State Street Corp. (STT) reported fourth-quarter 2014 operating earnings of $1.37 per share, outpacing the Zacks Consensus Estimate of $1.25, driven by overall revenue growth. Also, the reported figure was up 19% year-over-year.
For 2014, operating earnings of $5.09 per share surpassed the Zacks Consensus Estimate of $4.97. Also, the reported figure was up 12% year-over-year.
A rise in fee income, attributable to substantial growth in trading services income, was the primary reason behind the better-than-expected results. Further, asset position continued to show improvement, and capital and profitability ratios remained strong. However, lower net interest income and a rise in operating expenses were the major dampeners.
After considering certain non-recurring items, net income available to common shareholders was $525 million or $1.24 per share, compared with $545 million or $1.22 per share in the year-ago quarter.
For 2014, net income available to common shareholders (including certain non-recurring items) came in at $2.02 billion or $4.69 per share versus $2.10 billion or $4.62 per share in 2013.
Details
Revenues, on an operating basis, totaled $2.72 billion, up 8% from the prior-year quarter. Also, it was ahead of the Zacks Consensus Estimate of $2.67 billion.
For 2014, revenues on an operating basis grew 6% year over year to $10.64 billion. Moreover, it surpassed the Zacks Consensus Estimate of $10.52 billion.
Net interest revenue, on an operating basis, fell 2% year over year to $587 million. The decline was mainly due to one-time accelerated loan prepayment charges. Also, net interest margin was 1.04%, down 26 basis points year over year.
Fee revenues came in at $2.14 billion, up 11% from the prior-year quarter. All components of fee income showed improvement, with securities finance fees growing 39%, trading services income up 24%, and processing fees and other revenues rising 41%.
On an operating basis, non-interest expenses climbed 7% from the year-ago quarter to $1.88 billion. All components of operating expenses, except occupancy cost, increased.
During 2014, State Street completed Business Operations and Information Technology Transformation program, achieving more than $625 million of total annualized pre-tax savings with full effect in 2015.
Total assets, under custody and administration, were $28.19 trillion as of Dec 31, 2014, up 3% year over year. Moreover, assets under management were $2.45 trillion, up 4% from the prior-year quarter.
Capital and Profitability Ratios
State Street’s capital and profitability ratios displayed strength in the quarter. Under Basel III final rule (Advanced approach), the estimated Tier 1 common ratio was 12.5% as of Dec 31, 2014, compared with 12.8% as of Sep 30, 2014.
Return on common equity (on an operating basis) came in at 11.6%, up from 10.3% in the year-ago quarter.
Share Repurchases
During the reported quarter, State Street repurchased $410 million of shares at an average price of $73.71 per share. This was part of the company’s buyback plan, authorizing purchase of up to $1.7 billion worth of stock through the first quarter of 2015.
Our Viewpoint
We expect State Street’s restructuring programs, along with stable core servicing and investment management franchises, will help offset its financial weakness. Also, enhanced capital deployment initiatives will reinforce the company’s priority commitment to enhance shareholders’ value.
However, a low interest rate environment, mounting expenses and a persistent fall in net interest revenue are expected to drag State Street’s top line in the quarters ahead.
Currently, State Street carries a Zacks Rank #3 (Hold).
Performance of Other Major Regional Banks
Among other major regional banks, U.S. Bancorp (USB), SunTrust Banks, Inc. (STI) and Comerica Incorporated (CMA) surpassed the Zacks Consensus Estimate for earnings. For U.S. Bancorp and Comerica, the beat was mainly driven by a rise in non-interest income; while SunTrust’s beat was largely brought about by a marginal increase in net interest income and lower provision for credit losses.
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