10-QPeriod: Q1 FY2011

STATE STREET CORP Quarterly Report for Q1 Ended Mar 31, 2011

Filed May 9, 2011For Securities:STTSTT-PG

Summary

State Street Corporation's (STT) Q1 2011 report shows a slight increase in total revenue to $2.361 billion, driven by a significant 16% rise in fee revenue, primarily from servicing and management fees. This growth was bolstered by acquisitions completed in 2010 and early 2011, as well as improved market valuations. However, net interest revenue saw a decline of 13%, largely due to lower discount accretion from former conduit securities. Expenses increased by 8%, mainly due to higher salaries and benefits associated with acquisitions and a new restructuring program. Key financial developments include the acquisition of Bank of Ireland's asset management business (BIAM) and the issuance of $2 billion in senior notes and $500 million in preferred stock to bolster regulatory capital. The company also increased its common stock dividend to $0.18 per share and authorized a $675 million share repurchase program. Despite the revenue growth, net income available to common shareholders decreased to $466 million from $492 million in the prior year quarter, and diluted EPS declined to $0.93 from $0.99.

Financial Highlights

35 data points
Beta

Revenue

$2.36B

Net Income

$471.00M

19.9% Net Margin

EPS (Diluted)

$0.93

Total Assets

$171.80B

Free Cash Flow

$64.00M

Financial Statements
Beta
Revenue$2.36B
Interest Expense$157.00M
Net Income$471.00M
EPS (Basic)$0.94
EPS (Diluted)$0.93
Shares Outstanding (Basic)497.47M
Shares Outstanding (Diluted)500.98M

Key Highlights

  • 1Total revenue increased by 3% to $2.361 billion, driven by a 16% increase in fee revenue to $1.791 billion.
  • 2Net income available to common shareholders decreased by 5.3% to $466 million compared to $492 million in Q1 2010.
  • 3Diluted earnings per common share decreased to $0.93 from $0.99 year-over-year.
  • 4Acquisition of Bank of Ireland's asset management business (BIAM) completed in January 2011, adding $23 billion in assets under management.
  • 5Company issued $2 billion in senior notes and $500 million in preferred stock in March 2011 to strengthen regulatory capital.
  • 6Quarterly common stock dividend increased to $0.18 per share, and a $675 million share repurchase program was authorized for 2011.
  • 7Total expenses rose 8% to $1.702 billion, impacted by increased salaries, benefits, and restructuring costs.

Frequently Asked Questions

Fee revenue increased by 16% to $1.791 billion, primarily driven by a 22% rise in servicing fees and a 12% increase in management fees. This growth was attributed to the addition of revenue from recently acquired businesses (Intesa, MIFA, and BIAM), new business wins, and improved equity market valuations.

Net interest revenue decreased by 13% to $577 million. This decline was mainly due to a significant reduction in discount accretion from former conduit securities, as higher paydowns and sales during the year reduced the expected accretion. Excluding this impact, net interest revenue would have increased.

State Street maintained strong regulatory capital ratios, exceeding "well-capitalized" thresholds. In Q1 2011, the company issued approximately $500 million of junior subordinated debentures and $500 million of preferred stock to enhance its Tier 1 and Tier 2 regulatory capital. Additionally, the common stock dividend was increased to $0.18 per share, and a $675 million share repurchase program was authorized.

The company faces numerous risks, including regulatory changes (like the Dodd-Frank Act and Basel III), financial market disruptions, interest rate volatility, credit risk from counterparties, operational risks, and competition. Management also highlighted risks related to the execution of its multi-year enhancement program and the ongoing performance of the housing market impacting its investment securities portfolio.