State Street (STT) Q4 Earnings Beat, Revenues Improve Y/Y

State Street Corporation’s (NYSE:STT) fourth-quarter 2017 operating earnings of $1.83 per share handily outpaced the Zacks Consensus Estimate of $1.71. Also, it was 23.6% above the prior-year quarter. The figure excluded one-time net costs of $270 million or 72 cents per share related to the tax reform and other significant non-recurring items.

Higher net interest income (reflecting rise in interest rates), fee income and a decline in operating expenses supported the results. Also, improvement in assets under custody and administration and assets under management (AUM) acted as a tailwind. However, lower trading servicing fees was an undermining factor.

After considering several notable items, net income available to common shareholders came in at $334 million or 89 cents per share compared with $557 million or $1.43 per share in the year-ago quarter.

Revenues Improve, Expenses Rise

Revenues, on a GAAP basis totaled $2.85 billion, increasing 12.5% from the prior-year quarter. However, the top line lagged the Zacks Consensus Estimate of $2.98 billion.

Net interest revenues, on an operating basis, jumped 20.3% from the year-ago quarter to $658 million. The rise was mainly driven by higher interest rates, loan growth and disciplined liability pricing. Also, net interest margin increased 31 basis points year over year to 1.38%.

Fee revenues grew 5.7% from the prior-year quarter to $2.33 billion. All components of fee income showed improvement except total trading services revenues.

On an operating basis, non-interest expenses were $2 billion, down 6.8% on a year-over-year basis. The fall was due to lower other costs and compensation and employee benefits expenses.

As of Dec 31, 2017, total assets under custody and administration were $33.1 trillion, up 15.1% year over year. Moreover, AUM was $2.8 trillion, up 12.7% year over year.

Strong Capital and Profitability Ratios

Under Basel III (Advanced approach), estimated Tier 1 common ratio was 12.3% as of Dec 31, 2017, down from 12.6% as of Sep 30, 2017.

Return on common equity (on an operating basis) came in at 14.1% compared with 12.5% in the year-ago quarter.

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 the bottom line in the upcoming quarters.

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

B&T Corporation’s (NYSE:BBT) fourth-quarter 2017 adjusted earnings of 84 cents per share outpaced the Zacks Consensus Estimate of 80 cents. The bottom line recorded 7.7% improvement from the year-ago quarter.

Comerica Inc. (NYSE:CMA) pulled off a positive earnings surprise of 5.8% in fourth-quarter 2017. Adjusted earnings per share of $1.28 surpassed the Zacks Consensus Estimate of $1.21.

KeyCorp’s (NYSE:KEY) fourth-quarter 2017 adjusted earnings of 36 cents per share came in line with the Zacks Consensus Estimate. Also, this compares favorably with 31 cents recorded in the prior-year quarter.

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