Attached files
| file | filename |
|---|---|
| EX-99.2 - EXHIBIT 99.2 - STATE STREET CORP | exhibit992-1q18earningsrel.htm |
| EX-99.1 - EXHIBIT 99.1 - STATE STREET CORP | exhibit991-1q18earningspre.htm |
| 8-K - 8-K - STATE STREET CORP | form8-k1q18.htm |
First Quarter 2018
Financial Highlights
April 20, 2018
(NYSE: STT)
Exhibit 99.3
2
This presentation includes certain highlights of, and also material supplemental to, State Street Corporation’s news release announcing its first quarter 2018
financial results. That news release contains a more detailed discussion of many of the matters described in this presentation and is accompanied by detailed
financial tables. This presentation is designed to be reviewed together with that news release, which is available on State Street’s website, at
www.statestreet.com/stockholder, and is incorporated herein by reference.
This presentation (and the conference call accompanying it) contains forward-looking statements as defined by United States securities laws. These statements
are not guarantees of future performance, are inherently uncertain, are based on assumptions that are difficult to predict and have a number of risks and
uncertainties. The forward-looking statements in this presentation speak only as of April 20, 2018, and State Street does not undertake efforts to revise forward-
looking statements. See “Forward-looking statements” in the Appendix for more information, including a description of certain factors that could affect future results
and outcomes.
Certain financial information in this presentation are presented on both a GAAP and an adjusted (or an operating) basis. Both adjusted and operating basis
presentations are non-GAAP presentations. Refer to the Appendix for explanations of our non-GAAP financial measures and to the Addendum for reconciliations
of our non-GAAP financial information.
Preface and forward-looking statements
3
1Q18 Highlights
All comparisons are to 1Q17
Refer to the Appendix included with this presentation for endnotes 1 to 6.
Growing
Our Core
Franchise
• Announced record new servicing business wins of ~$1.3T and servicing assets yet to be
installed of ~$1.6T at quarter-end1
• Strong AUCA and AUM levels resulting from market appreciation, new business and client
activity
• Strength in servicing fees driven by higher global equity markets, broad-based business
momentum across geographies and greater client demand for product offerings
Advancing
Our Digital
Leadership
• Multi-year investment in Beacon continues to drive new sales and fuel new business
pipeline
• Delivering new tools and functionality with enhanced analytics and real-time data to
benefit clients and deepen existing relationships
• Controlled expenses through efficiency improvements, with Beacon-related net savings of
$58M in 1Q18
Achieving
Our Financial
Targets and
Returns
• Double-digit EPS growth of 41% and ROE of 12.8%
• Solid fee revenue growth of 8% driven by global equity market appreciation, new business
and higher trading activity
• Strong net interest income growth of 29% from higher U.S. interest rates and disciplined
liability pricing
4
Summary of 1Q18 Results
Notable Items
A Effects of the new revenue recognition standard (ASU 2014-09) increased 1Q18 Total fee revenue and Total expenses by ~$65M each. Relative to 4Q17 and 1Q17, the
A new revenue recognition standard contributed 3% to both total fee revenue growth and expense growth. The revenue impact was ~$45M in Management fees, ~$15M in
A Trading services, and ~$5M across other revenue line items. The expense impact was ~$15M in Transaction processing, ~$45M in Other expenses, and ~$5M across other
A expense line items.
Refer to the Appendix included with this presentation for endnotes 1 to 6.
Pre-tax impact
increase (decrease)
1Q18 4Q17 1Q17
Revenue:
Gain on sales of
businesses
- - 30
Investment portfolio
repositioning
- - (40)
Tax Cuts & Jobs Act
(TCJA) impact
2 - (20) -
Expenses:
Acquisition &
restructuring costs
- (133) (29)
Tax:
TCJA
impact
2 - (250) -
Total EPS impact: - $(0.94) $(0.06)
1Q18 4Q17 1Q17 1Q17 4Q17
Revenue:
Servicing fees $1,421 $1,379 $1,296 10% 3%
Management feesA 472 418 382 24 13
Trading services 304 248 275 11 23
Securities finance 141 147 133 6 (4)
Processing fees and other 25 38 112 (78) (34)
Total fee revenueA 2,363 2,230 2,198 8 6
Net interest income 658 616 510 29 7
Gains (losses) related to investment securities, net (2) - (40) (95) nm
Total revenue $3,019 $2,846 $2,668 13% 6%
Provision for loan losses - (2) (2) nm nm
Expenses:
Compensation and employee benefits 1,249 1,067 1,166 7 17
Information systems and communications 315 301 287 10 5
Transaction processing servicesA 242 219 197 23 11
Occupancy 120 117 110 9 3
Acquisition and restructuring costs - 133 29 nm nm
OtherA 330 294 297 11 12
Total expensesA $2,256 $2,131 $2,086 8% 6%
Income before income tax expense $763 $717 $584 31% 6%
Income tax expen e (benefit) 102 347 82 24 (71)
Net income $661 $370 $502 32% 79%
Dividends on preferred stock (55) (36) (55) - 53
Net income available to common shareholders $605 $334 $446 36% 81%
Diluted earnings per share $1.62 $0.89 $1.15 41% 82%
($M, except EPS data, or where otherwise noted)
Quarters % ∆
5
Financial Highlights 1Q18 compared to 1Q17
EPS Growth of 41%
ROE Improved 2.9%pts
Operating leverage Positive operating leverage of 5.0%pts
Fee operating leverage Fee operating leverage of (0.6)%pts
Pre-tax margin
A
Pre-tax margin of 25.3% increased 3.4%pts
Diluted EPS
($)
ROE
(%)
Generated strong earnings growth and improved return on
equity
1Q18
1.62
4Q17
0.89
3Q17
1.66
2Q17
1.53
1Q17
1.15
+41% +2.9%pts
6.9
4Q17
12.8
1Q18 3Q17
13.0
2Q17
12.6
1Q17
9.9
GAAP unless noted otherwise
A On a historical operating-basis, 1Q18 Pre-tax margin of 27.4% increased 1.3%pts over the prior year period. Please refer to the Addendum for an explanation of our
A historical operating-basis (non-GAAP) presentation and related reconciliations.
6
AUCA and AUM growth driven by market appreciation and
client momentum
Assets Under Custody
and Administration (AUCA)
($T, as of period-end)
Assets Under
Management (AUM)
($B, as of period-end)
33.132.131.0
29.8
33.3
+12%
1Q18 2Q17 1Q17 4Q17 3Q17
2,782
2,6732,6062,561
2,729
1Q18
+7%
4Q17 3Q17 2Q17 1Q17
• 12% AUCA increase primarily reflects:
−Growth from market appreciation, new business and
client activity
−Strong flows into global ETFs, EMEA funds and
middle office outsourcing, partially offset by modest
hedge fund outflows
• 7% AUM increase primarily reflects:
−Growth from market appreciation, as well as ETF net
inflows, partially offset by thinner-yielding institutional
outflows
All comparisons are to 1Q17
7
Continued fee revenue growth driven by equity market
appreciation, new business and higher trading activity
Fee Revenue
($M)
1Q18 vs 1Q17
• Servicing fees increased mainly due to higher equity
markets, new business and the favorable impact of
currency translation, partially offset by modest hedge fund
outflows
• Management feesA increased primarily driven by higher
global equity markets, favorable impact of currency
translation and the adoption of the new revenue
recognition accounting standard
• Trading servicesA increased largely driven by strong FX
client volumes and higher electronic trading activity
• Securities finance increased primarily driven by higher
securities lending activity from the agency business
• Processing fees and other decreased largely reflecting
the 1Q17 pre-tax gain of $30M from the sale of a
business and the episodic impact of higher FX swap
costs of $22M not included in the net interest income
deposit hedging program
• Favorable currency translation positively impacted Total
fee revenue by $62M
1Q18 vs. 1Q17 % Change
Ex FX
Servicing fees 10% 6%
Management fees 24% 21%
Trading services 11% 8%
Securities finance revenue 6% 5%
Processing fees and other (78)% (79)%
Total fee revenue 8% 5%
472382
1,421
1,296
1Q18
2,363
25
141
304
4Q17
2,230
3Q17
2,242
2Q17
2,235
1Q17
2,198
112
133
275
+8%
+5% ex FX
A
A Effects of the new revenue recognition standard (ASU 2014-09) increased 1Q18 Total fee revenue by ~$65M. Relative to 1Q17, the new revenue recognition standard
A contributed 3% to total fee revenue growth. The revenue impact was ~$45M in Management fees, ~$15M in Trading services, and ~$5M across other revenue line items.
8
1Q17 2Q17 3Q17 4Q17 1Q18
Total assets 219 224 218 216 227
Interest-earning
assets
192 195 190 188 193
Total deposits 165 167 162 161 165
Strong growth in NII and NIM driven by higher U.S. interest
rates and disciplined liability pricing
NII & NIMA
(NII $M, NIM %)
1Q18 vs 1Q17
Average Interest-Earning Assets & Deposits
($B)
1Q18 vs 1Q17
GAAP unless noted otherwise
656645
617
553
679
1.43
NII (FTE) +23%
NIM (FTE) +26bps
1Q18 4Q17
1.38
3Q17
1.35
2Q17
1.27
1Q17
1.17
A NII is presented on both a fully taxable-equivalent (FTE) basis and GAAP-basis; NIM is only presented on an FTE-basis. Please refer to the Addendum for reconciliations
A of our FTE-basis presentation.
GAAP
NII
510 575 603 616 658
• NII increased primarily due to higher U.S. interest rates,
disciplined liability pricing, higher client balances and a
continued shift away from wholesale CDs
• NIM increased mainly driven by higher U.S. interest rates,
disciplined liability pricing, higher client balances and a
continued shift away from wholesale CDs
• Modestly higher balance sheet reflecting an increase in
client activity
• Total deposits were approximately 60% USD, 20% EUR,
10% GBP and 10% in other currencies
YoY
+29%
9
• Compensation and employee benefits increased
primarily driven by costs to support new business, annual
merit and performance-based incentives and the
unfavorable impact of currency translation, partially offset
by savings from Beacon
• Information systems and communications increased
mainly due to higher technology costs
• Transaction processingA increased primarily reflecting
higher client volumes and market levels
• Occupancy increased primarily due to Beacon-related
global footprint investments
• OtherA increased mainly reflecting the adoption of the
new revenue recognition accounting standard
• Unfavorable currency translation negatively impacted
Total expenses by $54M
Expense growth reflects continued new business investments
offset by Beacon benefits
Expenses
($M)
1Q18 vs 1Q17
1Q18 vs. 1Q17 % Change
Ex FX
Compensation & benefits 7% 5%
Info sys & communications 10% 8%
Transaction processing 23% 20%
Occupancy 9% 5%
Acq. & restructuring costs nm nm
Other 11% 8%
Total expense 8% 6%
315
287
1,249
1,166
2,256
330
120
242
+8%
+6% ex FX
1Q18
297
29 110
197
4Q17
2,131
3Q17
2,021
2Q17
2,031
1Q17
2,086
A Effects of the new revenue recognition standard (ASU 2014-09) increased 1Q18 Total expenses by ~$65M. Relative to 1Q17, the new revenue recognition standard
A contributed 3% to total expense growth. The expense impact was ~$15M in Transaction processing, ~$45M in Other expenses, and ~$5M across other expense line items.
B 1Q17 and 1Q18 included $154M and $148M, respectively, of seasonal deferred incentive compensation expense for retirement-eligible employees and payroll taxes.
B
B
A
10
1Q18 YoY ∆ $M ~%
Optimization:
Transaction Processing,
Fund Accounting,
Fund Administration
and other operating model
$35M 50%
IT Transformation:
Application,
platform rationalization
and optimization
$15M 20%
Corporate & SSGA:
Corporate divisions,
Procurement,
real estate optimization
and other
$23M 30%
1Q18 YoY ∆ in gross
Beacon savings
$73M 100%
1Q18 YoY ∆ in Beacon
investment
$15M
1Q18 YoY net
Beacon savings
$58M
Beacon continues to deliver client benefits, while achieving
net savings of $58M in 1Q18
• Transaction processing: 20% YoY reduction in
manual touches from our State Street Global
Transactions Center of Excellence to Accounting
• Strengthening core platform: Vast majority of fund
accounting is on a single, global platform for Asset
Managers and Asset Owners
• Global service expansion: Improving net asset
value (NAV) delivery speed across geographies
• Product innovation: Building on our current
services and analytics with machine learning via a
mobile solution for portfolio and risk management;
increasing share of wallet by offering digital
improvements powered by analytics
• Upgraded information client delivery platform:
On-going enhancements to my.statestreet.com to
improve access to data and analytics for 80K users;
co-created with 100+ clients
Select Key Achievements
Automation
& Efficiencies
Solutions
& Services
1Q18 Benefit Drivers
11
Strong balance sheet calibrated to provide capacity to
support client growth
Investment Portfolio Highlights
($B, as of March 31, 2018)
Quarter-End Capital Positions
(%, Fully phased-in as of period-end)
Refer to the Appendix included with this presentation for endnotes 1 to 6.
Non-
HQLA
30%
4Q17
HQLA
70%
HQLA
61%
1Q18
Non-
HQLA
39%
ABS 22%
Muni 8%
Other 9%
ABS 16%
Muni 7%
Other 7%
$97.5B
$85.6B
-12%
HQLA: Mostly
Gov’t/Agency,
MBS
• Relative to 4Q17:
−Changes in risk-based ratios are largely attributable to
growth in RWA related to higher client overdrafts
−Changes in SLR and Tier 1 leverage ratio are largely
attributed to a higher average balance sheet due to
higher client activity
• Duration: 3.0 years in 1Q18
• Interest-rate risk metric:
− In a hypothetical +100bps shock to quarter-end spot
interest rates, the unrealized after-tax available-for-sale
mark-to-market (MTM) loss sensitivity is ~($1.0B)
1Q18 2Q17
6.9%
10.9%
7.3%
3Q17
6.0% 6.0%
6.4%
12.3%
11.3%
6.2%
10.8%
11.7%
10.9%
12.1%
5.6%
6.1%
1Q17
10.9%
6.4%
10.9%
11.1%
4Q16
7.2%
6.7%
11.6%
4Q17
12.0%
6.9%
Tier 1 Leverage Standardized CET1 SLR Advanced CET1
Capital Ratios 3,4,5,6
12
1Q18 Summary
Strong start to 2018
• EPS growth of 41% and ROE up to 12.8%
• Announced record new servicing business wins of ~$1.3T1
• Strong revenue growth
–Fee revenue growth of 8% driven by continued market appreciation, new business, stronger trading
volumes and spreads and favorable currency translation in the quarter
– NII growth of 29% driven by higher U.S. interest rates and disciplined liability pricing
• 1Q18 Beacon-related net savings of $58M balanced by prudent investment to drive sales and client
solutions
• Modest average balance sheet growth of 4% driven by client activity
GAAP unless noted otherwise; All comparisons are to 1Q17
Refer to the Appendix included with this presentation for endnotes 1 to 6.
Well positioned to achieve FY 2018 financial objectives
• ~$1.6T of servicing assets remaining to be installed at quarter-end will support revenue growth1
• Advancing our digital leadership
–Continued progress on Beacon; enhancing client experience and deepening client relationships
–Ongoing improvements in efficiency and expense discipline, while prudently investing in technology
• Solid capital and leverage ratios, well positioned to support business expansion
13
Appendix
1Q18 vs 4Q17 variances for Total fee revenue,
NII and Total expenses
14 – 16
Slide endnotes 17
Forward-looking statements 18
Non-GAAP measures 19
Definitions 20
14
Fee revenue growth driven by equity market appreciation,
new business, increased client activity and higher trading
Fee Revenue
($M)
1Q18 vs 4Q17
• Servicing fees increased primarily due to new business,
increased client activity and continued equity market
appreciation
• Management feesA increased primarily driven by
continued equity market appreciation and the adoption of
the new revenue recognition accounting standard
• Trading servicesA increased primarily driven by higher
FX volatility and client volumes, as well as higher
electronic trading activity
• Securities finance decreased driven by modestly lower
revenue in the enhanced custody business on lower
balances
• Processing fees and other decreased largely driven by
seasonally lower software fees
• Favorable currency translation positively impacted Total
fee revenue by $27M
472418
1,421
1,379
+6%
+5% ex FX
1Q18
2,363
25 141
304
4Q17
2,230
38
147
248
3Q17
2,242
2Q17
2,235
1Q17
2,198
1Q18 vs. 4Q17 % Change
Ex FX
Servicing fees 3% 2%
Management fees 13% 12%
Trading services 23% 21%
Securities finance revenue (4)% (4)%
Processing fees and other (34)% (34)%
Total fee revenue 6% 5%
A
A Effects of the new revenue recognition standard (ASU 2014-09) increased 1Q18 Total fee revenue by ~$65M. Relative to 4Q17, the new revenue recognition standard
A contributed 3% to total fee revenue growth. The revenue impact was ~$45M in Management fees, ~$15M in Trading services, and ~$5M across other revenue line items.
15
1Q17 2Q17 3Q17 4Q17 1Q18
Total assets 219 224 218 216 227
Interest-earning
assets
192 195 190 188 193
Total deposits 165 167 162 161 165
1Q18 vs 4Q17 NII & NIM
A
(NII $M, NIM %)
656645
617
553
679
1.43
NII (FTE) +4%
NIM (FTE) +5bps
1Q18 4Q17
1.38
3Q17
1.35
2Q17
1.27
1Q17
1.17
Average Interest-Earning Assets & Deposits
($B)
1Q18 vs 4Q17
Higher U.S. interest rates drove NII and NIM growth
A NII is presented on both a fully taxable-equivalent (FTE) basis and GAAP-basis; NIM is only presented on an FTE-basis. Please refer to the Addendum for reconciliations
A of our FTE-basis presentation.
GAAP unless noted otherwise
• NII increased primarily due to higher U.S. interest rates,
partially offset by lower day count
• NIM increased driven by higher U.S. interest rates,
partially offset by a lower tax equivalent adjustment on
municipal bonds and a larger balance sheet
• Modestly higher balance sheet reflecting an increase in
client activity
• Total deposits were approximately 60% USD, 20% EUR,
10% GBP and 10% in other currencies
GAAP
NII
510 575 603 616 658
QoQ
+7%
16
• Compensation and employee benefits increased
primarily due to seasonal deferred incentive compensation
expense for retirement-eligible employees, as well as
seasonal payroll taxes, and costs to support new business
• Information systems and communications increased
mainly driven by higher technology costs
• Transaction processingA increased primarily reflecting
higher client volumes and market levels
• Occupancy increased primarily due to Beacon-related
global footprint investments
• OtherA increased largely reflecting the adoption of the new
revenue recognition accounting standard
• Unfavorable currency translation negatively impacted Total
expenses by $22M
Expense growth from seasonal deferred incentive
compensation offset by lower restructuring costs
Expenses
($M)
1Q18 vs 4Q17
1Q18 vs. 4Q17 % Change
Ex FX
Compensation & benefits 17% 16%
Info sys & communications 5% 4%
Transaction processing 11% 10%
Occupancy 3% 1%
Acq. & restructuring costs nm nm
Other 12% 11%
Total expense 6% 5%
315301
1,2491,067
+6%
+5% ex FX
1Q18
2,256
330
120
242
4Q17
2,131
294
133
117
219
3Q17
2,021
2Q17
2,031
1Q17
2,086 B
B
A
A Effects of the new revenue recognition standard (ASU 2014-09) increased 1Q18 Total expenses by ~$65M. Relative to 4Q17, the new revenue recognition standard
A contributed 3% to total expense growth. The expense impact was ~$15M in Transaction processing, ~$45M in Other expenses, and ~$5M across other expense line items.
B 1Q17 and 1Q18 included $154M and $148M, respectively, of seasonal deferred incentive compensation expense for retirement-eligible employees and payroll taxes.
17
1 We expect that for the remainder of the year newly announced asset servicing mandates will return to levels more commonly reflected historically. New asset servicing
mandates and servicing assets remaining to be installed in future periods exclude new business which has been contracted, but for which the client has not yet provided
permission to publicly disclose and is not yet installed. These excluded assets, which from time to time may be significant, will be included in new asset servicing mandates and
reflected in servicing assets remaining to be installed in the period in which the client provides its permission. Newly announced servicing asset mandates for the first quarter for
2018 include a significant amount of assets contracted for in the fourth quarter of 2017 for which we received client consent to disclose in the first quarter of 2018. Servicing
mandates and servicing assets remaining to be installed in future periods are presented on a gross basis and therefore also do not include the impact of clients who have
notified us during the period of their intent to terminate or reduce their relationship with State Street.
2 The effects of the TCJA described in this presentation are estimates. Actual effects of the TCJA may differ from these estimates, among other things, due to additional tax and
regulatory guidance and changes in State Street assumptions and interpretations.
3 Unless otherwise noted, all capital ratios referenced on this slide and elsewhere in this presentation refer to State Street Corporation, or State Street, and not State Street Bank
and Trust Company, or State Street Bank. The lower of capital ratios calculated under the Basel III advanced approaches and under the Basel III standardized approach are
applied in the assessment of our capital adequacy for regulatory purposes. Refer to the addendum included with this presentation for a further description of these ratios and for
reconciliations applicable to State Street’s fully phased-in Basel III ratios. March 31, 2018 capital ratios are presented as of quarter-end and are preliminary estimates.
4 The advanced approaches-based ratios (actual and estimated) included in this presentation reflect calculations and determinations with respect to our capital and related
matters, based on State Street and external data, quantitative formulae, statistical models, historical correlations and assumptions, collectively referred to as “advanced
systems.” Refer to the addendum included with this presentation for a description of the advanced approaches and a discussion of related risks. Effective January 1, 2018, the
applicable final rules are in effect and the ratios presented are calculated based on fully phased-in CET1, Tier 1 and total capital numbers.
5 Estimated pro-forma fully phased-in ratios as of December 31, 2016, March 31, 2017, June 30, 2017, September 30, 2017, and December 31, 2017 reflect capital and total
risk-weighted assets calculated under the Basel III final rule. Refer to the addendum included with this presentation for reconciliations of these estimated pro-forma fully
phased-in ratios to our capital ratios calculated under the then applicable regulatory requirements. Effective January 1, 2018, the applicable final rules are in effect and the
ratios presented are calculated based on fully phased-in CET1, Tier 1 and total capital numbers.
6 Estimated pro-forma fully phased-in SLRs as of December 31, 2016, March 31, 2017, June 30, 2017, September 30, 2017, and December 31, 2017 (fully phased-in as of
January 1, 2018, as per the phase-in requirements of the SLR final rule) are preliminary estimates as calculated under the SLR final rule. Refer to the addendum included with
this presentation for reconciliations of these estimated pro-forma fully phased-in SLRs to our SLRs under the then applicable regulatory requirements. Effective January 1,
2018, the applicable final rules are in effect and the ratios presented are calculated based on fully phased-in CET1, Tier 1 and total capital numbers.
Slide endnotes
18
Forward-looking statements
This presentation (and the conference call referenced herein) contains forward-looking statements within the meaning of United States securities laws, including statements about our goals and expectations regarding our business, financial and
capital condition, results of operations, strategies, the financial and market outlook, dividend and stock purchase programs, governmental and regulatory initiatives and developments, and the business environment. Forward-looking statements are
often, but not always, identified by such forward-looking terminology as “outlook,” “expect,” "priority," “objective,” “intend,” “plan,” “forecast,” “believe,” “anticipate,” “estimate,” “seek,” “may,” “will,” “trend,” “target,” “strategy” and “goal,” or similar
statements or variations of such terms. These statements are not guarantees of future performance, are inherently uncertain, are based on current assumptions that are difficult to predict and involve a number of risks and uncertainties. Therefore,
actual outcomes and results may differ materially from what is expressed in those statements, and those statements should not be relied upon as representing our expectations or beliefs as of any date subsequent to April 20, 2018.
Important factors that may affect future results and outcomes include, but are not limited to: the financial strength of the counterparties with which we or our clients do business and to which we have investment, credit or financial exposures as a
result of our acting as agent for our clients, including as asset manager; increases in the volatility of, or declines in the level of, our NII, changes in the composition or valuation of the assets recorded in our consolidated statement of condition (and
our ability to measure the fair value of investment securities) and changes in the manner in which we fund those assets; the liquidity of the U.S. and international securities markets, particularly the markets for fixed-income securities and inter-bank
credits; the liquidity of the assets on our balance sheet and changes or volatility in the sources of such funding, particularly the deposits of our clients; and demands upon our liquidity, including the liquidity demands and requirements of our clients;
the level and volatility of interest rates, the valuation of the U.S. dollar relative to other currencies in which we record revenue or accrue expenses and the performance and volatility of securities, credit, currency and other markets in the U.S. and
internationally; and the impact of monetary and fiscal policy in the U.S. and internationally on prevailing rates of interest and currency exchange rates in the markets in which we provide services to our clients; the credit quality, credit-agency ratings
and fair values of the securities in our investment securities portfolio, a deterioration or downgrade of which could lead to other-than-temporary impairment of such securities and the recognition of an impairment loss in our consolidated statement
of income; our ability to attract deposits and other low-cost, short-term funding; our ability to manage the level and pricing of such deposits and the relative portion of our deposits that are determined to be operational under regulatory guidelines;
and our ability to deploy deposits in a profitable manner consistent with our liquidity needs, regulatory requirements and risk profile; the manner and timing with which the Federal Reserve and other U.S. and foreign regulators implement or
reevaluate the regulatory framework applicable to our operations (as well as changes to that framework), including implementation or modification of the Dodd-Frank Act and related stress testing and resolution planning requirements,
implementation of international standards applicable to financial institutions, such as those proposed by the Basel Committee and European legislation (such as the AIFMD, UCITS, the Money Market Funds Regulation and MiFID II / MiFIR); among
other consequences, these regulatory changes impact the levels of regulatory capital and liquidity we must maintain, acceptable levels of credit exposure to third parties, margin requirements applicable to derivatives, restrictions on banking and
financial activities and the manner in which we structure and implement our global operations and servicing relationships. In addition, our regulatory posture and related expenses have been and will continue to be affected by changes in regulatory
expectations for global systemically important financial institutions applicable to, among other things, risk management, liquidity and capital planning, resolution planning, compliance programs, and changes in governmental enforcement
approaches to perceived failures to comply with regulatory or legal obligations; adverse changes in the regulatory ratios that we are, or will be, required to meet, whether arising under the Dodd-Frank Act or implementation of international
standards applicable to financial institutions, such as those proposed by the Basel Committee, or due to changes in regulatory positions, practices or regulations in jurisdictions in which we engage in banking activities, including changes in internal
or external data, formulae, models, assumptions or other advanced systems used in the calculation of our capital or liquidity ratios that cause changes in those ratios as they are measured from period to period; requirements to obtain the prior
approval or non-objection of the Federal Reserve or other U.S. and non-U.S. regulators for the use, allocation or distribution of our capital or other specific capital actions or corporate activities, including, without limitation, acquisitions, investments
in subsidiaries, dividends and stock purchases, without which our growth plans, distributions to shareholders, share repurchase programs or other capital or corporate initiatives may be restricted; changes in law or regulation, or the enforcement of
law or regulation, that may adversely affect our business activities or those of our clients or our counterparties, and the products or services that we sell, including additional or increased taxes or assessments thereon, capital adequacy
requirements, margin requirements and changes that expose us to risks related to the adequacy of our controls or compliance programs; economic or financial market disruptions in the U.S. or internationally, including those which may result from
recessions or political instability; for example, the U.K.'s decision to exit from the European Union may continue to disrupt financial markets or economic growth in Europe or potential changes in trade policy and bi-lateral and multi-lateral trade
agreements proposed by the U.S.; our ability to create cost efficiencies through changes in our operational processes and to further digitize our processes and interfaces with our clients, any failure of which, in whole or in part, may among other
things, reduce our competitive position, diminish the cost-effectiveness of our systems and processes or provide an insufficient return on our associated investment; our ability to promote a strong culture of risk management, operating controls,
compliance oversight, ethical behavior and governance that meets our expectations and those of our clients and our regulators, and the financial, regulatory, reputation and other consequences of our failure to meet such expectations; the impact
on our compliance and controls enhancement programs associated with the appointment of a monitor under the deferred prosecution agreement with the DOJ and compliance consultant appointed under a settlement with the SEC, including the
potential for such monitor and compliance consultant to require changes to our programs or to identify other issues that require substantial expenditures, changes in our operations, or payments to clients or reporting to U.S. authorities; the results
of our review of our billing practices, including additional findings or amounts we may be required to reimburse clients, as well as potential consequences of such review, including damage to our client relationships or our reputation and adverse
actions by governmental authorities; the results of, and costs associated with, governmental or regulatory inquiries and investigations, litigation and similar claims, disputes, or civil or criminal proceedings; changes or potential changes in the
amount of compensation we receive from clients for our services, and the mix of services provided by us that clients choose; the large institutional clients on which we focus are often able to exert considerable market influence and have diverse
investment activities, and this, combined with strong competitive market forces, subjects us to significant pressure to reduce the fees we charge, to potentially significant changes in our AUCA or our AUM in the event of the acquisition or loss of a
client, in whole or in part, and to potentially significant changes in our fee revenue in the event a client re-balances or changes its investment approach or otherwise re-directs assets to lower- or higher-fee asset classes; the potential for losses
arising from our investments in sponsored investment funds; the possibility that our clients will incur substantial losses in investment pools for which we act as agent, the possibility of significant reductions in the liquidity or valuation of assets
underlying those pools and the potential that clients will seek to hold us liable for such losses; our ability to anticipate and manage the level and timing of redemptions and withdrawals from our collateral pools and other collective investment
products; the credit agency ratings of our debt and depositary obligations and investor and client perceptions of our financial strength; adverse publicity, whether specific to State Street or regarding other industry participants or industry-wide
factors, or other reputational harm; our ability to control operational risks, data security breach risks and outsourcing risks, our ability to protect our intellectual property rights, the possibility of errors in the quantitative models we use to manage our
business, and the possibility that our controls will prove insufficient, fail or be circumvented; our ability to expand our use of technology to enhance the efficiency, accuracy and reliability of our operations and our dependencies on information
technology and our ability to control related risks, including cyber-crime and other threats to our information technology infrastructure and systems (including those of our third-party service providers) and their effective operation both independently
and with external systems, and complexities and costs of protecting the security of such systems and data; changes or potential changes to the competitive environment, including changes due to regulatory and technological changes, the effects of
industry consolidation and perceptions of State Street as a suitable service provider or counterparty; our ability to complete acquisitions, joint ventures and divestitures, including the ability to obtain regulatory approvals, the ability to arrange
financing as required and the ability to satisfy closing conditions; the risks that our acquired businesses and joint ventures will not achieve their anticipated financial, operational and product innovation benefits or will not be integrated successfully,
or that the integration will take longer than anticipated; that expected synergies will not be achieved or unexpected negative synergies or liabilities will be experienced; that client and deposit retention goals will not be met; that other regulatory or
operational challenges will be experienced; and that disruptions from the transaction will harm our relationships with our clients, our employees or regulators; our ability to recognize evolving needs of our clients and to develop products that are
responsive to such trends and profitable to us; the performance of and demand for the products and services we offer; and the potential for new products and services to impose additional costs on us and expose us to increased operational risk;
our ability to grow revenue, manage expenses, attract and retain highly skilled people and raise the capital necessary to achieve our business goals and comply with regulatory requirements and expectations; changes in accounting standards and
practices; and the impact of the U.S. tax legislation enacted in 2017, and changes in tax legislation and in the interpretation of existing tax laws by U.S. and non-U.S. tax authorities that affect the amount of taxes due.
Other important factors that could cause actual results to differ materially from those indicated by any forward-looking statements are set forth in our 2017 Annual Report on Form 10-K and our subsequent SEC filings. We encourage investors to
read these filings, particularly the sections on risk factors, for additional information with respect to any forward-looking statements and prior to making any investment decision. The forward-looking statements contained in this presentation should
not by relied on as representing our expectations or beliefs as of any time subsequent to the time this presentation is first issued, and we do not undertake efforts to revise those forward-looking statements to reflect events after that time.
19
Non-GAAP measures
In addition to presenting State Street's financial results in conformity with U.S. generally accepted accounting principles, or GAAP, management also presents
certain financial information on a non-GAAP basis. In general, our non-GAAP financial results adjust selected GAAP-basis financial results to exclude the impact of
revenue and expenses outside of State Street’s normal course of business, such as acquisition and restructuring charges. Management believes that this
presentation of financial information facilitates an investor's further understanding and analysis of State Street's financial performance and trends with respect to
State Street’s business operations from period to period, including providing additional insight into our underlying margin and pro fitability, in addition to financial
information prepared and reported in conformity with GAAP. Management may also provide additional non-GAAP measures. For example, we present capital
ratios, calculated under regulatory standards scheduled to be effective in the future or other standards, that management uses in evaluating State Street’s
business and activities and believes may similarly be useful to investors. Additionally, we may present revenue and expense measures on a constant currency
basis to identify the significance of changes in foreign currency exchange rates (which often are variable) in period-to-period comparisons. This presentation
represents the effects of applying prior period weighted average foreign currency exchange rates to current period results.
Prior to 1Q18, management presented results on an operating-basis to both: (1) exclude the impact of revenue and expenses outside of State Street’s normal
course of business, such as restructuring charges; and (2) present revenue from non-taxable sources, such as interest income from tax-exempt investment
securities and processing fees and other revenue associated with tax-advantaged investments, on a fully-taxable equivalent basis. Beginning in 1Q18 State Street
presents results only on a GAAP-basis, along with certain non-GAAP measures that management believes may be useful to investors. As management has
previously communicated the expected impact of State Street Beacon on pre-tax margin based on historical operating-basis results, pre-tax margin has been
provided on that historical operating-basis to allow investors to assess performance with respect to State Street Beacon on a consistent basis.
Non-GAAP financial measures should be considered in addition to, not as a substitute for or superior to, financial measures determined in conformity with GAAP.
Refer to the addendum for reconciliations of our non-GAAP financial information. To access the addendum go to www.statestreet.com/stockholder and click on
“Filings & Reports – Quarterly Earnings”.
20
Definitions
ABS Asset-backed securities
Available-for-sale (AFS) Security that is purchased with the ability of selling before it reaches maturity
AUCA Assets under custody and administration
AUM Assets under management
Bps Basis points
Diluted earnings per share (EPS) Net income available to common shareholders divided by diluted average common shares outstanding
ETF Exchange-traded fund
Fee operating leverage Rate of growth of total fee revenue less the rate of growth of expenses, relative to the successive prior year period, as applicable
FX Foreign Exchange
FY Full Year
GAAP Generally accepted accounting principles in the United States
HQLA High quality liquid assets
MBS Mortgage-backed securities
Muni Municipal securities
Net interest income (NII) Income earned on interest bearing assets less interest paid on interest bearing liabilities. Net interest income was disclosed as net interest revenue prior to 1Q17
Net interest margin (NIM) Net interest income divided by average interest-earning assets
nm Not meaningful
Operating leverage Rate of growth of total revenue less the rate of growth of total expenses, relative to the successive prior year period, as applicable
Pre-tax operating margin Income before income tax expense divided by total revenue
%Pts Percentage points is the difference from one percentage value subtracted from another
QoQ Sequential quarter comparison
Return on equity (ROE) Net income less dividends on preferred stock divided by average common equity
RWA Risk-weighted assets
SLR Supplementary Leverage Ratio
TCJA Tax Cuts & Jobs Act
YoY Current quarter compared to the same period a year ago