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TheStreet Open House

Third-Quarter 2013 Financial Highlights Presentation

Stocks in this article: STT

In announcing third-quarter 2013 financial results, Joseph L. Hooley, State Street's chairman, president and chief executive officer, said, “Our results reflect the strength of our core business with operating-basis fee revenue up 9% from the third quarter of 2012, in a period impacted by the cyclical declines in market-driven revenue from a summer slowdown as well as the effect of the low interest-rate environment.

Demand for our products, services, and solutions remains strong as evidenced by $200 billion of new asset servicing wins during the quarter.

Compared to the third quarter of 2012, we achieved positive operating leverage, through our continued focus on controlling expenses across the organization and through the execution of our Business Operations and Information Technology Transformation program."

Hooley continued, "We also continue to emphasize returning capital to shareholders. During the quarter, we purchased approximately $560 million of our common stock and have approximately $1.0 billion remaining under our March 2013 common stock purchase program authorizing the purchase of up to $2.1 billion of our common stock through March 31, 2014.”

Third-Quarter 2013 GAAP Results

  • Earnings per common share (EPS) of $1.17 decreased from $1.24 in the second quarter of 2013 and from $1.36 in the third quarter of 2012. The third quarter of 2012 included a net after-tax benefit of $0.35 per share, the majority of which pertained to recoveries associated with the 2008 Lehman Brothers bankruptcy.
  • Net income available to common shareholders of $531 million decreased from $571 million in the second quarter of 2013 and from $654 million in the third quarter of 2012. The third quarter of 2012 included a net after-tax benefit of $166 million, the majority of which pertained to recoveries associated with the 2008 Lehman Brothers bankruptcy.
  • Revenue of $2.43 billion decreased from $2.56 billion in the second quarter of 2013 and increased from $2.36 billion in the third quarter of 2012.
  • Net interest revenue of $546 million decreased from $596 million in the second quarter of 2013 and from $619 million in the third quarter of 2012.
  • Expenses of $1.72 billion decreased from $1.80 billion in the second quarter of 2013 and increased from $1.42 billion in the third quarter of 2012. Expenses in the third quarter of 2012 reflected a credit of $277 million, composed of recoveries of $362 million associated with the 2008 Lehman Brothers bankruptcy, partly offset by provisions for litigation exposure and other costs of $85 million.
  • Return on average common shareholders' equity (ROE) of 10.8% decreased from 11.3% in the second quarter of 2013 and from 13.3% in the third quarter of 2012.

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

  • EPS of $1.19 decreased from $1.24 in the second quarter of 2013 and increased from $0.99 in the third quarter of 2012.
  • Net income available to common shareholders of $537 million decreased from $571 million in the second quarter of 2013 and increased from $473 million in the third quarter of 2012.
  • Revenue of $2.47 billion decreased from $2.58 billion in the second quarter of 2013 and increased from $2.39 billion in the third quarter of 2012.
  • Net interest revenue of $553 million decreased from $582 million in the second quarter of 2013 and from $611 million in the third quarter of 2012. Operating-basis net interest revenue excluded discount accretion on former conduit assets of $28 million, $47 million and $40 million for the respective quarters and is presented on a fully taxable-equivalent basis.
  • Expenses of $1.69 billion decreased from $1.75 billion in the second quarter of 2013 and increased from $1.66 billion in the third quarter of 2012.
  • ROE of 11.0% decreased from 11.3% in the second quarter of 2013 and increased from 9.6% in the third quarter of 2012.

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

  • Achieved positive operating leverage (2) of 206 basis points compared to the third quarter of 2012. Comparing the first nine months of 2013 to the first nine months of 2012, we achieved positive operating leverage of 229 basis points.
  • New business in asset servicing mandates during the quarter totaled $200 billion and net new assets to be managed were $(15) billion. (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 September 30, 2013 was 10.2% (standardized approach) and 11.3% (advanced approach), each calculated in conformity with the July 2013 final rule issued by the Federal Reserve. Under the final rule, we will be subject to the lower of these two Basel III tier 1 common ratios in the assessment of our capital adequacy for regulatory purposes.
  • Capital distribution remains a priority with purchases of approximately $560 million of our common stock at an average price of $68.57 per share; in addition, as previously announced, we declared a 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. Operating leverage comparing the third quarter of 2013 to the second quarter of 2013 and the third quarter of 2012, as well as the first nine months of 2013 to the first nine months of 2012, is presented in the addendum included with this news release.

(3) Only a portion of such new mandates are reflected in our assets under custody and administration and our assets under management as of September 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 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 calculations of its tier 1 common ratios thereunder and factors that could influence State Street's calculations of its tier 1 common ratios. Unless otherwise specified, all capital ratios referenced in this news release refer to State Street 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 ratios.

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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