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State Street (STT) Stock Declines Despite Q2 Earnings Beat
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State Street’s (STT - Free Report) second-quarter 2023 earnings of $2.17 per share surpassed the Zacks Consensus Estimate of $2.08. The bottom line was 13.6% higher than the prior-year level.
Shares of STT have lost 2.6% in pre-market trading despite better-than-expected quarterly performance. However, the full day’s trading session will depict a clearer picture.
Results were primarily aided by an increase in net interest revenues (NIR) and fee revenues. Also, the net interest margin (NIM) improved year over year on higher rates. The company recorded a provision benefit in the quarter under review, which was another positive. However, higher expenses hurt results to some extent.
Net income available to common shareholders was $726 million, up from $712 million in the year-ago quarter. Our projection for the metric was $661.7 million.
Revenues Improve, Expenses Rise
Total revenues of $3.11 billion increased 5.3% year over year. However, the top line missed the Zacks Consensus Estimate of $3.13 billion.
NIR was $691 million, up 18.3% year over year. The rise was driven by higher short-term market rates, an increase in long-term interest rates and balance sheet positioning, partially offset by lower average deposits. The net interest margin rose 25 basis points year over year to 1.19%. Our estimates for NIR and NIM were $688.6 million and 1.18%, respectively.
Total fee revenues increased 2.1% year over year to $2.42 billion. The rise was driven by an increase in securities finance revenues, software and processing fees, and other fee revenues. We estimated the metric to be $2.43 billion.
Non-interest expenses were $2.21 billion, up 4.9% year over year. The rise was due to an increase in compensation and employee benefits, information systems and communications costs, occupancy related expenses and other expenditures. Our estimate for the metric was $2.20 billion.
In the second quarter, STT recorded a provision benefit of $18 million against a provision for credit losses of $10 million in the prior-year quarter. Our prediction for the metric was $16.1 million.
The common equity Tier 1 ratio was 11.8% as of Jun 30, 2023, compared with 12.9% in the corresponding period of 2022. The return on common equity was 13% compared with 12.1% in the year-ago quarter.
Asset Balances Increase
As of Jun 30, 2023, total assets under custody and administration were $39.6 trillion, up 3.7% year over year. The rise was driven by higher quarter-end equity market levels and client flows. We had projected the metric to be $37.25 trillion.
Assets under management were $3.8 trillion, up 9.3% year over year, primarily driven by higher quarter-end market levels. Our estimate for the metric was $3.4 trillion.
Share Repurchase Update
In the reported quarter, State Street repurchased shares worth $1.05 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
Earnings Dates & Expectations of Other Major Banks
Bank of America (BAC - Free Report) is scheduled to announce second-quarter 2023 numbers on Jul 18.
Over the past 30 days, the Zacks Consensus Estimate for BAC’s quarterly earnings has moved 1.2% downward to 84 cents per share, implying a 15.1% rise from the prior-year reported number.
Truist Financial (TFC - Free Report) is slated to report second-quarter 2023 numbers on Jul 20.
Over the past month, the Zacks Consensus Estimate for Truist Financial’s quarterly earnings has moved 8.3% south to 99 cents per share. This indicates a 17.5% fall from the prior-year quarter.
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State Street (STT) Stock Declines Despite Q2 Earnings Beat
State Street’s (STT - Free Report) second-quarter 2023 earnings of $2.17 per share surpassed the Zacks Consensus Estimate of $2.08. The bottom line was 13.6% higher than the prior-year level.
Shares of STT have lost 2.6% in pre-market trading despite better-than-expected quarterly performance. However, the full day’s trading session will depict a clearer picture.
Results were primarily aided by an increase in net interest revenues (NIR) and fee revenues. Also, the net interest margin (NIM) improved year over year on higher rates. The company recorded a provision benefit in the quarter under review, which was another positive. However, higher expenses hurt results to some extent.
Net income available to common shareholders was $726 million, up from $712 million in the year-ago quarter. Our projection for the metric was $661.7 million.
Revenues Improve, Expenses Rise
Total revenues of $3.11 billion increased 5.3% year over year. However, the top line missed the Zacks Consensus Estimate of $3.13 billion.
NIR was $691 million, up 18.3% year over year. The rise was driven by higher short-term market rates, an increase in long-term interest rates and balance sheet positioning, partially offset by lower average deposits. The net interest margin rose 25 basis points year over year to 1.19%. Our estimates for NIR and NIM were $688.6 million and 1.18%, respectively.
Total fee revenues increased 2.1% year over year to $2.42 billion. The rise was driven by an increase in securities finance revenues, software and processing fees, and other fee revenues. We estimated the metric to be $2.43 billion.
Non-interest expenses were $2.21 billion, up 4.9% year over year. The rise was due to an increase in compensation and employee benefits, information systems and communications costs, occupancy related expenses and other expenditures. Our estimate for the metric was $2.20 billion.
In the second quarter, STT recorded a provision benefit of $18 million against a provision for credit losses of $10 million in the prior-year quarter. Our prediction for the metric was $16.1 million.
The common equity Tier 1 ratio was 11.8% as of Jun 30, 2023, compared with 12.9% in the corresponding period of 2022. The return on common equity was 13% compared with 12.1% in the year-ago quarter.
Asset Balances Increase
As of Jun 30, 2023, total assets under custody and administration were $39.6 trillion, up 3.7% year over year. The rise was driven by higher quarter-end equity market levels and client flows. We had projected the metric to be $37.25 trillion.
Assets under management were $3.8 trillion, up 9.3% year over year, primarily driven by higher quarter-end market levels. Our estimate for the metric was $3.4 trillion.
Share Repurchase Update
In the reported quarter, State Street repurchased shares worth $1.05 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.
Earnings Dates & Expectations of Other Major Banks
Bank of America (BAC - Free Report) is scheduled to announce second-quarter 2023 numbers on Jul 18.
Over the past 30 days, the Zacks Consensus Estimate for BAC’s quarterly earnings has moved 1.2% downward to 84 cents per share, implying a 15.1% rise from the prior-year reported number.
Truist Financial (TFC - Free Report) is slated to report second-quarter 2023 numbers on Jul 20.
Over the past month, the Zacks Consensus Estimate for Truist Financial’s quarterly earnings has moved 8.3% south to 99 cents per share. This indicates a 17.5% fall from the prior-year quarter.