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State Street (STT) Q4 Earnings Beat on Rise in Fee Income

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State Street’s STT fourth-quarter 2021 adjusted earnings of $2.00 per share outpaced the Zacks Consensus Estimate of $1.91. The bottom line was 18.3% higher than the prior-year level.

Results reflected new investment servicing wins, provision benefits and improvement in fee income. However, a rise in expenses, a fall in net interest revenues and lower interest rates were the undermining factors.

Results excluded non-recurring items. After considering those, net income available to common shareholders was $662 million or $1.78 per share, up from $498 million or $1.39 per share in the year-ago quarter.

In 2021, adjusted earnings of $7.44 per share beat the consensus estimate of $7.36 and were up 11% year over year. Net income available to common shareholders (GAAP basis) was $2.57 billion or $7.49 per share, up from $2.26 billion or $6.32 per share in 2020.

Revenues Improve, Expenses Rise

Total quarterly revenues were $3.05 billion, increasing 4.7% year over year. Also, the top line beat the Zacks Consensus Estimate of $3.01 billion.

In 2021, total revenues grew 2.8% from the prior year to $12.02 billion. The top line surpassed the Zacks Consensus Estimate of $11.97 billion.

Quarterly net interest revenues were $484 million, down 3% year over year. The fall was largely due to lower investment portfolio yields, partially offset by higher loan balance and a rise in deposits and investment portfolio balances.

Net interest margin contracted 11 basis points to 0.73%.

Total fee revenues grew 3.9% year over year to $2.51 billion. The rise was mainly driven by improvement in all fee components, except foreign exchange trading services and software and processing fees.

Non-interest expenses were $2.33 billion, increasing 2.4%. Excluding notable items, adjusted expenses were up 1.4% to $2.16 billion.

Provision for credit losses was a benefit of $7 million in the reported quarter against no provisions in the prior-year quarter.

Asset Balances Improve

As of Dec 31, 2021, total assets under custody (AUC) and administration were $43.7 trillion, up 13% year over year. The rise was mainly due to higher market levels, net new business growth and client flows.

Assets under management were $4.1 trillion, up 19% year over year. The growth was driven largely by higher market levels and net inflows.

Capital and Profitability Ratios Strong

Common equity Tier 1 ratio was 14.3% as of Dec 31, 2021, compared with 13.1% in the corresponding period of 2020.

Return on common equity was 10.3% compared with 8.4% 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. The planned acquisition of BBH Investor Services will make the company the leading asset servicer globally (in terms of AUC). However, elevated costs due to the company’s restructuring efforts and lower rates remain major concerns.

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

Performance of Other Major Banks

Robust advisory business, reserve release and a rise in loan demand drove JPMorgan’s JPM fourth-quarter 2021 earnings of $3.33 per share. The bottom line handily outpaced the Zacks Consensus Estimate of $3.01. Results included net credit reserve releases. Excluding this, earnings came in at $2.86 per share.

However, disappointing trading performance, lower interest rates and an increase in operating expenses were the major headwinds for JPMorgan’s quarterly results. Also, the company’s mortgage fees and related income plunged during the quarter.

Wells Fargo’s WFC fourth-quarter 2021 earnings per share of $1.38 surpassed the Zacks Consensus Estimate of 1.09. Also, the bottom line improved 86% year over year. Results included certain non-recurring items.

Improved investment banking and other asset-based fees, and strong equity gains in WFC’s affiliated venture capital and private equity businesses, as well as lower costs, supported the bank’s performance. Yet, a decline in NII due to low yields from earning assets and lower loans were the undermining factors.

Citigroup C delivered an earnings surprise of 5.04% in fourth-quarter 2021. Income from continuing operations per share of $1.46 beat the Zacks Consensus Estimate of $1.39. However, the reported figure declined 24% from the prior-year quarter.

Citigroup’s investment banking revenues jumped, driven by equity underwriting and growth in advisory revenues. The dismal consumer banking business and higher operating expenses were the major headwinds.


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