STATE STREET CORP - FORM 8-K - EX-99.2 - RECONCILIATIONS OF CONSOLIDATED REPORTED RESULTS OF OPERATION

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8-K - FORM 8-K - STATE STREET CORP	d8k.htm
EX-99.1 - SLIDES FOR THE PRESENTATION AT THE ANNUAL MEETING OF SHAREHOLDERS - STATE STREET CORP	dex991.htm

Appendix

Exhibit 99.2

Non-GAAP Financial Measures

This presentation includes financial information presented on a GAAP basis as well as on an operating basis.

Operating-basis financial information is a non-GAAP presentation. Management measures and compares certain

financial information on an operating basis, as it believes that this presentation supports meaningful comparisons

from period to period and the analysis of comparable financial trends with respect to State Street's normal

ongoing business operations. Management believes that operating-basis financial information, which reports

revenue from non-taxable sources on a fully taxable-equivalent basis and excludes the impact of revenue and

expenses outside of the normal course of business, facilitates an investor's understanding and analysis of State

Street's underlying financial performance and trends in addition to financial information prepared in accordance

with GAAP.

This presentation also includes capital ratios in addition to, or adjusted from, those calculated in accordance with

applicable regulatory requirements. These include capital ratios based on tangible common equity and tier 1

common capital. These non-regulatory measures are non-GAAP financial measures. Management presently

evaluates the non-GAAP capital ratios presented in this presentation to aid in its understanding of State Street's

capital position under a variety of standards, including presently applicable and evolving regulatory

requirements. Management believes that the use of the non-GAAP capital ratios described in this presentation

similarly aids in an investor's understanding of State Street's capital position and therefore is of interest to

investors.

In addition to the reconciliations described in the discussions on the next slide of the capital ratios referenced in

this presentation, the Appendix to this presentation also includes reconciliations of operating-basis results to

GAAP-basis results referenced in this presentation.

Non-GAAP financial measures should be considered in addition to, not as a substitute for or superior to, financial

measures determined in accordance with GAAP and capital ratios determined in accordance with presently

applicable regulatory requirements.

Capital Ratios

The

total

capital,

the

tier

risk-based

capital,

tier

capital,

and

tier

leverage

ratios,

applicable,

are

each calculated in accordance with applicable bank regulatory requirements.

The

ratio

tangible

common

equity

adjusted

tangible

assets,

TCE

ratio,

calculated

dividing

The

tier

risk-based

common,

tier

common,

ratio

calculated

dividing

(a)

tier

capital

less

non-

The total capital, the tier 1 capital, and the tier 1 leverage ratios are capital ratios used regularly by bank regulatory

authorities to evaluate State Street’s capital adequacy. The tier 1 common ratio is sometimes used by the Federal

Reserve in connection with its supervisory capital assessment programs. The TCE ratio is another capital ratio

management believes provides additional context for understanding and assessing State Street's capital adequacy.

consolidated total common shareholders' equity by consolidated total assets, after reducing both amounts by

goodwill and other intangible assets net of related deferred taxes. Total assets reflected in the TCE ratio also

exclude cash balances on deposit at the Federal Reserve Bank and other central banks in excess of required

reserves. The TCE ratio is not required by GAAP or by bank regulations, but is a metric used by management to

evaluate the adequacy of State Street's capital levels. Since there is no authoritative requirement to calculate the

TCE ratio, our TCE ratio is not necessarily comparable to similar capital measures disclosed or used by other

companies in the financial services industry. Tangible common equity and adjusted tangible assets are non-GAAP

financial measures and should be considered in addition to, not as a substitute for or superior to, financial

measures determined in accordance with GAAP. Reconciliations with respect to the calculation of the TCE ratio as

of March 31, 2011, December 31, 2010 and December 31, 2009 are provided in the Appendix.

common elements including qualifying perpetual preferred stock, qualifying minority interest in subsidiaries and

qualifying trust preferred securities, by (b) total risk-weighted assets, which assets are calculated in accordance

with applicable bank regulatory requirements. The tier 1 common ratio is not required by GAAP or on a recurring

basis by bank regulations. Management is currently monitoring this ratio, along with the other capital ratios

described in this presentation, 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 tier 1 common capital as of March 31, 2011, December

31, 2010 and December 31, 2009 are provided in the Appendix.

STATE STREET CORPORATION

Tangible Common Equity and Tier 1 Common ratios - Reconciliations

As of Period-End

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 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.

The tier 1 risk-based common, or tier 1 common, ratio is calculated by dividing tier 1 capital, which is calculated in accordance with applicable bank regulatory requirements, less non-common elements, including preferred stock and qualifying trust preferred securities, by total risk-weighted assets, which assets are also 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. However, this ratio has been used by the Federal Reserve in connection with its evaluation of the capital adequacy of certain large U.S. bank holding companies. In addition, management is currently monitoring this ratio, along with the other capital ratios, in evaluating State Street’s capital levels and believes that, at this time, the ratio may be of interest to investors.

The table set forth below presents the calculation of State Street’s ratio of tier 1 common capital to total risk-weighted assets.


		March 31,			December 31,			December 31,
(Dollars in millions)		2011			2010			2009
Consolidated Total Assets		$	171,796		$	160,505		$	157,946
Less:
Goodwill			5,720			5,597			4,550
Other intangible assets			2,644			2,593			1,810
Excess reserves held at central banks			13,295			16,612			21,731

Adjusted assets			150,137			135,703			129,855
Plus deferred tax liabilities			781			747			521

Total tangible assets	A	$	150,918		$	136,450		$	130,376

Consolidated Total Common Shareholders’ Equity		$	18,680		$	17,787		$	14,491
Less:
Goodwill			5,720			5,597			4,550
Other intangible assets			2,644			2,593			1,810

Adjusted equity			10,316			9,597			8,131
Plus deferred tax liabilities			781			747			521

Total tangible common equity	B	$	11,097		$	10,344		$	8,652

Tangible common equity ratio	B/A		7.4	%		7.6	%		6.6	%
Tier 1 Capital		$	13,077		$	12,325		$	12,005
Less:
Trust preferred securities			950			1,450			1,450
Preferred stock			500			—			—

Tier 1 common capital	C	$	11,627		$	10,875		$	10,555

Total risk-weighted assets	D		66,597			60,177			67,691
Ratio of tier 1 common capital to total risk-weighted assets	C/D		17.5	%		18.1	%		15.6	%

STATE STREET CORPORATION

RECONCILIATION OF REPORTED RESULTS TO OPERATING-BASIS RESULTS

State Street prepares its consolidated financial statements in accordance with accounting principles generally accepted in the United States, or GAAP. State Street also presents certain financial information on an “operating” basis as well as a GAAP, or reported, 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.


(Dollars in millions, except per share amounts)	Year Ended December 31, 2009									Year Ended December 31, 2010									% Change
	Reported Results			Adjustments			Operating Results			Reported Results			Adjustments			Operating Results			2010 vs 2009
Total fee revenue	$	5,935					$	5,935		$	6,540					$	6,540
Net interest revenue		2,564		$	(502)	⁽¹⁾		2,062			2,699		$	(583)	⁽⁷⁾		2,116
Gains (Losses) related to investment securities, net		141			—			141			(286	)		344	⁽⁸⁾		58

Total revenue		8,640			(502)			8,138			8,953			(239)			8,714			7.1	%
Provision for loan losses		149			—			149			25			—			25
Total expenses		5,966			(299)	⁽²⁾		5,667			6,842			(666)	⁽⁹⁾		6,176			9.0	%

Income before income tax expense and extraordinary loss		2,525			(203)			2,322			2,086			427			2,513
Income tax expense		722			(156)	⁽³⁾		566			530			146	⁽¹⁰⁾		676
Tax-equivalent adjustment		—			126	⁽⁴⁾		126			—			129	⁽⁴⁾		129

Income before extraordinary loss		1,803			(173)			1,630			1,556			152			1,708
Extraordinary loss, net of tax		(3,684	)		3,684	⁽⁵⁾		—			—			—			—

Net income (loss)	$	(1,881	)	$	3,511		$	1,630		$	1,556		$	152		$	1,708

Adjustments to net income (loss):
Prepayment of preferred stock discount	$	(106	)	$	106	⁽⁶⁾	$	—
Dividend on preferred stock		(46	)		—			(46	)
Accretion of preferred stock discount		(11	)		—			(11	)
Earnings allocated to participating securities		—			—			—		$	(16	)	$	(2)	⁽¹¹⁾	$	(18	)

		(163	)		106			(57	)		(16	)	$	(2)		$	(18	)

Net income before extraordinary loss available to common shareholders	$	1,640		$	(67)		$	1,573			1,540		$	150		$	1,690

Net income (loss) available to common shareholders	$	(2,044	)	$	3,617		$	1,573			1,540		$	150		$	1,690

Diluted earnings per common share before extraordinary loss	$	3.46		$	(.14)		$	3.32			3.09		$	.31		$	3.40			2.4	%
Diluted earnings (loss) per common share		(4.31	)		7.63			3.32			3.09		$	.31		$	3.40
Average diluted common shares outstanding (in thousands)		474,003			474,003			474,003			497,924			497,924			497,924
Return on common equity before extraordinary loss		13.2	%		(0.6	)%		12.6	%		9.5	%		0.9	%		10.4	%

⁽¹⁾	Represents tax-equivalent adjustment of $126 million, not included in reported results, net of $24 million of revenue related to the AMLF, $621 million of discount accretion related to former conduit securities and interest expense of $17 million related to the AMLF.

⁽²⁾	Represents $250 million related to a provision for legal exposure associated with certain fixed-income strategies managed by SSgA and $49 million of merger and integration costs.

⁽³⁾	Represents net tax effect of non-operating adjustments.

⁽⁴⁾	Represents tax-equivalent adjustment, not included in reported results.

⁽⁵⁾	Represents extraordinary loss related to the May 2009 consolidation of the asset-backed commercial paper conduits onto State Street’s balance sheet.

⁽⁶⁾	Represents $106 million of prepayment of preferred stock discount in connection with redemption of the U.S.Treasury’s preferred stock investment under the TARP Capital Purchase Program.

⁽⁷⁾	Represents tax-equivalent adjustment of $129 million, not included in reported results, net of $712 million of discount accretion related to former conduit assets.

⁽⁸⁾	Represents a net loss related to a repositioning of the investment portfolio.

⁽⁹⁾

Represents a $7 million tax on bonus payments to employees in the U.K.; a $414 million charge, composed of a one-time cash contribution of $330 million to SSgA lending fund collateral pools and liquidating trusts and $9 million of associated costs, and $75 million to establish a reserve to address potential inconsistencies in connection with the application of redemption restrictions applicable to cash collateral pools underlying the agency lending program, and $245 million of acquisition and restructuring costs (composed of $156 million of restructuring charges related to a business operations and information technology transformation program and merger and integration costs of $89 million).

⁽¹⁰⁾	Represents a discrete tax benefit of $180 million generated by the restructuring of former non-U.S. conduit securities, net of the net tax effect of non-operating adjustments.

⁽¹¹⁾	Represents effect of the difference between reported and operating-basis earnings on allocation to participating securities.

STATE STREET CORPORATION

RECONCILIATION OF REPORTED RESULTS TO OPERATING-BASIS RESULTS

State Street prepares its consolidated financial statements in accordance with accounting principles generally accepted in the United States, or GAAP. State Street also presents certain financial information on an “operating” basis as well as a GAAP, or reported, 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 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.


(Dollars in millions)	Year Ended December 31, 2000							Year Ended December 31, 2010								% Change
	Reported Results		Adjustments			Operating -Basis Results		Reported Results			Adjustments			Operating -Basis Results		2010 vs 2009
Total fee revenue	$	2,690	$	(197)	⁽¹⁾	$	2,493	$	6,540					$	6,540
Net interest revenue		894		65	⁽²⁾		959		2,699		$	(583)	⁽³⁾		2,116
Gains related to investment securities, net		2					2		(286	)		344	⁽⁴⁾		58

Total revenue	$	3,586	$	(132)		$	3,454	$	8,953		$	(239)		$	8,714		152.3	%

⁽¹⁾	Represents revenue associated with the Corporate Trust and Private Management businesses divested in 2002 and 2003, respectively.

⁽²⁾	Represents tax-equivalent adjustment of $65 million, not included in reported results.

⁽³⁾	Represents tax-equivalent adjustment of $129 million, not included in reported results, net of $712 million of discount accretion related to former conduit securities.

⁽⁴⁾	Represents a net loss related to a repositioning of the investment portfolio.

STATE STREET CORPORATION

RECONCILIATION OF REPORTED RESULTS TO OPERATING-BASIS RESULTS


(Dollars in millions, except per share amounts)	Quarter Ended March 31, 2010									Quarter Ended March 31, 2011									% Change
	Reported Results			Adjustments			Operating-Basis Results			Reported Results			Adjustments			Operating-Basis Results			Q1 2011 vs Q1 2010
Total fee revenue		1,540					$	1,540		$	1,791					$	1,791
Net interest revenue		661		$	(180	)⁽¹⁾		481			577		$	(31	)⁽⁶⁾		546
Gains (Losses) related to investment securities, net		95			—			95			(7	)		—			(7	)

Total revenue		2,296			(180	)		2,116			2,361			(31	)		2,330			10.1	%
Provision for loan losses		15			—			15			(1	)		—			(1	)
Total expenses		1,579			(13	)⁽²⁾		1,566			1,702			(19	)⁽⁷⁾		1,683			7.5	%

Income before income tax expense		702			(167	)		535			660			(12	)		648
Income tax expense		207			(75	)⁽³⁾		132			189			(16	)⁽³⁾		173
Tax-equivalent adjustment		—			32	⁽⁴⁾		32			—			31	⁽⁴⁾		31

Net Income	$	495		$	(124	)	$	371		$	471		$	(27	)	$	444

Earnings allocated to participating securities	$	(3	)	$	1	⁽⁵⁾	$	(2	)	$	(5	)	$	—		$	(5	)

Net income available to common shareholders	$	492		$	(123	)	$	369		$	466		$	(27	)	$	439

Diluted earnings per common share	$	.99		$	(.24	)	$	.75		$	.93		$	(.05	)	$	.88			17.3	%
Average diluted common shares outstanding (in thousands)		498,056			498,056			498,056			500,980			500,980			500,980
Return on common equity		13.4	%		(3.4	)%		10.0	%		10.5	%		(0.6	)%		9.9	%

⁽¹⁾	Represents tax-equivalent adjustment of $32 million, not included in reported results, net of $212 million of discount accretion related to former conduit securities.

⁽²⁾	Represents $13 million of merger and integration costs.

⁽³⁾	Represents net tax effect of non-operating adjustments.

⁽⁴⁾	Represents tax-equivalent adjustment, not included in reported results.

⁽⁵⁾	Represents effect of the difference between reported and operating-basis earnings on allocation to participating securities.

⁽⁶⁾	Represents tax-equivalent adjustment of $31 million, not included in reported results, net of $62 million of discount accretion related to former conduit securities.

⁽⁷⁾	Represents $14 million of merger and integration costs and $5 million of restructuring charges related to a business operations and information technology transformation program.

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