State Street Corp. got a boost from higher-than-expected fee and net-interest income, even as a Federal Deposit Insurance Corp. special assessment ate into its results, as the government agency shores up its reserves after last spring's banking crisis.
One of the world's largest custody banks, the $338 billion-asset State Street reported net income totaling $463 million for the three months ending March 31. While that's
State's Street's first-quarter 2023 report was characterized as a disappointment
O'Hanley was considerably more sanguine Friday. "I'm encouraged by the strong start to the year and remain confident in the trajectory of our business," O'Hanley said in a press release. Investors, too, seemed to like the news, with State Street shares rising nearly 3% to close at $75.78 Friday.
While Boston-based State Street's bottom line was impacted by the Deposit Insurance Fund's $130 million special assessment, continued strength in equities markets, in the U.S. and around the world, produced a countervailing benefit. With share prices up globally, "we'd expect a substantial tailwind of servicing fees on a year-on-year basis, up four to five percent, typically," Chief Financial Officer Eric Aboaf said Friday on a conference call with analysts.
That's pretty much the way things played out. State Street reported first-quarter fee income of $2.4 billion, up 4% year-over-year. Quarterly revenues of $3.14 billion surpassed analysts' estimates by about $70 million and were up 1% over the $3.1 billion State Street reported for last year's first quarter..
State Street's net income amounted to $1.37 per share. Absent the special assessment, State Street's bottom line totaled $1.69 per share, significantly higher than analysts' core income estimate of $1.50.
Analyst Glenn Schorr, who covers State Street for EverCore ISI, characterized the results as a "decent" quarter across-the-board. "Up markets obviously help, but State Street is showing some success in its goals of growing fees, investing in the business and managing the expense base while also returning capital," Schorr wrote Friday in a research note.
Net interest income, which totaled $716 million, delivered what was likely the biggest upside surprise. For a company that had guided toward a double-digit full-year decline in spread income for 2024, that result — representing a 6% increase over the fourth-quarter — came as welcome news. Indeed, it prompted State Street to downsize its projected full-year decline in net interest income by half, to 5%.
Higher securities yields meant State Street's $101.5 billion portfolio of investment securities performed better, but the company was also buoyed by unexpectedly strong deposit balances. "Higher balances across the interest-bearing stack and even relative to our expectations on non-interest deposits created an uplift into the first quarter we had not expected," Aboaf said.
State Street had been forecasting deposit totals in the $200 billion to $210 billion range in 2024. It now expects them to come in between $210 billion and $220 billion. Some of the improvement stems from companies holding more cash, but a big part is due to "sharpened" customer engagement efforts to entice customers to deposit more at the bank, according to Aboaf. Clients "all have cash, and we certainly encourage them to bring it to us," Aboaf said.
State Street's core business lines, custody and investment management, turned in solid performances. The company finished the January-March quarter with assets under custody and administration at a record $43.9 trillion, up 17% year-over-year. The increase, driven by higher market levels, as well as new business inflows, helped generate $1.23 billion in servicing fees, up 1% year-over-year.
State Street reported $4.3 trillion in assets under management, up 20% year-over-year. Management fees of $510 million were up 12% from the first quarter of 2023.
