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Lower NIR & Fee Income to Hurt State Street (STT) Q3 Earnings
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State Street (STT - Free Report) is slated to report third-quarter 2023 results on Oct 18 before the opening bell. The company’s revenues and earnings are expected to have decreased on a year-over-year basis.
In the last reported quarter, STT’s earnings beat the Zacks Consensus Estimate. Results were largely driven by an increase in net interest revenues (NIR) and fee revenues. STT recorded a provision benefit in the quarter under review, which was another positive. However, higher expenses hurt results to some extent.
State Street has a decent earnings surprise history. The company’s earnings outpaced the Zacks Consensus Estimate in three of the trailing four quarters, delivering an earnings surprise of 0.84%, on average.
The Zacks Consensus Estimate for State Street’s third-quarter earnings is pegged at $1.77 per share. The consensus estimate has been revised 1.1% lower over the past seven days. The figure indicates a fall of 2.8% from the year-ago quarter. Our estimate for earnings stands at $1.67, implying an 8.1% decline.
The consensus estimate of $2.92 billion for sales suggests a 1.5% year-over-year decline. Our estimate for sales is the same as the consensus number.
Key Factors & Estimates for Q3
Net Interest Revenues: The Zacks Consensus Estimate for average interest-earning assets for the to-be-reported quarter is pegged at $228.7 billion, which implies a fall of 1.4% from the previous quarter. Our estimate for the metric is pegged at $224.2 billion.
Lending activities continued at a slower pace in the second quarter. The Federal Reserve increased rates by 25 basis points in July and then kept the rates unchanged at 5.25-5.5% during the September FOMC meeting. These factors are expected to have supported State Street’s NIR during the quarter. However, an increase in funding costs weighed on NIR as interest rates remained high. Thus, NIR is likely to have been adversely impacted.
The Zacks Consensus Estimate for NIR (on a fully taxable-equivalent or FTE basis) of $600.8 million indicates a sequential decline of 13.1%. We project NIR on FTE basis of $586.9 million.
Management projects NIR to decline 12-18% sequentially on non-interest-bearing deposit rotation and interest-bearing deposit betas as monetary tightening and interest rate hikes continue.
Fee Revenues: Lower volatility in foreign exchange (FX) markets is likely to have aided State Street’s FX trading services income. The consensus estimate is pegged at $307.5 million, reflecting an increase of 1.5% from the prior-quarter level. Our estimate for the metric is pegged at $332 million.
The consensus estimate for management fees of $468.3 million implies 1.6% growth on a sequential basis. The company expects the metric to be up 0.5-1.5% on a quarter-over-quarter basis. Our estimates for the same is pegged at $466.5 billion.
The Zacks Consensus Estimate for servicing fees of $1.25 billion indicates a 1% decrease. The company anticipates the same to fall 1-2% as below-average fee repricing witnessed in the second quarter normalizes. Also, the guidance includes headwinds from previously disclosed client exits. We project the metric to be $1.24 billion.
The consensus estimate for securities finance revenues of $110.3 million suggests a 5.7% decline from the last quarter. Our estimates for the same is pegged at $115 billion.
Also, the Zacks Consensus Estimate for software and processing fees suggests a 6.6% decrease to $206 million. As on-premise renewals are not expected to be at the level recorded in the second quarter, STT anticipates software and processing fees to decline 7%. Our estimates for the same is pegged at $205.2 billion.
Overall, the Zacks Consensus Estimate for total fee revenues of $2.25 billion indicates a 6.8% fall from the prior quarter. We project the metric to be $2.39 billion.
Management expects fee revenues to be down 1-1.5% on a sequential basis.
Expenses: Higher information systems and communication expenses, inflationary pressure and the company’s strategic buyouts and investments in franchises are expected to have led to a rise in operating expenses in the third quarter. Nonetheless, business restructuring activities are likely to have offered some support.
Management expects adjusted expenses to be down 0.5-1% on a sequential basis.
We anticipate total non-interest expenses to increase almost 1% from the last quarter to $2.2 billion.
What the Zacks Model Reveals
Per our proven model, the chances of an earnings beat for State Street this time are high. This is because the company has the right combination of the two key ingredients — a positive Earnings ESP and a Zacks Rank #3 (Hold) or better — to increase the odds of an earnings beat.
You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Earnings ESP: The Earnings ESP for State Street is +0.31%.
Zacks Rank: The company currently carries a Zacks Rank #3.
Other Banks Worth a Look
Here are a couple of other bank stocks that you may want to consider, as our model shows that these, too, have the right combination of elements to post an earnings beat this time:
CBSH’s quarterly earnings estimates have moved 1.1% upward over the past week.
The Earnings ESP for Bank OZK (OZK - Free Report) is +1.62% and it carries a Zacks Rank #3 at present. The company is slated to report third-quarter 2023 results on Oct 19.
Over the past seven days, the Zacks Consensus Estimate for OZK’s quarterly earnings has remained unchanged.
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Lower NIR & Fee Income to Hurt State Street (STT) Q3 Earnings
State Street (STT - Free Report) is slated to report third-quarter 2023 results on Oct 18 before the opening bell. The company’s revenues and earnings are expected to have decreased on a year-over-year basis.
In the last reported quarter, STT’s earnings beat the Zacks Consensus Estimate. Results were largely driven by an increase in net interest revenues (NIR) and fee revenues. STT recorded a provision benefit in the quarter under review, which was another positive. However, higher expenses hurt results to some extent.
State Street has a decent earnings surprise history. The company’s earnings outpaced the Zacks Consensus Estimate in three of the trailing four quarters, delivering an earnings surprise of 0.84%, on average.
State Street Corporation Price and EPS Surprise
State Street Corporation price-eps-surprise | State Street Corporation Quote
The Zacks Consensus Estimate for State Street’s third-quarter earnings is pegged at $1.77 per share. The consensus estimate has been revised 1.1% lower over the past seven days. The figure indicates a fall of 2.8% from the year-ago quarter. Our estimate for earnings stands at $1.67, implying an 8.1% decline.
The consensus estimate of $2.92 billion for sales suggests a 1.5% year-over-year decline. Our estimate for sales is the same as the consensus number.
Key Factors & Estimates for Q3
Net Interest Revenues: The Zacks Consensus Estimate for average interest-earning assets for the to-be-reported quarter is pegged at $228.7 billion, which implies a fall of 1.4% from the previous quarter. Our estimate for the metric is pegged at $224.2 billion.
Lending activities continued at a slower pace in the second quarter. The Federal Reserve increased rates by 25 basis points in July and then kept the rates unchanged at 5.25-5.5% during the September FOMC meeting. These factors are expected to have supported State Street’s NIR during the quarter. However, an increase in funding costs weighed on NIR as interest rates remained high. Thus, NIR is likely to have been adversely impacted.
The Zacks Consensus Estimate for NIR (on a fully taxable-equivalent or FTE basis) of $600.8 million indicates a sequential decline of 13.1%. We project NIR on FTE basis of $586.9 million.
Management projects NIR to decline 12-18% sequentially on non-interest-bearing deposit rotation and interest-bearing deposit betas as monetary tightening and interest rate hikes continue.
Fee Revenues: Lower volatility in foreign exchange (FX) markets is likely to have aided State Street’s FX trading services income. The consensus estimate is pegged at $307.5 million, reflecting an increase of 1.5% from the prior-quarter level. Our estimate for the metric is pegged at $332 million.
The consensus estimate for management fees of $468.3 million implies 1.6% growth on a sequential basis. The company expects the metric to be up 0.5-1.5% on a quarter-over-quarter basis. Our estimates for the same is pegged at $466.5 billion.
The Zacks Consensus Estimate for servicing fees of $1.25 billion indicates a 1% decrease. The company anticipates the same to fall 1-2% as below-average fee repricing witnessed in the second quarter normalizes. Also, the guidance includes headwinds from previously disclosed client exits. We project the metric to be $1.24 billion.
The consensus estimate for securities finance revenues of $110.3 million suggests a 5.7% decline from the last quarter. Our estimates for the same is pegged at $115 billion.
Also, the Zacks Consensus Estimate for software and processing fees suggests a 6.6% decrease to $206 million. As on-premise renewals are not expected to be at the level recorded in the second quarter, STT anticipates software and processing fees to decline 7%. Our estimates for the same is pegged at $205.2 billion.
Overall, the Zacks Consensus Estimate for total fee revenues of $2.25 billion indicates a 6.8% fall from the prior quarter. We project the metric to be $2.39 billion.
Management expects fee revenues to be down 1-1.5% on a sequential basis.
Expenses: Higher information systems and communication expenses, inflationary pressure and the company’s strategic buyouts and investments in franchises are expected to have led to a rise in operating expenses in the third quarter. Nonetheless, business restructuring activities are likely to have offered some support.
Management expects adjusted expenses to be down 0.5-1% on a sequential basis.
We anticipate total non-interest expenses to increase almost 1% from the last quarter to $2.2 billion.
What the Zacks Model Reveals
Per our proven model, the chances of an earnings beat for State Street this time are high. This is because the company has the right combination of the two key ingredients — a positive Earnings ESP and a Zacks Rank #3 (Hold) or better — to increase the odds of an earnings beat.
You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Earnings ESP: The Earnings ESP for State Street is +0.31%.
Zacks Rank: The company currently carries a Zacks Rank #3.
Other Banks Worth a Look
Here are a couple of other bank stocks that you may want to consider, as our model shows that these, too, have the right combination of elements to post an earnings beat this time:
Commerce Bancshares (CBSH - Free Report) is scheduled to release third-quarter 2023 earnings on Oct 18. The company has an Earnings ESP of +1.98% and carries a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
CBSH’s quarterly earnings estimates have moved 1.1% upward over the past week.
The Earnings ESP for Bank OZK (OZK - Free Report) is +1.62% and it carries a Zacks Rank #3 at present. The company is slated to report third-quarter 2023 results on Oct 19.
Over the past seven days, the Zacks Consensus Estimate for OZK’s quarterly earnings has remained unchanged.
Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.