State Street (STT) Q2 Earnings Beat on Fee Income Growth

State Street’s STT second-quarter 2020 adjusted earnings of $1.88 per share comfortably outpaced the Zacks Consensus Estimate of $1.63. Also, the figure was 29.7% higher than the prior-year level.

The results reflect new investment servicing wins of $162 billion, improvement in fee income and successful implementation of its cost-saving initiatives. However, lower net interest income mainly due to lower rates and rise in provisions were headwinds.

After considering several non-recurring items, net income available to common shareholders was $662 million, up 23.3% from the year-ago quarter.

Revenues Up, Expenses Down

Total revenues were $2.93 billion, increasing 2.2% year over year. Also, the top line beat the Zacks Consensus Estimate of $2.87 billion.

Net interest revenues declined 8.8% from the year-ago quarter to $559 million. The fall was mainly due to lower market rates, partially offset by a solid deposit balance and participation in the Money Market Mutual Fund Liquidity Facility program.

Net interest margin decreased 54 basis points year over year to 0.93%.

Total fee revenues grew 5.2% from the prior-year quarter to $2.38 billion. This rise was mainly driven by higher foreign exchange trading services (up 26%), and software and processing fees (up 45.8%).

Non-interest expenses were $2.08 billion, down 3.3% from a year ago. The decline was attributed to the company’s cost-savings efforts. Excluding notable items, adjusted expenses decreased 3.4% from the prior-year period to $2.07 billion.

Provision for credit losses was $52 million, up significantly from $1 million in the prior year quarter.

As of Jun 30, 2020, total assets under custody and administration were $33.5 trillion, up 2.3% year over year. Also, assets under management were $3.1 trillion, up 4.7% from the prior-year figure.

Strong Capital and Profitability Ratios

Under Basel III (Standardized approach), estimated Tier 1 common ratio was 12.3% as of Jun 30, 2020 compared with 11.5% in the corresponding period of 2019.

Return on common equity came in at 12.1% compared with 10.1% in the year-ago quarter.

Our Take

New business wins, strong balance sheet position and cost-saving efforts are likely to continue supporting State Street's profitability. However, lower interest rates and coronavirus-induced economic slowdown remain major near-term concerns.

State Street Corporation Price, Consensus and EPS Surprise

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 #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Other Major Regional Banks

Bank of New York Mellon Corporation BK — currently carrying a Zacks Rank #3 (Hold) — reported second-quarter 2020 earnings per share of $1.01, surpassing the Zacks Consensus Estimate of 94 cents. The figure was on par with the prior-year level.

Zacks #3 Ranked U.S. Bancorp’s USB second-quarter 2020 earnings per share of 41 cents surpassed the Zacks Consensus Estimate of 34 cents. However, the bottom line compares unfavorably with $1.09 reported in the prior-year quarter.

Zacks #3 Ranked Truist Financial’s TFC second-quarter 2020 adjusted earnings of 82 cents per share surpassed the Zacks Consensus Estimate of 64 cents. The results excluded restructuring charges and BB&T-SunTrust Banks merger-related charges, incremental operating expenses related to the merger, securities gains, as well as losses from the early extinguishment of long-term debt.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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