State Street Corporation · NYSE:STT
State Street — Q3 2017 Earnings Presentation
25 slides from State Street's earnings presentation, Oct 23, 2017
Slide 1: Third Quarter 2017 Financial Highlights
Third Quarter 2017 Financial Highlights October 23, 2017 (NYSE: STT)
Slide 2: Preface and forward-looking statements
Preface and forward-looking statements This presentation includes certain highlights of, and also material supplemental to, State Street Corporation’s news release announcing its third quarter 2017 financial results. That news release contains a more detailed discussion of many of the matters descri
Slide 3: Summary of 3Q17 Results
Summary of 3Q17 Results GAAP-basis Financials Operating-basis (non-GAAP) Financials (Dollars in millions, except per share data, or where Quarters %∆ Quarters %∆ otherwise noted) 3Q16 2Q17 3Q17 2Q17 3Q16 3Q16 2Q17 3Q17 2Q17 3Q16 Revenue: Servicing fees $1,303 $1,339 $1,351 1% 4% $1,303 $1,339 $1,351
Slide 4: 3Q17 Highlights
3Q17 Highlights Operating-Basis (Non-GAAP); All comparisons are to 3Q16 Progress on our strategic priorities supported a strong quarter and continued business momentum Results driven by strength in equity markets, new business activity, and higher U.S. market interest rates: Higher AUCA and AUM leve
Slide 5: Progress on our strategic priorities supported a strong 3Q17 and continued business momentum
Progress on our strategic priorities supported a strong 3Q17 and continued business momentum Operating-Basis (Non-GAAP); All comparisons are to 3Q16 Drive growth from Advance our digital Continue to invest Achieve our the core franchise leadership through in new products financial goals Beacon and s
Slide 6: Earnings growth driven by higher markets and new business activity
Earnings growth driven by higher markets and new business activity which generated a return on equity of over 13% Operating-Basis (Non-GAAP)1 Diluted EPS ROE ($) (%) +27% +2.3%pts 1.67 1.71 13.7 13.4 1.48 12.5 1.35 11.1 10.4 1.21 3Q16 4Q16 1Q17 2Q17 3Q17 3Q16 4Q16 1Q17 2Q17 3Q17 3Q17 financial highl
Slide 7: AUCA and AUM continue to increase with market appreciation and client momentum
AUCA and AUM continue to increase with market appreciation and client momentum Assets Under Custody Assets Under and Administration (AUCA) Management (AUM) $ in trillions, as of period-end $ in billions, as of period-end +10% +9% +4% +3% 31.0 32.1 2,561 2,606 2,673 29.2 28.8 29.8 2,446 2,468 3Q16 4Q
Slide 8: Fee revenue growth driven by higher equity markets and new business activity
Fee revenue growth driven by higher equity markets and new business activity Operating-Basis (Non-GAAP)1 Fee Revenue 3Q17 vs 3Q16: ($M) +5% +4% ex FX • Servicing fees increased mainly due to strengthening 2,268 2,324 2,321 2,213 2,200 equity markets, new business, and the impact of the weaker U.S. d
Slide 9: Higher U.S. market interest rates and disciplined balance sheet management resulted in higher NII and NIM
Higher U.S. market interest rates and disciplined balance sheet management resulted in higher NII and NIM Operating-Basis (Non-GAAP) 1 NII and NIM 3Q17 vs 3Q16: (NII $M, NIM %) NII +20% • NII increased primarily due to higher U.S. market interest NIM +29bps 700 1.60 rates, loan portfolio growth, low
Slide 10: Expenses continue to support new business activity offset by savings from Beacon
Expenses continue to support new business activity offset by savings from Beacon Operating-Basis (Non-GAAP) +4% Expenses +3% ex FX 3Q17 vs 3Q16: ($M) 2,143 2,057 1,909 2491 1,960 1,988 • Compensation and employee benefits increased 1541 primarily driven by increased costs to support new business, an
Slide 11: Beacon is benefitting current year expense while helping fund investments
Beacon is benefitting current year expense while helping fund investments to drive both future savings and growth Operating-Basis (Non-GAAP) Breakdown of Benefits by Driver: (%) Contribution to Gross 2016 2017 Expense Benefits Actual Estimate Transaction Processing, 1,2 Driving Beacon Operating-Basi
Slide 12: Continuing to maintain a high-quality balance sheet and increase capital ratios
Continuing to maintain a high-quality balance sheet and increase capital ratios while delivering strong capital returns 1 3 3Q17 Investment Portfolio Highlights 3Q17 Quarter-End Capital Positions as of September 30, 2017 %, as of September 30, 2017 Investment Portfolio: Capital Ratios: 4Q16 1Q17 2Q1
Slide 13: Current outlook for rest of 2017 in line with 2Q17 and improved from January
Current outlook for rest of 2017 in line with 2Q17 and improved from January 2017 guidance Operating-Basis (Non-GAAP) 2017 Outlook Category Assumptions (vs 2016 where applicable) Full-year 2017 total fee • 6 - 7%1 • Under current market conditions (previously July 2017) revenue growth: (High end of
Slide 14: Appendix
APPENDIX YTD GAAP & Operating-basis (non-GAAP) Results 15 The Way Ahead 16 Beacon 17 3Q17 vs 2Q17 Variances for Fee Revenue, NII and Expenses 18 - 20 Slide Footnotes 21 - 22 Forward Looking Statements 23 Non-GAAP Measures 24 Definitions 25 14
Slide 15: Summary of YTD 3Q17 Results
Summary of YTD 3Q17 Results GAAP-basis Financials Operating-basis (non-GAAP) Financials (Dollars in millions, except per share data, or where otherwise noted) YTD YTD %∆ YTD YTD %∆ 3Q16 3Q17 YTD 3Q16 3Q17 YTD Revenue: Servicing fees $3,784 $3,986 5% $3,832 $3,986 4% Management fees 931 1,198 29 926
Slide 16: The Way Ahead
The Way Ahead Long-term Shareholder Value Operating-Basis Financial Goals1 Revenue Growth of 8%-12%, EPS Growth of 10%-15% and ROE of 12%-15% Building on Achieving a Investing in Maintaining Our Strong Digital Opportunities Financial Core Enterprise for Growth Strength Aligning solutions Driving gre
Slide 17: Beacon on track to deliver financial benefits through 2020
Beacon on track to deliver financial benefits through 2020 Expected Annual Pre-Tax Net • To achieve estimated annual pre-tax net run-rate expense savings of Run-Rate Expense Savings $550M by the end of 2020 for full effect in 20211: − Generated $175M in estimated annual pre-tax expense savings in 20
Slide 18: Flat fee revenue as higher equity markets and weaker U.S. dollar offset seasonality
Flat fee revenue as higher equity markets and weaker U.S. dollar offset seasonality Operating-Basis (Non-GAAP)1 0% 3Q17 vs 2Q17: Fee Revenue -2% ex FX ($M) 2,324 2,321 • Servicing fees increased primarily due to higher equity 2,268 2,213 2,200 markets and the impact of the weaker U.S. dollar • Manag
Slide 19: Higher U.S. market interest rates and disciplined balance sheet management resulted in higher NII and NIM
Higher U.S. market interest rates and disciplined balance sheet management resulted in higher NII and NIM Operating-Basis (Non-GAAP) 1 NII and NIM 3Q17 vs 2Q17: (NII $M, NIM %) NII +5% NIM +8bps • NII increased primarily due to higher U.S. market interest rates, loan portfolio growth, and discipline
Slide 20: Expenses continue to support new business activity offset by savings from Beacon
Expenses continue to support new business activity offset by savings from Beacon Operating-Basis (Non-GAAP) +1% Expenses +0% ex FX 3Q17 vs 2Q17: ($M) 2,143 2,057 1,909 2491 1,960 1,988 • Compensation and employee benefits increased 1541 primarily due to increased costs to support new business and th
Slide 21: Slide Footnotes
Slide Footnotes Footnotes to slide 3 & 15: 1 Beginning with 1Q17, operating basis results reflect gains/losses on sales of businesses. The 3Q17 operating-basis results reflect a pre-tax gain of approximately $26M on the sale of an alternative trading system in the 3Q17, and YTD 3Q17 operating basis
Slide 22: Slide Footnotes
Slide Footnotes 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 Unless otherwise specified, all capital ratios referenced on this slide and elsewhere in this presentation ref
Slide 23: Forward-looking statements
Forward-looking statements This presentation (and the conference call accompanying it) contains “forward-looking statements”, including statements about our goals and expectations regarding our business, financial and capital condition, results of operations, strategies, financial portfolio performa
Slide 24: Non-GAAP measures
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
Slide 25: Definitions
Definitions Available-for-sale (AFS) Security that is purchased with the ability of selling before it reaches maturity AUA Assets under administration AUCA Assets under custody and administration AUM Assets under management Bps Basis points Diluted earnings per share (EPS) Net income available to co