State Street Corporation
) reported its first-quarter 2013 operating earnings of 96 cents
per share, marginally beating the Zacks Consensus Estimate of 93
cents. This also compares favorably with the prior-year quarter's
earnings of 84 cents.
Better-than-expected results benefited from improvement in fee
income, partially offset by higher operating expenses and
decrease in net interest income. Further, asset position and
capital ratios remain robust.
After considering certain non-recurring items, net income came in
at $455 million or 98 cents per share. This compares favorably
with the year-ago quarter's net income of $417 million or 85
cents per share.
Performance in Details
Revenue on an operating basis came in at $2.5 billion, improving
2.0% from $2.4 billion in the prior-year quarter. Operating
revenue was in line with the Zacks Consensus Estimate.
Net interest revenue on an operating basis declined 4.9% from the
previous-year quarter to $577 million. The fall was mainly due to
lower yields on earning assets, partly offset by lower liability
costs. Likewise, net interest margin was 1.31% in the quarter,
down 21 basis points year over year, reflecting lower yields on
earning assets and higher levels of client deposits.
Fee revenue came in at $1.89 million, increasing 4.9% from $1.80
billion in the previous year quarter. The rise was attributable
to increases in servicing fees and trading services fees,
partially offset by a fall in securities finance fees as well as
processing and other fees.
On an operating basis, non-interest expenses were $1.81 billion,
inching up 0.7% year over year. The increase was primarily driven
by higher information systems, partially offset by a decline in
compensation and employee benefits expenses, transaction
processing service costs and occupancy expenses.
Total assets under custody and administration were $25.42
trillion as of Mar 31, 2013, up nearly 9.5% year over year and
4.3% sequentially. Moreover, State Street's total assets under
management stood at $2.18 billion, up 9.9% from the last year
quarter and 4.3% from the prior quarter.
Capital and Profitability Ratios
Though State Street's capital ratios deteriorated, they remained
strong. As of Mar 31, 2013, Tier 1 capital ratio was 18.0%, down
from 19.1% both as of Mar 31, 2012 and Dec 31, 2012. Likewise,
Tier 1 common to risk-weighted assets decreased to 16.1% as of
Mar 31, 2013 from 17.2% as of Mar 31, 2012 and 17.1% as of Dec
Further, the estimated Basel III Tier 1 common ratio fell to
10.6% as of Mar 31, 2013 from 10.8% as of Dec 31, 2012.
Return on common equity (on an operating basis) came in at 8.9%,
increasing from 8.6% in the year-ago quarter but decreasing from
10.3% from the prior quarter.
BANK OF NY MELL (BK): Free Stock Analysis
BANKUNITED INC (BKU): Free Stock Analysis
NORTHERN TRUST (NTRS): Free Stock Analysis
STATE ST CORP (STT): Free Stock Analysis
To read this article on Zacks.com click here.
In March, State Street received the Federal Reserve's approval
for its 2013 capital plans after the clearance of the stress
test. Upon receiving the approval, the company announced a
buyback plan authorizing purchase of up to $2.1 billion worth of
stock through Mar 13, 2014.
During the reported quarter, State Street bought back 6.5 million
shares at an aggregate cost of $360 million. This completes the
company's share repurchase authorization, which was part of its
2012 capital plan.
Performance of Other Major Regional Banks
Unlike State Street, both
The Bank of New York Mellon Corporation
Northern Trust Corporation
) marginally missed the Zacks Consensus Estimate. The results for
both the companies were adversely affected by a rise in operating
Another major bank,
) is scheduled to announce reports on Apr 24.
We anticipate State Street's restructuring programs along with
stable core servicing and investment management franchises to
help offset its financial weakness. In addition, the recent
acquisitions will further augment revenues. Also, the capital
plan approval reinforces the company's priority to enhance
The low interest rate environment and deteriorating net interest
revenue are expected to dent State Street's top line in the
upcoming quarters. Despite these concerns, sound capital
deployment activities will boost investors' confidence in the
State Street currently carries a Zacks Rank #2 (Buy).