1,713 (77 ) (4.5 )% 1,624
12 0.7 % Earnings per common share(1) $ 0.93 $ 0.96 $ (0.03 ) (3.1
)% $ 0.87 $ 0.06 6.9 % Return on average common equity(1)
9.5
%
9.8
%
(30) bps
9.8
%
(30) bps
As of period end: Total assets $ 216,302 $ 208,795 $ 7,507 3.6 % $
160,505 $ 55,797 34.8 % Net unrealized loss on investment
portfolio, after-tax
(374
)
(259
)
(115
)
(44.4
)%
(504
)
130
25.8
%
AUCM (dollars in billions): Assets under custody and
administration(2)
$
21,807
$
21,510
$
297
1.4
%
$
21,527
$
280
1.3
%
Assets under management
1,866
1,877
(11
)
(0.6
)%
2,010
(144
)
(7.2
)%
Capital ratios(3):
Total capital ratio 20.5 % 19.5 % 100 bps 22.0 % (150) bps Tier 1
capital ratio 18.9 % 17.9 % 100 bps 20.5 % (160) bps Tier 1
leverage ratio 7.3 % 7.8 % (50) bps 8.2 % (90) bps Tier 1 common
ratio 16.9 % 16.0 % 90 bps 18.1 % (120) bps TCE ratio 7.3 % 7.0 %
30 bps 7.6 % (30) bps TCE/RWA ratio 16.0 % 15.6 % 40 bps 17.2 %
(120) bps
(1) Presented on an operating basis, a
non-GAAP presentation. Refer to reconciliations of this
operating-basis information to its GAAP-basis equivalent in the
addendum included in this news release.
(2) Includes assets under custody of $15.863
trillion, $15.714 trillion, and $15.860 trillion, respectively, as
of period end Q4 2011, Q3 2011 and Q4 2010.
(3) Unless otherwise specified, all capital
ratios referenced in the table above and elsewhere in this news
release refer to State Street Corporation and not State Street Bank
and Trust Company. See the “Additional Information” section of this
news release for a further description of these ratios, and the
addendum included in this news release for reconciliations
applicable to the tier 1 common and TCE ratios presented in this
table.
Total assets were $216 billion and $209 billion and included $50
billion and $34 billion of excess deposits held at the Federal
Reserve and other central banks at December 31, 2011 and September
30, 2011, respectively. The average balance sheet for the fourth
quarter of 2011 was $195 billion, compared to $160 billion for the
fourth quarter of 2010 and $181 billion for the third quarter of
2011. State Street’s regulatory capital ratios continue to be
strong as of December 31, 2011, with the Company’s total capital
ratio at 20.5%, its tier 1 capital ratio at 18.9% and its tier 1
leverage ratio at 7.3%. In addition, as of December 31, 2011, the
Company’s tier 1 common ratio was 16.9%, its TCE ratio was 7.3%,
and its TCE to risk-weighted assets ratio was 16.0%. December 31,
2011 ratios adjusted for the effects of the applicable
methodologies provided for in the Basel III capital requirements
are: total capital ratio of 14.9%, tier 1 capital ratio of 13.3%,
tier 1 leverage ratio of 5.6%, and tier 1 common ratio of 12.1%.
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” included in this news release
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 December 31, 2011, the net after-tax unrealized
mark-to-market losses in the investment portfolio were $374
million, an increase from net unrealized mark-to-market losses of
$259 million at September 30, 2011, primarily due to a widening in
spreads on securities, but down from $504 million as of December
31, 2010, primarily due to lower rates.
The Company expects to record aggregate pre-tax conduit-related
accretion of approximately $1.1 billion in interest revenue from
January 1, 2012 through the remaining terms of the former conduit
securities. This expectation is 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)(1)
(Dollars in millions)
% Increase/
% Increase/
Q4 2011 Q3 2011
(Decrease)
Q4 2010
(Decrease)
Servicing fees $ 1,057 $ 1,106 (4.4 )% $ 1,064 (0.7 )% Investment
management fees 202 229 (11.8 ) 221 (8.6 ) Trading services revenue
273 334 (18.3 ) 310 (11.9 ) Securities finance revenue 90 85 5.9 69
30.4 Processing fees and other revenue 45 90 (50.0 ) 71 (36.6 ) Net
interest revenue, fully taxable- equivalent basis 577 564 2.3 550
4.9 Gains (Losses) related to investment securities, net 42
5
(4 )
Total
Operating-Basis Revenue $ 2,286
$ 2,413 (5.3
)% $ 2,281
0.2 %
(1) Net Interest revenue for the fourth and
third quarters of 2011 and the fourth quarter of 2010, presented in
the table, included $32 million, $32 million and $33 million,
respectively, of tax-equivalent adjustments, and excluded $61
million, $46 million and $139 million, respectively, of
conduit-related discount accretion. GAAP-basis net interest revenue
for these periods was $606 million, $578 million and $656 million,
respectively. Refer to reconciliations of this operating-basis
information to its GAAP-basis equivalent in the addendum included
in this news release.
Operating-Basis Expenses (non-GAAP) (2)
(Dollars in millions)
% Increase/
% Increase/ Q4 2011
Q3 2011 (Decrease)
Q4 2010 (Decrease) Compensation and
employee benefits $ 872 $ 965 (9.6 )% $ 935 (6.7 )% Information
systems and communications
195
191
2.1
191
2.1
Transaction processing services 179 180 (0.6 ) 171 4.7 Occupancy
116 119 (2.5 ) 117 (0.9 ) Other 274 258
6.2 210
30.5
Total Operating-Basis Expenses $
1,636 $ 1,713
(4.5 )% $ 1,624
0.7 %
(2) Refer to the reconciliations of this
operating-basis information to its GAAP-basis equivalent in the
addendum included in this news release.
FOURTH-QUARTER 2011 RESULTS VS.
FOURTH-QUARTER 2010
Servicing fees were down 1% to $1.057 billion from $1.064
billion in the fourth quarter of 2010. The decrease reflected
clients’ de-risking strategies amid the turmoil in European markets
and the uncertainty in emerging market economies, offset partially
by new business and a slight increase in the S & P 500. Total
assets under custody and administration were $21.807 trillion at
December 31, 2011, up 1% compared with $21.527 trillion at December
31, 2010. Daily average values for the S & P 500 Index and the
MSCI® EAFE IndexES were up approximately 2% and down approximately
12%, respectively, from the fourth quarter of 2010.
Investment management fees, generated by State Street Global
Advisors, were $202 million, down 9% from $221 million in the
fourth quarter of 2010. The decrease in management fees reflected
outflows in cash, fixed income, and active equities, amid the
turmoil in Europe, offset partially by the impact of an
acquisition. Total assets under management at December 31, 2011,
were $1.866 trillion, down 7% compared to $2.010 trillion at
December 31, 2010 reflecting de-risking behavior by clients
redeeming from international and emerging markets strategies as
well as the scheduled redemptions by the U.S. Department of the
Treasury. Average month-end equity valuations for the S & P 500
Index and the MSCI® EAFE IndexES were up approximately 4% and down
approximately 10%, respectively, from the fourth quarter of
2010.
Trading services revenue, which includes foreign exchange
trading revenue and brokerage and other fees, was $273 million for
the fourth quarter of 2011, a decrease of 12% from $310 million in
the fourth quarter of 2010. Foreign exchange trading revenue
decreased 12% primarily due to a shift in mix. Brokerage and other
fees were down 12% due to weaker revenue from transition
management.
Securities finance revenue was $90 million in the quarter, up
30% from $69 million in the fourth quarter of 2010, due primarily
to improved spreads, offset partially by lower volumes. Processing
fees and other revenue was $45 million, down 37% from $71 million
due to fair-value adjustments relative to positions in the
fixed-income trading initiative.
Net interest revenue on a fully taxable-equivalent basis,
including conduit-related discount accretion, was $638 million in
the fourth quarter of 2011, compared to $689 million in the fourth
quarter of 2010. On an operating basis, excluding discount
accretion, net interest revenue was $577 million, an increase of 5%
from $550 million in the fourth quarter of 2010 primarily due to an
increase in deposit volumes as well as lower deposit costs, offset
partially by lower asset yields on the investment portfolio.
Clients placed additional deposits with State Street during the
fourth quarter of 2011, which were invested with central banks, the
impact of which contributed to a lower net interest margin than
otherwise would have been achieved. Including this unusually high
level of deposits, fully taxable-equivalent net interest margin,
including the discount accretion, was 155 basis points in the
fourth quarter of 2011 compared to 207 basis points in the fourth
quarter of 2010. Operating-basis net interest margin, including the
excess central bank deposits, was 140 basis points in the fourth
quarter of 2011 and excluding the excess deposits was 158 basis
points, compared to 165 basis points in the fourth quarter of
2010.
In the fourth quarter of 2011, we recorded $59 million of net
gains from sales of available-for-sale securities and, separately,
$17 million of net losses from other-than-temporary impairment,
resulting in $42 million of net gains related to investment
securities.
Operating-basis expenses of $1.636 billion in the fourth quarter
of 2011 increased 1% compared to the fourth quarter of 2010.
Compensation and employee benefits expenses decreased 7% from $935
million to $872 million, primarily due to lower incentive
compensation and the benefits from the implementation of the
business operations and information technology transformation
program, offset partially by the impact of acquisitions and merit
adjustments. Transaction processing services expenses were up 5% to
$179 million from $171 million due to higher volumes in investment
servicing. Other expenses increased 30%, or $64 million, to $274
million, primarily due to increased fees for professional services
and higher securities processing costs.
The effective tax rate on fourth-quarter 2011 GAAP-basis
earnings was 28.3%, down from 67.2% in the fourth quarter of 2010
due primarily to the repositioning of the investment portfolio in
the fourth quarter of 2010. The effective tax rate on
operating-basis earnings for the fourth quarter of 2011 was 25.0%,
down from 29.5% in the fourth quarter of 2010 due primarily to the
geographic mix of pre-tax income and a reduction of deferred tax
liabilities. The 2011 full-year effective tax rate on GAAP-basis
earnings was 24.3% and the full-year effective tax rate on
operating-basis earnings was 26.9%. Our effective tax rate on
operating-basis earnings for the full year 2012 is expected to be
in the range of 27% to 28%.
FOURTH-QUARTER 2011 RESULTS VS. THE
THIRD-QUARTER 2011
Servicing fees were $1.057 billion, down 4% from $1.106 billion
in the third quarter. The decrease is consistent with clients’
de-risking decisions amid the turmoil in Europe and uncertainties
in emerging markets, the impact of foreign exchange and lower
equity market valuations. Daily average values as measured by the S
& P 500 were flat and as measured by the MSCI® EAFE IndexES
were down about 7%. Management fees were $202 million, down 12%
from $229 million. The decrease in management fees reflected
outflows in cash, fixed income, and active equities, amid the
turmoil in Europe. Average month-end equity valuations as measured
by the S & P 500 were up about 3% and as measured by the MSCI®
EAFE IndexES were down about 5%. Trading services revenue, which
includes foreign exchange trading and brokerage and other fees, was
$273 million, down 18% from $334 million. Foreign exchange trading
revenue of $150 million decreased 26% due primarily to weaker
volumes as well as lower volatility. Brokerage and other fee
revenue was $123 million, down 5% from the third quarter due to
lower revenue from transition management. Securities finance
revenue was $90 million, up 6% from $85 million, primarily due to
higher spreads offset slightly by lower volumes. Processing fees
and other revenue was down 50% to $45 million due to fair-value
adjustments relative to positions in the fixed-income trading
initiative.
Fully taxable-equivalent net interest revenue in the fourth
quarter of 2011 totaled $638 million, including discount accretion,
compared to $610 million in the third quarter. On an operating
basis, fully taxable-equivalent net interest revenue in the fourth
quarter of 2011 excluding discount accretion was $577 million, up
2% from $564 million in the third quarter due to an increase in
earning assets driven by the high levels of client deposits.
Compared to the third quarter of 2011, compensation and employee
benefits expenses decreased 10% to $872 million from $965 million,
due to savings achieved partially from the business operations and
information technology transformation program and reductions in
incentive compensation. Other expenses were $274 million, an
increase of 6% from $258 million in the third quarter due primarily
to increases in fees for professional services.
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.
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
included in 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
December 31, 2011, September 30, 2011, and December 31, 2010 are
provided in the addendum included in 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 December 31, 2011, September
30, 2011, and December 31, 2010 are provided in the addendum
included in 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 December 31, 2011,
September 30, 2011, and December 31, 2010 are provided in the
addendum included in this news release.
INVESTOR CONFERENCE CALL
State Street will webcast an investor conference call today,
Wednesday, January 18, 2012, at 9:00 a.m. EST, 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 #36969978). Recorded replays of the conference call
will be available on the web site, and by telephone at +1
404/537-3406 or +1 855/859-2056 (Conference ID#36969978), 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
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 $21.807 trillion in assets under custody and
administration and $1.866 trillion in assets under management at
December 31, 2011, State Street operates in 29 countries and more
than 100 geographic markets and employs 29,740 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 January 18,
2012.
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, Basel III 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;
- approvals required by the Federal
Reserve or other regulators for the use, allocation or distribution
of our capital or other specific capital actions or programs,
including equity repurchases, which approvals may restrict or limit
our growth plans, distributions to shareholders, equity repurchase
programs or other capital initiatives;
- 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., Europe or other regions
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 including, for example, the direct and indirect effects on
counterparties of the pending sovereign debt risks in Europe;
- 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 and
joint ventures 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, January 18, 2012, 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 December 31,
2011
Quarters Ended
% Change Q4 2011 Q4 2011 (Dollars in millions, except per share
amounts
December 31, September 30, December 31, vs. vs. or
where otherwise noted)
2011 2011 2010
Q3 2011 Q4 2010
Revenue: Fee revenue
$
1,667 $ 1,844 $ 1,735 (10 ) % (4 ) % Net interest revenue
(1)
606 578 656 5 (8 ) Net gains (losses) from sales of
investment securities
59 15 (341 ) Net losses from
other-than-temporary impairment
(17 ) (10 ) (7 )
Total Revenue
2,315 2,427 2,043 (5 ) 13 Provision for Loan
Losses
(1 ) - (1 )
Total Expenses: Expenses
from operations
1,636 1,713 1,624 (4 ) 1 Acquisition and
restructuring costs (2)
148 85 168 Income tax expense
(3),(4)
151 74 169
Net Income 381 555 83 (31 )
359
Net Income Available to Common Shareholders
371 543 81 Diluted Earnings Per Common Share
.76 1.10 .16 (31 ) 375 Average Diluted Common Shares
Outstanding (in thousands)
490,328 494,780 499,232
Cash Dividends Declared Per Common Share
$ .18 $ .18
$ .01 Closing Price Per Share of Common Stock (at quarter end)
40.31 32.16 46.34
Ratios: Return on average
common equity
7.8 % 11.2 % 1.8 % Net interest margin,
fully taxable-equivalent basis
1.55 1.56 2.07 Tier 1
risk-based capital
18.9 17.9 20.5 Total risk-based capital
20.5 19.5 22.0 Tier 1 leverage
7.3 7.8 8.2 Tier 1
common to risk-weighted assets (5)
16.9 16.0 18.1 Tangible
common equity to tangible assets (5)
7.3 7.0 7.6 Tangible
common equity to risk-weighted assets (5)
16.0 15.6 17.2
At Quarter End: Assets Under Custody and
Administration (6) (in trillions)
$ 21.81 $ 21.51 $
21.53 Assets Under Management (in trillions)
1.87 1.88 2.01
Years Ended % Change 2011
December 31,
December 31, vs. (Dollars in millions, except per share amounts)
2011 2010 2010
Revenue: Fee revenue
$ 7,194 $ 6,540 10 % Net
interest revenue (1)
2,333 2,699 (14 ) Net gains (losses)
from sales of investment securities
140 (55 ) Net losses
from other-than-temporary impairment
(73 ) (231 )
Total Revenue
9,594 8,953 7 Provision for Loan Losses
- 25
Total Expenses: Expenses from operations
6,789 6,183 10 Securities lending charge
- 414
Acquisition and restructuring costs
(2)
269 245
Income tax expense (3),(4),(7)
616 530
Net Income 1,920 1,556 23
Net Income Available to Common Shareholders 1,882
1,540 Diluted Earnings Per Common Share
3.79 3.09 23
Average Diluted Common Shares Outstanding (in thousands):
496,072 497,924 Cash Dividends Declared Per Common
Share
$ .72 $ .04 Return on Average Common
Equity
10.0 % 9.5 % Net interest margin, fully
taxable-equivalent basis
1.67 2.24 (1) Included
discount accretion related to former conduit securities of $61
million, $46 million and $139 million for the quarters ended
December 31, 2011, September 30, 2011 and December 31, 2010,
respectively, and $220 million and $712 million for the years ended
December 31, 2011 and 2010, respectively. (2) Amounts for the
quarter and year ended December 31, 2011 reflected a $55 million
indemnification benefit for an income tax claim related to a 2010
acquisition.
(3) Amounts for the quarter and year ended
December 31, 2011 reflected offsetting income tax expense of $55
million related to the indemnification benefit described in note
(2).
(4) Amounts for the quarters ended
December 31, 2011 and September 30, 2011 and the year ended
December 31, 2011 reflected a discrete tax benefit of $12 million,
$91 million and $103 million, respectively, related to former
conduit assets.
(5) Ratios are non-GAAP financial
measures. Refer to accompanying reconciliations for additional
information.
(6) Included assets under custody of
$15.86 trillion, $15.71 trillion and $15.86 trillion,
respectively.
(7) Amount for the year ended December 31,
2010 reflected a discrete tax benefit $180 million related to
former conduit assets.
STATE STREET CORPORATION Earnings Release
Addendum
SELECTED CONSOLIDATED
FINANCIAL INFORMATION Quarters and Years Ended December 31,
2011 and December 31, 2010 Quarters Ended
Years Ended
December 31, December 31,
December 31,
December 31, (Dollars in millions, except per share amounts)
2011 2010 % Change
2011 2010 % Change
Fee Revenue: Servicing fees
$ 1,057 $
1,064 (1 ) %
$ 4,382 $ 3,938 11 % Management fees
202 221 (9 )
917 829 11 Trading services
273
310 (12 )
1,220 1,106 10 Securities finance
90 69 30
378 318 19 Processing fees and other
45
71 (37 )
297 349 (15 )
Total fee revenue
1,667 1,735 (4 )
7,194 6,540 10
Net Interest Revenue: Interest revenue
765 834
(8 )
2,946 3,462 (15 ) Interest expense
159
178 (11 )
613 763
(20 ) Net interest revenue (1)
606 656 (8 )
2,333
2,699 (14 )
Gains (Losses) related to investment
securities, net: Net gains (losses) from sales of investment
securities
59 (341 )
140 (55 ) Losses from
other-than-temporary impairment
(19 ) (39 )
(123 ) (651 ) Losses not related to credit
2 32
50 420
Gains (Losses) related to investment securities, net
42 (348 )
67 (286
) Total revenue
2,315 2,043 13.3
9,594 8,953
7.2 Provision for loan losses
(1 ) (1 )
- 25
Expenses: Compensation and employee
benefits
872 935 (7 )
3,820 3,524 8 Information
systems and communications
195 191 2
776 713 9
Transaction processing services
179 171 5
732 653 12
Occupancy
116 117 (1 )
455 463 (2 ) Securities
lending charge
- -
- 414 Acquisition and
restructuring costs
148 168
269 245 Other
274 210 30
1,006
830 21 Total expenses
1,784
1,792 (0.4 )
7,058 6,842
3.2 Income before income tax expense
532 252 111
2,536 2,086 22 Income tax expense
151
169
616 530
Net
income $ 381 $ 83 359
$
1,920 $ 1,556 23
Adjustments to net
income: Dividends on preferred stock
$ (7
) $ (20 ) Earnings allocated to
participating securities
(3 ) $ (2 )
(18 ) $ (16 )
Net income available to common
shareholders $ 371 $ 81
$
1,882 $ 1,540
Earnings Per Common
Share: Basic
$ .77 $ .17 353
$ 3.82
$ 3.11 23 Diluted
.76 .16 375
3.79 3.09 23
Average Common Shares Outstanding (in thousands): Basic
485,424 495,758
492,598 495,394 Diluted
490,328 499,232
496,072 497,924 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 $638 million and $689 million for the
quarters ended December 31, 2011 and 2010, respectively, and $2.46
billion and $2.83 billion for the years ended December 31, 2011 and
2010, respectively. These amounts included tax-equivalent
adjustments of $32 million and $33 million for the quarters ended
December 31, 2011 and 2010, respectively, and $128 million and $129
million for the years ended December 31, 2011 and 2010,
respectively.
STATE STREET CORPORATION Earnings Release Addendum
SELECTED CONSOLIDATED FINANCIAL
INFORMATION Quarters Ended December 31, 2011 and September
30, 2011 Quarters Ended
December
31, September 30, (Dollars in millions, except per share
amounts)
2011 2011 % Change
Fee
Revenue: Servicing fees
$ 1,057 $ 1,106 (4 ) %
Management fees
202 229 (12 ) Trading services
273
334 (18 ) Securities finance
90 85 6 Processing fees and
other
45 90 (50 ) Total fee
revenue
1,667 1,844 (10 )
Net Interest
Revenue: Interest revenue
765 728 5 Interest expense
159 150 6 Net interest revenue
(1)
606 578 5
Gains (Losses) related to investment
securities, net: Net gains from sales of available-for-sale
securities
59 15 Losses from other-than-temporary impairment
(19 ) (25 ) Losses not related to credit
2 15 Gains related to investment
securities, net
42 5
Total revenue
2,315 2,427 (4.6 ) Provision for loan
losses
(1 ) -
Expenses: Compensation
and employee benefits
872 965 (10 ) Information systems and
communications
195 191 2 Transaction processing services
179 180 (1 ) Occupancy
116 119 (3 ) Acquisition and
restructuring costs
148 85 Other
274
258 6 Total expenses
1,784
1,798 (0.8 ) Income before income tax expense
532 629 (15 ) Income tax expense
151
74
Net income $ 381 $ 555
(31 )
Adjustments to net income: Dividends on
preferred stock
$ (7 ) $ (6 ) Earnings
allocated to participating securities
(3 )
(6 )
Net income available to common shareholders
$ 371 $ 543
Earnings Per
Common Share: Basic
$ .77 $ 1.11 (31 ) Diluted
.76 1.10 (31 )
Average Common Shares Outstanding
(in thousands): Basic
485,424 490,840 Diluted
490,328 494,780 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 $638 million and $610 million for the
quarters ended December 31, 2011 and September 30, 2011,
respectively. Both of these amounts included a tax-equivalent
adjustment of $32 million.
STATE STREET CORPORATION Earnings Release
Addendum SELECTED CONSOLIDATED OPERATING-BASIS
FINANCIAL INFORMATION (NON-GAAP PRESENTATION)
Quarters and Years Ended December 31, 2011 and December 31,
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," are
included in this Earnings Release Addendum.
Quarters Ended (1) Years Ended (1)
December
31, December 31,
December 31, December 31, (Dollars in
millions, except per share amounts)
2011 2010 % Change
2011 2010 % Change
Fee Revenue: Servicing fees
$ 1,057 $ 1,064 (1 ) %
$ 4,382 $ 3,938
11 % Management fees
202 221 (9 )
917 829 11 Trading
services
273 310 (12 )
1,220 1,106 10 Securities
finance
90 69 30
378 318 19 Processing fees and other
45 71 (37 )
297
349 (15 ) Total fee revenue
1,667 1,735
(4 )
7,194 6,540 10
Net Interest Revenue:
Interest revenue, operating basis
736 728 1
2,854
2,879 (1 ) Interest expense
159 178
(11 )
613 763 (20 ) Net
interest revenue, operating basis
577 550 5
2,241
2,116 6 Gains (Losses) related to investment securities, net
42 (4 )
67
58 Total revenue, operating basis (2)
2,286 2,281 0.2
9,502 8,714 9.0 Provision for loan losses
(1
) (1 )
- 25
Expenses: Compensation and
employee benefits
872 935 (7 )
3,820 3,517 9
Information systems and communications
195 191 2
776
713 9 Transaction processing services
179 171 5
732
653 12 Occupancy
116 117 (1 )
455 463 (2 ) Other
274 210 30
1,006
830 21 Total expenses, operating basis (2)
1,636 1,624 0.7
6,789 6,176 9.9 Income before income
tax expense, operating basis
651 658 (1 )
2,713 2,513
8 Income tax expense, operating basis
154 184
695 676
Tax-equivalent adjustment
32 33
128 129
Net income, operating
basis $ 465 $ 441 5
$
1,890 $ 1,708 11
Adjustments to net
income: Dividends on preferred stock
$ (7
) $ (20 ) Earnings allocated to
participating securities
(4 ) $ (6 )
(18 ) $ (18 )
Net income available to common
shareholders, operating basis $ 454 $ 435
$ 1,852 $ 1,690
Diluted earnings per common share, operating basis $
.93 $ .87 7
$ 3.73 $ 3.40 10
Average
diluted common shares outstanding (in thousands) 490,328
499,232
496,072 497,924
Return on average common
equity, operating basis 9.5 % 9.8 %
9.9
% 10.4 % (1) Refer to the accompanying
reconciliations of operating-basis results to reported results.
(2) For the quarter ended December 31,
2011, negative operating leverage in the year-over-year comparison
was 50 basis points, based on an increase in total operating-basis
revenue of 0.2% and an increase in total operating-basis expenses
of 0.7%. For the year ended December 31, 2011, negative operating
leverage in the year-over-year comparison was 90 basis points,
based on an increase in total operating-basis revenue of 9.0% and
an increase in total operating-basis expenses of 9.9%.
STATE STREET CORPORATION Earnings Release Addendum
SELECTED CONSOLIDATED OPERATING-BASIS FINANCIAL
INFORMATION (NON-GAAP PRESENTATION) Quarters Ended
December 31, 2011 and September 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," are included in this Earnings Release Addendum.
Quarters Ended (1)
December 31, September 30,
(Dollars in millions, except per share amounts)
2011 2011 %
Change
Fee Revenue: Servicing fees
$
1,057 $ 1,106 (4 ) % Management fees
202 229 (12 )
Trading services
273 334 (18 ) Securities finance
90
85 6 Processing fees and other
45 90
(50 ) Total fee revenue
1,667 1,844 (10 )
Net Interest Revenue: Interest revenue, operating basis
736 714 3 Interest expense
159
150 6 Net interest revenue, operating basis
577 564 2
Gains related to investment securities, net
42
5 Total revenue, operating basis (2)
2,286 2,413 (5.3 ) Provision for loan losses
(1 ) -
Expenses: Compensation and
employee benefits
872 965 (10 ) Information systems and
communications
195 191 2 Transaction processing services
179 180 (1 ) Occupancy
116 119 (3 ) Other
274 258 6 Total expenses, operating
basis (2)
1,636 1,713 (4.5 )
Income before income tax expense, operating basis
651 700 (7
) Income tax expense
154 181 Tax-equivalent adjustment
32 32
Net income, operating
basis $ 465 $ 487 (5 )
Adjustments to net income: Dividends on preferred stock
$ (7 ) $ (6 ) Earnings allocated to
participating securities
(4 ) (5 )
Net income available to common shareholders, operating basis
$ 454 $ 476
Diluted earnings
per common share, operating basis $ .93 $ .96 (3
)
Average diluted common shares outstanding (in
thousands) 490,328 494,780
Return on average
common equity, operating basis 9.5 % 9.8 %
(1) Refer to the accompanying reconciliation of
operating-basis results to reported results.
(2) For the quarter ended December 31,
2011, negative operating leverage in the quarter-over-quarter
comparison was 80 basis points, based on a decrease in total
operating-basis revenue of 5.3% and a decrease in total
operating-basis expenses of 4.5%.
STATE STREET CORPORATION Earnings Release Addendum
RECONCILIATION OF
OPERATING-BASIS RESULTS Quarter and Year Ended December 31,
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 December 31, 2011 Year Ended December 31,
2011 Reported Operating - Basis
Reported Operating - Basis Results
Adjustments Results Results Adjustments
Results Fee Revenue: Servicing fees
$
1,057 $ 1,057 $ 4,382 $
4,382 Management fees
202 202 917
917 Trading services
273 273 1,220
1,220 Securities finance
90 90 378
378 Processing fees and other
45
45 297 297
Total fee revenue
1,667 1,667 7,194
7,194 Net Interest Revenue: Interest revenue
765 $ (29 )
(1)
736 2,946 $ (92 )
(6)
2,854 Interest expense
159
- 159 613
- 613 Net interest
revenue
606 (29 ) 577 2,333
(92 ) 2,241 Gains related to investment
securities, net
42 -
42 67 -
67 Total revenue 2,315
(29 ) 2,286 9,594 (92 )
9,502 Provision for loan losses
(1 )
- (1 ) - - -
Expenses: Compensation and employee benefits
872
872 3,820 3,820 Information systems and
communications
195 195 776 776
Transaction processing services
179 179 732
732 Occupancy
116 116 455 455
Acquisition and restructuring costs
148 (148 )
(2)
- 269 (269 )
(7)
- Other
274 -
274 1,006 -
1,006 Total expenses
1,784 (148 ) 1,636
7,058 (269 )
6,789 Income before income tax expense
532 119 651 2,536 177
2,713 Income tax expense
151 3
(3)
154 616 79
(8)
695 Tax-equivalent adjustment
-
32
(4)
32 - 128
(4)
128 Net income $ 381
$ 84 $ 465
$ 1,920 $ (30 ) $
1,890 Adjustments to net income:
Dividends on preferred stock
$ (7 ) $
(7 ) $ (20 ) $ (20
)
Earnings allocated to participating
securities
(3 ) $ (1 )
(5)
(4 ) (18 )
(18 ) Net income available to common
shareholders $ 371 $ 83
$ 454 $ 1,882
$ (30 ) $ 1,852
Diluted earnings per common share $ .76
$ .17 $ .93 $ 3.79
$ (.06 ) $ 3.73
Average diluted common shares outstanding (in thousands)
490,328 490,328 490,328 496,072
496,072 496,072 Return on average common
equity 7.8 % 1.7 % 9.5
% 10.0 % (0.1 ) %
9.9 %
(1) Represents tax-equivalent adjustment
of $32 million, not included in reported results, net of $61
million of discount accretion related to former conduit
securities.
(2) Represents $25 million of integration
costs related to previous acquisitions; a $55 million
indemnification benefit for an income tax claim related to the 2010
acquisition of the Italian securities services business; $58
million of restructuring charges related to the business operations
and information technology transformation program; and $120 million
of restructuring charges mainly related to our withdrawal from our
fixed-income trading initiative.
(3) Represents a discrete tax benefit of
$12 million related to former conduit assets, income tax expense of
$55 million related to the indemnification benefit described in
note (2), 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 $128 million, not included in reported results, net of $220
million of discount accretion related to former conduit
securities.
(7) Represents $71 million of integration
costs related to previous acquisitions; a $55 million
indemnification benefit for an income tax claim related to the 2010
acquisition of the Italian securities services business; $133
million of restructuring charges related to the business operations
and information technology transformation program; and $120 million
of restructuring charges mainly related to our withdrawal from our
fixed-income trading initiative.
(8) Represents a discrete tax benefit of
$103 million related to former conduit assets, income tax expense
of $55 million related to the indemnification benefit described in
note (7), and the net tax effect of non-operating adjustments.
STATE STREET CORPORATION Earnings Release Addendum
RECONCILIATION
OF OPERATING-BASIS RESULTS Quarter and Year Ended December
31, 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 December 31, 2010 Year Ended December 31,
2010 Reported Operating - Basis
Reported Operating - Basis Results
Adjustments Results Results Adjustments
Results Fee Revenue:
Servicing fees $ 1,064 $ 1,064 $ 3,938 $ 3,938 Management fees 221
221 829 829 Trading services 310 310 1,106 1,106 Securities finance
69 69 318 318 Processing fees and other 71 71
349 349 Total fee revenue 1,735
1,735 6,540 6,540
Net Interest Revenue: Interest
revenue 834 $ (106 )
(1)
728 3,462 $ (583 )
(7)
2,879 Interest expense 178 - 178
763 - 763 Net
interest revenue 656 (106 ) 550 2,699 (583 ) 2,116 Gains
(Losses) related to investment securities, net (348 ) 344
(2)
(4 ) (286 ) 344
(2)
58
Total revenue 2,043 238 2,281 8,953 (239 ) 8,714
Provision for loan losses (1 ) - (1 ) 25 - 25
Expenses: Compensation and employee benefits 935 935 3,524
(7 )
(8)
3,517 Information systems and communications 191 191 713 - 713
Transaction processing services 171 171 653 - 653 Occupancy 117 117
463 - 463 Securities lending charge - - 414 (414 )
(9)
- Acquisition and restructuring costs 168 (168 )
(3)
- 245 (245 )
(10)
- Other 210 - 210
830 - 830 Total expenses
1,792 (168 ) 1,624 6,842
(666 )
6,176 Income before income tax expense 252 406 658 2,086 427
2,513 Income tax expense 169 15
(4)
184 530 146
(11)
676 Tax-equivalent adjustment - 33
(5)
33 - 129
(5)
129
Net Income $ 83 $ 358 $ 441
$ 1,556 $ 152 $ 1,708 Earnings
allocated to participating securities $ (2 ) $ (4 )
(6)
$ (6 ) $ (16 ) $ (2 )
(6)
$ (18 )
Net income available to common shareholders $ 81
$ 354 $ 435 $ 1,540 $ 150 $
1,690
Diluted earnings per common share $ .16
$ .71 $ .87 $ 3.09 $ .31 $ 3.40
Average diluted common
shares outstanding (in thousands) 499,232 499,232 499,232
497,924 497,924 497,924
Return on average common
equity 1.8 % 8.0 % 9.8 % 9.5 % 0.9 % 10.4
%
(1) Represents tax-equivalent adjustment
of $33 million, not included in reported results, net of $139
million of discount accretion related to former conduit
securities.
(2) Represents a net loss related to a
repositioning of the investment portfolio.
(3) Represents integration costs of $12
million and restructuring charges of $156 million related to the
business operations and information technology transformation
program.
(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 $129 million, not included in reported results, net of $712
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, composed of $330
million to provide for a one-time cash contribution to the SSgA
lending fund collateral pools and liquidating trusts and $9 million
of associated costs, and $75 million to establish a reserve to
address potential inconsistencies in the application of redemption
policy for agency lending collateral pools.
(10) Represents $89 million of integration
costs and $156 million of restructuring charges related to the
business operations and information technology transformation
program.
(11) Represents a discrete tax benefit of
$180 million related to former conduit assets and the net tax
effect of non-operating adjustments.
STATE STREET CORPORATION Earnings Release Addendum
RECONCILIATION OF OPERATING-BASIS
RESULTS Quarter Ended September 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 September 30,
2011 Reported Operating - Basis
Results Adjustments Results Fee
Revenue: Servicing fees $ 1,106 $ 1,106 Management fees 229 229
Trading services 334 334 Securities finance 85 85 Processing fees
and other 90 90 Total fee revenue 1,844
1,844
Net Interest Revenue: Interest revenue 728 $
(14 )
(1)
714
Interest expense 150 - 150
Net interest revenue 578 (14 ) 564 Gains related to
investment securities, net 5 - 5
Total revenue 2,427 (14 ) 2,413 Provision for
loan losses - - -
Expenses: Compensation and employee
benefits 965 965 Information systems and communications 191 191
Transaction processing services 180 180 Occupancy 119 119
Acquisition and restructuring costs 85 (85 )
(2)
-
Other 258 - 258 Total
expenses 1,798 (85 ) 1,713
Income before income tax expense 629 71 700 Income tax expense 74
107
(3)
181
Tax-equivalent adjustment - 32
(4)
32
Net income $ 555 $ (68 ) $ 487
Adjustments to net income: Dividends on preferred stock $ (6
) $ (6 ) Earnings allocated to participating securities (6 )
$ 1
(5)
(5
)
Net income available to common shareholders $ 543 $
(67 ) $ 476
Diluted earnings per common share
$ 1.10 $ (.14 ) $ .96
Average diluted common shares
outstanding (in thousands) 494,780 494,780 494,780
Return on average common equity 11.2 % (1.4 ) % 9.8 %
(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 related to former 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.
STATE STREET CORPORATION Earnings Release
Addendum CONSOLIDATED STATEMENT
OF CONDITION December 31, September 30, December
31, (Dollars in millions, except per share amounts)
2011
2011 2010
Assets Cash and due from banks
$
1,834 $ 9,487 $ 3,311 Interest-bearing deposits with banks
58,886 36,484 22,234 Securities purchased under resale
agreements
7,045 6,058 2,928 Trading account assets
707 1,936 479 Investment securities available for sale
99,832 96,595 81,881 Investment securities held to maturity
9,321 10,018 12,249 Loans and leases (less allowance for
losses of $22, $22 and $100)
10,031 11,718 11,857 Premises
and equipment
1,747 1,738 1,802 Accrued income receivable
1,810 1,932 1,733 Goodwill
5,645 5,639 5,597 Other
intangible assets
2,459 2,486 2,593 Other assets
16,985 24,704 13,841
Total assets
$ 216,302 $ 208,795 $
160,505
Liabilities Deposits:
Noninterest-bearing
$ 58,911 $ 36,435 $ 17,464
Interest-bearing -- U.S.
7,148 7,994 6,957 Interest-bearing
-- Non-U.S.
91,542 90,569
73,924 Total deposits
157,601 134,998 98,345
Securities sold under repurchase agreements
7,887 9,521
7,599 Federal funds purchased
261 6,956 7,748 Other
short-term borrowings
5,161 9,170 8,694 Accrued expenses and
other liabilities
17,860 20,387 11,782 Long-term debt
8,134 8,112 8,550 Total
liabilities
196,904 189,144 142,718
Shareholders'
Equity Preferred stock, no par: 3,500,000 shares authorized;
5,001 shares issued and outstanding
500 500 - Common stock,
$1 par: 750,000,000 shares authorized; 503,965,849, 504,000,556 and
502,064,454 shares issued
504 504 502 Surplus
9,557
9,528 9,356 Retained earnings
10,176 9,889 8,634 Accumulated
other comprehensive loss
(659 ) (315 ) (689 )
Treasury stock, at cost (16,541,985, 10,918,592, and 420,016
shares)
(680 ) (455 ) (16 )
Total shareholders' equity
19,398
19,651 17,787 Total liabilities and
shareholders' equity
$ 216,302 $ 208,795
$ 160,505
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
December
31, September 30, December 31, (Dollars in millions)
2011 2011 2010
Consolidated Total Assets $ 216,302 $ 208,795
$ 160,505 Less: Goodwill
5,645 5,639 5,597 Other intangible
assets
2,459 2,486 2,593 Excess reserves held at central
banks
50,094 33,618
16,612 Adjusted assets
158,104 167,052 135,703 Plus
deferred tax liabilities
757 764
747 Total tangible assets
A $
158,861 $ 167,816 $ 136,450
Consolidated Total Common Shareholders' Equity
$ 18,898 $ 19,151 $ 17,787 Less: Goodwill
5,645 5,639 5,597 Other intangible assets
2,459 2,486 2,593
Adjusted equity
10,794 11,026 9,597 Plus deferred tax
liabilities
757 764 747
Total tangible common equity
B $ 11,551
$ 11,790 $ 10,344 Tangible common
equity ratio
B/A 7.3 % 7.0 % 7.6 %
Ratio of tangible common equity to total risk-weighted assets
B/D 16.0 % 15.6 % 17.2 %
Tier 1
Capital $ 13,625 $ 13,520 $ 12,325 Less: Trust
preferred securities
950 950 1,450 Preferred stock
500 500 -
Tier 1
common capital C $ 12,175 $ 12,070
$ 10,875
Total risk-weighted assets
D $ 72,234 $ 75,646 $ 60,177 Ratio of
tier 1 common capital to total risk-weighted assets
C/D
16.9 % 16.0 % 18.1 %
STATE STREET
CORPORATION Earnings Release Addendum BASEL III
CAPITAL RECONCILIATION December 31, 2011 The
table set forth below reconciles State Street's capital ratios
calculated in accordance with currently applicable bank regulatory
requirements, as well as the tier 1 common ratio, to estimated
ratios calculated in accordance with Basel III as State Street
currently understands the impact of the Basel III requirements.
(Dollars in millions) Current Requirements (1)
Basel III Requirements (2) Tier 1 capital
$
13,625 A
$ 13,030 Less: Trust preferred
securities
950 637 Preferred stock
500
500 Tier 1 common capital
12,175
B
11,893 Total capital
14,823 C
14,682
Total risk-weighted assets
72,234 D
98,335
Adjusted quarterly average assets
186,021 E
231,924
Tier 1 capital ratio
18.9 % A/D
13.3
% Total capital ratio
20.5 % C/D
14.9
% Tier 1 common ratio
16.9 % B/D
12.1
% Tier 1 leverage ratio
7.3 % A/E
5.6
%
(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, total risk-weighted assets and adjusted quarterly average
assets were calculated based on State Street’s estimates, based on
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 was 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 calculates its capital 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 $595 million, as a result
of applying estimated Basel III requirements to tier 1 capital of
$13.625 billion as of December 31, 2011. Total capital used in the
calculation of the total capital ratio decreased by $141 million,
as a result of applying estimated Basel III requirements to total
capital of $14.823 billion as of December 31, 2011.
• Tier 1 common capital used in the calculation of the tier 1
common ratio was $11.893 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 $13.030 billion less non-common elements of
capital, composed of trust preferred securities of $637 million and
preferred stock of $500 million as of December 31, 2011, resulting
in tier 1 common capital of $11.893 billion. At December 31, 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
$26.101 billion as a result of applying estimated Basel III
requirements to total risk-weighted assets of $72.234 billion as of
December 31, 2011.
• Consolidated adjusted quarterly average assets used in the
calculation of the leverage ratio increased by $45.903 billion as a
result of applying estimated Basel III requirements to the actual
consolidated adjusted quarterly average assets of $186.021 billion
as of December 31, 2011.
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