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State Street (STT) Q1 Earnings Beat on Higher Fee Income

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State Street’s (STT - Free Report) first-quarter 2021 adjusted earnings of $1.47 per share outpaced the Zacks Consensus Estimate of $1.34. However, the bottom line was 12% lower than the prior-year level.

Results reflected new investment servicing wins of $343 billion, provision benefits and improvement in fee income. However, a decline in net interest income (mainly due to lower rates) and rise in expenses were the undermining factors.

Results excluded certain non-recurring items. After considering those, net income available to common shareholders was $489 million, down 15.7% from the year-ago quarter.

Revenues Decline, Costs Rise

Total revenues were $2.95 billion, decreasing 3.8% year over year. However, the top line beat the Zacks Consensus Estimate of $2.88 billion.

Net interest revenues were $467 million, down 29.7%. The fall was mainly due to lower market rates, partially offset by higher investment portfolio and deposits balances.

Net interest margin (NIM) contracted 55 basis points to 0.75%.

Total fee revenues grew 3.5% to $2.48 billion. The rise was mainly driven by improvement in   servicing, management, and software and processing fees, partly offset by lower foreign exchange trading revenues.

Non-interest expenses were $2.33 billion, increasing 3.4%. The rise was primarily due to higher compensation and employee benefits, information systems and communications, and transaction processing services. Excluding notable items, adjusted expenses increased 2.2% to $2.29 billion.

Provision for credit losses was benefit of $9 million in the reported quarter against provision of $36 million in the prior-year quarter.

Asset Balances Improves

As of Mar 31, 2021, total assets under custody and administration were $40.3 trillion, up 26.4% year over year.  The rise was mainly due to higher market levels, net new business installations and client flows.

Also, assets under management were $3.6 trillion, up 33.5%. The growth was driven largely by higher market levels and net inflows from exchange traded funds and cash, partly offset by institutional net outflows.

Capital and Profitability Ratios Strong

Under Basel III (Standardized approach), estimated Tier 1 common equity ratio was 10.8% as of Mar 31, 2021, compared with 10.7% in the corresponding period of 2020.

Return on common equity was 8.4% compared with 10.9% in the year-ago quarter.

Share Repurchase Update

During the quarter, State Street repurchased shares worth $475 million.

Concurrently, the company announced buyback authorization of $425 million for second-quarter 2021.

Our Take

New business wins and a strong balance sheet position are expected to continue supporting State Street's profitability. However, near-zero interest rates are likely to continue hurting interest income and NIM growth to an extent in the near term.

State Street Corporation Price, Consensus and EPS Surprise

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 #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

 

Performance of Other Major Banks

U.S. Bancorp (USB - Free Report) reported first-quarter 2021 earnings per share of $1.45, which surpassed the Zacks Consensus Estimate of 95 cents. The bottom line compared favorably with the prior-year quarter’s figure of 72 cents.

Solid mortgage and capital markets performance supported Wells Fargo’s (WFC - Free Report) first-quarter 2021 earnings of $1.05 per share, which surpassed the Zacks Consensus Estimate of 69 cents.

Truist Financial’s (TFC - Free Report) first-quarter 2021 adjusted earnings of $1.18 per share outpaced the Zacks Consensus Estimate of $1.12. Results excluded restructuring and BB&T-SunTrust Banks merger-related charges, and incremental operating expenses related to the merger. Compared with the previous quarter, the bottom line improved 42%.

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