Document and Entity Information
Document and Entity Information | ||
3 Months Ended
Mar. 31, 2010 | Apr. 30, 2010
| |
Document Type | 10-Q | |
Amendment Flag | false | |
Document Period End Date | 2010-03-31 | |
Document Fiscal Year Focus | 2,010 | |
Document Fiscal Period Focus | Q1 | |
Trading Symbol | STT | |
Entity Registrant Name | STATE STREET Corp | |
Entity Central Index Key | 0000093751 | |
Current Fiscal Year End Date | --12-31 | |
Entity Filer Category | Large Accelerated Filer | |
Entity Common Stock, Shares Outstanding | 501,714,719 |
CONSOLIDATED STATEMENT OF INCOM
CONSOLIDATED STATEMENT OF INCOME (USD $) | ||
In Millions, except Share data in Thousands | 3 Months Ended
Mar. 31, 2010 | 3 Months Ended
Mar. 31, 2009 |
Fee revenue: | ||
Servicing fees | $880 | $766 |
Management fees | 226 | 181 |
Trading services | 242 | 245 |
Securities finance | 72 | 181 |
Processing fees and other | 120 | 49 |
Total fee revenue | 1,540 | 1,422 |
Net interest revenue: | ||
Interest revenue | 878 | 738 |
Interest expense | 217 | 174 |
Net interest revenue | 661 | 564 |
Gains (Losses) related to investment securities, net: | ||
Net gains from sales of available-for-sale securities | 192 | 29 |
Losses from other-than-temporary impairment | (240) | (13) |
Losses not related to credit | 143 | |
Gains related to investment securities, net | 95 | 16 |
Total revenue | 2,296 | 2,002 |
Provision for loan losses | 15 | 84 |
Expenses: | ||
Salaries and employee benefits | 883 | 731 |
Information systems and communications | 167 | 161 |
Transaction processing services | 153 | 131 |
Occupancy | 118 | 121 |
Merger and integration costs | 13 | 17 |
Professional services | 81 | 35 |
Amortization of other intangible assets | 34 | 34 |
Other | 130 | 74 |
Total expenses | 1,579 | 1,304 |
Income before income tax expense | 702 | 614 |
Income tax expense | 207 | 138 |
Net income | 495 | 476 |
Net income available to common shareholders | $495 | $445 |
Earnings per common share: | ||
Basic | 0.99 | 1.03 |
Diluted | 0.99 | 1.02 |
Average common shares outstanding (in thousands): | ||
Basic | 494,588 | 432,179 |
Diluted | 498,056 | 435,299 |
Cash dividends declared per share | 0.01 | 0.01 |
CONSOLIDATED STATEMENT OF CONDI
CONSOLIDATED STATEMENT OF CONDITION (USD $) | ||
In Millions | 3 Months Ended
Mar. 31, 2010 | 12 Months Ended
Dec. 31, 2009 |
Assets | ||
Cash and due from banks | $2,097 | $2,641 |
Interest-bearing deposits with banks | 24,269 | 26,632 |
Securities purchased under resale agreements | 1,914 | 2,387 |
Trading account assets | 147 | 148 |
Investment securities available for sale | 72,956 | 72,699 |
Investment securities held to maturity (fair value of $20,333 and $20,928) | 19,831 | 20,877 |
Loans and leases (less allowance for losses of $91 and $79) | 12,245 | 10,729 |
Premises and equipment (net of accumulated depreciation of $3,141 and $3,046) | 1,880 | 1,953 |
Accrued income receivable | 1,563 | 1,497 |
Goodwill | 4,515 | 4,550 |
Other intangible assets | 1,768 | 1,810 |
Other assets | 10,786 | 12,023 |
Total assets | 153,971 | 157,946 |
Deposits: | ||
Noninterest-bearing | 13,550 | 11,969 |
Interest-bearing-U.S. | 8,240 | 5,956 |
Interest-bearing-Non-U.S. | 68,546 | 72,137 |
Total deposits | 90,336 | 90,062 |
Securities sold under repurchase agreements | 8,894 | 10,542 |
Federal funds purchased | 4,386 | 4,532 |
Other short-term borrowings | 16,514 | 20,200 |
Accrued expenses and other liabilities | 9,616 | 9,281 |
Long-term debt | 8,815 | 8,838 |
Total liabilities | 138,561 | 143,455 |
Commitments and contingencies (note 6) | ||
Shareholders' equity | ||
Preferred stock, no par: 3,500,000 shares authorized; none issued | ||
Common stock, $1 par: 750,000,000 shares authorized; 501,748,047 and 495,365,571 shares issued | 502 | 495 |
Surplus | 9,222 | 9,180 |
Retained earnings | 7,588 | 7,071 |
Accumulated other comprehensive loss | (1,885) | (2,238) |
Treasury stock, at cost (429,434 and 431,832 shares) | (17) | (17) |
Total shareholders' equity | 15,410 | 14,491 |
Total liabilities and shareholders' equity | $153,971 | $157,946 |
1_CONSOLIDATED STATEMENT OF CON
CONSOLIDATED STATEMENT OF CONDITION (Parenthetical) (USD $) | ||
In Millions, except Share data | Mar. 31, 2010
| Dec. 31, 2009
|
Investment securities held to maturity, fair value | $20,333 | $20,928 |
Loans and leases, allowance for losses | 91 | 79 |
Premises and equipment, accumulated depreciation | $3,141 | $3,046 |
Preferred stock, no par | $0 | $0 |
Preferred stock, shares authorized | 3,500,000 | 3,500,000 |
Preferred stock, issued | 0 | 0 |
Common stock, par | $1 | $1 |
Common stock, shares authorized | 750,000,000 | 750,000,000 |
Common stock, shares issued | 501,748,047 | 495,365,571 |
Treasury stock, shares | 429,434 | 431,832 |
CONSOLIDATED STATEMENT OF CHANG
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (USD $) | |||||||
In Millions, except Share data in Thousands | Preferred Stock
| Common Stock
| Surplus
| Retained Earnings
| Accumulated Other Comprehensive (Loss) Income
| Treasury Stock
| Total
|
Beginning Balance at Dec. 31, 2008 | $1,883 | $432 | $6,992 | $9,135 | ($5,650) | ($18) | $12,774 |
Beginning Balance (in shares) at Dec. 31, 2008 | 431,976 | 418 | |||||
Comprehensive income: | |||||||
Net income | 476 | 476 | |||||
Change in net unrealized loss on available-for-sale securities, net of reclassification adjustment and expected losses from other-than-temporary impairment related to factors other than credit, net of related taxes of $395 in 2010 and $402 in 2009 | 617 | 617 | |||||
Change in net unrealized loss on fair value hedges of available-for-sale securities, net of related taxes of $(5) in 2010 and $31 in 2009 | 48 | 48 | |||||
Foreign currency translation, net of related taxes of $80 in 2010 and $(75) in 2009 | (5) | (5) | |||||
Change in net unrealized loss on cash flow hedges, net of related taxes of $(1) in 2010 and $1 in 2009 | 3 | 3 | |||||
Total comprehensive income | 476 | 663 | 1,139 | ||||
Common stock-$.01 in 2010 and $.01 in 2009 per share | (5) | (5) | |||||
Preferred stock | (25) | (25) | |||||
Accretion of preferred stock discount | 6 | (6) | |||||
Common stock awards and options exercised, including related taxes of $(11) in 2010 and $(50) in 2009 (in shares) | 2,822 | 4 | |||||
Common stock awards and options exercised, including related taxes of $(11) in 2010 and $(50) in 2009 | 3 | (28) | (25) | ||||
Ending Balance (in shares) at Mar. 31, 2009 | 434,798 | 422 | |||||
Ending Balance at Mar. 31, 2009 | 1,889 | 435 | 6,964 | 9,575 | (4,987) | (18) | 13,858 |
Beginning Balance at Dec. 31, 2009 | 495 | 9,180 | 7,071 | (2,238) | (17) | 14,491 | |
Beginning Balance (in shares) at Dec. 31, 2009 | 495,366 | 432 | |||||
Adjustment for effect of application of provisions of new accounting standard | 27 | (27) | |||||
Adjusted balance (in shares) | 495,366 | 432 | |||||
Adjusted balance | 495 | 9,180 | 7,098 | (2,265) | (17) | 14,491 | |
Comprehensive income: | |||||||
Net income | 495 | 495 | |||||
Change in net unrealized loss on available-for-sale securities, net of reclassification adjustment and expected losses from other-than-temporary impairment related to factors other than credit, net of related taxes of $395 in 2010 and $402 in 2009 | 659 | 659 | |||||
Change in net unrealized loss on fair value hedges of available-for-sale securities, net of related taxes of $(5) in 2010 and $31 in 2009 | (4) | (4) | |||||
Expected losses from other-than-temporary impairment on held-to-maturity securities related to factors other than credit, net of related taxes of $(30) | (50) | (50) | |||||
Foreign currency translation, net of related taxes of $80 in 2010 and $(75) in 2009 | (227) | (227) | |||||
Change in net unrealized loss on cash flow hedges, net of related taxes of $(1) in 2010 and $1 in 2009 | 2 | 2 | |||||
Total comprehensive income | 495 | 380 | 875 | ||||
Common stock-$.01 in 2010 and $.01 in 2009 per share | (5) | (5) | |||||
Common stock awards and options exercised, including related taxes of $(11) in 2010 and $(50) in 2009 (in shares) | 6,382 | ||||||
Common stock awards and options exercised, including related taxes of $(11) in 2010 and $(50) in 2009 | 7 | 42 | 49 | ||||
Other | (3) | ||||||
Ending Balance (in shares) at Mar. 31, 2010 | 501,748 | 429 | |||||
Ending Balance at Mar. 31, 2010 | $502 | $9,222 | $7,588 | ($1,885) | ($17) | $15,410 |
2_CONSOLIDATED STATEMENT OF CHA
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (Parenthetical) (USD $) | ||
In Millions, except Per Share data | 3 Months Ended
Mar. 31, 2010 | 3 Months Ended
Mar. 31, 2009 |
Change in net unrealized loss on available-for-sale securities, net of reclassification adjustment and expected losses from other-than-temporary impairment related to factors other than credit, related taxes | $395 | $402 |
Change in net unrealized loss on fair value hedges of available-for-sale securities, related taxes | (5) | 31 |
Expected losses from other-than-temporary impairment on held-to-maturity securities related to factors other than credit, related taxes | (30) | |
Foreign currency translation, related taxes | 80 | (75) |
Change in net unrealized loss on cash flow hedges, related taxes | (1) | 1 |
Cash dividends, per share | 0.01 | 0.01 |
Common stock awards and options exercised, related taxes | ($11) | ($50) |
CONSOLIDATED STATEMENT OF CASH
CONSOLIDATED STATEMENT OF CASH FLOWS (USD $) | ||
In Millions | 3 Months Ended
Mar. 31, 2010 | 3 Months Ended
Mar. 31, 2009 |
Operating Activities: | ||
Net income | $495 | $476 |
Adjustments to reconcile net income to net cash provided by operating activities: | ||
Non-cash adjustments for depreciation, amortization, accretion and deferred income taxes | (233) | (23) |
Gains related to investment securities, net | (95) | (16) |
Change in trading account assets, net | 1 | (4,358) |
Other, net | 1,587 | 1,186 |
Net cash (used in) provided by operating activities | 1,755 | (2,735) |
Investing Activities: | ||
Net decrease in interest-bearing deposits with banks | 2,363 | 20,827 |
Net decrease in federal funds sold and securities purchased under resale agreements | 473 | 344 |
Proceeds from sales of available-for-sale securities | 5,726 | 1,040 |
Proceeds from maturities of available-for-sale securities | 11,371 | 9,639 |
Purchases of available-for-sale securities | (16,528) | (9,992) |
Net decrease in securities related to AMLF | 5,370 | |
Proceeds from maturities of held-to-maturity securities | 1,185 | 736 |
Purchases of held-to-maturity securities | (178) | (100) |
Net (increase) decrease in loans and leases | (1,578) | 1,533 |
Purchases of equity investments and other long-term assets | (50) | (50) |
Purchases of premises and equipment | (25) | (140) |
Other, net | 137 | 50 |
Net cash provided by investing activities | 2,896 | 29,257 |
Financing Activities: | ||
Net increase in time deposits | 1,970 | 6,617 |
Net decrease in all other deposits | (1,696) | (34,926) |
Net decrease in short-term borrowings related to AMLF | (5,302) | |
Net increase (decrease) in short-term borrowings | (5,480) | 3,645 |
Proceeds from issuance of long-term debt, net of issuance costs | 3,938 | |
Payments for long-term debt and obligations under capital leases | (23) | (15) |
Proceeds from issuance of common stock for stock awards and options exercised | 39 | 3 |
Payments for cash dividends | (5) | (124) |
Net cash used in financing activities | (5,195) | (26,164) |
Net increase (decrease) | (544) | 358 |
Cash and due from banks at beginning of period | 2,641 | 3,181 |
Cash and due from banks at end of period | $2,097 | $3,539 |
Summary of Significant Accounti
Summary of Significant Accounting Policies | |
3 Months Ended
Mar. 31, 2010 | |
Summary of Significant Accounting Policies | Note1.Summary of Significant Accounting Policies The accounting and financial reporting policies of State Street Corporation conform to accounting principles generally accepted in the United States of America, referred to as GAAP. State Street Corporation, the parent company, is a financial holding company headquartered in Boston, Massachusetts. Unless otherwise indicated or unless the context requires otherwise, all references in these notes to consolidated financial statements to State Street, we, us, our or similar references mean State Street Corporation and its subsidiaries on a consolidated basis. Our principal banking subsidiary, State Street Bank and Trust Company, is referred to as State Street Bank. We have two lines of business: Investment Servicing provides services for U.S. mutual funds, collective investment funds and other investment pools, corporate and public retirement plans, insurance companies, foundations and endowments worldwide. Products include custody, product- and participant-level accounting; daily pricing and administration; master trust and master custody; recordkeeping; foreign exchange, brokerage and other trading services; securities finance; deposit and short-term investment facilities; loans and lease financing; investment manager and alternative investment manager operations outsourcing; and performance, risk and compliance analytics to support institutional investors. Investment Management offers a broad array of services for managing financial assets, including investment management and investment research services, primarily for institutional investors worldwide. These services include passive and active U.S. and non-U.S. equity and fixed-income strategies, and other related services, such as securities finance. The consolidated financial statements accompanying these condensed notes are unaudited. In the opinion of management, all adjustments, consisting only of normal recurring adjustments, which are necessary for a fair statement of the consolidated results of operations in these financial statements, have been made. Events occurring subsequent to the date of our consolidated statement of condition were evaluated for potential recognition or disclosure in our consolidated financial statements through the date we filed this Form 10-Q with the SEC. The preparation of consolidated financial statements requires managementtomake estimates and assumptions that affect the amounts reported in the accompanying consolidated financial statements and these condensed notes. Actual results could differ from those estimates. Consolidated results of operations for the three months ended March31, 2010 are not necessarily indicative of the results that may be expected for any future three-month period or for the year ending December31, 2010. Certain previously reported amounts have been reclassified to conform to current period classifications as presented in this Form10-Q. The consolidated statement of condition at December31, 2009 has been derived from the audited financial statements at that date, but does not include all footnotes required by GAAP for a complete set of financial |
Investment Securities
Investment Securities | |
3 Months Ended
Mar. 31, 2010 | |
Investment Securities | Note2.Investment Securities March31, 2010 December31, 2009 Amortized Cost Gross Unrealized Fair Value Amortized Cost Gross Unrealized Fair Value (In millions) Gains Losses Gains Losses Available for sale: U.S. Treasury and federal agencies: Direct obligations $ 9,309 $ 4 $ 6 $ 9,307 $ 11,164 $ 6 $ 8 $ 11,162 Mortgage-backed securities 14,954 167 32 15,089 14,895 94 53 14,936 Asset-backed securities: Student loans(1) 13,321 173 706 12,788 12,652 128 852 11,928 Credit cards 6,169 90 45 6,214 6,515 192 100 6,607 Sub-prime 4,820 2 1,622 3,200 5,054 12 1,869 3,197 Other 2,444 489 149 2,784 2,581 400 184 2,797 Total asset-backed 26,754 754 2,522 24,986 26,802 732 3,005 24,529 Non-U.S. debt securities 11,545 356 129 11,772 10,210 283 182 10,311 State and political subdivisions 6,069 213 244 6,038 5,954 221 238 5,937 Collateralized mortgage obligations 2,407 250 217 2,440 2,477 203 271 2,409 Other U.S. debt securities 2,175 98 16 2,257 2,161 94 21 2,234 U.S. equity securities 965 3 962 1,101 3 1,098 Non-U.S. equity securities 102 4 1 105 79 4 83 Total $ 74,280 $ 1,846 $ 3,170 $ 72,956 $ 74,843 $ 1,637 $ 3,781 $ 72,699 Held to maturity: U.S. Treasury and federal agencies: Direct obligations $ 500 $ 9 $ 509 $ 500 $ 13 $ 513 Mortgage-backed securities 570 32 602 620 33 653 Asset-backed securities: Credit cards 18 18 20 $ 2 18 Other 259 $ 60 199 447 68 379 Total asset-backed 277 60 217 467 70 397 Non-U.S. debt securities 10,445 656 170 10,931 10,822 569 245 11,146 State and political subdivisions 180 5 185 206 6 212 Collateralized mortgage obligations 7,859 320 290 7,889 8,262 249 504 8,007 Total $ 19,831 $ 1,022 $ 520 $ 20,333 $ 20,877 $ 870 $ 819 $ 20,928 |
Loans and Lease Financing
Loans and Lease Financing | |
3 Months Ended
Mar. 31, 2010 | |
Loans and Lease Financing | Note3.Loans and Lease Financing (In millions) March31, 2010 December31, 2009 Commercial and financial: Institutional and corporate: U.S. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,591 $ 3,938 Non-U.S. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114 100 Securities settlement: U.S. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,103 1,614 Non-U.S. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,119 458 Commercial real estate: U.S. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 596 600 Total commercial and financial 7,523 6,710 Purchased receivables: U.S. 767 786 Non-U.S. 1,499 1,596 Other: U.S. 916 Lease financing: U.S. 409 408 Non-U.S. 1,222 1,308 Total loans 12,336 10,808 Less allowance for loan losses (91 ) (79 ) Net loans $ 12,245 $ 10,729 Institutional and corporate balances primarily represented short-term extensions of credit pursuant to lending facilities with fund customers, as well as insurance, corporate and other borrowers. Securities settlement balances were composed of short-duration advances to our customers to provide liquidity in support of their transaction flows associated with securities settlement activities. The commercial real estate loans were acquired in 2008 pursuant to indemnified repurchase agreements. These loans, which are primarily collateralized by direct and indirect interests in commercial real estate, were recorded at their then-current fair value, based on managements expectations with respect to future collection of principal and interest using appropriate market discount rates as of the date of acquisition. These cash flow estimates are updated quarterly to reflect changes in managements expectations, which consider market conditions and other factors. At March31, 2010, approximately $73 million of these commercial real estate loans had been placed by management on non-accrual status, as the yield associated with certain of the loans, determined when the loans were acquired, was deemed to be non-accretable. This determination was based on managements expectations of the future collection of principal and interest from the loans. The purchased receivables were added in connection with the May 2009 conduit consolidation. These structured asset-backed loans represent undivided interests in securitized pools of underlying third-party receivables. Other loans, which are carried at fair value, resulted from the consolidation of the asset-backed securitization trusts on January1, 2010 in connection with our adoption of a new accounting standard. This consolidation is further discussed in notes 1 and 7. The following table presents activity in the allowance for l |
Goodwill and Other Intangible A
Goodwill and Other Intangible Assets | |
3 Months Ended
Mar. 31, 2010 | |
Goodwill and Other Intangible Assets | Note4.Goodwill and Other Intangible Assets Changes in the carrying amount of goodwill were as follows for three months ended March31, 2010: (In millions) Investment Servicing Investment Management Total Balance at December31, 2009 $ 4,544 $ 6 $ 4,550 Foreign currency translation (35 ) (35 ) Balance at March31, 2010 $ 4,509 $ 6 $ 4,515 The gross carrying amount and accumulated amortization of other intangible assets were as follows as of March31, 2010 and December31, 2009: March31, 2010 December31, 2009 (In millions) Gross Carrying Amount Accumulated Amortization Net Carrying Amount Gross Carrying Amount Accumulated Amortization Net Carrying Amount Customer relationships $ 1,607 $ (422 ) $ 1,185 $ 1,628 $ (409 ) $ 1,219 Core deposits 500 (62 ) 438 500 (57 ) 443 Other 204 (59 ) 145 243 (95 ) 148 Total $ 2,311 $ (543 ) $ 1,768 $ 2,371 $ (561 ) $ 1,810 |
Other Assets
Other Assets | |
3 Months Ended
Mar. 31, 2010 | |
Other Assets | Note5.Other Assets Other assets consisted of the following as of March31, 2010 and December31, 2009: (In millions) March31, 2010 December31, 2009 Unrealized gains on derivative financial instruments $ 4,101 $ 4,511 Deferred tax assets 3,598 3,973 Collateral deposits 568 1,351 Equity investments in joint ventures and other unconsolidated entities 506 492 Other 2,013 1,696 Total $ 10,786 $ 12,023 |
Commitments and Contingencies
Commitments and Contingencies | |
3 Months Ended
Mar. 31, 2010 | |
Commitments and Contingencies | Note6.Commitments and Contingencies Off-Balance Sheet Commitments and Contingencies In the normal course of business, we hold assets under custody and management in a custodial or fiduciary capacity. Management conducts regular reviews of its responsibilities in this regard and considers the results in preparing the consolidated financial statements. In the opinion of management, no contingent liabilities existed at March31, 2010, that would have had a material adverse effect on State Streets consolidated results of operations or financial condition. On behalf of our customers, we lend their securities to brokers and other institutions. In most circumstances, we indemnify our customers for the fair market value of those securities against a failure of the borrower to return such securities. The aggregate fair value of indemnified securities on loan totaled $396.87 billion at March31, 2010, and $365.25 billion at December31, 2009. We require the borrowers to provide collateral in an amount equal to or in excess of 100% of the fair market value of the securities borrowed. Securities on loan are revalued daily to determine if additional collateral is necessary. Collateral received in connection with our securities lending services is held by us as agent and is not recorded in our consolidated statement of condition. We held, as agent, cash and securities with an aggregate fair value of approximately $407.94 billion and $375.92 billion as collateral for indemnified securities on loan at March31, 2010 and December31, 2009, respectively. The collateral held by us as agent is invested on behalf of our customers. In certain cases, the collateral is invested in third-party repurchase agreements, for which we indemnify the customer against loss of the principal invested. We require the counterparty to the repurchase agreement to provide collateral in an amount equal to or in excess of 100% of the amount of the repurchase agreement. In our role as agent, the indemnified repurchase agreements and the related collateral are not recorded in our consolidated statement of condition. Of the collateral of $407.94 billion at March31, 2010 and $375.92 billion at December31, 2009 referenced above, $96.66 billion at March31, 2010 and $77.73 billion at December31, 2009 were invested in indemnified repurchase agreements. We held, as agent, $101.57 billion and $82.62 billion as collateral for indemnified investments in repurchase agreements at March31, 2010 and December31, 2009, respectively. Legal Proceedings In the ordinary course of business, we and our subsidiaries are involved in disputes, litigation and regulatory inquiries and investigations, both pending and threatened. These matters, if resolved adversely against us, may result in monetary damages, fines and penalties or require changes in our business practices. The resolution of these proceedings is inherently difficult to predict. However, we do not believe that the amount of any judgment, settlement or other action arising from any pending proceeding will have a material adverse effect on our consolidated financial condition, although the outcome of certain of the matters described be |
Variable Interest Entities
Variable Interest Entities | |
3 Months Ended
Mar. 31, 2010 | |
Variable Interest Entities | Note7.Variable Interest Entities We invest in various types of VIEs, as defined by GAAP, some of which are recorded in our consolidated financial statements and all of which are described below. We also invest in various forms of asset-backed securities, which we carry in our investment securities portfolio. These asset-backed securities meet the GAAP definition of asset securitization entities, which entities are considered to be VIEs. We are not considered to be the primary beneficiary of these VIEs, as defined by GAAP, since we do not have control over their activities. Additional information about asset-backed securities is provided in note 2. Tax-Exempt Investment Program In the normal course of our business, we structure and sell certificated interests in pools of tax-exempt investment-grade assets, principally to our mutual fund customers. We structure these pools as partnership trusts, and the trusts are recorded in our consolidated statement of condition as investment securities available for sale and other short-term borrowings. We may also provide liquidity and re-marketing services to the trusts. As of March31, 2010 and December31, 2009, we carried investment securities available for sale, composed of securities related to state and political subdivisions, with a fair value of $3.06 billion and $3.13 billion, respectively, and other short-term borrowings of $2.66 billion and $2.74 billion, respectively, in our consolidated statement of condition in connection with these trusts. We transfer assets to the trusts from our investment securities portfolio at adjusted book value, and the trusts finance the acquisition of these assets by selling certificated interests issued by the trusts to third-party investors and to State Street as residual holder. These transfers do not meet the de-recognition criteria defined by GAAP, and therefore are recorded in our consolidated financial statements. The trusts had a weighted-average life of approximately 8.0 years at March31, 2010, compared to approximately 8.1years at December31, 2009. Under separate legal agreements, we provide standby bond purchase agreements to these trusts, which obligate State Street to acquire the certificated interests at par value in the event that the re-marketing agent is unable to place the certificated interests with investors. Our obligations as standby bond purchase agreement provider terminate in the event of the following credit events: payment default, bankruptcy of the issuer or credit enhancement provider, the imposition of taxability, or the downgrade of an asset held by the trust below investment grade. Our commitments to the trusts under these standby bond purchase agreements totaled $2.82billion at March31, 2010, none of which was utilized at period-end. In the event that our obligations under these agreements are triggered, no material impact to our consolidated results of operations or financial condition is expected to occur, because the securities are already recorded at fair value in our consolidated statement of condition. Asset-Backed Commercial Paper Program We sponsor and administer multi-seller asset-backed commercial paper pro |
Shareholders' Equity
Shareholders' Equity | |
3 Months Ended
Mar. 31, 2010 | |
Shareholders' Equity | Note 8.Shareholders Equity Accumulated other comprehensive loss included the following components as of the dates indicated: (In millions) March31, 2009 December31, 2009 Foreign currency translation $ 54 $ 281 Net unrealized loss on hedges of net investments in non-U.S. subsidiaries (14 ) (14 ) Net unrealized loss on available-for-sale securities (1,037 ) (1,636 ) Net unrealized loss on fair value hedges of available-for-sale securities (117 ) (113 ) Expected losses from other-than-temporary impairment on available-for-sale securities related to factors other than credit (126 ) (159 ) Expected losses from other-than-temporary impairment on held-to-maturity securities related to factors other than credit (437 ) (387 ) Minimum pension liability (192 ) (192 ) Net unrealized loss on cash flow hedges (16 ) (18 ) Total $ (1,885 ) $ (2,238 ) The net after-tax unrealized loss on available-for-sale securities of $1.04 billion and $1.64 billion as of March31, 2010 and December31, 2009, respectively, included $524 million and $635 million, respectively, of net after-tax unrealized losses related to securities reclassified from securities available for sale to securities held to maturity. The decrease in the losses related to transfers compared to December31, 2009 resulted from amortization and from the recognition of losses from other-than-temporary impairment on certain of the securities. For the three months ended March31, 2010, we realized net gains of $192million from sales of available-for-sale securities. Unrealized pre-tax gains of $103million were included in other comprehensive income at December31, 2009, net of deferred taxes of $41million, related to these sales. For the three months ended March31, 2009, we realized net gains of $29million from sales of available-for-sale securities. Unrealized pre-tax gains of $15million were included in other comprehensive income at December31, 2008, net of deferred taxes of $6million, related to these sales. Total comprehensive income for the three months ended March31, 2010 was $875 million, composed of $495 million of net income and $380 million of other comprehensive income. Total comprehensive income for the three months ended March31, 2009 was $1.14 billion, composed of $476 million of net income and $663 million of other comprehensive income. |
Fair Value
Fair Value | |
3 Months Ended
Mar. 31, 2010 | |
Fair Value | Note 9.Fair Value Fair Value Measurements We carry trading account assets, investment securities available for sale, certain loans, various types of derivative financial instruments and certain short-term borrowings at fair value in our consolidated statement of condition on a recurring basis. Changes in fair value of these financial assets and liabilities are recorded either as components of our consolidated statement of income or as components of other comprehensive income within shareholders equity in our consolidated statement of condition. We measure fair value for the above-described financial assets and liabilities in accordance with accounting standards which govern the measurement of the fair value of financial instruments. Management believes that its valuation techniques and underlying assumptions used to measure fair value conform to the provisions of these standards. We categorize the financial assets and liabilities that we carry at fair value based upon a prescribed three-level valuation hierarchy. The hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (level1) and the lowest priority to valuation methods using significant unobservable inputs (level3). If the inputs used to measure a financial asset or liability cross different levels of the hierarchy, categorization is based on the lowest-level input that is significant to the fair value measurement. Managements assessment of the significance of a particular input to the overall fair value measurement of a financial asset or liability requires judgment, and considers factors specific to that asset or liability. The three levels are described below. Level1. Financial assets and liabilities with values based on unadjusted quoted prices for identical assets or liabilities in an active market. Fair value is measured using unadjusted quoted prices in active markets for identical securities. Examples of level1 financial instruments include active exchange-traded equity securities and U.S. government securities. We categorized approximately $8.23 billion of our financial assets, composed of trading account assets, specifically equity securities, and investment securities available for sale, specifically U.S. government securities, and $4 million of our financial liabilities in level 1 at March31, 2010. Level2. Financial assets and liabilities with values based on quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability. Level2 inputs include the following: a) Quoted prices for similar assets or liabilities in active markets; b) Quoted prices for identical or similar assets or liabilities in non-active markets; c) Pricing models whose inputs are observable for substantially the full term of the asset or liability; and d) Pricing models whose inputs are derived principally from or corroborated by observable market information through correlation or other means for substantially the full term of the asset or liability. The fair |
Derivative Financial Instrument
Derivative Financial Instruments | |
3 Months Ended
Mar. 31, 2010 | |
Derivative Financial Instruments | Note 10.Derivative Financial Instruments We use derivative financial instruments to support our customers needs, conduct our trading activities, and manage our interest-rate and currency risk. As part of our trading activities, we assume positions in both the foreign exchange and interest-rate markets by buying and selling cash instruments and using derivative financial instruments, including foreign exchange forward contracts, foreign exchange and interest-rate options, and interest-rate swaps. All foreign exchange contracts are valued daily at current market rates. Interest-rate contracts involve an agreement with a counterparty to exchange cash flows based on the movement of an underlying interest-rate index. An interest-rate swap agreement involves the exchange of a series of interest payments, either at a fixed or variable rate, based upon the notional amount without the exchange of the underlying principal amount. An interest-rate option contract provides the purchaser, for a premium, the right, but not the obligation, to receive an interest rate based upon a predetermined notional amount during a specified period. An interest-rate futures contract is a commitment to buy or sell, at a future date, a financial instrument at a contracted price; it may be settled in cash or through the delivery of the contracted instrument. Foreign exchange contracts involve an agreement to exchange one currency for another currency at an agreed-upon rate and settlement date. Foreign exchange contracts generally consist of foreign exchange forward and spot contracts and option contracts. Derivative financial instruments involve the management of interest-rate and foreign currency risk, and involve, to varying degrees, market risk and credit and counterparty risk (risk related to repayment). Market risk is defined as the risk of adverse financial impact due to fluctuations in interest rates, foreign exchange rates and other market-driven factors and prices. We use a variety of risk management tools and methodologies to measure, monitor and manage the market risk associated with our trading activities. One such risk-management measure is value-at-risk, or VaR. VaR is an estimate of potential loss for a given period within a stated statistical confidence interval. We use a risk-measurement system to estimate VaR daily. We have adopted standards for estimating VaR, and we maintain capital for market risk in accordance with applicable regulatory guidelines. Derivative financial instruments are also subject to credit and counterparty risk, which is defined as the risk of financial loss if a borrower or counterparty is either unable or unwilling to repay borrowings or settle a transaction in accordance with the underlying contractual terms. We manage credit and counterparty risk by performing credit reviews, maintaining individual counterparty limits, entering into netting arrangements and requiring the receipt of collateral. Collateral requirements are determined after a comprehensive review of the creditworthiness of each counterparty, and the collateral requirements are monitored and adjusted daily. Collateral is generally held in the for |
Net Interest Revenue
Net Interest Revenue | |
3 Months Ended
Mar. 31, 2010 | |
Net Interest Revenue | Note 11.Net Interest Revenue ThreeMonthsEnded March 31, (In millions) 2010 2009 Interest revenue: Deposits with banks $ 19 $ 61 Investment securities: U.S. Treasury and federal agencies 139 145 State and political subdivisions 54 58 Other investments 550 381 Securities purchased under resale agreements and federal funds sold 4 8 Loans and leases (1) 111 43 Trading account assets 1 17 Interest revenue associated with AMLF 24 Other interest-earning assets 1 Total interest revenue 878 738 Interest expense: Deposits 33 65 Short-term borrowings(1) 112 32 Long-term debt 72 60 Interest expense associated with AMLF 17 Total interest expense 217 174 Net interest revenue $ 661 $ 564 (1) Amounts included $53 million related to the third-party asset-backed securitization trusts consolidated into our financial statements on January 1, 2010 in connection with our adoption of a new accounting standard. |
Other Revenue and Other Expense
Other Revenue and Other Expenses | |
3 Months Ended
Mar. 31, 2010 | |
Other Revenue and Other Expenses | Note12.Other Revenue and Other Expenses Processing fees and other revenue for the three months ended March 31, 2010 included $28 million of net revenue related to certain tax-advantaged investments. The components of other expenses were as follows for the periods indicated: ThreeMonthsEnded March 31, (In millions) 2010 2009 Securities processing $ 58 $ (1 ) Other 72 75 Total other expenses $ 130 $ 74 |
Earnings Per Common Share
Earnings Per Common Share | |
3 Months Ended
Mar. 31, 2010 | |
Earnings Per Common Share | Note13.Earnings Per Common Share The following table presents the computation of basic and diluted earnings per common share for the periods indicated: Three Months Ended March31, (Dollars in millions, except per share amounts) 2010 2009 Net income $ 495 $ 476 Less: Preferred stock dividends (25 ) Accretion of preferred stock discount (6 ) Net income available to common shareholders 495 445 Payments for cash dividends(1) (5 ) (104 ) Undistributed earnings $ 490 $ 341 Average shares outstanding (in thousands): Basic average shares 494,588 432,179 Average participating securities 3,116 632 Adjusted basic average shares 497,704 432,811 Basic average shares 494,588 432,179 Effect of dilutive securities: Stock options and stock awards 3,468 3,120 Diluted average shares 498,056 435,299 Anti-dilutive securities(2) 8,917 14,018 Earnings per common share: Basic: Distributed $ .01 $ .24 Undistributed(3) .98 .79 Basic $ .99 $ 1.03 Diluted $ .99 $ 1.02 (1) Represents payments during the period to common shareholders and to participating securities, composed of holders of unvested restricted stock and director stock. (2) Represents stock options outstanding but not included in the computation of diluted average shares because the exercise prices of the instruments were greater than the average fair value of our common stock during the periods. (3) Represents undistributed earnings divided by adjusted basic average shares. |
Line of Business Information
Line of Business Information | |
3 Months Ended
Mar. 31, 2010 | |
Line of Business Information | Note14.Line of Business Information We report two lines of business: Investment Servicing and Investment Management. Given our services and management organization, the results of operations for these lines of business are not necessarily comparable with those of other companies, including companies in the financial services industry. Information about revenue, expense and capital allocation methodologies is provided in note23 to the consolidated financial statements included in our 2009 Form10-K. The following is a summary of our line of business results. The amounts presented in the Other column for 2010 represent merger and integration costs recorded in connection with acquisitions. The amounts presented in the Other column for 2009 represent net interest revenue earned in connection with our participation in the AMLF and merger and integration costs recorded in connection with our acquisition of Investors Financial. The amounts presented in both Other columns were not allocated to State Streets business lines. For the Three Months Ended March31, Investment Servicing Investment Management Other Total (Dollarsinmillions, except where otherwisenoted) 2010 2009 2010 2009 2010 2009 2010 2009 Fee revenue: Servicing fees $ 880 $ 766 $ 880 $ 766 Management fees $ 226 $ 181 226 181 Trading services 242 245 242 245 Securities finance 58 125 14 56 72 181 Processing fees and other 90 33 30 16 120 49 Total fee revenue 1,270 1,169 270 253 1,540 1,422 Net interest revenue 647 541 14 16 $ 7 661 564 Gains related to investment securities, net 95 16 95 16 Total revenue 2,012 1,726 284 269 7 2,296 2,002 Provision for loan losses 15 84 15 84 Expenses from operations 1,334 1,139 232 148 1,566 1,287 Merger and integration costs $ 13 17 13 17 Total expenses 1,334 1,139 232 148 13 17 1,579 1,304 Income (Loss) from continuing operations before income taxes $ 663 $ 503 $ 52 $ 121 $ (13 ) $ (10 ) $ 702 $ 614 Pre-tax margin 33 % 29 % 18 % 45 % Average assets (inbillions) $ 139.0 $ 141.1 $ 3.9 $ 3.2 $ 142.9 $ 144.3 |
Non-U.S. Activities
Non-U.S. Activities | |
3 Months Ended
Mar. 31, 2010 | |
Non-U.S. Activities | Note15.Non-U.S. Activities We define non-U.S. activities as those revenue-producing assets and business activities that arise from customers domiciled outside the U.S. Due to the nature of our business, precise segregation of U.S. and non-U.S. activities is not possible. Subjective judgments have been applied to determine results of operations related to our non-U.S. activities, including our application of transfer pricing and our asset and liability management policies. Interest expense allocations are based on the average cost of short-term borrowings. The following table summarizes our non-U.S. results of operations for the three months ended March31: (In millions) 2010 2009 Total fee revenue $ 679 $ 628 Net interest revenue 148 61 Gains (Losses) related to investment securities, net 63 (7 ) Total revenue 890 682 Expenses 655 629 Income before income taxes 235 53 Income tax expense 89 19 Net income $ 146 $ 34 The following table summarizes our non-U.S. assets as of March31, 2010 and December31, 2009, based on the domicile location of our customers: (In millions) 2010 2009 Interest-bearing deposits with banks $ 14,717 $ 15,052 Non-U.S. investment securities 22,322 21,216 Other assets 15,533 16,031 Total assets $ 52,572 $ 52,299 |