10-QPeriod: Q2 FY2018

STATE STREET CORP Quarterly Report for Q2 Ended Jun 30, 2018

Filed July 25, 2018For Securities:STTSTT-PG

Summary

State Street Corporation (STT) reported a strong second quarter for 2018, with net income available to common shareholders increasing by 20% year-over-year to $698 million, translating to diluted earnings per share of $1.88, a 23% increase. Total revenue grew by 8% to $3,026 million, driven by a 6% increase in fee revenue and a significant 15% rise in net interest income, largely attributable to higher U.S. interest rates. The company also saw improvements in profitability metrics, with Return on Average Common Equity (ROE) rising to 14.7% and pre-tax margin expanding to 28.6% compared to the prior year's second quarter. Strategically, State Street announced its agreement to acquire Charles River Development for $2.6 billion, a move aimed at enhancing its front-to-middle-to-back office capabilities. While this acquisition will be financed partly through equity issuance and a temporary suspension of share repurchases, it signals a commitment to expanding its service offerings. The company also continued its capital return program, increasing common stock dividends by 11% and repurchasing shares under its approved programs, though these were paused due to the Charles River Development acquisition.

Financial Highlights

37 data points
Beta

Revenue

$3.06B

Net Income

$733.00M

23.9% Net Margin

EPS (Diluted)

$1.88

Total Assets

$248.31B

Cash & Equivalents

$3.89B

Free Cash Flow

-$1.57B

Financial Statements
Beta
Revenue$3.06B
Interest Expense$248.00M
Net Income$733.00M
EPS (Basic)$1.91
EPS (Diluted)$1.88
Shares Outstanding (Basic)365.62M
Shares Outstanding (Diluted)370.41M

Key Highlights

  • 1Net income available to common shareholders increased 20% to $698 million.
  • 2Diluted Earnings Per Share (EPS) rose 23% to $1.88.
  • 3Total revenue grew 8% to $3,026 million, driven by strong fee revenue and net interest income.
  • 4Return on Average Common Equity (ROE) improved to 14.7% from 12.6% in the prior year.
  • 5Announced acquisition of Charles River Development for $2.6 billion to expand front-to-middle-to-back office solutions.
  • 6Common stock dividends increased by 11% to $0.42 per share.
  • 7Asset Servicing (AUCA) grew 9%, while Assets Under Management (AUM) increased 5%, both benefiting from market appreciation and new business.

Frequently Asked Questions

State Street reported significant year-over-year improvements in its second quarter 2018 results. Net income available to common shareholders increased by 20% to $698 million, and diluted EPS grew by 23% to $1.88. Total revenue increased by 8% to $3,026 million, driven by growth in both fee revenue (up 6%) and net interest income (up 15%). Key profitability metrics also improved, with ROE increasing to 14.7% and the pre-tax margin expanding to 28.6%.

State Street announced a significant strategic move with the agreement to acquire Charles River Development for $2.6 billion. This acquisition is intended to enhance the company's front-to-middle-to-back office capabilities. The company is also focused on managing its capital effectively, evidenced by an 11% increase in common stock dividends and ongoing share repurchase programs, although these were temporarily suspended due to the planned acquisition.

Revenue growth was primarily driven by an 8% increase in total revenue. Fee revenue increased by 6%, with management fees seeing a substantial 17% rise, partly due to the adoption of new revenue recognition standards and higher equity markets. Net interest income saw a robust 15% increase, benefiting from higher U.S. interest rates and disciplined liability pricing. The company also saw growth in servicing fees (up 3%) and trading services (up 9%).

State Street continues to return value to shareholders through dividends and share repurchases. The company declared a common stock dividend of $0.42 per share for the second quarter of 2018, an 11% increase year-over-year. Additionally, it had been repurchasing shares under its authorized programs. However, in connection with the proposed acquisition of Charles River Development, share repurchases were suspended for the remainder of 2018, with plans to resume in early 2019.