Continuing the positive note, The Goldman Sachs Group, Inc. (GS - Analyst Report) reported another impressive quarter. Driven by strong top-line performance, the company’s third-quarter 2014 earnings per share came in at $4.57, significantly outpacing the Zacks Consensus Estimate of $3.22. Moreover, results were above the year-ago figure of $2.88.

Shares of Goldman decreased more than 3% in the pre-market session, indicating that investors have been bearish on the results. The price reaction during the full trading session will give a fair idea about the extent of disappointment among investors.

Higher investment banking and fixed income revenues along with strong capital deployment activities were the positives for the quarter. However, increased expenses were a concern. Moreover, lower trading revenues reflected market volatility.

Net income applicable to common shareholders in the quarter was $2.14 billion, increasing 50% from $1.43 billion recorded in the prior-year quarter.

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Performance in Detail

Goldman’s net revenue climbed 25% year over year to $8.4 billion in the quarter under review. Results were mainly driven by elevated revenues in all segments. Moreover, revenues outpaced the Zacks Consensus Estimate of $7.8 billion.

Quarterly revenues, as per business segments, are as follows:

Investment Banking division generated revenues of $1.5 billion, up 26% year over year. Results reflected higher-than-expected financial advisory revenues, driven by increased mergers and acquisitions (M&A) activities during the quarter. Moreover, revenues from the underwriting business (up 17% year over year) were on the upswing, driven by elevated revenues in equity underwriting, partially offset by reduced debt underwriting.

Investment Management division generated revenues of $1.5 billion, up 20% year over year. Results reflected increased management and other fees along with higher incentive fees and transaction revenues.

Investing and Lending division booked revenues of $1.7 billion in the quarter, up 15% year over year. Results included net gains of $876 million from investments in equities, net interest income and net gains of $606 million from debt securities and loans coupled with other net revenues of $210 million.

Institutional Client Services division recorded revenues of $3.8 billion, up 32% year over year. Results were driven by significantly higher revenues in Fixed Income, Currency and Commodities Client Execution (FICC), marked by increased net revenues primarily in currencies followed by commodities, interest rate products and mortgages.

However, a fall in equity trading revenues (down 1% year over year) was recorded, mainly due to lower net revenues in equities client execution. Notably, results included gain associated with the extinguishment of certain junior subordinated debt.

Operating expenses surged 12% to $5.1 billion compared with the prior-year quarter. Expenses increased largely due to higher compensation and employee benefits (up 18% year over year) as well as non-compensation expenses.

Non-compensation expenses were $2.3 billion in the quarter, up 5% year over year, primarily due to elevated other expenses reflecting higher net provisions for litigation and regulatory proceedings. Further, elevated brokerage, clearing, exchange and distribution fees and increased depreciation and amortization expenses were on the downside.

Evaluation of Capital

Goldman exhibited a strong capital position in the reported quarter. As of Sep 30, 2014, the company’s Common Equity Tier 1 ratio was 11.8% under the Basel III Advanced Approach, reflecting the valid transitional provisions.

Return on average common shareholders’ equity, on an annualized basis, was 11.8% in the reported quarter, up from 10.9% in the prior quarter. Goldman’s book value per share increased 2% to $161.38, while tangible book value per share rose 2% to $151.70, as compared with the prior quarter.

Capital Deployment Update

During third-quarter 2014, Goldman repurchased 7.1 million shares of its common stock at an average price per share of $176 and a total cost of $1.25 billion. Remaining share authorization under Goldman’s existing repurchase program stands at 32 million shares.

On Oct 15, 2014, Goldman’s board of directors declared an increased quarterly dividend of 60 cents per common share, up 9% from the previous rate of 55 cents. The new dividend will be paid on Dec 30, 2014 to common shareholders of record as on Dec 2, 2014.

In Conclusion

We expect Goldman to benefit from its well-managed global franchise, strong capital base and recent investments in the near future. Moreover, sustainable top-line growth would act as a driving factor. However, regulatory issues, including lawsuits and mounting expenses despite cost control measures remain a concern.

Though there are concerns related to the impact of legal issues and its global exposure, equity-centric activities in the U.S. are expected to support Goldman’s results in the upcoming quarters with continued recovery in the capital markets.

An investor with an appetite to absorb risks related to the market volatility should not be disappointed with an investment in Goldman over the long haul. Goldman’s fundamentals remain highly promising with a diverse business model and strong balance sheet.

Moreover, Goldman is justly considered to be a value investment due to its steady dividend-yielding nature. This banking major currently carries a Zacks Rank #3 (Hold).

Performance of other Major Banks

The third-quarter earnings season kick started with Wall Street biggies – Wells Fargo & Company (WFC - Analyst Report), Citigroup Inc. (C - Analyst Report) and JPMorgan Chase & Co. (JPM - Analyst Report). Driven by top-line growth, Wells Fargo earned $1.02 per share in third-quarter 2014, thereby surpassing 99 cents earned in the year-ago quarter. However, the reported figure was in line with the Zacks Consensus Estimate.

JPMorgan came out with earnings of $1.62 per share, beating the Zacks Consensus Estimate of $1.39. The number also compares favorably with $1.42 earned in the year-ago quarter. Earnings exclude the impact of 26 cents per share related to the after-tax Firmwide legal expense. Considering this significant one-time item, the company has earned $1.36 per share.      

Citigroup reported yet another impressive quarter. Adjusted earnings per share for third-quarter 2014 came in at $1.15, outpacing the Zacks Consensus Estimate of $1.12. Further, earnings compared favorably with the year-ago figure of $1.02 per share.