10-QPeriod: Q3 FY2018

STATE STREET CORP Quarterly Report for Q3 Ended Sep 30, 2018

Filed October 31, 2018For Securities:STTSTT-PG

Summary

State Street Corporation (STT) reported a solid third quarter for 2018, demonstrating growth in key financial metrics. Total revenue increased by 4% year-over-year to $2.95 billion, driven by an 11% rise in Net Interest Income (NII) and a 2% increase in total fee revenue. This performance was supported by higher management fees, reflecting strong equity markets, and increased trading services revenue. Diluted Earnings Per Share (EPS) grew by 13% to $1.87, while Return on Average Common Equity (ROE) improved to 14.0% from 13.0% in the prior year's quarter. The company also successfully completed the significant acquisition of Charles River Development for approximately $2.6 billion, funded through a combination of common and preferred stock issuances and a temporary suspension of share repurchases. State Street anticipates resuming its share repurchase program in early 2019. Operationally, while servicing fees saw a slight decline of 1%, attributed to client transitions and industry pressures, this was offset by growth in management and trading fees. Total expenses increased by 3%, largely due to investments supporting new business and technology, partially mitigated by cost-saving initiatives. The company's capital position remains robust, with CET1 capital ratio increasing to 13.0% and Tier 1 leverage ratio to 8.1%. The regulatory environment continues to be a focus, with ongoing adaptation to Basel III requirements and other prudential standards. Overall, State Street presented a financially sound quarter with strategic progress, laying the groundwork for future growth.

Financial Highlights

38 data points
Beta

Revenue

$2.99B

Net Income

$764.00M

25.6% Net Margin

EPS (Diluted)

$1.87

Total Assets

$234.01B

Cash & Equivalents

$4.28B

Free Cash Flow

$5.51B

Financial Statements
Beta
Revenue$2.99B
Interest Expense$244.00M
Net Income$764.00M
EPS (Basic)$1.89
EPS (Diluted)$1.87
Shares Outstanding (Basic)374.96M
Shares Outstanding (Diluted)379.38M

Key Highlights

  • 1Total revenue increased 4% to $2.95 billion for Q3 2018 compared to Q3 2017.
  • 2Diluted Earnings Per Share (EPS) grew 13% to $1.87 in Q3 2018.
  • 3Net Interest Income (NII) increased 11% to $672 million, driven by higher U.S. interest rates.
  • 4Completed the acquisition of Charles River Development for $2.6 billion.
  • 5Assets Under Custody and/or Administration (AUCA) increased 6% year-over-year.
  • 6Assets Under Management (AUM) increased 5% year-over-year.
  • 7Common equity tier 1 (CET1) capital ratio improved to 13.0%.

Frequently Asked Questions

State Street's total revenue grew by 4% year-over-year to $2.95 billion. This was primarily driven by an 11% increase in Net Interest Income (NII), benefiting from higher U.S. interest rates, and a 2% rise in total fee revenue. The growth in fee revenue was supported by a 13% increase in management fees, reflecting stronger equity markets, and an 11% increase in trading services revenue.

State Street completed the acquisition of Charles River Development for approximately $2.6 billion on October 1, 2018. This was funded through a combination of a $1.15 billion common stock issuance in July 2018, a $500 million preferred stock issuance in September 2018, and the suspension of share repurchases. The acquisition is expected to bolster State Street's capabilities in investment management front office tools and solutions. The company intends to resume share repurchases in Q1 2019.

Total expenses increased by 3% in Q3 2018 compared to Q3 2017, primarily due to investments made to support new business onboarding and technology enhancements. These increases were partially offset by cost savings from the 'Beacon' program and organizational delayering. The company expects to incur approximately $200 million in acquisition-related costs for Charles River Development through 2021.

State Street's capital position remains strong, with a CET1 capital ratio of 13.0% and a Tier 1 leverage ratio of 8.1% as of September 30, 2018. These ratios improved due to the recent stock issuances and the suspension of share repurchases to fund the Charles River Development acquisition. The company maintains a comprehensive liquidity framework and expects its capital ratios to approximate historical levels by the end of 2018. State Street also continues to manage its investment portfolio with a focus on high-quality liquid assets (HQLA).