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Q1 2014 Financial Highlights Presentation

Stocks in this article: STT

In announcing today's financial results, Joseph L. Hooley, State Street's chairman, president and chief executive officer, said, "Delivering value to our clients and shareholders is our core mission. We remain focused on our key priorities - increasing revenue, controlling expenses, investing in growth opportunities, and optimizing our capital structure to create long-term value. We are responding to the challenges presented by low interest rates and conservative investor risk appetite by realigning our staffing to support our goal of positive operating leverage for the full year."

"Client demand for our products, services, and solutions remains strong. New asset servicing wins totaled $189 billion for the quarter, which included 25 new mandates in alternative investment servicing where we hold a leadership position and see additional opportunities for growth."

"We continue to prioritize returning capital to our shareholders. During the first quarter of 2014, we completed the final phase of our $2.1 billion common stock purchase program announced in March 2013 with the purchase of approximately 6.1 million shares of our common stock at an aggregate cost of approximately $420 million. The recently completed Federal Reserve Comprehensive Capital Analysis and Review, or CCAR, process demonstrated our strong capital position and our Board of Directors approved a $1.7 billion common stock purchase program effective through March 31, 2015. Our 2014 capital plan also includes a proposed increase in our quarterly common stock dividend to $0.30 per share starting in the second quarter of 2014, subject to consideration and approval by our Board of Directors."

First-Quarter 2014 GAAP Results

  • Earnings per common share (EPS) of $0.81 decreased from $1.22 in the fourth quarter of 2013 and from $0.98 in the first quarter of 2013. First-quarter 2014 results included pre-tax severance costs of $72 million, or $0.11 per share, related to staff reductions to realign our cost base to support our goal of positive operating leverage for the full year while continuing to invest in growth opportunities and meet evolving regulatory requirements. Additionally, compared to the fourth quarter of 2013, first-quarter 2014 pre-tax expenses and EPS included an incremental $146 million, or $0.23 per share (up from $118 million, or $0.18 per share, recorded in the first quarter of 2013), primarily associated with the seasonal deferred incentive compensation expense for retirement-eligible employees and payroll taxes.
  • Net income available to common shareholders of $356 million decreased from $545 million in the fourth quarter of 2013 and from $455 million in the first quarter of 2013.
  • Revenue of $2.49 billion increased from $2.46 billion in the fourth quarter of 2013 and from $2.44 billion in the first quarter of 2013.
  • Net interest revenue of $555 million decreased from $585 million in the fourth quarter of 2013 and from $576 million in the first quarter of 2013.
  • Expenses of $2.03 billion increased from $1.85 billion in the fourth quarter of 2013 and from $1.83 billion in the first quarter of 2013.
  • Return on average common shareholders' equity (ROE) of 7.2% decreased from 10.9% in the fourth quarter of 2013 and from 9.1% in the first quarter of 2013.

First-Quarter 2014 Operating-Basis (Non-GAAP) Results 1

  • EPS of $0.99 decreased from $1.15 in the fourth quarter of 2013 and increased from $0.96 in the first quarter of 2013. Compared to the fourth quarter of 2013, first-quarter 2014 pre-tax expenses and EPS included an incremental $146 million, or $0.23 per share (up from $118 million, or $0.18 per share, recorded in the first quarter of 2013), primarily associated with the seasonal deferred incentive compensation expense for retirement-eligible employees and payroll taxes.
  • Net income available to common shareholders of $433 million decreased from $514 million in the fourth quarter of 2013 and from $443 million in the first quarter of 2013.
  • Revenue of $2.56 billion increased from $2.53 billion in the fourth quarter of 2013 and from $2.47 billion in the first quarter of 2013.
  • Net interest revenue of $572 million decreased from $596 million in the fourth quarter of 2013 and from $577 million in the first quarter of 2013. Operating-basis net interest revenue excluded discount accretion on former conduit securities of $27 million, $31 million and $31 million for the respective quarters and is presented on a fully taxable-equivalent basis.
  • Expenses of $1.92 billion increased from $1.76 billion in the fourth quarter of 2013 and from $1.81 billion in the first quarter of 2013.
  • ROE of 8.8% decreased from 10.3% in the fourth quarter of 2013 and from 8.9% in the first quarter of 2013.

First-Quarter 2014 Highlights

  • First-quarter 2014 results reflected $72 million of pre-tax severance costs related to staff reductions to realign our expense base in response to the current environment. We expect these staff reductions to generate pre-tax savings of approximately $40 million on an annualized basis in 2015.
  • New business 2 New asset servicing mandates during the first quarter of 2014 totaled $189 billion and net new assets to be managed were $4 billion.
  • Business Operations and Information Technology Transformation program 3 Total incremental pre-tax expense savings for full-year 2014, including the first quarter, are expected to be approximately $130 million.
  • Capital 4 Our tier 1 common ratio as of March 31, 2014, calculated under currently applicable regulatory requirements, was 16.4%. Our estimated pro forma Basel III tier 1 common ratio as of March 31, 2014 was 11.1% (standardized approach) and 13.2% (advanced approach), each calculated in conformity with the Basel III final rule.
  • Return of capital to shareholders Purchased approximately $420 million of our common stock at an average price of $69.14 per share, and declared a quarterly common stock dividend of $0.26 per share in the first quarter of 2014.
  • Results of recently completed 2014 CCAR Demonstrated our continued strong capital position. After the annual CCAR process was completed in March 2014, our Board of Directors approved a new common stock purchase program authorizing the purchase of up to $1.7 billion of our common stock through March 31, 2015. Additionally, our 2014 capital plan includes a proposed quarterly common stock dividend of $0.30 per share starting in the second quarter of 2014, subject to consideration and approval by our Board of Directors at its regularly scheduled meeting in May.

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 New business in assets to be serviced is reflected in our assets under custody and administration after we begin servicing the assets, and net new business in assets to be managed is reflected in our assets under management after we begin managing the assets. As such, only a portion of these new asset servicing and asset management mandates is reflected in our assets under custody and administration and assets under management, as the case may be, as of March 31, 2014. 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.

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

4 Our estimated pro forma Basel III tier 1 common ratios are preliminary estimates by State Street, calculated in conformity with the advanced and standardized approaches in the Basel III final rule. Refer to the “Capital” section of this news release for important information about the Basel III final rule, our calculations of our tier 1 common ratios thereunder, factors that could influence State Street's calculations of its tier 1 common ratios and other information about our capital ratios. 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 our 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, or 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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