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State Street 's STT third-quarter 2018 earnings of $1.87 per share missed the Zacks Consensus Estimate by a penny. Nonetheless, the figure was 13% above the prior-year quarter level.

Results reflected higher net interest income (reflecting rise in interest rates) and fee income (indicating higher trading services income and management fees), which supported revenue growth. Also, improvement in assets under custody and administration plus assets under management (AUM) acted as a tailwind. However, increase in non-interest expenses was an undermining factor.

Net income available to common shareholders was $709 million, up 12.7% from the year-ago quarter's figure.

Revenues Improve, Expenses Rise

Total revenues were $2.95 billion, increasing 3.7% from the year-earlier quarter's count. However, the top line marginally lagged the Zacks Consensus Estimate of $3 billion.

Net interest revenues increased 11.4% from the year-ago quarter to $672 million. This upside was mainly driven by higher interest rates and an increased client engagement across cash products and a disciplined liability pricing. Also, net interest margin expanded 13 basis points year over year to 1.48%.

Fee revenues inched up 1.7% from the prior-year quarter to $2.28 billion. This uptick was aided by higher management fees and trading services revenues, partially offset by a decline in servicing fees, securities finance revenues and processing fees plus other revenues.

Non-interest expenses were $2.08 billion, up 2.9% on a year-over-year basis. The rise was due to increase in all expense components except occupancy costs.

State Street achieved approximately $180 million of cost savings under Beacon in the first nine months of 2018. The company expects $200 million in savings during 2018.

As of Sep 30, 2018, total assets under custody and administration were $34 trillion, up 5.9% year over year. Moreover, AUM was $2.8 trillion, up 5.1%.

Strong Capital and Profitability Ratios

Under Basel III (Advanced approach), estimated Tier 1 common ratio was 14.0% as of Sep 30, 2018, up from 12.4% as of Jun 30, 2018.

Return on common equity came in at 14.0% compared with 13.0% in the year-ago quarter.

Our Viewpoint

State Street is well poised to benefit from higher interest rates and inorganic growth efforts. Also, the company remains on track to enhance efficiency through its multi-year restructuring plan. However, mounting expenses might persistently hurt its bottom line in the upcoming quarters.

State Street Corporation Price, Consensus and EPS Surprise

State Street Corporation Price, Consensus and EPS Surprise | 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

Comerica's CMA third-quarter 2018 adjusted earnings per share of $1.86 surpassed the Zacks Consensus Estimate of $1.76. Also, the results compared favorably with the year-ago adjusted figure of $1.27.

KeyCorp's KEY third-quarter 2018 earnings of 45 cents per share topped the Zacks Consensus Estimate of 44 cents. Also, this compared favorably with the bottom line of 32 cents recorded in the prior-year period.

BB&T Corporation's BBT third-quarter 2018 adjusted earnings of $1.03 per share outshined the Zacks Consensus Estimate of $1.00. Also, the figure represents a surge of 32.1% from the year-earlier quarter's tally.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of NASDAQ, Inc.

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