10-QPeriod: Q3 FY2013

STATE STREET CORP Quarterly Report for Q3 Ended Sep 30, 2013

Filed November 6, 2013For Securities:STTSTT-PG

Summary

State Street Corporation (STT) reported its third quarter and nine-month results for 2013, showing mixed performance. Total revenue increased modestly by 3% year-over-year for both the quarter and the nine months, driven primarily by a strong performance in fee revenue, particularly servicing and management fees, which benefited from favorable equity market conditions and net new business. However, this growth was partially offset by a significant decline in net interest revenue, down 12% for the quarter and 10% year-to-date, attributed to lower global interest rates and portfolio reinvestment in lower-yielding securities. Expenses saw a substantial increase of 22% in the third quarter, largely due to a large credit related to Lehman Brothers recoveries in the prior year's comparable quarter. Excluding these extraordinary items, underlying expenses increased by a more modest 4%. The company continued its business transformation program, which generated cost savings, while also investing in information technology and new business initiatives. Diluted EPS saw a decline in the quarter, though it improved year-to-date. Overall, State Street demonstrated resilience with growth in fee-based revenues, but faced headwinds from a declining net interest margin. Investors should monitor the company's expense management strategies and the impact of interest rate environments on its net interest revenue going forward.

Financial Highlights

35 data points
Beta

Revenue

$2.42B

Net Income

$540.00M

22.3% Net Margin

EPS (Diluted)

$1.17

Total Assets

$217.18B

Free Cash Flow

$1.16B

Financial Statements
Beta
Revenue$2.42B
Interest Expense$97.00M
Net Income$540.00M
EPS (Basic)$1.20
EPS (Diluted)$1.17
Shares Outstanding (Basic)442.86M
Shares Outstanding (Diluted)452.15M

Key Highlights

  • 1Total revenue increased by 3% year-over-year for both the quarter and the first nine months of 2013.
  • 2Fee revenue grew by 10% in Q3 and 8% year-to-date, driven by servicing and management fees due to stronger equity markets and new business.
  • 3Net interest revenue declined by 12% in Q3 and 10% year-to-date, attributed to lower global interest rates and reinvestment in lower-yielding assets.
  • 4Total expenses increased by 22% in Q3, primarily due to year-over-year comparisons with significant Lehman Brothers-related credits in the prior year; underlying expenses excluding these items rose 4%.
  • 5Diluted earnings per common share decreased by 14% in the quarter to $1.17, but increased by 7% year-to-date to $3.40.
  • 6State Street repurchased approximately 8.2 million shares of its common stock for $560 million in Q3 2013 under its share repurchase program.
  • 7The company declared a quarterly common stock dividend of $0.26 per share, an increase from the previous quarter's $0.24.

Frequently Asked Questions

Revenue growth was primarily driven by an increase in fee revenue, which rose by 10% year-over-year. This was fueled by stronger equity markets and the successful installation of new business, leading to higher servicing and management fees. Trading services revenue also saw a 10% increase, mainly due to higher foreign exchange trading volumes and currency volatility.

Net interest revenue decreased by 12% in the third quarter and 10% for the first nine months compared to the prior year. This decline was primarily attributed to lower global interest rates, which reduced yields on earning assets. Additionally, the company noted the impact of reinvesting paydowns from existing investment securities into lower-yielding ones.

The Business Operations and Information Technology Transformation program continues to progress, generating pre-tax expense savings. In 2013, the company expected incremental pre-tax expense savings of approximately $220 million compared to its 2010 expense base. The program involves standardizing core business processes, moving to a private cloud for its technology platform, and expanding the use of third-party service providers.

State Street demonstrated a commitment to shareholder returns by repurchasing approximately 8.2 million shares of its common stock for $560 million in the third quarter, as part of a larger $2.10 billion program. The company also declared a quarterly common stock dividend of $0.26 per share, an increase from the previous quarter, reflecting confidence in its financial position.