10-QPeriod: Q2 FY2005

STATE STREET CORP Quarterly Report for Q2 Ended Jun 30, 2005

Filed August 9, 2005For Securities:STTSTT-PG

Summary

State Street Corporation's second quarter and first half of 2005 results show modest growth in key areas, alongside increased operating expenses. For the second quarter of 2005, total revenue rose by 6% to $1.36 billion, driven primarily by a 9% increase in fee revenue to $1.14 billion. This growth in fee revenue was largely attributed to strong performance in servicing fees (up 8%), management fees (up 13%), and securities lending revenue (up 27%). However, net income remained flat at $220 million for the quarter, as total operating expenses also increased by 8% to $1.03 billion. For the first six months of 2005, revenue increased by 7% to $2.67 billion, with net income up 2% to $446 million, while operating expenses grew by 7%. The company continues to manage its capital effectively, with Tier 1 risk-based capital ratios well above regulatory requirements.

Key Highlights

  • 1Total revenue for Q2 2005 increased by 6% year-over-year to $1.36 billion.
  • 2Fee revenue, a key driver, grew by 9% to $1.14 billion in Q2 2005, fueled by strong performance in servicing, management, and securities lending fees.
  • 3Net income remained flat at $220 million for Q2 2005, as operating expenses also saw an 8% increase.
  • 4For the first six months of 2005, revenue rose 7% to $2.67 billion, and net income increased by 2% to $446 million.
  • 5Assets under custody reached $9.62 trillion, and assets under management grew to $1.37 trillion, indicating continued client trust and market presence.
  • 6The company's capital ratios, including Tier 1 risk-based capital of 12.4%, remain strong and well above regulatory minimums.

Frequently Asked Questions

State Street's revenue growth in the second quarter of 2005 was primarily driven by a 9% increase in fee revenue, which reached $1.14 billion. This was supported by solid performance in servicing fees (up 8%), management fees (up 13%), and a significant 27% rise in securities lending revenue.

Net income remained flat at $220 million for the second quarter of 2005 because total operating expenses also increased by 8% year-over-year, matching the revenue growth pace. Key expense drivers included higher salaries and employee benefits, and occupancy costs related to a sub-lease agreement.

State Street continues to maintain strong capital adequacy. At June 30, 2005, its Tier 1 risk-based capital ratio was 12.4% and its total risk-based capital ratio was 13.6%, both significantly exceeding regulatory requirements. The company also reported a substantial amount of liquid assets totaling $87.55 billion, representing 84% of total consolidated assets, indicating a strong liquidity position.

Yes, the second quarter of 2005 included $26 million in occupancy expense related to a sub-lease agreement for its headquarters. The prior year's second quarter included $16 million in merger and integration costs associated with the Deutsche Bank acquisition. These items affect year-over-year comparisons but are being managed as part of operational restructuring.