10-QPeriod: Q3 FY2011

STATE STREET CORP Quarterly Report for Q3 Ended Sep 30, 2011

Filed November 4, 2011For Securities:STTSTT-PG

Summary

State Street Corporation (STT) reported a mixed financial performance for the third quarter of 2011 compared to the prior year. Total revenue saw a modest 5% increase, driven by a significant 18% rise in fee revenue, which offset a 20% decline in net interest revenue. This shift in revenue composition indicates a growing reliance on fee-based services, such as servicing and management fees, which benefited from higher market valuations and net new business installations. Trading services also experienced a strong surge, particularly foreign exchange trading, due to increased volatility and client volumes. However, the company's expenses also rose by 18%, largely due to higher salaries, benefits, and costs associated with its ongoing business operations and IT transformation program. This increase in expenses, coupled with a significant decrease in income tax expense (primarily due to a discrete tax benefit), resulted in a slight increase in net income available to common shareholders. Investors should note the company's aggressive share repurchase program and the recommencement of common stock dividend increases, signaling a commitment to shareholder returns, albeit alongside ongoing restructuring efforts.

Financial Statements
Beta
Revenue$2.43B
Interest Expense$150.00M
Net Income$555.00M
EPS (Basic)$1.11
EPS (Diluted)$1.10
Shares Outstanding (Basic)490.84M
Shares Outstanding (Diluted)494.78M

Key Highlights

  • 1Total revenue increased by 5% to $2.43 billion, driven by an 18% increase in total fee revenue to $1.84 billion.
  • 2Net interest revenue declined by 20% to $578 million, primarily due to lower discount accretion from former conduit securities.
  • 3Servicing fees grew 10% and management fees increased 17%, reflecting positive market valuations and new business.
  • 4Trading services revenue saw a substantial 46% increase, with foreign exchange trading up 91% due to higher volatility and volumes.
  • 5Total expenses increased by 18% to $1.80 billion, driven by higher salaries, employee benefits, and restructuring costs.
  • 6Net income available to common shareholders slightly increased to $543 million, with diluted earnings per share at $1.10.
  • 7State Street repurchased approximately $450 million of its common stock in the third quarter and increased its quarterly dividend to $0.18 per share.

Frequently Asked Questions

State Street's total revenue increased by 5% year-over-year, primarily driven by an 18% rise in total fee revenue. This growth was largely attributable to increases in servicing fees (up 10%) and management fees (up 17%), which benefited from higher equity market valuations and the successful installation of new business. Trading services also contributed significantly with a 46% increase, particularly in foreign exchange trading.

Net interest revenue declined by 20% compared to the prior year's third quarter. This decrease was mainly due to a significant reduction in discount accretion related to former conduit securities. Excluding this accretion, net interest revenue was relatively flat year-over-year.

Total expenses increased by 18% year-over-year. This rise was primarily attributed to higher salaries and employee benefits, reflecting salary adjustments and expenses from acquired businesses. Additionally, costs related to the ongoing business operations and information technology transformation program contributed to the increase.

State Street demonstrated its commitment to shareholder returns by repurchasing approximately $450 million of its common stock during the third quarter of 2011 under its authorized share repurchase program. Furthermore, the company increased its quarterly common stock dividend to $0.18 per share, marking the first increase since the dividend reduction in early 2009.