Boston-based State Street reported solid increases in assets under custody and administration, assets under management and net interest income, boosting fee income and overall revenue.
The $326 billion-asset custody bank reported second-quarter net income totaling $711 million Tuesday. Profits declined 7% year over year due primarily to increased funding costs. But profits were up 54% from the first quarter, when a $130 million Federal Deposit Insurance Corp. special assessment weighed on the bottom line.
State Street's results for the quarter ending June 30
State Street said its core business lines, safeguarding and managing client assets, benefited from market appreciation along with new business inflows. Assets under custody and administration rose to a record $44.3 billion during the three months ending June 30, up 12% from the same period in 2023. Assets under management grew 16% year over year to $4.4 trillion. Those increases helped boost State Street's second-quarter fee income, which totaled $2.46 billion, up 2% from June 30, 2023.
Revenue totaled $3.2 billion in the second quarter, up 3% year over year.
According to Chief Financial Officer Eric Aboaf, State Street "leaned into" its banking operation, especially lending, driving a strong increase in interest income, which finished the quarter slightly below the $3 billion threshold. That was up 34% from the same period in 2023.
Net interest income, which grew 6% year over year, totaling $735 million on June 30, "was stronger than expected," Aboaf said Tuesday on a conference call with analysts. "Higher investment portfolio yields and higher loan growth more than offset continued deposit mix shift."
Loans totaled $39.4 billion on June 30, up 15% from a year ago. "Lending is up double digits, and that's been purposeful to support our clients and [net interest income]," Aboaf said on the conference call.
State Street had been guiding toward a net interest income figure closer to $700 million, Jeffries analyst Ken Usdin wrote Tuesday in a research note. The larger, reported spread income total was a "great result," Usdin said on the conference call. State Street's overall numbers were "very strong," Usdin added.
"We delivered encouraging financial performance in the second quarter, with continued year-over-year revenue growth and well-controlled expenses resulting in an ROE of nearly 12%," Chairman and CEO Ron O'Hanley said Tuesday in a press release.
The primary headwind during the quarter came in the form of relatively soft asset servicing fees, which declined 2% year over year to $1.24 billion. The company attributed the drop-off to pricing pressure and a muted level of client activity. Aboaf pointed to a pipeline of $2.4 billion in assets under custody and administration to be installed, including $291 billion added in the second quarter. "This ongoing new business performance … positions us well for future servicing fee growth," O'Hanley said on the conference call.
Aboaf characterized State's Street's financial performance during the first half of 2024 as "strong." Indeed, the results prompted an upward revision in full-year guidance for fee revenue and net interest income. Fees are now expected to increase as much as 5%, instead of the previous 4% forecast. Spread income is expected to increase slightly, instead of declining by 5%.
Investors viewed the report in a decidedly positive light, pushing State Street shares up nearly 7% to $84.10 in midday trading.
State Street announced plans last month to boost the dividend on its common stock by 10% to $0.76 per share.
