10-QPeriod: Q1 FY2017

STATE STREET CORP Quarterly Report for Q1 Ended Mar 31, 2017

Filed May 4, 2017For Securities:STTSTT-PG

Summary

State Street Corporation reported a strong first quarter for 2017, demonstrating significant year-over-year growth in key financial metrics. Total revenue increased by 7% to $2.67 billion, driven primarily by a 12% rise in total fee revenue, which reached $2.20 billion. This growth was supported by higher equity markets, the successful integration of acquired operations (GEAM), and new business wins. Earnings per diluted share saw a substantial increase of 46% to $1.15. The company also reported a healthy return on equity of 9.9%. Operationally, State Street benefited from growth in its Investment Servicing segment, with servicing fees up 4% and management fees soaring 41%, largely due to the GEAM acquisition and favorable market conditions. The company's strategic transformation program, State Street Beacon, is progressing, with initial expense savings realized and further targets set for significant cost reductions. Despite a slight flatlining in net interest income, the overall financial performance indicates a positive start to the year, with a strong capital position and ongoing efforts to enhance operational efficiency.

Financial Highlights

33 data points
Beta

Revenue

$2.67B

Net Income

$502.00M

18.8% Net Margin

EPS (Diluted)

$1.15

Total Assets

$236.80B

Free Cash Flow

$3.35B

Financial Statements
Beta
Revenue$2.67B
Interest Expense$140.00M
Net Income$502.00M
EPS (Basic)$1.17
EPS (Diluted)$1.15
Shares Outstanding (Basic)381.22M
Shares Outstanding (Diluted)386.42M

Key Highlights

  • 1Total revenue increased by 7% to $2.67 billion in Q1 2017 compared to Q1 2016.
  • 2Total fee revenue grew by 12% to $2.20 billion, driven by strong market appreciation and business growth.
  • 3Diluted earnings per share (EPS) rose by 46% to $1.15 in Q1 2017.
  • 4Return on average common equity (ROE) improved significantly to 9.9% from 6.8% in the prior year period.
  • 5Management fees increased by 41% to $382 million, primarily due to the acquisition of GEAM operations and higher equity markets.
  • 6State Street declared a quarterly common stock dividend of $0.38 per share, an increase from $0.34 per share in Q1 2016.
  • 7The company repurchased approximately 6.7 million shares of common stock for $523 million in Q1 2017.

Frequently Asked Questions

State Street's total revenue increased by 7% to $2.67 billion in the first quarter of 2017 compared to the same period in 2016. This growth was primarily driven by a 12% increase in total fee revenue, reaching $2.20 billion. Key contributors to this rise included higher equity markets, which boosted servicing and management fees, the successful integration of the acquired GEAM operations, and new business wins.

The State Street Beacon program, a multi-year transformation initiative aimed at digitizing the business and lowering expenses, recorded $16 million in restructuring charges in Q1 2017. The company expects to achieve significant annual pre-tax net run-rate expense savings of $550 million by the end of 2020. These savings, along with lower restructuring charges, helped to offset increased compensation and information technology expenses, contributing to flat total expenses compared to the prior year. The program positively impacted profitability, contributing to the 46% increase in diluted EPS.

The acquisition of GEAM (General Electric Asset Management) significantly boosted State Street's Investment Management segment. Management fees, a key component of this segment, increased by 41% to $382 million, with approximately $71 million attributed to the GEAM operations. The acquisition also contributed to a 12% increase in total Assets Under Management (AUM).

Net interest income remained relatively flat at $510 million in Q1 2017 compared to $512 million in Q1 2016. While a higher domestic rate environment and disciplined liability pricing provided some benefit, this was offset by lower yields on the foreign investment securities portfolio and management's actions to reduce reliance on more expensive wholesale deposit funding. The company continues to invest deposits with central banks, which yield low returns, impacting the net interest margin.

State Street maintained a strong capital position, with common equity tier 1 capital ratios well above regulatory minimums. The company demonstrated its commitment to shareholder returns by declaring a quarterly common stock dividend of $0.38 per share, an increase from the previous year. Additionally, State Street actively repurchased its common stock, acquiring approximately 6.7 million shares for $523 million in Q1 2017 under its share repurchase program.