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State Street (STT) Beats on Q1 Earnings as Revenues Improve

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State Street’s (STT - Free Report) first-quarter 2018 earnings of $1.62 per share handily outpaced the Zacks Consensus Estimate of $1.58. Also, it was 40.9% above the prior-year quarter.

Higher net interest income (reflecting rise in interest rates) and fee income (indicating higher trading services income) supported top-line growth. Also, improvement in assets under custody and administration and assets under management (AUM) acted as a tailwind. However, increase in non-interest expenses was an undermining factor.

Net income available to common shareholders came in at $605 million, up 35.7% from the year-ago quarter.

Revenues Improve, Expenses Rise

Total revenues were $3.02 billion, increasing 13.2% from the prior-year quarter. Further, the top line matched the Zacks Consensus Estimate.

Net interest revenues jumped 29% from the year-ago quarter to $658 million. The rise was mainly driven by higher interest rates, loan growth and increase in client balances. Also, net interest margin increased 26 basis points year over year to 1.43%.

Fee revenues grew 7.5% from the prior-year quarter to $2.37 billion. All components of fee income showed improvement except processing fees and other revenues.

During the reported quarter, new asset servicing mandates totaled $1.3 trillion.

Non-interest expenses were $2.26 billion, up 8.1% on a year-over-year basis. The rise was due to increase in other expense components.

As of Mar 31, 2018, total assets under custody and administration were $33.3 trillion, up 11.6% year over year. Moreover, AUM was $2.7 trillion, up 6.6%.

Strong Capital and Profitability Ratios

Under Basel III (Advanced approach), estimated Tier 1 common ratio was 12.1% as of Mar 31, 2018, up from 12.0% as of Dec 31, 2017.

Return on common equity came in at 12.8% compared with 9.9% in the year-ago quarter.

Share Repurchase Update

During the reported quarter, State Street repurchased shares worth $350 million. This was part of the company’s 2017 capital plan.

Our Viewpoint

State Street is well poised to benefit from higher interest rates and synergies from the acquisition of GE Asset Management. Also, the company remains on track to improve efficiency through its multi-year restructuring plan. However, mounting expenses are expected to continue hurting its bottom line in the upcoming quarters.

State Street Corporation Price, Consensus and EPS Surprise


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

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

U.S. Bancorp’s (USB - Free Report) first-quarter 2018 adjusted earnings per share of 95 cents surpassed the Zacks Consensus Estimate by a penny. The figure came ahead of the prior-year quarter earnings of 82 cents.

Comerica (CMA - Free Report) reported adjusted earnings per share of $1.54 in first-quarter 2018, up from the prior-year quarter’s adjusted figure of $1.02 on high interest income. Including certain non-recurring items, earnings came in at $1.59. The Zacks Consensus Estimate was $1.49.

The PNC Financial Services Group (PNC - Free Report) reported first-quarter 2018 earnings per share of $2.43 beating the Zacks Consensus Estimate by a penny. Moreover, the bottom line reflected a 24% increase from the prior-year quarter.

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