10-QPeriod: Q3 FY2015

STATE STREET CORP Quarterly Report for Q3 Ended Sep 30, 2015

Filed November 6, 2015For Securities:STTSTT-PG

Summary

State Street Corporation (STT) reported its financial results for the third quarter and the first nine months of 2015. The company saw a modest increase in total revenue, driven primarily by a rise in fee revenue, which was partially offset by a decline in net interest revenue. This revenue growth was also impacted by a stronger U.S. dollar, which had a negative translation effect on foreign currency-denominated revenues. Expenses increased due to severance costs related to staff reductions and higher regulatory and compliance costs. Despite these pressures, the company's return on average common equity improved year-over-year. Key financial activities during the period included a significant stock repurchase program, with State Street buying back approximately $350 million of its common stock in the third quarter. The company also announced a multi-year cost efficiency program targeting substantial annualized savings through process digitization and operational changes. Management highlighted the ongoing impact of the strong U.S. dollar and lower global interest rates on net interest revenue, while also managing client deposit levels to balance economic and regulatory objectives. Investors should note the ongoing regulatory environment and its potential impact on future expenses.

Financial Statements
Beta
Revenue$2.61B
Interest Expense$101.00M
Net Income$581.00M
EPS (Basic)$1.33
EPS (Diluted)$1.31
Shares Outstanding (Basic)406.61M
Shares Outstanding (Diluted)412.17M

Key Highlights

  • 1Total revenue increased by 1% year-over-year for the third quarter of 2015, reaching $2.619 billion, primarily driven by a 5% increase in total fee revenue.
  • 2Net interest revenue declined by 10% to $513 million in the third quarter compared to the prior year, attributed to lower yields on interest-earning assets and the impact of a stronger U.S. dollar.
  • 3Total expenses rose by 4% to $1.962 billion in the third quarter, largely due to $75 million in severance costs and increased investments in information systems and regulatory compliance.
  • 4Return on average common equity improved to 11.3% in the third quarter of 2015 from 10.6% in the same period of 2014.
  • 5State Street announced a cost efficiency program targeting approximately $500 million in annualized savings over four to five years through operational process improvements and digitization.
  • 6The company repurchased approximately 4.8 million shares of its common stock for $350 million during the third quarter as part of its approved share buyback program.
  • 7Management noted that the strengthening U.S. dollar negatively impacted foreign exchange trading revenue and net interest revenue.

Frequently Asked Questions

State Street's total fee revenue increased by 5% to $2.108 billion in the third quarter of 2015 compared to $2.012 billion in the third quarter of 2014. This growth was primarily driven by increases in trading services and securities finance revenue, partially offset by a decline in servicing and management fees, which were impacted by the stronger U.S. dollar.

Net interest revenue decreased by 10% to $513 million in the third quarter of 2015 compared to $570 million in the prior year's quarter. This decline was attributed to lower yields on interest-earning assets due to lower global interest rates, as well as the negative impact of the stronger U.S. dollar on revenue translation.

State Street incurred $75 million in pre-tax severance costs during the third quarter of 2015 related to targeted staff reductions aimed at aligning expenses with the current environment. Additionally, the company announced a multi-year plan to achieve significant cost efficiencies through operational process changes and digitization, targeting approximately $500 million in annualized savings.

In the third quarter of 2015, State Street repurchased approximately 4.8 million shares of its common stock for $350 million under its authorized buyback program. The company also declared and paid common stock dividends of $0.34 per share in the quarter, totaling approximately $138 million.