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State Street (STT) Q2 Earnings Beat, Revenues & Expenses Rise

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State Street’s (STT - Free Report) second-quarter 2021 adjusted earnings of $1.97 per share outpaced the Zacks Consensus Estimate of $1.78. Also, the bottom line was 4.8% higher than the prior-year level.

Results reflected new investment servicing wins, provision benefits and improvement in fee income. However, a decline in net interest income and a rise in expenses were the undermining factors.

Results excluded non-recurring items. After considering those, net income available to common shareholders was $728 million, up 10% from the year-ago quarter.

Revenues Improve, Expenses Rise

Total revenues were $3.03 billion, increasing 3.3% year over year. Also, the top line beat the Zacks Consensus Estimate of $2.94 billion.

Net interest income was $467 million, down 16.5% year over year. The fall was mainly due to lower investment portfolio yields and market rates, partially offset by growth in deposits and loan balances.

Net interest margin (NIM) contracted 22 basis points to 0.71%.

Total fee revenues grew 5.7% year over year to $2.51 billion. The rise was mainly driven by improvement in servicing fee, management fee and securities finance revenues, partly offset by lower software and processing fee, and foreign exchange trading revenues.

Non-interest expenses were $2.11 billion, increasing 1.4% from the prior-year quarter. The rise was primarily due to higher compensation and employee benefits, information systems and communications, transaction processing services, and amortization of other intangible assets related costs. Excluding notable items, adjusted expenses increased 2% to $2.11 billion.

Provision for credit losses was a benefit of $15 million in the reported quarter against provision of $52 million in the prior-year quarter.

Asset Balances Improve

As of Jun 30, 2021, total assets under custody and administration were $42.6 trillion, up 27.1% year over year.  The rise was mainly due to higher market levels, net new business growth and client flows.

Assets under management were $3.9 trillion, up 27.6% year over year. This 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 common equity Tier 1 ratio was 11.2% as of Jun 30, 2021, compared with 12.3% in the corresponding period of 2020.

Return on common equity was 12.6% compared with 12.1% in the year-ago quarter.

Share Repurchase Update

In the reported quarter, State Street repurchased shares worth $425 million.

Also, the company announced a buyback authorization of up to $3 billion through the end of fourth-quarter 2022.

Our Take

New business wins and a strong balance sheet position are expected to continue supporting State Street's profitability. However, elevated costs due to the company’s restructuring efforts will likely hurt the bottom line to an extent.

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

Large reserve releases, solid IB performance and a modest rise in loan demand drove JPMorgan’s (JPM - Free Report) second-quarter 2021 earnings of $3.78 per share. The bottom line handily outpaced the Zacks Consensus Estimate of $3.05.

First Republic Bank delivered an earnings surprise of 14.04% in second-quarter 2021 on solid top-line strength. Earnings per share of $1.95 surpassed the Zacks Consensus Estimate of $1.71. The bottom line climbed 45.3% from the year-ago quarter.

Goldman Sachs’ (GS - Free Report) second-quarter 2021 earnings per share of $15.02 significantly surpassed the Zacks Consensus Estimate of $9.90. The bottom line compares favorably with 53 cents per share earned in the year-earlier quarter.

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