UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________
FORM 8-K
______________________
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): January 23, 2015
______________________
State Street Corporation
(Exact name of registrant as specified in its charter)
______________________
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Massachusetts | | 001-07511 | | 04-2456637 |
(State of Incorporation) | | (Commission File Number) | | (IRS Employer Identification Number) |
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One Lincoln Street Boston, Massachusetts | | 02111 |
(Address of principal executive office) | | (Zip Code) |
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Registrant’s telephone number, including area code: (617) 786-3000 |
______________________
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
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o | Written communications pursuant to Rule 425 under the Securities Act |
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o | Soliciting material pursuant to Rule 14a-12 under the Exchange Act |
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o | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act |
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o | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act |
Item 2.02. Results of Operations and Financial Condition.
On January 23, 2015, State Street Corporation (“State Street” or the “Company”) issued a news release announcing its results of operations for the fourth quarter of 2014 and full-year 2014. Copies of that news release and accompanying fourth-quarter 2014 and full-year 2014 financial information addendum are furnished herewith as Exhibits 99.1 and 99.2, respectively, and are incorporated herein by reference.
In addition, a slide presentation providing highlights of State Street's fourth-quarter 2014 and full-year 2014 results of operations and information pertaining to its investment portfolio as of December 31, 2014, which will be made available in connection with the investor conference call to be held by the Company on January 23, 2015, is furnished with this Current Report on Form 8-K as Exhibit 99.3.
Item 9.01. Financial Statements and Exhibits.
(d) Exhibits.
State Street Corporation's news release dated January 23, 2015, announcing its fourth-quarter 2014 and full-year 2014 results of operations, and accompanying fourth-quarter 2014 and full-year 2014 financial information addendum, are furnished herewith as Exhibits 99.1 and 99.2, respectively; and a slide presentation providing highlights of State Street's fourth-quarter 2014 and full-year 2014 results of operations and information pertaining to its investment portfolio as of December 31, 2014, which will be made available in connection with the investor conference call referenced in the January 23, 2015 news release, is furnished herewith as Exhibit 99.3.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
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| | | | |
| | | | STATE STREET CORPORATION |
| | | | |
| | By: | | /s/ SEAN P. NEWTH |
| | Name: | | Sean P. Newth |
| | Title: | | Senior Vice President, Chief Accounting Officer and Controller |
Date: January 23, 2015 | | | | |
EXHIBIT INDEX
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| | |
Exhibit No. |
| Description |
99.1 |
| State Street's news release dated January 23, 2015, announcing its fourth-quarter 2014 and full-year 2014 results of operations |
99.2 |
| State Street's fourth-quarter 2014 and full-year 2014 financial information addendum |
99.3 |
| Slide presentation providing highlights of State Street's fourth-quarter 2014 and full-year 2014 results of operations and information pertaining to its investment portfolio as of December 31, 2014 |
Exhibit 99.1
One Lincoln Street
Boston, MA 02111
United States of America
News Release
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Investor Contact: Anthony Ostler | Media Contact: Hannah Grove |
+1 617/664-3477 | +1 617/664-3377 |
STATE STREET REPORTS FOURTH-QUARTER 2014 GAAP-BASIS EPS OF $1.24
ON REVENUE OF $2.6 BILLION; FULL-YEAR 2014 GAAP-BASIS EPS OF $4.69 ON REVENUE OF $10.3 BILLION
Fourth-quarter 2014 operating-basis1 EPS was $1.37, up 19.1%, on revenue
of $2.7 billion, up 7.8%, compared to the fourth quarter of 2013
Full-year 2014 operating-basis EPS was $5.09, up 12.1%, on revenue
of $10.6 billion, up 5.9%, compared to full-year 2013
Boston, MA ...January 23, 2015
In announcing today's financial results, Joseph L. Hooley, State Street's chairman and chief executive officer said, "Our fourth-quarter and full-year 2014 results reflect strength across our asset servicing and asset management businesses. Despite the low interest rate environment in 2014, our revenue experienced solid growth compared to 2013 from both asset servicing and asset management. As a result, operating-basis total fee revenue for 2014 exceeded 2013 by 7.4 percent. Our focus on developing and delivering solutions to serve our clients' evolving needs continues to position us well against strong global growth trends. As a result of this we achieved new asset servicing commitments in 2014 of $1.1 trillion, including approximately $400 billion in the fourth quarter of 2014, and 2014 net new assets to be managed of approximately $28 billion, including approximately $7 billion in the fourth quarter of 2014.
Hooley continued, "We are pleased we completed our Business Operations and Information Technology Transformation program at the end of 2014 as planned and I want to acknowledge the efforts of the entire State Street team for helping us complete this important initiative. Managing expenses and continuing to drive efficiencies remain ongoing priorities, despite continued pressure from regulatory costs."
Hooley concluded, "We recently submitted our 2015 capital plan for review to the Federal Reserve and continue to emphasize the return of capital to shareholders through dividends and our common stock purchase program. We purchased approximately $410 million of our common stock during the fourth quarter, and $1.23 billion since April 1, 2014, under our current $1.7 billion common stock purchase program, which is effective through March 2015."
Fourth-Quarter 2014 GAAP-Basis Results:
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• | Earnings per common share (EPS) of $1.24 decreased from $1.26 in the third quarter of 2014 and increased from $1.22 in the fourth quarter of 2013. Fourth-quarter 2014 results include a net after-tax charge of $40 million, or $0.10 per share, to increase our legal accrual associated with indirect foreign exchange matters. Fourth-quarter 2014 results also include a net after-tax restructuring charge of $27 million, or $0.06 per share, related to the completion of the Business Operations and Information Technology Transformation program. |
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• | Net income available to common shareholders of $525 million decreased from $542 million in the third quarter of 2014 and from $545 million in the fourth quarter of 2013. |
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• | Revenue of $2.63 billion increased from $2.58 billion in the third quarter of 2014 and from $2.46 billion in the fourth quarter of 2013. |
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• | Net interest revenue of $574 million increased from $570 million in the third quarter of 2014 and decreased from $585 million in the fourth quarter of 2013. |
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• | Provision for loan losses of $4 million increased from $2 million in the third quarter of 2014 and decreased from $6 million in the fourth quarter of 2013. |
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• | Expenses of $1.99 billion increased from $1.89 billion in the third quarter of 2014 and from $1.85 billion in the fourth quarter of 2013. |
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• | Return on average common shareholders' equity (ROE) of 10.4% decreased from 10.6% in the third quarter of 2014 and from 10.9% in the fourth quarter of 2013. |
Full-Year 2014 GAAP-Basis Results:
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• | EPS of $4.69 increased 1.5% from $4.62 in 2013. Revenue increased 4.2% to $10.3 billion from $9.88 billion in 2013. Expenses increased 7.9% to $7.76 billion from $7.19 billion in 2013. ROE decreased to 10.1% in 2014 from 10.5% in 2013. |
Non-GAAP Financial Measures:
In addition to presenting State Street's financial results in conformity with U.S. generally accepted accounting principles, or GAAP, management also presents results on a non-GAAP, or operating basis, in order to highlight comparable financial trends with respect to State Street's business operations from period to period. Non-GAAP measures are not a substitute for, and are not superior to, measures presented on a GAAP basis. Summary results presented on a GAAP basis, descriptions of our non-GAAP, or operating-basis, financial measures, and reconciliations of operating-basis information to GAAP-basis information are provided in the addendum included with this news release.
The following table reconciles select fourth-quarter 2014 operating-basis financial information to financial information prepared and reported in conformity with GAAP for the same period. The addendum included with this news release includes additional reconciliations. |
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(In millions, except per share amounts) | Income Before Income Tax Expense | | Net Income Available to Common Shareholders | | Earnings Per Common Share |
GAAP basis | $ | 634 |
| | $ | 525 |
| | $ | 1.24 |
|
Tax-equivalent adjustments | | | | | |
Tax-advantaged investments (processing fees and other revenue) | 81 |
| | | | |
Tax-exempt investment securities (net interest revenue) | 44 |
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Total | 125 |
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Non-operating adjustments | | | | | |
Discount accretion associated with former conduit securities (net interest revenue) | (31 | ) | | (19 | ) | | (.04 | ) |
Severance costs associated with staffing realignment (compensation and employee benefits expenses) | 10 |
| | 7 |
| | .01 |
|
Provisions for other litigation exposure and other costs, net (other expenses) | 50 |
| | 40 |
| | .10 |
|
Acquisition costs (expenses) | 10 |
| | 7 |
| | .01 |
|
Restructuring charges, net (expenses) | 42 |
| | 27 |
| | .06 |
|
Effect on income tax of non-operating adjustments | — |
| | (5 | ) | | (.01 | ) |
Total | 81 |
| | 57 |
| | .13 |
|
Operating basis | $ | 840 |
| | $ | 582 |
| | $ | 1.37 |
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Fourth-Quarter 2014 Operating-Basis (Non-GAAP) Results:1
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• | EPS of $1.37 increased from $1.35 in the third quarter of 2014 and from $1.15 in the fourth quarter of 2013. |
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• | Net income available to common shareholders of $582 million increased from $581 million in the third quarter of 2014 and from $514 million in the fourth quarter of 2013. |
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• | Revenue of $2.72 billion increased from $2.68 billion in the third quarter of 2014 and from $2.53 billion in the fourth quarter of 2013. |
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• | Net interest revenue of $587 million increased from $580 million in the third quarter of 2014 and decreased from $596 million in the fourth quarter of 2013. Operating-basis net interest revenue excluded discount accretion on former conduit securities of $31 million, $33 million and $31 million for the fourth quarter of 2014, the third quarter of 2014, and the fourth quarter of 2013, respectively. Operating-basis net interest revenue for all quarters is presented on a fully taxable-equivalent basis. |
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• | Expenses of $1.88 billion increased from $1.81 billion in the third quarter of 2014 and from $1.76 billion in the fourth quarter of 2013. |
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• | ROE of 11.6% increased from 11.4% in the third quarter of 2014 and from 10.3% in the fourth quarter of 2013. |
Full-Year 2014 Operating-Basis (Non-GAAP) Results:1
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• | EPS of $5.09 increased 12.1% from $4.54 in 2013. Revenue increased 5.87% to $10.64 billion from $10.05 billion in 2013. Expenses increased 5.86% to $7.42 billion from $7.01 billion in 2013. ROE increased to 10.9% in 2014 from 10.3% in 2013. |
Fourth-Quarter 2014 and Full-Year 2014 Highlights:1
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• | New business2: New asset servicing mandates during full-year and fourth quarter of 2014 totaled $1.1 trillion and approximately $400 billion, respectively. Net new assets to be managed during full-year and fourth quarter of 2014 were approximately $28 billion and approximately $7 billion, respectively. |
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• | Completed Business Operations and Information Technology Transformation program3 at the end of 2014, achieving greater than $625 million of total annualized pre-tax savings with full effect in 2015, based on projected improvement from our total 2010 expenses from operations, all else being equal. |
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• | Achieved positive operating leverage4 of 1 basis point for full-year 2014 compared to full-year 2013, despite a persistent low interest rate environment and elevated regulatory and compliance costs. |
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• | Capital5: Our common equity tier 1 ratio as of December 31, 2014, calculated under the advanced approaches in conformity with the Basel III final rule, was 12.5%. Our estimated pro forma Basel III common equity tier 1 ratio as of December 31, 2014, calculated under the standardized approach in conformity with the Basel III final rule, was 10.8%. On a fully phased-in basis, our estimated pro forma Basel III common equity tier 1 ratio as of December 31, 2014, calculated under the advanced approaches in conformity with the Basel III final rule, was 11.6%. On a fully phased-in basis, our estimated pro-forma Basel III common equity tier 1 ratio as of December 31, 2014, calculated under the standardized approach in conformity with the Basel III final rule, was 10.0%. |
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• | Return of capital to shareholders: Purchased approximately $410 million of our common stock at an average price of $73.71 per share and declared a quarterly common stock dividend of $0.30 per share in the fourth quarter of 2014. During full-year 2014, we purchased approximately 23.7 million shares of our common stock at a total cost of approximately $1.65 billion and an average price of $69.48 per share. We have approximately $470 million remaining at year end under the $1.7 billion March 2014 common stock purchase program, which extends through March 31, 2015. |
1 Operating basis is a non-GAAP presentation. For an explanation of operating-basis information and related reconciliations, refer to the addendum included with this news release.
2 New business in assets to be serviced is reflected in our assets under custody and administration after we begin servicing the assets, and net new business in assets to be managed is reflected in our assets under management after we begin managing the assets. As such, only a portion of these new asset servicing and asset management mandates is reflected in our assets under custody and administration and assets under management, as the case may be, as of December 31, 2014. Distribution fees from the SPDR® Gold Exchange-Traded Fund, or ETF, are recorded in brokerage and other fee revenue and not in management fee revenue.
3 Estimated pre-tax expense savings relate only to the Business Operations and Information Technology Transformation program and are based on projected improvement from our total 2010 operating-basis expenses, all else being equal, with the full effect to be realized in 2015. Our actual total expenses have increased since 2010, and may increase or decrease in the future, due to other factors.
4 Operating leverage is defined as the rate of growth of total revenue less the rate of growth of total expenses, each as determined on an operating basis. Operating leverage presenting the fourth quarter of 2014 in relation to each of the third quarter of 2014 and the fourth quarter of 2013 is set forth in the addendum included with this news release.
5 In 2014, we announced that we had completed our Basel III qualification period. As a result, beginning with the second quarter of 2014, we have calculated and disclosed our regulatory capital ratios under the advanced approaches framework of the Basel III final rule. Our estimated pro forma Basel III common equity tier 1 ratio, calculated under the standardized approach, is an estimate, calculated in
conformity with the Basel III final rule. Our estimated pro forma fully phased-in Basel III common equity tier 1 ratio calculated under the Basel III advanced approaches and our estimated pro forma fully phased-in Basel III common equity tier 1 ratio calculated in conformity with the standardized approach in the Basel III final rule (in each case, fully phased in as of January 1, 2019, as per Basel III phase-in requirements for capital) are preliminary estimates based on our interpretations of the Basel III final rule as applied to our current businesses and operations as currently conducted. Refer to the “Capital” section of this news release for important information about the Basel III final rule, our calculations of our common equity tier 1 ratios thereunder, factors that could influence State Street's calculations of its common equity tier ratios and other information about our capital ratios. Unless otherwise specified, all capital ratios referenced in this news release refer to State Street Corporation and not State Street Bank and Trust Company. Refer to the addendum included with this news release for a further description of these ratios.
Selected Financial Information and Ratios
The table below provides a summary of selected financial information and key ratios for the indicated periods, presented on an operating, or non-GAAP, basis where noted. Amounts are presented in millions of dollars, except for per-share amounts or where otherwise noted.
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Financial Highlights | | | | | | | | | |
(Dollars in millions) | Q4 2014 | | Q3 2014 | | % Increase (Decrease) | | Q4 2013 | | % Increase (Decrease) |
Total revenue1 | $ | 2,724 |
| | $ | 2,678 |
| | 1.7 | % | | $ | 2,528 |
| | 7.8 | % |
Total expenses1 | 1,880 |
| | 1,808 |
| | 4.0 |
| | 1,760 |
| | 6.8 |
|
Net income available to common shareholders1 | 582 |
| | 581 |
| | 0.2 |
| | 514 |
| | 13.2 |
|
Earnings per common share1 | 1.37 |
| | 1.35 |
| | 1.5 |
| | 1.15 |
| | 19.1 |
|
Return on average common equity1 | 11.6 | % | | 11.4 | % | | 20 bps |
| | 10.3 | % | | 130 bps |
|
Total assets as of period-end | $ | 274,119 |
| | $ | 274,805 |
| | (0.2 | )% | | $ | 243,291 |
| | 12.7 | % |
Quarterly average total assets | 254,439 |
| | 247,310 |
| | 2.9 |
| | 210,915 |
| | 20.6 |
|
Net interest margin1 | 1.04 | % | | 1.06 | % | | (2) bps |
| | 1.30 | % | | (26) bps |
|
Net unrealized gains (losses) on investment securities, after-tax, as of period-end | $ | 487 |
| | $ | 411 |
| | | | $ | (213 | ) | | |
1 Presented on an operating basis, a non-GAAP presentation. Refer to the addendum included with this news release for explanations of our non-GAAP financial measures and for reconciliations of our operating-basis financial information.
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Assets Under Custody and Administration and Assets Under Management |
(Dollars in billions) | Q4 2014 | | Q3 2014 | | % Increase (Decrease) | | Q4 2013 | | % Increase (Decrease) |
Assets under custody and administration1, 2 | $ | 28,188 |
| | $ | 28,465 |
| | (1.0 | )% | | $ | 27,427 |
| | 2.8 | % |
Assets under management2 | 2,448 |
| | 2,421 |
| | 1.1 |
| | 2,345 |
| | 4.4 |
|
Market Indices3: | | | | | | | | | |
S&P 500® daily average | 2,009 |
| | 1,976 |
| | 1.7 |
| | 1,769 |
| | 13.6 |
|
MSCI EAFE® daily average | 1,795 |
| | 1,924 |
| | (6.7 | ) | | 1,860 |
| | (3.5 | ) |
S&P 500® average of month-end | 2,048 |
| | 1,969 |
| | 4.0 |
| | 1,804 |
| | 13.5 |
|
MSCI EAFE® average of month-end | 1,811 |
| | 1,901 |
| | (4.7 | ) | | 1,894 |
| | (4.4 | ) |
1 Includes assets under custody of $21,656 billion, $21,707 billion and $20,411 billion, as of December 31, 2014, September 30, 2014 and December 31, 2013, respectively.
2 As of period-end.
3 The index names listed in the table are service marks of their respective owners.
The following table presents fourth-quarter 2014 activity in assets under management, by product category.
Assets Under Management |
| | | | | | | | | | | | | | | | | | | | | | | |
(In billions) | Equity | | Fixed-Income | | Cash | | Multi-Asset-Class Solutions | | Alternative Investments | | Total |
Balance as of September 30, 2014 | $ | 1,411 |
| | $ | 338 |
| | $ | 410 |
| | $ | 138 |
| | $ | 124 |
| | $ | 2,421 |
|
Long-term institutional inflows1 | 86 |
| | 20 |
| | — |
| | 7 |
| | 4 |
| | 117 |
|
Long-term institutional outflows1 | (81 | ) | | (45 | ) | | — |
| | (8 | ) | | (3 | ) | | (137 | ) |
Long-term institutional flows, net | 5 |
| | (25 | ) | | — |
| | (1 | ) | | 1 |
| | (20 | ) |
ETF flows, net | 37 |
| | 1 |
| | — |
| | — |
| | (2 | ) | | 36 |
|
Cash fund flows, net | — |
| | — |
| | (9 | ) | | — |
| | — |
| | (9 | ) |
Total flows, net | 42 |
| | (24 | ) | | (9 | ) | | (1 | ) | | (1 | ) | | 7 |
|
Market appreciation2 | 39 |
| | 14 |
| | — |
| | (8 | ) | | 9 |
| | 54 |
|
Foreign exchange impact2 | (17 | ) | | (9 | ) | | (2 | ) | | (2 | ) | | (4 | ) | | (34 | ) |
Total market/foreign exchange impact | 22 |
| | 5 |
| | (2 | ) | | (10 | ) | | 5 |
| | 20 |
|
Balance as of December 31, 2014 | $ | 1,475 |
| | $ | 319 |
| | $ | 399 |
| | $ | 127 |
| | $ | 128 |
| | $ | 2,448 |
|
1 Amounts represent long-term portfolios, excluding ETFs.
2 Amounts represent aggregate impact on each product category for the period.
Revenue1
The following table provides the components of our operating-basis (non-GAAP) revenue1 for the periods noted: |
| | | | | | | | | | | | | | | | | |
(Dollars in millions) | Q4 2014 | | Q3 2014 | | % Increase (Decrease) | | Q4 2013 | | % Increase (Decrease) |
Servicing fees | $ | 1,301 |
| | $ | 1,302 |
| | (0.1 | )% | | $ | 1,232 |
| | 5.6 | % |
Management fees | 299 |
| | 316 |
| | (5.4 | ) | | 290 |
| | 3.1 |
|
Trading services revenue: | | | | | | | | | |
Foreign exchange trading | 168 |
| | 161 |
| | 4.3 |
| | 125 |
| | 34.4 |
|
Brokerage and other fees2 | 125 |
| | 117 |
| | 6.8 |
| | 111 |
| | 12.6 |
|
Total trading services revenue | 293 |
| | 278 |
| | 5.4 |
| | 236 |
| | 24.2 |
|
Securities finance revenue | 106 |
| | 99 |
| | 7.1 |
| | 76 |
| | 39.5 |
|
Processing fees and other revenue1, 2, 3 | 138 |
| | 103 |
| | 34.0 |
| | 98 |
| | 40.8 |
|
Total fee revenue1, 2, 3 | 2,137 |
| | 2,098 |
| | 1.9 |
| | 1,932 |
| | 10.6 |
|
Net interest revenue1, 4 | 587 |
| | 580 |
| | 1.2 |
| | 596 |
| | (1.5 | ) |
Gains (losses) related to investment securities, net | — |
| | — |
| | nm |
| | — |
| | nm |
|
Total Operating-Basis Revenue1 | $ | 2,724 |
| | $ | 2,678 |
| | 1.7 | % | | $ | 2,528 |
| | 7.8 | % |
1 Presented on an operating basis, a non-GAAP presentation. Refer to the addendum included with this news release for explanations of our non-GAAP financial measures and for reconciliations of our operating-basis financial information.
2 Brokerage and other fees for the fourth quarter of 2014 and third quarter of 2014 reflect the reclassification of revenue associated with currency management from processing fees and other revenue. Brokerage and other fees and processing fees and other revenue previously reported for the fourth quarter of 2013 have been adjusted for comparative purposes.
3 Processing fees and other revenue for the fourth quarter of 2014, third quarter of 2014 and fourth quarter of 2013, presented in the table, included tax-equivalent adjustments of $81 million, $86 million and $53 million, respectively, related to tax credits generated by tax-advantaged investments. GAAP-basis processing fees and other revenue for these periods was $57 million, $17 million and $45 million, respectively.
4 Net interest revenue for the fourth quarter of 2014, third quarter of 2014 and fourth quarter of 2013, presented in the table, included tax-equivalent adjustments of $44 million, $43 million and $42 million, respectively, and excluded conduit-related discount accretion of $31 million, $33 million and $31 million, respectively. GAAP-basis net interest revenue for these periods was $574 million, $570 million and $585 million, respectively.
nm Not meaningful.
Servicing fees of $1.30 billion in the fourth quarter of 2014 decreased slightly from the third quarter of 2014, primarily due to the impact of the stronger U.S. dollar and partially offset by net new business. Compared to the fourth quarter of 2013, servicing fees increased 5.6%, primarily due to net new business and stronger U.S. equity markets and partially offset by the impact of the stronger U.S. dollar.
Management fees of $299 million in the fourth quarter of 2014 decreased 5.4% from the third quarter of 2014, primarily due to the impact of the stronger U.S. dollar, lower performance fees and lower global equity markets. Compared to the fourth quarter of 2013, management fees increased 3.1%, primarily due to net new business and stronger U.S. equity markets and partially offset by the impact of the stronger U.S. dollar.
Foreign exchange trading revenue of $168 million in the fourth quarter of 2014 increased 4.3% and $43 million, or 34.4%, from the third quarter of 2014 and the fourth quarter of 2013, respectively. The increase over both periods was due to higher volatility and volumes. Brokerage and other fees of $125 million in the fourth quarter of 2014 increased 6.8% from the third quarter of 2014, primarily due to higher revenue from transition management. Compared to the fourth quarter of 2013, brokerage and other fees increased 12.6%, primarily due to higher revenue from transition and currency management.
Securities finance revenue of $106 million in the fourth quarter of 2014 increased 7.1% from the third quarter of 2014, primarily due to higher spreads. Compared to the fourth quarter of 2013, securities finance revenue increased $30 million, or 39.5%, primarily due to higher spreads and volumes and new business in enhanced custody.
Processing fees and other revenue of $138 million in the fourth quarter of 2014 increased $35 million, or 34.0% from the third quarter of 2014, primarily due to higher equity earnings from joint ventures and other fees. Compared to the fourth quarter of 2013, processing fees and other revenue increased $40 million, or 40.8%, primarily due to higher equity earnings from joint ventures and increased revenue associated with tax advantaged investments. See notes 1, 2 and 3 to the table above for a description of the presentation of operating-basis processing fees and other revenue.
Net interest revenue of $587 million in the fourth quarter of 2014 increased 1.2% from the third quarter of 2014, primarily due to $9 million from a one-time accelerated loan prepayment. Compared to the fourth quarter of 2013, net interest revenue decreased 1.5%. Excluding $9 million in the fourth quarter of 2014 from a one-time accelerated loan prepayment and $19 million in the fourth quarter of 2013 from a municipal security that was previously impaired, net interest revenue was approximately flat from fourth quarter of 2013, primarily due to lower yields offset by higher interest-earning assets.
Operating-basis net interest revenue excludes discount accretion on former conduit securities and is presented on a fully taxable-equivalent basis. See notes 1 and 4 to the table above for a description of the presentation of operating-basis net interest revenue. The Company expects to record aggregate pre-tax conduit-related accretion of approximately $387 million in interest revenue from January 1, 2015 through the remaining lives of the former conduit securities. This expectation is based on numerous assumptions, including holding the securities to maturity, anticipated prepayment speeds and credit quality.
Net interest margin, including balances held at the Federal Reserve and other central banks, decreased to 104 basis points in the fourth quarter of 2014 from 106 basis points in the third quarter of 2014 and from 130 basis points in the fourth quarter of 2013. Refer to the addendum included with this news release for reconciliations of our net interest margin.
Expenses1
The following table provides the components of our operating-basis (non-GAAP)1 expenses for the periods noted: |
| | | | | | | | | | | | | | | | | |
(Dollars in millions) | Q4 2014 | | Q3 2014 | | % Increase (Decrease) | | Q4 2013 | | % Increase (Decrease) |
Compensation and employee benefits1, 2 | $ | 962 |
| | $ | 955 |
| | 0.7 | % | | $ | 934 |
| | 3.0 | % |
Information systems and communications | 246 |
| | 242 |
| | 1.7 |
| | 228 |
| | 7.9 |
|
Transaction processing services | 201 |
| | 199 |
| | 1.0 |
| | 182 |
| | 10.4 |
|
Occupancy | 113 |
| | 119 |
| | (5.0 | ) | | 124 |
| | (8.9 | ) |
Other1, 3 | 358 |
| | 293 |
| | 22.2 |
| | 292 |
| | 22.6 |
|
Total Operating-Basis Expenses1 | $ | 1,880 |
| | $ | 1,808 |
| | 4.0 | % | | $ | 1,760 |
| | 6.8 | % |
1 Presented on an operating basis, a non-GAAP presentation. Refer to the addendum included with this news release for explanations of our non-GAAP financial measures and for reconciliations of our operating-basis financial information.
2 Compensation and employee benefits expenses for the fourth quarter of 2014, third quarter of 2014 and fourth quarter of 2013 presented in the table, excluded severance costs of $10 million, severance cost credit adjustments of $2 million and severance costs of $11 million, respectively, related to staffing realignment. GAAP-basis compensation and employee benefits expenses for the fourth quarter of 2014, third quarter of 2014 and fourth quarter of 2013 were $972 million, $953 million and $945 million, respectively.
3 GAAP-basis other expenses for the fourth quarter of 2014, third quarter of 2014 and fourth quarter of 2013 were $408 million, $359 million and $337 million, respectively.
Compensation and employee benefits expenses of $962 million in the fourth quarter of 2014 increased 0.7% and 3.0% from the third quarter of 2014 and fourth quarter of 2013, respectively. The increase from both periods is primarily due to increased costs to support new business and regulatory compliance initiatives as well as higher incentive compensation, partially offset by the impact of the stronger U.S. dollar. See notes 1 and 2 to the table above for a description of the presentation of operating-basis compensation and employee benefits expenses for the relevant periods.
Information systems and communications expenses of $246 million in the fourth quarter of 2014 increased 1.7% from the third quarter of 2014. Compared to the fourth quarter of 2013, information systems and communication expenses increased 7.9%. Fourth-quarter 2014 information systems and communications expenses included $6 million related to our withdrawal from derivatives clearing and execution activities in the fourth quarter of 2014.
Transaction processing services expenses of $201 million in the fourth quarter of 2014 increased 1.0% from the third quarter of 2014. Compared to the fourth quarter of 2013, transaction processing expenses increased 10.4%, primarily due to higher volumes in the investment servicing business.
Occupancy expenses of $113 million in the fourth quarter of 2014 decreased 5.0% from the third quarter of 2014. Compared to the fourth quarter of 2013, occupancy expenses decreased 8.9%, primarily due to the effect of an $8 million charge in the fourth quarter of 2013 associated with a sublease renegotiation.
Other expenses of $358 million in the fourth quarter of 2014 increased $65 million, or 22.2%, from the third quarter of 2014, primarily due to higher securities processing costs, higher professional services primarily related to regulatory compliance initiatives, costs associated with
our withdrawal from derivatives clearing and execution activities in the fourth quarter of 2014, and a $9 million impairment primarily associated with an intangible asset. Compared to the fourth quarter of 2013, other expenses increased $66 million, or 22.6%, primarily due to higher professional services primarily related to regulatory compliance initiatives, costs associated with our withdrawal from derivatives clearing and execution activities in the fourth quarter of 2014, a $9 million impairment primarily associated with an intangible asset, and in the fourth quarter of 2013 $28 million of Lehman Brothers-related gains and recoveries. See notes 1 and 3 to the table above for a description of GAAP-basis other expenses for the relevant periods.
Income Taxes
Our fourth-quarter 2014 GAAP-basis effective tax rate was 14.2%, down from 18.6% in the third quarter of 2014 and up from 9.6% in the fourth quarter of 2013. Our fourth-quarter 2014 operating-basis tax rate was 28.5%, down from 31.0% in the third quarter of 2014 and from 31.5% in the fourth quarter of 2013. The decrease in the operating-basis tax rate from both periods was primarily due to a net reduction in taxes attributable to foreign operations.
Capital
In July 2013, the Federal Reserve issued a final rule intended to implement the Basel III framework in the U.S., referred to as the Basel III final rule. Provisions of the Basel III final rule become effective under a transition timetable which began on January 1, 2014. On February 21, 2014, we were notified by the Federal Reserve that we completed our Basel III qualification period and would be required to begin using the advanced approaches framework provided in the Basel III final rule in the determination of our risk-based capital requirements. Pursuant to this notification, we have used the advanced approaches framework to calculate our regulatory capital ratios beginning with the second quarter of 2014.
For the fourth quarter of 2014, the lower of our regulatory capital ratios calculated under the Basel III advanced approaches and those ratios calculated under the transitional provisions of Basel III apply in the assessment of our capital adequacy for regulatory purposes. Once the provisions of the Basel III final rule are fully implemented effective January 1, 2015, the lower of the Basel III regulatory capital ratios calculated by us under the Basel III advanced approaches and the Basel III standardized approach will apply in the assessment of our capital adequacy for regulatory purposes.
The following table presents our regulatory capital ratios as of December 31, 2014 and September 30, 2014. Refer to notes 1, 2 and 3 following the table for an explanation of the methodology as of those dates. Refer to the addendum included with this news release for a further description of these ratios, and for a reconciliation applicable to State Street's tangible common equity, or TCE, ratio presented in the table. All capital ratios presented in the table and elsewhere in this news release refer to State Street Corporation and not State Street Bank and Trust Company.
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Capital ratios | Basel III Advanced Approach December 31, 20141 | | Basel III Transitional December 31, 20142 | | Basel III Advanced Approach September 30, 20141 | | Basel III Transitional September 30, 20142 |
Total capital ratio | 16.6 | % | | 19.8 | % | | 16.2 | % | | 19.1 | % |
Tier 1 capital ratio | 14.7 |
| | 17.5 |
| | 14.2 |
| | 16.7 |
|
Common equity tier 1 ratio | 12.5 |
| | 15.0 |
| | 12.8 |
| | 15.0 |
|
Tier 1 leverage ratio | 6.4 |
| | 6.4 |
| | 6.4 |
| | 6.4 |
|
| | | | | | | |
TCE ratio3 | | | 6.8 |
| | | | 6.6 |
|
1 Total capital, tier 1 capital, common equity tier 1 and tier 1 leverage ratios as of December 31, 2014 and as of September 30, 2014 were calculated in conformity with the advanced approaches provisions of the Basel III final rule.
2 Total capital, tier 1 capital, common equity tier 1 and tier 1 leverage ratios as of December 31, 2014 and as of September 30, 2014 were calculated in conformity with the transitional provisions of the Basel III final rule. Specifically, these ratios reflect total and tier 1 capital, as applicable (the numerator), calculated in conformity with the provisions of the Basel III final rule and total risk-weighted assets or, with respect to the tier 1 leverage ratio, quarterly average assets (in both cases, the denominator), calculated in conformity with the provisions of Basel I.
3 The tangible common equity, or TCE, ratio is an additional capital ratio that management believes provides context useful in understanding and assessing State Street's capital adequacy. The TCE ratio is not required by GAAP or by banking regulations, but is a metric used by management to evaluate the adequacy of State Street’s capital levels. The TCE ratio 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 calculations of our TCE ratios as of December 31, 2014 and September 30, 2014 are provided in the addendum included with this news release.
Our common equity tier 1 ratios as of December 31, 2014 and September 30, 2014, calculated in conformity with the advanced approaches provisions of the Basel III final rule, were 12.5% and 12.8%, respectively. Our estimated pro forma Basel III common equity tier 1 ratio, calculated in conformity with the advanced approaches provisions of the Basel III final rule, was 11.8% as of December 31, 2013. Our estimated pro forma Basel III common equity tier 1 ratios, calculated in conformity with the standardized approach in the Basel III final rule, were 10.8% as of December 31, 2014, 10.9% as of September 30, 2014 and 10.1% as of December 31, 2013. On a fully phased-in basis, our estimated pro forma Basel III common equity tier 1 ratio as of December 31, 2014, calculated under the advanced approaches in conformity with the Basel III final rule, was 11.6%. On a fully phased-in basis, our estimated pro-forma Basel III common equity tier 1 ratio as of December 31, 2014, calculated under the standardized approach in conformity with the Basel III final rule, was 10.0%. Our estimated pro forma common equity tier 1 ratios are preliminary estimates (historical, as of December 31, 2014 and presented on a fully phased-in basis), calculated in conformity with the advanced approaches or the standardized approach (as the case may be, and in each case, fully phased in as of January 1, 2019, as per Basel III phase-in requirements for capital) in the Basel III final rule, based on our interpretations of the Basel III final rule as of the respective date of each estimate’s first public announcement and as applied to our businesses and operations as of the respective date of such estimate.
The advanced approaches ratios (actual and estimated) presented in this news release reflect calculations and determinations with respect to our capital and related matters, based on State Street and external data, quantitative formulae, statistical models, historical correlations and assumptions, collectively referred to as “advanced systems,” in effect and used by us for those purposes as of the respective date of each ratio’s first public announcement. Significant components of these advanced systems involve the exercise of judgment by us and our regulators, and these advanced systems may not, individually or collectively, precisely represent or calculate the scenarios, circumstances, outputs or other results for which they are designed or intended. Due to the influence of changes in these advanced systems, whether resulting from changes in data inputs, regulation or regulatory supervision or interpretation, State Street-specific or market activities or experiences or other updates or factors, we expect that our advanced
systems and our capital ratios calculated in conformity with the Basel III framework will change and may be volatile over time, and that those latter changes or volatility could be material as calculated and measured from period to period.
Refer to the addendum included with this news release for information concerning our estimated pro forma Basel III common equity tier 1 ratios calculated under the advanced and standardized approaches, and for reconciliations of these estimated pro forma ratios to our common equity tier 1 ratio calculated under then currently applicable regulatory requirements.
Additional Information
All earnings 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 and Quarterly Website Disclosures
State Street will webcast an investor conference call today, Friday, January 23, 2015, at 9:30 a.m. EDT, available at www.statestreet.com/stockholder. The conference call will also be available via telephone, at +1 877-423-4013 inside the U.S. or at +1 706-679-5594 outside of the U.S. The Conference ID is # 54579745.
Recorded replays of the conference call will be available on the website, and by telephone at +1 855-859-2056 inside the U.S. or at +1 404-537-3406 outside the U.S. beginning approximately two hours after the call's completion. The Conference ID is # 54579745.
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 intends to publish updates to its public disclosure regarding regulatory capital, as required by the Basel III final rule, on a quarterly basis on its website at www.statestreet.com/stockholder, under "Filings & Reports." Those updates will be published each quarter, during the period beginning after State Street's public announcement of its quarterly results of operations and ending on or prior to the due date under applicable bank regulatory requirements (i.e., ordinarily, ending no later than 60 days following year-end or 45 days following each other quarter-end, as applicable). For the fourth quarter of 2014, State Street expects to publish its updates during the period beginning today and ending on March 2, 2015.
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 $28.19 trillion in assets under custody and administration and $2.45 trillion* in assets under management as of December 31, 2014, State Street operates globally in more than 100 geographic markets and employs 29,970 worldwide. For more information, visit State Street's website 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.
* Assets under management include the assets of the SPDR® Gold ETF (approximately $27 billion as of December 31, 2014), for which State Street Global Markets, LLC, an affiliate of SSgA, serves as the distribution agent.
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, dividend and stock purchase programs, 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 “expect,” “objective,” “intend,” “plan,” “forecast,” “outlook,” “believe,” “anticipate,” “estimate,” “seek,” “may,” “will,” “trend,” “target,” “strategy” 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 23, 2015.
In particular, in each of the third and fourth quarters of 2014, we announced charges (due to pre-tax legal accruals recorded in those quarters) reflecting our intention to seek to resolve some, but not all, of the outstanding and potential claims arising out of our indirect FX client activities. We have reported on these matters in our previous public filings with the SEC. With respect to those legal accruals: (1) we are engaged in discussions with some, but not all, of the governmental agencies and civil litigants that we have described in connection with these matters regarding potential settlements of their outstanding or potential claims; (2) there can be no assurance that we will reach a settlement in any of these matters, that the cost of such settlements would not materially exceed such accruals, or that other claims will not be asserted; and (3) we do not currently intend to seek to negotiate settlements with respect to all outstanding and potential claims, and our current efforts, even if successful, will not address all of our potential material legal exposure arising out of our indirect FX client activities.
Important factors that may also affect future results and outcomes include, but are not limited to:
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• | 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 sovereign-debt risks in the U.S., Europe and other regions; |
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• | increases in the volatility of, or declines in the level of, our net interest revenue, changes in the composition or valuation of the assets recorded in our consolidated statement of condition (and our ability to measure the fair value of investment securities) and the possibility that we may change the manner in which we fund those assets; |
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• | 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; |
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• | 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; |
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• | 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; |
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• | 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; |
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• | the manner and timing with which the Federal Reserve and other U.S. and foreign regulators implement changes to the regulatory framework applicable to our operations, including implementation of the Dodd-Frank Act, the Basel III capital framework and European legislation (such as the Alternative Investment Fund Managers Directive and |
Undertakings for Collective Investment in Transferable Securities Directives); among other consequences, these regulatory changes impact the levels of regulatory capital we must maintain, acceptable levels of credit exposure to third parties, margin requirements applicable to derivatives, and restrictions on banking and financial activities. In addition, our regulatory posture and related expenses have been and will continue to be affected by changes in regulatory expectations for globally systemically important financial institutions applicable to, among other things, risk management, capital planning and compliance programs, and changes in governmental enforcement approaches to perceived failures to comply with regulatory or legal obligations;
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• | adverse changes in the regulatory capital ratios that we are required or will be required to meet, whether arising under the Dodd-Frank Act or the Basel III capital and liquidity standards, or due to changes in regulatory positions, practices or regulations in jurisdictions in which we engage in banking activities, including changes in internal or external data, formulae, models, assumptions or other advanced systems used in the calculation of our capital ratios that cause changes in those ratios as they are measured from period to period; |
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• | increasing requirements to obtain the prior approval of the Federal Reserve or our other regulators for the use, allocation or distribution of our capital or other specific capital actions or programs, including acquisitions, dividends and equity purchases, without which our growth plans, distributions to shareholders, equity purchase programs or other capital initiatives may be restricted; |
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• | changes in law or regulation, or the enforcement of law or regulation, that may adversely affect our business activities or those of our clients or our counterparties, and the products or services that we sell, including additional or increased taxes or assessments thereon, capital adequacy requirements, margin requirements and changes that expose us to risks related to the adequacy of our controls or compliance programs; |
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• | financial market disruptions or economic recession, whether in the U.S., Europe, Asia or other regions; |
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• | our ability to promote a strong culture of risk management, operating controls, compliance oversight and governance that meet our expectations and those of our clients and our regulators; |
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• | the results of, and costs associated with, government investigations, litigation and similar claims, disputes, or proceedings; |
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• | the potential for losses arising from our investments in sponsored investment funds; |
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• | the possibility that our clients will incur substantial losses in investment pools for which we act as agent, and the possibility of significant reductions in the liquidity or valuation of assets underlying those pools; |
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• | our ability to anticipate and manage the level and timing of redemptions and withdrawals from our collateral pools and other collective investment products; |
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• | the credit agency ratings of our debt and depository obligations and investor and client perceptions of our financial strength; |
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• | adverse publicity, whether specific to State Street or regarding other industry participants or industry-wide factors, or other reputational harm; |
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• | our ability to control operational risks, data security breach 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; |
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• | dependencies on information technology and our ability to control related risks, including cyber-crime and other threats to our information technology infrastructure and systems and their effective operation both independently and with external systems, and complexities and costs of protecting the security of our systems and data; |
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• | our ability to grow revenue, control expenses, attract and retain highly skilled people and raise the capital necessary to achieve our business goals and comply with regulatory requirements; |
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• | changes or potential changes to the competitive environment, including changes due to regulatory and technological changes, the effects of industry consolidation and perceptions of State Street as a suitable service provider or counterparty; |
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• | changes or potential changes in how and in what amounts clients compensate us for our services, and the mix of services provided by us that clients choose; |
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• | our ability to complete acquisitions, joint ventures and divestitures, including the ability to obtain regulatory approvals, the ability to arrange financing as required and the ability to satisfy closing conditions; |
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• | the risks that our 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 negative synergies or liabilities 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 our relationships with our clients, our employees or regulators; |
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• | our ability to recognize emerging needs of our clients and to develop products that are responsive to such trends and profitable to us, the performance of and demand for the products and services we offer, and the potential for new products and services to impose additional costs on us and expose us to increased operational risk; |
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• | changes in accounting standards and practices; and |
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• | 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 2013 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 23, 2015, and we do not undertake efforts to revise those forward-looking statements to reflect events after that date.
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| Exhibit 99.2 |
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STATE STREET CORPORATION |
Earnings Release Addendum |
December 31, 2014 |
Table of Contents |
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GAAP-Basis Financial Information | Page |
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Operating-Basis (Non-GAAP) Financial Information | |
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Capital | |
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Reconciliations of tangible common equity and common equity tier 1 capital ratios - December 31, 2014, September 30, 2014 and December 31, 2013 | |
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Reconciliations of common equity tier 1 ratios (standardized and advanced approaches) - December 31, 2014, September 30, 2014 and December 31, 2013 | |
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This financial information should be read in conjunction with State Street's earnings news release dated January 23, 2015.
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STATE STREET CORPORATION |
Earnings Release Addendum |
CONSOLIDATED FINANCIAL HIGHLIGHTS |
|
| | Quarters Ended | | % Change |
(Dollars in millions, except per share amounts or where otherwise noted) | | December 31, 2014 | | September 30, 2014 | | December 31, 2013 | | Q4 2014 vs. Q3 2014 | | Q4 2014 vs. Q4 2013 |
Revenue: | | | | | | | | | | |
Fee revenue | | $ | 2,056 |
| | $ | 2,012 |
| | $ | 1,879 |
| | 2 | % | | 9 | % |
Net interest revenue | | 574 |
| | 570 |
| | 585 |
| | 1 |
| | (2 | ) |
Net gains from sales of available-for-sale securities | | — |
| | — |
| | 3 |
| | | | |
Net losses from other-than-temporary impairment | | — |
| | — |
| | (3 | ) | | | | |
Total revenue | | 2,630 |
| | 2,582 |
| | 2,464 |
| | 2 |
| | 7 |
|
Provision for loan losses | | 4 |
| | 2 |
| | 6 |
| | | | |
Total expenses | | 1,992 |
| | 1,892 |
| | 1,846 |
| | 5 |
| | 8 |
|
Income before income tax expense | | 634 |
| | 688 |
| | 612 |
| | (8 | ) | | 4 |
|
Income tax expense | | 90 |
| | 128 |
| | 59 |
| | | | |
Net income | | 544 |
| | 560 |
| | 553 |
| | (3 | ) | | (2 | ) |
Net income available to common shareholders | | 525 |
| | 542 |
| | 545 |
| | | | |
Diluted earnings per common share | | 1.24 |
| | 1.26 |
| | 1.22 |
| | (2 | ) | | 2 |
|
Average diluted common shares outstanding (in thousands) | | 424,339 |
| | 429,736 |
| | 445,225 |
| | | | |
Cash dividends declared per common share | | $ | .30 |
| | $ | .30 |
| | $ | .26 |
| | | | |
Closing price per share of common stock (as of quarter-end) | | 78.50 |
| | 73.61 |
| | 73.39 |
| | | | |
Ratios: | | | | | | | | | | |
Return on average common equity | | 10.4 | % | | 10.6 | % | | 10.9 | % | | | | |
Pre-tax operating margin | | 24.1 |
| | 26.6 |
| | 24.8 |
| | | | |
Net interest margin, fully taxable-equivalent basis | | 1.09 |
|
| 1.12 |
|
| 1.36 |
| | | | |
Total risk-based capital1 | | 16.6 |
| | 16.2 |
| | 19.7 |
| | | | |
Tier 1 risk-based capital1 | | 14.7 |
| | 14.2 |
| | 17.3 |
| | | | |
Common equity tier 1 risk-based capital1, 2 | | 12.5 |
| | 12.8 |
| | 15.5 |
| | | | |
Tier 1 leverage1 | | 6.4 |
| | 6.4 |
| | 6.9 |
| | | | |
Tangible common equity2 | | 6.8 |
| | 6.6 |
| | 6.6 |
| | | | |
At quarter-end: | | | | | | | | | | |
Assets under custody and administration3 (in trillions) | | $ | 28.19 |
| | $ | 28.47 |
| | $ | 27.43 |
| | | | |
Assets under management (in trillions) | | 2.45 |
| | 2.42 |
| | 2.35 |
| | | | |
1 In early 2014, we announced that we had completed our Basel III qualification period. As a result, our regulatory capital ratios as of December 31, 2014 and September 30, 2014 presented in the table above have been calculated under the advanced approaches framework of the Basel III final rule. Regulatory capital ratios as of December 31, 2013 presented in the table above were calculated under Basel I, and accordingly are not directly comparable to such ratios as of December 31, 2014 and September 30, 2014. Refer to page 13 of this addendum for additional information about our regulatory capital ratios as of December 31, 2014 and September 30, 2014.
2 Common equity tier 1 risk-based capital, or CET1, ratio as of December 31, 2013 and tangible common equity ratios as of December 31, 2014, September 30, 2014 and December 31, 2013 are non-GAAP financial measures. Refer to accompanying reconciliations on page 14 for additional information.
3 Included assets under custody of $21.66 trillion, $21.71 trillion and $20.41 trillion as of December 31, 2014, September 30, 2014 and December 31, 2013, respectively.
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STATE STREET CORPORATION |
Earnings Release Addendum |
CONSOLIDATED FINANCIAL HIGHLIGHTS (Continued) |
| | | | | | |
| | Years Ended | | % Change |
(Dollars in millions, except per share amounts) | | December 31, 2014 | | December 31, 2013 | | 2014 vs. 2013 |
Revenue: | | | | | | |
Fee revenue | | $ | 8,031 |
| | $ | 7,590 |
| | 6 | % |
Net interest revenue | | 2,260 |
| | 2,303 |
| | (2 | ) |
Net gains from sales of available-for-sale securities | | 15 |
| | 14 |
| | |
Net losses from other-than-temporary impairment | | (11 | ) | | (23 | ) | | |
Total revenue | | 10,295 |
| | 9,884 |
| | 4 |
|
Provision for loan losses | | 10 |
| | 6 |
| | |
Total expenses | | 7,762 |
| | 7,192 |
| | 8 |
|
Income before income tax expense | | 2,523 |
| | 2,686 |
| | (6 | ) |
Income tax expense | | 434 |
| | 550 |
| | |
Net income | | 2,089 |
| | 2,136 |
| | (2 | ) |
Net income available to common shareholders | | 2,025 |
| | 2,102 |
| | (4 | ) |
Diluted earnings per common share | | 4.69 |
| | 4.62 |
| | 2 |
|
Average diluted common shares outstanding (in thousands) | | 432,007 |
| | 455,155 |
| | |
Cash dividends declared per common share | | $ | 1.16 |
| | $ | 1.04 |
| | |
Return on average common equity | | 10.1 | % | | 10.5 | % | | |
Pre-tax operating margin | | 24.5 |
| | 27.2 |
| | |
Net interest margin, fully taxable-equivalent basis | | 1.16 |
| | 1.37 |
| | |
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STATE STREET CORPORATION |
Earnings Release Addendum |
CONSOLIDATED RESULTS OF OPERATIONS |
| | | | | | | | | | | | | | | | |
| | Quarters Ended | | % Change | | Years Ended |
(Dollars in millions, except per share amounts) | | December 31, 2014 | | September 30, 2014 | | December 31, 2013 | | Q4 2014 vs. Q3 2014 | | Q4 2014 vs. Q4 2013 | | December 31, 2014 | | December 31, 2013 | | % Change |
Fee revenue: | | | | | | | | | | | | | | | | |
Servicing fees | | $ | 1,301 |
| | $ | 1,302 |
| | $ | 1,232 |
| | — | % | | 6 | % | | $ | 5,129 |
| | $ | 4,819 |
| | 6 | % |
Management fees | | 299 |
| | 316 |
| | 290 |
| | (5 | ) | | 3 |
| | 1,207 |
| | 1,106 |
| | 9 |
|
Trading services: | | | | | | | | | | | | | | | | |
Direct sales and trading | | 110 |
| | 101 |
| | 63 |
| | 9 |
| | 75 |
| | 361 |
| | 304 |
| | 19 |
|
Indirect foreign exchange trading1 | | 58 |
| | 60 |
| | 62 |
| | (3 | ) | | (6 | ) | | 246 |
| | 285 |
| | (14 | ) |
Total foreign exchange trading | | 168 |
| | 161 |
| | 125 |
| | 4 |
| | 34 |
| | 607 |
| | 589 |
| | 3 |
|
Electronic foreign exchange services | | 46 |
| | 44 |
| | 47 |
| | 5 |
| | (2 | ) | | 181 |
| | 218 |
| | (17 | ) |
Other trading, transition management and brokerage | | 79 |
| | 73 |
| | 64 |
| | 8 |
| | 23 |
| | 296 |
| | 287 |
| | 3 |
|
Total brokerage and other trading services | | 125 |
| | 117 |
| | 111 |
| | 7 |
| | 13 |
| | 477 |
| | 505 |
| | (6 | ) |
Total trading services | | 293 |
| | 278 |
| | 236 |
| | 5 |
| | 24 |
| | 1,084 |
| | 1,094 |
| | (1 | ) |
Securities finance | | 106 |
| | 99 |
| | 76 |
| | 7 |
| | 39 |
| | 437 |
| | 359 |
| | 22 |
|
Processing fees and other | | 57 |
| | 17 |
| | 45 |
| | 235 |
| | 27 |
| | 174 |
| | 212 |
| | (18 | ) |
Total fee revenue | | 2,056 |
| | 2,012 |
| | 1,879 |
| | 2 |
| | 9 |
| | 8,031 |
| | 7,590 |
| | 6 |
|
Net interest revenue: | | | | | | | | | | | | | | | | |
Interest revenue | | 676 |
| | 671 |
| | 684 |
| | 1 |
| | (1 | ) | | 2,652 |
| | 2,714 |
| | (2 | ) |
Interest expense | | 102 |
| | 101 |
| | 99 |
| | 1 |
| | 3 |
| | 392 |
| | 411 |
| | (5 | ) |
Net interest revenue | | 574 |
| | 570 |
| | 585 |
| | 1 |
| | (2 | ) | | 2,260 |
| | 2,303 |
| | (2 | ) |
Gains (losses) related to investment securities, net: | | | | | | | | | | | | | | | | |
Net gains from sales of available-for-sale securities | | — |
| | — |
| | 3 |
| |
| |
| | 15 |
| | 14 |
| |
|
Losses from other-than-temporary impairment | | — |
| | — |
| | (2 | ) | |
| |
| | (1 | ) | | (21 | ) | |
|
Losses reclassified (from) to other comprehensive income | | — |
| | — |
| | (1 | ) | |
| |
| | (10 | ) | | (2 | ) | |
|
Gains (losses) related to investment securities, net | | — |
| | — |
| | — |
| |
| |
| | 4 |
| | (9 | ) | |
|
Total revenue | | 2,630 |
| | 2,582 |
| | 2,464 |
| | 2 |
| | 7 |
| | 10,295 |
| | 9,884 |
| | 4 |
|
Provision for loan losses | | 4 |
| | 2 |
| | 6 |
| | | | | | 10 |
| | 6 |
| | |
Expenses: | | | | | | | | | | | | | | | | |
Compensation and employee benefits | | 972 |
| | 953 |
| | 945 |
| | 2 |
| | 3 |
| | 4,060 |
| | 3,800 |
| | 7 |
|
Information systems and communications | | 246 |
| | 242 |
| | 228 |
| | 2 |
| | 8 |
| | 976 |
| | 935 |
| | 4 |
|
Transaction processing services | | 201 |
| | 199 |
| | 182 |
| | 1 |
| | 10 |
| | 784 |
| | 733 |
| | 7 |
|
Occupancy | | 113 |
| | 119 |
| | 124 |
| | (5 | ) | | (9 | ) | | 461 |
| | 467 |
| | (1 | ) |
Acquisition and restructuring costs | | 52 |
| | 20 |
| | 30 |
| | 160 |
| | 73 |
| | 133 |
| | 104 |
| | 28 |
|
Other | | 408 |
| | 359 |
| | 337 |
| | 14 |
| | 21 |
| | 1,348 |
| | 1,153 |
| | 17 |
|
Total expenses | | 1,992 |
| | 1,892 |
| | 1,846 |
| | 5 |
| | 8 |
| | 7,762 |
| | 7,192 |
| | 8 |
|
Income before income tax expense | | 634 |
| | 688 |
| | 612 |
| | (8 | ) | | 4 |
| | 2,523 |
| | 2,686 |
| | (6 | ) |
Income tax expense | | 90 |
| | 128 |
| | 59 |
| |
| |
| | 434 |
| | 550 |
| |
|
Net income | | $ | 544 |
| | $ | 560 |
| | $ | 553 |
| | (3 | ) | | (2 | ) | | $ | 2,089 |
| | $ | 2,136 |
| | (2 | ) |
Adjustments to net income: | | | | | | | | | | | | | | | | |
Dividends on preferred stock | | $ | (18 | ) | | $ | (18 | ) | | $ | (6 | ) | | | | | | $ | (61 | ) | | $ | (26 | ) | | |
Earnings allocated to participating securities | | (1 | ) | | — |
| | (2 | ) | | | | | | (3 | ) | | (8 | ) | | |
Net income available to common shareholders | | $ | 525 |
| | $ | 542 |
| | $ | 545 |
| | | | | | $ | 2,025 |
| | $ | 2,102 |
| | |
Earnings per common share: | | | | | | | | | | | | | | | | |
Basic | | $ | 1.26 |
| | $ | 1.28 |
| | $ | 1.25 |
| | (2 | ) | | 1 |
| | $ | 4.77 |
| | $ | 4.71 |
| | 1 |
|
Diluted | | 1.24 |
| | 1.26 |
| | 1.22 |
| | (2 | ) | | 2 |
| | 4.69 |
| | 4.62 |
| | 2 |
|
Average common shares outstanding (in thousands): | | | | | | | | | | | | | | | | |
Basic | | 416,651 |
| | 421,974 |
| | 435,871 |
| | | | | | 424,223 |
| | 446,245 |
| | |
Diluted | | 424,339 |
| | 429,736 |
| | 445,225 |
| | | | | | 432,007 |
| | 455,155 |
| | |
1 We calculate revenue for indirect foreign exchange using an attribution methodology. This methodology takes into consideration estimated effective mark-ups/downs and observed client volumes. Direct sales and trading revenue is total foreign exchange trading revenue excluding the revenue attributed to indirect foreign exchange.
|
| | | | | | | | |
STATE STREET CORPORATION |
Earnings Release Addendum |
CONSOLIDATED STATEMENT OF CONDITION |
| | | | |
(Dollars in millions, except per share amounts) | | December 31, 2014 | | December 31, 2013 |
Assets: | | | | |
Cash and due from banks | | $ | 1,855 |
| | $ | 3,220 |
|
Interest-bearing deposits with banks | | 93,523 |
| | 64,257 |
|
Securities purchased under resale agreements | | 2,390 |
| | 6,230 |
|
Trading account assets | | 924 |
| | 843 |
|
Investment securities available for sale | | 94,913 |
| | 99,174 |
|
Investment securities held to maturity (fair value of $17,842 and $17,560) | | 17,723 |
| | 17,740 |
|
Loans and leases (less allowance for losses of $38 and $28) | | 18,161 |
| | 13,458 |
|
Premises and equipment (net of accumulated depreciation of $4,599 and $4,417) | | 1,937 |
| | 1,860 |
|
Accrued interest and fees receivable | | 2,242 |
| | 2,123 |
|
Goodwill | | 5,826 |
| | 6,036 |
|
Other intangible assets | | 2,025 |
| | 2,360 |
|
Other assets | | 32,600 |
| | 25,990 |
|
Total assets | | $ | 274,119 |
| | $ | 243,291 |
|
Liabilities: | | | | |
Deposits: | | | | |
Noninterest-bearing | | $ | 70,490 |
| | $ | 65,614 |
|
Interest-bearing -- U.S. | | 33,012 |
| | 13,392 |
|
Interest-bearing -- Non-U.S. | | 105,538 |
| | 103,262 |
|
Total deposits | | 209,040 |
| | 182,268 |
|
Securities sold under repurchase agreements | | 8,925 |
| | 7,953 |
|
Federal funds purchased | | 21 |
| | 19 |
|
Other short-term borrowings | | 4,381 |
| | 3,780 |
|
Accrued expenses and other liabilities | | 20,186 |
| | 19,194 |
|
Long-term debt | | 10,042 |
| | 9,699 |
|
Total liabilities | | 252,595 |
| | 222,913 |
|
Shareholders' equity: | | | | |
Preferred stock, no par, 3,500,000 shares authorized: | | | | |
Series C, 5,000 shares issued and outstanding | | 491 |
| | 491 |
|
Series D, 7,500 shares issued and outstanding | | 742 |
| | — |
|
Series E, 7,500 shares issued and outstanding | | 728 |
| | — |
|
Common stock, $1 par, 750,000,000 shares authorized; 503,880,120 and 503,882,841 shares issued | | 504 |
| | 504 |
|
Surplus | | 9,791 |
| | 9,776 |
|
Retained earnings | | 14,933 |
| | 13,395 |
|
Accumulated other comprehensive income gain (loss) | | (507 | ) | | (95 | ) |
Treasury stock, at cost (88,684,969 and 69,754,255 shares) | | (5,158 | ) | | (3,693 | ) |
Total shareholders' equity | | 21,524 |
| | 20,378 |
|
Total liabilities and shareholders' equity | | $ | 274,119 |
| | $ | 243,291 |
|
|
| | | | | | | | | | | | | |
STATE STREET CORPORATION |
Earnings Release Addendum |
ASSETS UNDER CUSTODY AND ADMINISTRATION |
|
| | | As of |
(In billions) | | | December 31, 2014 | | September 30, 2014 | | December 31, 2013 |
Assets Under Custody and Administration | | | | | | | |
By Product Classification: | | | | | | | |
Mutual funds | | | $ | 6,992 |
| | $ | 7,035 |
| | $ | 6,811 |
|
Collective funds | | | 6,949 |
| | 6,919 |
| | 6,428 |
|
Pension products | | | 5,746 |
| | 5,780 |
| | 5,851 |
|
Insurance and other products | | | 8,501 |
| | 8,731 |
| | 8,337 |
|
Total Assets Under Custody and Administration | | | $ | 28,188 |
| | $ | 28,465 |
| | $ | 27,427 |
|
By Financial Instrument: | | | | | | | |
Equities | | | $ | 15,876 |
| | $ | 15,616 |
| | $ | 15,050 |
|
Fixed-income | | | 8,739 |
| | 9,298 |
| | 9,072 |
|
Short-term and other investments | | | 3,573 |
| | 3,551 |
| | 3,305 |
|
Total Assets Under Custody and Administration | | | $ | 28,188 |
| | $ | 28,465 |
| | $ | 27,427 |
|
By Geographic Location1: | | | | | | | |
North America | | | $ | 21,217 |
| | $ | 21,255 |
| | $ | 20,764 |
|
Europe/Middle East/Africa | | | 5,633 |
| | 5,869 |
| | 5,511 |
|
Asia/Pacific | | | 1,338 |
| | 1,341 |
| | 1,152 |
|
Total Assets Under Custody and Administration | | | $ | 28,188 |
| | $ | 28,465 |
| | $ | 27,427 |
|
Assets Under Custody2 | | | | | | | |
By Product Classification: | | | | | | | |
Mutual funds | | | $ | 6,634 |
| | $ | 6,669 |
| | $ | 6,505 |
|
Collective funds | | | 5,475 |
| | 5,354 |
| | 4,903 |
|
Pension products | | | 5,161 |
| | 5,188 |
| | 4,756 |
|
Insurance and other products | | | 4,386 |
| | 4,496 |
| | 4,247 |
|
Total Assets Under Custody | | | $ | 21,656 |
| | $ | 21,707 |
| | $ | 20,411 |
|
By Geographic Location1: | | | | | | | |
North America | | | $ | 16,903 |
| | $ | 16,813 |
| | $ | 15,890 |
|
Europe/Middle East/Africa | | | 3,729 |
| | 3,858 |
| | 3,620 |
|
Asia/Pacific | | | 1,024 |
| | 1,036 |
| | 901 |
|
Total Assets Under Custody | | | $ | 21,656 |
| | $ | 21,707 |
| | $ | 20,411 |
|
| | | | | | | |
1 Geographic mix is based on the location at which the assets are serviced. |
2 Assets under custody are a component of assets under custody and administration presented above. |
|
| | | | | | | | | | | | | |
STATE STREET CORPORATION |
Earnings Release Addendum |
ASSETS UNDER MANAGEMENT |
|
| | | As of |
(In billions) | | | December 31, 2014 | | September 30, 2014 | | December 31, 2013 |
Assets Under Management | | | | | | | |
By Asset Class and Investment Approach: | | | | | | | |
Equity: | | | | | | | |
Active | | | $ | 39 |
| | $ | 40 |
| | $ | 42 |
|
Passive | | | 1,436 |
| | 1,371 |
| | 1,334 |
|
Total Equity | | | 1,475 |
| | 1,411 |
| | 1,376 |
|
Fixed-Income: | | | | | | | |
Active | | | 17 |
| | 16 |
| | 16 |
|
Passive | | | 302 |
| | 322 |
| | 311 |
|
Total Fixed-Income | | | 319 |
| | 338 |
| | 327 |
|
Cash1 | | | 399 |
| | 410 |
| | 385 |
|
Multi-Asset-Class Solutions: | | | | | | | |
Active | | | 30 |
| | 34 |
| | 23 |
|
Passive | | | 97 |
| | 104 |
| | 110 |
|
Total Multi-Asset-Class Solutions | | | 127 |
| | 138 |
| | 133 |
|
Alternative Investments2: | | | | | | | |
Active | | | 17 |
| | 17 |
| | 14 |
|
Passive | | | 111 |
| | 107 |
| | 110 |
|
Total Alternative Investments | | | 128 |
| | 124 |
| | 124 |
|
Total Assets Under Management | | | $ | 2,448 |
| | $ | 2,421 |
| | $ | 2,345 |
|
| | | | | | | |
1 Includes both floating- and constant-net-asset-value portfolios held in commingled structures or separate accounts. |
2 Includes real estate investment trusts, currency and commodities, including SPDR® Gold Fund for which State Street is not the investment manager, but acts as distribution agent. |
|
| | | | | | | | | | | | | |
Exchange-Traded Funds3 | | | | | | | |
By Asset Class: | | | | | | | |
Alternative investments | | | $ | 38 |
| | $ | 40 |
| | $ | 39 |
|
Cash | | | 1 |
| | 1 |
| | 1 |
|
Equity | | | 388 |
| | 338 |
| | 325 |
|
Fixed-income | | | 39 |
| | 37 |
| | 34 |
|
Total Exchange-Traded Funds | | | $ | 466 |
| | $ | 416 |
| | $ | 399 |
|
| | | | | | | |
3 Exchange-traded funds are a component of assets under management presented above. |
|
| | | | | | | | | | | | | |
Assets Under Management | | | | | | | |
By Geographic Location4: | | | | | | | |
North America | | | $ | 1,568 |
| | $ | 1,502 |
| | $ | 1,456 |
|
Europe/Middle East/Africa | | | 559 |
| | 565 |
| | 560 |
|
Asia/Pacific | | | 321 |
| | 354 |
| | 329 |
|
Total Assets Under Management | | | $ | 2,448 |
| | $ | 2,421 |
| | $ | 2,345 |
|
| | | | | | | |
4 Geographic mix is based on client location or fund management location. |
|
| | | | | | | | | | | | | | | | | | | | |
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 U.S. generally accepted accounting principles, referred to as GAAP, management also presents results on a non-GAAP, or "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, such as interest revenue from tax-exempt investment securities and processing fees and other revenue associated with tax-advantaged investments, on a fully taxable-equivalent basis and excludes the impact of revenue and expenses outside of State Street's 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 conformity with GAAP. 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. |
The accompanying earnings release presents financial information prepared on a GAAP as well as on an operating basis; accordingly, this earnings release addendum provides reconciliations of operating-basis financial measures. The following tables reconcile operating-basis financial information presented in the accompanying earnings release to financial information prepared and reported in conformity with GAAP. |
| | | Quarters ended | | % Change | |
(Dollars in millions, except per share amounts) | | December 31, 2014 | | September 30, 2014 | | December 31, 2013 | | Q4 2014 vs. Q3 2014 | | Q4 2014 vs. Q4 2013 | |
Total Revenue: | | | | | | | | | | | |
Total revenue, GAAP basis | | $ | 2,630 |
| | $ | 2,582 |
| | $ | 2,464 |
| | 1.9 | % | | 6.7 | % | |
| Adjustment to processing fees and other revenue (see below) | | 81 |
| | 86 |
| | 53 |
| | | | | |
| Adjustment to net interest revenue (see below) | | 44 |
| | 43 |
| | 42 |
| | | | | |
| Adjustment to net interest revenue (see below) | | (31 | ) | | (33 | ) | | (31 | ) | | | | | |
Total revenue, operating basis1, 2 | | $ | 2,724 |
| | $ | 2,678 |
| | $ | 2,528 |
| | 1.72 |
| | 7.75 |
| |
| | | | | | | | | | | | |
Fee Revenue: | | | | | | | | | | | |
Total fee revenue, GAAP basis | | $ | 2,056 |
| | $ | 2,012 |
| | $ | 1,879 |
| | 2 |
| | 9 |
| |
| Tax-equivalent adjustment associated with tax-advantaged investments | | 81 |
| | 86 |
| | 53 |
| | | | | |
Total fee revenue, operating basis | | $ | 2,137 |
| | $ | 2,098 |
| | $ | 1,932 |
| | 2 |
| | 11 |
| |
| | | | | | | | | | | | |
Processing Fees and Other Revenue: | | | | | | | | | | | |
Total processing fees and other revenue, GAAP basis | | $ | 57 |
| | $ | 17 |
| | $ | 45 |
| | 235 |
| | 27 |
| |
| Tax-equivalent adjustment associated with tax-advantaged investments | | 81 |
| | 86 |
| | 53 |
| | | | | |
Total processing fees and other revenue, operating basis | | $ | 138 |
| | $ | 103 |
| | $ | 98 |
| | 34 |
| | 41 |
| |
| | | | | | | | | | | | |
Net Interest Revenue: | | | | | | | | | | | |
Net interest revenue, GAAP basis | | $ | 574 |
| | $ | 570 |
| | $ | 585 |
| | 1 |
| | (2 | ) | |
| Tax-equivalent adjustment associated with tax-exempt investment securities | | 44 |
| | 43 |
| | 42 |
| | | | | |
| Discount accretion associated with former conduit securities | | (31 | ) | | (33 | ) | | (31 | ) | | | | | |
Net interest revenue, operating basis | | $ | 587 |
| | $ | 580 |
| | $ | 596 |
| | 1 |
| | (2 | ) | |
Net Interest Margin: | | | | | | | | | | | |
Net interest margin, fully taxable-equivalent basis3 | | 1.09 | % | | 1.12 | % | | 1.36 | % | | (3 | ) | bps | (27 | ) | bps |
| Effect of discount accretion | | (.05 | ) | | (.06 | ) | | (.06 | ) | | | | | |
Net interest margin, operating basis | | 1.04 | % | | 1.06 | % | | 1.30 | % | | (2 | ) | | (26 | ) | |
| | | | | | | | | | | | |
Expenses: | | | | | | | | | | | |
Total expenses, GAAP basis | | $ | 1,992 |
| | $ | 1,892 |
| | $ | 1,846 |
| | 5.3 | % | | 7.9 | % | |
| Severance costs associated with staffing realignment | | (10 | ) | | 2 |
| | (11 | ) | | | | | |
| Provisions for litigation exposure and other costs, net | | (50 | ) | | (66 | ) | | (45 | ) | | | | | |
| Acquisition costs | | (10 | ) | | (12 | ) | | (24 | ) | | | | | |
| Restructuring charges, net | | (42 | ) | | (8 | ) | | (6 | ) | | | | | |
Total expenses, operating basis1, 2 | | $ | 1,880 |
| | $ | 1,808 |
| | $ | 1,760 |
| | 3.98 |
| | 6.82 |
| |
1 For the quarters ended December 31, 2014 and September 30, 2014, negative operating leverage in the quarter-over-quarter comparison was approximately 226 basis points, based on an increase in total operating-basis revenue of 1.72% and an increase in total operating-basis expenses of 3.98%.
2 For the quarters ended December 31, 2014 and December 31, 2013, positive operating leverage in the year-over-year comparison was approximately 93 basis points, based on an increase in total operating-basis revenue of 7.75% and an increase in total operating-basis expenses of 6.82%.
3 For the quarters ended December 31, 2014, September 30, 2014 and December 31, 2013, fully taxable-equivalent net interest margin represented fully taxable-equivalent net interest revenue of $618 million, $613 million and $627 million, respectively (GAAP-basis net interest revenue of $574 million, $570 million, and $585 million plus tax-equivalent adjustments of $44 million, $43 million and $42 million, respectively), on an annualized basis, as a percentage of average total interest-earning assets for the quarters presented.
|
| | | | | | | | | | | | | | | | | | | | |
STATE STREET CORPORATION |
Earnings Release Addendum |
RECONCILIATIONS OF OPERATING-BASIS (NON-GAAP) FINANCIAL INFORMATION (Continued) |
| | | | | | | | | | | | |
| | | Quarters ended | | % Change |
(Dollars in millions, except per share amounts) | | December 31, 2014 | | September 30, 2014 | | December 31, 2013 | | Q4 2014 vs. Q3 2014 | | Q4 2014 vs. Q4 2013 | |
Compensation and Employee Benefits Expenses: | | | | | | | | | | | |
Total compensation and employee benefits expenses, GAAP basis | | $ | 972 |
| | $ | 953 |
| | $ | 945 |
| | 2 | % | | 3 | % | |
| Severance costs associated with staffing realignment | | (10 | ) | | 2 |
| | (11 | ) | | | | | |
Total compensation and employee benefits expenses, operating basis | | $ | 962 |
| | $ | 955 |
| | $ | 934 |
| | 1 |
| | 3 |
| |
| | | | | | | | | | | |
Other Expenses: | | | | | | | | | | | |
Total other expenses, GAAP basis | | $ | 408 |
| | $ | 359 |
| | $ | 337 |
| | 14 |
| | 21 |
| |
| Provisions for litigation exposure and other costs, net | | (50 | ) | | (66 | ) | | (45 | ) | | | | | |
Total other expenses, operating basis | | $ | 358 |
| | $ | 293 |
| | $ | 292 |
| | 22 |
| | 23 |
| |
| | | | | | | | | | | |
Income Before Income Tax Expense: | | | | | | | | | | | |
Income before income tax expense, GAAP basis | | $ | 634 |
| | $ | 688 |
| | $ | 612 |
| | (8 | ) | | 4 |
| |
| Net pre-tax effect of non-operating adjustments to revenue and expenses | | 206 |
| | 180 |
| | 150 |
| | | | | |
Income before income tax expense, operating basis | | $ | 840 |
| | $ | 868 |
| | $ | 762 |
| | (3 | ) | | 10 |
| |
Pre-tax operating margin4: | | | | | | | | | | | |
Pre-tax operating margin, GAAP basis | | 24.1 | % | | 26.6 | % | | 24.8 | % | | | | | |
| Net effect of non-operating adjustments | | 6.7 |
| | 5.8 |
| | 5.3 |
| | | | | |
Pre-tax operating margin, operating basis | | 30.8 | % | | 32.4 | % | | 30.1 | % | | | | | |
| | | | | | | | | | | |
Income Tax Expense: | | | | | | | | |
Income tax expense, GAAP basis | | $ | 90 |
| | $ | 128 |
| | $ | 59 |
| | | | | |
| Aggregate tax-equivalent adjustments | | 125 |
| | 129 |
| | 95 |
| | | | | |
| Out-of-period benefit to adjust deferred taxes | | — |
| | — |
| | 71 |
| | | | | |
| Net tax effect of non-operating adjustments | | 24 |
| | 12 |
| | 15 |
| | | | | |
Income tax expense, operating basis | | $ | 239 |
| | $ | 269 |
| | $ | 240 |
| |
| |
| |
| | | | | | | | | | | | |
Effective Tax Rate: | | | | | | | | | | | |
Income before income tax expense, operating basis | | $ | 840 |
| | $ | 868 |
| | $ | 762 |
| | | | | |
Income tax expense, operating basis | | 239 |
| | 269 |
| | 240 |
| | | | | |
Effective tax rate, operating basis | | 28.5 | % | | 31.0 | % | | 31.5 | % | | | | | |
| | | | | | | | | | | | |
Net Income Available to Common Shareholders: |
|
|
|
|
|
|
|
|
|
|
|
Net income available to common shareholders, GAAP basis | | $ | 525 |
| | $ | 542 |
| | $ | 545 |
| | (3 | ) | | (4 | ) | |
Net after-tax effect of non-operating adjustments to processing fees and other revenue, net interest revenue, expenses and income tax expense | | 57 |
| | 39 |
| | (31 | ) | | | | | |
Net income available to common shareholders, operating basis | | $ | 582 |
| | $ | 581 |
| | $ | 514 |
| | — |
| | 13 |
| |
| | | | | | | | | | | | |
4 Pre-tax operating margin for the quarters ended December 31, 2014, September 30, 2014 and December 31, 2013 was calculated by dividing income before income tax expense by total revenue.
|
| | | | | | | | | | | | | | | | | | | | |
STATE STREET CORPORATION |
Earnings Release Addendum |
RECONCILIATIONS OF OPERATING-BASIS (NON-GAAP) FINANCIAL INFORMATION (Continued) |
| | | | | | | | | | | | |
| | | Quarters Ended | | % Change |
(Dollars in millions, except per share amounts) | | December 31, 2014 | | September 30, 2014 | | December 31, 2013 | | Q4 2014 vs. Q3 2014 | | Q4 2014 vs. Q4 2013 | |
Diluted Earnings per Common Share: | | | | | | | | | | | |
Diluted earnings per common share, GAAP basis | | $ | 1.24 |
| | $ | 1.26 |
| | $ | 1.22 |
| | (2 | )% | | 2 | % | |
| Severance costs | | .01 |
| | — |
| | .02 |
| | | | | |
| Provisions for litigation exposure and other costs, net | | .10 |
| | .12 |
| | .06 |
| | | | | |
| Acquisition costs | | .01 |
| | .02 |
| | .03 |
| | | | | |
| Restructuring charges, net | | .06 |
| | .01 |
| | .01 |
| | | | | |
| Effect on income tax of non-operating adjustments | | (.01 | ) | | (.01 | ) | | .01 |
| | | | | |
| Discount accretion associated with former conduit securities | | (.04 | ) | | (.05 | ) | | (.04 | ) | | | | | |
| Out-of-period benefit to adjust deferred taxes | | — |
| | — |
| | (.16 | ) | | | | | |
Diluted earnings per common share, operating basis | | $ | 1.37 |
| | $ | 1.35 |
| | $ | 1.15 |
| | 1 |
| | 19 |
| |
| | | | | | | | | | | |
Return on Average Common Equity: | | | | | | | | | | | |
Return on average common equity, GAAP basis | | 10.4 | % | | 10.6 | % | | 10.9 | % | | (20 | ) | bps | (50 | ) | bps |
| Severance costs | | .1 |
| | — |
| | .1 |
| | | | | |
| Provisions for litigation exposure and other costs, net | | .8 |
| | .9 |
| | .6 |
| | | | | |
| Acquisition costs | | .2 |
| | .2 |
| | .3 |
| | | | | |
| Restructuring charges, net | | .6 |
| | .1 |
| | .1 |
| | | | | |
| Effect on income tax of non-operating adjustments | | (.1 | ) | | — |
| | .1 |
| | | | | |
| Discount accretion associated with former conduit securities | | (.4 | ) | | (.4 | ) | | (.4 | ) | | | | | |
| Out-of-period benefit to adjust deferred taxes | | — |
| | — |
| | (1.4 | ) | | | | | |
Return on average common equity, operating basis | | 11.6 | % | | 11.4 | % | | 10.3 | % | | 20 |
| | 130 |
| |
|
| | | | | | | | | | | | | |
STATE STREET CORPORATION |
Earnings Release Addendum |
RECONCILIATIONS OF OPERATING-BASIS (NON-GAAP) FINANCIAL INFORMATION |
| |
| | | Years Ended | | % Change | |
(Dollars in millions, except per share amounts) | | December 31, 2014 | | December 31, 2013 | | 2014 vs. 2013 | |
Total Revenue: | | | | | | | |
Total revenue, GAAP basis | | $ | 10,295 |
| | $ | 9,884 |
| | 4.2 | % | |
| Adjustment to processing fees and other revenue (see below) | | 288 |
| | 158 |
| | | |
| Adjustment to net interest revenue (see below) | | 173 |
| | 142 |
| | | |
| Adjustment to net interest revenue (see below) | | (119 | ) | | (137 | ) | | | |
Total revenue, operating basis1 | | $ | 10,637 |
| | $ | 10,047 |
| | 5.87 |
| |
| | | | | | | | |
Fee Revenue: | | | | | | | |
Total fee revenue, GAAP basis | | 8,031 |
| | 7,590 |
| | 6 |
| |
| Tax-equivalent adjustment associated with tax-advantaged investments | | 288 |
| | 158 |
| | | |
Total fee revenue, operating basis | | 8,319 |
| | 7,748 |
| | 7 |
| |
| | | | | | | | |
Processing Fees and Other Revenue: | | | | | | | |
Total processing fees and other revenue, GAAP basis | | $ | 174 |
| | $ | 212 |
| | (18 | ) | |
| Tax-equivalent adjustment associated with tax-advantaged investments | | 288 |
| | 158 |
| | | |
Total processing fees and other revenue, operating basis | | $ | 462 |
| | $ | 370 |
| | 25 |
| |
| | | | | | | | |
Net Interest Revenue: | | | | | | | |
Net interest revenue, GAAP basis | | $ | 2,260 |
| | $ | 2,303 |
| | (2 | ) | |
| Tax-equivalent adjustment associated with tax-exempt investment securities | | 173 |
| | 142 |
| | | |
| Discount accretion related to former conduit securities | | (119 | ) | | (137 | ) | | | |
Net interest revenue, operating basis | | $ | 2,314 |
| | $ | 2,308 |
| | — |
| |
Net Interest Margin: | | | | | | | |
Net interest margin, fully taxable-equivalent basis2 | | 1.16 | % | | 1.37 | % | | (21 | ) | bps |
| Effect of discount accretion | | (.05 | ) | | (.07 | ) | | | |
Net interest margin, operating basis | | 1.11 | % | | 1.30 | % | | (19 | ) | |
| | | | | | | | |
Expenses: | | | | | | | |
Total expenses, GAAP basis | | $ | 7,762 |
| | $ | 7,192 |
| | 7.9 | % | |
| Severance costs associated with staffing realignment | | (84 | ) | | (11 | ) | | | |
| Provisions for litigation exposure and other costs, net | | (122 | ) | | (65 | ) | | | |
| Acquisition costs | | (58 | ) | | (76 | ) | | | |
| Restructuring charges, net | | (75 | ) | | (28 | ) | | | |
Total expenses, operating basis1 | | $ | 7,423 |
| | $ | 7,012 |
| | 5.86 |
| |
| | | | | | | | |
1 For the year ended December 31, 2014 and December 31, 2013, positive operating leverage in the year-over-year comparison was approximately 1 basis point, based on an increase in total operating-basis revenue of 5.87% and an increase in total operating-basis expenses of 5.86%.
2 For the year ended December 31, 2014 and December 31, 2013, fully taxable-equivalent net interest margin represented fully taxable-equivalent net interest revenue of $2,433 million and $2,445 million, respectively (GAAP-basis net interest revenue of $2,260 million and $2,303 million plus tax-equivalent adjustments of $173 million and $142 million, respectively), as a percentage of average total interest-earning assets for the periods presented.
|
| | | | | | | | | | | | | |
STATE STREET CORPORATION |
Earnings Release Addendum |
RECONCILIATIONS OF OPERATING-BASIS (NON-GAAP) FINANCIAL INFORMATION (Continued) |
|
| | | Years Ended | | % Change |
(Dollars in millions, except per share amounts) | | December 31, 2014 | | December 31, 2013 | | 2014 vs. 2013 | |
Compensation and Employee Benefits Expenses: | | | | | | | |
Total compensation and employee benefits expenses, GAAP basis | | $ | 4,060 |
| | $ | 3,800 |
| | 7 | % | |
| Severance costs associated with staffing realignment | | (84 | ) | | (11 | ) | | | |
Total compensation and employee benefits expenses, operating basis | | $ | 3,976 |
| | $ | 3,789 |
| | 5 |
| |
| | | | | | | |
Other Expenses: | | | | | | | |
Total other expenses, GAAP basis | | $ | 1,348 |
| | $ | 1,153 |
| | 17 |
| |
| Provisions for litigation exposure and other costs, net | | (122 | ) | | (65 | ) | | | |
Total other expenses, operating basis | | $ | 1,226 |
| | $ | 1,088 |
| | 13 |
| |
| | | | | | | |
Income Before Income Tax Expense: | | | | | | | |
Income before income tax expense, GAAP basis | | $ | 2,523 |
| | $ | 2,686 |
| | (6 | ) | |
| Net pre-tax effect of non-operating adjustments to revenue and expenses | | 681 |
| | 343 |
| | | |
Income before income tax expense, operating basis | | $ | 3,204 |
| | $ | 3,029 |
| | 6 |
| |
Pre-tax operating margin3: | | | | | | | |
Pre-tax operating margin, GAAP basis | | 24.5 | % | | 27.2 | % | | | |
| Net effect of non-operating adjustments | | 5.6 |
| | 2.9 |
| | | |
Pre-tax operating margin, operating basis | | 30.1 | % | | 30.1 | % | | | |
| | | | | | | |
Income Tax Expense: | | | | | | | |
Income tax expense, GAAP basis | | $ | 434 |
| | $ | 550 |
| | | |
| Aggregate tax-equivalent adjustments | | 461 |
| | 300 |
| | | |
| Italian banking industry tax assessment | | (11 | ) | | — |
| | | |
| Net tax effect of non-operating adjustments | | 57 |
| | 9 |
| | | |
| Out-of-period benefit to adjust deferred taxes | | — |
| | 71 |
| | | |
Income tax expense, operating basis | | $ | 941 |
| | $ | 930 |
| | | |
| | | | | | | | |
Effective Tax Rate: | | | | | | | |
Income before income tax expense, operating basis | | $ | 3,204 |
| | $ | 3,029 |
| | | |
Income tax expense, operating basis | | 941 |
| | 930 |
| | | |
Effective tax rate, operating basis | | 29.4 | % | | 30.7 | % | | | |
| | | | | | | | |
Net Income Available to Common Shareholders: | | | | | | | |
Net income available to common shareholders, GAAP basis | | $ | 2,025 |
| | $ | 2,102 |
| | (4 | ) | |
Net after-tax effect of non-operating adjustments to processing fees and other revenue, net interest revenue, expenses and income tax expense | | 174 |
| | (37 | ) | | | |
Net income available to common shareholders, operating basis | | $ | 2,199 |
| | $ | 2,065 |
| | 6 |
| |
| | | | | | | | |
3 Pre-tax operating margin for the year ended December 31, 2014 and December 31, 2013 was calculated by dividing income before income tax expense by total revenue.
|
| | | | | | | | | | | | | |
STATE STREET CORPORATION |
Earnings Release Addendum |
RECONCILIATIONS OF OPERATING-BASIS (NON-GAAP) FINANCIAL INFORMATION (Continued) |
|
| | | Years Ended | | % Change |
(Dollars in millions, except per share amounts) | | December 31, 2014 | | December 31, 2013 | | 2014 vs. 2013 | |
Diluted Earnings per Common Share: | | | | | | | |
Diluted earnings per common share, GAAP basis | | $ | 4.69 |
| | $ | 4.62 |
| | 2 | % | |
| Severance costs | | .13 |
| | .02 |
| | | |
| Provisions for litigation exposure and other costs, net | | .22 |
| | .09 |
| | | |
| Acquisition costs | | .09 |
| | .11 |
| | | |
| Restructuring charges, net | | .11 |
| | .04 |
| | | |
| Discount accretion related to former conduit securities | | (.17 | ) | | (.18 | ) | | | |
| Out-of-period benefit to adjust deferred taxes | | — |
| | (.16 | ) | | | |
| Italian banking industry tax assessment | | .02 |
| | — |
| | | |
Diluted earnings per common share, operating basis | | $ | 5.09 |
| | $ | 4.54 |
| | 12 |
| |
| | | | | | | | |
Return on Average Common Equity: | | | | | | | |
Return on average common equity, GAAP basis | | 10.1 | % | | 10.5 | % | | (40 | ) | bps |
| Severance costs | | .3 |
| | — |
| | | |
| Provisions for litigation exposure and other costs, net | | .4 |
| | .2 |
| | | |
| Acquisition costs | | .2 |
| | .3 |
| | | |
| Restructuring charges, net | | .2 |
| | .1 |
| | | |
| Discount accretion related to former conduit securities | | (.4 | ) | | (.4 | ) | | | |
| Out-of-period benefit to adjust deferred taxes | | — |
| | (.4 | ) | | | |
| Italian banking industry tax assessment | | .1 |
| | — |
| | | |
Return on average common equity, operating basis | | 10.9 | % | | 10.3 | % | | 60 |
| |
|
|
STATE STREET CORPORATION |
Earnings Release Addendum |
REGULATORY CAPITAL |
The accompanying news release presents capital ratios in addition to, or adjusted from, those calculated in conformity with applicable regulatory requirements. These include capital ratios based on tangible common equity, as well as capital ratios adjusted to reflect our estimate of the impact of the relevant Basel III requirements, as specified in the July 2013 final rule issued by the Board of Governors of the Federal Reserve System, referred to as the Basel III final rule. These non-regulatory and adjusted capital measures are non-GAAP financial measures. Management currently calculates the non-GAAP capital ratios presented in the news release to aid in its understanding of State Street’s capital position under a variety of standards, including currently applicable and transitioning regulatory requirements. Management believes that the use of the non-GAAP capital ratios presented in the news release similarly aids in an investor's understanding of State Street's capital position and therefore is of interest to investors. |
The total risk-based capital, tier 1 risk-based capital, common equity tier 1 risk-based capital, or CET1, and tier 1 leverage ratios have each been calculated in conformity with applicable regulatory requirements as of the dates that each was first publicly disclosed. As of December 31, 2014 and September 30, 2014, the capital component, or numerator, of these ratios was calculated in conformity with the provisions of the Basel III final rule. As of December 31, 2014 and September 30, 2014, the total risk-weighted assets component, or denominator, used in the calculation of the total risk-based capital, tier 1 risk-based capital, and CET1 ratios were each calculated in conformity with the advanced approaches provisions of Basel III. |
The tangible common equity, or TCE, ratio is an additional capital ratio that management believes provides context useful in understanding and assessing State Street's capital adequacy. 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 banking 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 or other applicable requirements. Reconciliations with respect to the calculation of the TCE ratios as of December 31, 2014 and September 30, 2014 and December 30, 2013 are provided on page 14 of this earnings release addendum. |
The CET1 ratio, is provided for in the Basel III final rule. The CET1 ratio was not previously required by Basel I. A reconciliation with respect to the CET1 ratio as of December 30, 2013 is provided on page 14 of this earnings release addendum. |
The following table presents State Street's regulatory capital ratios and underlying components, calculated in conformity with applicable regulatory requirements as described above. |
|
| | | | | | | | | | | | | | | | |
(Dollars in millions) | | Basel III Advanced Approach December 31, 20141 | | Basel III Transitional December 31, 20142 | | Basel III Advanced Approach September 30, 20141 | | Basel III Transitional September 30, 20142 |
RATIOS: | | | | | | | | |
Total risk-based capital | | 16.6 | % | | 19.8 | % | | 16.2 | % | | 19.1 | % |
Tier 1 risk-based capital | | 14.7 |
| | 17.5 |
| | 14.2 |
| | 16.7 |
|
Common equity tier 1 risk-based capital | | 12.5 |
| | 15.0 |
| | 12.8 |
| | 15.0 |
|
Tier 1 leverage | | 6.4 |
| | 6.4 |
| | 6.4 |
| | 6.4 |
|
| | | | | | | | |
SUPPORTING CALCULATIONS: | | | | | | | | |
Total capital | | $ | 17,914 |
| | $ | 17,914 |
| | $ | 17,534 |
| | $ | 17,534 |
|
Total risk-weighted assets | | 107,829 |
| | 90,413 |
| | 108,078 |
| | 91,800 |
|
Total risk-based capital ratio | | 16.6 | % | | 19.8 | % | | 16.2 | % | | 19.1 | % |
| | | | | | | | |
Tier 1 capital | | $ | 15,817 |
| | $ | 15,817 |
| | $ | 15,318 |
| | $ | 15,318 |
|
Total risk-weighted assets | | 107,829 |
| | 90,413 |
| | 108,078 |
| | 91,800 |
|
Tier 1 risk-based capital ratio | | 14.7 | % | | 17.5 | % | | 14.2 | % | | 16.7 | % |
| | | | | | | | |
Common equity tier 1 capital | | $ | 13,525 |
| | $ | 13,525 |
| | $ | 13,781 |
| | $ | 13,781 |
|
Total risk-weighted assets | | 107,829 |
| | 90,413 |
| | 108,078 |
| | 91,800 |
|
Common equity tier 1 risk-based capital | | 12.5 | % | | 15.0 | % | | 12.8 | % | | 15.0 | % |
| | | | | | | | |
Tier 1 capital | | $ | 15,817 |
| | $ | 15,817 |
| | $ | 15,318 |
| | $ | 15,318 |
|
Adjusted quarterly average assets | | 247,742 |
| | 247,742 |
| | 240,529 |
| | 240,529 |
|
Tier 1 leverage ratio | | 6.4 | % | | 6.4 | % | | 6.4 | % | | 6.4 | % |
1 Total capital, tier 1 capital, CET1 and tier 1 leverage ratios as of December 31, 2014 and September 30, 2014 were calculated in conformity with the advanced approaches provisions of the Basel III final rule.
2 Total capital, tier 1 capital, CET1 and tier 1 leverage ratios as of December 31, 2014 and September 30, 2014 were calculated in conformity with the transitional provisions of the Basel III final rule. Specifically, these ratios reflect total and tier 1 capital, as applicable (the numerator), calculated in conformity with the advanced approaches provisions of the Basel III final rule, and total risk-weighted assets or, with respect to the tier 1 leverage ratio, quarterly average assets (in both cases, the denominator), calculated in conformity with the provisions of Basel I.
|
| | | | | | | | | | | | | |
STATE STREET CORPORATION |
Earnings Release Addendum |
RECONCILIATIONS OF TANGIBLE COMMON EQUITY AND COMMON EQUITY TIER 1 RATIOS |
| | | | | | | |
The following table presents the calculations of State Street's ratios of tangible common equity to total tangible assets and its ratio of common equity tier 1 capital to total risk-weighted assets. |
| | | | | | | |
(Dollars in millions) | | | December 31, 2014 | | September 30, 2014 | | December 31, 2013 |
Consolidated Total Assets | | | $ | 274,119 |
| | $ | 274,976 |
| | $ | 243,291 |
|
Less: | | | | | | | |
Goodwill | | | 5,826 |
| | 5,899 |
| | 6,036 |
|
Other intangible assets | | | 2,025 |
| | 2,121 |
| | 2,360 |
|
Cash balances held at central banks in excess of required reserves | | | 83,402 |
| | 74,570 |
| | 51,034 |
|
Adjusted assets | | | 182,866 |
| | 192,386 |
| | 183,861 |
|
Plus related deferred tax liabilities | | | 822 |
| | 874 |
| | 653 |
|
Total tangible assets | A | | $ | 183,688 |
| | $ | 193,260 |
| | $ | 184,514 |
|
Consolidated Total Common Shareholders' Equity | | | $ | 19,563 |
| | $ | 19,923 |
| | $ | 19,887 |
|
Less: | | | | | | | |
Goodwill | | | 5,826 |
| | 5,899 |
| | 6,036 |
|
Other intangible assets | | | 2,025 |
| | 2,121 |
| | 2,360 |
|
Adjusted equity | | | 11,712 |
| | 11,903 |
| | 11,491 |
|
Plus related deferred tax liabilities | | | 822 |
| | 874 |
| | 653 |
|
Total tangible common equity | B | | $ | 12,534 |
| | $ | 12,777 |
| | $ | 12,144 |
|
Tangible common equity ratio | B/A | | 6.8 | % | | 6.6 | % | | 6.6 | % |
Tier 1 Capital1 | | | | | | | $ | 13,895 |
|
Less: | | | | | | | |
Trust preferred capital securities | | | | | | | 950 |
|
Preferred stock | | | | | | | 491 |
|
Plus: Other | | | | | | | — |
|
Common equity tier 1 capital | C | |
|
| |
|
| | $ | 12,454 |
|
Total Risk-Weighted Assets1 | D | | | | | | $ | 80,126 |
|
Common equity tier 1 risk-based capital ratio | C/D | |
|
| |
|
| | 15.5 | % |
1 As of December 31, 2013, tier 1 capital and total risk-weighted assets were calculated in conformity with the provisions of Basel I.
|
| | | | | | | | | | | | | | | | |
STATE STREET CORPORATION |
Earnings Release Addendum |
RECONCILIATIONS OF COMMON EQUITY TIER 1 RATIOS |
| | | | | | | | |
In July 2013, the Board of Governors of the Federal Reserve System issued a final rule intended to implement the Basel III framework in the U.S., referred to as the Basel III final rule. On February 21, 2014, we were notified by the Federal Reserve that we completed our parallel run period and would be required to begin using the advanced approaches provided in the Basel III final rule beginning with the second quarter of 2014. Pursuant to this notification, we began to use the advanced approaches to calculate and disclose our regulatory capital ratios beginning with the second quarter of 2014. |
For the last three quarters of 2014, the lower of our common equity tier 1, or CET1, ratio calculated under the Basel III advanced approaches, and our CET1 ratio using capital calculated under the provisions of the Basel III final rule (the numerator), and total risk-weighted assets calculated under the provisions of Basel I (the denominator), is used by banking regulators in their assessment of our capital adequacy for regulatory purposes. Beginning with the first quarter of 2015, the lower of our CET1 ratio calculated under the Basel III advanced approaches, and our CET1 ratio calculated under the Basel III standardized approach, will be used by banking regulators in their assessment of our capital adequacy for regulatory purposes. |
The following tables reconcile our estimated pro forma CET1 ratios calculated in conformity with the Basel III final rule, as described, to our CET1 ratios calculated in conformity with applicable regulatory requirements as of the dates indicated. |
As of December 31, 2014 (Dollars in millions) | | Basel III Final Rule Advanced Approaches1 | | Basel III Final Rule Standardized Approach (Estimated)2 Pro-forma | | Basel III Fully Phased-In Advanced Approaches (Estimated)3 Pro-forma |
| Basel III Fully Phased-In Standardized Approach (Estimated)4 Pro-forma |
Tier 1 Capital | | $ | 15,817 |
| | $ | 15,817 |
| | $ | 14,314 |
| | $ | 14,314 |
|
Less: | | | | | | | | |
Trust preferred capital securities | | 475 |
| | 475 |
| | — |
| | — |
|
Preferred stock | | 1,961 |
| | 1,961 |
| | 1,961 |
| | 1,961 |
|
Plus: Other | | 144 |
| | 144 |
| | — |
| | — |
|
Common equity Tier 1 capital | | 13,525 |
| A | 13,525 |
| | 12,353 |
|
| 12,353 |
|
Total Risk-Weighted Assets | | 107,829 |
| B | 125,013 |
| | 106,819 |
|
| 124,060 |
|
Common equity tier 1 risk-based capital ratio | | 12.5 | % | A/B | 10.8 | % | | 11.6 | % |
| 10.0 | % |
| | | | | | | | |
1 CET 1 ratio as of December 31, 2014 was calculated in conformity with the advanced approaches provisions of the Basel III final rule. |
2 Estimated pro forma CET1 ratio (standardized approach) as of December 31, 2014 reflects capital calculated in conformity with the provisions of the Basel III final rule and total risk-weighted assets calculated in conformity with the standardized approach in the Basel III final rule. Under such application of the standardized approach, total risk-weighted assets used in the calculation of the CET1 ratio increased by $17.18 billion as a result of applying the standardized approach provisions of the Basel III final rule to total risk-weighted assets of $107.83 billion as of December 31, 2014, calculated in conformity with the advanced approaches provisions of the Basel III final rule. |
3 Estimated pro forma fully phased-in Basel III CET1 ratio (advanced approaches) as of December 31, 2014 (fully phased in as of January 1, 2019, as per Basel III phase-in requirements for capital) reflects capital calculated under the Basel III final rule and total risk-weighted assets calculated in conformity with the advanced approaches (fully phased-in) in the Basel III final rule based on our interpretations of the Basel III final rule as of January 23, 2015 and as applied to our businesses and operations as of December 31, 2014. Under such application of the fully phased-in advanced approaches, total risk-weighted assets used in the calculation of the CET1 ratio decreased by $1.01 billion as a result of applying the advanced approaches provisions of the Basel III final rule to total risk-weighted assets of $107.83 billion as of December 31, 2014, calculated in conformity with the advanced approaches provisions of the Basel III final rule (as of December 31, 2014; i.e., not fully phased-in). |
4 Estimated pro forma fully phased-in Basel III CET1 ratio (standardized approach) as of December 31, 2014 (fully phased in as of January 1, 2019, as per Basel III phase-in requirements for capital) reflects capital calculated under the Basel III final rule and total risk-weighted assets calculated in conformity with the standardized approach (fully phased-in) in the Basel III final rule based on our interpretations of the Basel III final rule as of January 23, 2015 and as applied to our businesses and operations as of December 31, 2014. Under such application of the fully phased-in standardized approach, total risk-weighted assets used in the calculation of the CET1 ratio increased by $16.23 billion as a result of applying the standardized approach provisions of the Basel III final rule to total risk-weighted assets of $107.83 billion as of December 31, 2014, calculated in conformity with the advanced approaches provisions of the Basel III final rule (as of December 31, 2014; i.e., not fully phased-in). |
| | | | | | | | |
|
| | | | | | | | | | | | | | | | |
As of September 30, 2014 (Dollars in millions) | | Basel III Final Rule Advanced Approaches5 | | Basel III Final Rule Standardized Approach (Estimated)6 Pro-forma | | | | |
Tier 1 Capital | | $ | 15,318 |
| | $ | 15,318 |
| | | | |
Less: | | | | | | | | |
Trust preferred capital securities | | 475 |
| | 475 |
| | | | |
Preferred stock | | 1,233 |
| | 1,233 |
| | | | |
Plus: Other | | 171 |
| | 171 |
| | | | |
Common equity tier 1 capital | | 13,781 |
| C | 13,781 |
| | | | |
Total Risk-Weighted Assets | | 108,078 |
| D | 126,356 |
| | | | |
Common equity tier 1 risk-based capital ratio | | 12.8 | % | C/D | 10.9 | % | | | | |
| | | | | | | | |
5 CET1 ratio as of September 30, 2014 was calculated in conformity with the advanced approaches provisions of the Basel III final rule. |
6 Estimated pro forma CET1 ratio (standardized approach) as of September 30, 2014 reflects capital calculated in conformity with the provisions of the Basel III final rule and total risk-weighted assets calculated in conformity with the standardized approach in the Basel III final rule based on our interpretations of the Basel III final rule as of October 24, 2014 and as applied to our businesses and operations as of September 30, 2014. Under such application of the standardized approach, total risk-weighted assets used in the calculation of the CET1 ratio increased by $18.30 billion as a result of applying the standardized approach provisions of the Basel III final rule to total risk-weighted assets of $108.08 billion as of September 30, 2014, calculated in conformity with the advanced approaches provisions of the Basel III final rule. |
As of December 31, 2013 (Dollars in millions) | | Basel I7 | | Basel III Final Rule Standardized Approach (Estimated)8 Pro-forma | | Basel III Final Rule Advanced Approaches (Estimated)9 Pro-forma | | |
Tier 1 Capital | | $ | 13,895 |
| | $ | 13,176 |
| | $ | 13,176 |
| | |
Less: | | | | | | | | |
Trust preferred capital securities | | 950 |
| | 475 |
| | 475 |
| | |
Preferred stock | | 491 |
| | 491 |
| | 491 |
| | |
Plus: Other | | — |
| | 119 |
| | 119 |
| | |
Common equity tier 1 capital | | 12,454 |
| E | 12,329 |
| | 12,329 |
| | |
Total Risk-Weighted Assets | | 80,126 |
| F | 121,587 |
| | 104,739 |
| | |
Common equity tier 1 risk-based capital ratio | | 15.5 | % | E/F | 10.1 | % | | 11.8 | % | | |
| | | | | | | | |
7 CET1 ratio as of December 31, 2013 was calculated in conformity with the provisions of Basel I. Specifically, common equity tier 1 capital was calculated by dividing tier 1 capital, calculated in conformity with the provisions of Basel I, but after deducting non-common elements (qualifying perpetual preferred stock and qualifying trust preferred capital securities), resulting in common equity tier 1 capital, by total risk-weighted assets calculated in conformity with the provisions of Basel I. |
8 Estimated pro forma CET1 ratio (standardized approach) as of December 31, 2013 reflects capital calculated as described in note 7 above, but with tier 1 capital calculated in conformity with the provisions of the Basel III final rule and estimated total risk-weighted assets calculated in conformity with the standardized approach in the Basel III final rule based on our interpretations of the Basel III final rule as of January 24, 2014 and as applied to our businesses and operations as of December 31, 2013. Under such application of the standardized approach, total risk-weighted assets used in the calculation of the CET1 ratio increased by $41.46 billion as a result of applying the standardized provisions of the Basel III final rule to total risk-weighted assets of $80.13 billion as of December 31, 2013, calculated in conformity with the provisions of Basel I. |
9 Estimated pro forma CET1 ratio (advanced approaches) as of December 31, 2013 reflects capital calculated as described in note 7 above, but with tier 1 capital calculated in conformity with the provisions of the Basel III final rule and estimated total risk-weighted assets calculated in conformity with the advanced approaches provisions of the Basel III final rule based on our interpretations of the Basel III final rule as of January 24, 2014 and as applied to our businesses and operations as of December 31, 2013. Under such application of the advanced approaches, total risk-weighted assets used in the calculation of the CET1 ratio increased by $24.61 billion as a result of applying the advanced approaches provisions of the Basel III final rule to total risk-weighted assets of $80.13 billion as of December 31, 2013, calculated in conformity with the provisions of Basel I. |
LIMITED ACCESS State Street Corporation Fourth-Quarter and Full-Year 2014 Financial Highlights January 23, 2015 Exhibit 99.3
2 This presentation includes certain highlights of, and also material supplemental to, State Street Corporation’s (State Street’s) news release announcing its fourth- quarter and full-year 2014 financial results. That news release contains a more detailed discussion of many of the matters described in this presentation and is accompanied by detailed financial tables. This presentation is designed to be reviewed together with that news release, which is available on State Street’s website and is incorporated herein by reference. Forward-Looking Statements This presentation 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, dividend and stock purchase programs, 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 “outlook,” “expect,” “objective,” “intend,” “plan,” “forecast,” “believe,” “anticipate,” “estimate,” “seek,” “may,” “will,” “trend,” “target,” “strategy” and “goal,” or similar statements or variat ions 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 23, 2015. In particular, in each of the third and fourth quarters of 2014, we announced charges (due to pre-tax legal accruals recorded in those quarters) reflecting our intention to seek to resolve some, but not all, of the outstanding and potential claims arising out of our indirect FX client activities. We have reported on these matters in our previous public filings with the SEC. With respect to those legal accruals: (1) we are engaged in discussions with some, but not all, of the governmental agencies and civil litigants that we have described in connection with these matters regarding potential settlements of their outstanding or potential claims; (2) there can be no assurance that we will reach a settlement in any of these matters, that the cost of such settlements would not materially exceed such accruals, or that other claims will not be asserted; and (3) we do not currently intend to seek to negotiate settlements with respect to all outstanding and potential claims, and our current efforts, even if successful, will not address all of our potential material legal exposure arising out of our indirect FX client activities. Important factors that may also 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 sovereign-debt risks in the U.S., Europe and other regions; increases in the volatility of, or declines in the level of, our net interest revenue, changes in the composition or valuation of the assets recorded in our consolidated statement of condition (and our ability to measure the fair value of investment securities) and the possibility that we may 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 and timing with which the Federal Reserve and other U.S. and foreign regulators implement changes to the regulatory framework applicable to our operations, including implementation of the Dodd-Frank Act, the Basel III capital framework and European legislation (such as the Alternative Investment Fund Managers Directive and Undertakings for Collective Investment in Transferable Securities Directives); among other consequences, these regulatory changes impact the levels of regulatory capital we must maintain, acceptable levels of credit exposure to third parties, margin requirements applicable to derivatives, and restrictions on banking and financial activities. In addition, our regulatory posture and related expenses have been and will continue to be affected by changes in regulatory expectations for globally systemically important financial institutions applicable to, among other things, risk management, capital planning and compliance programs, and changes in governmental enforcement approaches to perceived failures to comply with regulatory or legal obligations; adverse changes in the regulatory capital ratios that we are required or will be required to meet, whether arising under the Dodd-Frank Act or the Basel III capital and liquidity standards, or due to changes in regulatory positions, practices or regulations in jurisdictions in which we engage in banking activities, including changes in internal or external data, formulae, models, assumptions or other advanced systems used in the calculation of our capital ratios that cause changes in those ratios as they are measured from period to period; increasing requirements to obtain the prior approval of the Federal Reserve or our other regulators for the use, allocation or distribut ion of our capital or other specific capital actions or programs, including acquisitions, dividends and equity purchases, without which our growth plans, distributions to shareholders, equity purchase programs or other capital initiatives may be restricted; changes in law or regulation, or the enforcement of law or regulation, that may adversely affect our business activities or those of our clients or our counterparties, and the products or services that we sell, including addit ional or increased taxes or assessments thereon, capital adequacy requirements, margin requirements and changes that expose us to risks related to the adequacy of our controls or compliance programs; financial market disruptions or economic recession, whether in the U.S., Europe, Asia or other regions; our ability to promote a strong culture of risk management, operating controls, compliance oversight and governance that meet our expectations and those of our clients and our regulators; the results of, and costs associated with, government investigations, litigation and similar claims, disputes, or proceedings; the potential for losses arising from our investments in sponsored investment funds; the possibility that our clients will incur substantial losses in investment pools for which we act as agent, and the possibility of significant reductions in the liquidity or valuation of assets underlying those pools; our ability to anticipate and manage the level and timing of redemptions and withdrawals from our collateral pools and other collective investment products; the credit agency ratings of our debt and depository obligations and investor and client perceptions of our financial strength; adverse publicity, whether specific to State Street or regarding other industry participants or industry-wide factors, or other reputational harm; our ability to control operational risks, data security breach 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; dependencies on information technology and our ability to control related risks, including cyber-crime and other threats to our information technology infrastructure and systems and their effective operation both independently and with external systems, and complexities and costs of protecting the security of our systems and data; our ability to grow revenue, control expenses, attract and retain highly skilled people and raise the capital necessary to achieve our business goals and comply with regulatory requirements; changes or potential changes to the competitive environment, including changes due to regulatory and technological changes, the effects of industry consolidation and perceptions of State Street as a suitable service provider or counterparty; changes or potential changes in how and in what amounts clients compensate us for our services, and the mix of services provided by us that clients choose; our ability to complete acquisitions, joint ventures and divestitures, including the ability to obtain regulatory approvals, the ability to arrange financing as required and the ability to satisfy closing conditions; the risks that our 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 negative synergies or liabilities 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 our relationships with our clients, our employees or regulators; our ability to recognize emerging needs of our clients and to develop products that are responsive to such trends and profitable to us, the performance of and demand for the products and services we offer, and 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 2013 Annual Report on Form 10-K and our subsequent SEC filings. We encourage investors to read these filings, particularly the sections on risk factors, for additional information with respect to any forward-looking statements and prior to making any investment decision. The forward-looking statements contained in this presentation speak only as of the date hereof, January 23, 2015, and we do not undertake efforts to revise those forward-looking statements to reflect events after that date.
3 EPS: • GAAP-basis earnings per share, or EPS, of $1.24 decreased from $1.26 in 3Q14 and increased from $1.22 in 4Q13: – 4Q14 results included a $50 million pre-tax, or $40 million net after-tax ($0.10 per share), charge to increase our legal accrual associated with indirect foreign exchange matters – 4Q14 results also included a $42 million pre-tax, or $27 million net after-tax ($0.06 per share), restructuring charge related to the completion of our Business Operations and Information Technology Transformation program • Operating-basis EPS of $1.37 increased from $1.35 in 3Q14 and from $1.15 in 4Q13 Revenue: • Total GAAP-basis revenue of $2.63 billion increased from $2.58 billion in 3Q14 and from $2.46 billion in 4Q13 • Total operating-basis revenue of $2.72 billion increased from $2.68 billion in 3Q14 and from $2.53 billion in 4Q13: – 4Q14 operating-basis revenue reflected the following notable items: – $11 million incremental equity earnings from joint ventures – $9 million Net Interest Revenue (NIR) impact from a one-time accelerated loan prepayment – Performance fees of $5.5 million and money market fee waivers of $12.7 million • Core total asset servicing and asset management fees decreased by 1% from 3Q14, but increased by 5% from 4Q13: – Continued demand for our solutions with new mandates won during 4Q14 of approximately $400 billion of assets to be serviced and $7 billion of net new assets to be managed2 • Market-driven revenue performed well despite the challenging environment: – Higher 4Q14 securities finance revenue compared to both 4Q13 and 3Q14 – Higher 4Q14 foreign exchange trading revenue compared to both 4Q13 and 3Q14 – Operating-basis NIR and Net Interest Margin (NIM) continue to be pressured by the low interest-rate environment Fourth-Quarter 2014 Key Messages1 1 Includes operating-basis (non-GAAP) financial information where noted. Operating-basis key messages are a non-GAAP presentation. Refer to the addendum linked to this presentation for explanations of our non-GAAP financial measures and for reconciliations of our operating-basis financial information. 2 New business in assets to be serviced is reflected in our assets under custody and administration after we begin servicing the assets, and net new business in assets to be managed is reflected in our assets under management after we begin managing the assets. As such, only a portion of these new asset servicing and asset management mandates is reflected in our assets under custody and administration and assets under management, as the case may be, as of December 31, 2014.
4 Expenses: • We continue to control expenses amidst regulatory compliance cost pressures • 4Q14 expenses included the following notable items: – $29 million in security processing costs – $17 million associated with our withdrawal from derivatives clearing and execution activities – $9 million impairment primarily associated with an intangible asset Capital: • During 4Q14, we purchased $410 million of our common stock • As of December 31, 2014, we had approximately $470 million remaining under our March 2014 common stock purchase program authorizing the purchase of up to $1.7 billion through March 31, 2015 • We also declared a common stock dividend during the quarter of $0.30 per share • Issued $750 million of preferred shares at 6%, with the first dividend to be paid in 1Q15: – Expect total dividends on all series of preferred shares outstanding at December 31, 2014 to be approximately $118 million in 2015, including a partial quarter payment of approximately $3 million in 1Q15 for Series E Fourth-Quarter 2014 Key Messages - Continued
5 Summary of GAAP-Basis Financial Results for the Year Ended December 31, 2014 $ in millions, except per share data 2014 2013 % change Revenue 10,295$ 9,884$ 4.2% Expenses 7,762 7,192 7.9 Earnings per share (EPS) 4.69 4.62 1.5 Return on average common equity (ROE) 10.1% 10.5% Pre-tax operating margin 24.5 27.2 Average diluted common shares outstanding (in thousands) 432.0 455.2
6 Summary of GAAP-Basis Financial Results for the Fourth Quarter of 2014 $ in millions, except per share data 4Q14 3Q14 4Q13 3Q14 4Q13 Revenue 2,630$ 2,582$ 2,464$ 1.9% 6.7% Expenses 1,992 1,892 1,846 5.3 7.9 EPS 1.24 1.26 1.22 (1.6) 1.6 ROE 10.4% 10.6% 10.9% Pre-tax operating margin 24.1 26.6 24.8 Average diluted common shares outstanding (in thousands) 424.3 429.7 445.2 % change
7 Fourth-Quarter 2014 GAAP-Basis Revenue nm – not meaningful. $ in millions 4Q14 3Q14 4Q13 Servicing fees 1,301$ (0.1)% 5.6% Management fees 299 (5.4) 3.1 Trading services revenue 293 5.4 24.2 Securities finance revenue 106 7.1 39.5 Processing fees and other revenue 57 235.3 26.7 Total fee revenue 2,056 2.2 9.4 Net interest revenue 574 0.7 (1.9) Gains (losses) related to investment securities, net - nm nm Total revenue 2,630$ 1.9% 6.7% % change
8 Fourth-Quarter 2014 GAAP-Basis Expenses $ in millions 4Q14 3Q14 4Q13 Compensation and employee benefits 972$ 2.0% 2.9% Information systems and communications 246 1.7 7.9 Transaction processing services 201 1.0 10.4 Occupancy 113 (5.0) (8.9) Acquisition and restructuring costs 52 160.0 73.3 Other 408 13.6 21.1 Total expenses 1,992$ 5.3% 7.9% % change
9 Full-Year 2014 and Fourth-Quarter 2014 Operating-Basis (Non-GAAP) Financial Highlights1 • Full-Year 2014 (twelve months ended December 31, 2014) comparisons from same period in 2013: –EPS of $5.09 increased 12.1% –Total fee revenue of $8.32 billion increased 7.4% – Total asset servicing and asset management fee revenue of $6.34 billion increased 6.9% –Total revenue of $10.64 billion increased 5.9% –Total expenses of $7.42 billion increased 5.9% –Pre-tax operating margin of 30.1% flat to prior year –Return on average common equity of 10.9% increased from 10.3% –Operating leverage2 was a positive 1 bp • Fourth-quarter 2014 key financial metrics: –EPS of $1.37 for 4Q14 increased 1.5% from 3Q14 and 19.1% from 4Q13 –Total fee revenue of $2.14 billion increased 1.9% from 3Q14 and 10.6% from 4Q13 – Total asset servicing and asset management fee revenue of $1.60 billion for 4Q14 decreased 1.1% from 3Q14 and increased 5.1% from 4Q13 –Total revenue of $2.72 billion for 4Q14 increased 1.7% from 3Q14 and 7.8% from 4Q13 –Total expenses of $1.88 billion for 4Q14 increased 4.0% from 3Q14 and 6.8% from 4Q13 –Pre-tax operating margin of 30.8% for 4Q14, 32.4% for 3Q14 and 30.1% for 4Q13 –Return on average common equity of 11.6% for 4Q14, 11.4% for 3Q14 and 10.3% for 4Q13 1 Operating-basis financial highlights are a non-GAAP presentation. See pages 5-8 of this presentation for a GAAP-basis presentation of the referenced information for the relevant periods. Refer to the addendum linked to this presentation for explanations of our non-GAAP financial measures and for reconciliations of our operating-basis financial information. 2 Operating leverage is defined as the rate of growth of total revenue less the rate of growth of total expenses, each as determined on a operating basis.
10 Summary of Operating-Basis (Non-GAAP) Financial Results1 for the Year Ended December 31, 2014 1 Results presented on an operating basis, a non-GAAP presentation. Refer to the addendum linked to this presentation for explanations of our non-GAAP financial measures and for reconciliations of our operating-basis financial information. 2 Operating leverage is defined as the rate of growth of total revenue less the rate of growth of total expenses, each as determined on an operating basis. $ in millions, except per share data 2014 2013 % change Revenue 10,637$ 10,047$ 5.9% Expenses 7,423 7,012 5.9 EPS 5.09 4.54 12.1 ROE 10.9% 10.3% Net Interest Margin (NIM) 1.11 1.30 Pre-tax operating margin 30.1 30.1 Operating leverage2 1 bp Average diluted common shares outstanding (in thousands) 432.0 455.2
11 Summary of Operating-Basis (Non-GAAP) Financial Results1 for the Fourth Quarter of 2014 1 Results presented on an operating basis, a non-GAAP presentation. Refer to the addendum linked to this presentation for explanations of our non-GAAP financial measures and for reconciliations of our operating-basis financial information. 2 Operating leverage is defined as the rate of growth of total revenue less the rate of growth of total expenses, each as determined on an operating basis. $ in millions, except per share data 4Q14 3Q14 4Q13 3Q14 4Q13 Revenue 2,724$ 2,678$ 2,528$ 1.7% 7.8% Expenses 1,880 1,808 1,760 4.0 6.8 EPS 1.37 1.35 1.15 1.5 19.1 ROE 11.6% 11.4% 10.3% NIM 1.04 1.06 1.30 Pre-tax operating margin 30.8 32.4 30.1 Operating leverage2 (226) bps 93 bps Average diluted common shares outstanding (in thousands) 424.3 429.7 445.2 % change
12 Operating-Basis (Non-GAAP) Revenue1 1 Results presented on an operating basis, a non-GAAP presentation, where applicable. Refer to the addendum linked to this presentation for explanations of our non-GAAP financial measures and for reconciliations of our operating-basis financial information. nm – not meaningful. Key Drivers Notable Items in 4Q14: • The stronger U.S. dollar negatively affected 4Q14 revenue, relative to exchange rates in effect in 3Q14 and 4Q13 • $11 million incremental equity earnings from joint ventures • $9 million NIR impact from a one-time accelerated loan prepayment • Performance fees of $5.5 million • Money market fee waivers of $12.7 million representing foregone revenue Notable variances from 4Q13: • Servicing fees and management fees were up primarily due to net new business and stronger U.S. equity markets and partially offset by the impact of the stronger U.S. dollar • Foreign exchange trading revenue was up primarily due to higher volatility and volumes • Brokerage and other fees were up primarily due to higher revenue from transition and currency management • Securities finance revenue was up primarily due to higher spreads and volumes and new business in enhanced custody • Processing fees and other revenue was up primarily due to equity earnings from joint ventures and increased revenue associated with tax advantaged investments • Net interest revenue was down. Excluding $9 million in 4Q14 from a one- time accelerated loan prepayment and $19 million in 4Q13 from a municipal security that was previously impaired, net interest revenue was approximately flat primarily due to lower yields offset by higher interest- earning assets Notable variances from 3Q14: • Servicing fees were down primarily due to the impact of the stronger U.S. dollar, mostly offset by net new business and higher transaction revenues • Management fees were down primarily due to the impact of the stronger U.S. dollar, lower performance fees and lower global equity markets • Foreign exchange trading revenue was up primarily due to higher volatility and volumes • Brokerage and other fees were up primarily due to higher revenue from transition management • Securities finance revenue was up primarily due to higher spreads • Processing fees and other revenue was up primarily due to equity earnings from joint ventures and other fees $ in millions 4Q14 3Q14 4Q13 Servicing fees 1,301$ (0.1)% 5.6% Management fees 299 (5.4) 3.1 Trading services revenue 293 5.4 24.2 Securities finance revenue 106 7.1 39.5 Processing fees and other revenue 138 34.0 40.8 Total fee revenue 2,137 1.9 10.6 Net interest rev nue 587 1.2 (1.5) Gains (losses) r lated to investment securities, net - nm nm Total operating-ba i revenue 2,724$ 1.7% 7.8% % change
13 Operating-Basis (Non-GAAP) Expenses1 Key Drivers Notable items in 4Q14: • The stronger U.S. dollar favorably affected 4Q14 expenses, relative to exchange rates in effect in 3Q14 and 4Q13 • $29 million in security processing costs within other expenses • $17 million associated with our withdrawal from derivatives clearing and execution activities, primarily in information systems and communications as well as other expenses • $9 million impairment primarily associated with an intangible asset Notable variances from 4Q13: • Compensation and employee benefits expenses were up primarily due to increased costs to support new business and regulatory compliance initiatives as well as higher incentive compensation expense, partially offset by the impact of the stronger U.S. dollar • Transaction processing expenses were up primarily due to higher volumes in the investment servicing business • Occupancy expenses were down primarily due to a charge in 4Q13 associated with a sublease renegotiation • Other expenses were up primarily due to higher professional services primarily related to regulatory compliance initiatives, costs associated with our withdrawal from derivatives clearing and execution activities, impairment primarily associated with an intangible asset and Lehman Brothers-related gains and recoveries recorded in 4Q13 Notable variances from 3Q14: • Compensation and employee benefits expenses were up primarily due to increased costs to support new business and regulatory compliance initiatives as well as higher incentive compensation expense, partially offset by the impact of the stronger U.S. dollar • Other expenses were up primarily due to higher securities processing, higher professional services primarily related to regulatory compliance initiatives, costs associated with our withdrawal from derivatives clearing and execution activities and an impairment primarily associated with an intangible asset 1 Results presented on an operating basis, a non-GAAP presentation, where applicable. Refer to the addendum linked to this presentation for explanations of our non-GAAP financial measures and for reconciliations of our operating-basis financial information. . $ in millions 4Q14 3Q14 4Q13 Compensation and employee benefits 962$ 0.7% 3.0% Information systems and communications 246 1.7 7.9 Transaction processing services 201 1.0 10.4 Occupancy 113 (5.0) (8.9) Other 358 22.2 22.6 Total operating-b sis expenses 1,880$ 4.0% 6.8% % change
14 Balance Sheet Highlights Fourth-Quarter 20141, 2 Investment portfolio • Size: $112 billion, a slight decrease from the end of 3Q14 • Credit profile: approximately 90% rated AAA/AA • Fixed-rate/floating-rate mix: 52% / 48% • Duration: 2.0 years • Unrealized after-tax mark-to-market (MTM) gain increased by $76 million from 3Q14 to $487 million at the end of 4Q14 primarily due to a decrease in interest rates, partially offset by narrowing spreads • Purchases of $3.9 billion in 4Q14; average tax-equivalent yield: 2.06% • Discount accretion of $31 million in 4Q14 related to former conduit assets; approximately $387 million expected to accrue over the remaining lives of the former conduit securities3 Interest-rate risk metrics • Economic value of equity (EVE)4: (12.8)% of total regulatory capital5 as of December 31, 2014, versus (14.0)% as of September 30, 2014, in an up-200-bps shock to quarter-end interest-rate levels hypothetical scenario • Unrealized after-tax MTM loss sensitivity, as of December 31, 2014, estimated at approximately $(1.2) billion after-tax in an up-100-bps shock to quarter-end interest-rate levels hypothetical scenario Other balance sheet activity • Senior secured bank loans totaled $2.4 billion as of December 31, 2014, floating-rate, primarily BB/B rated • Recorded a $4 million net loan loss provision related to the aggregate senior secured bank loan portfolio; loan loss allowance related to this portfolio totaled approximately $29 million as of December 31, 2014 1 As of period-end where applicable. 2 See appendix included in this presentation for a description of the investment portfolio. 3 Based on numerous assumptions, including holding the securities to maturity, anticipated prepayment speeds and credit quality. See discussion in State Street’s 2013 Annual Report on Form 10-K filed with the SEC. 4 For additional information regarding EVE, refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in State Street’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2014 filed with the SEC. 5 Total regulatory capital is defined as the sum of tier 1 and tier 2 risk-based capital.
15 Capital 1 Footnotes 1 through 5 provided on page 16. Fourth-Quarter 2014 Highlights • Maintained a strong capital position • In 4Q14, we purchased approximately 5.6 million shares of our common stock, at an average price of $73.71 and a total cost of approximately $410 million, under the March 2014 common stock purchase program authorizing the purchase of up to $1.7 billion through March 31, 2015 • Declared a $0.30 per share quarterly common stock dividend in 4Q14 • Issued $750 million of preferred shares at 6%, with the first dividend to be paid in 1Q15: ‒ Expect total dividends on all series of preferred shares outstanding at December 31, 2014 to be approximately $118 million in 2015, including a partial quarter payment of approximately $3 million in 1Q15 for Series E Returning capital to shareholders remains a priority while maintaining a strong capital position Basel III Ratios as of December 31, 20142, 3 Common equity tier 1 ratio calculated in conformity with Basel III final rule (advanced approaches) 12.5% Tier 1 leverage ratio calculated in conformity with Basel III final rule (advanced approaches) State Street Corporation 6.4% State Street Bank and Trust Company 5.8% Estimated pro forma Basel III ratios as of December 31, 2014 Common equity tier 1 ratio calculated in conformity with Basel III final rule (standardized approach)4 10.8% Supplementary leverage ratios5 State Street Corporation 5.7% State Street Bank and Trust Company 5.1% Estimated pro forma fully phased-in Basel III ratios as of December 31, 2014 Fully phased-in (effective January 1, 2019) Basel III common equity tier 1 ratio (advanced approaches)4 11.6% Fully phased-in (effective January 1, 2019) Basel III common equity tier 1 ratio (standardized approach)4 10.0% Fully phased-i (effective January 1, 2018) supplementary leverage ratios5 State Stree Co poration 5.2% State Street Bank and Trust Company 4.8%
16 1 Unless otherwise specified, all capital ratios referenced on page 15 and elsewhere in this presentation refer to State Street Corporation, or State Street, and not State Street Bank and Trust Company, or State Street Bank. Refer to the addendum linked to this presentation for a further description of these ratios, and for reconciliations applicable to State Street's estimated pro forma Basel III common equity tier 1 ratios and estimated pro forma fully phased-in Basel III ratios presented on page 15. 2 In July 2013, the Federal Reserve issued a final rule intended to implement the Basel III framework in the U.S., referred to as the Basel III final rule. On February 21, 2014, we were notified by the Federal Reserve that we completed our parallel run period and would be required to begin using the advanced approaches framework as provided in the Basel III final rule in the determination of our risk-based capital requirements. Pursuant to this notification, we have used the advanced approaches framework to calculate our risk-based capital ratios beginning with the second quarter of 2014. In the second, the third and fourth quarters of 2014, the lower of our regulatory capital ratios calculated under the Basel III advanced approaches and those ratios calculated under the transitional provisions of Basel III apply in the assessment of our capital adequacy for regulatory purposes. For each of the second, third and fourth quarters of 2014, the common equity tier 1 ratio calculated in conformity with the advanced approaches was lower than such ratio calculated under the transitional provisions of the Basel III final rule. Beginning with the first quarter of 2015, the lower of the Basel III regulatory capital ratios calculated by us under the Basel III advanced approaches and the Basel III standardized approach will apply in the assessment of our capital adequacy for regulatory purposes. 3 Common equity tier 1 and tier 1 leverage ratios as of December 31, 2014 were calculated in conformity with the advanced approaches provisions of the Basel III final rule. 4 The estimated pro forma Basel III common equity tier 1 ratio (standardized approach), is an estimate, calculated in conformity with the standardized approach under the Basel III final rule. The estimated pro forma fully phased-in Basel III common equity tier 1 ratio (advanced approaches) and the estimated pro forma fully phased-in Basel III common equity tier 1 ratio (standardized approach) as of December 31, 2014 are preliminary estimates by State Street, calculated in conformity with the advanced approaches or the standardized approach, as the case may be, in the Basel III final rule (in each case, fully phased in as of January 1, 2019, as per Basel III phase-in requirements for capital), calculated based on our interpretations of the Basel III final rule as of January 23, 2015 and as applied to our businesses and operations as of December 31, 2014. Reconciliations with respect to these ratios are provided in the addendum linked to this presentation. 5 On April 8, 2014, U.S. banking regulators issued a final rule enhancing the supplementary leverage ratio, or SLR, standards for certain bank holding companies, like State Street, and their insured depository institution subsidiaries, like State Street Bank. We refer to this final rule as the eSLR final rule. Under the eSLR final rule, upon implementation as of January 1, 2018, State Street Bank must maintain a supplementary leverage ratio of at least 6% to be well capitalized under the U.S. banking regulators’ Prompt Corrective Action framework. The eSLR final rule also provides that if State Street maintains an SLR of at least 5%, it is not subject to limitations on distribution and discretionary bonus payments under the eSLR final rule. On September 3, 2014, U.S. banking regulators issued a final rule modifying the definition of the denominator of the SLR in a manner consistent with the final rule issued by the Basel Committee on Banking Supervision on January 12, 2014. The revisions to the SLR apply to all banking organizations subject to the advanced approaches provisions of the Basel III final rule, like State Street and State Street Bank. Specifically, the SLR final rule modifies the methodology for including off-balance sheet assets, including credit derivatives, repo-style transactions, and lines of credit, in the denominator of the SLR, and requires banking organizations to calculate their total leverage exposure using daily averages for on-balance sheet assets and the average of three month-end calculations for off-balance sheet exposures. Certain public disclosures required by the SLR final rule must be provided beginning with the first quarter of 2015, and the minimum SLR requirement using the SLR final rule’s denominator calculations is effective beginning on January 1, 2018. Estimated pro forma fully phased-in supplementary leverage ratios as of December 31, 2014 are preliminary estimates by State Street (in each case, fully phased-in as of January 1, 2018, as per the phase-in requirements of the SLR final rule), calculated based on our interpretations of the SLR final rule as of January 23, 2015 and as applied to our businesses and operations as of December 31, 2014. Footnotes to Page 15
17 • Continuing to focus on key priorities: – Delivering value-added services and solutions to clients – Investing in growth initiatives –Managing expenses – Returning capital to shareholders • Aiming for full-year 2015 operating-basis total fee revenue1 growth of 4%-7% compared to 2014: – Equity market assumptions for full-year 2015 based on: – Foreign exchange assumptions using the forward curve as of January 15, 2015 assume that the exchange rates will remain with January 15, 2015 levels; resulting assumptions for U.S. dollar to EURO exchange rate and U.S. dollar to Pound Sterling are shown below as examples: • Expecting that NIR headwinds are likely to continue as illustrated in the interest rate and deposit scenarios outlined on the next slide • Expecting an operating-basis1 effective tax rate of 30%-32%, which was 29% in 2014 (12.1)% 2015 Outlook1: Strong growth in our fee revenue, partially offset by the impact of low interest rates and a higher effective tax rate 1Includes operating-basis (non-GAAP) financial information, where noted. Operating-basis financial outlook is a non-GAAP presentation. Refer to the addendum linked to this presentation for explanations of our non-GAAP financial measures. 2013 Year End: 1,850 2014 Year End: 2,060 2015 Estimated Year End: 2,160 2014 Average: 1,931 2015 Estimated Average: 2,050 2013 Year End: 1,915 2014 Year End: 1,775 2015 Estimated Year End: 1,830 EAFE 2014 Average: 1,888 2015 Estimated Average: 1,850 2013 Year End: 1.37 2014 Year End: 1.20 2015 Estimated Year End: 1.16 2014 Average: 1.32 2015 Estimated Average: 1.16 S&P 500 USD vs EUR 4.9% 6.2% 15E vs 14 3.1% (2.0)% 15E vs 14 (3.3)% 15E vs 14 (8.5)% 2013 Year End: 1.67 2014 Year End: 1.56 2015 Estimated Year End: 1.51 2014 Average: 1.65 2015 Estimated Average: 1.51 USD vs GBP (3.2)% 15E vs 14 Continuing to focus on key priorities: • Delivering value-added services & solutions to clients • Investing in growth initiatives • Managing expenses • Returning capital to shareholders
18 2015 Outlook1: As illustrated below, operating-basis NIR1 likely to decline in 2015 from 2014 1Includes operating-basis (non-GAAP) financial information, where noted. Operating-basis financial targets are a non-GAAP presentation. Refer to the addendum linked to this presentation for explanations of our non-GAAP financial measures. 2Underlying interest rate and deposit level assumptions are as presented on this page 18 under the Static Scenario and the Rising Scenario, as applicable. Underlying foreign exchange rate and equity market assumptions are as presented on the preceding page 17. For all other primary drivers, assumptions reflect actual levels and other data, including State Street’s expectations and interpretations, as of year-end 2014. Static Scenario Rising Scenario Primary Drivers2 State Street Operating-Basis NIR1 $2.07B-$2.17B $2.15B-$2.25B • Short-term and long-term interest rates • Foreign exchange rates • Deposit levels • Regulatory expectations • Geographic and business mix Interest Rate Path Static from December 31, 2014 levels • First administered rate hike: • U.K.: August 2015 • U.S.: December 2015 • Increases of 0.25% per quarter thereafter • No change in European Central Bank (ECB) rates • 1 month and 3 month LIBOR rate increases in advance of rate hikes • Economic outlook • Geopolitical environment USD Deposits at State Street Minimal change from end of 2014 Modest decline relative to 2014 year-end levels as rates rise • U.S. short-term rates • Alternative short-term investment choices Euro Deposits at State Street Minimal change from end of 2014 • Euro short-term rates • Further ECB actions • Levels of competitor deposit charges Illustrative Scenarios
19 2015 Outlook1: Will also focus on managing expenses • Expense management remains a priority; while there continues to be upward pressure on regulatory compliance costs, our focus will be on: – Controlling expenses and driving further efficiencies – Expanding our capabilities to meet increasing regulatory expectations – Supporting new business growth, including information technology costs – Continuing to fund growth initiatives • Expect operating-basis total fee revenue1 growth to outpace operating-basis expenses1 growth by at least 200 basis points compared to 2014: – Assumes that 4-7% operating basis1 total fee revenue growth objective is achieved2 • Positive operating leverage3 remains a long-term goal; our near-term ability to achieve the goal is likely predicated on higher market interest rates for a significant portion of 2015 • Seasonality pattern of compensation expenses, primarily associated with the deferred incentive compensation expense for retirement-eligible employees and payroll taxes, to recur with related incremental seasonal amount expected to be $140 million to $150 million in 1Q15, compared to $146 million in 1Q14 1Includes operating-basis (non-GAAP) financial information, where noted. Operating-basis financial targets are a non-GAAP presentation. Refer to the addendum linked to this presentation for explanations of our non-GAAP financial measures. 2See page 17 for related assumptions. 3Operating leverage is defined as the rate of growth of total revenue less the rate of growth of total expenses, each as determined on an operating basis.
20 2015 Outlook: Returning capital to shareholders remains a priority • Continuing to execute on our capital plans: – Issued $750 million of preferred shares at 6% in 4Q14, with the first dividend to be paid in 1Q15: – Expect total dividends on all series of preferred shares outstanding at December 31, 2014 to be approximately $118 million in 2015, including a partial quarter payment of approximately $3 million in 1Q15 for Series E – The evolution of our balance sheet and of regulatory capital and liquidity expectations may lead to both additional issuances of preferred shares of approximately $750M and long-term debt in 2015 – 2015 capital plan remains subject to review by the Federal Reserve
21 APPENDIX A. Effective Tax Rate Calculations B. Investment Portfolio C. Non-GAAP Measures and Capital Ratios Pages 22 24-29 30
22 Effective Tax Rate Calculations • Beginning with the first quarter of 2014, we are presenting our operating-basis effective tax rate to reflect the tax-equivalent adjustments associated with our investments in tax-exempt securities low-income housing and alternative energy. • There is no effect on operating-basis1 revenue, pre-tax income or after-tax earnings; the change affects only our stated operating-basis1 effective tax rate. We believe this change, which is also incorporated in the comparative prior-period rates shown below, will result in a more informative presentation of the ordinary tax rate generated by State Street’s business activity. 1 Includes operating-basis (non-GAAP) financial information. Operating-basis financial highlights are a non-GAAP presentation. Refer to the addendum linked to this presentation for explanations of our non-GAAP financial measures and for reconciliations of our operating-basis financial information. Operating-basis1 effective tax rate - prior calculation 4Q14 3Q14 4Q13 Income before income tax expense, operating-basis1 840$ 868$ 762$ Less aggregate tax-equivalent adjustments 125 129 95 Income before income tax expense, excluding tax-equivalent adjustments, operating-basis1 715 739 667 Income tax expense, operating-basis1 239 269 240 Less aggregate tax-equivalent adjustments 125 129 95 Income tax expense, after eliminating tax-equivalent adjustments, operating-basis1 114 140 145 Effective tax rate, operating-basis1, prior calculation 15.9% 18.9% 21.7% Operating-basis1 effective tax rate - revised calculation 4Q14 3Q14 4Q13 Income before income tax expense, operating-basis1 840$ 868$ 762$ Income tax expense, operating-basis1 239 269 240 Effective tax rate, operating-basis1, revised calculation 28.5% 31.0% 31.5%
23 B. Investment Portfolio
24 Portfolio amounts are expressed at book value; book value includes the amortized cost of transferred securities at the time they were transferred. OECD=Organization for Economic Cooperation and Development FFELP=Federal Family Education Loan Program Government / Agency Structured Securities Unsecured Credit Treasuries Agency debentures Agency mortgages Small Business Administration loans OECD governments FFELP student loans Asset-backed securities (ABS) Mortgage-backed securities (MBS) Commercial mortgage-backed securities (CMBS) Covered bonds Corporate bonds Municipals $54 billion $41 billion $17 billion Investment Portfolio Investment Portfolio as of December 31, 2014
25 • Assets selected using rigorous credit process • Diversified by asset class and geography • 90% rated AAA/AA • Unrealized after-tax mark-to-market (MTM) gain of $487 million 1 Portfolio amounts are expressed at book value; book value includes the amortized cost of transferred securities at the time they were transferred. 1. At 12/31/14: after-tax unrealized MTM gain/(loss) includes after-tax unrealized gain on securities available for sale of $483 million, after-tax unrealized gain on securities held to maturity of $71 million and after-tax unrealized loss primarily related to securities previously transferred from available for sale to held to maturity of $(67) million 2. Beginning in August 2011, U.S. Treasuries and Agencies/Agency MBS became split rated – AAA by Moody’s and AA+ by S&P. For dates after August 2011, these securities are classified separately in the table above and not included in either the AAA or AA classifications 3. Certain securities previously categorized as Not Rated, are now included in the AAA category, based on Moody’s/S&P ratings $ in billions U.S. Treasuries & Agencies 2 AAA AA A BBB <BBB Not Rated 3 Total Unrealized After-tax MTM Gain / (Loss) ($M) 12/31/14 $36.4 $45.8 $18.6 $7.2 $2.2 $1.6 $0.1 $111.9 $487 32% 41% 17% 6% 2% 2% 0% 100% 12/31/13 $29.6 $51.7 $22.4 $7.7 $3.4 $2.2 $0.1 $117.1 $(213) 26% 44% 19% 6% 3% 2% 0% 100% 12/31/12 $37.6 $46.0 $22.7 $8.5 $3.2 $2.1 $0.1 $120.2 $697 31% 38% 19% 7% 3% 2% 0% 100% 12/31/11 $32.6 $49.9 $15.5 $7.0 $2.5 $2.2 $0.1 $109.8 $(374) 30% 45% 14% 7% 2% 2% 0% 100% 12/31/10 $74.8 $10.6 $5.5 $2.3 $1.9 $0.2 $95.3 $(504) 79% 11% 6% 2% 2% 0% 100% Investment Portfolio Investment Portfolio Detail as of December 31, 2014
26 Ratings 1 Book Value ($B) Book Value (% Total) Unrealized After-tax MTM Gain / (Loss) ($M) 2 Investment UST / AGY AAA AA A BBB <BBB Not Rated Fixed Rate / Floating Rate Government/Agency securities 79% 12% 5% 4% — — — $19.7 17.6% ($34) 96% / 4% Asset-backed securities — 71% 21% 4% 1% 3% — 43.2 38.6 180 4% / 96% Mortgage-backed securities 89% 7% 1% — 1% 2% — 23.1 20.7 61 85% / 15% Commercial mortgage- backed securities 2% 86% 7% 4% — 1% — 5.3 4.7 27 61% / 39% Corporate bonds — — 13% 59% 28% — — 5.3 4.7 55 96% / 4% Covered bonds — 100% — — — — — 3.3 3.0 18 22% / 78% Municipal bonds — 23% 68% 9% — — — 8.3 7.4 158 99% / 1% Clipper tax-exempt bonds/other — 42% 45% 12% — — 1% 3.7 3.3 22 22% / 78% TOTAL PORTFOLIO 32% 41% 17% 6% 2% 2% 0% $111.9 100.0% $487 52% / 48% Portfolio amounts are expressed at book value; book value includes the amortized cost of transferred securities at the time they were transferred. 1. U.S. Treasuries and Agencies/Agency MBS are split rated - AAA by Moody’s and AA+ by S&P. These securities are classified separately in the table above and not included in either the AAA or AA classifications 2. At 12/31/14: after-tax unrealized MTM gain/(loss) includes after-tax unrealized gain on securities available for sale of $483 million, after-tax unrealized gain on securities held to maturity of $71 million and after-tax unrealized loss primarily related to securities previously transferred from available for sale to held to maturity of $(67) million Investment Portfolio Holdings by Asset Class as of December 31, 2014
27 Ratings 1 Book Value ($B) Book Value (% Total) Unrealized After-tax MTM Gain / (Loss) ($M) Investment UST / AGY AAA AA A BBB <BBB Not Rated Student Loans — 37% 58% 5% — — — $14.3 33.1% ($12) Credit Cards — 100% — — — — — 5.3 12.3 (10) Auto/Equipment — 99% — 1% — — — 4.7 10.9 3 Non-US RMBS — 84% 5% 6% 1% 4% — 13.3 30.8 167 CLOs — 94% 6% — — — — 4.4 10.2 58 Sub-Prime — 3% 3% 24% 18% 52% — 1.0 2.3 (32) HELOC — — — 100% — — — 0.0 0.0 (1) Other — — — 38% 62% — — 0.2 0.4 7 TOTAL ABS — 71% 21% 4% 1% 3% — $43.2 100.0% $180 Portfolio amounts are expressed at book value; book value includes the amortized cost of transferred securities at the time they were transferred. 1. U.S. Treasuries and Agencies/Agency MBS are split rated - AAA by Moody’s and AA+ by S&P. These securities are classified separately in the table above and not included in either the AAA or AA classifications RMBS = Residential Mortgage Backed Securities; CLO = Collateralized Loan Obligation; HELOC = Home Equity Line of Credit Investment Portfolio Asset-backed Securities Holdings as of December 31, 2014
28 Ratings 1 Book Value ($B) Book Value (% Total) Unrealized After-tax MTM Gain / (Loss) ($M) Investment UST / AGY AAA AA A BBB <BBB Not Rated Agency MBS 100% — — — — — — $20.6 72.5% $41 Non-Agency MBS — 62% 7% 4% 8% 19% — 2.5 8.8 20 CMBS 2% 86% 7% 4% — 1% — 5.3 18.7 27 TOTAL MBS 73% 21% 2% 1% 1% 2% — $28.4 100.0% $88 Portfolio amounts are expressed at book value; book value includes the amortized cost of transferred securities at the time they were transferred. 1. U.S. Treasuries and Agencies/Agency MBS are split rated - AAA by Moody’s and AA+ by S&P. These securities are classified separately in the table above and not included in either the AAA or AA classifications Investment Portfolio Mortgage-backed Securities Holdings as of December 31, 2014
29 Non-U.S. Investments: Ratings Non-U.S. Investments: Asset Class 1. Sovereign debt is reflected in the government agency column 2. Japanese government bonds were downgraded to A1 from Aa3 by Moody’s on December 1, 2014 3. Country of collateral used except for corporates, where country of issuer is used Excludes equity securities of approximately $11.2 million (1) Investment Portfolio Non-U.S. Investment Summary as of December 31, 2014 AAA 81.1% AA 6.7% A 8.5% BBB 1.8% BB 1.2% <BB 0.7% Gov't/Agency, 14.2% ABS: FRMBS, 46.2% ABS: All Other, 20.8% Corp, 4.2% Covered, 11.5% Other, 3.1% December 31, 2014 Book Book Value ($B) Value Average Gov't/ ABS ABS Corporate Covered ($B) Rating Agency (1) FRMBS All Other Bonds Bonds Other United Kingdom 8.6$ AAA -$ 6.0$ 1.9$ 0.3$ 0.4$ -$ Australia 5.1 AA 0.2 2.4 0.6 0.1 0.9 0.9 Netherlands 4.3 AAA - 4.0 - 0.1 0.2 - Canada 2.7 AAA 2.0 - - 0.3 0.4 - Germany 2.5 AAA - - 2.5 - - - France 1.4 AAA - 0.1 0.6 0.2 0.5 - Japan 0.9 A 0.9 - - - - - Korea 0.9 AA 0.9 - - - - - Italy 0.5 AA - 0.5 - - - - Norway 0.5 AAA - - 0.1 - 0.4 - Finland 0.5 AAA - - 0.2 - 0.3 - Spain 0.1 BB - 0.1 - - - - Ireland 0.1 B - 0.1 - - - - Portugal 0.1 BB - 0.1 - - - - Other 0.6 AA 0.1 - 0.1 0.2 0.2 - Non-U.S. Investments (2) 28.8$ 4.1$ 13.3$ 6.0$ 1.2$ 3.3$ 0.9$ U.S. Investments 83.1 Total Portfolio 111.9$
30 C. Non-GAAP Measures and Capital Ratios Refer to the addendum linked to this presentation for explanations of our non-GAAP financial measures and for reconciliations of our operating-basis financial information. To access the addendum go to www.statestreet.com/stockholder and click on “Filings & Reports – Financial Trends”.
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