State Street Corporation · NYSE:STT
State Street — Q2 2015 Earnings Presentation
41 slides from State Street's earnings presentation, Jul 24, 2015
Slide 1: Second-Quarter 2015 Financial Highlights
State Street Corporation Second-Quarter 2015 Financial Highlights July 24, 2015
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 second-quarter 2015 financial results. That news release contains a more detailed discussion of many of the matters described in this presentat
Slide 3: Focused strategy supports long-term financial goals
Focused strategy supports long-term financial goals LONG-TERM SHAREHOLDER VALUE Operating-Basis1 Financial Goals: Revenue Growth of 8%-12%, EPS Growth of 10%-15% and ROE of 12%-15% BUILDING ON ACHIEVING A INVESTING IN OPTIMIZING OUR STRONG DIGITAL OPPORTUNITIES CAPITAL CORE ENTERPRISE FOR GROWTH Ali
Slide 4: Summary of GAAP-Basis Results
Summary of GAAP-Basis Results Quarters % Change Period % Change 2Q15 2Q15 6/30/15 YTD vs vs 6/30/14 6/30/15 vs $ in millions, except per share data 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 2Q14 1Q15 YTD YTD 6/30/14 YTD Revenue $ 2,485 $ 2,598 $ 2,582 $ 2,630 $ 2,605 $ 2,614 0.6% 0.3% $ 5,083 $ 5,219 2.7% Expen
Slide 5: GAAP-Basis Revenue
GAAP-Basis Revenue Quarters % Change Period % Change 2Q15 2Q15 6/30/15 YTD vs vs 6/30/14 6/30/15 vs $ in millions 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 2Q14 1Q15 YTD YTD 6/30/14 YTD Servicing fees $ 1,238 $ 1,288 $ 1,302 $ 1,301 $ 1,273 $ 1,325 2.9% 4.1% $ 2,526 $ 2,598 2.9% Management fees 292 300 316 299
Slide 6: GAAP-Basis Expenses
GAAP-Basis Expenses Quarters % Change Period % Change 2Q15 2Q15 6/30/15 YTD vs vs 6/30/14 6/30/15 vs $ in millions 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 2Q14 1Q15 YTD YTD 6/30/14 YTD Compensation and employee $ 1,157 $ 978 $ 953 $ 972 $ 1,087 $ 984 0.6% (9.5)% $ 2,135 $ 2,071 (3.0)% benefits Information sys
Slide 7: Progress in first half of 2015
Progress in first half of 2015 on key priorities: growing revenue, managing expenses and returning capital Operating-Basis (Non-GAAP) Financial Highlights1 • Year-to-date (six months ended June 30, • 2Q15 highlights: 2015) comparisons from same period in – EPS of $1.37 decreased 1% from 2Q14 and inc
Slide 8: First half of 2015 fee revenue growth
First half of 2015 total fee revenue growth and total revenue growth exceeded expense growth compared to the first half of 2014 Operating-Basis (Non-GAAP) Results1 Operating Leverage, Revenue Growth (%) less Revenue ($M) Expense Growth (%) +3.3% 6/30/15 YTD (6/30/15 YTD vs 6/30/14 YTD) 5,235 5,410 v
Slide 9: Operating-basis EPS decreased from 2Q14 to 2Q15
Operating-basis EPS1 decreased from 2Q14 to 2Q15 due to a higher tax rate and preferred dividends, mostly offset by fee revenue growth and impact of share buyback Operating-Basis EPS1 ($) 2Q15 vs 2Q14 -1.4% 1.39 1.35 1.37 1.37 1.17 • Operating-basis EPS1 increased in 2Q15 from 1Q15, primarily driven
Slide 10: Operating-basis revenue growth from 2Q14 to 2Q15
Operating-basis revenue1 growth from 2Q14 to 2Q15 driven by strong fee revenue growth despite stronger U.S. dollar Operating-Basis Revenue1 Notable items in 2Q15: • Money market fee waivers of $10.1M ($M) • Performance fees of $1.7M Notable variances 2Q15 vs 2Q14: 2Q15 vs 2Q14 2Q15 vs 1Q15 • The str
Slide 11: Prolonged low interest-rate environment
Operating-basis NIR1 continues to be challenged in the prolonged low interest-rate environment… Operating-Basis (Non-GAAP) Results1 Average Earning Assets ($B) 2Q15 vs 2Q14 2Q15 vs 1Q15 +13.1% +3.1% • Average earning assets continued to increase; NIM continued to decrease reflecting the impact 206 2
Slide 12: Managing expenses and stronger U.S. dollar
Managing expenses and stronger U.S. dollar limited operating-basis expense1 growth to 3.5% from 2Q14 to 2Q15 despite regulatory compliance expense growth Notable items in 2Q15: Operating-Basis Expenses1 • $14M in securities processing costs included in other expenses ($M) Notable variances 2Q15 vs 2
Slide 13: Continue to maintain high-quality balance sheet
Continue to maintain high-quality balance sheet… 2Q151 Balance Sheet Highlights Investment • In support of balance sheet optimization we continue to refine our investment portfolio portfolio2 • Size: $101B • Credit profile: 91% rated AAA/AA • Fixed-rate/floating-rate mix: 58%/42% • Duration: 2.2 yea
Slide 14: ...and remain well-capitalized
…and remain well-capitalized 2Q15 Quarter-End Capital1 Positions March 31, June 30, 2015 2015 • 2Q15 common equity tier 1 ratio Basel III Ratios2: under advanced approaches Common equity tier 1 ratio (advanced approaches) 12.2% 12.2% decreased slightly from 1Q15 primarily due to legal accrual Common
Slide 15: Continue to expect full year 2015 results in line with expectations
Continue to expect full year 2015 results in line with expectations communicated on January 23, 20151 • Continue to expect operating-basis total fee revenue growth to be in the range of 4%-7% for 2015 compared to 2014: – Weaker Euro to USD exchange rate in 2015 placing downward pressures on fee grow
Slide 16: Continue to focus on 2015 goals
Continue to focus on 2015 goals to deliver shareholder value in a challenging environment • 2Q15 operating-basis results1 driven by: – Servicing fees – Securities finance seasonal activities – Higher client deposits – Continued efficiency improvements • Continue to focus on key priorities: – Deliver
Slide 17: Q&A
17 Q&A STATE STREET.
Slide 18: Appendix
Appendix 2015 Outlook as Disclosed on January 23, 2015 19-22 Impact of Currency Translation 23-26 Footnotes to Slide 14 27-28 Operating-Basis (Non-GAAP) Results 29-32 Investment Portfolio 33-37 Definition of Metrics 38-39 Non-GAAP Measures, Regulatory Capital Ratios and 40-41 Reconciliations 18
Slide 19: Outlook as Disclosed on January 23, 2015
2015 Outlook as Disclosed on January 23, 2015 19
Slide 20: 2015 Outlook as disclosed on January 23, 2015
2015 Outlook1 as disclosed on January 23, 2015 See slide 15 for outlook as of July 24, 2015 Strong growth in our fee revenue, partially offset by the impact of low interest rates and a higher effective tax rate • Aiming for full-year 2015 operating-basis total fee revenue1 growth of 4%-7% compared t
Slide 21: 2015 Outlook as disclosed on January 23, 2015
2015 Outlook1 as disclosed on January 23, 2015 See slide 15 for outlook as of July 24, 2015 Expense management remains a priority • Expense management remains a priority; while there continues to be upward pressure on regulatory compliance costs, our focus will be on: – Controlling expenses and driv
Slide 22: 2015 Outlook as disclosed on January 23, 2015
2015 Outlook1 as disclosed on January 23, 2015 See slide 15 for outlook as of July 24, 2015 Illustrative Scenarios As illustrated below, operating-basis NIR1 likely to decline in 2015 from 2014 Static Scenario Rising Scenario Primary Drivers2 State Street $2.07B-$2.17B $2.15B-$2.25B • Short-term and
Slide 23: Impact of Currency Translation
Impact of Currency Translation 23
Slide 24: 2Q15 operating-basis revenue negatively impacted by currency translation
2Q15 operating-basis revenue1 was negatively impacted and operating-basis expenses1 were positively impacted by currency translation when compared to 2Q142 Operating-Basis Fee Revenue1 ($M) Operating-Basis NIR1 ($M) +7.0% -0.3% 2,251 575 573 2,103 2,180 556 713 71 17 17 2Q14 2Q15 Impact of 2Q15 2Q14
Slide 25: Impact of currency translation is minor on 2Q15
Impact of currency translation is minor on 2Q15 when compared to 1Q152 Operating-Basis Fee Revenue1 ($M) Operating-Basis NIR1 ($M) -1.6% +3.1% 565 556 556 2,113 2,180 2,178 0 0 -2 -2 1Q15 2Q15 Impact of 2Q15 1Q15 2Q15 Impact of 2Q15 Reported Reported Currency Excluding Reported Reported Currency Exc
Slide 26: 6/30/15 YTD operating-basis revenue negatively impacted by FX
6/30/15YTD operating-basis revenue1 was negatively impacted and operating-basis expenses1 were positively impacted by foreign exchange translation when compared to 6/30/14YTD2 Operating-Basis Fee Revenue1 ($M) Operating-Basis NIR1 ($M) +8.8% +0.4% 4,442 1,147 1,152 4,084 4,293 1,121 149 149 31 31 6/
Slide 27: Footnote to Slide 14
27 Footnote to Slide 14 STATE STREET.
Slide 28: Footnotes to slide 14
Footnotes to slide 14 1Unless otherwise specified, all capital ratios referenced on slide 14 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 elsewhere in the Appendix to this presentati
Slide 29: Operating-Basis (non-GAAP) Results
Operating- Basis (non- GAAP) Results 29
Slide 30: Summary of Operating-Basis Results
Summary of Operating-Basis (Non-GAAP) Results1 Quarters % Change Period % Change 2Q15 2Q15 6/30/15 YTD vs vs 6/30/14 6/30/15 vs $ in millions, except per share data 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 2Q14 1Q15 YTD YTD 6/30/14 YTD Revenue $ 2,559 $ 2,676 $ 2,678 $ 2,724 $ 2,677 $ 2,733 2.1% 2.1% $ 5,235 $
Slide 31: Operating-Basis Revenue
Operating-Basis (Non-GAAP) Revenue1 Quarters % Change Period % Change 2Q15 2Q15 6/30/15 YTD vs vs 6/30/14 6/30/15 vs $ in millions 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 2Q14 1Q15 YTD YTD 6/30/14 YTD Servicing fees $ 1,238 $ 1,288 $ 1,302 $ 1,301 $ 1,273 $ 1,325 2.9% 4.1% $ 2,526 $ 2,598 2.9% Management fees
Slide 32: Operating-Basis Expenses
Operating-Basis (Non-GAAP) Expenses1 Quarters % Change Period % Change 2Q15 2Q15 6/30/15 YTD vs vs 6/30/14 6/30/15 vs $ in millions 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 2Q14 1Q15 YTD YTD 6/30/14 YTD Compensation and employee $ 1,085 $ 974 $ 955 $ 962 $ 1,088 $ 984 1.0% (9.6)% $ 2,059 $ 2,072 0.6% benefits
Slide 33: Investment Portfolio
33 Investment Portfolio STATE STREET.
Slide 34: Investment portfolio consists of government & agency, structured securities and unsecured credit
Investment portfolio consists of government & agency, structured securities and unsecured credit Balances1 as of June 30, 2015 Government / Agency Structured Securities Unsecured Credit Treasuries Asset-backed securities (ABS) Corporate bonds Agency debentures Mortgage-backed Municipals securities (
Slide 35: Investment portfolio has high quality assets
Investment portfolio has high quality assets Investment Portfolio Assets1 as of June 30, 2015 ($B) • 91.4% rated AAA/AA • Assets selected using rigorous credit process • Unrealized after-tax mark-to-market (MTM) gain of • Diversified by asset class and geography $346 million 2 $ in U.S. Treasuries U
Slide 36: Investment portfolio has high quality assets across asset classes
Investment portfolio has high quality assets across asset classes Holdings by Asset Class as of June 30, 2015 Ratings Unrealized Book Book After-tax MTM Value Value Gain/(Loss) Fixed Rate/ UST/AGY3 AAA AA A BBB <BBB NR4 ($)1 (% Total) ($M)2 Floating Rate Government & agency securities 82% 10% 4% 4%
Slide 37: Investment portfolio has high quality assets among Non-U.S. investments
Investment portfolio has high quality assets among Non-U.S. investments Non-U.S. Investment as of June 30, 2015 AAA, 81.9% Book Book Value ($B) Value Average Gov't/ ABS ABS Corporate Covered AA, 7.4% ($B) Rating Agency (1) FRMBS All Other Bonds Bonds Other United Kingdom $ 7.7 AAA - 5.1 1.9 0.2 0.5
Slide 38: Definition of Metrics
38 Definition of Metrics STATE STREET.
Slide 39: Definition of Metrics
Definition of Metrics Earnings per Net income available to common shareholders divided by average common share (EPS) shares outstanding Return on equity (Net income less dividends on preferred stock) divided by average common equity (ROE) Pre-tax Income before income tax expense divided by total rev
Slide 40: Non-GAAP Measures, Regulatory Capital Ratios and Reconciliations
Non-GAAP Measures, Regulatory Capital Ratios and Reconciliations 40
Slide 41: Non-GAAP measures, regulatory capital ratios and reconciliations
Non-GAAP measures, regulatory capital ratios and reconciliations In addition to presenting State Street’s financial results in conformity with U.S. generally accepted accounting principles, referred to as GAAP, and used in the calculation of identified capital ratios, management also presents result