STATE STREET CORP - FORM 8-K - EX-99.2 - EXHIBIT 99.2 - October 16, 2012

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Exhibit 99.2
 
 
STATE STREET CORPORATION
Earnings Release Addendum
September 30, 2012
 
 
Table of Contents
 
 
GAAP-Basis Financial Information
Page
 
 
 
 
 
 
 
 
 
 
Operating-Basis Financial Information
 
 
 
 
 
 
 
Capital
 
 
 
 
 
 
 
 
 
This financial information should be read in conjunction with State Street's earnings news release dated October 16, 2012.
 
 
 
 





STATE STREET CORPORATION
Earnings Release Addendum
 
 
 
 
 
 
 
 
 
 
 
CONSOLIDATED FINANCIAL HIGHLIGHTS
September 30, 2012
 
 
 
 
 
 
 
Quarters Ended
 
% Change
(Dollars in millions, except per share amounts or where otherwise noted)
 
September 30, 2012
 
June 30, 2012
 
September 30, 2011
 
Q3 2012 vs. Q2 2012
 
Q3 2012 vs. Q3 2011
Revenue:
 
 
 
 
 
 
 
 
 
 
   Fee revenue
 
$
1,719

 
$
1,778

 
$
1,844

 
(3
)%
 
(7
)%
   Net interest revenue(1)
 
619

 
672

 
578

 
(8
)
 
7

   Net gains (losses) from sales of investment securities(2)
 
24

 
(14
)
 
15

 
 
 
 
   Net losses from other-than-temporary impairment
 
(6
)
 
(13
)
 
(10
)
 
 
 
 
Total revenue
 
2,356

 
2,423

 
2,427

 
(3
)
 
(3
)
Provision for loan losses
 
—

 
(1
)
 
—

 
 
 
 
Expenses:
 
 
 
 
 
 
 
 
 
 
   Expenses from operations
 
1,664

 
1,728

 
1,713

 
(4
)
 
(3
)
Claims resolution(3)
 
(362
)
 
—

 
—

 
 
 
 
Litigation settlement costs and other(4)
 
85

 
7

 
—

 
 
 
 
   Acquisition and restructuring costs
 
28

 
37

 
85

 
 
 
 
Income tax expense(5)
 
267

 
162

 
74

 
 
 
 
Net income
 
674

 
490

 
555

 
38

 
21

Net income available to common shareholders
 
654

 
480

 
543

 
 
 
 
Diluted earnings per common share
 
1.36

 
.98

 
1.10

 
39

 
24

Average diluted common shares outstanding (in thousands)
 
480,010

 
488,518

 
494,780

 
 
 
 
Cash dividends declared per common share
 
$
.24

 
$
.24

 
$
.18

 
 
 
 
Closing price per share of common stock (at quarter end)
 
41.96

 
44.64

 
32.16

 
 
 
 
Ratios:
 
 
 
 
 
 
 
 
 
 
   Return on average common equity
 
13.3
%
 
10.0
%
 
11.2
%
 
 
 
 
   Net interest margin, fully taxable-equivalent basis
 
1.53

 
1.72

 
1.56

 
 
 
 
   Tier 1 risk-based capital
 
19.8

 
19.9

 
17.9

 
 
 
 
   Total risk-based capital
 
21.3

 
21.5

 
19.5

 
 
 
 
   Tier 1 leverage
 
7.6

 
7.7

 
7.8

 
 
 
 
   Tier 1 common to risk-weighted assets(6)
 
17.8

 
17.9

 
16.0

 
 
 
 
   Tangible common equity to tangible assets(6)
 
7.6

 
7.2

 
7.0

 
 
 
 
At Quarter End:
 
 
 
 
 
 
 
 
 
 
Assets under custody and administration(7) (in trillions)
 
$
23.44

 
$
22.42

 
$
21.51

 
 
 
 
    Assets under management (in trillions)
 
2.07

 
1.91

 
1.86

 
 
 
 
 
 
 
 
 
(1) Included discount accretion related to former conduit securities of $40 million, $74 million and $46 million for the quarters ended September 30, 2012, June 30, 2012 and September 30, 2011, respectively.
(2) Quarter ended June 30, 2012 included loss from sale of Greek investment securities of $46 million.
(3) Reflected a benefit related to claims associated with the Lehman Brothers bankruptcy.
(4) Quarter ended September 30, 2012 reflected a provision of $60 million for litigation exposure related to asset management and securities lending businesses and a charitable donation of $25 million.
(5) Quarter ended September 30, 2011 reflected a discrete tax benefit of $91 million related to former conduit assets.
(6) Ratios are non-GAAP financial measures. Refer to accompanying reconciliations for additional information.
(7) Included assets under custody of $17.29 trillion, $16.39 trillion and $15.71 trillion, respectively.




STATE STREET CORPORATION
Earnings Release Addendum
 
 
 
 
 
 
 
CONSOLIDATED FINANCIAL HIGHLIGHTS (Continued)
September 30, 2012
 
 
 
 
 
 
 
Nine Months Ended
 
 % Change
(Dollars in millions, except per share amounts)
 
September 30, 2012
 
September 30, 2011
 
2012 vs. 2011
Revenue:
 
 
 
 
 
 
   Fee revenue
 
$
5,282

 
$
5,527

 
(4
)%
   Net interest revenue(1)
 
1,916

 
1,727

 
11

   Net gains from sales of investment securities(2)
 
29

 
81

 
 
   Losses from other-than-temporary impairment
 
(27
)
 
(56
)
 
 
Total revenue
 
7,200

 
7,279

 
(1
)
Provision for loan losses
 
(1
)
 
1

 
 
Expenses:
 
 
 
 
 
 
   Expenses from operations
 
5,191

 
5,153

 
1

Claims resolution(3)
 
(362
)
 
—

 
 
Litigation settlement costs and other(4)
 
107

 
—

 
 
   Acquisition and restructuring costs
 
86

 
121

 
(29
)
Income tax expense(5)
 
588

 
465

 
 
Net income
 
1,591

 
1,539

 
3

Net income available to common shareholders
 
1,551

 
1,511

 
 
Diluted earnings per common share
 
3.19

 
3.03

 
5

Average diluted common shares outstanding (in thousands)
 
485,813

 
498,417

 
 
Cash dividends declared per common share
 
$
.72

 
$
.54

 
 
Return on average common equity
 
10.7
%
 
10.8
%
 
 
Net interest margin, fully taxable-equivalent basis
 
1.63

 
1.71

 
 
 
 
 
 
 
(1) Included discount accretion related to former conduit securities of $163 million and $159 million for the nine months ended September 30, 2012 and 2011, respectively.
(2) Nine months ended September 30, 2012 included loss from sale of Greek investment securities of $46 million.
(3) Reflected a benefit related to claims associated with the Lehman Brothers bankruptcy.
(4) Reflected a provision of $60 million for litigation exposure related to asset management and securities lending businesses, $22 million of litigation settlement costs and a charitable donation of $25 million.
(5) Nine months ended September 30, 2011 reflected a discrete tax benefit of $91 million related to former conduit assets.





STATE STREET CORPORATION
Earnings Release Addendum
CONSOLIDATED FINANCIAL RESULTS
Quarters Ended September 30, 2012, June 30, 2012 and September 30, 2011 and Nine Months Ended September 30, 2012 and 2011
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Quarters Ended
 
Nine Months Ended
(Dollars in millions, except per share amounts)
 
September 30, 2012
 
June 30, 2012
 
September 30, 2011
 
Q3 2012 vs. Q2 2012
 
Q3 2012 vs. Q3 2011
 
September 30, 2012
 
September 30, 2011
 
 % Change
Fee revenue:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Servicing fees
 
$
1,100

 
$
1,086

 
$
1,106

 
1
 %
 
(1
)%
 
$
3,264

 
$
3,325

 
(2
)%
Management fees
 
251

 
246

 
229

 
2

 
10

 
733

 
715

 
3

Trading services
 
232

 
255

 
334

 
(9
)
 
(31
)
 
767

 
947

 
(19
)
Securities finance
 
91

 
143

 
85

 
(36
)
 
7

 
331

 
288

 
15

Processing fees and other
 
45

 
48

 
90

 
(6
)
 
(50
)
 
187

 
252

 
(26
)
Total fee revenue
 
1,719

 
1,778

 
1,844

 
(3
)
 
(7
)
 
5,282

 
5,527

 
(4
)
Net interest revenue:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest revenue
 
730

 
786

 
728

 
(7
)
 
—

 
2,281

 
2,181

 
5

Interest expense
 
111

 
114

 
150

 
(3
)
 
(26
)
 
365

 
454

 
(20
)
Net interest revenue(1)
 
619

 
672

 
578

 
(8
)
 
7

 
1,916

 
1,727

 
11

Gains (losses) related to investment securities, net:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net gains (losses) from sales of investment securities
 
24

 
(14
)
 
15

 
 
 
 
 
29

 
81

 
 
Losses from other-than-temporary impairment
 
(4
)
 
(21
)
 
(25
)
 
 
 
 
 
(50
)
 
(104
)
 
 
Losses not related to credit
 
(2
)
 
8

 
15

 
 
 
 
 
23

 
48

 
 
Gains (losses) related to investment securities, net
 
18

 
(27
)
 
5

 
 
 
 
 
2

 
25

 
 
Total revenue
 
2,356

 
2,423

 
2,427

 
(3
)
 
(3
)
 
7,200

 
7,279

 
(1
)
Provision for loan losses
 
—

 
(1
)
 
—

 
 
 
 
 
(1
)
 
1

 
 
Expenses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Compensation and employee benefits
 
916

 
942

 
965

 
(3
)
 
(5
)
 
2,922

 
2,948

 
(1
)
Information systems and communications
 
211

 
208

 
191

 
1

 
10

 
610

 
581

 
5

Transaction processing services
 
170

 
172

 
180

 
(1
)
 
(6
)
 
523

 
553

 
(5
)
Occupancy
 
115

 
115

 
119

 
—

 
(3
)
 
349

 
339

 
3

Claims resolution
 
(362
)
 
—

 
—

 
 
 
 
 
(362
)
 
—

 
 
Litigation settlement costs and other
 
85

 
7

 
—

 
 
 
 
 
107

 
—

 
 
Acquisition and restructuring costs
 
28

 
37

 
85

 
(24
)
 
(67
)
 
86

 
121

 
(29
)
Other
 
252

 
291

 
258

 
(13
)
 
(2
)
 
787

 
732

 
8

Total expenses
 
1,415

 
1,772

 
1,798

 
(20
)
 
(21
)
 
5,022

 
5,274

 
(5
)
Income before income tax expense
 
941

 
652

 
629

 
44

 
50

 
2,179

 
2,004

 
9

Income tax expense
 
267

 
162

 
74

 
 
 
 
 
588

 
465

 
 
Net income
 
$
674

 
$
490

 
$
555

 
38

 
21

 
$
1,591

 
$
1,539

 
3

Adjustments to net income:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Dividends on preferred stock
 
$
(15
)
 
$
(7
)
 
$
(6
)
 
 
 
 
 
$
(29
)
 
$
(13
)
 
 
Earnings allocated to participating securities
 
(5
)
 
(3
)
 
(6
)
 
 
 
 
 
(11
)
 
(15
)
 
 
Net income available to common shareholders
 
$
654

 
$
480

 
$
543

 
 
 
 
 
$
1,551

 
$
1,511

 
 
Earnings per common share:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic
 
$
1.39

 
$
1.00

 
$
1.11

 
39

 
25

 
$
3.23

 
$
3.05

 
6

Diluted
 
1.36

 
.98

 
1.10

 
39

 
24

 
3.19

 
3.03

 
5

Average common shares outstanding (in thousands):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic
 
472,355

 
481,404

 
490,840

 
 
 
 
 
479,536

 
495,015

 
 
Diluted
 
480,010

 
488,518

 
494,780

 
 
 
 
 
485,813

 
498,417

 
 
Consolidated financial results presented above were prepared in conformity with accounting principles generally accepted in the U.S.
(1) Net interest revenue on a fully taxable-equivalent basis was $651 million, $703 million and $610 million for the quarters ended September 30, 2012, June 30, 2012 and September 30, 2011, respectively, and $2.01 billion and $1.82 billion for the nine months ended September 30, 2012 and 2011, respectively. These amounts included tax-equivalent adjustments of $32 million, $31 million and $32 million for the quarters ended September 30, 2012, June 30, 2012 and September 30, 2011, respectively, and $94 million and $96 million for the nine months ended September 30, 2012 and 2011, respectively.



STATE STREET CORPORATION
Earnings Release Addendum
 
 
 
 
 
CONSOLIDATED STATEMENT OF CONDITION
 
 
 
 
 
(Dollars in millions, except share amounts)
 
September 30, 2012
 
December 31, 2011
Assets
 
 
 
 
Cash and due from banks
 
$
6,432

 
$
2,193

Interest-bearing deposits with banks
 
31,583

 
58,886

Securities purchased under resale agreements
 
8,264

 
7,045

Trading account assets
 
611

 
707

Investment securities available for sale
 
107,129

 
99,832

Investment securities held to maturity
 
8,360

 
9,321

Loans and leases (less allowance for losses of $22 and $22)
 
14,024

 
10,031

Premises and equipment
 
1,720

 
1,747

Accrued income receivable
 
2,191

 
1,822

Goodwill
 
5,650

 
5,645

Other intangible assets
 
2,311

 
2,459

Other assets
 
16,247

 
17,139

Total assets
 
$
204,522

 
$
216,827

Liabilities
 
 
 
 
Deposits:
 
 
 
 
Noninterest-bearing
 
$
40,963

 
$
59,229

Interest-bearing -- U.S.
 
11,107

 
7,148

Interest-bearing -- Non-U.S.
 
94,219

 
90,910

Total deposits
 
146,289

 
157,287

Securities sold under repurchase agreements
 
7,933

 
8,572

Federal funds purchased
 
169

 
656

Other short-term borrowings
 
5,181

 
4,766

Accrued expenses and other liabilities
 
17,783

 
18,017

Long-term debt
 
6,418

 
8,131

Total liabilities
 
183,773

 
197,429

Shareholders' Equity
 
 
 
 
Preferred stock, no par, 3,500,000 shares authorized:
 
 
 
 
   Series C, 5,000 shares issued and outstanding
 
488

 
—

   Series A, 5,001 shares issued and outstanding
 
—

 
500

Common stock, $1 par: 750,000,000 shares authorized; 503,917,643 and 503,965,849 shares issued
 
504

 
504

Surplus
 
9,634

 
9,557

Retained earnings
 
11,392

 
10,176

Accumulated other comprehensive gain (loss)
 
186

 
(659
)
Treasury stock, at cost (35,090,753 and 16,541,985 shares)
 
(1,455
)
 
(680
)
Total shareholders' equity
 
20,749

 
19,398

Total liabilities and shareholders' equity
 
$
204,522

 
$
216,827





STATE STREET CORPORATION
Earnings Release Addendum
ASSETS UNDER CUSTODY AND ADMINISTRATION, ASSETS UNDER CUSTODY, AND ASSETS UNDER MANAGEMENT
September 30, 2012

(In billions)
 
September 30, 2012
 
June 30, 2012
 
September 30, 2011
Assets Under Custody and Administration
 
 
 
 
 
 
By Product Classification:
 
 
 
 
 
 
   Mutual Funds
 
$
5,828

 
$
5,572

 
$
5,117

   Collective Funds
 
4,912

 
4,597

 
4,317

   Pension Products
 
5,258

 
4,955

 
4,940

   Insurance and Other Products
 
7,443

 
7,299

 
7,136

Total Assets Under Custody and Administration
 
$
23,441

 
$
22,423

 
$
21,510

By Servicing Location:
 
 
 
 
 
 
   U.S.
 
$
17,066

 
$
16,335

 
$
15,262

   Non-U.S.
 
6,375

 
6,088

 
6,248

Total Assets Under Custody and Administration
 
$
23,441

 
$
22,423

 
$
21,510

Assets Under Custody(1)
 
 
 
 
 
 
By Product Classification:
 
 
 
 
 
 
   Mutual Funds
 
$
5,619

 
$
5,366

 
$
4,955

   Collective Funds
 
3,853

 
3,562

 
3,275

   Pension Products
 
4,016

 
3,774

 
3,785

   Insurance and Other Products
 
3,799

 
3,685

 
3,699

Total Assets Under Custody
 
$
17,287

 
$
16,387

 
$
15,714

By Servicing Location:
 
 
 
 
 
 
   U.S.
 
$
12,919

 
$
12,273

 
$
11,498

   Non-U.S.
 
4,368

 
4,114

 
4,216

Total Assets Under Custody
 
$
17,287

 
$
16,387

 
$
15,714

Assets Under Management
 
 
 
 
 
 
Passive:
 
 
 
 
 
 
   Equities
 
$
727

 
$
688

 
$
596

   Fixed-Income
 
295

 
223

 
287

   Exchange-Traded Funds(2)
 
336

 
305

 
247

   Other(3)
 
199

 
195

 
188

     Total Passive
 
1,557

 
1,411

 
1,318

Active:
 
 
 
 
 
 
   Equities
 
51

 
47

 
47

   Fixed-Income
 
18

 
18

 
19

   Other
 
56

 
53

 
43

     Total Active
 
125

 
118

 
109

   Cash
 
383

 
379

 
428

Total Assets Under Management
 
$
2,065

 
$
1,908

 
$
1,855

 
 
 
 
 
 
 
(1)  Assets under custody are a component of assets under custody and administration presented above.
(2)  Includes SPDR® Gold Fund for which State Street is not the investment manager, but acts as distribution agent.
(3)  Includes currency, alternatives, assets passed to sub-advisors and multi-asset class solutions.




STATE STREET CORPORATION
Earnings Release Addendum
RECONCILIATIONS OF OPERATING-BASIS (NON-GAAP) FINANCIAL INFORMATION
Quarters Ended September 30, 2012, June 30, 2012 and September 30, 2011
 
     In addition to presenting State Street’s financial results in conformity with U.S. generally accepted accounting principles, referred to as GAAP, management also presents results on a non-GAAP, or "operating" basis, in order to highlight comparable financial trends and other characteristics with respect to State Street’s ongoing business operations from period to period. Management measures and compares certain financial information on an operating basis, as it believes that this presentation supports meaningful comparisons from period to period and the analysis of comparable financial trends with respect to State Street’s normal ongoing business operations.
    Management believes that operating-basis financial information, which reports revenue from non-taxable sources on a fully taxable-equivalent basis and excludes the impact of revenue and expenses outside of the normal course of business, facilitates an investor’s understanding and analysis of State Street’s underlying financial performance and trends in addition to financial information prepared and reported in accordance with GAAP. 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.
      This earnings release addendum includes financial information presented on a GAAP as well as on an operating basis, and provides reconciliations of operating-basis financial measures. The following tables reconcile operating-basis financial information presented in the earnings release to financial information prepared and reported in conformity with GAAP.
 
 
 
 
 
 
 
 
 
Quarters Ended
 
% Change
(Dollars in millions, except per share amounts)
 
September 30, 2012
 
June 30, 2012
 
September 30, 2011
 
Q3 2012 vs. Q2 2012
 
Q3 2012 vs. Q3 2011
Total Revenue:
 
 
 
 
 
 
 
 
 
 
Total revenue, GAAP basis
 
$
2,356

 
$
2,423

 
$
2,427

 
(2.8
)%
 
(2.9
)%
Add:
Net interest revenue adjustment (see below)
 
32

 
31

 
32

 
 
 
 
 
Loss on sale of Greek investment securities
 
—

 
46

 
—

 
 
 
 
Less:
Net interest revenue adjustment (see below)
 
(40
)
 
(74
)
 
(46
)
 
 
 
 
Total revenue, operating basis(1) (2)
 
$
2,348

 
$
2,426

 
$
2,413

 
(3.2
)
 
(2.7
)
 
 
 
 
 
 
 
 
 
 
 
 
Net Interest Revenue:
 
 
 
 
 
 
 
 
 
 
Net interest revenue, GAAP basis
 
$
619

 
$
672

 
$
578

 
(8
)
 
7

Add:
Tax-equivalent adjustment not included in reported results
 
32

 
31

 
32

 
 
 
 
Less:
Discount accretion related to former conduit securities
 
(40
)
 
(74
)
 
(46
)
 
 
 
 
Net interest revenue, operating basis
 
$
611

 
$
629

 
$
564

 
(3
)
 
8

 
 
 
 
 
 
 
 
 
 
 
 
Gains (Losses) Related to Investment Securities, net:
 
 
 
 
 
 
 
 
 
 
Gains (losses) related to investment securities, net, GAAP basis
 
$
18

 
$
(27
)
 
$
5

 
 
 
 
Add:
Loss on sale of Greek investment securities
 
—

 
46

 
—

 
 
 
 
Gains (losses) related to investment securities, net, operating basis
 
$
18

 
$
19

 
$
5

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Expenses:
 
 
 
 
 
 
 
 
 
 
Total expenses, GAAP basis
 
$
1,415

 
$
1,772

 
$
1,798

 
(20.1
)
 
(21.3
)
Add:
Benefit related to claims associated with Lehman bankruptcy
 
362

 
—

 
—

 
 
 
 
Less:
Litigation settlement costs and other
 
(85
)
 
(7
)
 
—

 
 
 
 
 
Acquisition costs
 
(13
)
 
(15
)
 
(20
)
 
 
 
 
 
Restructuring charges
 
(15
)
 
(22
)
 
(65
)
 
 
 
 
Total expenses, operating basis(1) (2)
 
$
1,664

 
$
1,728

 
$
1,713

 
(3.7
)
 
(2.9
)
 
 
 
 
 
 
 
 
 
 
 
(1) For the quarters ended September 30, 2012 and June 30, 2012, positive operating leverage in the quarter-over-quarter comparison was approximately 50 basis points, based on a decrease in total operating-basis revenue of 3.2% and a decrease in total operating-basis expenses of 3.7%.
(2) For the quarters ended September 30, 2012 and 2011, positive operating leverage in the year-over-year comparison was approximately 20 basis points, based on a decrease in total operating-basis revenue of 2.7% and a decrease in total operating-basis expenses of 2.9%.



STATE STREET CORPORATION
Earnings Release Addendum
RECONCILIATIONS OF OPERATING-BASIS (NON-GAAP) FINANCIAL INFORMATION (Continued)
Quarters Ended September 30, 2012, June 30, 2012 and September 30, 2011
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Quarters Ended
 
% Change
(Dollars in millions, except per share amounts)
 
September 30, 2012
 
June 30, 2012
 
September 30, 2011
 
Q3 2012 vs. Q2 2012
 
Q3 2012 vs. Q3 2011
Income Tax Expense:
 
 
 
 
 
 
 
 
 
 
Income tax expense, GAAP basis
 
$
267

 
$
162

 
$
74

 
 
 
 
Add:
Tax-equivalent adjustment not included in reported results
 
32

 
31

 
32

 
 
 
 
Less:
Net tax effect of non-operating adjustments
 
(107
)
 
2

 
107

 
 
 
 
Income tax expense, operating basis
 
$
192

 
$
195

 
$
213

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net Income Available to Common Shareholders:
 
 
 
 
 
 
 
 
 
 
Net income available to common shareholders, GAAP basis
 
$
654

 
$
480

 
$
543

 
36

 
20

Net after-tax effect of non-operating adjustments to net interest revenue, net gains (losses) related to investment securities, expenses and income tax expense
 
(181
)
 
14

 
(67
)
 
 
 
 
Net income available to common shareholders, operating basis
 
$
473

 
$
494

 
$
476

 
(4
)
 
(1
)
 
 
 
 
 
 
 
 
 
 
 
 
Diluted Earnings per Common Share:
 
 
 
 
 
 
 
 
 
 
Diluted earnings per common share, GAAP basis
 
$
1.36

 
$
.98

 
$
1.10

 
39

 
24

Add:
Loss on sale of Greek investment securities
 
—

 
.06

 
—

 
 
 
 
 
Litigation settlement costs and other
 
.11

 
.01

 
—

 
 
 
 
 
Acquisition costs
 
.02

 
.02

 
.02

 
 
 
 
 
Restructuring charges
 
.02

 
.03

 
.08

 
 
 
 
Less:
Benefit related to claims associated with Lehman bankruptcy
 
(.46
)
 
—

 
—

 
 
 
 
 
Effect on income tax rate of non-operating adjustments
 
(.01
)
 
—

 
—

 
 
 
 
 
Discount accretion related to former conduit securities
 
(.05
)
 
(.09
)
 
(.06
)
 
 
 
 
 
Discrete tax benefit related to former conduit securities
 
—

 
—

 
(.18
)
 
 
 
 
Diluted earnings per common share, operating basis
 
$
.99

 
$
1.01

 
$
.96

 
(2
)
 
3

 
 
 
 
 
 
 
 
 
 
 
Return on Average Common Equity:
 
 
 
 
 
 
 
 
 
 
Return on average common equity, GAAP basis
 
13.3
 %
 
10.0
 %
 
11.2
 %
 
 
 
 
Add:
Loss on sale of Greek investment securities
 
—

 
0.6

 
—

 
 
 
 
 
Litigation settlement costs and other
 
1.0

 
0.1

 
—

 
 
 
 
 
Acquisition costs
 
0.2

 
0.2

 
0.2

 
 
 
 
 
Restructuring charges
 
0.2

 
0.3

 
0.8

 
 
 
 
Less:
Benefit related to claims associated with Lehman bankruptcy
 
(4.4
)
 
—

 
—

 
 
 
 
 
Effect on income tax rate of non-operating adjustments
 
(0.2
)
 
—

 
—

 
 
 
 
 
Discount accretion related to former conduit securities
 
(0.5
)
 
(0.9
)
 
(0.6
)
 
 
 
 
 
Discrete tax benefit related to former conduit securities
 
—

 
—

 
(1.8
)
 
 
 
 
Return on average common equity, operating basis
 
9.6
 %
 
10.3
 %
 
9.8
 %
 
 
 
 




STATE STREET CORPORATION
Earnings Release Addendum
RECONCILIATIONS OF OPERATING-BASIS (NON-GAAP) FINANCIAL INFORMATION (Continued)
Nine Months Ended September 30, 2012 and 2011
 
 
 
 
Nine Months Ended
September 30,
% Change
(Dollars in millions, except per share amounts)
 
2012
 
2011
 
2012 vs. 2011
Total Revenue:
 
 
 
 
 
 
Total revenue, GAAP basis
 
$
7,200

 
$
7,279

 
(1.1
)%
Add:
Net interest revenue adjustment (see below)
 
93

 
96

 
 
 
Loss on sale of Greek investment securities
 
46

 
—

 
 
Less:
Net interest revenue adjustment (see below)
 
(162
)
 
(159
)
 
 
Total revenue, operating basis(1)
 
$
7,177

 
$
7,216

 
(0.5
)
 
 
 
 
 
 
 
 
Net Interest Revenue:
 
 
 
 
 
 
Net interest revenue, GAAP basis
 
$
1,916

 
$
1,727

 
11

Add:
Tax-equivalent adjustment not included in reported results
 
93

 
96

 
 
Less:
Discount accretion related to former conduit securities
 
(162
)
 
(159
)
 
 
Net interest revenue, operating basis
 
$
1,847

 
$
1,664

 
11

 
 
 
 
 
 
 
 
Gains (Losses) Related to Investment Securities, net:
 
 
 
 
 
 
Gains (losses) related to investment securities, net, GAAP basis
 
$
2

 
$
25

 
 
Add:
Loss on sale of Greek investment securities
 
46

 
—

 
 
Gains (losses) related to investment securities, net, operating basis
 
$
48

 
$
25

 
92

 
 
 
 
 
 
 
 
Expenses:
 
 
 
 
 
 
Total expenses, GAAP basis
 
$
5,022

 
$
5,274

 
(4.8
)
Add:
Benefit related to claims associated with Lehman bankruptcy
 
362

 
—

 
 
Less:
Litigation settlement costs and other
 
(107
)
 
—

 
 
 
Acquisition costs
 
(41
)
 
(46
)
 
 
 
Restructuring charges
 
(45
)
 
(75
)
 
 
Total expenses, operating basis(1)
 
$
5,191

 
$
5,153

 
0.7

 
 
 
 
 
 
 
 

(1) For the nine months ended September 30, 2012 and 2011, negative operating leverage in the year-over-year comparison was approximately 120 basis points, based on a decrease in total operating-basis revenue of 0.5% and an increase in total operating-basis expenses of 0.7%.




STATE STREET CORPORATION
Earnings Release Addendum
RECONCILIATIONS OF OPERATING-BASIS (NON-GAAP) FINANCIAL INFORMATION (Continued)
Nine Months Ended September 30, 2012 and 2011
 
 
 
Nine Months Ended
September 30,
% Change
(Dollars in millions, except per share amounts)
 
2012
 
2011
 
2012 vs. 2011
Income Tax Expense:
 
 
 
 
 
 
Income tax expense, GAAP basis
 
$
588

 
$
465

 
 
Add:
Tax-equivalent adjustment not included in reported results
 
93

 
96

 
 
Less:
Net tax effect of non-operating adjustments
 
(110
)
 
76

 
 
Income tax expense, operating basis
 
$
571

 
$
637

 
 
 
 
 
 
 
 
 
 
Net Income Available to Common Shareholders:
 
 
 
 
 
 
Net income available to common shareholders, GAAP basis
 
$
1,551

 
$
1,511

 
3

Net after-tax effect of non-operating adjustments to net interest revenue, net gains (losses) related to investment securities, expenses and income tax expense
 
(174
)
 
(113
)
 
 
Net income available to common shareholders, operating basis
 
$
1,377

 
$
1,398

 
(2
)
 
 
 
 
 
 
 
 
Diluted Earnings per Common Share:
 
 
 
 
 
 
Diluted earnings per common share, GAAP basis
 
$
3.19

 
$
3.03

 
5

Add:
Loss on sale of Greek investment securities
 
.06

 
—

 
 
 
Litigation settlement costs and other
 
.14

 
—

 
 
 
Acquisition costs
 
.06

 
.05

 
 
 
Restructuring charges
 
.06

 
.09

 
 
Less:
Benefit related to claims associated with Lehman bankruptcy
 
(.45
)
 
—

 
 
 
Effect on income tax rate of non-operating adjustments
 
(.03
)
 
—

 
 
 
Discount accretion related to former conduit securities
 
(.20
)
 
(.19
)
 
 
 
Discrete tax benefit related to former conduit securities
 
—

 
(.18
)
 
 
Diluted earnings per common share, operating basis
 
$
2.83

 
$
2.80

 
1

 
 
 
 
 
 
 
 
Return on Average Common Equity:
 
 
 
 
 
 
Return on average common equity, GAAP basis
 
10.7
 %
 
10.8
 %
 
 
Add:
Loss on sale of Greek investment securities
 
0.2

 
—

 
 
 
Litigation settlement costs and other
 
0.5

 
—

 
 
 
Acquisition costs
 
0.2

 
0.2

 
 
 
Restructuring charges
 
0.2

 
0.3

 
 
Less:
Benefit related to claims associated with Lehman bankruptcy
 
(1.5
)
 
—

 
 
 
Effect on income tax rate of non-operating adjustments
 
(0.1
)
 
—

 
 
 
Discount accretion related to former conduit securities
 
(0.7
)
 
(0.7
)
 
 
 
Discrete tax benefit related to former conduit securities
 
—

 
(0.6
)
 
 
Return on average common equity, operating basis
 
9.5
 %
 
10.0
 %
 
 




STATE STREET CORPORATION
Earnings Release Addendum
REGULATORY CAPITAL
September 30, 2012
 
 
 
 
 
     This earnings release addendum includes capital ratios in addition to, or adjusted from, those calculated in accordance with currently applicable regulatory requirements. These include capital ratios based on tangible common equity and tier 1 risk-based common capital, as well as capital ratios adjusted to reflect our estimate of the impact of the proposed Basel III capital requirements. These non-regulatory and adjusted capital measures are non-GAAP financial measures. Management currently evaluates the non-GAAP capital ratios presented in this earnings release addendum to aid in its understanding of State Street’s capital position under a variety of standards, including currently applicable and evolving regulatory requirements. Management believes that the use of the non-GAAP capital ratios described in this earnings release addendum similarly aids in an investor's understanding of State Street's capital position and therefore is of interest to investors.
     The total risk-based capital, tier 1 risk-based capital and tier 1 leverage ratios, as applicable, are each calculated in accordance with currently applicable regulatory requirements. The total risk-based capital, tier 1 risk-based capital and tier 1 leverage ratios are used regularly by bank regulatory authorities to evaluate State Street's capital adequacy. The tangible common equity, or TCE, ratio is an additional capital ratio that management believes provides additional context for understanding and assessing State Street's capital adequacy. The tier 1 risk-based common, or tier 1 common, ratio is used by the Federal Reserve in connection with its capital assessment and review programs.
     The TCE ratio is calculated by dividing consolidated total common shareholders’ equity by consolidated total assets, after reducing both amounts by goodwill and other intangible assets net of related deferred taxes. Total assets reflected in the TCE ratio also exclude cash balances on deposit at the Federal Reserve Bank and other central banks in excess of required reserves. The TCE ratio is not required by GAAP or by bank regulations, but is a metric used by management to evaluate the adequacy of State Street’s capital levels. Since there is no authoritative requirement to calculate the TCE ratio, our TCE ratio is not necessarily comparable to similar capital measures disclosed or used by other companies in the financial services industry. Tangible common equity and adjusted tangible assets are non-GAAP financial measures and should be considered in addition to, not as a substitute for or superior to, financial measures determined in accordance with GAAP. Reconciliations with respect to the calculation of the TCE ratio as of September 30, 2012 and December 31, 2011 are provided in this earnings release addendum.
     The tier 1 common ratio is calculated by dividing (a) tier 1 risk-based capital, which is calculated in accordance with currently applicable regulatory requirements, less non-common elements including qualifying perpetual preferred stock, qualifying minority interest in subsidiaries and qualifying trust preferred securities, by (b) total risk-weighted assets, which assets are calculated in accordance with currently applicable regulatory requirements. The tier 1 common ratio is not required by GAAP or on a recurring basis by bank regulations. Management is currently monitoring this ratio, along with the other capital ratios described in this earnings release addendum, in evaluating State Street’s capital levels and believes that, at this time, the ratio may be of interest to investors. Reconciliations with respect to the tier 1 common ratios as of September 30, 2012 and December 31, 2011 are provided in this earnings release addendum.
     The following table presents State Street's regulatory capital ratios and underlying components, calculated in accordance with currently applicable regulatory requirements.
 
 
 
 
 
 
 
As of
(Dollars in millions)
 
September 30, 2012
 
December 31, 2011
RATIOS:
 
 
 
 
Tier 1 risk-based capital
 
19.8
%
 
18.8
%
Total risk-based capital
 
21.3
%
 
20.5

Tier 1 leverage
 
7.6

 
7.3

 
 
 
 
 
Supporting Calculations:
 
 
 
 
 
 
 
 
 
Tier 1 risk-based capital
 
$
14,253

 
$
13,644

Total risk-weighted assets
 
72,106

 
72,418

Tier 1 risk-based capital ratio
 
19.8
%
 
18.8
%
 
 
 
 
 
Total risk-based capital
 
$
15,364

 
$
14,842

Total risk-weighted assets
 
72,106

 
72,418

Total risk-based capital ratio
 
21.3
%
 
20.5
%
 
 
 
 
 
Tier 1 risk-based capital
 
$
14,253

 
$
13,644

Adjusted quarterly average assets
 
187,612

 
186,336

Tier 1 leverage ratio
 
7.6
%
 
7.3
%





STATE STREET CORPORATION
Earnings Release Addendum
Reconciliations of Tangible Common Equity and Tier 1 Common Ratios
September 30, 2012
 
 
 
 
 
 
     The following table presents the calculations of State Street's ratios of tangible common equity to total tangible assets and its ratios of tier 1 common capital to total risk-weighted assets.
 
 
 
 
 
 
 
 
 
As of
(Dollars in millions)
 
 
September 30, 2012
 
December 31, 2011
Consolidated Total Assets
 
 
$
204,522

 
$
216,827

Less:
 
 
 
 
 
Goodwill
 
 
5,650

 
5,645

Other intangible assets
 
 
2,311

 
2,459

Excess reserves held at central banks
 
 
25,225

 
50,094

Adjusted assets
 
 
171,336

 
158,629

Plus deferred tax liabilities
 
 
697

 
757

Total tangible assets
A
 
$
172,033

 
$
159,386

Consolidated Total Common Shareholders' Equity
 
 
$
20,261

 
$
18,898

Less:
 
 
 
 
 
Goodwill
 
 
5,650

 
5,645

Other intangible assets
 
 
2,311

 
2,459

Adjusted equity
 
 
12,300

 
10,794

Plus deferred tax liabilities
 
 
697

 
757

Total tangible common equity
B
 
$
12,997

 
$
11,551

Tangible common equity ratio
B/A
 
7.6
%
 
7.2
%
Tier 1 Risk-based Capital
 
 
$
14,253

 
$
13,644

Less:
 
 
 
 
 
Trust preferred securities
 
 
950

 
950

Preferred stock
 
 
488

 
500

Tier 1 common capital
C
 
$
12,815

 
$
12,194

Total risk-weighted assets
D
 
$
72,106

 
$
72,418

Ratio of tier 1 common capital to total risk-weighted assets
C/D
 
17.8
%
 
16.8
%




STATE STREET CORPORATION
Earnings Release Addendum
RECONCILIATION OF TIER 1 COMMON RATIO
September 30, 2012
 
 
 
 
 
 
 
The following table reconciles State Street's tier 1 common ratio, calculated in accordance with currently applicable regulatory guidelines, to State Street's estimated tier 1 common ratio calculated in accordance with the U.S. Basel III Notices of Proposed Rulemaking, or NPRs, as State Street currently understands the impact of those proposed requirements.
(Dollars in millions)
 
Currently Applicable Regulatory Requirements(1)
 
Basel III NPRs with Impact of SSFA(2)
 
Basel III NPRs with SSFA, Run-Off/Reinvestment and GSAS(3)
 
 
 
 
 
 
 
Tier 1 risk-based capital
 
$
14,253

A
$
13,710

 
$
13,160

Less:
 
 
 
 
 
 
Trust preferred securities
 
950

 
713

 
713

Preferred stock
 
488

 
488

 
488

Plus:
 
 
 
 
 
 
Other
 
—

 
60

 
60

Tier 1 common capital
 
12,815

B
12,569

 
12,019

 
 
 
 
 
 
 
Total risk-weighted assets
 
72,106

C
111,353

 
101,098

 
 
 
 
 
 
 
Tier 1 common ratio
 
17.8
%
B/C
11.3
%
 
11.9
%

(1)The tier 1 common ratio was calculated by dividing (a) tier 1 risk-based capital, calculated in accordance with currently applicable regulatory requirements, less non-common elements including qualifying perpetual preferred stock, qualifying minority interest in subsidiaries and qualifying trust preferred securities (tier 1 common capital) by (b) total risk-weighted assets, calculated in accordance with currently applicable regulatory requirements.
 
In June 2012, U.S. banking regulators issued three concurrent NPRs. These NPRs propose to revise the current U.S. regulatory capital framework and incorporate previous changes made by the Basel Committee on Banking Supervision to the Basel capital framework. The NPRs also propose to implement relevant provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act and restructure the U.S. capital rules into a harmonized, codified regulatory capital framework. The NPRs are currently in a comment period, with comments due on October 22, 2012.



Footnotes (2) and (3) below describe State Street's estimated tier 1 common ratio as it would be affected by the NPRs, primarily the application of the Simplified Supervisory Formula Approach, or SSFA, as well as the estimated effect of anticipated run-off and reinvestment through December 2014 and the estimated effect of the acquisition of Goldman Sachs Administration Services, or GSAS, which was completed on October 15, 2012, all as of September 30, 2012. These estimates are subject to change based on regulatory clarifications, further analysis, the results of industry comment on the NPRs and other factors.
 
(2)For purposes of the calculations in accordance with the NPRs, capital and total risk-weighted assets were calculated using State Street’s estimates, based on the provisions of the NPRs expected to affect capital beginning in 2013. The tier 1 common ratio was calculated by dividing (a) tier 1 common capital (as described in footnote (1)), but with tier 1 risk-based capital calculated in accordance with the NPRs, by (b) total risk-weighted assets, calculated in accordance with the NPRs. While U.S. banking regulators have published the NPRs, there remains considerable uncertainty concerning the timing for finalization and implementation of Basel III in the U.S. When finalized, the proposed rules may reflect modifications or adjustments. Therefore, State Street’s current understanding of the NPRs, as reflected above, may differ from the ultimate application upon implementation of Basel III in the U.S.
 
• Tier 1 risk-based capital decreased by $543 million, as a result of applying the estimated effect of the NPRs to tier 1 risk-based capital of $14.253 billion as of September 30, 2012.
• Tier 1 common capital used in the calculation of the tier 1 common ratio was $12.569 billion, reflecting the adjustments to tier 1 risk-based capital described in the first bullet above. Tier 1 common capital used in the calculation was therefore calculated as adjusted tier 1 risk-based capital of $13.710 billion less non-common elements of capital, composed of trust preferred securities of $713 million and preferred stock of $488 million, plus other adjustments of $60 million, as of September 30, 2012, resulting in tier 1 common capital of $12.569 billion. As of September 30, 2012, there was no qualifying minority interest in subsidiaries.
• Total risk-weighted assets used in the calculation of the tier 1 common ratio increased by $39.247 billion as a result of applying the provisions of the NPRs, primarily the estimated impact of the SSFA, to total risk-weighted assets of $72.106 billion as of September 30, 2012.
 
(3)Presents ratios calculated in accordance with the NPRs, as described in footnote (2), and incorporates the effect of anticipated run-off of investment securities as they mature or pay down and are replaced by subsequent reinvestment into new securities from July 2012 through December 2014, and the estimated effect of the acquisition of GSAS. The effect of the GSAS acquisition is estimated to reduce tier 1 risk-based capital and tier 1 common capital by $550 million, from $13.710 billion to $13.160 billion. The net impact of run-off and subsequent reinvestment and the GSAS acquisition is estimated to reduce total risk-weighted assets by $10.255 billion, from $111.353 billion to $101.098 billion.


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