10-QPeriod: Q1 FY2010

STATE STREET CORP Quarterly Report for Q1 Ended Mar 31, 2010

Filed May 7, 2010For Securities:STTSTT-PG

Summary

State Street Corporation's (STT) first quarter 2010 results show a notable increase in total revenue, up 15% year-over-year to $2.3 billion, driven primarily by a 15% rise in fee revenue. This growth in fee revenue was significantly boosted by strong performance in servicing fees (up 15%) and management fees (up 25%), reflecting the positive impact of improved equity market valuations and new business wins. While net interest revenue also saw a healthy increase of 17%, this was substantially influenced by a one-time discount accretion from a prior year conduit consolidation. Expenses rose 21% year-over-year, largely due to the reinstatement of cash incentive compensation. Despite increased expenses, net income for the quarter was $495 million, a slight increase from $476 million in the prior year, though diluted EPS decreased marginally to $0.99 from $1.02. Assets under custody and administration reached $19.04 trillion, a 27% increase from the prior year, highlighting State Street's continued role as a major global custodian.

Financial Highlights

33 data points
Beta

Revenue

$2.30B

Net Income

$495.00M

21.6% Net Margin

EPS (Diluted)

$0.99

Total Assets

$153.97B

Free Cash Flow

$1.78B

Financial Statements
Beta
Revenue$2.30B
Interest Expense$217.00M
Net Income$495.00M
EPS (Basic)$0.99
EPS (Diluted)$0.99
Shares Outstanding (Basic)494.59M
Shares Outstanding (Diluted)498.06M

Key Highlights

  • 1Total revenue increased 15% to $2.3 billion, driven by an 8% rise in total fee revenue and a 17% increase in net interest revenue.
  • 2Servicing fees and management fees saw significant year-over-year growth of 15% and 25% respectively, largely due to improved equity market valuations and new business.
  • 3Assets under custody and administration grew 27% year-over-year to $19.04 trillion, indicating market recovery and business growth.
  • 4Net income was $495 million, a modest increase from $476 million in Q1 2009.
  • 5Total expenses increased by 21% to $1.58 billion, primarily due to the reinstatement of cash incentive compensation accruals.
  • 6Diluted Earnings Per Common Share (EPS) decreased slightly to $0.99 from $1.02 year-over-year.
  • 7Net interest margin improved by 33 basis points to 2.34%, significantly aided by a one-time discount accretion from a conduit consolidation.

Frequently Asked Questions

State Street's revenue increased by 15% year-over-year to $2.3 billion, primarily due to a strong performance in fee revenue, which rose 8%. This was driven by higher servicing fees (up 15%) and management fees (up 25%), reflecting improved equity market valuations and new business gains. Net interest revenue also contributed positively with a 17% increase.

Total expenses increased by 21% to $1.58 billion. The primary driver for this increase was the reinstatement of cash incentive compensation accruals, which had been suspended in the prior year as part of a plan to increase tangible common equity. Higher benefit requirements in payroll taxes and increased contract services also contributed to the rise in expenses.

The improved financial markets in the first quarter of 2010 positively impacted State Street's assets under custody and administration, which grew by 27% year-over-year to $19.04 trillion. Assets under management also increased by 38% year-over-year to $1.93 trillion. These increases were attributed to a combination of asset valuation increases due to market appreciation and net new business wins.

The significant increase in net interest revenue was partly due to a $212 million discount accretion recorded in Q1 2010. This accretion arose from the consolidation of certain asset-backed commercial paper conduits onto State Street's balance sheet in May 2009, which resulted in a substantial discount to the par value of the consolidated assets. While this contributed positively to net interest revenue in the current quarter, it is a non-recurring item and management anticipates it will continue to be a material component of net interest revenue for the foreseeable future.