State Street Corporation · NYSE:STT
State Street — Q4 2014 Earnings Presentation
30 slides from State Street's earnings presentation, Feb 20, 2015
Slide 1: Fourth-Quarter and Full-Year 2014 Financial Highlights
Exhibit 99.3 This presentation updates and replaces, as of February 20, 2015, State Street Corporation’s Fourth-Quarter and Full-Year 2014 Financial Highlights presentation issued on January 23, 2015. US GAAP results and certain regulatory capital amounts and ratios have been updated. For more infor
Slide 2: Forward-Looking Statements
This presentation includes certain highlights of, and also material supplemental to, State Street Corporation’s (State Street’s) news release announcing its fourth- quarter and full-year 2014 financial results. That news release contains a more detailed discussion of many of the matters described in
Slide 3: Fourth-Quarter 2014 Key Messages
Fourth-Quarter 2014 Key Messages1 EPS: • GAAP-basis earnings per share, or EPS, of $1.12 decreased from $1.26 in 3Q14 and from $1.22 in 4Q13: – 4Q14 results included a $115 million pre-tax, or $92 million net after-tax ($0.22 per share), charge to increase our legal accrual associated with indirect
Slide 4: Fourth-Quarter 2014 Key Messages - Continued
Fourth-Quarter 2014 Key Messages - Continued Expenses: • We continue to control expenses amidst regulatory compliance cost pressures • 4Q14 expenses included the following notable items: – $29 million in security processing costs – $17 million associated with our withdrawal from derivatives clearing
Slide 5: Summary of GAAP-Basis Financial Results for Year Ended December 31, 2014
Summary of GAAP-Basis Financial Results for the Year Ended December 31, 2014 $ in millions, except per share data 2014 2013 % change Revenue $ 10,295 $ 9,884 4.2% Expenses 7,827 7,192 8.8 Earnings per share (EPS) 4.57 4.62 (1.1) Return on average common equity (ROE) 9.8% 10.5% Pre-tax operating marg
Slide 6: Summary of GAAP-Basis Financial Results for the Fourth Quarter of 2014
Summary of GAAP-Basis Financial Results for the Fourth Quarter of 2014 % change $ in millions, except per share data 4Q14 3Q14 4Q13 3Q14 4Q13 Revenue $ 2,630 $ 2,582 $ 2,464 1.9% 6.7% Expenses 2,057 1,892 1,846 8.7 11.4 EPS 1.12 1.26 1.22 (11.1) (8.2) ROE 9.4% 10.6% 10.9% Pre-tax operating margin 21
Slide 7: Fourth-Quarter 2014 GAAP-Basis Revenue
Fourth-Quarter 2014 GAAP-Basis Revenue % change $ in millions 4Q14 3Q14 4Q13 Servicing fees $ 1,301 (0.1)% 5.6% Management fees 299 (5.4) 3.1 Trading services revenue 293 5.4 24.2 Securities finance revenue 106 7.1 39.5 Processing fees and other revenue 57 235.3 26.7 Total fee revenue 2,056 2.2 9.4
Slide 8: Fourth-Quarter 2014 GAAP-Basis Expenses
Fourth-Quarter 2014 GAAP-Basis Expenses % change $ in millions 4Q14 3Q14 4Q13 Compensation and employee benefits $ 972 2.0% 2.9% Information systems and communications 246 1.7 7.9 Transaction processing services 201 1.0 10.4 Occupancy 113 (5.0) (8.9) Acquisition and restructuring costs 52 160.0 73.3
Slide 9: Full-Year 2014 and Fourth-Quarter 2014 Operating-Basis Financial Highlights
Full-Year 2014 and Fourth-Quarter 2014 Operating-Basis (Non-GAAP) Financial Highlights1 • Full-Year 2014 (twelve months ended December 31, 2014) comparisons from same period in 2013: – EPS of $5.09 increased 12.1% – Total fee revenue of $8.32 billion increased 7.4% – Total asset servicing and asset
Slide 10: Summary of Operating-Basis Financial Results for the Year Ended December 31, 2014
Summary of Operating-Basis (Non-GAAP) Financial Results1 for the Year Ended December 31, 2014 $ in millions, except per share data 2014 2013 % change Revenue $ 10,637 $ 10,047 5.9% Expenses 7,423 7,012 5.9 EPS 5.09 4.54 12.1 ROE 10.9% 10.3% Net Interest Margin (NIM) 1.11 1.30 Pre-tax operating margi
Slide 11: Summary of Operating-Basis Financial Results for the Fourth Quarter of 2014
Summary of Operating-Basis (Non-GAAP) Financial Results1 for the Fourth Quarter of 2014 % change $ in millions, except per share data 4Q14 3Q14 4Q13 3Q14 4Q13 Revenue $ 2,724 $ 2,678 $ 2,528 1.7% 7.8% Expenses 1,880 1,808 1,760 4.0 6.8 EPS 1.37 1.35 1.15 1.5 19.1 ROE 11.6% 11.4% 10.3% NIM 1.04 1.06
Slide 12: Operating-Basis Revenue
Operating-Basis (Non-GAAP) Revenue1 Key Drivers % change Notable Items in 4Q14: • The stronger U.S. dollar negatively affected 4Q14 revenue, relative to $ in millions 4Q14 3Q14 4Q13 exchange rates in effect in 3Q14 and 4Q13 • $11 million incremental equity earnings from joint ventures Servicing fees
Slide 13: Operating-Basis Expenses
Operating-Basis (Non-GAAP) Expenses1 % change Key Drivers Notable items in 4Q14: $ in millions 4Q14 3Q14 4Q13 • The stronger U.S. dollar favorably affected 4Q14 expenses, relative to exchange rates in effect in 3Q14 and 4Q13 • $29 million in security processing costs within other expenses Compensati
Slide 14: Balance Sheet Highlights
Balance Sheet Highlights Fourth-Quarter 20141, 2 Investment portfolio • Size: $112 billion, a slight decrease from the end of 3Q14 • Credit profile: approximately 90% rated AAA/AA • Fixed-rate/floating-rate mix: 52% / 48% • Duration: 2.0 years • Unrealized after-tax mark-to-market (MTM) gain increas
Slide 15: Capital
1 Capital Basel III Ratios as of December 31, 20142, 3 Fourth-Quarter 2014 Highlights Common equity tier 1 ratio calculated in conformity with Basel III final rule (advanced approaches) 12.5% • Maintained a strong capital position Tier 1 leverage ratio calculated in conformity with Basel III final r
Slide 16: Footnotes to Page 15
Footnotes to Page 15 1 Unless otherwise specified, all capital ratios referenced on page 15 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. Refer to the addendum linked to this presentation for
Slide 17: 2015 Outlook
2015 Outlook1: Strong growth in our fee revenue, partially offset by the impact of low interest rates and a higher effective tax rate • Continuing to focus on key priorities: Continuing to focus on key priorities: – Delivering value-added services and solutions to clients • Delivering value-added se
Slide 18: 2015 Outlook: Net Interest Revenue Scenarios
Illustrative Scenarios 2015 Outlook1: As illustrated below, operating-basis NIR1 likely to decline in 2015 from 2014 Static Scenario Rising Scenario Primary Drivers2 • Short-term and long-term interest rates State Street • Foreign exchange rates Operating-Basis $2.07B-$2.17B $2.15B-$2.25B • Deposit
Slide 19: 2015 Outlook: Will also focus on managing expenses
2015 Outlook1: Will also focus on managing expenses • Expense management remains a priority; while there continues to be upward pressure on regulatory compliance costs, our focus will be on: – Controlling expenses and driving further efficiencies – Expanding our capabilities to meet increasing regul
Slide 20: 2015 Outlook: Returning capital to shareholders remains a priority
2015 Outlook: Returning capital to shareholders remains a priority • Continuing to execute on our capital plans: – Issued $750 million of preferred shares at 6% in 4Q14, with the first dividend to be paid in 1Q15: – Expect total dividends on all series of preferred shares outstanding at December 31,
Slide 21: Appendix
APPENDIX Pages A. Effective Tax Rate Calculations 22 B. Investment Portfolio 24-29 C. Non-GAAP Measures and Capital Ratios 30 21
Slide 22: Effective Tax Rate Calculations
Effective Tax Rate Calculations • Beginning with the first quarter of 2014, we are presenting our operating-basis effective tax rate to reflect the tax-equivalent adjustments associated with our investments in tax-exempt securities low-income housing and alternative energy. • There is no effect on o
Slide 23: B. Investment Portfolio
és) STATE STREET. B. Investment Portfolio 23
Slide 24: Investment Portfolio
Investment Portfolio Investment Portfolio as of December 31, 2014 Government / Agency Structured Securities Unsecured Credit Treasuries Asset-backed securities (ABS) Corporate bonds Agency debentures Mortgage-backed Municipals securities (MBS) Agency mortgages Commercial mortgage-backed Small Busine
Slide 25: Investment Portfolio Detail as of December 31, 2014
Investment Portfolio Investment Portfolio Detail as of December 31, 2014 • 90% rated AAA/AA • Assets selected using rigorous credit process • Unrealized after-tax mark-to-market (MTM) gain of • Diversified by asset class and geography $487 million 1 $ in U.S. Treasuries Unrealized After-tax billions
Slide 26: Holdings by Asset Class as of December 31, 2014
Investment Portfolio Holdings by Asset Class as of December 31, 2014 Ratings 1 Unrealized Book Book After-tax MTM Fixed Rate / UST / Not Value Value Gain / (Loss) Floating Investment AGY AAA AA A BBB <BBB Rated ($B) (% Total) ($M) 2 Rate Government/Agency securities 79% 12% 5% 4% — — — $19.7 17.6% (
Slide 27: Asset-backed Securities Holdings as of December 31, 2014
Investment Portfolio Asset-backed Securities Holdings as of December 31, 2014 Ratings 1 Unrealized After-tax Not Book Value Book Value MTM Gain / (Loss) Investment UST / AGY AAA AA A BBB <BBB Rated ($B) (% Total) ($M) Student Loans — 37% 58% 5% — — — $14.3 33.1% ($12) Credit Cards — 100% — — — — — 5
Slide 28: Mortgage-backed Securities Holdings as of December 31, 2014
Investment Portfolio Mortgage-backed Securities Holdings as of December 31, 2014 Ratings 1 Unrealized After-tax MTM Not Book Value Book Value Gain / (Loss) Investment UST / AGY AAA AA A BBB <BBB Rated ($B) (% Total) ($M) Agency MBS 100% — — — — — — $20.6 72.5% $41 Non-Agency — 62% 7% 4% 8% 19% — 2.5
Slide 29: Non-U.S. Investment Summary as of December 31, 2014
Investment Portfolio Non-U.S. Investment Summary as of December 31, 2014 Non-U.S. Investments: Ratings BBB BB December 31, 2014 Book Book Value ($B) <BB 1.8% 1.2% 0.7% Value Average Gov't/ ABS ABS Corporate Covered A ($B) Rating Agency (1) FRMBS All Other Bonds Bonds Other 8.5% United Kingdom $ 8.6
Slide 30: C. Non-GAAP Measures and Capital Ratios
C. Non-GAAP Measures and Capital Ratios Refer to the addendum linked to this presentation for explanations of our non-GAAP financial measures and for reconciliations of our operating-basis financial information. To access the addendum go to www.statestreet.com/stockholder and click on “Filings & Rep