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Section 1: 8-K (8-K)

Document


 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________
FORM 8-K
______________________

CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): July 20, 2018
______________________
State Street Corporation
(Exact name of registrant as specified in its charter)
______________________
Massachusetts
 
001-07511
 
04-2456637
(State of Incorporation)
 
(Commission File Number)
 
(IRS Employer Identification Number)
 
 
 
 
 
One Lincoln Street
Boston, Massachusetts
 
02111
(Address of principal executive office)
 
(Zip Code)
Registrant’s telephone number, including area code: (617) 786-3000
______________________
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

Emerging growth company  ¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ¨
 





Item 2.02.    Results of Operations and Financial Condition.
On July 20, 2018, State Street Corporation issued a news release announcing its results of operations for the second-quarter of 2018. Copies of that news release and accompanying second-quarter 2018 financial information addendum are furnished herewith as Exhibits 99.1 and 99.2, respectively, and are incorporated herein by reference.
Item 7.01.    Regulation FD.
On July 20, 2018, State Street Corporation made available a slide presentation providing highlights of its second-quarter 2018 results of operations and related information as of June 30, 2018, which is being made available in connection with a July 20, 2018 investor conference call. A copy of that slide presentation is furnished herewith as Exhibit 99.3 and is incorporated herein by reference.
Item 9.01.    Financial Statements and Exhibits.
(d)    Exhibits.
State Street Corporation's news release dated July 20, 2018, announcing its second-quarter 2018 results of operations and accompanying second-quarter 2018 financial information addendum are furnished herewith as Exhibits 99.1 and 99.2, respectively, and are incorporated by reference in Item 2.02 hereof; and a slide presentation providing highlights of State Street's second-quarter 2018 results of operations and related information as of June 30, 2018, which is being made available in connection with a July 20, 2018 investor conference call, is furnished herewith as Exhibit 99.3 and is incorporated by reference in Item 7.01 hereof.

Exhibit No.
Description






SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 
 
 
 
 
STATE STREET CORPORATION
 
 
 
 
 
 
 
 
 
By:
 
/s/ IAN W. APPLEYARD
 
 
 
Name:
 
Ian W. Appleyard,
 
 
 
Title:
 
Executive Vice President, Global Controller and Chief Accounting Officer
Date:
July 20, 2018
 
 
 
 



(Back To Top)

Section 2: EX-99.1 (EXHIBIT 99.1)

Exhibit



Exhibit 99.1
One Lincoln Street
Boston, MA 02111
394298915_graphiclogo.jpg
News Release
Investor Contact: Ilene Fiszel Bieler
Media Contact: Marc Hazelton
+1 617/664-3477
+1 617/513-9439




STATE STREET REPORTS SECOND-QUARTER 2018 EPS OF $1.88, UP 23%,
AND ROE OF 14.7%, UP 2.1 PERCENTAGE POINTS,
COMPARED TO THE SECOND-QUARTER OF 2017

2Q18 RESULTS INCLUDE A $77 MILLION, OR $0.17 PER SHARE, REPOSITIONING CHARGE RELATED TO ORGANIZATIONAL REALIGNMENT

2Q18 REVENUE OF $3.0 BILLION, UP 8% COMPARED TO 2Q17, REFLECTING
STRENGTH IN BOTH FEE REVENUE AND NET INTEREST INCOME

EXPENSES DOWN SEQUENTIALLY; BEACON TO DELIVER $200 MILLION
IN SAVINGS IN 2018, UP FROM $150 MILLION


 
Boston, MA ...July 20, 2018
In announcing today’s financial results, Joseph L. Hooley, State Street’s Chairman and Chief Executive Officer, said, "Second-quarter and year-to-date 2018 results reflect strength across our asset servicing and asset management businesses as well as the benefit from higher net interest income. Importantly, year-to-date EPS growth of 30% compared to the first half of 2017 was supported by a 6% and 20% increase in servicing fees and management fees, respectively. Demand remains strong across our global client base as demonstrated by new servicing commitments announced in the first half of 2018 of $1.5 trillion."
Hooley added, "Through State Street Beacon, we have gained efficiencies across the organization, while delivering significant value and innovation to our clients. Building on the success of Beacon, we are now focused on achieving greater organizational effectiveness and streamlining to further advance the standardization and globalization of our business."
Hooley continued, "It continues to remain a priority to prudently manage expenses against the revenue environment and we remain on track to achieve our 2018 financial objectives."    


1




Hooley concluded, "Building on our market-leading servicing capabilities, our announcement today of our agreement to acquire Charles River Development positions us to deliver the industry's first-ever front-to-middle-to-back office servicing platform. A comprehensive front to back solution coupled with enhanced data management provides State Street with the capabilities to further expand and deepen our client relationships and help solve some of their most pressing business challenges. The addition of Charles River Development's capabilities to State Street's existing product set provides another growth avenue for shareholders."


2Q18 Highlights
AUCA/AUM
Broad-based business momentum: Asset servicing AUCA as of quarter-end increased 9% from 2Q17 due to strength in equity markets, new business, and higher client flows, partially offset by client transitions. Asset management AUM as of quarter-end, increased 5% compared to 2Q17, primarily driven by strength in equity markets, partially offset by lower yielding institutional outflows.
New business: Asset servicing mandates announced year-to-date totaled approximately $1.5 trillion, of which $105 billion was newly announced in 2Q18. Servicing assets remaining to be installed in future periods totaled approximately $300 billion. In our asset management business, we experienced net outflows of $14 billion during 2Q18.
Revenue
Fee revenue: Increased 6% from 2Q17, driven by higher servicing fees, management fees, trading services, the favorable impact of currency translation, and the impact of the new revenue recognition standard, partially offset by lower securities finance fees.
Servicing and management fees: Servicing fees increased 3% relative to 2Q17, benefiting from higher global equity markets and new business. Management fees increased 17% relative to 2Q17, primarily driven by higher global equity markets and the impact of the new revenue recognition standard.
Net interest income: Increased 15% relative to 2Q17, driven by higher market interest rates in the U.S. and disciplined liability pricing, partially offset by a mix shift to HQLA assets.
Expenses
Expenses: 2Q18 expenses increased 6% compared to 2Q17, primarily due to investments to support new business, higher salaries and benefits, and the impact of the new revenue recognition standard, partially offset by Beacon savings and lower performance-based incentive compensation.
The impact of the new revenue revenue recognition standard and the unfavorable impact of currency translation contributed 4% points to expense growth.
Expenses include a $77 million repositioning charge related to organizational changes and management streamlining, consisting of $61 million of compensation and employee benefits and $16 million of occupancy costs.



2






Beacon and organizational efficiencies:
Savings: We now expect $200 million in savings in 2018 which exceeds our previously announced guidance of $150 million. We realized approximately $60 million of savings in both 1Q18 and 2Q18 for total year-to-date savings of approximately $120 million.
Building on success: We are transitioning to our next phase of efficiency initiatives which includes management streamlining to further advance the standardization and globalization of our business. To achieve these efficiency initiatives, we recognized the above referenced 2Q18 repositioning charge of $77 million.
Operating leverage: Compared to 2Q17, the growth rate of total revenue exceeded the growth rate of total expenses, resulting in positive operating leverage of approximately 1.4% points.
Fee operating leverage: Compared to 2Q17, fee operating leverage was (0.8)% points. The impact from lower 2Q18 securities finance seasonality relative to 2Q17 contributed approximately 1%.
Pre-tax margin: Compared to 2Q17, pre-tax margin increased 1% point to 28.6%.
Capital
Key metrics: Relative to 2Q17, under the standardized approach, the estimated Basel III common equity tier 1 ratio for 2Q18 increased 10 basis points to 11.3%. The estimated 2Q18 leverage ratio was 7.1%, reflecting an increase of 10 basis points from 2Q17.
Capital Return: Declared a quarterly common stock dividend of $0.42 per share and on July 19, 2018, declared a 3Q18 dividend of $0.47 per share, representing an increase of 12% from the 2Q18 dividend. In anticipation of today's separately announced acquisition, we did not repurchase any common stock in 2Q18 and do not anticipate repurchasing any common stock for the remainder of the year.

3




Financial Results
(Table presents summary results, dollars in millions, except per share amounts, or where otherwise noted)
 
2Q18
 
1Q18
 
Increase (Decrease)
 
2Q17
 
Increase (Decrease)
Total fee revenue(1)
 
$
2,358

 
$
2,378

 
(0.8
)%

 
$
2,235

 
5.5
 %
 
Net interest income(2)
 
659

 
643

 
2.5

 
 
575

 
14.6

 
Total revenue
 
3,026

 
3,019

 
0.2

 
 
2,810

 
7.7

 
Provision for loan losses
 
2

 

 
nm

 
 
3

 
nm

 
Total expenses(1)
 
2,159

 
2,256

 
(4.3
)
 
 
2,031

 
6.3

 
Net income available to common shareholders
 
698

 
605

 
15.4

 
 
584

 
19.5

 
Earnings per common share:
 
 
 
 
 
 
 
 
 
 
Diluted earnings per share
 
1.88

 
1.62

 
16.0

 
 
1.53

 
22.9

 
Financial ratios:
 
 
 
 
 
 
 
 
 
 
Quarterly average total assets
 
224,089

 
226,870

 
(1.2
)
 
 
223,917

 
0.1

 
Fee operating leverage(3)
 
 
 
 
 
346

bps
 
 
 
(80
)
bps
Operating leverage(3)
 
 
 
 
 
453

 
 
 
 
139

 
Return on average common equity
 
14.7
%
 
12.8
%
 
190

 
 
12.6
%
 
210

 
Return on tangible common equity(4)
 
21.1

 
20.1

 
100

 
 
17.3

 
380

 
Pre-tax margin (GAAP-basis)
 
28.6

 
25.3

 
330

 
 
27.6

 
100

 
Pre-tax margin (historical Operating-basis)
 
30.6

 
27.4

 
320

 
 
33.3

 
(270
)
 
Effective tax rate
 
15.1

 
13.5

 
160

 
 
20.1

 
(500
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(1) Effects of the new revenue recognition standard (ASU 2014-09): The newly effective revenue recognition standard increased 2Q18 total fee revenue and total expenses by approximately $70 million each. Relative to 2Q17, the new revenue recognition standard contributed 2.4% and 2.9% to both fee revenue growth and expense growth, respectively. The revenue impact was approximately $45 million in management fees, $20 million in brokerage and other fees, and $5 million in other line items. The expense impact was approximately $15 million in transaction processing, $45 million in other expenses, and $10 million in information systems and communication.
(2) Approximately $15 million of swap costs in 1Q18 were reclassified from processing fees and other revenue within fee revenue to net interest income to conform to current presentation. No other prior periods were revised.
(3) The financial ratio represents the rate of growth of total revenue (or fee revenue) less the rate of growth of expenses relative to the preceding or prior year period, as applicable.
(4) Return on tangible common equity is calculated by dividing year-to-date annualized net income available to common shareholders (GAAP-basis) by tangible common equity. For additional information on the Reconciliation of Tangible Common Equity Ratio refer to the addendum included with this News Release.
nm Not meaningful


4




Selected Financial Information and Metrics
The tables below provide a summary of selected financial information and key ratios for the indicated periods.
The following table presents AUCA, AUM, market indices and foreign exchange rates for the periods indicated.
(Dollars in billions, except market indices and foreign exchange rates)
 
2Q18
 
1Q18
 
Increase (Decrease)
 
2Q17
 
Increase (Decrease)
Assets under custody and administration(1)(2)
 
$
33,867

 
$
33,284

 
1.8
 %
 
$
31,037

 
9.1
 %
Assets under management(2)
 
2,723

 
2,729

 
(0.2
)
 
2,606

 
4.5

Market Indices(3):
 
 
 
 
 
 
 
 
 
 
S&P 500® daily average
 
2,703

 
2,733

 
(1.1
)
 
2,398

 
12.7

MSCI EAFE® daily average
 
2,018

 
2,072

 
(2.6
)
 
1,856

 
8.7

MSCI® Emerging Markets daily average
 
1,138

 
1,204

 
(5.5
)
 
993

 
14.6

HFRI Asset Weighted Composite® monthly average
 
1,407

 
1,406

 
0.1

 
1,339

 
5.1

Barclays Capital U.S. Aggregate Bond Index® period-end
 
2,013

 
2,016

 
(0.1
)
 
2,021

 
(0.4
)
Barclays Capital Global Aggregate Bond Index® period-end
 
478

 
491

 
(2.6
)
 
471

 
1.5

Average Foreign Exchange Rate (Euro vs. USD)
 
1.192

 
1.229

 
(3.0
)
 
1.101

 
8.3

Average Foreign Exchange Rate (GBP vs. USD)
 
1.360

 
1.391

 
(2.2
)
 
1.280

 
6.3

 
 
 
 
 
 
 
 
 
 
 
(1) Includes assets under custody of $25,415 billion, $25,046 billion, and $23,362 billion, as of 2Q18, 1Q18, and 2Q17, respectively.
(2) As of period-end.
(3) The index names listed in the table are service marks of their respective owners.

Assets Under Management
The following table presents 2Q18 activity in AUM by product category.
(Dollars in billions)
 
Equity
 
Fixed-Income
 
Cash(2)
 
Multi-Asset-Class Solutions
 
Alternative Investments(3)
 
Total
Balance as of March 31, 2018
 
$
1,670

 
$
433

 
$
336

 
$
146

 
$
144

 
$
2,729

Long-term institutional inflows(1)
 
48

 
33

 

 
18

 
3

 
102

Long-term institutional outflows(1)
 
(68
)
 
(24
)
 

 
(19
)
 
(3
)
 
(114
)
Long-term institutional flows, net
 
(20
)
 
9

 

 
(1
)
 

 
(12
)
ETF flows, net
 
(2
)
 
3

 

 

 
(1
)
 

Cash fund flows, net
 

 

 
(2
)
 

 

 
(2
)
Total flows, net
 
(22
)
 
12

 
(2
)
 
(1
)
 
(1
)
 
(14
)
Market appreciation
 
34

 
(2
)
 
1

 
1

 
1

 
35

Foreign exchange impact
 
(15
)
 
(6
)
 
(2
)
 
(2
)
 
(2
)
 
(27
)
Total market/foreign exchange impact
 
19

 
(8
)
 
(1
)
 
(1
)
 
(1
)
 
8

Balance as of June 30, 2018
 
$
1,667

 
$
437

 
$
333

 
$
144

 
$
142

 
$
2,723

 
 
 
 
 
 
 
 
 
 
 
 
 
(1) Amounts represent long-term portfolios, excluding ETFs.
(2) Includes both floating and constant-net-asset-value portfolios held in commingled structures or separate accounts.
(3) Includes real estate investment trusts, currency and commodities, including SPDR® Gold Shares ETF and SPDR® Long Dollar Gold Trust ETF. State Street is not the investment manager for the SPDR® Gold Shares ETF and the SPDR® Long Dollar Gold Trust ETF, but acts as the marketing agent.


5





Revenue
(Dollars in millions)
 
2Q18
 
1Q18
 
Increase (Decrease)
 
2Q17
 
Increase (Decrease)
Servicing fees
 
$
1,381

 
$
1,421

 
(2.8
)%
 
 
$
1,339

 
3.1
 %
 
Management fees
 
465

 
472

 
(1.5
)
 
 
397

 
17.1

 
Trading services revenue
 
315

 
304

 
3.6

 
 
289

 
9.0

 
Securities finance revenue
 
154

 
141

 
9.2

 
 
179

 
(14.0
)
 
Processing fees and other revenue
 
43

 
40

 
7.5

 
 
31

 
38.7

 
     Total fee revenue(1)
 
2,358

 
2,378

 
(0.8
)
 
 
2,235

 
5.5

 
Net interest income(1)
 
659

 
643

 
2.5

 
 
575

 
14.6

 
Gains (losses) related to investment securities, net
 
9

 
(2
)
 
nm

 
 

 

 
Total Revenue
 
$
3,026

 
$
3,019

 
0.2

 
 
$
2,810

 
7.7

 
Net interest margin
 
1.46
%
 
1.40
%
 
6

bps
 
1.27
%
 
19

bps
 
 
 
 
 
 
 
 
 
 
 
 
 
(1) Approximately $15 million of swap costs in 1Q18 were reclassified from processing fees and other revenue within fee revenue to net interest income to conform to current presentation. No other prior periods were revised. The newly effective revenue recognition standard increased 2Q18 total fee revenue by approximately $70 million. The fee revenue impact was approximately $45 million in management fees, $20 million in brokerage and other fees, and $5 million in other line items.
nm Not meaningful

Servicing fees increased from 2Q17, primarily due to higher global equity markets, increased client activity, new business, and the favorable impact of currency translation. Compared to 1Q18, servicing fees decreased, primarily due to lower global equity markets, client transitions, and the unfavorable impact of currency translation.
Management fees increased from 2Q17, primarily due to higher global equity markets and the adoption of the new revenue recognition accounting standard. Management fees decreased from 1Q18, primarily due to lower global equity markets.
Trading Services revenue increased from 2Q17 and 1Q18, the increase over both periods reflects higher FX client volumes.
Securities finance revenue decreased from 2Q17, reflecting lower seasonal activity in 2Q18 relative to 2Q17. Compared to 1Q18, securities finance revenue increased primarily due to seasonality.
Processing fees and other revenue increased from 2Q17, largely reflecting lower amortization related to tax-advantaged investments and higher software fees. Compared to 1Q18, processing fees and other revenue increased due to higher software fees.
Net interest income increased from 2Q17 and 1Q18, primarily due to higher market interest rates in the U.S. and disciplined liability pricing, partially offset by a mix shift to HQLA assets. Net interest margin increased 19 and 6 basis points compared to 2Q17 and 1Q18, respectively, driven by higher U.S. interest rates and disciplined liability pricing and a smaller balance sheet.


6




Expenses
(Dollars in millions)
 
2Q18
 
1Q18
 
Increase (Decrease)
 
2Q17
 
Increase (Decrease)
Compensation and employee benefits
 
$
1,125

 
$
1,249

 
(9.9
)%
 
$
1,071

 
5.0
 %
Information systems and communications
 
321

 
315

 
1.9

 
283

 
13.4

Transaction processing services
 
246

 
242

 
1.7

 
207

 
18.8

Occupancy
 
124

 
120

 
3.3

 
116

 
6.9

Acquisition and restructuring costs(1)
 

 

 

 
71

 
(100.0
)
Other
 
343

 
330

 
3.9

 
283

 
21.2

Total Expenses(1)
 
$
2,159

 
$
2,256

 
(4.3
)
 
$
2,031

 
6.3

 
 
 
 
 
 
 
 
 
 
 
(1) Effects of the new revenue recognition standard: The newly effective revenue recognition standard increased 2Q18 total expenses by approximately $70 million. Relative to the expense impact was approximately $15 million in transaction processing, $45 million in other expenses, and $10 million across other expense line items.

Compensation and employee benefits expenses increased from 2Q17, primarily due to the $61 million related to the repositioning charge, increased costs to support new business, annual merit increases, and the unfavorable impact of currency translation, partially offset by lower performance based incentive compensation and Beacon savings. Compared to 1Q18, compensation and employee benefits expenses decreased primarily due to the absence of expenses associated with the seasonal deferred incentive compensation for retirement-eligible employees, lower 2Q18 performance based incentives and Beacon savings, partially offset by the 2Q18 repositioning charge related to organizational changes and management streamlining.
Information systems and communications expenses increased from 2Q17, primarily due to Beacon related investments and costs to support new business.
Transaction processing services expenses increased from 2Q17, reflecting higher client volumes and higher market levels as well as the impact of the new revenue recognition standard.
Occupancy expenses increased from both 2Q17 and 1Q18. The increase over both periods reflects a 2Q18 $16 million charge related to right-sizing the real estate footprint as part of our organizational realignment.
Other expenses increased from 2Q17, primarily due to the impact of the new revenue recognition accounting standard. Compared to 1Q18, other expenses increased reflecting higher Beacon related investments and regulatory professional costs.
The 2Q18 effective tax rate was 15.1% compared to 20.1% in 2Q17 and 13.5% in 1Q18. The decrease in 2Q18 tax rate compared to 2Q17 reflects the impact of the lower U.S. tax rate under the TCJA as well as a reduction in deferred tax liabilities, partially offset by a decline in
tax exempt income. The 1Q18 tax rate included elevated benefits attributable to the vesting of stock based compensation.










7




The following table presents regulatory capital ratios as of June 30, 2018 and March 31, 2018. 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. Also presented is the calculation of State Street's supplementary leverage ratio (SLR). Unless otherwise noted, all capital ratios presented in the table and elsewhere in this News Release refer to State Street Corporation.
June 30, 2018(1)
 
Basel III Advanced Approaches (Estimated) Pro-Forma(2)(3)
 
Basel III Standardized Approach (Estimated) Pro-Forma(3)
Common equity tier 1 ratio
 
12.4
%
 
11.3
%
Tier 1 capital ratio
 
15.7

 
14.3

Total capital ratio
 
16.4

 
15.1

Tier 1 leverage ratio
 
7.1

 
7.1

 
 
 
 
 
March 31, 2018
 
 
 
 
Common equity tier 1 ratio
 
12.1
%
 
10.8
%
Tier 1 capital ratio
 
15.4

 
13.7

Total capital ratio
 
16.3

 
14.6

Tier 1 leverage ratio
 
6.9

 
6.9

 
 
 
As of June 30, 2018
(Dollars in millions)
(1)
 
 
Fully Phased-In SLR
Tier 1 Capital
 
 
$
15,419

Total assets for SLR
 
 
250,160

Supplementary Leverage Ratio
 
 
6.2
%
 
 
 
 
As of March 31, 2018
(Dollars in millions)
 
 
 
Tier 1 Capital
 
 
$
15,146

Total assets for SLR
 
 
252,362

Supplementary Leverage Ratio
 
 
6.0
%
 
 
 
 
(1) June 30, 2018 capital ratios are preliminary estimates.
(2) 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 News Release 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.
(3) Estimated pro-forma fully phased-in ratios as of June 30, 2018 reflect capital and total risk-weighted assets calculated under the Basel III final rule. Refer to the addendum included with this News Release 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.


8




Investor Conference Call and Quarterly Website Disclosures
State Street will webcast an investor conference call today, Friday, July 20, 2018, at 8:00 a.m. EDT, available at http://investors.statestreet.com/. The conference call will also be available via telephone, at +1 877-423-4013 inside the U.S. or at +1 706-679-5594 outside of the U.S. The Conference ID is # 5069567.
Recorded replays of the conference call will be available on the website, and by telephone at +1 855-859-2056 inside the U.S. or at +1 404-537-3406 outside the U.S. beginning approximately two hours after the call's completion. The Conference ID is # 5069567.
The telephone replay will be available for approximately two weeks following the conference call. This News Release, presentation materials referred to on the conference call and additional financial information are available on State Street's website, at http://investors.statestreet.com/ under “Investor Relations--Investor News & Events" and under the title “Events and Presentations.”
State Street intends to publish updates to its public disclosure regarding regulatory capital, as required by the Basel III final rule, and the liquidity coverage ratio, on a quarterly basis on its website at http://investors.statestreet.com/, under "Filings & Reports." Those updates will be published each quarter, during the period beginning after State Street's public announcement of its quarterly results of operations and ending on or prior to the due date under applicable bank regulatory requirements (i.e., ordinarily, ending no later than 60 days following year-end or 45 days following each other quarter-end, as applicable). For 2Q18, State Street expects to publish its updates during the period beginning today and ending on or about July 25, 2018.
State Street Corporation (NYSE: STT) is the world's leading provider of financial services to institutional investors including investment servicing, investment management and investment research and trading. With $33.9 trillion in assets under custody and administration and $2.7 trillion* in assets under management as of June 30, 2018, State Street operates globally in more than 100 geographic markets and employs over 38,000 worldwide. For more information, visit State Street's website at www.statestreet.com.
* Assets under management include the assets of the SPDR® Gold ETF and the SPDR® Long Dollar Gold Trust ETF (approximately $33 billion as of June 30, 2018), for which State Street Global Advisors Funds Distributors, LLC (SSGA FD) serves as marketing agent; SSGA FD and State Street Global Advisors are affiliated.
Additional Information
In this News Release:
All earnings per share amounts represent fully diluted earnings per common share.
Return on average common shareholders' equity is determined by dividing annualized net income available to common equity by average common shareholders' equity for the period.
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

9




have notified us during the period of their intent to terminate or reduce their relationship with State Street, which from time to time be significant.
New business in assets to be serviced is reflected in our AUCA after we begin servicing the assets, and new business in assets to be managed is reflected in our AUM after we begin managing the assets. As such, only a portion of any new asset servicing and asset management mandates may be reflected in our AUCA and AUM as of June 30, 2018. Distribution fees from the SPDR® Gold ETF and the SPDR® Long Dollar Gold Trust ETF are recorded in brokerage and other fee revenue and not in management fee revenue.

Forward-Looking Statements
This News Release (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 July 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;

10




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

11




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; the possibility that our clients or regulators will assert claims that our fees with respect to such investment products are not appropriate or consistent with our fiduciary responsibilities;
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;

12




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 our proposed acquisition of Charles River Development, and our 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 integrate Charles River Development's front office systems with our middle and back office capabilities to offer an front to back office system that is competitive and meets our clients requirements;
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

13




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.

14
(Back To Top)

Section 3: EX-99.2 (EXHIBIT 99.2)

Exhibit
Exhibit 99.2
STATE STREET CORPORATION
EARNINGS RELEASE ADDENDUM
June 30, 2018
 
Table of Contents
 
 
GAAP-Basis Financial Information:
Page
4-Year Summary of Results
Consolidated Financial Highlights
Consolidated Results of Operations
Consolidated Statement of Condition
Average Statement of Condition - Rates Earned and Paid - Fully Taxable-Equivalent Basis
Average Statement of Condition - Rates Earned and Paid - Fully Taxable-Equivalent Basis - Year to Date
Assets Under Custody and Administration
Assets Under Management
 
 
Investment Portfolio:
 
Investment Portfolio Holdings by Asset Class
Investment Portfolio Non-U.S. Investments
 
 
Non-GAAP Financial Information:
 
Reconciliations of Non-GAAP Financial Information
Reconciliation of Pre-Tax Margin
Reconciliation of Constant Currency FX Impacts
 
 
Capital:
 
Reconciliation of Tangible Common Equity Ratio
Regulatory Capital
Reconciliations of Fully Phased-In Capital Ratios
Reconciliations of Supplementary Leverage Ratios
 
 
 
 
This financial information should be read in conjunction with State Street's news release dated July 20, 2018.
 
 





STATE STREET CORPORATION
EARNINGS RELEASE ADDENDUM
4-YEAR SUMMARY OF RESULTS
 
 
 
(Dollars in millions, except per share amounts, or where otherwise noted)
 
2014
 
2015
 
2016
 
2017
Year ended December 31:
 
 
 
 
 
 
 
 
Total fee revenue
 
$
8,010

 
$
8,278

 
$
8,116

 
$
8,905

Net interest income
 
2,260

 
2,088

 
2,084

 
2,304

Gains (losses) from sales of available-for-sale securities, net
 
4

 
(6
)
 
7

 
(39
)
Total revenue
 
10,274

 
10,360

 
10,207

 
11,170

Provision for loan losses
 
10

 
12

 
10

 
2

Total expenses
 
7,827

 
8,050

 
8,077

 
8,269

Income before income tax expense
 
2,437

 
2,298

 
2,120

 
2,899

Income tax expense (benefit)
 
415

 
318

 
(22
)
 
722

Net income (loss) from non-controlling interest
 

 

 
1

 

Net income
 
2,022

 
1,980

 
2,143

 
2,177

Net income available to common shareholders
 
$
1,958

 
$
1,848

 
$
1,968

 
$
1,993

Per Common Share:
 
 
 
 
 
 
 
 
Diluted earnings per common share
 
$
4.53

 
$
4.47

 
$
4.97

 
$
5.24

Average diluted common shares outstanding
 
432,007

 
413,638

 
396,090

 
380,213

Cash dividends declared per common share
 
$
1.16

 
$
1.32

 
$
1.44

 
$
1.60

Closing price per share of common stock (at quarter end)
 
78.50

 
66.36

 
77.72

 
97.61

Balance Sheet, as of December 31:
 
 
 
 
 
 
 
 
Investment securities
 
$
112,636

 
$
100,022

 
$
97,167

 
$
97,579

Average total interest-earning assets
 
209,054

 
220,456

 
199,184

 
191,235

Total assets
 
274,089

 
245,155

 
242,698

 
238,425

Deposits
 
209,040

 
191,627

 
187,163

 
184,896

Long-term debt
 
10,012

 
11,497

 
11,430

 
11,620

Total shareholders' equity
 
21,328

 
21,103

 
21,219

 
22,317

Ratios and Other Metrics:
 
 
 
 
 
 
 
 
Return on average common equity
 
9.8
%
 
9.8
%
 
10.5
%
 
10.6
%
Pre-tax margin (GAAP-basis)
 
23.7

 
22.2

 
20.8

 
26.0

Pre-tax margin (historical Operating-basis)(1)
 
30.0

 
29.1

 
27.1

 
31.4

Net interest margin, fully taxable-equivalent basis
 
1.16

 
1.03

 
1.13

 
1.29

Common equity tier 1 ratio(2)
 
12.4

 
12.5

 
11.7

 
12.3

Tier 1 capital ratio(2)
 
14.5

 
15.3

 
14.8

 
15.5

Total capital ratio(2)
 
16.4

 
17.4

 
16.0

 
16.5

Tier 1 leverage ratio(2)
 
6.3

 
6.9

 
6.5

 
7.3

Supplementary leverage ratio(2)
 
5.6

 
6.2

 
5.9

 
6.5

Assets under custody and administration (in trillions)
 
$
28.19

 
$
27.51

 
$
28.77

 
$
33.12

Assets under management (in trillions)
 
2.45

 
2.25

 
2.47

 
2.78

 
 
 
 
 
 
 
 
 
(1) Refer to Reconciliations of Non-GAAP Financial Information page for details on non-GAAP metrics.
(2) The capital ratios presented are calculated in conformity with the applicable regulatory guidance in effect as of each period end. See Reconciliation of Fully Phased-In Capital Ratios for details of reconciliations between these ratios and our fully phased-in ratios. Effective January 1, 2018, the applicable final rules are in effect and the ratios are calculated based on fully phased-in CET1, Tier 1 and Total capital numbers.


2


STATE STREET CORPORATION
EARNINGS RELEASE ADDENDUM
CONSOLIDATED FINANCIAL HIGHLIGHTS
 
 
 
Quarters
% Change
(Dollars in millions, except per share amounts, or where otherwise noted)
 
1Q17
 
2Q17
 
3Q17
 
4Q17
 
1Q18
 
2Q18
 
2Q18
vs.
2Q17
 
2Q18
vs.
1Q18
Income Statement
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fee revenue(1)
 
$
2,198

 
$
2,235

 
$
2,242

 
$
2,230

 
$
2,378

 
$
2,358

 
5.5
 %
 
 
(0.8
)%
 
Net interest income(1)
 
510

 
575

 
603

 
616

 
643

 
659

 
14.6

 
 
2.5

 
Gains (losses) from sales of available-for-sale securities, net
 
(40
)
 

 
1

 

 
(2
)
 
9

 

 
 
nm

 
Total revenue
 
2,668

 
2,810

 
2,846

 
2,846

 
3,019

 
3,026

 
7.7

 
 
0.2

 
Provision for loan losses
 
(2
)
 
3

 
3

 
(2
)
 

 
2

 
(33.3
)
 
 

 
Total expenses(2)
 
2,086

 
2,031

 
2,021

 
2,131

 
2,256

 
2,159

 
6.3

 
 
(4.3
)
 
Income before income tax expense
 
584

 
776

 
822

 
717

 
763

 
865

 
11.5

 
 
13.4

 
Income tax expense
 
82

 
156

 
137

 
347

 
102

 
131

 
(16.0
)
 
 
28.4

 
Net income
 
502

 
620

 
685

 
370

 
661

 
734

 
18.4

 
 
11.0

 
Net income available to common shareholders
 
$
446

 
$
584

 
$
629

 
$
334

 
$
605

 
$
698

 
19.5

 
 
15.4

 
Per Common Share:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Diluted earnings per common share
 
$
1.15

 
$
1.53

 
$
1.66

 
$
.89

 
$
1.62

 
$
1.88

 
22.9

 
 
16.0

 
Average diluted common shares outstanding (in thousands)
 
386,417

 
380,915

 
378,518

 
375,477

 
372,619

 
370,410

 
(2.8
)
 
 
(0.6
)
 
Cash dividends declared per common share
 
$
.38

 
$
.38

 
$
.42

 
$
.42

 
$
.42

 
$
.42

 
10.5

 
 

 
Closing price per share of common stock (as of quarter end)
 
79.61

 
89.73

 
95.54

 
97.61

 
99.73

 
93.09

 
3.7

 
 
(6.7
)
 
At quarter-end:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total assets
 
$
236,802

 
$
238,274

 
$
235,986

 
$
238,425

 
$
250,286

 
248,308

 
4.2

 
 
(0.8
)
 
Investment securities
 
94,639

 
95,255

 
93,088

 
97,579

 
85,462

 
86,942

 
(8.7
)
 
 
1.7

 
Deposits
 
183,465

 
181,416

 
179,263

 
184,896

 
191,517

 
186,663

 
2.9

 
 
(2.5
)
 
Long-term debt
 
11,394

 
11,737

 
11,716

 
11,620

 
10,944

 
10,387

 
(11.5
)
 
 
(5.1
)
 
Total shareholders' equity
 
21,294

 
22,068

 
22,497

 
22,317

 
22,399

 
22,571

 
2.3

 
 
0.8

 
Securities On Loan:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Average securities on loan
 
$
368

 
$
384

 
$
383

 
$
397

 
$
397

 
$
406

 
5.7

 
 
2.3

 
End-of-period securities on loan
 
378

 
376

 
385

 
389

 
405

 
404

 
7.4

 
 
(0.2
)
 
Ratios and Other Metrics:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Return on average common equity
 
9.9
%
 
12.6
%
 
13.0
%
 
6.9
%
 
12.8
%
 
14.7
%
 
210

bps
 
190

bps
Pre-tax margin (GAAP-basis)
 
21.9

 
27.6

 
28.9

 
25.2

 
25.3

 
28.6

 
100

 
 
330

 
Pre-tax margin (historical Operating-basis, excluding repositioning charges)(3)
 
26.1

 
33.3

 
32.9

 
33.1

 
27.4

 
33.0
%
 
(30
)
 
 
560

 
Net interest margin, fully taxable-equivalent basis
 
1.17

 
1.27

 
1.35

 
1.38

 
1.40

 
1.46

 
19

 
 
6

 
Common equity tier 1 ratio(4)
 
11.2

 
12.0

 
12.6

 
12.3

 
12.1

 
12.4

 
40

 
 
30

 
Tier 1 capital ratio(4)
 
14.4

 
15.1

 
15.8

 
15.5

 
15.4

 
15.7

 
60

 
 
30

 
Total capital ratio(4)
 
15.4

 
16.2

 
16.9

 
16.5

 
16.3

 
16.4

 
20

 
 
10

 
Tier 1 leverage ratio(4)
 
6.8

 
7.0

 
7.4

 
7.3

 
6.9

 
7.1

 
10

 
 
20

 
Supplementary leverage ratio(4)
 
6.1

 
6.2

 
6.5

 
6.5

 
6.0

 
6.2

 

 
 
20

 
Assets under custody and administration (in billions)
 
$
29,833

 
$
31,037

 
$
32,110

 
$
33,119

 
$
33,284

 
$
33,867

 
9.1
 %
 
 
1.8
 %
 
Assets under management (in billions)
 
2,561

 
2,606

 
2,673

 
2,782

 
2,729

 
2,723

 
4.5

 
 
(0.2
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(1) Approximately $15 million of swap costs in 1Q18 were reclassified from processing fees and other revenue within fee revenue to net interest income to conform to current presentation. No other prior periods were revised.
(2) 2Q18 includes repositioning charges of approximately $77 million, including approximately $61 million within Compensation and employee benefits expense and $16 million with Occupancy expense.
 
 
 
 
(3) Refer to Reconciliations of Non-GAAP Financial Information page for details on non-GAAP metrics.
(4) The capital ratios presented are calculated in conformity with the applicable regulatory guidance in effect as of each period end. See Reconciliation of Fully Phased-In Capital Ratios for details of reconciliations between these ratios and our fully phased-in ratios. Effective January 1, 2018, the applicable final rules are in effect and the ratios are calculated based on fully phased-in CET1, Tier 1 and Total capital numbers.
nm Not meaningful

3


STATE STREET CORPORATION
EARNINGS RELEASE ADDENDUM
CONSOLIDATED RESULTS OF OPERATIONS
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Quarters
 
% Change
 
Year-to-Date
 
% Change
(Dollars in millions, except per share amounts, or where otherwise noted)
 
1Q17
 
2Q17
 
3Q17
 
4Q17
 
1Q18
 
2Q18
 
2Q18
vs.
2Q17
 
2Q18
vs.
1Q18
 
2Q17
 
2Q18
 
YTD 2Q18
vs.
YTD 2Q17
Reported Results
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fee revenue:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Servicing fees
 
$
1,296

 
$
1,339

 
$
1,351

 
$
1,379

 
$
1,421

 
$
1,381

 
3.1
 %
 
(2.8
)%
 
 
$
2,635

 
$
2,802

 
6.3
 %
Management fees
 
382

 
397

 
419

 
418

 
472

 
465

 
17.1

 
(1.5
)
 
 
779

 
937

 
20.3

Trading services:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total foreign exchange trading(1)
 
164

 
178

 
150

 
149

 
181

 
194

 
9.0

 
7.2

 
 
342

 
375

 
9.6

Total brokerage and other trading services
 
111

 
111

 
109

 
99

 
123

 
121

 
9.0

 
(1.6
)
 
 
222

 
244

 
9.9

Total trading services
 
275

 
289

 
259

 
248

 
304

 
315

 
9.0

 
3.6

 
 
564

 
619

 
9.8

Securities finance
 
133

 
179

 
147

 
147

 
141

 
154

 
(14.0
)
 
9.2

 
 
312

 
295

 
(5.4
)
Processing fees and other(2)
 
112

 
31

 
66

 
38

 
40

 
43

 
38.7

 
7.5

 
 
143

 
83

 
(42.0
)
Total fee revenue(2)
 
2,198

 
2,235

 
2,242

 
2,230

 
2,378

 
2,358

 
5.5

 
(0.8
)
 
 
4,433

 
4,736

 
6.8

Net interest income:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest income
 
650

 
700

 
761

 
797

 
857

 
907

 
29.6

 
5.8

 
 
1,350

 
1,764

 
30.7

Interest expense(2)
 
140

 
125

 
158

 
181

 
214

 
248

 
98.4

 
15.9

 
 
265

 
462

 
74.3

Net interest income(2)
 
510

 
575

 
603

 
616

 
643

 
659

 
14.6

 
2.5

 
 
1,085

 
1,302

 
20.0

Gains (losses) related to investment securities, net:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Gains (losses) from sales of available-for-sale securities, net
 
(40
)
 

 
1

 

 
(2
)
 
9

 

 
nm

 
 
(40
)
 
7

 
nm

Total revenue
 
2,668

 
2,810

 
2,846

 
2,846

 
3,019

 
3,026

 
7.7

 
0.2

 
 
5,478

 
6,045

 
10.4

Provision for loan losses
 
(2
)
 
3

 
3

 
(2
)
 

 
2

 
(33.3
)
 

 
 
1

 
2

 
100.0

Expenses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Compensation and employee benefits(3)
 
1,166

 
1,071

 
1,090

 
1,067

 
1,249

 
1,125

 
5.0

 
(9.9
)
 
 
2,237

 
2,374

 
6.1

Information systems and communications
 
287

 
283

 
296

 
301

 
315

 
321

 
13.4

 
1.9

 
 
570

 
636

 
11.6

Transaction processing services
 
197

 
207

 
215

 
219

 
242

 
246

 
18.8

 
1.7

 
 
404

 
488

 
20.8

Occupancy(3)
 
110

 
116

 
118

 
117

 
120

 
124

 
6.9

 
3.3

 
 
226

 
244

 
8.0

Acquisition and restructuring costs
 
29

 
71

 
33

 
133

 

 

 
(100.0
)
 

 
 
100

 

 
(100.0
)
Other
 
297

 
283

 
269

 
294

 
330

 
343

 
21.2

 
3.9

 
 
580

 
673

 
16.0

Total expenses(4)
 
2,086

 
2,031

 
2,021

 
2,131

 
2,256

 
2,159

 
6.3

 
(4.3
)
 
 
4,117

 
4,415

 
7.2

Income before income tax expense
 
584

 
776

 
822

 
717

 
763

 
865

 
11.5

 
13.4

 
 
1,360

 
1,628

 
19.7

Income tax expense
 
82

 
156

 
137

 
347

 
102

 
131

 
(16.0
)
 
28.4

 
 
238

 
233

 
(2.1
)
Net income
 
$
502

 
$
620

 
$
685

 
$
370

 
$
661

 
$
734

 
18.4

 
11.0

 
 
$
1,122

 
$
1,395

 
24.3

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 












4