10-QPeriod: Q3 FY2002

STATE STREET CORP Quarterly Report for Q3 Ended Sep 30, 2002

Filed November 7, 2002For Securities:STTSTT-PG

Summary

State Street Corporation (STT) reported a net income of $182 million for the third quarter of 2002, representing a 7.1% increase from $170 million in the same quarter of the previous year. Diluted earnings per share (EPS) also saw an improvement, rising to $0.56 from $0.51 year-over-year. This growth was driven by a solid increase in fee revenue, which grew 0.1% to $702 million, and gains on the sale of investment securities. Despite a slight decrease in total revenue to $956 million from $967 million in Q3 2001, the company demonstrated effective cost management, with total operating expenses declining by 5% to $684 million, aided by the elimination of goodwill amortization. For the nine months ended September 30, 2002, net income increased by 17.5% to $538 million, and diluted EPS grew to $1.64 from $1.38 in the prior year. The company also reported strong regulatory capital ratios, exceeding well-capitalized thresholds. Strategically, State Street announced two significant events: the acquisition of International Fund Services (IFS) in July 2002, enhancing its hedge fund services, and a definitive agreement to sell its Corporate Trust services to U.S. Bank, N.A. Moreover, subsequent to the quarter, State Street entered into an agreement to acquire substantial parts of Deutsche Bank's Global Securities Services business, signaling a major expansion initiative. These strategic moves, coupled with an improving earnings profile, position State Street for continued growth in the financial services sector.

Key Highlights

  • 1Net income for Q3 2002 increased by 7.1% to $182 million, and diluted EPS rose to $0.56 from $0.51 in Q3 2001.
  • 2Total revenue for Q3 2002 was $956 million, a slight decrease from $967 million in Q3 2001, impacted by market conditions.
  • 3Total operating expenses decreased by 5% to $684 million in Q3 2002, partly due to the adoption of SFAS No. 142, eliminating goodwill amortization.
  • 4Fee revenue showed resilience, increasing slightly by 0.1% to $702 million in Q3 2002, driven by servicing fees which were up 6%.
  • 5The company completed the acquisition of International Fund Services (IFS) in July 2002, expanding its hedge fund service capabilities.
  • 6State Street announced an agreement to sell its Corporate Trust services business for approximately $725 million.
  • 7A significant subsequent event disclosed is the agreement to acquire substantial parts of Deutsche Bank's Global Securities Services business, expected to close in early 2003.
  • 8Regulatory capital ratios, including Tier 1 risk-based capital, significantly exceed the 'well capitalized' thresholds, demonstrating strong financial health.

Frequently Asked Questions

State Street's profitability improved in the third quarter of 2002. Net income rose to $182 million from $170 million in the same period of 2001, representing a 7.1% increase. Diluted earnings per share also increased to $0.56 from $0.51 year-over-year.

Total revenue saw a slight decrease to $956 million, primarily due to market conditions impacting foreign exchange trading and net interest revenue. However, fee revenue remained strong, increasing slightly to $702 million, with servicing fees up 6%. Operating expenses decreased by 5% to $684 million, aided by the elimination of goodwill amortization following the adoption of SFAS No. 142.

State Street completed the acquisition of International Fund Services (IFS) in July 2002 to strengthen its hedge fund services. Additionally, it announced an agreement to sell its Corporate Trust services business. Post-quarter, a major announcement was the definitive agreement to acquire substantial parts of Deutsche Bank's Global Securities Services business, indicating a significant expansion strategy.

State Street demonstrated strong financial health. Its regulatory capital ratios, specifically the Tier 1 risk-based capital ratio of 15.9% for State Street Bank and 16.8% for the Corporation, significantly exceed the regulatory minimums and the 'well capitalized' thresholds, ensuring its status as a financial holding company.