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State Street Reports Second-Quarter 2013 GAAP And Operating-Basis EPS Of $1.24 On Revenue Of $2.6 Billion

Stocks in this article: STT

In announcing today's financial results, Joseph L. Hooley, State Street's chairman, president and chief executive officer, said, “We reported a strong second quarter with revenue growth driven by new business and improved equity markets. Seasonal factors and increased market volatility benefited our securities finance and foreign exchange businesses. The second-quarter results also reflected our continued success in realizing the expected benefits from our Business Operations and Information Technology Transformation program and ongoing expense management. Importantly, we achieved positive operating leverage compared to both the first quarter of 2013 and the second quarter of 2012.

We remain focused on returning capital to our shareholders. During the second quarter of 2013, we purchased approximately $560 million of our common stock and have approximately $1.5 billion remaining on our March 2013 common stock purchase program authorizing the purchase of up to $2.1 billion of our common stock through March 31, 2014."

Second-Quarter 2013 GAAP Results

  • Earnings per common share (EPS) of $1.24 increased from $0.98 in both the first quarter of 2013 and the second quarter of 2012. EPS in the first quarter of 2013 reflected the effects of $118 million of equity incentive compensation expense, or $0.19 per share, for retirement-eligible employees and payroll taxes.
  • Net income available to common shareholders of $571 million increased from $455 million in the first quarter of 2013 and increased from $480 million in the second quarter of 2012.
  • Revenue of $2.56 billion increased from $2.44 billion in the first quarter of 2013 and increased from $2.42 billion in the second quarter of 2012.
  • Net interest revenue of $596 million increased from $576 million in the first quarter of 2013 and decreased from $672 million in the second quarter of 2012.
  • Expenses of $1.80 billion decreased from $1.83 billion in the first quarter of 2013 and increased from $1.77 billion in the second quarter of 2012.
  • Return on average common shareholders' equity (ROE) of 11.3% increased from 9.1% in the first quarter of 2013 and increased from 10.0% in the second quarter of 2012.

Second-Quarter 2013 Operating-Basis (Non-GAAP) Results (1)

  • EPS of $1.24 increased 29% from $0.96 in the first quarter of 2013 and increased 23% from $1.01 in the second quarter of 2012. EPS in the first quarter of 2013 reflected the effects of $118 million of equity incentive compensation expense, or $0.19 per share, for retirement-eligible employees and payroll taxes.
  • Net income available to common shareholders of $571 million increased from $443 million in the first quarter of 2013 and increased from $494 million in the second quarter of 2012.
  • Revenue of $2.58 billion increased from $2.47 billion in the first quarter of 2013 and increased from $2.46 billion in the second quarter of 2012.
  • Net interest revenue on an operating basis was $582 million in the second quarter of 2013, an increase from $577 million in the first quarter of 2013, and a decrease from $629 million in the second quarter of 2012. Net interest revenue on an operating basis excluded discount accretion of $47 million, $31 million, and $74 million for the quarters ended June 30, 2013, March 31, 2013, and June 30, 2012, respectively.
  • Expenses of $1.75 billion decreased from $1.81 billion in the first quarter of 2013 and increased from $1.73 billion in the second quarter of 2012.
  • ROE of 11.3% increased from 8.9% in the first quarter of 2013 and from 10.3% in the second quarter of 2012.

Second-Quarter 2013 Operating-Basis (Non-GAAP) Highlights (1)

  • Achieved positive operating leverage (2) of 771 basis points and 347 basis points compared to the first quarter of 2013 and the second quarter of 2012, respectively. Excluding the effect of expenses related to equity incentive compensation for retirement-eligible employees and payroll taxes recorded in the first quarter of 2013, we achieved positive operating leverage of 97 basis points compared to the first quarter of 2013.
  • New business during the quarter totaled $201 billion in asset servicing mandates and, excluding the SPDR ® Gold ETF, $11 billion in net new assets to be managed at SSgA. (3)
  • Business Operations and Information Technology Transformation program (4) is on track to achieve total incremental estimated pre-tax expense savings in 2013 of approximately $220 million.
  • Capital (5) Estimated pro forma Basel III tier 1 common ratio as of June 30, 2013 was 10.0% (standardized approach) and 10.9% (advanced approach), each calculated in conformity with the July 2013 final rule approved by the Federal Reserve. Under the final rule, we expect to manage to the lower of these two Basel III tier 1 common ratios.
  • Capital distribution remains a priority with purchases of approximately $560 million of our common stock at an average price of $65.73 per share; in addition, we declared a previously announced quarterly common stock dividend of $0.26 per share.

(1) Operating basis is a non-GAAP presentation. For an explanation of operating-basis information and related reconciliations, refer to the addendum included with this news release.

(2) Operating leverage is defined as the rate of growth of total revenue less the rate of growth of total expenses, each as determined on an operating basis. Calculations of operating leverage comparing the second quarter of 2013 to each of the first quarter of 2013 and the second quarter of 2012 are presented in the addendum included with this news release. The comparisons to the first quarter of 2013 both include and exclude the effect of equity incentive compensation expense for retirement-eligible employees and payroll taxes recorded in the first quarter of 2013.

(3) Only a portion of such new mandates are reflected in our assets under custody and administration and our assets under management as of June 30, 2013. Distribution fees from the SPDR ® Gold Exchange-Traded Fund, or ETF, are recorded in brokerage and other fee revenue and not in management fee revenue.

(4) Estimated pre-tax expense savings relate only to the Business Operations and Information Technology Transformation program and are based on projected improvement from total 2010 operating-basis expenses. Actual total expenses of the Company have increased since 2010, and may increase or decrease in the future, due to other factors.

(5) Estimated pro forma Basel III tier 1 common ratios are preliminary, reflect tier 1 common equity calculated under the July 2013 final rule as applicable on its January 1, 2014 effective date and are based on State Street's present interpretations, expectations and understanding of the final rule. Refer to the “Capital” section of this news release for important information about the July 2013 final rule, State Street's calculation of its tier 1 common ratio thereunder and factors that could influence State Street's calculation of its tier 1 common ratio. 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 description of these ratios, and for reconciliations applicable to State Street's tier 1 common ratio.

Non-GAAP Financial Measures

In addition to presenting State Street's financial results in conformity with U.S. generally accepted accounting principles (GAAP), management also presents results on a non-GAAP, or operating basis, in order to highlight comparable financial trends with respect to State Street's business operations from period to period. Summary results presented on a GAAP basis, descriptions of our non-GAAP, or operating-basis financial measures, and reconciliations of operating-basis information to GAAP-basis information are provided in the addendum included with this news release.

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