2019 Financial Highlights
and Sustainability Review

$34.4T Assets under custody and/or administration
$3.1T Assets under management
$11.8B Total revenue
$21M Total philanthropic contributions
$5.1M Employee gifts matched by State Street Foundation
$15.9M Education and workforce development contributions
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2019 Financial Summary
and Sustainability Review

Financial Highlights

The first half of 2019 was challenging, following the dramatic global equity market sell-off in late 2018 and continued servicing fee pressure.

We took aggressive actions to address the impact on our servicing fee revenues at the end of 2018 and into 2019, which reflected the impact of challenging market dynamics on our clients. We executed a firm-wide expense savings program that exceeded initial targets, and strengthened our value proposition to clients, including the build-out of our front-to-back State Street AlphaSM platform. We instilled pricing discipline while also generating new business wins, ending 2019 with $1.2 trillion in assets under custody and administration to be installed. While we did not meet our performance expectations for the full year, these actions and ongoing initiatives resulted in substantial improvement to our financial performance in the second half of the year.

  • Total revenue in 2019 declined 3% from 2018, partially reflecting the elevated level of industry servicing fee pricing pressure, which began to moderate for us in the second half of the year.
  • Expenses were well managed in 2019 and were flat relative to 2018 on GAAP basis and declined 2% excluding notable items and Charles River Development relative to 2018. We achieved $415 million in gross expense saves in 2019, exceeding our goal of $350 million.
  • Net income available to common shareholders decreased from 2018 reflecting the drop in total revenue and despite the expense savings.
  • We achieved diluted earnings per common share of $5.38 and return on average common equity of 9.4%, both down from 2018. Deposit-gathering initiatives generated benefits, with average total deposits down 2% from 2018, but up three consecutive quarters in 2019 and largely consistent levels of non-interest bearing deposits.
  • We returned approximately $2.3 billion of capital in 2019 and as part of that we declared cash dividends per common share of $1.98, up 11% from 2018. We also optimized our total capital stack with the redemption of our Series E preferred stock, which is worth about $0.12 of EPS. We remain confident in our capital ratios, which remain well above regulatory minimums.
  • Assets under custody and administration at year end reflected a record $34.4 trillion with business wins in 2019 amounting to $1.8 trillion, including four front-to-back Alpha platform wins.
  • Assets under management finished the year at a record $3.1 trillion, supported by higher market levels and over $100 billion in total net inflows.

* In general, our non-GAAP financial results adjust selected GAAP-basis financial results to exclude the impact of revenue and expenses outside of State Street’s normal course of business or other notable items. Management believes that this presentation of financial information facilitates further understanding and analysis of State Street’s financial performance and trends with respect to State Street’s business operations from period-to-period, including providing additional insight into our underlying margin and profitability.

2019 Financial Highlights

($s in millions, except per share amounts or where otherwise noted) 2018 2019
Financial Results
Fee Revenue $9,454 $9,147
Total revenue 12,131 11,756
Total Expenses 9,015 9,034
Net income available to common shareholders 2,404 2,009
Diluted earnings per common share ($) $6.39 $5.38
Average Balance Sheet
Total Assets $223,385 $223,334
Total Deposits 161,408 158,262
Common shareholders' equity 19,829 21,403
Selected Metrics (as of December 31)
Assets under custody and/or administration ($ billion) $31,620 $34,358
Assets under management ($ billion) 2,511 3,116
Return on average common equity 12.1% 9.4%
Pre-tax margin 25.6% 23.1%
Pre-tax margin (excluding notable items)Ai 28.8% 25.8%
Capital Ratios (as of December 31)
Common equity Tier 1 12.1% 11.7%
Tier 1 leverage 7.2% 6.9%
Supplementary leverage ratio 6.3% 6.1%
A Notable items include acquisition and restructuring costs, gains on sales, and other notable items

iResults excluding notable items are non-GAAP measures. Refer to the reconciliation of non-GAAP financial information below.

($s in millions) 2018 2019 2019 VS. 2018
Pre-tax margin, GAAP basis 25.6% 23.1% (250) bps
Less: Notable items
Acquisition and restructuring costs 0.2% 0.7%
Repositioning charges 2.7% 0.9%
Legal and related 0.3% 1.5%
Other income - (0.4)%
Pre-tax margin, excluding notable items 28.8% 25.8% (300) bps

iResults excluding notable items are non-GAAP measures. Refer to the reconciliation of non-GAAP financial information below.

($s in millions) 2018 2019 2019 VS. 2018
Total expenses, GAAP basis $9,015 $9,034 0.2%
Less: Notable items
Repositioning charges:
Compensation and employee benefits (259) (98) (62.2)%
Occupancy (41) (12) (70.7)%
Repositioning charges (300) (110) (63.3)%
Acquisition and restructuring costs (24) (77) 220.8
Legal and related (42) (172) nm
Business exit: Channel Islands (24) - nm
Total expenses, excluding notable items 8,625 8,675 0.6%
CRD expenses (39) (201) 415.4
CRD related expenses:
intangible asset amortization costs
(18) (65) 261.1
Total expenses, excluding notable items
and CRD and CRD related expenses

nm denotes non-meaningful

8,568 8,409 (1.9)%

Environmental, Social and Governance (ESG) Reporting

Aligning with industry-recognized materiality frameworks

Standards that focus on financial materiality are important for investors’ day-to-day decision-making. But when it comes to nonfinancial material risks, such as ESG-related risks, the absence of a globally-accepted framework challenges financial institutions to measure these issues, resulting in inconsistent metrics available to investors. With the help of ESG-related frameworks developed in recent years, many companies and investors are adopting transformative practices that allow them to quantify the impact of their ESG investments and understand the potential benefits of focusing on long-term, sustainable business models.

Two frameworks in particular have been embraced by the investment community — the Sustainability Accounting Standards Board (SASB) materiality framework and the Task Force on Climate-related Financial Disclosures (TCFD) — because both are investor-led and designed to provide decision-support information to shareholders, lenders, insurers and investors. SASB and TCFD also help inform our corporate responsibility practices, enabling us to see the impact of our ESG efforts and focus our energy on a long-term, sustainable business model.

In 2018, our board of directors took on responsibility for monitoring material ESG activities such as greenhouse gas emissions and climate-related risks, leading to our full adoption of SASB reporting with our 2019 Corporate Responsibility (CR) Report. This commitment to strong governance plays out through ESG reporting as well – sustainability and climate are relevant to both of the primary reporting frameworks that we report against.

Our approach to sustainability and reporting

Being a strong steward of the environment is good for our business — helping us lower costs, increase efficiencies in our operations, attract and retain talent, and build trust with our clients and other stakeholders. We manage this environmental stewardship through two primary channels: operations and products.

Operationally, we track our environmental footprint via three environmental goals: our reduction of carbon emissions and water use, as well as our waste recycling rate.

We set goals for 2025 with a 2015 baseline, and have accomplished two of the three: a 31% reduction in our carbon footprint (goal of 30%) and a reduction in our water usage by 21% (goal of 10%).

Our significant progress against these goals is bolstered by creativity and collaboration across the entire company. The Global Realty team is responsible for our real estate footprint, and oversees water usage and reduction as well as much of our carbon usage. A collaboration between Global Realty and Global Services has resulted in our Renewable Energy Credit (REC) purchases, which offset 100 percent of our carbon emissions from business travel in 2019. Our Environmental Sustainability Employee Network (ESEN) has also played a valuable role, as they support our engagement and education of employees and are playing a big role in our recycling efforts.

We are now looking to further reduce our carbon footprint, instituting a program aimed at becoming carbon-neutral for all of our global Scope 1 and Scope 2 carbon emissions (direct emissions as well as indirect emissions from electricity) by the end of 2020. This effort will require engagement of our offices globally as we increase our purchase of RECs and carbon offsets, facilitating development of green energy. We are also focused on reducing our carbon footprint on an absolute basis over the next 10 years in alignment with the Science-Based Target Initiative.

ESG and specifically sustainability efforts play into State Street products across our business lines. The investors we serve have long-term goals they must address, which is why our Asset Management team stresses ESG issues in their investment risk frameworks and engagement with portfolio companies. To that end, in 2019 we developed R-FactorTM, an ESG scoring system that gives listed companies a unique score, allowing investors to build more sustainable portfolios.

Expanding our reporting

Since 2017, State Street has supported the mission and objectives of the TCFD, and we have been evolving our reporting to disclose recommended information ever since. Our TCFD Report, found on pages 104-110 of our CR Report covers four major categories — governance, strategy, risk management, and metrics and reporting — sharing State Street’s progress and efforts in the area of climate-related risks. For example, we’ve made efforts to mitigate potential physical risks associated with climate by leveraging innovative approaches to energy efficiency and adapting business continuity plans to include scenarios of extreme weather incidents.

SASB’s transparent materiality framework is seeing a growing trend toward implementation across the investment community, improving the efficiency of capital markets by encouraging transparency and disclosure of sustainability information material to the investment community. Our SASB Report, found on pages 85-103 of our CR Report, responds to two industry categories: Asset Management and Custody Activities as well as Software and IT Services. While State Street clearly falls into the first category, our understanding of the importance of data and commitment to transparency in areas that are material to our work pushed us to respond against the Software and IT Services category as well.

Our SASB reporting covers a range of topics material to our industry, including assets under management employing integration of ESG issues, business ethics issues like our whistleblower policies, and employee engagement. One important component of this measurement is our approach to incorporation of ESG factors in investment processes and strategies.

The SASB framework, having identified issues considered material to State Street and our peers, has a broad reach, incorporating concepts ranging from employee engagement to environmental considerations around our data center needs. As data centers require significant energy to operate, State Street has investigated renewable and non-polluting energy such as hydrogen fuel cell technologies – which provide low-carbon electricity while adding redundancy into our electrical system.

SASB also covers the link between ESG issues and investing. We detail our overarching stewardship philosophy of protecting and promoting the long-term economic value of our client investments, which complements our commitment to external initiatives like the UN Principles on Responsible Investment (UNPRI). We also communicate our focus on responsible investing for our clients, and on our development of effective proxy voting and engagement guidelines, to help ensure that companies see us as a long-term partner as they navigate the evolution of ESG practices.

Details 04/12/2019