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TheStreet Open House

State Street Reports Third-Quarter 2012 GAAP EPS Of $1.36 On Revenue Of $2.36 Billion

State Street Corporation (NYSE: STT):

Third-Quarter 2012 GAAP Results

  • Earnings per common share (EPS) of $1.36, increased from $0.98 in the second quarter of 2012 and from $1.10 in the third quarter of 2011. The third quarter of 2012 includes a net after-tax benefit of $0.35 per share, the majority of which pertains to claims associated with the 2008 Lehman Brothers bankruptcy.
  • Net income available to common shareholders of $654 million increased from $480 million in the second quarter of 2012 and from $543 million in the third quarter of 2011.
  • Revenue of $2.36 billion decreased 3% from $2.42 billion and $2.43 billion in the second quarter of 2012 and third quarter of 2011, respectively.
  • Net interest revenue of $619 million decreased 8% from $672 million in the second quarter of 2012 and increased 7% from $578 million in the third quarter of 2011.
  • Expenses decreased 20% to $1.42 billion from $1.77 billion in the second quarter of 2012 and 21% from $1.80 billion in the third quarter of 2011.
  • Return on average common shareholders' equity (ROE) of 13.3% increased from 10.0% in the second quarter of 2012 and 11.2% in the third quarter of 2011.
  • GAAP results include a net pre-tax benefit of $277 million (net after-tax benefit of $166 million, or $0.35 per share) composed of:
    • a $362 million benefit related to claims associated with the 2008 Lehman Brothers bankruptcy; partially offset by
    • a $60 million provision for previously disclosed litigation arising out of our asset management and securities lending businesses; and
    • a special $25 million contribution to fund the Company's charitable grant-making activities.

Third-Quarter 2012 Operating-basis (Non-GAAP) Results (1)

  • EPS of $0.99 decreased 2% from $1.01 in the second quarter of 2012 and increased 3% from $0.96 in the third quarter of 2011.
  • Net income available to common shareholders of $473 million decreased 4% from $494 million in the second quarter of 2012 and 1% from $476 million in the third quarter of 2011.
  • Revenue of $2.35 billion declined 3% from $2.43 billion and $2.41 billion in the second quarter of 2012 and third quarter of 2011, respectively.
  • Net interest revenue on a fully taxable-equivalent basis, and excluding conduit-related discount accretion of $40 million, was $611 million, a decrease of 3% from $629 million in the second quarter of 2012, and an increase of 8% percent from $564 million in the third quarter of 2011. Average excess deposits of $16 billion for the third quarter of 2012 increased $1 billion from $15 billion for both the second quarter of 2012 and the third quarter of 2011.
  • Expenses of $1.66 billion decreased 4% from $1.73 billion in the second quarter of 2012 and 3% from $1.71 billion in the third quarter of 2011.
  • ROE of 9.6% decreased from 10.3% in the second quarter of 2012 and from 9.8% in the third quarter of 2011.

Third-Quarter 2012 Operating-basis (Non-GAAP) Highlights (1)

  • New Business: Awarded $211 billion in asset servicing mandates and $78 billion of net new assets to be managed by State Street Global Advisors (SSgA).
  • Operating Leverage: Achieved positive operating leverage of 50 basis points and 20 basis points compared to the second quarter of 2012 and the third quarter of 2011, respectively.
  • Business Operations and Information Technology Transformation program: On track to achieve incremental annual pre-tax operating-basis expense savings (1) in the range of $90 million to $100 million in 2012. The estimated cumulative expense savings through the end of 2012 are expected to be approximately $180 million (2).
  • Capital (3) : Estimated pro forma tier 1 common ratio under the recent U.S. Basel III Notices of Proposed Rulemaking (NPRs) was 11.3% as of September 30, 2012.
  • Dividend and share purchases: State Street declared a quarterly common stock dividend of $0.24 per share and purchased $480 million of its common stock at an average price of $42.11.
  • Goldman Sachs Administration Services (GSAS): Completed the acquisition on October 15, 2012, establishing State Street as the market leader in this fast-growing market in hedge fund administration (4).
      (1) Operating basis is a non-GAAP presentation. For an explanation of operating-basis information, refer to the addendum included with this news release.
(2) Estimated pre-tax, run-rate operating-basis expense savings relate only to the Business Operations and Information Technology Transformation program and are based on projected incremental improvement in 2012 from total 2010 operating-basis expenses of $6.18 billion; actual expenses of the Company may increase or decrease due to other factors.
(3) Unless otherwise specified, all capital ratios referenced in this news release refer to State Street Corporation and not State Street Bank and Trust Company. Refer to the addendum included with this news release for a further discussion of these ratios and for reconciliations applicable to the tier 1 common ratio. Also, see "Capital" below.
(4) Based on HFMWeek Assets under Administration Survey, May 31, 2012, which cited $505.5 billion and $200.6 billion of assets serviced for State Street and Goldman Sachs, respectively.

Chairman's Perspective

Joseph L. Hooley, State Street's chairman, president and chief executive officer, said, “Our third-quarter results reflect continued resilience across both asset servicing and asset management, partially offset by weakness in trading services. In a difficult environment, we were able to achieve positive operating leverage by controlling expenses and by continuing to implement our Business Operations and Information Technology Transformation program.”

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