State Street Q1 Profit Declines On Higher Expenses, Misses View

(RTTNews) - Custody bank State Street Corp. (STT) on Friday reported a 22 percent decline in profit for the first quarter from last year as higher expenses, including severance costs, more than offset an increase in revenues.

Adjusted earnings for the quarter missed analysts' expectations by a penny, while revenues beat their estimates.

State Street's net income available to common shareholders for the first quarter declined to $356 million or $0.81 per share from $455 million or $0.98 per share in the year-ago period.

The latest quarter's results include pre-tax severance costs of $72 million or $0.11 per share, related to staff reductions. The company expects these staff reductions to generate pre-tax savings of about $40 million on an annualized basis in 2015.

On an operating basis, excluding items, net income for the quarter was $433 million or $0.99 per share, compared to $443 million or $0.96 per share in the same period last year.

On average, 19 analysts polled by Thomson Reuters expected the company to report earnings of $1.00 per share for the quarter. Analysts' estimates typically exclude special items.

The latest quarter's earnings per share included an incremental expense of $0.23 per share primarily associated with the seasonal deferred incentive compensation expense for retirement-eligible employees and payroll taxes, up from $0.18 per share recorded in the year-ago quarter.

However, total revenue for the quarter increased 2 percent to $2.49 billion from $2.44 billion in the year-ago period. On an operating basis, revenue rose to $2.56 billion increased from $2.47 billion in the prior-year quarter. Analysts had a consensus revenue estimate of $2.53 billion for the quarter.

Net interest revenue declined 4 percent from the year-ago quarter to $555 million, primarily due to lower yields on interest-earning assets. Net interest margin declined to 1.30 percent from last year's 1.36 percent.

Servicing fees for the quarter increased 5 percent to $1.24 billion, while management fees grew 11 percent to $292 million. However, total trading services revenue declined 15 percent from last year to $239 million.

The company's expenses for the quarter rose 11 percent to $2.03 billion from $1.83 billion in the prior-year quarter.

Total assets under custody and administration as at the end of the first quarter was $27.48 trillion, up 8 percent from $25.42 trillion at the end of the year-ago quarter. Assets under management rose 9 percent from last year to $2.38 trillion.

Return on average common shareholders' equity was 7.2 percent, down from 9.1 percent in the year-ago quarter.

State Street said in March that its board of directors approved a $1.7 billion common stock purchase program effective through March 31, 2015. The company's 2014 capital plan includes a proposed increase in its quarterly common stock dividend to $0.30 per share, starting in the second quarter of 2014, subject to board approval.

Looking ahead, Joseph Hooley, chairman, president and chief executive officer of State Street, said, "We are responding to the challenges presented by low interest rates and conservative investor risk appetite by realigning our staffing to support our goal of positive operating leverage for the full year."

STT closed Thursday's trading at $65.73, down $0.18 or 0.27 percent on a volume of 3.05 million shares.