State Street Earnings: Net Interest Income Shines, Fee Revenue Robust

State Street reported a strong second quarter, with the firm’s net interest income outlook exceeding our expectations. NII, which tends to be more volatile than fee-based revenue, grew 6% from the year-ago period and 3% sequentially, a healthy result, in our view. Net interest margin was flat sequentially at 1.13% as higher yields on investment securities were offset by higher deposit costs. Earnings per share did decline from the year-ago quarter, but that was almost entirely due to an unusually low tax rate in the year-ago quarter. As State Street’s results are coming in modestly ahead of our expectations, we expect to raise our fair value estimate of $74 by a single-digit percentage.