Attached files
| file | filename |
|---|---|
| EX-99.2 - EXHIBIT 99.2 - STATE STREET CORP | exhibit992-1q17earningsrel.htm |
| EX-99.1 - EXHIBIT 99.1 - STATE STREET CORP | exhibit991-1q17earningspre.htm |
| 8-K - 8-K - STATE STREET CORP | form8-kx1q17results.htm |
First Quarter 2017
Financial Highlights
April 26, 2017
(STT: NYSE)
Exhibit 99.3
1
This presentation includes certain highlights of, and also material supplemental to, State
Street Corporation’s news release announcing its first quarter 2017 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 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 26,
2017, 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.
Financial information in this presentation is presented on an operating-basis, a non-GAAP
presentation, unless stated otherwise. Refer to the Appendix for explanations of our non-
GAAP financial measures, including changes made to our operating-basis presentation in
1Q17, and to the Addendum for reconciliations of our operating-basis financial information.
Preface and forward-looking statements
2
1Q16 4Q16 1Q17 4Q16 1Q16 1Q16 4Q16 1Q17 4Q16 1Q16
Revenue:
Servicing fees 1,242$ 1,289$ 1,296$ 1% 4% 1,242$ 1,289$ 1,296$ 1% 4%
Management fees 270 361 382 6 41 270 361 382 6 41
FX Trading 156 182 164 (10) 5 156 182 164 (10) 5
Brokerage & Other Trading 116 111 111 - (4) 116 111 111 - (4)
Trading services 272 293 275 (6) 1 272 293 275 (6) 1
Securities finance revenue 134 136 133 (2) (1) 134 136 133 (2) (1)
Processing fee and other1 52 (65) 112 nm 115 115 121 182 50 58
Total fee revenue1 1,970 2,014 2,198 9 12 2,033 2,200 2,268 3 12
Net Interest Income (NII)2 512 514 510 (1) (0) 539 547 553 1 3
Net gain/(loss) related to investment securities 2 2 (40) nm nm 2 2 (40) nm nm
Total revenue 2,484 2,530 2,668 5 7 2,574 2,749 2,781 1 8
Provision for Loan Losses 4 2 (2) nm nm 4 2 (2) nm nm
Expenses:
Compensation and employee benefits 1,107 1,244 1,166 (6) 5 1,104 1,246 1,166 (6) 6
Information systems and communications 272 278 287 3 6 272 278 287 3 6
Transaction processing services 200 199 197 (1) (2) 200 199 197 (1) (2)
Occupancy 113 109 110 1 (3) 113 109 110 1 (3)
Acquisition and restructuring costs 104 43 29 (33) (72) - - - nm nm
Other 254 310 297 (4) 17 254 311 297 (5) 17
Total expenses 2,050 2,183 2,086 (4) 2 1,943 2,143 2,057 (4) 6
Income before income tax expenses 430 345 584 69 36 627 604 726 20 16
Income tax expense (benefit) 62 (248) 82 nm 32 182 (9) 202 nm 11
Net income 368$ 593$ 502$ (15) 36 445$ 613$ 524$ (15) 18
Diluted Earnings per share (EPS) 0.79$ 1.43$ 1.15$ (20) 46 0.98$ 1.48$ 1.21$ (18) 23
Return on average common equity (ROE) 6.8% 12.1% 9.9% 8.4% 12.5% 10.4%
Pre-tax operating margin 17.3% 13.6% 21.9% 24.4% 22.0% 26.1%
Effective tax rate 14.4% (72.3%) 14.0% 29.1% (1.5%) 27.8%
$ in millions, except per share data
% Change % ChangeGAAP-basis Operating-basis
Summary of GAAP & Operating-basis Results
nm Not meaningful
Refer to the Appendix included with this presentation for footnotes 1 and 2.
3
Progress on strategic priorities supported strong start to 2017
Results driven by strength in equity markets, installation of new business wins, strong ETF
flows and State Street Beacon:
Business momentum in asset servicing and asset management continued, driving
strong fee revenue
Net interest income and net interest margin benefitted from higher U.S. market interest
rates and disciplined liability pricing
State Street Beacon contributed to continued expense control, enhanced client solutions,
reduced operational risks and improved operations
Generated strong positive fee operating leverage from 1Q16
Maintained a high quality balance sheet and strong capital ratios and returns
Outlook for rest of 2017 improved modestly and is within previously disclosed ranges
Strategy for long-term growth fueled by State Street Beacon and The Way Ahead
1Q17 Highlights
Operating-Basis (Non-GAAP)
4
Advance our digital
leadership through
State Street Beacon
Progress on strategic priorities in 1Q17
Continue to invest
in new products
and solutions
Achieve our
financial goals
• Strong AUCA growth (total
11%) from 1Q16 in the
Americas (9%) with particular
strength in EMEA (16%)
• New business wins of ~$110B
in AUCA reflect mandates
from clients globally
• Pipeline of AUCA that has
been won but not yet installed
is ~$375B going into 2Q17
• AUM growth of 12% from
1Q16, driven by the acquired
GEAM operations, momentum
in ETF flows and higher
markets
• Driving adoption of accounting
technology: providing quicker
NAV delivery by 20-30 minutes
and improved working models
• Investing in client-centric
design, engaging our clients to
innovate, design and prototype
solutions
• Progressing on innovative
solutions to address client
needs, e.g., SEC
Modernization, Liquidity
• Investing to enhance our
DataGX and analytic solutions:
− Example: Enhanced Asset
Owner Strategy to support
asset owners’ evolving
model
• Launched the distribution of
the GX Private Equity Index to
~300 global asset
management clients
• Launched a new set of
analytical tools aimed at
helping investors tackle
Environmental, Social and
Governance (ESG) exposure
• Piloting new mobile innovation
for risk managers to stay
ahead of risks
• Participated in a test of the first
working blockchain solution for
syndicated loan servicing as
part of R3 consortium
Drive growth from
the core franchise
• EPS increased 23% from
1Q161
• ROE increased 200bps from
1Q161
• Generated ~570bps of positive
fee operating leverage and
operating leverage of ~220bps
from 1Q16
• Acquired ~$523M of our
common stock. $227M
remaining under our June
2016 common stock purchase
program2 authorizing the
purchase of up to $1.4B
through June 30, 2017
• Declared a common stock
dividend of $0.38 per share
Operating-Basis (Non-GAAP)
Refer to the Appendix included with this presentation for footnotes 1 and 2.
5
1Q17 operating-basis (non-GAAP) financial highlights:
• EPS growth of 23% compared to 1Q16, driven by strong fee revenue growth from higher equity markets, new business wins, as well as
savings associated with State Street Beacon
• Generated positive fee operating leverage of ~570bps compared to 1Q16, with 87bps driven by the impact of the acquired GEAM business
and 147bps driven by the sale of the BFDS/IFDS UK joint venture interests
• Continued to drive ROE through stronger earnings and capital return through stock repurchases and dividend payouts
1Q17 notable items:
• After-tax gains related to the sale of the BFDS/IFDS UK joint venture interests of $31M, or +$0.08 per share1
• After-tax losses related to investment portfolio rebalancing of $32M, or -$0.08 per share
• Seasonal deferred incentive compensation expense for retirement-eligible employees and payroll taxes of $154M, or $0.34 per share (up from
$122M, or $0.25 per share in 1Q16)
Results driven by strength in equity markets, strong client
flows and State Street Beacon
Diluted Earnings per Share (EPS)
($)
Return on Average Common Equity (ROE)
(%)
1Q17
+200bps
10.4
4Q16
12.5
3Q16
11.1
2Q16
12.3
1Q16
8.4
1.48
1.35
1.46
0.98
1.21
1Q17
+23%
4Q16 3Q16 1Q16 2Q16
Operating-Basis (Non-GAAP)
Refer to the Appendix included with this presentation for footnote 1.
6
Business momentum continues
Assets Under Custody
and Administration (AUCA)
$ in trillions
Assets Under
Management (AUM)
$ in billions
• Increased 12% from 1Q16 primarily reflecting:
− 11% growth from market appreciation
− 2% growth from the acquired GEAM business and ETF inflows,
offset by thinner-margin institutional outflows
− (1%) decline from FX translation
28.829.227.826.9
29.8
2Q16 1Q16
+4%
+11%
1Q17 4Q16 3Q16
2,468,446
2,3012,296
2,561
4Q16 3Q16 2Q16 1Q16
4%
+12%
1Q17
• Increased 11% from 1Q16 primarily reflecting:
− Growth from market appreciation
− Growth in US from asset manager and ETF flows, offset by
continued hedge fund redemptions
− Growth in Europe new business in both onshore and offshore
markets
7
1Q17 vs 1Q16:
• Servicing fees increased primarily due to strengthening
equity markets and net new business, partially offset by
the stronger U.S. dollar and hedge fund outflows
• Management fees increased driven by the addition of
the acquired GEAM business of ~$71M, strengthening
equity markets, and higher revenue-yielding ETF flows
• Trading services increased primarily driven by higher
volumes in Foreign Exchange (FX) trading, partially
offset by lower FX volatility
• Processing fees and other increased primarily due to the
pre-tax gain from the sale of the BFDS/IFDS UK joint
venture interests of $30M and favorable FX swap costs
(offset in NII)
• Stronger U.S. dollar negatively impacted total fee
revenue by ~$21M, which includes ~$14M on servicing
fees and ~$5M on management fees
Fee revenue growth is primarily driven by continued
business momentum
Fee Revenue
($M)
272 293
270 361
1,242
1,289
275
382
1,296
+12%,
4% due to GEAM
1Q17
2,268
182
133
4Q16
2,200
121
136
3Q16
2,213
2Q16
2,130
1Q16
2,033
115
134
1Q17 v 1Q16 % Change
Ex FX
Servicing Fees 4% 5%
Management Fees 41% 43%
Trading Services 1% 1%
Securities Finance Revenue (1%) (1%)
Processing Fees & Other 58% 59%
Total Fee Revenue 12% 13%
Operating-Basis (Non-GAAP)
8
1Q17 vs 1Q16:
• NII reflects higher U.S. interest rate environment as well
as disciplined liability pricing, partially offset by lower
interest earning assets, lower yields on the foreign
investment portfolio and more FX swaps qualifying for
hedge accounting (offset in processing fees & other
revenue). Discount accretion of $5M associated with the
former conduit securities1 was included in operating-basis
results starting in 1Q17
• NIM increased primarily driven by higher U.S. interest
rates and disciplined liability pricing, partially offset by
lower yields on the foreign investment portfolio and more
FX swaps qualifying for hedge accounting
• Average earning assets were flat as compared to 1Q16
NII and NIM benefitted from higher U.S. interest rates as well
as disciplined liability pricing
Average Earning Assets
($B)
NII1 and NIM
($M, %)
547537546539
553
1.081.06
1.111.12
1.17
350
400
450
500
550
600
0.80
1.00
1.20
1.40
1.60
NII +3%,
NIM +5bps
1Q17 4Q16 3Q16 2Q16 1Q16
NIM
1Q16 2Q16 3Q16 4Q16 1Q17
194 198 202 202 192
Refer to the Appendix included with this presentation for footnote 1.
Operating-Basis (Non-GAAP)
9
Notable Items and GEAM:
• 6% expense growth from 1Q16, one-half of which (3%, or
~$51M) due to GEAM expenses
• Compensation and employee benefits in 1Q17 and 1Q16
includes $154M and $122M, respectively, of seasonal
deferred incentive compensation expense for retirement-
eligible employees and payroll taxes. 4Q16 includes
acceleration of compensation expense of $249M as
previously disclosed
1Q17 vs 1Q16:
• Compensation and employee benefits increased primarily
driven by an increase in seasonal deferred incentive
compensation expense, the addition of the acquired GEAM
business, annual merit increases and higher costs to
support new business, partially offset by savings from State
Street Beacon
• Information Systems & Communications increased primarily
driven by investments to support new business
• Other increased primarily driven by the addition of the
acquired GEAM sub-advisory fees, and higher regulatory
fees and insurance expense
• Stronger U.S. dollar favorably impacted total expenses by
~$21M
State Street Beacon contributing to continued expense
control
Expenses
($M)
272 278
1,104
1,246
297311
287
1,166+6%,
3% due to GEAM
1Q17
2,057
110
197
4Q16
2,143
109
199
3Q16
1,909
2Q16
1,828
1Q16
1,943
254
113
200
Expenses Ex
Notable Comp
Items
1,821 1,828 1,909 1,894 1,903
1Q17 v 1Q16 % Change
Ex FX
Compensation & Benefits 6% 7%
Info Systems & Communications 6% 6%
Transaction Processing (2%) (1%)
Occupancy (3%) (1%)
Other 17% 18%
Total Expenses 6% 7%
122
982
249
997
154
1,012
Operating-Basis (Non-GAAP)
10
• Investing in the Workforce of the Future
enabled by technology
• Leveraging our global “follow the sun”
processing model to deliver services
more rapidly
• Delivering solutions with enhanced
transparency and oversight to drive
connectivity
• Investing in talent to drive increased
agility, design thinking, and innovation
• As originally planned, driving State Street
Beacon across the enterprise to improve
efficiency and effectiveness to enhance
the client experience
• Improving the speed, quality, and
experience of our solutions
• Shifting focus from processing to
analytics and insight, deepening client
partnership
• Delivering tangible client benefits since
2016 such as delivering net asset values
20-30 minutes quicker each day to
clients
• Digitizing data and straight through
processing (STP):
− Example: 95%+ STP to process global
trades for our North American clients
− Utilizing partner platforms to increase
STP and improve quality
• Client-centric investments to improve the
user experience and speed to market of
our solutions e.g., SEC Modernization
State Street Beacon is also driving enhanced client
solutions, reduced operational risk and improved operations
Risk Excellence
Engaging the Enterprise
• Automating controls: digitizing data and
processes and improving quality
• Implementing process monitoring
technology: enabling exception-based
intervention to identify and resolve issues
sooner
• 40%+ reduction in reconciliation defects,
resulting in fewer errors since 2016
• Strengthening resiliency of the platforms:
investing in data center, cloud, and
infrastructure
Client Impact
11
1Q171 Investment Portfolio Highlights
as of March 31, 2017
• Size2: $94.5B
• Credit profile: 92% rated AAA/AA
• Fixed-rate / floating-rate mix: 67% / 33%
• Duration: 2.3 years
• Diversified mix of Treasuries, Agency MBS,
Munis, Asset-backed Securities, and other debt
investments and equity securities
• Rebalanced portion of portfolio to take
advantage of mortgage basis and to position for
current rates. Realized securities losses of $40M
($32M after-tax) in 1Q17 primarily associated
with the sale of $2.7B in Agency MBS and U.S.
Treasuries
• Unrealized after-tax available-for-sale
MTM loss sensitivity in a hypothetical up
100bps shock to quarter-end spot interest
rates: approximately ($0.7)B
Investment
Portfolio
Interest-rate
Risk Metrics
Continue to maintain high-quality balance sheet and strong
capital ratios
Refer to the Appendix included with this presentation for footnotes 1 to 7.
1Q17 Quarter-End Capital4 Positions
%, as of March 31, 2017
4Q16 1Q17
Basel III Ratios:
Common equity tier 1 ratio5 (lower of
advanced and standardized approaches)
Tier 1 leverage ratio:
State Street Corporation
11.6
6.5
11.2
6.8
Supplementary Leverage Ratios:
State Street Corporation
State Street Bank and Trust Company
5.9
6.4
6.1
6.6
Estimated Pro Forma Fully Phased-in
Basel III Ratios:
Fully phased-in (effective January 1, 2019)
common equity tier 1 ratio (lower of
advanced and standardized approach)6
Fully phased-in (effective January 1, 2018)
supplementary leverage ratios7
State Street Corporation
State Street Bank and Trust Company
10.9
5.6
6.1
10.9
6.0
6.5
12
Outlook for 2017 remains within our previously disclosed
ranges, with modest improvements in fee revenue, NII and
taxes
Category
2017 Outlook / Objective
(vs 2016 where applicable):
Assumptions
Full-year 2017 total fee
revenue growth:
• 4-6% • Under the market conditions as of January 2017
• Including the contributions of the acquired GEAM business
• Including the impact of the strengthening U.S. dollar relative to major
currencies during 4Q16
Fee operating leverage
(excluding 4Q16 $249M
acceleration of
compensation expense):
• 100-200bps • Expect variability across quarters, with continued focus on expense
management partially offset by continued regulatory pressure, expenses
associated with supporting new business wins, investments in strategic
initiatives including State Street Beacon and including the contributions of the
acquired GEAM operations
Expense management: • State Street Beacon pre-tax net
expense savings of at least
$140M1
• State Street Beacon expense savings to partially offset expenses to support
new business, continued business investments, and merit and depreciation
increases
• Expect restructuring charges as State Street Beacon continues to progress
NII scenario: • $2.27B - $2.3B or up 4-6% • U.S. central bank rate hikes of 0.25% both in March and September 2017;
correspondingly, expect market rates to trend higher from January 2017
levels; continued quantitative easing in major markets outside of the U.S.
• NII will also depend on the size of our balance sheet, client deposit behavior,
balance sheet management activity and the impact of FX swap costs
Effective tax rate of: • 30-32% • Excludes the impact of any potential2 tax law changes (given present high
level of uncertainty)
Balance Sheet: • Reduce interest earning assets 0-
5%
• Reduction in client deposits and wholesale CDs
Operating-Basis (Non-GAAP)
Refer to the Appendix included with this presentation for footnotes 1 and 2.
13
Appendix
The Way Ahead 14
State Street Beacon 15
The Acquired Operations of GE Asset Management 16
1Q17 vs 4Q16 Variances for Fee Revenue, NII and Expenses 17 – 19
Slide Footnotes 20 – 21
Forward Looking Statements 22
Non-GAAP Measures 23
Definitions 24
14
The Way Ahead
Long-term
Shareholder Value
Building on
Our Strong Core
Achieving a
Digital
Enterprise
Investing in
Opportunities
for Growth
Optimizing
Capital
Aligning solutions
with client needs,
continuing to innovate,
capturing value and
improving efficiency
Driving greater
transformation that
benefits clients
and our shareholders
Acting on changes
in the market to fuel
expansion of products
and services and the
markets we serve
Adapting to new rules
and optimizing returns
for shareholders
Talent, Culture, Innovation and Risk Excellence
Operating-Basis1 Financial Goals
Revenue Growth of 8%-12%, EPS Growth of 10%-15% and ROE of 12%-15%
1 Long-term goals are presented on an operating-basis, a non-GAAP presentation, and do not reflect the near-term expectations. As a result,
information needed to provide corresponding GAAP-basis long-term goals, which is primarily dependent on future events or conditions that may be
uncertain, is difficult to predict and estimate. We are therefore unable to provide a reconciliation of our operating-basis long-term goals to a GAAP-
basis presentation. Refer to the Appendix included with this presentation for explanations of our non-GAAP measures.
15
State Street Beacon on track to deliver financial benefits
to be achieved through 2020
1 Estimated pre-tax expense savings improvement relate only to State Street Beacon and the targeted staff reductions announced as part of our
3Q15 financial results, and are based on projected improvement from our full-year 2015 operating-basis expenses, all else being equal. The full
effect of the savings generated each year will be felt the following year. Actual expenses may increase or decrease in the future due to other
factors.
2 Pre-tax operating margin targets assume the successful completion of State Street Beacon milestones and an external environment that is
consistent with our long term assumptions, including: Fed Funds and U.S. market interest rates increase from December 31, 2015 levels by at
least 100bps by the beginning of 2018; and regulatory expense growth moderates. Other factors may also effect the actual results. Operating-
basis financial outlook is a non-GAAP presentation. Refer to the Appendix of this presentation for an explanation of our operating-basis (non-
GAAP) presentation.
Expected Annual Pre-Tax Net
Run-Rate Expense Savings
• To achieve estimated annual pre-tax net run-rate expense savings of
$550M by the end of 2020 for full effect in 20211:
− Generated $175M in estimated annual pre-tax expense savings in 2016
− Expect at least $140M in additional annual pre-tax net expense savings
in 2017
• Annual pre-tax expense savings are net of significant investments in State
Street Beacon commencing in 2016
Expected Profit Margins • To achieve and maintain an operating-basis pre-tax operating margin2 of at
least 31% by 2018 and 33% by the end of 2020, given our assumptions,
all else being equal
Expected Pre-Tax
Restructuring Charges
• Estimated aggregate pre-tax restructuring charges of ~$300M - $400M
from 2016 through 2020
• Expect restructuring charges to be announced as State Street Beacon
progresses, including charges of $142M for 2016
16
• Associated AUM2 of the acquired GEAM operations was $120B at March 31, 2017, up from the
~$110B announced at acquisition on July 1, 2016
• Excluding merger and integration charges, the transaction is accretive to operating-basis1 EPS
for the three-quarter period ended March 31, 2017
• In the first full year ending June 30, 2017, fee revenue from the transaction is expected to exceed
$270M3:
– In 1Q17 the acquired business contributed estimated operating-basis1 fee revenue of ~$71M and estimated operating-
basis expenses of ~$51M, excluding merger and integration charges and financing costs
– For the three-quarter period ended March 31, 2017 the acquired business contributed estimated operating-basis1 fee
revenue of ~$199M and estimated operating-basis expenses of ~$166M, excluding merger and integration charges and
financing costs
• Total projected acquisition and restructuring costs: ~$80M through integration period:
– 2016: ~$53M
– 2017: ~$25M FY projection (with $12M in 1Q17)
The acquired GEAM operations have delivered accretive
operating-basis1 earnings through the three-quarter period
ended March 31, 2017
1 Represents operating-basis financial information, a non-GAAP presentation. Refer to the Appendix included with this presentation for explanations
of our non-GAAP financial measures and for reconciliations of our operating-basis financial information.
2 The associated AUM includes assets from acquired clients invested into various SSGA funds and new business from these clients since the
acquisition date.
3 The fee revenue target does not include the impact of certain costs that are recorded as a reduction of revenue in our management fee revenue
line. Costs not included in the fee revenue target include 12b-1 expenses, subadvisor fees and unitary fee expenses and are expected to total
approximately $13M for the referenced twelve month period. In addition, assuming that the stronger U.S. dollar exchange rate relative to major
currencies post April 2016 continues at, or becomes stronger than, current levels, the fee revenue attributable to the acquired GEAM operations
during the 12 months ending June 30, 2017, is likely to trend toward the lower end of the previously announced $270M-$300M target range due to
the international revenues generated by these operations.
17
Fee revenue driven by continued business momentum
Fee Revenue
($M)
1Q17 vs 4Q16:
• Servicing fees increased primarily driven by the benefit
from strengthening equity markets
• Management fees increased driven by strengthening
equity markets, net new business and higher revenue-
yielding ETF flows
• Trading services decreased reflecting lower FX volatility,
partially offset by higher volumes in FX trading
• Processing fees and other increased primarily due to the
pre-tax gain from the sale of the BFDS/IFDS UK joint
venture interests of $30M and favorable FX swap costs
(offset in NII)
• U.S. dollar favorably impacted total fee revenue by
~$1M
272 293
270 361
1,242
1,289
182
275
382
1,296
2,268
1Q17
+3%
133
4Q16
2,200
121
136
3Q16
2,213
2Q16
2,130
1Q16
2,033
115
134
1Q17 v 4Q16
% Change
Servicing Fees 1%
Management Fees 6%
Trading Services (6%)
Securities Finance Revenue (2%)
Processing Fees & Other 50%
Total Fee Revenue 3%
Operating-Basis (Non-GAAP)
18
NII and NIM benefitted from higher U.S. interest rates
Average Earning Assets
($B)
NII1 and NIM
($M, %)
547537546539
553
1.081.06
1.111.12
1.17
350
400
450
500
550
600
0.80
1.00
1.20
1.40
1.60
NII +1%,
NIM +9bps
1Q17 4Q16 3Q16 2Q16 1Q16
NIM
1Q17 vs 4Q16:
• NII reflects higher U.S. interest rate environment
partially offset by a smaller, more efficient balance
sheet and more FX swaps qualifying for hedge
accounting (offset in processing fees & other revenue).
Discount accretion of $5M associated with the former
conduit securities1 was included in operating-basis
results starting in 1Q17
• NIM increased primarily driven by higher U.S. interest
rates and a smaller, more efficient balance sheet,
partially offset by more FX swaps qualifying for hedge
accounting
• Average earning assets decreased primarily attributable
to a reduction in client deposits and a decision to
decrease wholesale CDs
1Q16 2Q16 3Q16 4Q16 1Q17
194 198 202 202 192
Refer to the Appendix included with this presentation for footnote 1.
Operating-Basis (Non-GAAP)
19
State Street Beacon contributing to continued expense
control
Notable Items:
• Compensation and employee benefits in 1Q17 and
1Q16 includes $154M and $122M, respectively, of
seasonal deferred incentive compensation expense for
retirement-eligible employees and payroll taxes. 4Q16
includes acceleration of compensation expense of
$249M as previously disclosed. Excluding these items,
expenses in 1Q17 increased ~0.5% from 4Q16
1Q17 vs 4Q16:
• Compensation and employee benefits decreased
primarily due to previously disclosed acceleration of
compensation expense of $249M in 4Q16 partially
offset by the seasonal deferred incentive compensation
expense in 1Q17
• Information Systems & Communications increased
primarily driven by investments to support new
business
• Other decreased primarily driven by lower professional
services and securities processing losses, partially
offset by higher regulatory fees and insurance expense
• U.S. dollar negatively impacted total expenses by
~$1M
1Q17 v 4Q16
% Change
Compensation & Benefits (6%)
Info Systems & Communications 3%
Transaction Processing (1%)
Occupancy 1%
Other (5%)
Total Expenses (4%)
Expenses
($M)
272 278
1,104
1,246
297311
287
1,166
-4%
1Q17
2,057
110
197
4Q16
2,143
109
199
3Q16
1,909
2Q16
1,828
1Q16
1,943
254
113
200
Expenses Ex
Notable Comp
Items
1,821 1,828 1,909 1,894 1,903
122
982
249
997
154
1,012
Operating-Basis (Non-GAAP)
20
Slide Footnotes
1 1Q17 operating-basis results include a pre-tax gain of ~$30M on the sale of State Street's interest in Boston Financial Data Services, Inc. (BFDS) and International Financial Data
Services Limited (IFDS Ltd), reflecting a change in our operating-basis presentation effective in 1Q17 to include gains/losses on sales of businesses. Beginning in 1Q17,
management will no longer present discount accretion associated with former conduit securities as an operating-basis adjustment. Therefore, 1Q17 operating-basis results
include $5M of discount accretion. In 1Q16, operating-basis net interest income excluded $15M of discount accretion and such results have not been revised.
2 State Street’s common stock and other stock dividends, including the declaration, timing and amount thereof, remain subject to consideration and approval by its Board of
Directors at the relevant times. Stock purchases may be made using various types of mechanisms, including open market purchases or transactions off market, and may be made
under Rule 10b5-1 trading programs. The timing of stock purchases, types of transactions and number of shares purchased will depend on several factors, including market
conditions and State Street’s capital position, its financial performance and investment opportunities. The common stock purchase program does not have specific price targets
and may be suspended at any time.
Footnotes to slide 4:
1 1Q17 operating-basis results include a pre-tax gain of ~$30M on the sale of State Street's interest in Boston Financial Data Services, Inc. (BFDS) and International Financial Data
Services Limited (IFDS Ltd), reflecting a change in our operating-basis presentation effective in 1Q17 to include gains/losses on sales of businesses.
2 Beginning in 1Q17, management will no longer present discount accretion associated with former conduit securities as an operating-basis adjustment. Therefore, 1Q17 operating-
basis results include $5M of discount accretion. In 1Q16 and 4Q16, operating-basis net interest income excluded $15M and $10M of discount accretion, respectively, and such
results have not been revised.
Footnotes to slide 2:
1 An additional after-tax $12M gain is expected to be recognized throughout the remainder of 2017 as a result of a lower effective tax rate.
Footnote to slide 5:
1 Beginning in 1Q17, management will no longer present discount accretion associated with former conduit securities as an operating-basis adjustment. Therefore, 1Q17 operating-
basis results include $5M of discount accretion. In 1Q16, 2Q16, 3Q16 and 4Q16, operating-basis net interest income excluded $15M, $15M, $42M and $10M of discount
accretion, respectively, and such results have not been revised.
Footnote to slide 8 & 18:
21
Slide Footnotes
1 Estimated year-over-year pre-tax expense savings improvement relate only to State Street Beacon and the targeted staff reductions announced as part of our 3Q15 financial
results (includes targeted staff reductions in October 2015), all else equal. The full effect of the savings generated each year will be felt the following year. Actual expenses may
increase or decrease in the future due to other factors.
2 Based upon our initial review of potential U.S. tax reform legislation, we do not expect that there will be a significant impact in 2017. In addition, at this stage there are very
substantial uncertainties as to how it would impact State Street and other financial services entities on either an absolute or relative basis.
Footnotes to slide 12:
1 As of period-end where applicable.
2 Investment portfolio includes the amortized cost of transferred securities at the time they were transferred.
3 Assumptions for NII include no change in client behavior, please see discussion in State Street’s 2016 Annual Report on Form 10-K filed with the SEC.
4 Unless otherwise specified, all capital ratios referenced on slide 11 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 our 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 estimated pro forma fully phased-in Basel III ratios. March 31, 2017 capital ratios are presented as of quarter-end and are preliminary
estimates.
5 4Q16 based on standardized approach and 1Q17 based on advanced approach.
6 Estimated pro forma fully phased-in ratios as of March 31, 2017 (fully phased in as of January 1, 2019, as per Basel III phase-in requirements for capital) reflect capital calculated
under the Basel III final rule and total risk-weighted assets calculated in conformity with the advanced approaches and standardized approach as the case may be, each on a fully
phased-in basis under the Basel III final rule, based on our interpretations of the Basel III final rule as of January 25, 2017 and April 26, 2017, respectively as applied to our
businesses and operations as of December 31, 2016 and March 31, 2017, respectively. 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 currently applicable regulatory requirements.
7 The estimated pro forma fully phased-in SLRs are as of December 31, 2016 and March 31, 2017, respectively (fully phased-in as of January 1, 2018, as per the phase-in
requirements of the SLR final rule), are preliminary estimates, calculated based on our interpretations of the SLR final rule as of January 25, 2017 and April 26, 2017,
respectively, and as applied to our businesses and operations as of December 31, 2016 and March 31, 2017, respectively. Refer to the addendum included with this presentation
for reconciliations of these estimated pro forma fully phased-in SLRs to our SLRs under currently applicable regulatory requirements.
Footnotes to slide 11:
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This presentation may contain statements considered “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, financial portfolio performance, dividend and stock purchase programs, outcomes of legal proceedings, market growth, acquisitions, joint ventures and divestitures, cost savings and transformation initiatives, client
growth and new technologies, services and opportunities, as well as industry, regulatory, economic and market trends, initiatives and developments, the business environment and other matters that do not relate strictly to historical facts.
Terminology such as “plan,” “expect,” “intend,” “objective,” “forecast,” “outlook,” “believe,” “priority,” “anticipate,” “estimate,” “seek,” “may,” “will,” “trend,” “target,” “strategy” and “goal,” or similar statements or variations of such terms, are intended to
identify forward-looking statements, although not all forward-looking statements contain such terms. These statements are subject to various risks and uncertainties, which change over time, are based on management's expectations and
assumptions at the time the statements are made, and are not guarantees of future results. Management's expectations and assumptions, and the continued validity of the forward-looking statements, are subject to change due to a broad range of
factors affecting the national and global economies, regulatory environment and the equity, debt, currency and other financial markets, as well as factors specific to State Street and its subsidiaries, including State Street Bank.
Factors that could cause changes in the expectations or assumptions on which forward-looking statements are based cannot be foreseen with certainty and include, but are not limited to: the financial strength and continuing viability of the
counterparties with which we or our clients do business and to which we have investment, credit or financial exposure, including, for example, the direct and indirect effects on counterparties of the sovereign-debt risks in the U.S., Europe and other
regions; increases in the volatility of, or declines in the level of, our net interest revenue, 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 the possibility that we may change 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, and the
liquidity 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 United States 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 the respective 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 levels 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 changes to the regulatory framework applicable to our operations, including implementation or modification of the Dodd-Frank Act, the Basel III final rule and European legislation (such as the
Alternative Investment Fund Managers Directive, Undertakings for Collective Investment in Transferable Securities Directives and Markets in Financial Instruments Directive II); among other consequences, these regulatory changes impact the
levels of regulatory capital we must maintain, acceptable levels of credit exposure to third parties, margin requirements applicable to derivatives, and restrictions on banking and financial activities. 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; we may not successfully implement our plans to have a credible resolution plan by July
2017, or that plan may not be considered to be sufficient by the Federal Reserve and the FDIC, due to a number of factors, including, but not limited to, challenges we may experience in interpreting and addressing regulatory expectations, failure to
implement remediation in a timely manner, the complexities of development of a comprehensive plan to resolve a global custodial bank and related costs and dependencies. If we fail to meet regulatory expectations to the satisfaction of the Federal
Reserve and the FDIC in any future submission, we could be subject to more stringent capital, leverage or liquidity requirements, or restrictions on our growth, activities or operations; adverse changes in the regulatory ratios that we are required or
will be required to meet, whether arising under the Dodd-Frank Act or the Basel III final rule, 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 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, similarly, financial markets may react sharply or abruptly to actions taken by the new
administration in the United States; our ability to develop and execute State Street Beacon, our multi-year transformation program to digitize our business, deliver significant value and innovation for our clients and lower expenses across the
organization, 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 of the appointment of a monitor under the deferred prosecution agreement with the DOJ and compliance consultant
expected to be appointed under a potential 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 amounts we may be required to reimburse clients, as well as potential consequences of such review,
including damage to our client relationships 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 this, combined with strong competitive market forces, subjects us to significant pressure to reduce the fees we charge, to potentially significant changes in our assets under custody and administration or our
assets under management 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, and the
possibility of significant reductions in the liquidity or valuation of assets underlying those pools; 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; 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 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 and operational 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; changes in accounting standards and practices;
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 2016 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 news release should
not by relied on as representing our expectations or beliefs as of any time subsequent to the time this news release is first issued, and we do not undertake efforts to revise those forward-looking statements to reflect events after that time.
Forward-looking statements
23
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
results on a non-GAAP, or "operating" basis, as it believes that this presentation supports additional meaningful analysis and comparisons of trends with respect to
State Street’s business operations from period to period, as well as information (such as capital ratios calculated under regulatory standards scheduled to be
effective in the future or other standards) that management also uses in evaluating State Street’s business and activities.
Our operating-basis financial results adjust our GAAP-basis financial results 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 adjustments, on a fully taxable-equivalent basis. Management believes that
operating-basis financial information facilitates an investor's further understanding and analysis of State Street's financial performance and trends, including
providing additional insight into our underlying margin and profitability, in addition to financial information prepared and reported in conformity with GAAP. The tax-
equivalent adjustments allow for more meaningful comparisons of yields and margins on assets and the evaluation of investment opportunities with different tax
profiles.
Beginning with the first quarter of 2017, we are simplifying our operating-basis presentation of our financial results and will no longer exclude, as part of the non-
ordinary course adjustment, the effects of gains/losses on sales of businesses or the discount accretion associated with former conduit securities. In the first
quarter of 2017, those effects were a $30 million pre-tax gain on the sale of our transfer agency joint venture interests and $5 million of discount accretion, for a
total increase in revenue of $35 million relative to our historical operating-basis presentation. We believe that that these changes to our operating-basis
presentation simplify the overall presentation of our financial results, making them easier to understand, while, overall, continuing to facilitate a useful and helpful
additional understanding of our financial results.
We also believe that the use of other non-GAAP financial measures in the calculation of identified capital ratios is useful to understanding State Street's capital
position and is of interest to investors. Additionally, management may present revenue and expense measures on a constant currency (non-GAAP) 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.
We provide forward-looking financial estimates and expectations on an operating basis (non-GAAP) because information needed to provide corresponding GAAP-
basis information is primarily dependent on future events or conditions that may be uncertain and are difficult to predict or estimate. Management is therefore, in
general, is unable to provide a reconciliation of our operating-basis forward-looking financial estimates and expectations to a GAAP-basis presentation.
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 operating-basis financial information. To access the addendum go to www.statestreet.com/stockholder and
click on “Filings & Reports – Quarterly Earnings”.
24
Available-for-sale (AFS) Available for sale security that is purchased with the intent of holding before it reaches maturity
AUCA Assets under custody and administration
AUM Assets under management
Diluted earnings per share
(EPS)
Net income available to common shareholders divided by diluted average common shares
outstanding
Fee Operating Leverage Rate of growth of total fee revenue less the rate of growth of expenses
GE Asset Management
(GEAM)
The acquired GE Asset Management operations
Foreign Exchange (FX) Foreign exchange
Net interest income (NII) Income earned on interest bearing assets less interest paid on interest bearing liabilities; Net
interest income was previously disclosed as net interest revenue
Net interest margin (NIM) Net interest income divided by average interest-earning assets
Operating Leverage Rate of growth of total revenue less the rate of growth of total expenses
Outsourced Chief
Investment Officer (OCIO)
Outsourced CIO - third party provider manages the investment portfolio
Pre-tax operating margin Income before income tax expense divided by total revenue
Return on equity (ROE) (Net income less dividends on preferred stock) divided by average common equity
Definitions