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State Street (STT) Beats Q1 Earnings as Fee Income Rises

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Improved fee revenues drove State Street Corporation’s (STT - Free Report) first-quarter 2017 operating earnings of $1.21 per share, which easily surpassed the Zacks Consensus Estimate of $1.10. Also, the figure was up 23.5% year over year. The reported quarter’s operating earnings included certain notable items.

Better-than-expected results reflected an increase in net interest income and fee income. Further, asset growth aided the results. However, a rise in expenses hurt the quarterly numbers.

After considering certain non-recurring items, net income available to common shareholders came in at $446 million or $1.15 per share, up from $319 million or 79 cents per share in the year-ago quarter.

Revenues Improve, Expenses Rise

Revenues, on a GAAP basis, totaled $2.67 billion, increasing 7.4% from the prior-year quarter. However, the top line lagged the Zacks Consensus Estimate of $2.75 billion.

Net interest revenue, on an operating basis, increased 2.6% from the year-ago quarter to $553 million. The rise was mainly driven by higher market interest rates in the U.S. and disciplined liability pricing. These were partly offset by decline in interest earning assets and lower non-U.S. investment portfolio yields.

Also, net interest margin increased 5 basis points year over year to 1.17%.

Fee revenues grew 11.6% from the prior-year quarter to $2.27 billion. All components of fee income showed improvement except securities finance revenues.

On an operating basis, non-interest expenses were $2.06 billion, up 5.9% on a year-over-year basis. Increase in compensation and employee benefits costs, other expenses and information systems and communications expenses were partly offset by lower occupancy costs and transaction processing services expenses.

As of Mar 31, 2017, total assets under custody and administration were $29.8 trillion, up 10.7% year over year. Moreover, assets under management were $2.6 trillion, up 11.5% year over year.

Strong Capital and Profitability Ratios

Under Basel III (Advanced approach), the estimated Tier 1 common ratio was 11.2% as of Mar 31, 2017, down from 11.7% as of Dec 31, 2016.

Return on common equity (on an operating basis) came in at 10.4% compared with 8.4% in the year-ago quarter.

Share Repurchases

During the reported quarter, State Street repurchased shares worth $523 million, which includes shares received as part of the sale of BFDS/IFDS.

Our Viewpoint

State Street expects easing margin pressure and synergies from the acquisition of GE Asset Management to further support top-line growth. Also, the company remains on track to improve efficiency through its multi-year restructuring plan.

However, mounting expenses are expected to continue hurting the bottom line in the upcoming quarters. Moreover, stringent regulations remain near-term concern.

State Street Corporation Price, Consensus and EPS Surprise


State Street Corporation Price, Consensus and EPS Surprise | State Street Corporation Quote

Currently, State Street 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 Regional Banks

BB&T Corporation’s first-quarter 2017 adjusted earnings of 74 cents per share surpassed the Zacks Consensus Estimate by a penny. Better-than-expected results were primarily driven by an improvement in both net interest income and non-interest income. However, escalated expenses remained a major headwind.

Comerica Inc.’s (CMA - Free Report) first-quarter 2017 adjusted earnings per share of $1.02 surpassed the Zacks Consensus Estimate by a penny.  Better-than-expected results reflect higher revenues and lower expenses. Moreover, lower provisions and better credit quality were the tailwinds.

KeyCorp’s (KEY - Free Report) first-quarter 2017 adjusted earnings of 32 cents per share handily surpassed the Zacks Consensus Estimate of 28 cents. Better-than-expected results were attributable to revenue synergies from the First Niagara Financial Group acquisition deal (completed in Aug 2016) and lower provision for credit losses. However, higher operating expenses were the downside.

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