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State Street (STT) Q4 Earnings Beat, Revenues & Costs Decline

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Zacks Equity Research
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State Street’s STT fourth-quarter 2020 adjusted earnings of $1.69 per share outpaced the Zacks Consensus Estimate of $1.57. However, the figure was 14.6% lower than the prior-year level.

Results for the reported quarter reflect new investment servicing wins of $205 billion, improvement in fee income and lower expenses. However, a decline in net interest income mainly due to lower rates was a major headwind.

Results excluded certain non-recurring items. After considering those, net income available to common shareholders was $498 million, up 1.2% from the year-ago quarter.

For 2020, adjusted earnings of $6.70 per share surpassed the Zacks Consensus Estimate of $6.58 per share. The figure increased 8.6% year over year. Net income available to common shareholders (GAAP basis) was $2.26 billion, up 12.3% year over year.

Revenues & Costs Decline

Total revenues for the quarter were $2.92 billion, decreasing 4.3% year over year. However, the top line beat the Zacks Consensus Estimate of $2.83 billion.

For the year, revenues were $11.70 billion, down marginally year over year. The figure surpassed the Zacks Consensus Estimate of $11.62 billion.

Quarterly net interest revenues were $499 million, down 21.5% from the year-ago quarter. The fall was mainly due to lower market rates, partially offset by higher investment portfolio and loan balances, and growth in deposits.

Net interest margin (NIM) decreased 52 basis points year over year to 0.84%.

Total fee revenues grew 2% from the prior-year quarter to $2.42 billion. The rise was mainly driven by strong foreign exchange trading revenues, and higher servicing and management fees, partly offset by a decline in securities finance and software and processing fees.

Non-interest expenses were $2.28 billion, down 5.4% from a year ago. The decline was primarily due to lower compensation and employee benefits costs along with a fall in acquisition and restructuring costs, and other expenses. Excluding notable items, adjusted expenses increased marginally to $2.13 billion.

Provision for credit losses was nil in the reported quarter against $3 million in the prior-year quarter.

Asset Balances Improves

As of Dec 31, 2020, total assets under custody and administration were $38.8 trillion, up 12.9% year over year.  The rise was mainly due to higher market levels, net new business installations and client flows.

Also, assets under management were $3.5 trillion, up 11.3% from the prior-year figure. The growth was driven largely by higher market levels and net inflows from exchange traded funds (ETFs) and cash, partly offset by institutional net outflows.

Capital and Profitability Ratios Strong

Under Basel III (Standardized approach), estimated Tier 1 common equity ratio was 12.3% as of Dec 31, 2020, compared with 11.7% in the corresponding period of 2019.

Return on common equity was 8.4% compared with 9.0% in the year-ago quarter.

Our Take

New business wins and a strong balance sheet position are expected to continue supporting State Street's profitability. However, near-zero interest rates will likely continue to hurt interest income and NIM growth to an extent in the near term.

State Street Corporation Price, Consensus and EPS Surprise


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

Performance of Other Major Regional Banks

PNC Financial PNC pulled off fourth-quarter 2020 positive earnings surprise of 23% on prudent expense management. Earnings per share of $3.26 surpassed the Zacks Consensus Estimate of $2.65. Also, the bottom line was 9.8% higher than the prior-year level.

First Republic Bank FRC delivered an earnings surprise of 5.3% in fourth-quarter 2020 on solid top-line strength. Earnings per share of $1.60 surpassed the Zacks Consensus Estimate of $1.52. Additionally, the bottom line climbed 15.1% from the year-ago quarter.

Unexpected large reserve releases along with solid capital markets performance drove JPMorgan’s JPM fourth-quarter 2020 earnings of $3.79 per share. The bottom line handily outpaced the Zacks Consensus Estimate of $2.72. Results included credit reserve releases. Excluding these, earnings amounted to $3.07 per share. The company earned $2.57 in the prior-year quarter.

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