10-QPeriod: Q1 FY2014

STATE STREET CORP Quarterly Report for Q1 Ended Mar 31, 2014

Filed May 9, 2014For Securities:STTSTT-PG

Summary

State Street Corporation's (STT) Q1 2014 results showed a modest 2% increase in total revenue to $2.49 billion, driven by a 4% rise in fee revenue, primarily from stronger servicing and management fees, benefiting from improved equity markets. However, this growth was partially offset by a 4% decline in net interest revenue, impacted by lower global interest rates and a decrease in net interest margin to 1.30%. Expenses increased by 11% year-over-year, largely due to $72 million in severance costs related to cost base realignment and increased compensation for additional staffing, partially offset by savings from IT transformation initiatives. The company also reported progress in its capital plan, receiving no objection from the Federal Reserve for its capital actions. This led to the approval of a new common stock purchase program of up to $1.70 billion. Dividends remained stable at $0.26 per share, with a proposed increase to $0.30 in Q2 2014. The company issued $742 million in preferred stock during the quarter. Despite revenue growth, the significant increase in expenses led to a 22% year-over-year decrease in net income to $363 million, and a decline in diluted EPS to $0.81 from $0.98. Overall, the report indicates a stable but challenging operating environment for State Street. While fee-based revenues show resilience, the pressure on net interest revenue and rising expenses are key concerns for investors. The company's capital management remains a positive, with strong regulatory capital ratios and a commitment to returning capital to shareholders through buybacks and dividends.

Financial Highlights

34 data points
Beta

Revenue

$2.48B

Net Income

$363.00M

14.6% Net Margin

EPS (Diluted)

$0.81

Total Assets

$256.66B

Free Cash Flow

$1.80B

Financial Statements
Beta
Revenue$2.48B
Interest Expense$100.00M
Net Income$363.00M
EPS (Basic)$0.83
EPS (Diluted)$0.81
Shares Outstanding (Basic)430.62M
Shares Outstanding (Diluted)438.81M

Key Highlights

  • 1Total revenue increased 2% to $2.49 billion in Q1 2014 compared to Q1 2013, driven by growth in servicing and management fees.
  • 2Net income decreased 22% to $363 million, impacted by an 11% increase in total expenses, including $72 million in severance costs.
  • 3Diluted EPS fell 17% to $0.81, down from $0.98 in the prior year's comparable quarter.
  • 4The company received no objections from the Federal Reserve on its 2014 capital plan, leading to an approved $1.70 billion common stock repurchase program.
  • 5State Street completed its previous $2.10 billion stock repurchase program, buying back $420 million in Q1 2014.
  • 6Dividends declared remained stable at $0.26 per share, with a planned increase to $0.30 for Q2 2014.
  • 7The company issued $742 million in preferred stock in February 2014.

Frequently Asked Questions

State Street's total revenue increased by 2% to $2.49 billion in the first quarter of 2014, compared to the first quarter of 2013. This growth was primarily driven by a 4% increase in total fee revenue, with servicing fees up 5% and management fees up 11%, benefiting from stronger global equity markets. However, net interest revenue declined by 4% due to lower global interest rates.

Total expenses increased significantly by 11% to $2.03 billion in Q1 2014 compared to Q1 2013. This increase was mainly attributed to $72 million in severance costs related to the realignment of the company's cost base, higher incentive compensation, and increased staffing for new business and regulatory requirements. These rising expenses, combined with softer net interest revenue, led to a 22% decrease in net income to $363 million.

State Street received positive feedback on its 2014 capital plan from the Federal Reserve, leading to approval of a new common stock purchase program of up to $1.70 billion. The company also completed its prior $2.10 billion share repurchase program by buying back $420 million in Q1 2014. Dividends remained steady at $0.26 per share, with a proposed increase to $0.30 for the second quarter. Additionally, State Street issued $742 million in preferred stock during the quarter, enhancing its capital position.

Net interest revenue decreased by 4% in Q1 2014 due to lower global interest rates, which also caused the net interest margin to decline to 1.30%. Management noted that while elevated client deposits provided liquidity, placing a portion with central banks at low rates negatively impacted the margin. The company anticipates that continued low global interest rates will likely pressure net interest revenue in the near term.