Appendix: Reconciliations of reported results to operating-basis results

EX-99.2 3 dex992.htm APPENDIX: RECONCILIATIONS OF REPORTED RESULTS TO OPERATING-BASIS RESULTS Appendix: Reconciliations of reported results to operating-basis results

Exhibit 99.2

STATE STREET CORPORATION

RECONCILIATION OF REPORTED RESULTS TO OPERATING-BASIS RESULTS


	Quarter Ended March 31, 2007									Quarter Ended March 31, 2008									% Change
(Dollars in millions, except per share amounts)	Reported Results			Adjustments			Operating Results			Reported Results			Adjustments			Operating Results			2007 vs 2008 (3)
Total fee revenue	$	1,370					$	1,370		$	1,961					$	1,961		43.1	%
Net interest revenue		325		$	12	⁽¹⁾		337			625		$	23	⁽¹⁾		648		92.3
Gains (Losses) related to investment securities, net		1			—			1			(9	)		—			(9	)

Total revenue		1,696			12			1,708			2,577			23			2,600		52.2
Total operating expenses		1,213			—			1,213			1,774			(26	)⁽²⁾		1,748		44.1

Income before income taxes		483			12			495			803			49			852
Income taxes		169			—			169			273			9	⁽²⁾		282
Taxable-equivalent adjustment		—			12	⁽¹⁾		12			—			23	⁽¹⁾		23

Net income	$	314		$	—		$	314		$	530		$	17		$	547		74.2

Diluted earnings per share	$	.93		$	—		$	.93		$	1.35		$	.04		$	1.39		49.5
Return on equity		17.4	%		—	%		17.4	%		18.7	%		0.7	%		19.4	%

Reported results reflect State Street’s Consolidated Statement of Income prepared in accordance with accounting principles generally accepted in the United States.

Management measures and compares certain financial information on an operating basis, as it believes this presentation supports meaningful comparisons from period to period and the analysis of comparable financial trends with respect to State Street’s normal ongoing business operations. Management believes that operating-basis financial information, which reports revenue from non-taxable sources on a fully taxable-equivalent basis and excludes the impact of revenue and expenses outside of the normal course of our business, facilitates an investor’s understanding and analysis of State Street’s underlying financial performance and trends in addition to financial information prepared in accordance with GAAP.

⁽¹⁾	Represents taxable-equivalent adjustment, which is not included in reported results.

⁽²⁾	Represents merger and integration costs recorded in connection with the acquisition of Investors Financial, which are direct and incremental costs associated with the acquisition and do not include ongoing expenses of the combined organization.

⁽³⁾	For the quarter ended March 31, 2008, positive operating leverage in the year-over-year comparison was 810 basis points, based on growth in total operating-basis revenue of 52.2% and growth in total operating-basis expenses of 44.1%.

STATE STREET CORPORATION

RECONCILIATION OF REPORTED RESULTS TO OPERATING-BASIS RESULTS


	Quarter Ended June 30, 2007									Quarter Ended June 30, 2008									% Change
(Dollars in millions, except per share amounts)	Reported Results			Adjustments			Operating Results			Reported Results			Adjustments			Operating Results			2007 vs 2008⁽³⁾
Total fee revenue	$	1,537					$	1,537		$	2,006					$	2,006		30.5	%
Net interest revenue		385		$	12	⁽¹⁾		397			657		$	28	⁽¹⁾		685		72.5
Gains (Losses) related to investment securities, net		(1	)		—			(1	)		9			—			9

Total revenue		1,921			12			1,933			2,672			28			2,700		39.7
Total operating expenses		1,358			—			1,358			1,841			(32	)⁽²⁾		1,809		33.2

Income before income taxes		563			12			575			831			60			891
Income taxes		197			—			197			283			10	⁽²⁾		293
Taxable-equivalent adjustment		—			12	⁽¹⁾		12			—			28	⁽¹⁾		28

Net income	$	366		$	—		$	366		$	548		$	22		$	570		55.7

Diluted earnings per share	$	1.07		$	—		$	1.07		$	1.35		$	.05		$	1.40		30.8
Return on equity		19.2	%		—	%		19.2	%		18.6	%		0.7	%		19.3	%

Reported results reflect State Street’s Consolidated Statement of Income prepared in accordance with accounting principles generally accepted in the United States.

⁽¹⁾	Represents taxable-equivalent adjustment, which is not included in reported results.

⁽²⁾	Represents merger and integration costs recorded in connection with the acquisition of Investors Financial, which are direct and incremental costs associated with the acquisition and do not include ongoing expenses of the combined organization.

⁽³⁾	For the quarter ended June 30, 2008, positive operating leverage in the year-over-year comparison was 650 basis points, based on growth in total operating-basis revenue of 39.7% and growth in total operating-basis expenses of 33.2%.

STATE STREET CORPORATION

RECONCILIATION OF REPORTED RESULTS TO OPERATING-BASIS RESULTS


	Quarter Ended September 30, 2007									Quarter Ended September 30, 2008									% Change
(Dollars in millions, except per share amounts)	Reported Results			Adjustments			Operating Results			Reported Results			Adjustments			Operating Results			2007 vs 2008⁽⁷⁾
Total fee revenue	$	1,799					$	1,799		$	1,899					$	1,899		5.6	%
Net interest revenue		464		$	17	⁽¹⁾		481			525		$	115	⁽³⁾		640		33.1
Gains (Losses) related to investment securities, net		(23	)		—			(23	)		(3	)		—			(3	)
Gains from sale of CitiStreet interest, net of exit and other associated costs		—			—			—			350			(350	)⁽⁴⁾		—

Total revenue		2,240			17			2,257			2,771			(235	)		2,536		12.4
Total operating expenses		1,689			(141	)⁽²⁾		1,548			1,925			(230	)⁽⁵⁾		1,695		9.5

Income before income taxes		551			158			709			846			(5	)		841
Income taxes		193			50	⁽²⁾		243			369			(91	)⁽⁶⁾		278
Taxable-equivalent adjustment		—			17	⁽¹⁾		17			—			25	⁽¹⁾		25

Net income	$	358		$	91		$	449		$	477		$	61		$	538		19.8

Diluted earnings per share	$	.91		$	.24		$	1.15		$	1.09		$	.15		$	1.24		7.8
Return on equity		12.6	%		3.2	%		15.8	%		13.6	%		1.8	%		15.4	%

Reported results reflect State Street’s Consolidated Statement of Income prepared in accordance with accounting principles generally accepted in the United States.

⁽¹⁾	Represents taxable-equivalent adjustment, which is not included in reported results.

⁽²⁾	Represents merger and integration costs recorded in connection with the acquisition of Investors Financial, which are direct and incremental costs associated with the acquisition and do not include ongoing expenses of the combined organization.

⁽³⁾

Represents taxable-equivalent adjustment of $25 million, which is not included in reported results, plus a $98 million charge associated with SILO leasing transactions, net of $8 million of revenue related to the Boston Federal Reserve Bank’s Asset-Backed Commercial Paper Money Market Liquidity Facility (AMLF).

⁽⁴⁾	Represents gain on the sale of CitiStreet interest, net of exit and other associated costs, which State Street divested on July 1, 2008.

⁽⁵⁾

Represents $30 million of merger and integration costs recorded in connection with the acquisition of Investors Financial, which are direct and incremental costs associated with the acquisition and do not include ongoing expenses of the combined organization, and a $200 million charge to provide for estimated net exposure to customers on an indemnification obligation associated with collateralized repurchase agreements.

⁽⁶⁾

Represents $3 million of income tax expense related to the Boston Federal Reserve Bank’s AMLF, $39 million of income tax expense related to the reserve for SILO’s, $140 million of income tax expense related to the gain from sale of CitiStreet interest, $11 million of income tax benefit related to merger and integration costs for the acquisition of Investors Financial, and $80 million of income tax benefit related to the provision for potential secured exposure associated with collateralized repurchase agreements.

⁽⁷⁾	For the quarter ended September 30, 2008, positive operating leverage in the year-over-year comparison was 290 basis points, based on growth in total operating-basis revenue of 12.4% and growth in total operating-basis expenses of 9.5%.

STATE STREET CORPORATION

RECONCILIATION OF REPORTED RESULTS TO OPERATING-BASIS RESULTS


	Nine Months Ended September 30, 2007									Nine Months Ended September 30, 2008									% Change
(Dollars in millions, except per share amounts)	Reported Results			Adjustments			Operating Results			Reported Results			Adjustments			Operating Results			2007 vs 2008⁽⁷⁾
Total fee revenue	$	4,706					$	4,706		$	5,866					$	5,866		24.6	%
Net interest revenue		1,174		$	41	⁽¹⁾		1,215			1,807		$	166	⁽³⁾		1,973		62.4
Gains (Losses) related to investment securities, net		(23	)		—			(23	)		(3	)		—			(3	)
Gains from sale of CitiStreet interest, net of exit and other associated costs		—			—			—			350			(350	)⁽⁴⁾		—

Total revenue		5,857			41			5,898			8,020			(184	)		7,836		32.9
Total operating expenses		4,260			(141	)⁽²⁾		4,119			5,540			(288	)⁽⁵⁾		5,252		27.5

Income before income taxes		1,597			182			1,779			2,480			104			2,584
Income taxes		559			50	⁽²⁾		609			925			(72	)⁽⁶⁾		853
Taxable-equivalent adjustment		—			41	⁽¹⁾		41			—			76	⁽¹⁾		76

Net income	$	1,038		$	91		$	1,129		$	1,555		$	100		$	1,655		46.6

Diluted earnings per share	$	2.91		$	.24		$	3.15		$	3.78		$	.25		$	4.03		27.9
Return on equity		15.9	%		1.4	%		17.3	%		16.8	%		1.0	%		17.8	%

Reported results reflect State Street’s Consolidated Statement of Income prepared in accordance with accounting principles generally accepted in the United States.

⁽¹⁾	Represents taxable-equivalent adjustment, which is not included in reported results.

⁽²⁾	Represents merger and integration costs recorded in connection with the acquisition of Investors Financial, which are direct and incremental costs associated with the acquisition and do not include ongoing expenses of the combined organization.

⁽³⁾

Represents taxable-equivalent adjustment of $76 million, which is not included in reported results, plus a $98 million charge associated with SILO leasing transactions, net of $8 million of revenue related to the Boston Federal Reserve Bank’s Asset-Backed Commercial Paper Money Market Liquidity Facility (AMLF).

⁽⁴⁾	Represents gain on the sale of CitiStreet interest, net of exit and other associated costs, which State Street divested on July 1, 2008.

⁽⁵⁾

Represents $88 million of merger and integration costs recorded in connection with the acquisition of Investors Financial, which are direct and incremental costs associated with the acquisition and do not include ongoing expenses of the combined organization, and a $200 million charge to provide for estimated net exposure to customers on an indemnification obligation associated with collateralized repurchase agreements.

⁽⁶⁾

Represents $3 million of income tax expense related to the Boston Federal Reserve Bank’s AMLF, $39 million of income tax expense related to the reserve for SILO’s, $140 million of income tax expense related to the gain from sale of CitiStreet interest, $30 million of income tax benefit related to merger and integration costs for the acquisition of Investor’s Financial, and $80 million of income tax benefit related to the provision for potential secured exposure associated with collateralized repurchase agreements.

⁽⁷⁾	For the nine months ended September 30, 2008, positive operating leverage in the year-over-year comparison was 540 basis points, based on growth in total operating-basis revenue of 32.9% and growth in total operating-basis expenses of 27.5%.

STATE STREET CORPORATION

BASELINE RESULTS⁽¹⁾


	Nine Months Ended September 30,				% Change
(Dollars in millions, except per share amounts)	2007		2008		2007 vs 2008⁽²⁾
Total fee revenue	$	4,495	$	5,305
All other revenue		1,182		1,816

Total revenue		5,677		7,121	25.4	%
Total operating expenses		3,946		4,791	21.4

Income before income taxes		1,731		2,330
Income taxes		631		815

Net income	$	1,100	$	1,515	37.7

Diluted earnings per share	$	3.20	$	3.99	24.7

⁽¹⁾

Represents consolidated State Street operating basis, excluding Investors Financial business, related financing costs and related amortization of other intangible assets. Management believes that providing separate State Street baseline financial information further assists investors and analysts in understanding the effect of the Investors Financial acquisition.

⁽²⁾	Excluding the results of Investors Financial, for the nine months ended September 30, 2008, positive operating leverage in the year-over-year comparison was 400 basis points, based on growth in total operating-basis revenue of 25.4% and growth in total operating-basis expenses of 21.4%.