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State Street (STT) Stock Up on Q2 Earnings Beat, Revenues Dip

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State Street’s (STT - Free Report) second-quarter 2022 adjusted earnings of $1.94 per share have outpaced the Zacks Consensus Estimate of $1.76. The bottom line was 1.5% lower than the prior-year level.

Shares of STT have gained 1.8% in pre-market market trading on better-than-expected earnings. The full-day trading session will display a clearer picture.

Results reflected new investment servicing wins, higher net interest revenues, a marginal decline in expenses and growth in net interest margin. A decline in fee revenues and higher provisions hurt results to some extent.

Results excluded non-recurring items. After considering those, net income available to common shareholders was $712 million or $1.91 per share, down from $728 million or $2.07 per share in the year-ago quarter.

Revenues & Expenses Decline

Total revenues were $2.95 billion, decreasing 2.7% year over year. Also, the top line missed the Zacks Consensus Estimate of $3.00 billion.

Net interest revenues were $584 million, up 25.1% year over year. The rise was largely driven by higher short and long-term interest rates, and growth in loan balances.

The net interest margin rose 23 basis points year over year to 0.94%.

Total fee revenues declined 5.7% year over year to $2.37 billion. The fall was due to a decline in almost all fee income components, except for foreign exchange trading services revenues.

Non-interest expenses were $2.11 billion, down marginally year over year.

Provision for credit losses was $10 million in the reported quarter against a provision benefit of $15 million in the prior-year quarter.

Asset Balances Decline

As of Jun 30, 2022, total assets under custody and administration were $38.2 trillion, down 10.4% year over year.  The fall was due to lower equity and fixed-income market levels, partially offset by net new business and client flows.

Assets under management were $3.5 trillion, down 10.8% year over year, reflecting lower equity and fixed-income market levels and institutional net outflows, partially offset by ETF and cash net inflows.

Capital Ratios Improve, Profitability Ratios Deteriorate

Common equity Tier 1 ratio was 12.9% as of Jun 30, 2022, compared with 11.2% in the corresponding period of 2021.

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

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 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 Large Banks

Higher reserve build and a decline in investment banking fees affected JPMorgan’s (JPM - Free Report) second-quarter 2022 earnings of $2.76 per share, which missed the Zacks Consensus Estimate of $2.85. The reported quarter’s results included a net credit reserve build of $428 million.

Higher interest rates and a solid rise in loan balances aided JPM’s net interest income. Operating expenses recorded a year-over-year rise.

First Republic Bank’s (FRC - Free Report) second-quarter 2022 earnings per share of $2.16 surpassed the Zacks Consensus Estimate of $2.05. Additionally, the bottom line improved 10.8% from the year-ago quarter.

FRC’s results were supported by an increase in net interest income and non-interest income. The company’s capital position was strong in the quarter. Yet, higher expenses and elevated provision for credit losses were the offsetting factors.


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