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State Street (STT) Dips as Q1 Earnings Miss on Higher Costs
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State Street’s (STT - Free Report) first-quarter 2023 adjusted earnings of $1.52 per share missed the Zacks Consensus Estimate of $1.62. The bottom line was 4.4% lower than the prior-year level. Our estimate for adjusted earnings was $1.53 per share.
Shares of STT lost 10% in pre-market trading on a worse-than-expected quarterly performance. However, the full day’s trading session will depict a clearer picture.
Results have been primarily hurt by a rise in expenses, higher provisions and lower fee revenues. Lower asset balances also affected the results. However, an increase in net interest revenues (NIR) and growth in the net interest margin (NIM) supported the results to some extent.
After considering non-recurring items, net income available to common shareholders was $525 million or $1.52 per share, down from $583 million or $1.57 per share in the year-ago quarter. We projected a net income available to common shareholders (GAAP basis) of $538.9 million.
Revenues Improve Marginally, Expenses Rise
Total revenues were $3.10 billion, increasing marginally year over year. However, the top line missed the Zacks Consensus Estimate of $3.12 billion. Our estimate for the metric was $3.10 billion.
NIR was $766 million, jumping 50.5% year over year. The rise was driven by higher rates and balance sheet positioning, partially offset by lower average deposits. The net interest margin (NIM) rose 51 basis points year over year to 1.31%. Our estimates for NIR and NIM were $779.5 million and 1.29%, respectively.
Total fee revenues decreased 9.2% to $2.34 billion. The fall was due to a decline in almost all fee income components, except for securities finance revenues and other fee revenues. We projected total fee revenues of $2.44 billion.
Non-interest expenses were $2.37 billion, up 1.8% year over year. The rise was due to an increase in compensation and employee benefits costs, and other expenses. Our estimate for the metric was $2.39 billion.
The provision for credit losses was $44 million in the reported quarter against NIL provisions in the prior-year quarter. Our estimate for the metric was $5.1 million.
The common equity Tier 1 ratio was 12.1% as of Mar 31, 2023, compared with 11.9% in the corresponding period of 2022. The return on common equity was 9.3% compared with 9.5% in the year-ago quarter.
Asset Balances Decline
As of Mar 31, 2023, total assets under custody and administration were $37.6 trillion, down 9.8% year over year. The fall was due to lower equity and fixed-income market levels.
Assets under management were $3.6 trillion, down 10% year over year, reflecting lower equity and fixed-income market levels, and net outflows.
Share Repurchase Update
In the reported quarter, State Street repurchased shares worth $1.25 billion.
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. Nonetheless, higher interest rates and solid business servicing wins are expected to keep supporting State Street’s financials.
State Street Corporation Price, Consensus and EPS Surprise
Wells Fargo’s (WFC - Free Report) first-quarter 2023 earnings per share of $1.23 outpaced the Zacks Consensus Estimate of $1.15. The figure improved 35% year over year.
WFC’s results benefited from higher net interest income, rising rates and solid average loan growth. A fall in non-interest expenses acted as another tailwind. Yet, dismal non-interest income, higher provisions and weakness in the mortgage business were the major undermining factors for WFC.
Citigroup Inc.’s (C - Free Report) first-quarter 2023 earnings per share (excluding divestiture-related impacts) of $1.86 outpaced the Zacks Consensus Estimate of $1.66. Our estimate for earnings was $1.40 per share.
Citigroup witnessed revenue growth in the quarter, backed by higher revenues in the Institutional Clients Group, and Personal Banking and Wealth Management segments. However, the higher cost of credit was a spoilsport.
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State Street (STT) Dips as Q1 Earnings Miss on Higher Costs
State Street’s (STT - Free Report) first-quarter 2023 adjusted earnings of $1.52 per share missed the Zacks Consensus Estimate of $1.62. The bottom line was 4.4% lower than the prior-year level. Our estimate for adjusted earnings was $1.53 per share.
Shares of STT lost 10% in pre-market trading on a worse-than-expected quarterly performance. However, the full day’s trading session will depict a clearer picture.
Results have been primarily hurt by a rise in expenses, higher provisions and lower fee revenues. Lower asset balances also affected the results. However, an increase in net interest revenues (NIR) and growth in the net interest margin (NIM) supported the results to some extent.
After considering non-recurring items, net income available to common shareholders was $525 million or $1.52 per share, down from $583 million or $1.57 per share in the year-ago quarter. We projected a net income available to common shareholders (GAAP basis) of $538.9 million.
Revenues Improve Marginally, Expenses Rise
Total revenues were $3.10 billion, increasing marginally year over year. However, the top line missed the Zacks Consensus Estimate of $3.12 billion. Our estimate for the metric was $3.10 billion.
NIR was $766 million, jumping 50.5% year over year. The rise was driven by higher rates and balance sheet positioning, partially offset by lower average deposits. The net interest margin (NIM) rose 51 basis points year over year to 1.31%. Our estimates for NIR and NIM were $779.5 million and 1.29%, respectively.
Total fee revenues decreased 9.2% to $2.34 billion. The fall was due to a decline in almost all fee income components, except for securities finance revenues and other fee revenues. We projected total fee revenues of $2.44 billion.
Non-interest expenses were $2.37 billion, up 1.8% year over year. The rise was due to an increase in compensation and employee benefits costs, and other expenses. Our estimate for the metric was $2.39 billion.
The provision for credit losses was $44 million in the reported quarter against NIL provisions in the prior-year quarter. Our estimate for the metric was $5.1 million.
The common equity Tier 1 ratio was 12.1% as of Mar 31, 2023, compared with 11.9% in the corresponding period of 2022. The return on common equity was 9.3% compared with 9.5% in the year-ago quarter.
Asset Balances Decline
As of Mar 31, 2023, total assets under custody and administration were $37.6 trillion, down 9.8% year over year. The fall was due to lower equity and fixed-income market levels.
Assets under management were $3.6 trillion, down 10% year over year, reflecting lower equity and fixed-income market levels, and net outflows.
Share Repurchase Update
In the reported quarter, State Street repurchased shares worth $1.25 billion.
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. Nonetheless, higher interest rates and solid business servicing wins are expected to keep supporting State Street’s financials.
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 Banks
Wells Fargo’s (WFC - Free Report) first-quarter 2023 earnings per share of $1.23 outpaced the Zacks Consensus Estimate of $1.15. The figure improved 35% year over year.
WFC’s results benefited from higher net interest income, rising rates and solid average loan growth. A fall in non-interest expenses acted as another tailwind. Yet, dismal non-interest income, higher provisions and weakness in the mortgage business were the major undermining factors for WFC.
Citigroup Inc.’s (C - Free Report) first-quarter 2023 earnings per share (excluding divestiture-related impacts) of $1.86 outpaced the Zacks Consensus Estimate of $1.66. Our estimate for earnings was $1.40 per share.
Citigroup witnessed revenue growth in the quarter, backed by higher revenues in the Institutional Clients Group, and Personal Banking and Wealth Management segments. However, the higher cost of credit was a spoilsport.