Operating-Basis Earnings Per Share of $0.75 Up from the Fourth
Quarter with 100 Basis Points of Positive Operating Leverage
Fee Revenue Increases 8% Compared to First Quarter of 2009 with
Servicing Fees up 15% and Management Fees up 25%
BOSTON--(BUSINESS WIRE)--
State Street Corporation today announced first-quarter 2010 earnings per
common share of $0.99 on revenue of $2.296 billion compared with $1.02
per share on revenue of $2.002 billion in the first quarter of 2009.
Expenses in the first quarter of 2010 were $1.579 billion, compared with
$1.304 billion in the first quarter of 2009. For the first quarter of
2010, return on common shareholders' equity was 13.4%, down from 15.7%
in the first quarter of 2009.
Compared to the fourth quarter of 2009, first-quarter 2010 revenue,
expenses and earnings per share were essentially flat. In the fourth
quarter of 2009, revenue was $2.280 billion, expenses were $1.565
billion, and earnings per share were $1.00. For the fourth quarter of
2009, return on common shareholders' equity was 14.0%.
In addition to presenting State Street's financial results in conformity
with U.S. generally accepted accounting principles (GAAP), management
also presents results on an "operating basis" in order to highlight
comparable financial trends and other characteristics with respect to
State Street's ongoing business operations from period to period. A full
reconciliation of operating-basis results to GAAP results is included in
the addendum at the end of this news release. Also see "Additional
Information." Operating-basis net interest revenue for all periods is
presented on a fully taxable-equivalent basis and excludes discount
accretion related to the conduit assets.
As we indicated in announcing the 2009 full-year and fourth-quarter
results, we are now presenting operating-basis results excluding the net
interest revenue associated with the discount accretion from the
consolidation of the asset-backed commercial paper conduits in the
second quarter of 2009 (in addition to the other adjustments we have
historically reflected). First-quarter 2010 GAAP results included $212
million of discount accretion, as well as $13 million of merger and
integration costs associated with acquisitions. GAAP results in the
first quarter of 2009 included $17 million of merger and integration
costs associated with Investors Financial Services Corp. (IFIN),
partially offset by net interest revenue of $7 million related to State
Street's participation in the Federal Reserve Bank's Asset-Backed
Commercial Paper Money Market Mutual Fund Liquidity Facility. GAAP
results in the fourth quarter of 2009 included $230 million of discount
accretion and $9 million of merger and integration costs.
Operating-basis revenue in the first quarter of 2010 was $2.116 billion,
up 4.4% from $2.027 billion in the first quarter of 2009 and
operating-basis expenses were $1.566 billion, up 21.7% from $1.287
billion in the first quarter of 2009. Operating-basis revenue in the
first quarter of 2010 was up 1.6% from $2.082 in fourth quarter of 2009
and operating-basis expenses in the first quarter of 2010 were $1.566
billion, up 0.6% from $1.556 billion in the fourth quarter of 2009.
These first quarter 2010 revenue and expense results represent 100 basis
points of positive operating leverage compared to the fourth quarter of
2009. Operating-basis earnings per share in the first quarter of 2010
were $0.75 compared to operating-basis earnings per share of $1.04 in
the first quarter of 2009 and $0.71 in the fourth quarter of 2009. On an
operating basis, return on equity of 10.0% in the first quarter of 2010
compared with 15.9% in the first quarter of 2009 and 9.9% in the fourth
quarter of 2009.
Joseph L. Hooley, State Street's president and chief executive officer,
said, "Our core business performed well, demonstrated by the 8 percent
increase in fee revenue compared to the prior-year first quarter due to
strength in servicing and asset management fee revenue. In the quarter,
our asset servicing businesses added $164 billion in assets to be
serviced. Within asset management, net customer cash flows, including
customer wins and losses, were modestly negative. This decline, however,
was more than offset by appreciation of assets under management, with
total assets under management remaining in excess of $1.9 trillion at
March 31, 2010. These new wins, our solid sales pipeline, as well as the
continued installations of large wins from last year, give us confidence
that our core business will continue to perform well. Our capital levels
remain strong and are well in excess of the regulatory "well
capitalized" requirements. We achieved 100 basis points of operating
leverage compared to the fourth quarter of 2009, as we continued to
manage expenses very carefully."
Hooley continued, "Spread compression continue to impact securities
finance and weak cross-border customer volumes and low volatility
continue to restrain foreign exchange. These headwinds, plus the low
interest-rate environment, have shaped our view of 2010 as a transition
year to a more normalized environment. We closed the Mourant
International Finance Administration acquisition in early April and
anticipate closing our proposed acquisition of Intesa Sanpaolo's
Securities Services business later this quarter, pending regulatory
approval and satisfaction of other closing conditions. We expect the two
acquisitions to add to revenue and to be modestly accretive to
operating-basis earnings this year. As a result, we continue to expect
that our operating-basis earnings per share will be slightly higher than
the operating-basis $3.32 per share last year, excluding discount
accretion."
Hooley concluded, "We continue to believe we are well positioned against
global growth opportunities and that, over economic and market cycles,
we will maintain our long-term financial goals of operating-basis
revenue growth of 8 percent to 12 percent, growth in operating-basis
earnings per share of 10 percent to 15 percent, and operating-basis
return on equity of between 14 percent and 17 percent."
The table below provides a summary of selected financial information and
key ratios for the indicated periods, presented on an operating basis
where noted. The tier 1 capital and tier 1 leverage ratios are capital
ratios used regularly by bank regulatory authorities to evaluate the
Company's capital adequacy. The tier 1 common ratio was used by the
Federal Reserve in connection with its Supervisory Capital Assessment
Program. The TCE and TCE/risk-weighted assets ratios are other capital
ratios management believes provide additional context for understanding
and assessing the Company's capital adequacy. Unless otherwise
specified, all capital ratios referenced in this news release refer to
State Street Corporation and not State Street Bank and Trust Company.
See "Additional Information" for a further description of these ratios
and the addendum at the end of this news release for reconciliations
applicable to the tier 1 common and TCE ratios.
Q1 2010 Q4 2009 Increase/(decrease) Q1 2009 Increase/(decrease)
(dollars in
millions)
Total revenue $ 2,116 $ 2,082 $ 34 1.6 % $ 2,027 $ 89 4.4 %
(1)
Total expenses 1,566 1,556 10 0.6 % 1,287 279 21.7 %
(1)
Total assets 153,971 157,946 (3,975 ) (2.5 )% 142,144 11,827 8.3 %
(2)
Unrealized
loss on
investment (1,435 ) (2,286 ) 851 37.2 % (5,851 ) 4,416 75.5 %
portfolio,
after-tax(2)
AUCM (dollars
in billions)
Assets under
custody and $ 19,041 $ 18,795 $ 246 1.3 % $ 15,035 $ 4,006 26.6 %
administration
(2)(3)
Assets under 1,929 1,911 18 0.9 % 1,395 534 38.3 %
management(2)
Earnings per
common share $ 0.75 $ 0.71 $ 0.04 5.6 % $ 1.04 $ (0.29 ) (27.9 )%
(1)
Return on
common equity 10.0 % 9.9 % 10 bps 15.9 % (590) bps
(1)
Tier 1 capital 18.1 % 17.7 % 40 bps 19.1 % (100) bps
ratio(2)
Tier 1
leverage ratio 9.0 % 8.5 % 50 bps 10.4 % (140) bps
(2)
Tier 1 common 15.9 % 15.6 % 30 bps 14.7 % 120 bps
ratio(2)
TCE ratio(2) 7.5 % 6.6 % 90 bps 5.9 % 160 bps
TCE/RWA ratio 14.1 % 12.8 % 130 bps 8.2 % 590 bps
(2)
(1) Presented on an operating basis. Operating-basis results for the fourth quarter of 2009 presented
in this news release have been adjusted to reflect the 2010 basis of presentation and therefore exclude
discount accretion from the consolidation of the asset-backed commercial paper conduits. Consequently,
these operating-basis results may differ from previously disclosed operating-basis results for the same
period.
(2) As of period end.
(3) Includes assets under custody of $14,058 billion, $13,748 billion, and $11,337 billion,
respectively, as of Q1 2010, Q4 2009, and Q1 2009.
Total assets were $154 billion at March 31, 2010, compared with $158
billion at December 31, 2009 and $142 billion at March 31, 2009.
Excluding $19 billion of excess deposits held at the Federal Reserve and
other central banks at March 31, 2010, $22 billion at December 31, 2009,
and $30 billion at March 31, 2009, the normalized balance sheet was $135
billion at March 31, 2010, compared to a normalized balance sheet of
$136 billion at December 31, 2009 and $112 billion at March 31, 2009.
State Street's regulatory capital ratios continue to be strong as of
March 31, 2010, with the Company's tier 1 capital ratio at 18.1% and its
leverage ratio at 9.0%. In addition, at that date, the Company's tier 1
common ratio was 15.9%, its TCE to risk-weighted assets ratio was 14.1%,
and its TCE ratio was 7.5%.
At March 31, 2010, the after-tax, unrealized mark-to-market losses in
the investment portfolio were $1.44 billion, down from $2.29 billion at
December 31, 2009, and down about 75% from $5.85 billion as of March 31,
2009.
In the first quarter of 2010, discount accretion of $212 million, or
$0.25 per share, contributed to State Street's capital strength, and the
Company expects a total of about $800 million of accretion in 2010, and
expects about $4.1 billion in total on a pre-tax basis to accrete
into interest revenue over the remaining lives of the assets, based on
anticipated pre-payments, credit quality, sales-to-date, and assuming
the Company holds the securities to maturity.
FIRST-QUARTER 2010 RESULTS VS. YEAR-AGO
FIRST QUARTER
Servicing fees were up 15% to $880 million from $766 million in last
year's first quarter. The increase was attributable primarily to new
business as well as the increase in daily average equity valuations. Total
assets under custody and administration were $19.041 trillion at March
31, 2010, up 27%, compared with $15.035 trillion at March 31, 2009.
Daily average values for the S&P 500 Index were up 39% and the MSCI(R)
EAFE IndexSM increased approximately 43% from the first
quarter of 2009.
Investment management fees, generated by State Street Global Advisors,
were $226 million, up 25% from $181 million in the year-ago quarter.
The increase in management fees was attributable primarily to the
increase in average month-end equity valuations. Average
month-end equity valuations were up about 42% as measured by the S & P
500 and were up 45% as measured by the MSCI EAFE indexSM.
Total assets under management at March 31, 2010, were $1.929 trillion,
up 38% compared to $1.395 trillion at March 31, 2009.
Trading services revenue, which includes foreign exchange trading
revenue and brokerage and other fees, was $242 million for the first
quarter of 2010, down slightly from $245 million in the first quarter a
year ago. Foreign exchange revenue decreased 30% primarily due to lower
volatility, offset partially by higher volumes. Brokerage and other fees
doubled due primarily to strength in electronic trading. In the first
quarter of 2009, brokerage fee revenue was affected by lower market
valuations on several securities held in the trading account.
Securities finance revenue was $72 million in the quarter, down 60% from
$181 million in the year-ago first quarter due primarily to
compressed spreads, partially offset by slightly higher volumes.
Processing fees and other revenue was $120 million, up 145% from $49
million in the first quarter of 2009 due primarily to a gain from an
early buyout of a legacy leasing transaction and improved revenue from
structured products.
Net interest revenue on a fully-taxable equivalent basis (including a
tax-equivalent adjustment of $32 million and discount accretion of $212
million) was $693 million, and on an operating basis, excluding discount
accretion, was $481 million, a decrease of 18% from $589 million in the
year-ago first quarter due primarily to the impact of the continuing low
interest-rate environment, as well as compression in LIBOR spreads. Net
interest margin, including the discount accretion, was 234 basis points
in the first quarter of 2010 compared to 201 basis points in the first
quarter of 2009. Operating-basis net interest margin was 162 basis
points in the first quarter of 2010.
In the quarter, we recorded $192 million of net gains from sales
of securities, partially offset by $97 million of
other-than-temporary impairment, resulting in $95 million of net gains
related to investment securities. In addition, we recorded a $15 million
provision for loan losses, primarily related to commercial real estate
exposures.
Operating-basis expenses in the first quarter of 2010 increased 22%
compared to the year-ago quarter due to increases in salaries and
benefits expenses as well as other expenses. Salaries and benefits
expenses increased to $883 million, or 21%, because in the first quarter
of 2009, we did not accrue discretionary cash incentive compensation in
order to support our TCE improvement plan. Other expenses increased 71%
to $245 million due to an unusually low level of these expenses in the
first quarter of 2009. Transaction processing expense of $153 million
increased 17% attributable to higher volumes in the investment servicing
business, and information systems and communications expense increased
4% to $167 million. Occupancy expense decreased 2% to $118 million.
The effective tax rate on first-quarter 2010 GAAP earnings was 29.5%,
compared to 22.5% in the first quarter of 2009. The effective tax rate
on operating-basis earnings for the first quarter of 2010 was 26.2%, up
from 22.7% on the same basis for the first quarter of 2009. The increase
in the effective tax rate on GAAP and operating-basis earnings is due to
the non-recurrence of certain reductions in prior-period tax accruals
recorded in the first quarter of 2009. The effective tax rate on
operating-basis earnings for the full year 2010 is expected to be
between 28% and 29%.
FIRST-QUARTER 2010 RESULTS VS. FOURTH
QUARTER 2009
The following information is presented on an operating basis. Earnings
per common share in the first quarter of 2010 were $0.75 up 6% from
$0.71 in the fourth quarter of 2009. Total revenue in the first quarter
of $2.116 billion was up 1.6% compared with fourth-quarter revenue of
$2.082 billion. Total expenses for the first quarter of 2010 were $1.566
billion, up 0.6% compared with $1.556 in the fourth quarter. As a
result, we achieved 100 basis points of positive operating leverage
comparing the results of the first quarter of 2010 with those of the
fourth quarter of 2009. Return on common shareholders' equity of 10.0%
compares with 9.9% in the fourth quarter of 2009.
The table below provides the components of operating-basis revenue:
Operating-Basis Revenue Increase/(Decrease)
(Dollars in millions) Q1 2010 Q4 2009 $ %
Servicing fees $ 880 $ 882 $ (2 ) (0.2 )%
Investment management fees 226 231 (5 ) (2.2 )
Trading services revenue 242 270 (28 ) (10.4 )
Securities finance revenue 72 83 (11 ) (13.3 )
Processing fees and other revenue 120 60 60 100.0
Net interest revenue, fully-taxable 481 499 (18 ) (3.6 )
equivalent basis(1)
Gains related to investment 95 57 38 66.7
securities, net
Total Operating-Basis Revenue $ 2,116 $ 2,082 $ 34 1.6 %
(1)Information for the first quarter of 2010 and the fourth quarter of 2009
each reflect $32 million of tax-equivalent adjustments. GAAP-basis revenue
for the first quarter of 2010 and the fourth quarter of 2009 included $212
million and $230 million, respectively, of discount accretion, resulting in
GAAP-basis net interest revenue of $661 million and $697 million,
respectively, for those periods. Operating-basis results for the fourth
quarter of 2009 presented in this news release have been adjusted to reflect
the 2010 basis of presentation and therefore exclude discount accretion.
Consequently, these operating-basis results may differ from previously
disclosed operating-basis results for the same period.
Servicing fees were $880 million, down slightly from $882 million in the
fourth quarter due primarily to a stronger US dollar and lower volumes,
partially offset by new business and the impact of higher average equity
markets. Management fees were $226 million down 2% from $231 million
primarily due to lower performance fees in the first quarter of 2010.
Trading services revenue was $242 million, compared to $270 million due
to lower brokerage and other revenue as well as lower volumes and lower
volatility in foreign exchange services. Securities finance revenue was
$72 million, down 13% from $83 million in the prior quarter primarily
due to compressed spreads, partially offset by slightly increased
volumes. Processing fees and other revenue increased from $60 million to
$120 million due primarily to a gain from an early buyout of a legacy
leasing transaction. Fully taxable-equivalent net interest revenue in
the fourth quarter of 2009 totaled $729 million, and included a
tax-equivalent adjustment of $32 million and discount accretion of $230
million. On an operating basis, excluding accretion, net interest
revenue in the first quarter of 2010 was $481 million, down 4% from $499
million in the fourth quarter of 2009 due to the reinvestment of the
investment portfolio at lower rates.
The table below provides the components of operating-basis expenses for
the indicated periods:
Operating-Basis Expenses Increase/(Decrease)
(Dollars in millions) Q1 2010 Q4 2009 $ %
Salaries and employee benefits $ 883 $ 791 $ 92 11.6
Information systems and communications 167 163 4 2.5
Transaction processing services 153 158 (5 ) (3.2 )
Occupancy 118 115 3 2.6
Other 245 329 (84 ) (25.5 )
Total Operating-Basis Expenses $ 1,566 $ 1,556 $ 10 0.6 %
Compared to the fourth quarter of 2009, salaries and employee benefits
expense increased 12% to $883 million from $791 million primarily due to
a higher level of incentive compensation accruals recorded in the first
quarter and increased benefit costs. Other expenses declined 26% to $245
million. Other expenses in the fourth quarter included a previously
disclosed legal settlement.
ADDITIONAL INFORMATION
All per share amounts represent fully diluted earnings per common share.
Return on common shareholders' equity is determined by dividing
annualized net income available to common shareholders by average common
shareholders' equity for the period. Positive operating leverage is
defined as the excess rate of growth of total revenue over the rate of
growth of total expenses, each determined on an operating basis.
This news release includes financial information presented on a GAAP
basis as well as on an operating basis. Management measures and compares
certain financial information on an operating basis, as it believes that
this presentation supports meaningful comparisons from period to period
and the analysis of comparable financial trends with respect to State
Street's normal ongoing business operations. Management believes that
operating-basis financial information, which reports revenue from
non-taxable sources on a fully taxable-equivalent basis and excludes the
impact of revenue and expenses outside of the normal course of business,
facilitates an investor's understanding and analysis of State Street's
underlying financial performance and trends in addition to financial
information prepared in accordance with GAAP. Non-GAAP financial
measures should be considered in addition to, not as a substitute for or
superior to, financial measures determined in accordance with GAAP. A
full reconciliation of operating-basis results to GAAP results is
included in the addendum at the end of this news release.
Management believes that the use of other non-GAAP financial measures in
the calculation of capital ratios is useful to understanding State
Street's capital position and of interest to investors. Below is a
description of, and other information with respect to, the capital
ratios referenced in this news release.
-- The tier 1 risk-based capital, or tier 1 capital, and tier 1 leverage
ratios, as applicable, are each calculated in accordance with applicable
bank regulatory requirements and, as permitted, exclude the impact of
commercial paper purchased under the Federal Reserve Bank of Boston's
AMLF.
-- The tier 1 risk-based common, or tier 1 common, ratio is calculated by
dividing (a) tier 1 capital less non-common elements including
qualifying perpetual preferred stock, qualifying minority interest in
subsidiaries and qualifying trust preferred securities, by (b)
risk-weighted assets, which assets are calculated in accordance with
applicable bank regulatory requirements. The tier 1 common ratio is not
required by GAAP or on a recurring basis by bank regulations. Management
is currently monitoring this ratio, along with the other capital ratios
described in this news release, in evaluating State Street's capital
levels and believes that, at this time, the ratio may be of interest to
investors.
Reconciliations with respect to unaudited tier 1 common capital as of
March 31, 2010, December 31, 2009, and March 31, 2009 are provided in
the addendum at the end of this news release.
-- The ratio of tangible common equity to adjusted tangible assets, or 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 commercial paper
purchased under the AMLF and cash balances on deposit at the Federal
Reserve Bank and other central banks in excess of required reserves. The
TCE ratio is not required by GAAP or by bank regulations, but is a
metric used by management to evaluate the adequacy of State Street's
capital levels. Since there is no authoritative requirement to calculate
the TCE ratio, our TCE ratio is not necessarily comparable to similar
capital measures disclosed or used by other companies in the financial
services industry. Tangible common equity and adjusted tangible assets
are non-GAAP financial measures and should be considered in addition to,
not as a substitute for or superior to, financial measures determined in
accordance with GAAP. Reconciliations with respect to the calculation of
the unaudited TCE ratio as of March 31, 2010, December 31, 2009, and
March 31, 2009 are provided in the addendum at the end of this news
release.
-- The ratio of tangible common equity to risk-weighted assets, or TCE/RWA
ratio,is calculated by dividing consolidated total common shareholders'
equity (reduced by goodwill and other intangible assets net of related
deferred taxes) by total risk-weighted assets (determined in accordance
with applicable bank regulatory requirements). As permitted by bank
regulations, total risk-weighted assets exclude commercial paper
purchased under the AMLF. The TCE/RWA ratio is not required by GAAP or
by bank regulations, but is a metric used by management to evaluate the
adequacy of State Street's capital levels. Since there is no
authoritative requirement to calculate the TCE/RWA ratio, our TCE/RWA
ratio is not necessarily comparable to similar capital measures
disclosed or used by other companies in the financial services industry.
Tangible common equity is a non-GAAP financial measure and should be
considered in addition to, not as a substitute for or superior to,
financial measures determined in accordance with GAAP. Reconciliations
with respect to the calculation of the unaudited TCE/RWA ratio as of
March 31, 2010, December 31, 2009, and March 31, 2009 are included in
the addendum at the end of this news release.
INVESTOR CONFERENCE CALL
State Street will webcast an investor conference call today, Tuesday,
April 20, 2010, at 9:00 a.m. EDT, available at www.statestreet.com/stockholder.
The conference call will also be available via telephone, at +1
706/679-5594 or +1 888/391-4233 (Conference ID #62659468). Recorded
replays of the conference call will be available on the web site, and by
telephone at +1 706/645-9291 or +1 800/642-1687 (Conference
ID#62659468), beginning approximately two hours after the call's
completion. The telephone replay will be available for two weeks
following the conference call. This news release, presentation materials
referred to on the conference call, and additional financial information
are available on State Street's website, at www.statestreet.com/stockholder
under "Investor Information--Latest News, Annual Reports and Financial
Trends--Financial Trends," and "Investor Events and Presentations."
State Street Corporation (NYSE: STT) is the world's leading provider of
financial services to institutional investors including investment
servicing, investment management and investment research and trading.
With $19.041 trillion in assets under custody and administration and
$1.929 trillion in assets under management at March 31, 2010, State
Street operates in 25 countries and more than 100 geographic markets and
employs 27,700 worldwide. For more information, visit State Street's web
site at www.statestreet.com
or call +1 877/639-7788 [NEWS STT] toll-free in the United States and
Canada, or +1 678/999-4577 outside those countries.
FORWARD-LOOKING STATEMENTS
This news release contains forward-looking statements as defined by
United States securities laws, including statements about our goals and
expectations regarding our business, financial condition, results of
operations and strategies, the financial and market outlook,
governmental and regulatory initiatives and developments, and the
business environment. Forward-looking statements are often identified by
such forward-looking terminology as "plan," "expect," "look," "believe,"
"anticipate," "estimate," "seek," "may," "will," "trend," "target" and
"goal," or similar statements or variations of such terms. These
statements are not guarantees of future performance, are inherently
uncertain, are based on current assumptions that are difficult to
predict and involve a number of risks and uncertainties. Therefore,
actual outcomes and results may differ materially from what is expressed
in those statements, and those statements should not be relied upon as
representing our expectations or beliefs as of any date subsequent to
the date of this news release.
Important factors that may affect future results and outcomes include,
but are not limited to:
-- financial market disruptions and the economic recession, whether in the
U.S. or internationally, and monetary and other governmental actions,
including regulation, taxes and fees, designed to address or otherwise
be responsive to such disruptions and recession, including actions taken
in the U.S. and internationally to address the financial and economic
disruptions that began in 2007;
-- increases in the volatility of, or declines in the levels of, our net
interest revenue, changes in the composition of the assets on our
consolidated balance sheet and the possibility that we may be required
to change the manner in which we fund those assets;
-- the financial strength and continuing viability of the counterparties
with which we or our customers do business and to which we have
investment, credit or financial exposure;
-- the liquidity of the U.S. and international securities markets,
particularly the markets for fixed-income securities, and the liquidity
requirements of our customers;
-- 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;
-- the maintenance of credit agency ratings for our debt and depository
obligations as well as the level of credibility of credit agency
ratings;
-- the ability to complete our announced and pending acquisitions, as well
as future acquisitions, divestitures and joint ventures, including the
ability to obtain regulatory approvals, the ability to arrange financing
as required, and the ability to satisfy other closing conditions;
-- the risks that acquired businesses will not be integrated successfully,
or that the integration will take longer than anticipated, that expected
synergies will not be achieved or unexpected disynergies will be
experienced, that customer and deposit retention goals will not be met,
that other regulatory or operational challenges will be experienced and
that disruptions from the transaction will harm relationships with
customers, employees or regulators;
-- the possibility of our customers incurring substantial losses in
investment pools where we act as agent, and the possibility of further
general reductions in the valuation of assets;
-- our ability to attract deposits and other low-cost, short-term funding;
-- potential changes to the competitive environment, including changes due
to the effects of consolidation and perceptions of State Street as a
suitable service provider or counterparty;
-- the level and volatility of interest rates and the performance and
volatility of securities, credit, currency and other markets in the U.S.
and internationally;
-- our ability to measure the fair value of the investment securities on
our consolidated balance sheet;
-- the results of litigation, government investigations and similar
disputes or proceedings;
-- the enactment of new legislation and changes in governmental regulation
and enforcement that affect us or our customers, and which may increase
our costs and expose us to risk related to compliance;
-- adverse publicity or other reputational harm;
-- the performance and demand for the products and services we offer,
including the level and timing of withdrawals from our collective
investment products;
-- our ability to grow revenue, attract and/or retain and compensate highly
skilled people, control expenses and attract the capital necessary to
achieve our business goals and comply with regulatory requirements;
-- our ability to control operating risks, information technology systems
risks and outsourcing risks, and our ability to protect our intellectual
property rights, the possibility of errors in the quantitative models we
use to manage our business and the possibility that our controls will
fail or be circumvented;
-- 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 impact 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 2009 Annual Report on Form 10-K, and our subsequent SEC
filings. We encourage investors to read these filings, particularly the
sections on Risk Factors, for additional information with respect to any
forward-looking statements and prior to making any investment decision.
The forward-looking statements contained in this news release speak only
as of the date hereof, April 20, 2010, and we do not undertake efforts
to revise those forward-looking statements to reflect events after this
date.
State Street Corporation
Earnings Release Addendum
Consolidated Financial Highlights
March 31, 2010
Quarters Ended % Change
Q1 Q1
2010 2010
(Dollars in December
millions, except per March 31, 31, March 31, vs. vs.
share amounts
or where otherwise 2010 2009 2009 Q4 Q1
noted) 2009 2009
Revenue:
Fee revenue $ 1,540 $ 1,526 $ 1,422
Net interest revenue 661 697 564
Net gains from sales
of 192 108 29
available-for-sale
securities
Losses from
other-than-temporary (97 ) (51 ) (13 )
impairment
Total Revenue 2,296 2,280 2,002 1 % 15 %
Provision for Loan 15 35 84
Losses
Total Expenses:
Expenses from 1,566 1,556 1,287 1 22
operations
Merger and 13 9 17 44 (24 )
integration costs
Net Income 495 498 476 (1 ) 4
Net Income Available
to Common 495 498 445 (1 ) 11
Shareholders
Diluted Earnings Per .99 1.00 1.02 (1 ) (3 )
Common Share
Average Diluted
Common Shares 498,056 497,615 435,299
Outstanding (in
thousands)
Cash Dividends
Declared Per Common $ .01 $ .01 $ .01
Share
Closing Price Per
Share of Common 45.14 43.54 30.78
Stock (at quarter
end)
Ratios:
Return on common 13.4 % 14.0 % 15.7 %
equity
Net interest margin,
fully 2.34 2.35 2.01
taxable-equivalent
basis
Tier 1 risk-based 18.1 17.7 19.1
capital
Total risk-based 19.5 19.1 20.5
capital
Tier 1 leverage 9.0 8.5 10.4
Tier 1 common to
risk-weighted assets 15.9 15.6 14.7
(1)
Tangible common
equity to tangible 7.5 6.6 5.9
assets (1)
Tangible common
equity to 14.1 12.8 8.2
risk-weighted assets
(1)
At Quarter End:
Assets Under Custody
and Administration $ 19.04 $ 18.79 $ 15.03
(2) (in trillions)
Assets Under
Management (in 1.93 1.91 1.40
trillions)
(1)Refer to accompanying reconciliation for additional information.
(2) Includes assets under custody of $14.06 trillion, $13.75 trillion, and
$11.34 trillion, respectively.
STATE STREET CORPORATION
Earnings Release Addendum
SELECTED CONSOLIDATED FINANCIAL INFORMATION
Quarters Ended March 31, 2010 and March 31, 2009
Quarters Ended
March 31, March 31,
(Dollars in millions, except per share 2010 2009 % Change
amounts)
Fee Revenue:
Servicing fees $ 880 $ 766 15 %
Management fees 226 181 25
Trading services 242 245 (1 )
Securities finance 72 181 (60 )
Processing fees and other 120 49 145
Total fee revenue 1,540 1,422 8
Net Interest Revenue:
Interest revenue 878 738 19
Interest expense 217 174 25
Net interest revenue (1) 661 564 17
Gains related to investment securities,
net:
Net gains from sales of 192 29
available-for-sale securities
Losses from other-than-temporary (240 ) (13 )
impairment
Losses not related to credit 143 -
Gains related to investment securities, 95 16
net
Total revenue 2,296 2,002 15
Provision for loan losses 15 84
Expenses:
Salaries and employee benefits 883 731 21
Information systems and communications 167 161 4
Transaction processing services 153 131 17
Occupancy 118 121 (2 )
Merger and integration costs 13 17 (24 )
Other 245 143 71
Total expenses 1,579 1,304 21
Income before income tax expense 702 614 14
Income tax expense 207 138
Net income $ 495 $ 476 4
Adjustments to net income:
Dividend on preferred stock $ - $ (25 )
Accretion of preferred stock discount - (6 )
- (31 )
Net income available to common $ 495 $ 445 11
shareholders
Earnings Per Common Share:
Basic(2) $ .99 $ 1.03 (4 )
Diluted .99 1.02 (3 )
Average Common Shares Outstanding (in
thousands):
Basic 494,588 432,179
Diluted 498,056 435,299
Selected consolidated financial information presented above was prepared in
accordance with accounting principles generally accepted in the United States.
(1) Net interest revenue on a fully taxable-equivalent basis was $693 million
and $596 million for the quarters ended March 31, 2010 and 2009, respectively.
These amounts include tax-equivalent adjustments of $32 million for each of the
quarters ended March 31, 2010 and 2009.
(2) Basic earnings per common share on distributed earnings were $.01 and $.24
for the quarters ended March 31, 2010 and 2009, respectively. Basic earnings
per common share on undistributed earnings were $.98 and $.79 for the quarters
ended March 31, 2010 and 2009, respectively.
STATE STREET CORPORATION
Earnings Release Addendum
SELECTED CONSOLIDATED FINANCIAL INFORMATION
Quarters Ended March 31, 2010 and December 31, 2009
Quarters Ended
March 31, December 31,
(Dollars in millions, except per 2010 2009 % Change
share amounts)
Fee Revenue:
Servicing fees $ 880 $ 882 (0 ) %
Management fees 226 231 (2 )
Trading services 242 270 (10 )
Securities finance 72 83 (13 )
Processing fees and other 120 60 100
Total fee revenue 1,540 1,526 1
Net Interest Revenue:
Interest revenue 878 877 0
Interest expense 217 180 21
Net interest revenue (1) 661 697 (5 )
Gains related to investment
securities, net:
Net gains from sales of 192 108
available-for-sale securities
Losses from other-than-temporary (240 ) (257 )
impairment
Losses not related to credit 143 206
Gains related to investment 95 57
securities, net
Total revenue 2,296 2,280 1
Provision for loan losses 15 35
Expenses:
Salaries and employee benefits 883 791 12
Information systems and 167 163 2
communications
Transaction processing services 153 158 (3 )
Occupancy 118 115 3
Merger and integration costs 13 9 44
Other 245 329 (26 )
Total expenses 1,579 1,565 1
Income before income tax expense 702 680 3
Income tax expense 207 182 14
Net income $ 495 $ 498 (1 )
Earnings Per Common Share:
Basic(2) $ .99 $ 1.01 (2 )
Diluted .99 1.00 (1 )
Average Common Shares Outstanding
(in thousands):
Basic 494,588 493,459
Diluted 498,056 497,615
Selected consolidated financial Information presented above was prepared in
accordance with accounting principles generally accepted in the United States.
(1) Net interest revenue on a fully taxable-equivalent basis was $693 million
and $729 million for the quarters ended March 31, 2010 and December 31, 2009,
respectively. These amounts include tax-equivalent adjustments of $32 million
for each of the quarters ended March 31, 2010 and December 31, 2009.
(2) Basic earnings per common share on distributed earnings was $.01 and $.01
for the quarters ended March 31, 2010 and December 31, 2009, and on
undistributed earnings were $.98 and $1.00 for the quarters ended March 31,
2010 and December 31, 2009, respectively.
STATE STREET CORPORATION
Earnings Release Addendum
SELECTED CONSOLIDATED OPERATING-BASIS FINANCIAL INFORMATION
Quarters Ended March 31, 2010 and March 31, 2009
Quarters Ended(1)
March 31, March 31,
(Dollars in millions, except per share 2010 2009 % Change
amounts)
Fee Revenue:
Servicing fees $ 880 $ 766 15 %
Management fees 226 181 25
Trading services 242 245 (1 )
Securities finance 72 181 (60 )
Processing fees and other 120 49 145
Total fee revenue 1,540 1,422 8
Net Interest Revenue:
Interest revenue, operating basis 698 746 (6 )
Interest expense 217 157 38
Net interest revenue, operating basis 481 589 (18 )
Gains related to investment securities, 95 16
net
Total revenue, operating basis 2,116 2,027 4.4
Provision for loan losses 15 84
Expenses:
Salaries and employee benefits 883 731 21
Information systems and communications 167 161 4
Transaction processing services 153 131 17
Occupancy 118 121 (2 )
Other 245 143 71
Total expenses, operating basis 1,566 1,287 21.7
Income before income tax expense, 535 656 (18 )
operating basis
Income tax expense, operating basis 132 142
Tax-equivalent adjustment 32 32
Net income, operating basis $ 371 $ 482 (23 )
Net income available to common $ 371 $ 451 (18 )
shareholders, operating basis
Diluted earnings per common share, $ .75 $ 1.04 (28 )
operating basis
Average diluted common shares outstanding 498,056 435,299
(in thousands)
Return on common equity, operating basis 10.0 % 15.9 %
(1) Refer to the accompanying reconciliation of reported results to
operating-basis results.
STATE STREET CORPORATION
Earnings Release Addendum
SELECTED CONSOLIDATED OPERATING-BASIS FINANCIAL INFORMATION
Quarters Ended March 31, 2010 and December 31, 2009
Quarters Ended (1)
March 31, December 31,
(Dollars in millions, except 2010 2009 % Change
per share amounts)
Fee Revenue:
Servicing fees $ 880 $ 882 (0 ) %
Management fees 226 231 (2 )
Trading services 242 270 (10 )
Securities finance 72 83 (13 )
Processing fees and other 120 60 100
Total fee revenue 1,540 1,526 1
Net Interest Revenue:
Interest revenue, operating 698 679 3
basis
Interest expense 217 180 21
Net interest revenue, operating 481 499 (4 )
basis
Gains related to investment 95 57
securities, net
Total revenue, operating basis 2,116 2,082 1.6
(2)
Provision for loan losses 15 35
Expenses:
Salaries and employee benefits 883 791 12
Information systems and 167 163 2
communications
Transaction processing services 153 158 (3 )
Occupancy 118 115 3
Other 245 329 (26 )
Total expenses, operating basis 1,566 1,556 0.6
(2)
Income before income tax 535 491 9
expense, operating basis
Income tax expense, operating 132 106
basis
Tax-equivalent adjustment 32 32
Net income, operating basis $ 371 $ 353 5
Diluted earnings per common $ .75 $ .71 6
share, operating basis
Average diluted common shares 498,056 497,615
outstanding (in thousands)
Return on common equity, 10.0 % 9.9 %
operating basis
(1) Refer to the accompanying reconciliation of reported results to
operating-basis results.
(2)For the quarter ended March 31, 2010, positive operating leverage in the
quarter-over-quarter comparison was 100 basis points, based on an increase in
total operating-basis revenue of 1.6% and an increase in total operating-basis
expenses of 0.6%.
STATE STREET CORPORATION
Earnings Release Addendum
RECONCILIATION OF REPORTED RESULTS TO OPERATING-BASIS RESULTS
Quarters Ended March 31, 2010 and March 31, 2009
(Dollars in
millions, Quarter Ended March 31, 2010 Quarter Ended March 31, 2009
except per
share amounts)
Reported Operating Reported Operating
Results Adjustments Results Results Adjustments Results
Fee Revenue:
Servicing fees $ 880 $ 880 $ 766 $ 766
Management 226 226 181 181
fees
Trading 242 242 245 245
services
Securities 72 72 181 181
finance
Processing 120 120 49 49
fees and other
Total fee 1,540 1,540 1,422 1,422
revenue
Net Interest
Revenue:
Interest 878 $ (180 ) (1) 698 738 $ 8 (5) 746
revenue
Interest 217 - 217 174 (17 ) (6) 157
expense
Net interest 661 (180 ) 481 564 25 589
revenue
Gains related
to investment 95 - 95 16 - 16
securities, net
Total revenue 2,296 (180 ) 2,116 2,002 25 2,027
Provision for 15 - 15 84 - 84
loan losses
Expenses:
Salaries and
employee 883 - 883 731 - 731
benefits
Information
systems and 167 - 167 161 - 161
communications
Transaction
processing 153 - 153 131 - 131
services
Occupancy 118 - 118 121 - 121
Merger and
integration 13 (13 ) (2) - 17 (17 ) (2) -
costs
Other 245 - 245 143 - 143
Total expenses 1,579 (13 ) 1,566 1,304 (17 ) 1,287
Income before
income tax 702 (167 ) 535 614 42 656
expense
Income tax 207 (75 ) (3) 132 138 4 (7) 142
expense
Tax-equivalent - 32 (4) 32 - 32 (4) 32
adjustment
Net income $ 495 $ (124 ) $ 371 $ 476 $ 6 $ 482
Net income
available to $ 495 $ (124 ) $ 371 $ 445 $ 6 $ 451
common
shareholders
Diluted
earnings per $ .99 $ (.24 ) $ .75 $ 1.02 $ .02 $ 1.04
common share
Average diluted
common shares 498,056 498,056 498,056 435,299 435,299 435,299
outstanding (in
thousands)
Return on 13.4 % (3.4 ) % 10.0 % 15.7 % 0.2 % 15.9 %
common equity
(1)Represents tax-equivalent adjustment of $32 million, which is not included in reported results, net of
$212 million of discount accretion for the period, primarily related to a portion of the aggregate
difference between the fair value and the par value of the asset-backed commercial paper conduits'
investment securities on the date of consolidation of the conduits onto the balance sheet.
(2) Represents merger and integration costs.
(3)Represents $8 million of income tax benefit related to the merger and integration costs net of $83
million of income tax expense related to discount accretion.
(4)Represents tax-equivalent adjustment, which is not included in reported results.
(5)Represents tax-equivalent adjustment of $32 million, which is not included in reported results, net of
$24 million of interest revenue related to the AMLF.
(6)Represents interest expense related to the AMLF.
(7)Represents $3 million of income tax expense related to the AMLF net of $7 million of income tax benefit
related to merger and integration costs.
STATE STREET CORPORATION
Earnings Release Addendum
RECONCILIATION OF REPORTED RESULTS TO OPERATING-BASIS RESULTS
Quarter Ended December 31, 2009
(Dollars in millions, except Quarter Ended December 31, 2009
per share amounts)
Reported Operating
Results Adjustments Results
Fee Revenue:
Servicing fees $ 882 $ 882
Management fees 231 231
Trading services 270 270
Securities finance 83 83
Processing fees and other 60 60
Total fee revenue 1,526 1,526
Net Interest Revenue:
Interest revenue 877 $ (198 ) (1) 679
Interest expense 180 - 180
Net interest revenue 697 (198 ) 499
Gains related to investment 57 - 57
securities, net
Total revenue 2,280 (198 ) 2,082
Provision for loan losses 35 - 35
Expenses:
Salaries and employee benefits 791 - 791
Information systems and 163 - 163
communications
Transaction processing 158 - 158
services
Occupancy 115 - 115
Merger and integration costs 9 (9 ) (2) -
Other 329 - 329
Total expenses 1,565 (9 ) 1,556
Income before income tax 680 (189 ) 491
expense
Income tax expense 182 (76 ) (3) 106
Tax-equivalent adjustment - 32 (1) 32
Net income available to common $ 498 $ (145 ) $ 353
shareholders
Diluted earnings per common $ 1.00 $ (.29 ) $ .71
share
Average diluted common shares 497,615 497,615 497,615
outstanding (in thousands)
Return on common equity 14.0 % (4.1 ) % 9.9 %
(1)Represents tax-equivalent adjustment of $32 million, which is not included in
reported results, net of $230 million of discount accretion for the period,
related to a portion of the aggregate difference between the fair value and the
par value of the asset-backed commercial paper conduits' investment securities
on the date of consolidation of the conduits onto the balance sheet.
(2) Represents merger and integration costs recorded in connection with the
acquisition of Investors Financial.
(3) Represents $15 million of aggregate income tax benefit related to merger and
integration costs and the provision for legal exposure associated with certain
fixed-income strategies managed by SSgA, net of $91 million of income tax
expense related to discount accretion.
STATE STREET CORPORATION
Earnings Release Addendum
TANGIBLE COMMON EQUITY AND TIER 1 COMMON RATIOS
As of Period End
The table set forth below presents the calculations of State Street's ratios of
tangible common equity to total tangible assets and to total risk-weighted
assets, and its ratios of tier 1 common capital to total risk-weighted assets.
For the periods ended
March 31, December 31, March 31,
(Dollars in millions) 2010 2009 2009
Consolidated Total Assets $ 153,971 $ 157,946 $ 142,144
Less:
Goodwill 4,515 4,550 4,493
Other intangible assets 1,768 1,810 1,809
AMLF investment securities - - 740
Excess reserves held at central 19,235 21,731 29,963
banks
Adjusted assets 128,453 129,855 105,139
Plus:
Deferred tax liability 515 521 540
Total tangible assets A $ 128,968 $ 130,376 $ 105,679
Consolidated Total Common $ 15,410 $ 14,491 $ 11,969
Shareholders' Equity
Less:
Goodwill 4,515 4,550 4,493
Intangible assets 1,768 1,810 1,809
Adjusted equity 9,127 8,131 5,667
Plus deferred tax liability 515 521 540
Total tangible common equity B $ 9,642 $ 8,652 $ 6,207
Tangible common equity ratio B/A 7.5 % 6.6 % 5.9 %
Ratio of tangible common equity B/D 14.1 % 12.8 % 8.2 %
to total risk-weighted assets
Tier 1 capital $ 12,335 $ 12,005 $ 14,567
Less:
Trust preferred securities 1,450 1,450 1,450
TARP preferred stock - - 1,889
Tier 1 common capital C $ 10,885 $ 10,555 $ 11,228
Total risk-weighted assets D 68,247 67,691 76,138
Ratio of tier 1 common capital to C/D 15.9 % 15.6 % 14.7 %
total risk-weighted assets
STATE STREET CORPORATION
Earnings Release Addendum
CONSOLIDATED STATEMENT OF CONDITION
March 31, December 31, March 31,
(Dollars in millions, except per share 2010 2009 2009
amounts)
Assets
Cash and due from banks $ 2,097 $ 2,641 $ 3,539
Interest-bearing deposits with banks 24,269 26,632 34,906
Securities purchased under resale 1,914 2,387 1,291
agreements
Trading account assets 147 148 4,872
Investment securities available for sale 72,956 72,699 54,295
Investment securities held to maturity
purchased under money
market liquidity facility - - 740
Investment securities held to maturity 19,831 20,877 15,439
Loans and leases (net of allowance of 12,245 10,729 7,644
$91, $79 and $94)
Premises and equipment 1,880 1,953 2,029
Accrued income receivable 1,563 1,497 1,498
Goodwill 4,515 4,550 4,493
Other intangible assets 1,768 1,810 1,809
Other assets 10,786 12,023 9,589
Total assets $ 153,971 $ 157,946 $ 142,144
Liabilities
Deposits:
Noninterest-bearing $ 13,550 $ 11,969 $ 13,247
Interest-bearing -- U.S. 8,240 5,956 12,691
Interest-bearing -- Non-U.S. 68,546 72,137 57,978
Total deposits 90,336 90,062 83,916
Securities sold under repurchase 8,894 10,542 10,388
agreements
Federal funds purchased 4,386 4,532 1,402
Short-term borrowings under money market - - 740
liquidity facility
Other short-term borrowings 16,514 20,200 15,646
Accrued taxes and other liabilities 9,616 9,281 7,789
Long-term debt 8,815 8,838 8,405
Total liabilities 138,561 143,455 128,286
Shareholders' Equity
Preferred stock, no par: authorized
3,500,000; 20,000 shares issued and - - 1,889
outstanding
Common stock, $1 par: authorized
750,000,000 shares; 501,748,047, 502 495 435
495,365,571 and 434,798,034 shares
issued
Surplus 9,222 9,180 6,964
Retained earnings 7,588 7,071 9,575
Accumulated other comprehensive loss (1,885 ) (2,238 ) (4,987 )
Treasury stock (at cost 429,434, 431,832 (17 ) (17 ) (18 )
and 421,803 shares)
Total shareholders' equity 15,410 14,491 13,858
Total liabilities and shareholders' $ 153,971 $ 157,946 $ 142,144
equity
Source: State Street Corporation
Contact: State Street Corporation
Edward J. Resch, +1 617-664-1110
or
Investors:
Kelley MacDonald, +1 617-664-3477
or
Media:
Hannah Grove, +1 617-664-3377