State StreetSTT’s second-quarter 2022 adjusted earnings of $1.94 per share beat Zacks’ consensus estimate of $1.76. The net result was 1.5% below the level of the previous year.
Shares of STT gained 1.8% in premarket trading on better-than-expected earnings. The full day trading session will show a clearer picture.
Results reflected new investment services contracts, higher net interest income, slightly lower expenses and net interest margin growth. Lower commission income and higher provisions hurt results somewhat.
Results exclude non-recurring items. After taking these items into account, net income available to common shareholders was $712 million or $1.91 per share, compared to $728 million or $2.07 per share in the prior year quarter.
Lower income and expenses
Total revenue was $2.95 billion, down 2.7% year over year. Additionally, the top line missed the Zacks consensus estimate of $3.00 billion.
Net interest income was $584 million, up 25.1% year over year. This increase was largely attributable to higher short and long-term interest rates and growth in loan balances.
Net interest margin increased 23 basis points year over year to 0.94%.
Total fee revenue decreased 5.7% year-over-year to $2.37 billion. This decline was due to a drop in almost all components of commission income, with the exception of revenue from foreign exchange trading services.
Non-interest expense was $2.11 billion, down slightly year over year.
Provision for credit losses was $10 million in the reported quarter compared to a provision of $15 million in the prior year quarter.
Falling asset balances
As of June 30, 2022, total assets under custody and administration were $38.2 trillion, down 10.4% year-over-year. This decline was driven by lower equity and fixed income market levels, partially offset by net new business and client inflows.
Assets under management were $3.5 trillion, down 10.8% year-on-year, reflecting lower equity and fixed income market levels and institutional net outflows , partially offset by ETFs and net cash inflows.
Capital ratios are improving, profitability ratios are deteriorating
The Common Equity Tier 1 ratio was 12.9% as of June 30, 2022, compared to 11.2% for the corresponding period of 2021.
Return on common equity was 12.1%, compared to 12.6% in the corresponding quarter of the previous year.
The continued increase in expenses due to strategic corporate buyouts and franchise investments will likely hurt the bottom line to some extent. A difficult operating environment is another major concern for STT.
State Street Corporation Price, Consensus, and EPS Surprise
State Street Corporation price-consensus-eps-surprise-chart | Quote from State Street Corporation
State Street currently carries a Zacks Rank #5 (Strong Sell).
You can see the full list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Performance of major banks
Increased reserve building and lower investment banking fees JP MorganJPM’s second-quarter 2022 earnings of $2.76 per share, which missed Zacks’ consensus estimate of $2.85. Results for the reported quarter included a net build of credit reserves of $428 million.
Higher interest rates and a solid increase in loan balances supported JPM’s net interest income. Operating expenses increased year over year.
Bank of the First RepublicFRC’s second-quarter 2022 earnings per share of $2.16 beat Zacks’ consensus estimate of $2.05. In addition, net income improved by 10.8% compared to the prior year quarter.
FRC’s results were supported by an increase in net interest income and non-interest income. The company’s capital position was strong during the quarter. Still, higher expenses and a high provision for credit losses were the offsetting factors.
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