Yahoo Finance State Street (STT) Stock Up as Q3 Earnings Beat on Higher NIR
State Street’s STT third-quarter 2022 adjusted earnings of $1.82 per share outpaced the Zacks Consensus Estimate of $1.79. The bottom line was 9% lower than the prior-year level. Our estimate for adjusted earnings was $1.77 per share.
Shares of STT rallied almost 4% in pre-market market trading on better-than-expected quarterly performance. Also, the company’s plan to repurchase shares worth $1 billion in the fourth quarter cheered investors.
Results reflected new investment servicing wins (bringing servicing assets to be installed in the future to $3.4 trillion), higher net interest revenues (NIR), a slight fall in expenses and growth in net interest margin. Also, the company recorded no provisions during the quarter. A decline in fee revenues hurt STT’s results to some extent.
Results excluded non-recurring items. After considering those, the net income available to common shareholders was $669 million or $1.80 per share, down from $693 million or $1.96 per share in the year-ago quarter. We had projected net income available to common shareholders (GAAP basis) to be $647.4 million.
Revenues & Expenses Decline
The total revenues were $2.96 billion, decreasing 1% year over year. Also, the top line missed the Zacks Consensus Estimate of $2.98 billion. Our estimate for the metric was $3 billion.
NIR was $660 million, surging 35.5% year over year. The rise was largely driven by higher global interest rates and growth in loan balances. The net interest margin (NIM) rose 35 basis points year over year to 1.11%. Our estimates for NIR and NIM were $619 million and 1.11%, respectively.
The total fee revenues declined 8.2% to $2.30 billion. The fall was due to a decline in servicing fees and management fees. We had projected total fee revenues to be $2.32 billion.
The non-interest expenses were $2.11 billion, down marginally. This reflected continued productivity and optimization savings and gains from currency translation, largely offset by continued business investments and a rise in wages, marketing and travel costs. Our estimate for the metric was $2.16 billion. Excluding non-recurring items, expenses were $2.1 billion, relatively stable.
The provision for credit losses was nil in the reported quarter against a provision benefit of $2 million in the prior-year quarter.
The common equity Tier 1 ratio was 13.2% as of Sep 30, 2022, compared with 13.5% in the corresponding period of 2021. The return on common equity was 11.2% compared with 11.6% in the year-ago quarter.
Asset Balances Decline
As of Sep 30, 2022, the total assets under custody and administration (AUC/A) were $25.7 trillion, down 17.7% year over year. The fall was due to lower equity and fixed-income market levels, previously disclosed client transition and unfavorable currency translation partially offset by net new business wins.
The assets under management (AUM) were $3.3 trillion, down 15.5%, reflecting lower equity and fixed-income market levels and institutional net outflows, partially offset by ETF and cash net inflows.
Our Take
Persistently rising expenses due to the company’s strategic buyouts and investments in franchise will likely hurt the bottom line to an extent. A tough operating backdrop is another major concern for STT.
State Street Corporation Price, Consensus and EPS Surprise
State Street Corporation price-consensus-eps-surprise-chart | State Street Corporation Quote
State Street currently carries a Zacks Rank #5 (Strong Sell).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Performance of Other Banks
Bank of New York Mellon Corporation’s BK third-quarter 2022 adjusted earnings of $1.21 per share surpassed the Zacks Consensus Estimate of $1.10. The bottom line represents a rise of 11% from the prior-year quarter.
Results have been aided by a rise in net interest revenues. However, asset balances witnessed a decline, which was a negative. Also, higher expenses hurt BK’s results to some extent.
Higher loan balance, rising rates and solid markets performance drive JPMorgan’s JPM third-quarter 2022 earnings of $3.12 per share, which surpassed the Zacks Consensus Estimate of $2.97. The results included $959 million or 24 cents of net investment securities losses in the Corporate segment. Our estimate for earnings was $2.98 per share.
Disappointing IB performance, bigger reserve build and increase in operating expenses hampered JPM’s quarterly performance to some extent.
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