State Street Corporation today announced first-quarter 2012
earnings per common share of $0.85, down 9% from $0.93 in the first
quarter of 2011 and up 12% from $0.76 in the fourth quarter of
2011. Revenue in the first quarter of 2012 was $2.42 billion, up 3%
from $2.36 billion in the first quarter of 2011 and up 5% from
$2.32 billion in the fourth quarter of 2011. Expenses of $1.84
billion increased 8% from $1.70 billion in the first quarter of
2011 and increased 3% from $1.78 billion in the fourth quarter of
2011. Return on average common shareholders’ equity was 8.8% in the
first quarter of 2012, compared to 10.5% in the first quarter of
2011 and 7.8% in the fourth quarter of 2011.
State Street recorded $21 million ($0.03 per share) of pre-tax
acquisition and restructuring costs and $15 million ($0.02 per
share) for litigation-related settlements during the first quarter.
Of the $21 million, $13 million was related to acquisition costs
and $15 million was associated with the previously announced
business operations and information technology transformation
program, partially offset by a $7 million net credit associated
with State Street’s withdrawal from its fixed-income trading
initiative.
Financial highlights for the first quarter of 2012 included:
- Fee revenue increased 7% compared to
the fourth quarter of 2011, reflecting strength in each of State
Street’s businesses, primarily due to the impact of improved equity
markets and net new business wins.
- In our view, the financial markets
began to show some signs of stability: average excess deposits left
by clients on State Street’s balance sheet declined $5 billion from
the fourth quarter of 2011 as clients began to put cash back to
work.
- Compensation and employee benefits
expenses increased 22% from the fourth quarter of 2011, primarily
due to the seasonal accounting effects of approximately $105
million ($0.16 per share) of equity-based compensation for
retirement-eligible employees and payroll taxes. The Company
continues to target a ratio of compensation and employee benefits
to total operating-basis revenue1 of approximately one percentage
point lower for 2012 than the 40.2% level achieved in 2011,
assuming a modest increase in 2012 operating-basis revenue1.
- The Company’s previously announced
business operations and information technology transformation
program remains on track to achieve approximately $94 million of
annual pre-tax, run-rate operating-basis expense1 savings in 2012
compared to the 2010 run-rate.2
Joseph L. Hooley, State Street's chairman, president and chief
executive officer, said, “During the first quarter our core
business momentum in asset servicing and asset management improved,
compared to the second half of last year. Our success in winning
new business is reflected in solid growth in both fee and total
revenue. During the first quarter we won mandates for $233 billion
in assets to be serviced. State Street Global Advisors (SSgA) won
net new business of $41 billion, excluding the impact of the
planned $31 billion reduction in assets managed for the Department
of the U.S. Treasury.”
Hooley continued, “We are pleased with the on-going success of
our business operations and information technology transformation
program, from which we continue to expect to achieve approximately
$94 million in annual pre-tax, run-rate expense savings in 2012. We
remain committed to managing expenses carefully and continue to
expect our compensation-to-revenue ratio to decline in 2012,
compared to 2011, assuming a modest increase in operating-basis
revenue1.”
Hooley concluded, “We continue to prioritize a return of capital
to our shareholders. The results of the recently completed Federal
Reserve Comprehensive Capital Analysis and Review (CCAR)
underscored our strong capital position even in the face of some
very aggressive stress scenarios. Reflecting that strong position,
as previously announced, our Board of Directors increased our
quarterly dividend to $0.24 per common share in March for payment
in April, an increase that restores the dividend to its previous
split-adjusted high. In addition, the Board of Directors approved a
new common stock purchase program authorizing the purchase of up to
$1.8 billion of our common stock through March 31, 2013.”
(1)Operating basis is a non-GAAP presentation. For an
explanation of our operating-basis information, refer to the
addendum included in this news release.
(2)Estimated pre-tax run-rate expense savings relate only to the
Business Operations and Information Technology Transformation
program and are based on improvement from operating-basis expenses
in 2010; actual operating expenses of the Company may increase or
decrease due to other factors.
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, or
“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. Descriptions of
our non-GAAP, or operating-basis financial measures, together with
reconciliations of operating-basis information to GAAP-basis
information, are provided in the addendum included in this news
release.
On an operating basis, earnings per common share of $0.84 were
down 5% from $0.88 in the first quarter of 2011 and down 10% from
$0.93 in the fourth quarter of 2011. Revenue increased 3% to $2.40
billion from $2.33 billion in the first quarter of 2011 and was up
5% from $2.29 billion in the fourth quarter of 2011.
Operating-basis expenses of $1.80 billion increased 7% from $1.68
billion in the first quarter of 2011 and were up 10% from $1.64
billion in the fourth quarter of 2011. Operating-basis return on
average common shareholders’ equity was 8.6% compared to 9.9% in
the first quarter of 2011 and 9.5% in the fourth 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.
Operating-basis (non-GAAP) measures for the quarters ended:
Q1 2012 Q4 2011
% Increase(decrease)
Q1 2011
% Increase(decrease)
Total revenue(1) $2,403 $ 2,286 5.1% $ 2,330 3.1% Total expenses(1)
1,799 1,636 10.0% 1,683 6.9% Earnings per common share(1) $0.84 $
0.93 (9.7)% $ 0.88 (4.5)% Return on average common equity(1)
8.6%
9.5%
(90) bps
9.9%
(130) bps
As of period end: Total assets
$187,956
$216,827 (13.3)% $171,796 9.4% Net unrealized loss on investment
portfolio, after-tax
(81)
(374)
78.3%
(352)
77.0%
AUCA and AUM (dollars in billions): Assets under custody and
administration(2)
$23,208
$21,807
6.4%
$22,609
2.6%
Assets under management
$1,993
$1,858
7.3%
$2,120
(6.0)%
Capital ratios(3): Total capital ratio 20.6% 20.5% 10 bps 21.6%
(100) bps Tier 1 capital ratio 19.1% 18.8% 30 bps 19.6% (50) bps
Tier 1 leverage ratio 7.8% 7.3% 50 bps 8.7% (90) bps Tier 1 common
ratio 17.1% 16.8% 30 bps 17.5% (40) bps TCE ratio 7.5% 7.2% 30 bps
7.4% 10 bps (1) Presented on an
operating basis, a non-GAAP presentation. Refer to the addendum
included in this news release for explanations of our non-GAAP
financial measures and for reconciliations of our operating-basis
financial information. (2)
Includes assets under custody of $16.912
trillion, $15.863 trillion and $16.692 trillion, respectively, as
of period-end Q1 2012, Q4 2011 and Q1 2011.
(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.
Refer to the addendum included in this news release for a further
description of these ratios, and for reconciliations applicable to
the tier 1 common and TCE ratios presented in this table.
Total assets were $188 billion at March 31, 2012 and $217
billion at December 31, 2011 and included $17 billion and $50
billion of excess deposits held at the Federal Reserve and other
central banks, respectively. The average balance sheet for the
first quarter of 2012 was $188 billion, compared to $159 billion
for the first quarter of 2011 and $195 billion for the fourth
quarter of 2011. State Street’s regulatory capital ratios continue
to be strong as of March 31, 2012, with the Company’s total capital
ratio at 20.6%, its tier 1 capital ratio at 19.1% and its tier 1
leverage ratio at 7.8%. In addition, as of March 31, 2012, the
Company’s tier 1 common ratio was 17.1%, and its TCE ratio was
7.5%. March 31, 2012 ratios adjusted for the effects of the
applicable methodologies provided for in the Basel III capital
requirements are: total capital ratio of 16.0%, tier 1 capital
ratio of 14.4%, tier 1 leverage ratio of 6.2%, and tier 1 common
ratio of 13.2%. These ratios reflect State Street’s estimates of
the impact of the requirements under Basel III affecting capital,
based on published statements of the Basel Committee and the
Federal Reserve. Refer to the addendum included in this news
release for information concerning the specified capital ratios and
for reconciliations of these ratios to ratios calculated under
currently applicable regulatory requirements.
At March 31, 2012, the net after-tax unrealized mark-to-market
losses in the investment portfolio were $81 million, an improvement
from net unrealized mark-to-market losses of $374 million at
December 31, 2011, primarily due to tighter spreads, offset
partially by higher rates, and an improvement from net after-tax
unrealized mark-to-market losses of $352 million at March 31, 2011,
primarily due to lower rates.
The Company recorded $49 million of pre-tax conduit-related
accretion in the first quarter of 2012. Looking ahead, the Company
continues to expect to record aggregate pre-tax conduit-related
accretion of approximately $1.1 billion in interest revenue from
April 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)
Q1 2012
Q4 2011
% Increase/(Decrease)
Q1 2011
% Increase/(Decrease)
Servicing fees $ 1,078 $ 1,057 2.0% $ 1,095
(1.6)% Investment management fees 236 202 16.8 236 ---
Trading services revenue 280 273 2.6 302 (7.3) Securities finance
revenue 97 90 7.8 66 47.0 Processing fees and other revenue 94 45
108.9 92 2.2 Net interest revenue, fully taxable- equivalent basis
607 577 5.2 546 11.2 Gains (Losses) related to investment
securities, net 11 42 (7)
Total Operating-Basis Revenue $ 2,403 $
2,286 5.1% $2,330
3.1%
(1)
Net interest revenue for the first quarter
of 2012 and the fourth and first quarters of 2011, presented in the
table, included $31 million, $32 million, and $31 million,
respectively, of tax-equivalent adjustments, and excluded $49
million, $61 million, and $62 million, respectively, of
conduit-related discount accretion. GAAP-basis net interest revenue
for these periods was $625 million, $606 million, and $577 million,
respectively. Refer to the addendum included in this news release
for explanations of our non-GAAP financial measures and for
reconciliations of our operating-basis financial information.
Operating-Basis Expenses (non-GAAP)(1)
(Dollars in millions)
Q1 2012 Q4 2011
% Increase/(Decrease)
Q1 2011
% Increase/(Decrease)
Compensation and employee benefits
$ 1,064
$ 872
22.0%
$ 974
9.2%
Information systems and communications
191
195
(2.1)
191
----
Transaction processing services 181 179 1.1 180 1.0 Occupancy 119
116 2.6 107 11.2 Other 244 274 (10.9) 231
5.6
Total Operating-Basis Expenses
$ 1,799
$ 1,636
10.0%
$ 1,683
6.9%
(1) Refer to the addendum included in
this news release for explanations of our non-GAAP financial
measures and for reconciliations of our operating-basis financial
information.
FIRST-QUARTER 2012 RESULTS VS.
FIRST-QUARTER 2011
Servicing fees were down 2% to $1.078 billion from $1.095
billion in the first quarter of 2011. The decrease reflected
weakness in non-US markets and changes in asset mix, offset
partially by net new business and a slight increase in the S &
P 500. Total assets under custody and administration were $23.208
trillion at March 31, 2012, up 2.6% compared to $22.609 trillion at
March 31, 2011. Daily average values as measured by the S & P
500 Index were up approximately 4% and by the MSCI® EAFE IndexES
were down approximately 11% from the first quarter of 2011.
Investment management fees, generated by State Street Global
Advisors, were $236 million, flat with the first quarter of 2011.
Total assets under management at March 31, 2012, were $1.993
trillion, down 6.0% compared to $2.120 trillion at March 31, 2011
due to the scheduled reduction of $144 billion in assets managed
for the Department of the U.S. Treasury, partially offset by net
new business. Average month-end equity valuations for the S & P
500 Index were up 4% and for the MSCI® EAFE IndexES were down
approximately 10% from the first quarter of 2011.
Trading services revenue, which includes foreign exchange
trading revenue and brokerage and other fees, was $280 million for
the first quarter of 2012, a decrease of 7% from $302 million in
the first quarter of 2011. Foreign exchange trading revenue
decreased 7% primarily due to lower volatilities, partly offset by
higher volumes. Brokerage and other fees were down 8% primarily due
to weaker revenue from transition management.
Securities finance revenue was $97 million in the quarter, up
47% from $66 million in the first quarter of 2011, due primarily to
higher spreads, partially offset by lower volumes.
Net interest revenue on a fully taxable-equivalent basis,
including conduit-related discount accretion, was $656 million in
the first quarter of 2012, compared to $608 million in the first
quarter of 2011. On an operating basis, excluding discount
accretion, net interest revenue was $607 million, an increase of
11% from $546 million in the first quarter of 2011 primarily due to
an increase in investment portfolio volume and higher yields on US
floating-rate securities due to short-term LIBOR rates, offset
partially by a decrease in yield in the fixed-income portfolio.
Including the impact of discount accretion, net interest margin was
164 basis points in the first quarter of 2012 compared to 185 basis
points in the first quarter of 2011. Operating-basis net interest
margin, excluding the impact of discount accretion but including
the excess deposits, was 152 basis points in the first quarter of
2012 compared to 166 basis points in the first quarter of 2011.
In the first quarter of 2012, we recorded $19 million of net
gains from sales of available-for-sale securities and, separately,
$8 million of net losses from other-than-temporary impairment,
resulting in $11 million of net gains related to investment
securities.
Operating-basis expenses of $1.799 billion in the first quarter
of 2012 increased 7% compared to $1.683 billion in the first
quarter of 2011. Compensation and employee benefits expenses
increased 9% from $974 million to $1,064 million, primarily due to
the effects of employee demographics on equity compensation for
retirement-eligible employees, merit increases in salary awarded in
April 2011, and employees added as part of new business and
acquisitions. Information systems and communications were flat at
$191 million with the first quarter of 2011 and transaction
processing services expenses were up about 1% at $181 million.
Occupancy expense in the first quarter of 2012 was up about 11%,
from $107 million to $119 million, primarily due to a one-time
benefit recorded in the first quarter of 2011. Other expenses
increased 6%, or $13 million, to $244 million, primarily due to
increased regulatory costs.
The effective tax rate on first-quarter 2012 GAAP-basis earnings
was 27.2%, down from 28.7% in the first quarter of 2011. The
effective tax rate on operating-basis earnings for the first
quarter of 2012 was 26.6%, down from 28.0% the first quarter of
2011, but up from 25.0% in the fourth quarter of 2011. The increase
in the operating- basis effective tax rate from the fourth quarter
of 2011 is primarily due to the geographic mix of earnings. Our
effective tax rate on operating-basis earnings for the full year
2012 is expected to be in the range of 27% to 28%.
FIRST-QUARTER 2012 RESULTS VS.
FOURTH-QUARTER 2011
Servicing fees were $1.078 billion, up 2% from $1.057 billion in
the fourth quarter of 2011. The increase was primarily due to
higher average equity market valuations and net new business. Daily
average values as measured by the S & P 500 and the MSCI® EAFE
IndexES were up approximately 10% and 7%, respectively. Management
fees were $236 million, up 17% from $202 million. The increase in
management fees was primarily due to improved averages of the
month-end equity valuations and net new business. Average month-end
equity valuations as measured by the S & P 500 and the MSCI®
EAFE IndexES were up approximately 9% and 6%, respectively. Trading
services revenue, which includes foreign exchange trading and
brokerage and other fees, was $280 million, up 3% from $273
million. Foreign exchange trading revenue of $149 million declined
1% due primarily to lower volatility, partially offset by higher
volumes. Brokerage and other fee revenue was $131 million, up 7%
from the fourth quarter of 2011 primarily due to an increase in
transition management revenue. Securities finance revenue was $97
million, up 8% from $90 million, primarily due to higher spreads
slightly offset by lower volumes. Processing fees and other revenue
was up $49 million to $94 million due to the impact of fair-value
adjustments related to positions in the fixed-income trading
initiative.
Fully taxable-equivalent net interest revenue, including
discount accretion, in the first quarter of 2012 totaled $656
million, compared to $638 million in the fourth quarter. On an
operating basis, excluding discount accretion, fully
taxable-equivalent net interest revenue in the first quarter of
2012 was $607 million, up 5% from $577 million in the fourth
quarter due to higher yields on both fixed-income and USD
floating-rate securities.
Compared to the fourth quarter of 2011, compensation and
employee benefits expenses in the first quarter of 2012 increased
$192 million, or 22%, to $1,064 million from $872 million. This
increase was primarily due to the impact of the seasonal accounting
effects of approximately $105 million of equity compensation for
retirement-eligible employees and payroll taxes, as well as the
impact of reductions in incentive compensation in the fourth
quarter of 2011. Other expenses were $244 million, a decrease of
11% from $274 million in the fourth quarter due primarily to a
decrease in fees for professional services and lower 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 annualized net income available to common
equity by average common shareholders’ equity for the period.
Operating-basis return on average common equity utilizes annualized
operating-basis net income available to common equity in the
calculation.
INVESTOR CONFERENCE CALL
State Street will webcast an investor conference call today,
Tuesday, April 17, 2012, at 9:00 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 #65006286). 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#65006286), 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 $23.208 trillion in assets under custody and
administration and $1.993 trillion in assets under management at
March 31, 2012, State Street operates in 29 countries and more than
100 geographic markets and employs 29,800 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 April 17,
2012.
Important factors that may affect future results and outcomes
include, but are not limited to:
- 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 current sovereign debt risks in Europe and
other regions;
- financial market disruptions or
economic recession, whether in the U.S., Europe or other regions
internationally;
- increases in the volatility of, or
declines in the level of, our net interest revenue, changes in the
composition of the assets on our consolidated statement of
condition and the possibility that we may be required to change the
manner in which we fund those assets;
- the liquidity of the U.S. and
international securities markets, particularly the markets for
fixed-income securities and inter-bank credits, and the liquidity
requirements of our clients;
- 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;
- 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;
- our ability to attract deposits and
other low-cost, short-term funding, and our ability to deploy
deposits in a profitable manner consistent with our liquidity
requirements and risk profile;
- the manner in which the Federal Reserve
and other regulators implement the Dodd-Frank Act, Basel III,
European directives with respect to banking and financial
instruments and other regulatory initiatives in the U.S. and
internationally, including regulatory developments that result in
changes to our operating model or other changes to the provision of
our services;
- adverse changes in required regulatory
capital ratios, whether arising under the Dodd-Frank Act, Basel II
or Basel III, or due to changes in regulatory positions or
regulations in jurisdictions in which we engage in banking
activities;
- 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 acquisitions, dividends and equity repurchases, that may
restrict or limit our growth plans, distributions to shareholders,
equity purchase 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;
- the maintenance of credit agency
ratings for our debt and depository obligations as well as the
level of credibility of credit agency ratings;
- 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 results of, and costs associated
with, government investigations, litigation, and similar claims,
disputes, or proceedings;
- 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;
- adverse publicity or other reputational
harm;
- dependencies on information technology,
complexities and costs of protecting the security of our systems
and difficulties with protecting our intellectual property
rights;
- 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;
- potential changes to the competitive
environment, including changes due to regulatory and technological
changes, the effects of consolidation, and perceptions of State
Street as a suitable service provider or counterparty;
- potential changes in how clients
compensate us for our services, and the mix of services that
clients choose from us;
- the risks that acquired businesses and
joint ventures will not achieve their anticipated financial and
operational benefits or 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;
- our ability to recognize emerging
clients’ needs and to develop products that are responsive to such
trends and profitable to the company; 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; and the potential for new
products and services to impose additional costs on us and expose
us to increased operational risk;
- our ability to measure the fair value
of the investment securities on our consolidated statement of
condition;
- 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;
- 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 2011 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, April 17, 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 March 31, 2012 Quarters
Ended % Change Q1 2012 Q1 2012
(Dollars in millions, except per share
amounts or where otherwise noted)
March 31,2012
December 31,2011
March 31,2011 vs.Q4 2011 vs.Q1 2011
Revenue: Fee
revenue
$ 1,785 $ 1,667 $ 1,791 7 % - Net interest
revenue (1)
625 606 577 3 8 % Net gains from sales of
available-for-sale securities
19 59 4 Net losses from
other-than-temporary impairment
(8 ) (17 ) (11 )
Total Revenue
2,421 2,315 2,361 5 3 Provision for Loan
Losses
- (1 ) (1 )
Total Expenses: Expenses from
operations
1,799 1,636 1,683 10 7 Acquisition and
restructuring costs (2)
21 148 19 Litigation settlement
costs
15 - - Income tax expense (3)(4)
159 151 189
Net Income 427 381 471 12 (9 )
Net Income
Available to Common Shareholders 417 371 466
Diluted Earnings Per Common Share
.85 .76 .93 12 (9 )
Average Diluted Common Shares Outstanding (in thousands)
490,454 490,328 500,980 Cash Dividends Declared Per
Common Share
$ .24 $ .18 $ .18 Closing Price Per
Share of Common Stock (at quarter end)
45.50 40.31 44.94
Ratios: Return on average common equity
8.8
% 7.8 % 10.5 % Net interest margin, fully taxable-equivalent
basis
1.64 1.55 1.85 Tier 1 risk-based capital
19.1
18.8 19.6 Total risk-based capital
20.6 20.5 21.6 Tier 1
leverage
7.8 7.3 8.7 Tier 1 common to risk-weighted assets
(5)
17.1 16.8 17.5
Tangible common equity to tangible assets
(5)
7.5 7.2 7.4
At Quarter End: Assets Under
Custody and Administration (6) (in trillions)
$ 23.21
$ 21.81 $ 22.61 Assets Under Management (in trillions)
1.99
1.86 2.12
(1)
Included discount accretion related to
former conduit securities of $49 million, $61 million and $62
million for the quarters ended March 31, 2012, December 31, 2011
and March 31, 2011, respectively.
(2)
Amount for the quarter ended December 31,
2011 reflected a $55 million tax indemnification benefit for an
income tax claim related to a 2010 acquisition.
(3)
Amount for the quarter ended December 31,
2011 reflected income tax expense of $55 million related to the tax
indemnification benefit described in note (2).
(4)
Amount for the quarter ended December 31,
2011 reflected a discrete tax benefit of $12 million 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 $16.91
trillion, $15.86 trillion and $16.69 trillion, respectively.
STATE STREET CORPORATION Earnings Release
Addendum
CONSOLIDATED FINANCIAL RESULTS Quarters Ended March 31,
2012 and 2011 Quarters Ended
March 31, March 31,
(Dollars in millions, except per share
amounts)
2012 2011 % Change
Fee Revenue: Servicing fees
$ 1,078 $ 1,095 (2 ) % Management fees
236 236
- Trading services
280 302 (7 ) Securities finance
97
66 47 Processing fees and other
94 92
2 Total fee revenue
1,785 1,791 -
Net
Interest Revenue: Interest revenue
765 734 4 Interest
expense
140 157 (11 ) Net
interest revenue (1)
625 577 8
Gains (Losses)
related to investment securities, net: Net gains from sales of
available-for-sale securities
19 4 Losses from
other-than-temporary impairment
(25 ) (35 ) Losses
not related to credit
17 24
Gains (Losses) related to investment securities, net
11 (7 ) Total revenue
2,421
2,361 2.5 Provision for loan losses
- (1 )
Expenses: Compensation and employee benefits
1,064
974 9 Information systems and communications
191 191 -
Transaction processing services
181 180 1 Occupancy
119 107 11 Acquisition and restructuring costs
21 19
11 Other
259 231 12 Total
expenses
1,835 1,702 7.8 Income
before income tax expense
586 660 (11 ) Income tax expense
159 189
Net income
$ 427 $ 471 (9 )
Adjustments
to net income: Dividends on preferred stock
$ (7
) Earnings allocated to participating securities
(3 ) $ (5 )
Net income available to common
shareholders $ 417 $ 466
Earnings Per Common Share: Basic
$ .86 $ .94
(9 ) Diluted
.85 .93 (9 )
Average Common Shares
Outstanding (in thousands): Basic
484,942 497,471
Diluted
490,454 500,980
Consolidated financial results presented
above were prepared in conformity with accounting principles
generally accepted in the U.S.
(1)
Net interest revenue on a fully
taxable-equivalent basis was $656 million and $608 million for the
quarters ended March 31, 2012 and 2011, respectively. These amounts
included tax-equivalent adjustments of $31 million for each of the
quarters ended March 31, 2012 and 2011.
STATE STREET CORPORATION Earnings Release Addendum
CONSOLIDATED
FINANCIAL RESULTS Quarters Ended March 31, 2012 and December
31, 2011 Quarters Ended
March 31, December
31, (Dollars in millions, except per share amounts)
2012
2011 % Change
Fee Revenue: Servicing fees
$
1,078 $ 1,057 2 % Management fees
236 202 17 Trading
services
280 273 3 Securities finance
97 90 8
Processing fees and other
94 45
109 Total fee revenue
1,785 1,667 7
Net Interest
Revenue: Interest revenue
765 765 - Interest expense
140 159 (12 ) Net interest
revenue (1)
625 606 3
Gains (Losses) related to
investment securities, net: Net gains from sales of
available-for-sale securities
19 59 Losses from
other-than-temporary impairment
(25 ) (19 ) Losses
not related to credit
17 2 Gains
(Losses) related to investment securities, net
11
42 Total revenue
2,421 2,315 4.6
Provision for loan losses
- (1 )
Expenses: Compensation and employee benefits
1,064
872 22 Information systems and communications
191 195 (2 )
Transaction processing services
181 179 1 Occupancy
119 116 3 Acquisition and restructuring costs
21 148
Other
259 274 (5 ) Total
expenses
1,835 1,784 2.9 Income
before income tax expense
586 532 10 Income tax expense
159 151
Net income
$ 427 $ 381 12
Adjustments to
net income: Dividends on preferred stock
$ (7
) $ (7 ) Earnings allocated to participating securities
(3 ) (3 )
Net income available to
common shareholders $ 417 $ 371
Earnings Per Common Share: Basic
$ .86
$ .77 12 Diluted
.85 .76 12
Average Common Shares
Outstanding (in thousands): Basic
484,942 485,424
Diluted
490,454 490,328 Consolidated financial
results presented above were prepared in conformity with accounting
principles generally accepted in the U.S.
(1)
Net interest revenue on a fully
taxable-equivalent basis was $656 million and $638 million for the
quarters ended March 31, 2012 and December 31, 2011, respectively.
These amounts included tax-equivalent adjustments of $31 million
and $32 million for the quarters ended March 31, 2012 and December
31, 2011, respectively.
STATE STREET CORPORATION Earnings Release Addendum
CONSOLIDATED STATEMENT OF CONDITION March 31,
December 31, March 31, (Dollars in millions, except per share
amounts)
2012 2011 2011
Assets Cash and due
from banks
$ 1,383 $ 2,193 $ 2,637 Interest-bearing
deposits with banks
26,709 58,886 19,984 Securities
purchased under resale agreements
7,895 7,045 2,253 Trading
account assets
773 707 1,832 Investment securities available
for sale
104,704 99,832 90,691 Investment securities held to
maturity
8,668 9,321 12,253 Loans and leases (less allowance
for losses of $22, $22 and $80)
12,253 10,031 12,646
Premises and equipment
1,736 1,747 1,845 Accrued income
receivable
1,966 1,822 1,850 Goodwill
5,700 5,645
5,720 Other intangible assets
2,443 2,459 2,644 Other assets
13,726 17,139 17,441
Total assets
$ 187,956 $ 216,827
$ 171,796
Liabilities Deposits:
Noninterest-bearing
$ 37,201 $ 59,229 $ 23,667
Interest-bearing -- U.S.
2,731 7,148 2,581 Interest-bearing
-- Non-U.S.
90,248 90,910
81,166 Total deposits
130,180 157,287 107,414
Securities sold under repurchase agreements
7,836 8,572
7,133 Federal funds purchased
222 656 4,605 Other short-term
borrowings
4,759 4,766 5,106 Accrued expenses and other
liabilities
16,686 18,017 18,827 Long-term debt
8,114 8,131 9,531 Total
liabilities
167,797 197,429 152,616
Shareholders'
Equity
Preferred stock, no par: 3,500,000 shares
authorized; 5,001 shares issued and outstanding
500 500 500
Common stock, $1 par: 750,000,000 shares
authorized; 503,940,523, 503,965,849 and 503,995,215
shares issued
504 504 504 Surplus
9,546 9,557 9,416 Retained
earnings
10,478 10,176 9,013 Accumulated other comprehensive
loss
(299 ) (659 ) (238 ) Treasury stock, at cost
(14,249,472, 16,541,985, and 401,849 shares)
(570
) (680 ) (15 ) Total shareholders' equity
20,159 19,398 19,180
Total liabilities and shareholders' equity
$
187,956 $ 216,827 $ 171,796
STATE STREET CORPORATION
Earnings Release Addendum
Supplemental Information - Explanation of
Non-GAAP Financial Measures
Non-GAAP Financial
Measures
In addition to presenting State Street’s financial results in
conformity with U.S. generally accepted accounting principles,
referred to as GAAP, management also presents results on a
non-GAAP, or "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.
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 earnings release addendum includes
financial information presented on a GAAP as well as on an
operating basis, and provides reconciliations of operating-basis
financial measures.
This earnings release addendum also includes capital ratios in
addition to, or adjusted from, those calculated in accordance with
currently applicable regulatory requirements. These include capital
ratios based on tier 1 risk-based common capital and tangible
common equity, as well as capital ratios adjusted to reflect our
estimate of the impact of the Basel III capital requirements. These
non-regulatory and adjusted capital measures are non-GAAP financial
measures. Management currently evaluates the non-GAAP capital
ratios presented in this earnings release addendum 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 earnings release addendum
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 of the capital ratios described
below, this earnings release addendum also includes reconciliations
of 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 conformity with GAAP and capital ratios determined in
conformity with currently applicable regulatory requirements.
Capital Ratios
The total risk-based capital, tier 1 risk-based capital and
tier 1 leverage ratios, as applicable, are each calculated in
accordance with currently applicable regulatory requirements. The
total risk-based capital, tier 1 risk-based capital and tier 1
leverage ratios are 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, ratio
is an additional capital ratio that management believes provides
additional context for understanding and assessing the Company’s
capital adequacy.
The tier 1 common ratio is calculated by dividing (a) tier 1
risk-based 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 currently applicable 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 earnings
release addendum, 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 March 31, 2012, December 31, 2011 and March 31, 2011 are
provided in this earnings release addendum.
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 March 31, 2012, December 31,
2011 and March 31, 2011 are provided in this earnings release
addendum.
STATE STREET CORPORATION
Earnings Release Addendum
RECONCILIATIONS OF OPERATING-BASIS
(NON-GAAP) FINANCIAL INFORMATION
In addition to presenting State Street’s financial results in
conformity with GAAP, management also presents results on a
non-GAAP, or "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. Refer
to the "Supplemental Information - Explanation of Non-GAAP
Financial Measures" on the preceding page of this Earnings Release
Addendum for further information concerning our use of non-GAAP
financial measures. The following tables reconcile operating-basis
financial information presented in the earnings release to
financial information prepared and reported in conformity with
GAAP.
Quarters Ended % Change
Q1 2012 Q1 2012
March 31, December 31, March 31, vs.
vs. (Dollars in millions, except per share amounts)
2012
2011 2011 Q4 2011 Q1 2011
Total Revenue: Total revenue, GAAP basis
$
2,421 $ 2,315 $ 2,361 5 % 3 % Add: Net interest revenue
adjustment (see below)
31 32 31 Less: Net interest revenue
adjustment (see below)
(49 ) (61 )
(62 ) Total revenue, operating basis
$
2,403 $ 2,286 $ 2,330 5 3
Net Interest Revenue: Net
interest revenue, GAAP basis
$ 625 $ 606 $ 577 3 8
Add: Tax-equivalent adjustment not included in reported results
31 32 31 Less: Discount accretion related to former conduit
securities
(49 ) (61 )
(62 ) Net interest revenue, operating basis
$ 607
$ 577 $ 546 5 11
Expenses: Total expenses, GAAP basis
$ 1,835 $ 1,784 $ 1,702 3 8 Add: Tax indemnification
benefit for an income tax claim related to the 2010 acquisition of
the Italian securities service business
- 55 - Less:
Acquisition costs
(13 ) (25 ) (14 ) Restructuring
charges, net
(8 ) (178 ) (5 ) Litigation settlement
costs (1)
(15 ) - -
Total expenses, operating basis
$ 1,799
$ 1,636 $ 1,683 10 7
Income Taxes: Income tax expense, GAAP
basis
$ 159 $ 151 $ 189 Add: Tax-equivalent
adjustment not included in reported results
31 32 31 Net tax
effect of non-operating adjustments
(6 ) 46 (16 )
Less: Discrete tax benefit related to former conduit assets
- 12 - Income tax expense related to tax indemnification
benefit
- (55 ) - Income
tax expense, operating basis
$ 184 $ 186
$ 204
Net Income Available to Common Shareholders: Net
income available to common shareholders, GAAP basis
$
417 $ 371 $ 466 12 (11 ) Add: Effect of the difference
between GAAP- and operating-basis earnings on allocation to
participating securities
- (1 ) - Less: Net after-tax effect
of operating-basis adjustments to net interest revenue, expenses
and income tax expense
(7 ) 84
(27 ) Net income available to common shareholders, operating
basis
$ 410 $ 454 $ 439 (10 ) (7
)
Diluted
Earnings per Common Share: Diluted earnings per common share,
GAAP basis
$ .85 $ .76 $ .93 12 (9 ) Add: Acquisition
costs, net of income taxes
.02 .04 .02 Restructuring charges
related to business operations and information technology
transformation program, net of income taxes
.01 .23 .01
Litigation settlement costs, net of income taxes
.02 - -
Less: Discount accretion related to former conduit securities, net
of income taxes
(.06 ) (.08 ) (.08 ) Effect of
discrete tax benefit
- (.02 ) -
Diluted earnings per common share, operating basis
$
.84 $ .93 $ .88 (10 ) (5 )
Return on Average Common Equity: Return
on average common equity, GAAP basis
8.8 % 7.8 % 10.5
% Add: Acquisition costs
0.2 0.4 0.2 Restructuring charges
related to business operations and information technology
transformation program
0.1 2.4 0.1 Litigation settlement
costs
0.2 - - Less: Discount accretion related to former
conduit securities
(0.7 ) (0.8 ) (0.9 ) Effect of
discrete tax benefit
- (0.3 ) -
Return on average common equity, operating basis
8.6 % 9.5 % 9.9 %
(1)
Adjustment reduced GAAP-basis other
expenses from $259 million to operating-basis other expenses of
$244 million.
STATE STREET CORPORATION Earnings Release Addendum
Tangible Common Equity and Tier 1 Common Ratios 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 its
ratios of tier 1 common capital to total risk-weighted assets.
For the periods ended
March 31, December 31, March
31, (Dollars in millions)
2012 2011 2011
Consolidated Total Assets $ 187,956 $ 216,827
$ 171,796 Less: Goodwill
5,700 5,645 5,720 Other intangible
assets
2,443 2,459 2,644 Excess reserves held at central
banks
16,814 50,094
13,295 Adjusted assets
162,999 158,629 150,137 Plus
deferred tax liabilities
731 757
781 Total tangible assets
A $
163,730 $ 159,386 $ 150,918
Consolidated Total Common Shareholders' Equity $
19,659 $ 18,898 $ 18,680 Less: Goodwill
5,700 5,645
5,720 Other intangible assets
2,443
2,459 2,644 Adjusted equity
11,516
10,794 10,316 Plus deferred tax liabilities
731
757 781 Total tangible common
equity
B $ 12,247 $ 11,551 $
11,097 Tangible common equity ratio
B/A
7.5 % 7.2 % 7.4 %
Tier 1 Risk-based Capital
$ 14,126 $ 13,644 $ 13,077 Less: Trust preferred
securities
950 950 950 Preferred stock
500
500 500
Tier 1 common
capital C $ 12,676 $ 12,194
$ 11,627
Total risk-weighted assets D
$ 73,967 $ 72,418 $ 66,597 Ratio of tier 1
common capital to total risk-weighted assets
C/D 17.1
% 16.8 % 17.5 %
STATE STREET CORPORATION
Earnings Release Addendum
BASEL III CAPITAL RECONCILIATION
March 31, 2012
The table set forth below reconciles State Street's capital
ratios calculated in accordance with currently applicable
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 risk-based
capital
$ 14,126 A
$
13,543
Less: Trust preferred securities
950 637 Preferred
stock
500 500 Tier 1
common capital
12,676 B
12,406
Total risk-based capital
15,243 C
15,116
Total risk-weighted assets
73,967 D
94,209
Adjusted quarterly average assets
180,538 E
217,667
Tier 1 risk-based capital ratio
19.1 % A/D
14.4
% Total risk-based capital ratio
20.6 % C/D
16.0
% Tier 1 common ratio
17.1 % B/D
13.2
% Tier 1 leverage ratio
7.8 % A/E
6.2
% (1) Actual (unaudited) total risk-based capital, tier 1
risk-based capital and tier 1 leverage ratios were calculated in
accordance with currently applicable regulatory requirements. Tier
1 common ratio was calculated by dividing (a) tier 1 risk-based
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 regulatory requirements.
(2) For purposes of the calculations in
accordance with Basel III (see below), total risk-based capital,
tier 1 risk-based 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 risk-based
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 risk-based capital used in the
calculation of the tier 1 risk-based capital and tier 1 leverage
ratios decreased by $583 million, as a result of applying estimated
Basel III requirements to tier 1 risk-based capital of $14.126
billion as of March 31, 2012. Total risk-based capital used in the
calculation of the total risk-based capital ratio decreased by $127
million, as a result of applying estimated Basel III requirements
to total risk-based capital of $15.243 billion as of March 31,
2012.
• Tier 1 common capital used in the
calculation of the tier 1 common ratio was $12.406 billion,
reflecting the adjustments to tier 1 risk-based capital described
in the first bullet above. Tier 1 common capital used in the
calculation is therefore calculated as adjusted tier 1 risk-based
capital of $13.543 billion less non-common elements of capital,
composed of trust preferred securities of $637 million and
preferred stock of $500 million as of March 31, 2012, resulting in
tier 1 common capital of $12.406 billion. At March 31, 2012, there
was no qualifying minority interest in subsidiaries.
• Total risk-weighted assets used in the
calculation of the total risk-based capital, tier 1 risk-based
capital and tier 1 common ratios increased by $20.242 billion as a
result of applying estimated Basel III requirements to total
risk-weighted assets of $73.967 billion as of March 31, 2012.
• Consolidated adjusted quarterly average
assets used in the calculation of the leverage ratio increased by
$37.129 billion as a result of applying estimated Basel III
requirements to the actual consolidated adjusted quarterly average
assets of $180.538 billion as of March 31, 2012.
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