State Street Corporation (ticker: STT, exchange: New York Stock Exchange (.N))
News Release -
10-Jan-2003
State Street Corporation Announces Earnings Per Share Growth, Reflecting Continued Business SuccessClick here for the complete fourth quarter 2002 earnings press release, including financial tables, in Adobe Acrobat format
2002 Earnings Per Share of $3.10 Include a Gain of $0.90
BOSTON--(BUSINESS WIRE)--Jan. 10, 2003--State Street Corporation announced today fourth-quarter diluted earnings per share of $1.46 and net income of $477 million on revenue of $1.5 billion. For the full-year 2002, earnings per share were $3.10 and net income was $1.0 billion, on revenue of $4.4 billion. Results for the fourth quarter and full-year include a net gain on the sale of State Street's Corporate Trust business of $495 million, equal to $296 million after taxes, or $0.90 in diluted earnings per share. Excluding the gain, return on stockholders' equity was 16.1% for the quarter, and 17.1% for the year.
For the fourth quarter of 2001, State Street reported diluted earnings per share of $0.52 and net income of $171 million on revenue of $1.0 billion. For the full-year 2001, reported earnings per share were $1.90 and net income was $628 million, on revenue of $3.8 billion. Results for 2001 included both goodwill amortization expenses of $38 million, equal to $26 million after tax, or $0.08 per diluted share, and the write-off of State Street's total investment in Bridge Information Systems, Inc. of $50 million, equal to $33 million after tax, or $0.10 per share, which was recorded in the first quarter. The fourth-quarter 2001 impact from the goodwill adjustment was $10 million, or $7 million after-tax, equal to $0.02 per share.
State Street prepares supplemental information adjusting reported results for significant transactions, and defines the information as operating results. Operating results provide financial information on a comparable basis from period to period to assist stockholders and others in analyzing State Street's financial results for ongoing businesses and operations. On an operating-results basis, consistent with prior presentations, fourth-quarter taxable-equivalent revenue was down 4%, or $42 million; and net income was up 2%, or $3 million, from the fourth quarter of 2001. For the full year, taxable-equivalent revenue was up $19 million, and net income was up 5%, or $32 million, from the prior year.
These operating results for 2002 exclude the fourth-quarter net gain. Operating results for 2001 exclude both the goodwill amortization expenses and the write-off of State Street's total investment in Bridge. Operating results for both years also include fully-taxable equivalent adjustments. Detailed information on the adjustments is available in the Addendum Selected Financial Information table III included with this press release.
David A. Spina, chairman and chief executive officer of State Street, said, "This was a year of outstanding accomplishment for State Street, achieved in a very challenging environment. We won important new business mandates, continued to strengthen our client relationships, and expanded our product range. These achievements contributed to continued growth in State Street's earnings per share, making this our 25th consecutive year of EPS growth. Our success in winning new clients and streamlining operations to control expense growth helped us overcome the challenges posed by weak financial markets worldwide and a difficult interest-rate environment.
"Our agreement to acquire significant portions of Deutsche Bank's Global Securities Services business was a defining moment for our company. We're on track to close the agreement soon, and our integration team is working energetically to ensure a successful transition.
"In 2003, we remain focused on providing sophisticated investors with the investment solutions they need, and better service than they can find anywhere else. Our primary financial goal, sustainable real growth in earnings per share, is a foundation of our business strategy. I am confident that State Street's continued evolution as a global company will drive our ability to create value for stockholders."
FOURTH-QUARTER RESULTS
As reported, fourth-quarter diluted earnings per share were $1.46, net income was $477 million, and total revenue was $1.5 billion, including the net gain on the sale of State Street's Corporate Trust business of $495 million, equal to $296 million after taxes, or $0.90 in diluted earnings per share.
State Street generates revenue by providing sophisticated global investors with integrated products, services and strategies that support their investment and business goals.
Servicing fees were up 1% in the fourth quarter, to $427 million. Servicing fees are derived from accounting, administration, custody, daily pricing, securities lending, performance and analytics, compliance monitoring, and operations outsourcing for investment managers. New business from existing and new clients, including business gained through an acquisition, drove growth in servicing fees, more than offsetting the constraint imposed by the decline in comparable average equity market valuations and lower securities lending revenue. Daily average values for the S&P 500 Index were down 21% from the fourth quarter of 2001; daily average values for the MSCIŽ EAFE Index(SM) were down 17%. Total assets under custody were $6.2 trillion, level with the prior year.
Management fees from investment management services, delivered through State Street Global Advisors, were $126 million, compared to $129 million a year ago. Management fees reflected continued new business success, which largely offset the effects of significantly lower average equity market valuations from a year ago. Total assets under management were $763 billion, compared to $775 billion a year previously.
Foreign exchange trading revenue was $62 million for the quarter, compared to $83 million a year ago, reflecting low currency volatility in the quarter. Brokerage fees were $38 million, compared to $23 million a year ago, driven by significantly higher equity trading volumes. Securities gains of $31 million, compared to $7 million last year, reflected opportunities created by the low-interest rate environment.
Reported net interest revenue for the fourth quarter was $225 million. On a taxable-equivalent basis, net interest revenue was $240 million, a decline of $65 million from a year ago. State Street provides repurchase agreements and deposit services for clients' investment activities, which generate net interest revenue. Lower yields on assets, reflecting the continuing decline in interest rates, offset growth in the balance sheet and lower liability costs.
Operating expenses were $704 million, compared to $746 million a year ago. On a comparable basis, expenses were down $32 million, or 4%, from $736 million a year ago. Comparable expenses for the fourth quarter of 2001 exclude $10 million of goodwill amortization expenses. Lower salaries and benefits expenses, reflecting reduced staffing and contract services costs, drove the decline in expenses. State Street continues to invest in the key initiatives that offer greatest opportunity for future growth while remaining focused on controlling the growth rate of expenses.
FULL-YEAR RESULTS
As reported, 2002 earnings per share were $3.10 and net income was $1.0 billion, on revenue of $4.4 billion, including the net gain on the sale of State Street's Corporate Trust business of $495 million, equal to $296 million after taxes, or $0.90 in diluted earnings per share.
Revenue for the full-year, on an operating-results basis as defined above, was $4.0 billion, up $19 million from 2001. New business success drove the growth, substantially offset by the impact of lower equity market valuations, low currency volatility and a less-favorable interest-rate environment.
Servicing fees were up 4% for the year, to $1.7 billion. Management fees were up 2%, to $526 million. Strong new business success drove growth in both servicing fees and management fees, offsetting the impact of lower equity market valuations and lower securities lending revenue.
Foreign exchange trading revenue declined $68 million, to $300 million, reflecting low currency volatility. Brokerage fees rose $35 million, to $124 million, from a year ago, driven by significantly higher equity trading volumes. Securities gains of $76 million, up $33 million, reflected opportunities created by the low-interest rate environment.
Reported net interest revenue for 2002 was $979 million. On a taxable-equivalent operating-results basis, net interest revenue was $1.0 billion, a decline of $52 million from 2001. Lower yields on assets offset growth in the balance sheet and lower liability costs.
Operating expenses were $2.8 billion for the year. On a comparable basis, expenses were down $17 million, or 1%. Comparable expenses for 2001 exclude $38 million of goodwill amortization expenses. Lower other expenses, reflecting reduced professional services and advertising expenses, contributed to the decline in total expenses.
INVESTOR CONFERENCE CALL
State Street will webcast an investor conference call today, Friday, January 10, 2003, at 9:30 a.m. EST, available at www.statestreet.com/stockholder. The conference call will also be available via telephone, at +1 719/457-2621. Recorded replays of the conference call will be available on the web site, and by telephone at +1 402/220-4230, beginning at noon Friday. Additional financial detail is available on State Street's website, at www.statestreet.com/stockholder, under "Financial Reports."
State Street Corporation (NYSE: STT - News) is the world's leading specialist in providing sophisticated global investors with investment servicing and investment management. With $6.2 trillion in assets under custody and $763 billion in assets under management, State Street is headquartered in Boston, Massachusetts and operates in 22 countries and over 100 markets worldwide. For more information, visit State Street's web site at www.statestreet.com or call 877/639-7788 (NEWS STT) toll-free in the United States and Canada, or +1 202/266-3340 outside those countries.
This news announcement contains forward-looking statements as defined by United States securities laws, including statements about the financial outlook and business environment. Those statements are based on current expectations and involve a number of risks and uncertainties, including those related to the pace at which State Street adds new clients or at which existing clients use additional services, the value of global and regional financial markets, the pace of cross-border investment activity, changes in interest rates, the pace of worldwide economic growth and rates of inflation, the extent of volatility in currency markets, consolidations among clients and competitors, State Street's business mix, the dynamics of markets State Street serves, and State Street's success at integrating and converting acquisitions into its business. Other important factors that could cause actual results to differ materially from those indicated by any forward-looking statements are set forth in State Street's 2001 annual report and subsequent SEC filings. State Street encourages investors to read the corporation's annual report, particularly the section on factors that may affect financial results, and its subsequent SEC filings for additional information with respect to any forward-looking statements and prior to making any investment decision. The forward-looking statements contained in this press release speak only as of the date hereof, January 10, 2003, and the company will not undertake efforts to revise those forward-looking statements to reflect events after this date.
STATE STREET CORPORATION
Addendum Earnings Digest(1)
(Dollars in millions, except per share data)
Quarter ended December 31,
--------------------------
2002 2001 %Change
------- ------- ---------
Revenue $1,456 $998 46
Earnings 477 171 179
Diluted earnings per share 1.46 .52 180
Year ended December 31,
-------------------------
2002 2001 %Change
------- ------- ---------
Revenue $4,396 $3,827 15
Earnings 1,015 628 62
Diluted earnings
per share 3.10 1.90 63
----------------------------------------------------------------------
(1) Information presented in accordance with accounting principles
generally accepted in the United States.
STATE STREET CORPORATION
Addendum Selected Financial Information
I. CONSOLIDATED STATEMENT OF INCOME PREPARED IN ACCORDANCE WITH
ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE UNITED STATES
Prior year information has been restated in accordance with FASB
accounting guidance effective January 1, 2002, presenting
client-reimbursed expenses on a gross basis as revenue and expense.
Quarter ended Year ended
December 31, December 31,
------------------------------------
(Dollars in millions, except
per share data) 2002 2001 2002 2001
----------------------------------------------- -----------------
Fee Revenue
Servicing fees $427 $421 $1,716 $1,648
Management fees 126 129 526 516
Foreign exchange trading 62 83 300 368
Brokerage fees 38 23 124 89
Processing fees and other 53 53 184 148
-------- -------- -------- --------
Total fee revenue 706 709 2,850 2,769
Net Interest Revenue
Interest revenue 465 563 1,974 2,855
Interest expense 240 278 995 1,830
-------- -------- -------- --------
Net interest revenue 225 285 979 1,025
Provision for loan losses 1 3 4 10
-------- -------- -------- --------
Net interest revenue after
provision for loan losses 224 282 975 1,015
Gains on the sales of
available-for-sale investment
securities 31 7 76 43
Gain on the sale of corporate
trust business, net of exit
and other associated costs 495 495
-------- -------- -------- --------
Total Revenue 1,456 998 4,396 3,827
Operating Expenses
Salaries and employee benefits 411 435 1,670 1,663
Information systems and
communications 94 95 373 365
Transaction processing
services 65 62 246 247
Occupancy 64 63 246 229
Other 70 91 306 393
-------- -------- -------- --------
Total operating expenses 704 746 2,841 2,897
-------- -------- -------- --------
Income before income taxes 752 252 1,555 930
Income taxes 275 81 540 302
-------- -------- -------- --------
Net Income $477 $171 $1,015 $628
======== ======== ======== ========
Earnings Per Share
Basic $1.47 $.53 $3.14 $1.94
Diluted 1.46 .52 3.10 1.90
Average Shares Outstanding (in
thousands)
Basic 323,520 323,489 323,520 325,030
Diluted 326,469 329,268 327,477 330,492
The three and twelve month periods ended December 31, 2001, have been
restated in accordance with the FASB accounting guidance effective
January 1, 2002 to present client-reimbursed expenses on a gross basis
as revenue and expense.
II. OTHER FINANCIAL INFORMATION
Quarter ended Year ended
December 31, December 31,
------------------------------------
(Dollars in millions, except
per share data or where
otherwise indicated) 2002 2001 2002 2001
----------------------------------------------- -----------------
Assets under custody
(in billions) $6,171 $6,203
Assets under management
(in billions) 763 775
Assets under trusteeship
(in billions) - 668
Total assets $85,794 $69,850
Long-term debt 1,270 1,217
Stockholders' equity 4,787 3,845
Return on equity 42.4% 17.8% 24.1% 17.3%
Closing price per share of
common stock $39.00 $52.25
Cash dividends declared per
share .13 .11 $.48 $.405
STATE STREET CORPORATION
Addendum Selected Financial Information
III. INCOME STATEMENT INFORMATION ON AN OPERATING RESULTS BASIS
State Street prepares its Consolidated Statement of Income as
presented on addendum page 2 in accordance with accounting principles
generally accepted in the United States (GAAP). That financial
information includes significant, non-recurring, non operating special
items and reports goodwill amortization expense in accordance with
accounting practice applicable for those periods presented.
In order to provide information on a comparable basis from period to
period and assist stockholders, analysts, other external parties and
management in analyzing State Street's financial results and trends
for ongoing businesses and operations, State Street also presents a
financial measure defined as Operating Results. State Street believes
such non-GAAP financial information assists investors and others by
providing them financial information in a format that provides
comparable financial trends of recurring business activities. State
Street's Operating Results are based on GAAP results, adjusted for
three types of financial activity:
(1) Operating Results exclude the results of certain significant
transactions not representative of ongoing operations.
(2) Operating Results include fully taxable-equivalent adjustments
that increase net interest revenue to reflect investment yield on
tax-free investments on an equivalent basis with taxable investments.
(3) Operating Results exclude goodwill amortization expense from
operating expenses in 2001, to be consistent with GAAP accounting
required beginning in 2002.
The table set forth below contains State Street's selected
consolidated Operating Results for the periods presented:
(Dollars in millions)
------------------------- ---------------------------
Quarter Ended Year Ended
December 31, December 31,
------------------------------------------------------
2002 2001 %Change 2002 2001 %Change
------- -------- ------- ------- -------- -------
Fee Revenue
Servicing
fees $427 $421 1 $1,716 $1,648 4
Management
fees 126 129 (3) 526 516 2
Foreign
exchange
trading 62 83 (25) 300 368 (18)
Brokerage
fees 38 23 62 124 89 39
Loss on
investment
in Bridge
Information
Systems, Inc. 53 53 1 184 198(1) (8)
Processing ------- -------- -------- --------
fees and
other
Total fee
revenue 706 709 2,850 2,819 1
Net Interest
Revenue
Interest
revenue 465 563 1,974 2,855
Interest
expense 240 278 995 1,830
------- -------- -------- --------
225 285 979 1,025
Taxable
equivalent
adjustment 15(2) 20(2) 61(2) 67(2)
------- -------- -------- --------
Net interest
revenue 240 305 1,040 1,092
Provision for
loan losses 1 3 4 10
------- -------- -------- --------
Net interest
revenue after
provision for
loan losses
(taxable
equivalent
basis) 239 302 (21) 1,036 1,082 (4)
Gains on the
sales of
available-
for-sale
investment
securities, net 31 7 76 43 77
Gains on sale
of corporate
trust business,
net of exit and
other associated
costs -(3) - -(3) -
------- -------- -------- --------
Total Revenue 976 1,018 (4) 3,962 3,944
Operating
Expenses
Salaries and
employee
benefits 411 435 (5) 1,670 1,663
Information
systems and
communications 94 95 (1) 373 365 2
Transaction
processing
services 65 62 4 246 247
Occupancy 64 63 1 246 229 7
Goodwill
amortization
expense - -(4) - -(4)
Other 70 81 (13) 306 355 (14)
------- -------- -------- --------
Total
operating
expenses 704 736 (4) 2,841 2,859 (1)
------- -------- -------- --------
Income before
income taxes 272 282 (4) 1,121 1,085 3
Income taxes 76 84 341 331
Taxable-equivalent
adjustment 15 20 61 67
------- -------- -------- --------
Net Income $181 $178 2 $719 $687 5
======= ======== ======== ========
Return on
equity 16.1% 18.6% 17.1% 18.9%
Average Shares
Outstanding
(in thousands):
Basic 323,520 323,489 323,520 325,030
Diluted 326,469 329,268 327,477 330,492
The following non-GAAP adjustments applicable to the periods presented
are necessary to reconcile the consolidated statement of income
prepared in accordance with GAAP to the selected consolidated
Operating Results presented in the table above:
(1) Operating Results include a fully taxable-equivalent adjustment.
This is a method of presentation in which interest income on
tax-exempt securities is adjusted to present the earnings performance
on a basis equivalent to interest earned on fully-taxable securities
with a corresponding charge to income tax expense. The adjustment is
computed using a federal income tax rate of 35%, adjusted for
applicable state income taxes, net of the related federal tax benefit.
(2) Operating Results exclude the write-off of State Street's total
investment in Bridge Information Systems, Inc. of $50 million. The
after-tax loss was $33 million or $.10 in diluted earnings per share.
This was recorded in March 2001.
(3) Operating Results exclude the gain on the sale of corporate trust
business. This gain was $495 million after deductions for exit and
other associated costs of $155 million. The after-tax gain was $296
million, or $.90 in diluted earnings per share. This was recorded in
December 2002.
(4) Operating Results for the three months ended December 31, 2001,
exclude $10 million of goodwill amortization expense, equal to $7
million, or $.02 in diluted earnings per share after tax. Results for
the year ended December 31, 2001, exclude $38 million of goodwill
amortization expense, equal to $26 million, or $.08 in diluted
earnings per share after tax.
STATE STREET CORPORATION
Addendum Consolidated Statement of Condition
----------------------------------------------------------------------
Dec. 31, Dec. 31,
(Dollars in millions) 2002 2001
----------------------------------------------------------------------
Assets
Cash and due from banks $ 1,361 $ 1,651
Interest-bearing deposits with banks 28,143 20,317
Securities purchased under resale agreements
and securities borrowed 17,215 16,680
Trading account assets 984 994
Investment securities 28,071 20,781
Loans (less allowance of $61 and $58) 4,113 5,283
Premises and equipment 887 829
Accrued income receivable 823 880
Goodwill 462 470
Other intangible assets 127 142
Other assets 3,608 1,823
------------ ------------
Total Assets $85,794 $69,850
============ ============
Liabilities
Deposits:
Interest-bearing -- U.S. $ 7,279 $ 2,753
Noninterest-bearing 9,005 9,390
Interest-bearing -- Non-U.S. 29,184 26,416
------- -------
Total Deposits 45,468 38,559
Securities sold under repurchase agreements 21,963 19,006
Federal funds purchased 3,895 3,315
Other short-term borrowings 3,440 1,012
Accrued taxes and other expenses 1,967 1,582
Other liabilities 3,004 1,314
Long-term debt 1,270 1,217
------------ -------
Total Liabilities 81,007 66,005
Stockholders' Equity
Preferred stock, no par: authorized
3,500,000; issued none
Common stock, $1 par: authorized 500,000,000;
issued 329,992,000 and 329,999,000 330 330
Surplus 104 110
Retained earnings 4,472 3,612
Other unrealized comprehensive gain 106 70
Treasury stock at cost (5,065,000 and
6,329,000 shares) (225) (277)
------------ ------------
Total Stockholders' Equity 4,787 3,845
------------ ------------
Total Liabilities and Stockholders' Equity $85,794 $69,850
============ ============
Contact:
State Street Corporation, Boston
Edward J. Resch, 617/664-1110
Investors: Kelley MacDonald, 617/664-3477
Media: Hannah Grove, 617/664-3377
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State Street Corporation
