10-QPeriod: Q1 FY2006

STATE STREET CORP Quarterly Report for Q1 Ended Mar 31, 2006

Filed May 5, 2006For Securities:STTSTT-PG

Summary

State Street Corporation's first quarter 2006 results demonstrate robust growth, exceeding previously stated financial goals. Total revenue increased by 16% year-over-year, reaching $1.52 billion, driven by strong performance in both Investment Servicing and Investment Management segments. Fee revenue saw a significant 15% increase, with notable growth in management fees (up 24%) and trading services (up 38%). Net interest revenue also rose by 25%, benefiting from balance sheet growth and improved deposit pricing. Diluted earnings per share from continuing operations grew by 25% to $0.84. The company also reported positive operating leverage, with revenue growth outpacing expense growth. The company's assets under custody and management continued to expand, reaching $10.74 trillion and $1.54 trillion, respectively. State Street maintained strong capital ratios, exceeding regulatory requirements, and continued its share repurchase program. While the company highlighted potential challenges from the interest-rate environment and expense management, the overall outlook for the remainder of 2006 appears positive, with management indicating they may exceed the mid-point of their full-year operating-basis earnings per share guidance.

Key Highlights

  • 1Total revenue increased 16% to $1.52 billion in Q1 2006 compared to Q1 2005.
  • 2Diluted earnings per share from continuing operations grew 25% to $0.84.
  • 3Fee revenue increased 15%, with strong contributions from management fees (+24%) and trading services (+38%).
  • 4Net interest revenue rose 25%, driven by balance sheet growth and favorable deposit pricing.
  • 5Assets under custody reached $10.74 trillion, and assets under management reached $1.54 trillion.
  • 6Positive operating leverage was achieved, with revenue growth of 16% exceeding expense growth of 13%.
  • 7State Street exceeded its stated financial goals for the quarter and anticipates potentially exceeding the mid-point of its full-year guidance.

Frequently Asked Questions

Revenue growth was primarily driven by increases in fee revenue, up 15%, and net interest revenue, up 25%. Fee revenue was boosted by strong performance in management fees and trading services, while net interest revenue benefited from balance sheet growth and more favorable deposit pricing, particularly from non-U.S. deposits.

Both Investment Servicing and Investment Management segments showed strong growth. Investment Servicing revenue increased 15%, with servicing fees and trading services revenue showing notable gains. Investment Management revenue grew 22%, primarily due to a 24% increase in investment management fees from State Street Global Advisors and improved securities finance revenue.

State Street exceeded its financial goals for the first quarter and anticipates potentially exceeding the mid-point of its full-year operating-basis earnings per share guidance if current revenue strength continues. However, management acknowledges potential challenges from the interest-rate environment, seasonality, and expense management.

State Street maintained strong capital ratios well above regulatory requirements. The company also continued its share repurchase program, buying back approximately 2.9 million shares in the quarter under an authorized 15 million share program, which is intended to mitigate the dilutive impact of shares issued under employee benefit programs.