State Street Corporation (STT: 39.53 0.00 0.00%) reported second quarter 2010 operating earnings of 93 cents, in line with the Zacks Consensus Estimate. Results improved 24% from 75 cents in the prior quarter and 4.5% from 89 cents in the prior-year quarter.Operating results, however, exclude a pre-tax charge related to certain common and collective trust funds, merger and integration costs; a tax on bonus payments to employees in the United Kingdom; a one-time tax benefit related to the restructuring of former non-U.S. conduit assets; and net interest revenues associated with the discount accretion from the consolidation of the asset-backed commercial paper conduits in the second quarter of 2009.
On a GAAP basis, earnings for the quarter came in at 87 cents per share, compared with earnings of 99 cents in the prior quarter and 79 cents in the year-ago quarter.
Revenues were flat sequentially and spiked up 9% year over year to $2.3 billion. Operating revenues totaled $2.2 billion, up 2.2% sequentially and 6.0% year over year.
Net interest revenues on an operating basis inched up 7.5% sequentially, and 3.6% year over year to $517 million. The increase was attributable to a meek decrease in funding costs, favorable yields in the investment portfolio and the impact of deposits from the Intesa acquisition. Net interest margin on an operating basis was 166 basis points in the quarter.
Expenses on an operating basis slashed 6.3% sequentially, but increased 8.6% year over year to $1.5 billion. Sequential decline was due to lower salaries and employee benefits expenses. However, increase from the prior-year quarter was mainly as result of increases in salaries and benefits expenses, which was partly offset by a lower level of other expenses.
The company reported a 10% increase in fee revenues compared with the prior quarter and 12% from prior-year quarter to $1.7 billion. Unrealized losses declined to $994 million from $1.4 billion in the prior quarter and $4.7 billion in the year-ago quarter.
As of June 30, 2010, State Street’s Tier 1 capital ratio was 15.1% (down 290 bps sequentially) and its leverage ratio was 7.7% (down 130 bps sequentially). The capital ratios continue to remain strong despite its sequential decline. This decrease was mainly due to the impact of acquisitions completed in the quarter, and was partially offset by internal generation of capital.
Return on common equity, on an operating basis, came in at 11.8%, compared with 10.0% in the prior quarter and 14.7% in the prior-year quarter.
Two of the close competitor of State Street, JPMorgan Chase & Co. (JPM: 39.63 0.00 0.00%) and Bank of New York Mellon Corporation (BK: 25.53 0.00 0.00%) reported an impressive second quarter results.
Another peer, Northern Trust Corporation (NTRS: 49.32 0.00 0.00%) will announce its second quarter results on July 21st.
| Analysts' Targets | |
| Stifel Nicolaus | $42 |
| Hold | |
| Tuesday, May 25, 2010 | |
| RBC Capital Markets | $58 |
| Sector Perform | |
| Monday, March 08, 2010 | |
| Argus Research | $60 |
| Buy | |
| Tuesday, January 26, 2010 | |
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