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State Street Reports Second-Quarter 2014 GAAP-Basis EPS Of $1.38 On Revenue Of $2.60 Billion

In announcing today's financial results, Joseph L. Hooley, State Street's chairman, president and chief executive officer, said, "We are pleased with our solid second-quarter revenue growth driven by stronger global equity markets, net new business and the seasonal benefit from securities finance activity."

"We continue to see strong demand for our products and services as evidenced by our second quarter new business wins which were $250 billion in asset servicing and $18 billion in net new assets to be managed. We also have a robust and well-diversified new business pipeline."

"Despite our solid performance, we remain cautious about the overall environment given the continued low levels of interest rates and volatility, and the ongoing pressure of regulatory compliance costs."

"We also continue to prioritize returning capital to our shareholders through dividends and purchases of our common stock. During the second quarter of 2014, we purchased approximately $410 million of our common stock and ended the second quarter with approximately $1.3 billion remaining under our March 2014 common stock purchase program authorizing the purchase of up to $1.7 billion of our common stock through March 31, 2015. We also increased our common stock dividend for the quarter to $0.30 per share."

Second-Quarter 2014 GAAP Results

  • Earnings per common share (EPS) of $1.38 increased from $0.81 in the first quarter of 2014 and from $1.24 in the second quarter of 2013. The comparison with the first quarter reflects the seasonal deferred incentive compensation expense for retirement-eligible employees and payroll taxes in the first quarter of 2014, as well as the seasonal increase in second-quarter 2014 securities finance revenue.
  • Net income available to common shareholders of $602 million increased from $356 million in the first quarter of 2014 and from $571 million in the second quarter of 2013.
  • Revenue of $2.60 billion increased from $2.49 billion in the first quarter of 2014 and from $2.56 billion in the second quarter of 2013.
  • Net interest revenue of $561 million increased from $555 million in the first quarter of 2014 and decreased from $596 million in the second quarter of 2013.
  • Expenses of $1.85 billion decreased from $2.03 billion in the first quarter of 2014 and increased from $1.80 billion in the second quarter of 2013.
  • Return on average common shareholders' equity (ROE) of 11.9% increased from 7.2% in the first quarter of 2014 and from 11.3% in the second quarter of 2013.

Second-Quarter 2014 Operating-Basis (Non-GAAP) Results 1

  • EPS of $1.39 increased from $0.99 in the first quarter of 2014 and increased from $1.24 in the second quarter of 2013. The comparison with the first quarter reflects the seasonal deferred incentive compensation expense for retirement-eligible employees and payroll taxes in the first quarter of 2014, as well as the seasonal increase in second-quarter 2014 securities finance revenue.
  • Net income available to common shareholders of $603 million increased from $433 million in the first quarter of 2014 and from $571 million in the second quarter of 2013.
  • Revenue of $2.68 billion increased from $2.56 billion in the first quarter of 2014 and from $2.58 billion in the second quarter of 2013.
  • Net interest revenue of $575 million increased from $572 million in the first quarter of 2014 and decreased from $582 million in the second quarter of 2013. Operating-basis net interest revenue excluded discount accretion on former conduit securities of $28 million, $27 million and $47 million for the second quarter of 2014, the first quarter of 2014, and the second quarter of 2013, respectively. All quarters are presented on a fully taxable-equivalent basis.
  • Expenses of $1.82 billion decreased from $1.92 billion in the first quarter of 2014 and increased from $1.75 billion in the second quarter of 2013.
  • ROE of 11.9% increased from 8.8% in the first quarter of 2014 and from 11.3% in the second quarter of 2013.

Second-Quarter 2014 Highlights

  • New business 2 New asset servicing mandates during the second quarter of 2014 totaled $250 billion and net new assets to be managed were $18 billion.
  • Business Operations and Information Technology Transformation program 3 Remains on track to achieve $575 million to $625 million in annualized pre-tax expense savings by 2015.
  • Capital 4 Our tier 1 common ratio as of June 30, 2014, calculated under the advanced approach in conformity with the Basel III final rule, was 12.8%. Our estimated pro forma Basel III tier 1 common ratio as of June 30, 2014, calculated under the standardized approach in conformity with the Basel III final rule, was 11.3%.
  • Return of capital to shareholders Purchased approximately $410 million of our common stock at an average price of $65.02 per share and declared a quarterly common stock dividend of $0.30 per share in the second quarter of 2014.

1 Operating basis is a non-GAAP presentation. For an explanation of operating-basis information and related reconciliations, refer to the addendum included with this news release.

2 New business in assets to be serviced is reflected in our assets under custody and administration after we begin servicing the assets, and net new business in assets to be managed is reflected in our assets under management after we begin managing the assets. As such, only a portion of these new asset servicing and asset management mandates is reflected in our assets under custody and administration and assets under management, as the case may be, as of June 30, 2014. Distribution fees from the SPDR ® Gold Exchange-Traded Fund, or ETF, are recorded in brokerage and other fee revenue and not in management fee revenue.

3 Estimated pre-tax expense savings relate only to the Business Operations and Information Technology Transformation program and are based on projected improvement from our total 2010 operating-basis expenses, all else being equal. Our actual total expenses have increased since 2010, and may increase or decrease in the future, due to other factors.

4 Earlier this year, we announced that we had completed our Basel III qualification period. As a result, beginning with the second quarter of 2014, we are required to calculate and disclose our regulatory capital ratios under the advanced approaches framework of the Basel III final rule. Our estimated pro forma Basel III tier 1 common ratio, calculated under the standardized approach, is an estimate, calculated in conformity with the standardized approach in the Basel III final rule. Refer to the “Capital” section of this news release for important information about the Basel III final rule, our calculations of our tier 1 common ratios thereunder, factors that could influence State Street's calculations of its tier 1 common ratios and other information about our capital ratios. Unless otherwise specified, all capital ratios referenced in this news release refer to State Street Corporation and not State Street Bank and Trust Company. Refer to the addendum included with this news release for a further description of these ratios.

Non-GAAP Financial Measures

In addition to presenting State Street's financial results in conformity with U.S. generally accepted accounting principles, or GAAP, management also presents results on a non-GAAP, or operating basis, in order to highlight comparable financial trends with respect to State Street's business operations from period to period. Summary results presented on a GAAP basis, descriptions of our non-GAAP, or operating-basis, financial measures, and reconciliations of operating-basis information to GAAP-basis information are provided in the addendum included with this news release.

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