State Street Corporation announced today that third-quarter revenues were $972 million, down just 1%, or $13 million, compared to $985 million a year ago. And net income was $182 million, up from reported net income of $170 million and comparable net income of $177 million last year. As a result, EPS is up $0.05 to $0.56, and return on stockholders’ equity was 17.0%.
“State Street performed well during the third quarter, despite the extremely difficult environment,” says David A. Spina, chairman and chief executive officer of State Street. “The sharp plunge in equity market valuations and an adverse interest-rate environment presented severe challenges. However, we continued to win new business from existing and new clients, generating fee revenue growth. This positive outcome, combined with successful management of our expenses, resulted in 6% growth in earnings per share. While all indications suggest that the operating environment will remain challenging in the fourth quarter, all of us at State Street remain focused on growth. Our company has a powerful global franchise and is well-positioned for the long term.”
Servicing fees were up 6% in the third quarter, to $427 million. Servicing fees are derived from accounting, administration, custody, daily pricing, securities lending, performance and analytics, compliance monitoring, and operations outsourcing for investment managers. New business from existing and new clients, including business gained through an acquisition, drove growth in servicing fees, more than offsetting the constraint imposed by the decline in comparable average equity market valuations and lower securities lending revenue. Total assets under custody were $5.7 trillion, compared to $5.8 trillion a year ago.
Management fees from investment management services, delivered through State Street Global Advisors, were $124 million, compared to $125 million a year ago. Management fees principally reflected significantly lower average equity market valuations from a year ago, as well as lower securities lending revenue, substantially offset by continued new business success. Total assets under management were $707 billion, compared to $663 billion a year previously.
Foreign exchange trading revenue was $79 million for the quarter, compared to $87 million a year ago. Brokerage fees were $32 million compared to $21 million a year ago. Processing fees and other revenue, which includes profits and losses from joint ventures and other items, was $40 million in the quarter compared to $63 million a year ago. Strong demand for structured products and a gain on the sale of a non-strategic business by a joint venture contributed to processing fees and other revenue in the third quarter of 2001. Securities gains of $31 million increased $16 million from last year, reflecting record-low yields on fixed-income securities in the market.
Taxable-equivalent net interest revenue for the third quarter was $240 million, a decline of $32 million from a year ago. State Street provides repurchase agreements and deposit services for clients’ investment activities, which generate net interest revenue. Lower yields on assets, reflecting lower interest rates, drove the decrease in net interest revenue.
Operating expenses were $684 million, compared to $720 million a year ago. On a comparable basis, expenses were down $26 million, or 4%, from $710 million a year ago. Comparable expenses for the third quarter of 2001 exclude $10 million of goodwill amortization expenses. Lower salaries and benefits expenses, reflecting reduced incentive compensation and lower headcount, drove the decline in expenses.