State Street Beats as Fee Income Rises

NEW YORK ( TheStreet) -- State Street ( STT) of Boston on Friday announced a 4.9% year-over-year increase in fee revenue, with fourth-quarter results coming in ahead of expectations.

The trust and custody bank reported fourth-quarter net income available to common shareholders of $545 million, or $1.22 a share, on operating revenue of $2.46 billion. These figures all came in ahead of the consensus estimates of $532 million in earnings, or $1.22 a share, on revenue of $2.50 billion, among analysts polled by Thomson Reuters

On a non-GAAP operating basis, the company's earnings available to common shareholders came to $514 million, or $1.15 a share, on revenue of $2.528 billion, compared to earnings of $537 million, or $1.19 a share, on revenue of $2.469 billion during the third quarter, and earnings of $521 million, or $1.11 a share, on revenue of $2.463 billion during the fourth quarter of 2012.

Again on an operating basis, State Street said its earnings-per-share grew nearly 15% to $4.54 in 2013 from $3.95 in 2012, while revenue for 2013 rose 3.3% to $10.05 billion from $9.73 billion in 2012.

The bank's assets under custody and administration grew 5.4% sequentially and 12.5% year-over-year to $27.427 trillion as of Dec. 31, reflecting in part the strong performance of the stock market.  Assets under management were up 4.6% quarter-over and 12.4% year-over-year to $2.345 trillion.

On an operating basis, State Street's total fee revenue grew 0.6% sequentially and 4.9% year-over-year to $1.932 billion in the fourth quarter.  Fourth-quarter servicing fees were up 1.7% from the third quarter and 7.1% from a year earlier to $1.232 billion, while management fees rose 5.1% sequentially and 11.5% year-over-year to $290 million.  Foreign exchange trading revenue for the fourth quarter totaled $125 million, down from $147 million in the third quarter, but up from $118 million in the fourth quarter of 2012. 

Brokerage revenue declined 5.5% quarter-over-quarter and 17.6% year-over-year to $103 million during the fourth quarter.  Processing fees totaled $106 million during the fourth quarter, rising a bit from $103 million the previous quarter, but declining from $115 million a year earlier.

State Street's operating expenses rose 4.3% quarter-over-quarter and 2.7% year-over-year to $1.760 billion during the fourth quarter.

The bank's return on common equity rose to 10.9% in the fourth quarter from 10.8% the previous quarter and 9.3% a year earlier.

State Street CEO Joseph Hooley said in the company's earnings press release, "2013 was a very good year for State Street despite both the ongoing headwinds created by the low rate environment and the increasing regulatory cost and complexity." 

"We purchased approximately 8.0 million shares of our common stock during the fourth quarter, and 24.7 million shares since April 1, 2013, under our current $2.1 billion common stock purchase program effective through March 2014. We recently submitted our 2014 capital plan to the Federal Reserve, and the return of capital through dividends and common stock repurchases remains a key priority," Hooley added.

The Fed will complete its annual stress tests for major financial firms in mid-March, with the regulator announcing the results of its reviews of capital deployment plans a week later.  With an estimated Basel III Tier 1 common equity ratio of 10.1% as of Dec. 31, State Street appears well-positioned for significant share repurchases this year.  The company bought back 31.2 common shares during 2013 for $2.04 billion at an average price of $65.30.

State Street's shares were flat in premarket trading Friday, at $72.76.

The following chart shows state Street's performance against the KBW Bank Index ( I:BKX) and the S&P 500 since the end of 2011:

STT Chart data by YCharts

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