(Source: Business Wire)
State Street Corporation today announced third-quarter 2009 earnings per
common share of $1.04 on revenue of $2.236 billion compared with $1.09
per share on revenue of $2.771 billion in the third quarter of 2008.
Expenses in the third quarter of 2009 are $1.483 billion, compared with
$1.925 billion in the third quarter of 2008. For the third quarter of
2009, return on common shareholders' equity was 16.0%, up from 13.6% in
the third quarter of 2008.
Compared to the second quarter of 2009, third-quarter 2009 results
improved from a loss of $(7.12) per share on revenue of $2.122 billion.
The second quarter of 2009 includes an after-tax extraordinary loss of
$(3.684) billion or $(7.91) per share related to the effect of the
consolidation of the State Street-administered asset-backed commercial
paper (ABCP) conduits onto the Company's balance sheet. Expenses in the
second quarter of 2009 were $1.364 billion. For the second quarter of
2009, return on common shareholders' equity was 13.0% before the
extraordinary loss.
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 press release. Also see "Additional
Information."
Operating-basis results in the third quarter of 2009 of $1.05 per share
exclude $(11) million in pre-tax merger and integration costs associated
with the Investors Financial Services Corp. ("Investors Financial")
acquisition. Operating-basis results for the third quarter of 2008
excluded a $350 million gain on the sale of CitiStreet, $8 million of
net interest revenue from acting as an intermediary under the AMLF, a
reduction of net interest revenue of $(98) million to establish a
reserve for the SILO transactions, a charge of $(200) million for a
reserve to address our estimated net exposure on an indemnification
obligation associated with collateralized repurchase agreements with
Lehman, and merger and integration costs of $(30) million associated
with the acquisition of Investors Financial. Excluding the extraordinary
loss, operating-basis results for the second quarter of 2009 also
exclude $(106) million related to repayment of the U.S. Treasury's TARP
CPP investment, and $(12) million in merger and integration costs
associated with the Investors Financial acquisition. Net interest
revenue on an operating basis for all periods is presented on a fully
taxable-equivalent basis.
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 status. The tier 1 common ratio was used by the
Federal Reserve in connection with its Supervisory Capital Assessment
Program, or "SCAP." 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 status. See
"Additional Information" for a further description of these ratios and
the addendum at the end of this press release for reconciliations
applicable to the TCE ratios.
Q3 2009 Q2 2009 Increase/(Decrease) Q3 2008 Increase/(Decrease)
Selected Financial Information and Key Ratios
(Dollars in millions)
Total revenue((1)) $ 2,267 $ 2,153 $ 114 5.3 % $ 2,536 $ (269 ) (10.6 %)
Total expenses((1)) 1,472 1,352 120 8.9 % 1,695 (223 ) (13.2 %)
Total assets ((2)) 163,277 153,421 9,856 6.4 % 285,564 (122,287 ) (42.8 %)
Unrealized loss on investment portfolio, after-tax((2)) (2,985 ) (4,747 ) 1,762 37.1 % (3,282 ) 297 9.0 %
AUCM (dollars in billions):
Assets under custody and Administration((2)(3)) $ 17,935 $ 16,394 $ 1,541 9.4 % $ 18,447 $ (512 ) (2.8 %)
Assets under management((2)) 1,735 1,557 178 11.4 % 1,686 49 2.9 %
Earnings per common share((1)) $ 1.05 $ 1.04 $ 0.01 1.0 % $ 1.24 $ (0.19 ) (15.3 %)
Return on common equity((1)) 16.2 % 17.0 % (80) bps 15.4 % 80 bps
Tier 1 capital ratio((2)) 15.6 % 14.5 % 110 bps 16.0 % (40 ) bps
Tier 1 leverage ratio((2)) 8.2 % 7.3 % 90 bps 8.4 % (20) bps
Tier 1 common ratio((2)) 13.6 % 12.6 % 100 bps 14.0 % (40) bps
TCE ratio((2)) 5.7 % 5.0 % 70 bps 4.8 % 90 bps
TCE/RWA ratio((2)) 10.5 % 8.5 % 200 bps 9.6 % 90 bps
((1) )Presented on an operating basis.
((2)) As of period end.
((3) )Includes assets under custody of $13,260 billion, $12,337 billion and $14,045 billion, respectively.
-------------------------------------------------------------------------------
Operating-basis earnings per common share in the third quarter of 2009
are $1.05, down 15.3% from $1.24 per share in the third quarter of 2008.
Operating-basis revenue of $2.267 billion in the third quarter of 2009
is down 10.6% from $2.536 billion in the third quarter a year ago.
Operating-basis expenses of $1.472 billion in the third quarter of 2009
are down 13.2% from $1.695 billion in the year-ago quarter. These third
quarter 2009 revenue and expense results represent 260 basis points of
positive operating leverage compared to the third quarter of 2008. For
the third quarter of 2009, operating-basis return on common
shareholders' equity is 16.2%, up from 15.4% for the third quarter of
2008.
Total assets are $163 billion at September 30, 2009, compared to $153
billion at June 30, 2009. Excluding $22 billion in excess deposits held
at the Federal Reserve and other central banks at September 30, 2009,
compared with $20 billion at June 30, 2009, the normalized balance sheet
was $141 billion at September 30, 2009, compared to a normalized balance
sheet of $133 billion at June 30, 2009. Our regulatory capital ratios
continue to be strong as of September 30, 2009, with our tier 1 capital
ratio at 15.6% and our leverage ratio at 8.2%. In addition, our tier 1
common ratio is 13.6%, our TCE to risk-weighted assets ratio is 10.5%,
and our TCE ratio is 5.7%, well ahead of the pro forma ratio of
4.29% we projected in February at our Investor and Analyst Forum due to
organic growth, the successful equity raise in May, and the improvement
in unrealized losses.
At September 30, 2009, the after-tax, unrealized mark-to-market losses
in the investment portfolio are $2.98 billion, down from $4.75 billion
after-tax at June 30, 2009 and down from $6.32 billion after-tax as of
December 31, 2008.
Ronald E. Logue, State Street's chairman and chief executive officer,
said, "Although the economic environment appears to be gradually
recovering, the pace of the rebound is slow. Equity markets have
improved, providing some support to our servicing and management fee
revenue and as liquidity returns to the credit markets, spreads have
tightened, thus allowing further continued declines in the unrealized
loss in our investment portfolio. In this environment we remain cautious
and continue to build our capital ratios, which today are among the
strongest in our industry."
Logue continued, "Compared to the second quarter, servicing fees and
management fees both increased, reflecting equity market improvement as
well as new business. The increases in servicing and management fee
revenue, however, were more than offset by seasonal weakness in other
areas of fee revenue, most notably securities finance, which was also
negatively affected by spread compression, and trading revenue. Our net
interest margin improved to 247 basis points, up 54 basis points from
the second quarter, but declined one basis point to 156 basis points
excluding the impact of $279 million of discount accretion associated
with the consolidation of the ABCP conduits in the second quarter. The
low interest-rate environment is not favorable to the yield on our
investment portfolio."
Logue concluded, "Our revenue performance this quarter, combined with
our continued focus on expense control, resulted in 260 basis points of
positive operating leverage compared to the third quarter of 2008. We
expected our second half of 2009 to be stronger than it now appears to
be. Given the slow pace of the recovery, our outlook for 2009 has
changed slightly: we now expect operating revenue to decline about 16
percent from the record level of 2008 and operating earnings per share
to be between $4.13 and $4.17. We expect operating return on equity to
be between 14 and 17 percent in line with our long-term outlook."
THIRD-QUARTER 2009 RESULTS VS. YEAR-AGO
THIRD QUARTER
Servicing fees are down 14% to $833 million from $966 million in last
year's third quarter. The decrease is attributable primarily to the
impact of declining markets. Total assets under custody and
administration are $17.935 trillion at September 30, 2009, down 2.8%,
compared with $18.447 trillion at September 30, 2008. Daily average
values for the S&P 500 Index and the MSCIĀ® EAFE IndexSM
are each down approximately 20% from the third quarter of 2008.
Investment management fees, generated by State Street Global Advisors,
are $219 million, down 16% from $261 million in the year-ago quarter.
The decline in management fees is attributable primarily to the
approximately 16% decrease in average month-end equity valuations, as
well as a change in the composition of assets under management from
active to passive strategies. Total assets under management at
September 30, 2009, are $1.735 trillion, up 2.9% compared to $1.686
trillion at September 30, 2008.
Trading services revenue, which includes foreign exchange trading
revenue and brokerage and other fees, is $269 million for the third
quarter of 2009, down 26% from $363 million in the third quarter a
year-ago. A 41% decrease in foreign exchange revenue is due to lower
volatility as well as lower volumes. Brokerage and other fees increased
11% due primarily to increases in electronic trading.
Securities finance revenue is $105 million in the quarter, down 57% from
$246 million in the year-ago third quarter due primarily to compressed
spreads as well as lower volumes.
Processing fees and other is $45 million, down 29% from $63 million in
the third quarter of 2008. The decline is primarily due to the
consolidation of the ABCP conduits onto our balance sheet in May 2009.
As a result of the consolidation, the fees formerly earned from conduit
activities are reported as net interest revenue.
Net interest revenue on an operating basis is $754 million, an increase
of 18% from $640 million in the year-ago third quarter. The increase is
due to the $279 million of discount accretion on securities in the
investment portfolio recorded following the consolidation of the ABCP
conduits. This increase is offset partially by lower rates negatively
affecting the yield on floating-rate assets, and both lower volumes and
spreads on customer deposits. Net interest margin of 247 basis points
increased 25 basis points in the third quarter, compared to 222 basis
points in the third quarter of 2008; excluding discount accretion, the
net interest margin would have been 156 basis points.
In the quarter, due to the improving markets, we recorded $42 million in
net gains related to investment securitiesĀ$141 million in gains
from sales of securities, partially offset by $99 million in
other-than-temporary impairment related to credit. In addition, we
recorded a $16 million provision for loan losses.
Operating-basis expenses decreased to $1.472 billion, down 13% from
$1.695 billion in the year-ago quarter, primarily as a result of a 20%
reduction in salaries and benefits expense due to the effect of a
reduction in force as well as a lower level of incentive compensation.
The decrease in total expenses also includes lower transaction
processing services, down 10% to $148 million from $165 million in the
year-ago quarter, due to lower volumes in the investment servicing
business. Other expenses were down from $241 million to $222 million due
primarily to lower professional fees and lower securities processing
costs.
The effective tax rate in the third quarter of 2009 is 30.0%, down from
43.7% on a GAAP basis and from 34.0% on an operating basis in the third
quarter of 2008. The decrease in the rate is due to our decision in the
first quarter to reinvest earnings in certain of our non-U.S.
subsidiaries overseas as well as lower earnings from jurisdictions with
higher tax rates. The tax rate is expected to bebetween 29%and 30% for
full-year 2009.
THIRD-QUARTER 2009 RESULTS VS. SECOND
QUARTER 2009
The following information is presented on an operating basis. Earnings
per common share in the third quarter of 2009 are $1.05, an increase of
1.0% compared with the second quarter of 2009. Total revenue in the
third quarter is $2.267 billion, up 5.3% versus $2.153 billion in the
second quarter of 2009. Total expenses for the third quarter of 2009 are
$1.472 billion, up 8.9% compared to $1.352 billion in the second quarter
of 2009. In the second quarter of 2009, to execute our TCE improvement
plan, we had not accrued for performance-based incentive compensation;
however, in the third quarter of 2009 we accrued about $100 million for
this benefit. Return on common shareholders' equity of 16.2% in the
third quarter compares with 17.0% in the second quarter.
The table below provides the components of operating-basis revenue:
Operating-Basis Revenue Increase/(Decrease)
(Dollars in millions) Q3 2009 Q2 2009 $ %
Servicing fees $ 833 $ 795 $ 38 4.8 %
Investment management fees 219 193 26 13.5
Trading services revenue 269 310 (41 ) (13.2 )
Securities finance revenue 105 201 (96 ) (47.8 )
Processing fees and other revenue 45 17 28 164.7
Net interest revenue, fully-taxable equivalent basis((1)) 754 611 143 23.4
Gains related to investment securities, net 42 26 16 61.5
Total Operating-Basis Revenue $ 2,267 $ 2,153 $ 114 5.3 %
-------------------------------------------------------------------------------
(1) Both amounts include a $31 million tax-equivalent adjustment, which
increased GAAP-basis net interest revenue of $723 million and $580
million, respectively, for the periods.
Servicing fees are $833 million, up 5% from $795 million in the second
quarter due primarily to the approximately 14% increase in daily average
equity valuations, as well as new business. Management fees are $219
million, up 13% from $193 million primarily due to the approximately 14%
increase in the average month-end equity valuations and net new
business. Trading services revenue is $269 million, down 13% from $310
million. Securities finance revenue is $105 million, down 48% from the
prior quarter primarily due to compressed spreads. Processing fees and
other revenue increased from $17 million to $45 million. Net
interest revenue on a fully taxable-equivalent basis is $754 million, up
23% from $611 million, due primarily to the higher level of discount
accretion ($279 million versus $112 million in the second quarter),
partially offset by the impact of the decline in Libor rates on the
investment portfolio.
The table below provides the components of operating-basis expenses:
Operating-Basis Expenses Increase/(Decrease)
(Dollars in millions) Q3 2009 Q2 2009 $ %
Salaries and employee benefits $ 819 $ 696 $ 123 17.7
Information systems and communications 165 167 (2 ) (1.2 )
Transaction processing services 148 146 2 1.4
Occupancy 118 121 (3 ) (2.5 )
Other 222 222 -- --
Total Operating-Basis Expenses $ 1,472 $ 1,352 $ 120 8.9 %
-------------------------------------------------------------------------------
Salaries and employee benefits expense increased 18% to $819 million
from $696 million primarily due to a $100 million accrual for
performance-based incentive compensation in the third quarter. Expenses
on all other lines were approximately flat on a quarter-to-quarter basis.
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 press 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 press release.
Management believes that the use of other non-GAAP financial measures in
the calculation of identified capital ratios is useful to understanding
State Street's capital position and of interest to investors.
