10-QPeriod: Q2 FY2014

STATE STREET CORP Quarterly Report for Q2 Ended Jun 30, 2014

Filed August 8, 2014For Securities:STTSTT-PG

Summary

State Street Corporation (STT) reported its financial results for the second quarter and first six months of 2014, showing modest revenue growth driven by its core Investment Servicing and Investment Management businesses. Total revenue for the second quarter increased by 1% year-over-year, primarily due to higher servicing and management fees, which benefited from stronger global equity markets and net new business. However, net interest revenue declined by 6% due to lower yields on interest-earning assets. Expenses also rose by 3% in the quarter, largely driven by compensation and employee benefits, though partially offset by efficiency gains from the Business Operations and Information Technology Transformation program. Net income was up 7% for the quarter, reaching $622 million, with diluted EPS increasing 11% to $1.38. For the first six months, net income saw a 6% decrease to $985 million, reflecting higher expenses and lower net interest revenue, despite a 4% increase in total fee revenue. From a capital and regulatory perspective, State Street successfully completed its Basel III qualification period and began using the advanced approaches framework for capital ratio calculations. The company also continued its capital return program by repurchasing $410 million of its common stock and declaring a $0.30 per share dividend in the second quarter. The report highlights the company's status as a systemically important financial institution (G-SIB) and the increased compliance costs associated with new regulations. The company also provided an update on its ongoing business transformation program, which is expected to yield significant expense savings.

Financial Highlights

35 data points
Beta

Revenue

$2.60B

Net Income

$622.00M

23.9% Net Margin

EPS (Diluted)

$1.38

Total Assets

$282.32B

Free Cash Flow

-$1.63B

Financial Statements
Beta
Revenue$2.60B
Interest Expense$89.00M
Net Income$622.00M
EPS (Basic)$1.41
EPS (Diluted)$1.38
Shares Outstanding (Basic)427.82M
Shares Outstanding (Diluted)435.32M

Key Highlights

  • 1Total revenue for Q2 2014 increased 1% year-over-year to $2.6 billion, driven by a 3% increase in total fee revenue.
  • 2Net income available to common shareholders rose 6% to $602 million ($1.38 diluted EPS) in Q2 2014 compared to the prior year.
  • 3Servicing fees increased 7% and management fees increased 8% in Q2 2014, reflecting stronger equity markets and new business wins.
  • 4Net interest revenue decreased 6% in Q2 2014 due to lower yields on interest-earning assets.
  • 5Total expenses increased 3% in Q2 2014, mainly due to higher compensation and employee benefits, partially offset by cost savings from the IT transformation program.
  • 6State Street completed its Basel III qualification period and began using advanced approaches for regulatory capital calculations.
  • 7The company repurchased $410 million of common stock and declared a $0.30 per share dividend in Q2 2014, demonstrating a commitment to capital return.

Frequently Asked Questions

Revenue growth in the second quarter of 2014 was primarily driven by increases in servicing fees (up 7%) and management fees (up 8%). These increases were attributed to stronger global equity markets, the positive impact of net new business, and the weaker U.S. dollar.

Net interest revenue decreased by 6% in the second quarter of 2014 compared to the prior year. This decline was primarily due to lower yields on interest-earning assets, as lower global interest rates impacted revenue from floating-rate assets. Elevated client deposits, while increasing interest-earning assets, also put downward pressure on the net interest margin due to the low rates paid by central banks on these balances.

State Street's Business Operations and Information Technology Transformation program is ongoing and is expected to deliver significant expense savings. In the second quarter of 2014, the program contributed to offsetting increases in compensation and employee benefits expenses. The company anticipates achieving additional pre-tax expense savings of approximately $130 million for the full year 2014 from this program.

State Street was notified that it completed its Basel III qualification period (parallel run). This means the company will now use the advanced approaches framework for calculating its risk-based capital requirements, aligning with evolving regulatory standards for globally systemic important banks.

In the second quarter of 2014, State Street continued to return capital to shareholders through its stock repurchase program, buying back $410 million of common stock under a new authorization. The company also declared a quarterly common stock dividend of $0.30 per share. These actions reflect a commitment to enhancing shareholder value.