STATE STREET CORPORATION GENERAL
State Street Corporation , referred to as the Parent Company, is a financial holding company organized in 1969 under the laws of theCommonwealth of Massachusetts . Our executive offices are located atOne Lincoln Street ,Boston, Massachusetts 02111 (telephone (617) 786-3000). For purposes of this Quarterly Report on Form 10-Q for the quarter endedJune 30, 2020 (Form 10-Q), unless the context requires otherwise, references to "State Street," "we," "us," "our" or similar terms meanState Street Corporation and its subsidiaries on a consolidated basis.The Parent Company is a source of financial and managerial strength to our subsidiaries. Through our subsidiaries, including our principal banking subsidiary,State Street Bank and Trust Company , referred to asState Street Bank , we provide a broad range of financial products and services to institutional investors worldwide, with$33.52 trillion of AUC/A and$3.05 trillion of AUM as ofJune 30, 2020 . As ofJune 30, 2020 , we had consolidated total assets of$280.24 billion , consolidated total deposits of$200.46 billion , consolidated total shareholders' equity of$24.87 billion and 39,068 employees. We operate in more than 100 geographic markets worldwide, including in theU.S. ,Canada ,Europe , theMiddle East andAsia . Our operations are organized into two lines of business, Investment Servicing and Investment Management, which are defined based on products and services provided. Additional information about our lines of business is provided in Line of Business Information in this Management's Discussion and Analysis and Note 17 to the consolidated financial statements in this Form 10-Q. This Management's Discussion and Analysis is part of the Form 10-Q and updates the Management's Discussion and Analysis in our 2019 Annual Report on Form 10-K for the year endedDecember 31, 2019 previously filed with theSEC (2019 Form 10-K). You should read the financial information contained in this Management's Discussion and Analysis and elsewhere in this Form 10-Q in conjunction with the financial and other information contained in our 2019 Form 10-K. Certain previously reported amounts presented in this Form 10-Q have been reclassified to conform to current-period presentation. We prepare our consolidated financial statements in conformity withU.S. GAAP. The preparation of financial statements in conformity withU.S. GAAP requires management to make estimates and assumptions in its application of certain accounting policies that materially affect the reported amounts of assets, liabilities, equity, revenue and expenses.
The significant accounting policies that require us to make judgments, estimates and assumptions that are difficult, subjective or complex about matters that are uncertain and may change in subsequent periods include: • accounting for fair value measurements;
• impairment of goodwill and other intangible assets;
• contingencies; and
• allowance for credit losses.
These significant accounting policies require the most subjective or complex judgments, and underlying estimates and assumptions could be subject to revision as new information becomes available. For additional information about these significant accounting policies refer to pages 115 to 117, "Significant Accounting Estimates" included under Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, in our 2019 Form 10-K and Significant Accounting Estimates in Management's Discussion and Analysis of Financial Condition and Results of Operations in this Form 10-Q. Upon evaluating our accounting policies in light of our adoption of CECL onJanuary 1, 2020 , we included allowance for credit losses as one of our significant accounting policies. Other than including that additional significant policy, we did not change these significant accounting policies in the first six months of 2020. Certain financial information provided in this Form 10-Q, including in this Management's Discussion and Analysis, is prepared on both aU.S. GAAP, or reported basis, and a non-GAAP basis. We measure and compare certain financial information on a non-GAAP basis, including information that management uses in evaluating our business and activities. Non-GAAP financial information should be considered in addition to, and not as a substitute for or superior to, financial information prepared in conformity withU.S. GAAP. Any non-GAAP financial information presented in this Form 10-Q, including this Management's Discussion and Analysis, is reconciled to its most directly comparableU.S. GAAP-basis measure. We further believe that our presentation of FTE NII, a non-GAAP measure, which reports non-taxable revenue, such as interest income associated with tax-exempt investment securities, on a FTE basis, facilitates an investor's understanding and analysis of our underlying financial performance and trends. We provide additional disclosures required by applicable bank regulatory standards, including supplemental qualitative and quantitative information with respect to regulatory capital (including market risk associated with our trading activities) and the LCR, summary results of semi-annual State Street-run stressState Street Corporation | 4
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
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tests which we conduct under the Dodd-Frank Act, and resolution plan disclosures
required under the Dodd-Frank Act. These additional disclosures are accessible
on the "Investor Relations" section of our corporate website at
www.statestreet.com.
We have included our website address in this report as an inactive textual
reference only. Information on our website is not incorporated by reference into
this Form 10-Q.
We use acronyms and other defined terms for certain business terms and
abbreviations, as defined in the acronyms list and glossary following the
consolidated financial statements in this Form 10-Q.
Forward-Looking Statements
This Form 10-Q, as well as other reports and proxy materials submitted by us
under the Securities Exchange Act of 1934, registration statements filed by us
under the Securities Act of 1933, our annual report to shareholders and other
public statements we may make, may contain statements (including statements in
our Management's Discussion and Analysis included in such reports, as
applicable) that are considered "forward-looking statements" within the meaning
of U.S. securities laws, including statements about our goals and expectations
regarding our business, financial and capital condition, results of operations,
strategies, cost savings and transformation initiatives, investment portfolio
performance, dividend and stock purchase programs, outcomes of legal
proceedings, market growth, acquisitions, joint ventures and divestitures,
client growth and new technologies, services and opportunities, as well as
industry, governmental, regulatory, economic and market trends, initiatives and
developments, the business environment and other matters that do not relate
strictly to historical facts.
Terminology such as "plan," "expect," "intend," "objective," "forecast,"
"outlook," "believe," "priority," "anticipate," "estimate," "seek," "may,"
"will," "trend," "target," "strategy" and "goal," or similar statements or
variations of such terms, are intended to identify forward-looking statements,
although not all forward-looking statements contain such terms.
Forward-looking statements are subject to various risks and uncertainties, which
change over time, are based on management's expectations and assumptions at the
time the statements are made and are not guarantees of future results.
Management's expectations and assumptions, and the continued validity of the
forward-looking statements, are subject to change due to a broad range of
factors affecting the U.S. and global economies, regulatory environment and the
equity, debt, currency and other financial markets, as well as factors specific
to State Street and its subsidiaries, including State Street Bank . Factors that
could cause changes in the expectations or
assumptions on which forward-looking statements are based cannot be foreseen with certainty and 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 or to
which our clients have such exposures as a result of our acting as agent,
including as an asset manager or securities lending agent;
• the significant risks and uncertainties for our business, results of
operations and financial condition, as well as our regulatory capital and
liquidity ratios and other regulatory requirements in the United States and
internationally, caused by the COVID-19 pandemic, which will depend on
several factors, including the scope and duration of the pandemic, its
influence on the economy and financial markets, the effectiveness of our work
from home arrangements and staffing levels in operational facilities,
challenges associated with our return to office plans such as maintaining a
safe office environment and integrating at-home and in-office staff, the
impact of market participants on which we rely and actions taken by
governmental authorities and other third parties in response to the pandemic
and the impact of lower equity market valuations on our service and
management fee revenue;
• 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 volatility of servicing fee, management fee, trading fee and securities
finance revenues due to, among other factors, the value of equity and
fixed-income markets, market interest and FX rates, the volume of client
transaction activity, competitive pressures in the investment servicing and
asset management industries, and the timing of revenue recognition with
respect to software and processing fees revenues;
• the liquidity of the
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, volatility and uncertainty of interest rates; the expected
discontinuation of Interbank Offered Rates including London Interbank Offered
Rate (LIBOR); the valuation of the U.S. dollar relative to
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
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other currencies in which we record revenue or accrue expenses; the performance
and volatility of securities, credit, currency and other markets in the
in our investment securities portfolio, a deterioration or downgrade of which
could lead to impairment of such securities and the recognition of a
provision for credit losses in our consolidated statement of income;
• our ability to attract and retain 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; our ability to deploy deposits in a profitable manner
consistent with our liquidity needs, regulatory requirements and risk
profile; and the risks associated with the potential liquidity mismatch
between short-term deposit funding and longer term investments;
• the manner and timing with which the
non-U.S. 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 and implementation of
international standards applicable to financial institutions, such as those
proposed by the Basel Committee and European legislation (such as
Undertakings for Collective Investments in Transferable Securities (UCITS) V,
the Money Market Fund Regulation and the Markets in Financial Instruments
Directive II/Markets in Financial Instruments Regulation); among other
consequences, these regulatory changes impact the levels of regulatory
capital, long-term debt 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 heightened standards and changes in
regulatory expectations for global systemically important financial
institutions applicable to, among other things, risk management, liquidity
and capital planning, cyber-security, resiliency, resolution planning and
compliance programs, as well as 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 repurchases, without which our growth
plans, distributions to shareholders, share repurchase programs or other
capital or corporate initiatives may be restricted;
• geopolitical risks applicable to our operations and activities in
jurisdictions globally, including emerging markets and economies, that have
the potential to disrupt or impose costs, delays or damages upon our, our
clients', our counterparties' and suppliers' and our infrastructure
providers' respective operations, activities and strategic planning and to
compromise financial markets and stability;
• 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, without
limitation, additional or increased taxes or assessments thereon, capital
adequacy requirements, margin requirements and changes that expose us to
risks related to our operating model and the adequacy and resiliency of our
controls or compliance programs;
• a cyber-security incident, or a failure to protect our systems and our, our
clients' and others' information against cyber-attacks, could result in the
theft, loss, unauthorized access to, disclosure, use or alteration of
information, system failures, or loss of access to information; any such
incident or failure could adversely impact our ability to conduct our
businesses, damage our reputation and cause losses, potentially materially;
• our ability to expand our use of technology to enhance the efficiency,
accuracy and reliability of
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
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our operations and our dependencies on information technology; to replace and consolidate systems, particularly those relying upon older technology, and to adequately incorporate cyber-security, resiliency and business continuity into our operations, information technology infrastructure and systems management; to implement robust management processes into our technology development and maintenance programs; and to control risks related to use of technology, including cyber-crime and inadvertent data disclosures; • our ability to identify and address threats to our information technology
infrastructure and systems (including those of our third-party service
providers); the effectiveness of our and our third party service providers'
efforts to manage the resiliency of the systems on which we rely; controls
regarding the access to, and integrity of, our and our clients' data; and
complexities and costs of protecting the security of such systems and data;
• our ability to control operational and resiliency 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;
• economic or financial market disruptions in the
including those which may result from recessions or political instability;
for example, the United Kingdom's (U.K. ) exit from the European Union or
actual or potential changes in trade policy, such as tariffs or bilateral and
multilateral trade agreements;
• 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, reputational 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, payments to clients or
reporting to
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, adverse actions or penalties imposed by
governmental authorities and costs associated with remediation of identified
deficiencies;
• 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 AUC/A 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
revenue in the event a client re-balances or changes its investment approach,
re-directs assets to lower- or higher-fee asset classes or changes the mix of
products or services that it receives from us;
• 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; and the possibility
that our clients or regulators will assert claims that our fees, with respect
to such investment products, are not appropriate;
• 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;
• adverse publicity, whether specific to us or regarding other industry
participants or industry-wide factors, or other reputational harm;
• changes or potential changes to the competitive
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
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environment, due to, among other things, regulatory and technological changes, the effects of industry consolidation and perceptions of us, as a suitable service provider or counterparty; • our ability to complete acquisitions, joint ventures and divestitures,
including, without limitation, our 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, including, without limitation, our
acquisition of CRD, 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 CRD's front office software solutions with our
middle and back office capabilities to develop our front-to-middle-to-back
office State Street Alpha that is competitive, generates revenues in line
with our expectations and meets our clients' requirements; the dependency of
State Street Alpha on enhancements to our data management and the risks to
our servicing model associated with increased exposure to client data;
• 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
legislation and in the interpretation of existing tax laws by
non-
Actual outcomes and results may differ materially from what is expressed in our
forward-looking statements and from our historical financial results due to the
factors discussed in this section and elsewhere in this Form 10-Q or disclosed
in our other
Forward-looking statements in this Form 10-Q should not be relied on as
representing our expectations or assumptions as of any time subsequent to the
time this Form 10-Q is filed with the
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW OF FINANCIAL RESULTS
TABLE 1: OVERVIEW OF FINANCIAL RESULTS
Three Months Ended June 30,
(Dollars in millions, except per share
amounts) 2020 2019 % Change
Total fee revenue $ 2,378 $ 2,260 5 %
Net interest income 559 613 (9 )
Total revenue 2,937 2,873 2
Provision for credit losses(1) 52 1 nm
Total expenses 2,082 2,154 (3 )
Income before income tax expense 803 718 12
Income tax expense 109 131 (17 )
Net income $ 694 $ 587 18
Adjustments to net income:
Dividends on preferred stock(2) $ (32 ) $ (50 ) (36 )
Net income available to common shareholders $ 662 $ 537 23
Earnings per common share:
Basic $ 1.88 $ 1.44 31
Diluted 1.86 1.42 31
Average common shares outstanding (in thousands):
Basic 352,157 373,773 (6 )
Diluted 356,413 377,577 (6 )
Cash dividends declared per common share $ .52 $ .47 11
Return on average common equity 12.1 % 10.1 % 200 bps
Pre-tax margin 27.3 25.0 230
Six Months Ended June 30,
(Dollars in millions, except per share
amounts) 2020 2019 % Change
Total fee revenue $ 4,777 $ 4,520 6 %
Net interest income 1,223 1,286 (5 )
Total other income 2 (1 ) nm
Total revenue 6,002 5,805 3
Provision for credit losses(1) 88 5 nm
Total expenses 4,337 4,447 (2 )
Income before income tax expense 1,577 1,353 17
Income tax expense 249 258 (3 )
Net income $ 1,328 $ 1,095 21
Adjustments to net income:
Dividends on preferred stock(2) $ (85 ) $ (105 ) (19 )
Earnings allocated to participating
securities(3) (1 ) (1 ) -
Net income available to common shareholders $ 1,242 $ 989 26
Earnings per common share:
Basic $ 3.52 $ 2.63 34
Diluted 3.48 2.61 33
Average common shares outstanding (in thousands):
Basic 352,952 375,832 (6 )
Diluted 357,028 379,465 (6 )
Cash dividends declared per common share $ 1.04 $ .94 11
Return on average common equity 11.5 % 9.4 % 210 bps
Pre-tax Margin 26.3 23.3 300
(1) We adopted ASU 2016-13, Financial Instruments - Credit Losses (ASC 326):
Measurement of Credit Losses on Financial Instruments, on January 1, 2020 .
Please refer to Note 1 to the consolidated financial statements in this Form
10-Q for additional information.
(2) Additional information about our preferred stock dividends is provided in
Note 12 to the consolidated financial statements in this Form 10-Q.
(3) Represents the portion of net income available to common equity allocated to
participating securities, composed of unvested and fully vested SERP
(Supplemental executive retirement plans) shares and fully vested deferred
director stock awards, which are equity-based awards that contain
non-forfeitable rights to dividends, and are considered to participate with the
common stock in undistributed earnings.
nm Not meaningful
The following "Financial Results and Highlights" section provides information
related to significant events, as well as highlights of our consolidated
financial results for the second quarter of 2020 presented in Table 1: Overview
of Financial Results. More detailed information about our consolidated financial
results, including comparisons of our financial results for the three and six
months ended June 30, 2020 to the same periods in 2019, is provided under
"Consolidated Results of Operations", "Line of Business Information" and
"Capital" which follows these sections, as well as in our consolidated financial
statements in this Form 10-Q. In this Management's Discussion and Analysis,
where we describe the effects of changes in FX rates, those effects are
determined by applying applicable weighted average FX rates from the relevant
2019 period to the relevant 2020 period results.
Financial Results and Highlights
• EPS of $1.86 in the second quarter of 2020 increased 31% compared to $1.42
in the same period in 2019.
• The impact of the COVID-19 pandemic, and the actions we took to support
our clients, the financial markets and the broader economy, is reflected
in our results for the second quarter and first six months of 2020.
• This includes accommodating higher than usual
• an increase in FX trading services revenue in the three and six
months ended June 30, 2020 as compared to the same periods in 2019.
• Operationally, we maintained business continuity, resiliency and
operational effectiveness with approximately 90% of our global
employees working from home through the end of the quarter.
• We continued to onboard new clients and managed elevated transaction
volumes amidst the COVID-19 pandemic.
• We actively assisted clients with access to various Federal Reserve
programs that support the flow of liquidity and credit. We supported
our clients' liquidity needs by processing nearly 50% of the value
of commercial paper sold under the Money Market Mutual Fund
Liquidity Facility (MMLF) and are custodian and administrator for
four Federal Reserve programs: Commercial Paper Funding Facility,
Main Street Lending Program, and Primary and Secondary Markets
Corporate Credit Facilities.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
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• On March 16, 2020 , we announced, together with the other U.S. based
G-SIBs, that we temporarily suspended our common stock repurchase
program, in light of the COVID-19 pandemic. As a result, we had no
repurchases of our common stock in the second quarter of 2020. In
addition, we will not repurchase any common stock in the third
quarter of 2020 under current Federal Reserve requirements.
• The impact of notable items in both the second quarters of 2020 and 2019
includes approximately $12 million of acquisition and restructuring costs,
primarily related to CRD.
• In the second quarter of 2020, return on equity of 12.1% increased from
10.1% in the same period in 2019, primarily due to an increase in net
income available to common shareholders. Pre-tax margin of 27.3% in the
second quarter of 2020 increased from 25.0% in the same period in 2019,
primarily due to higher total revenue and lower expenses.
• Operating leverage was 5.5% in the second quarter of 2020. Operating
leverage represents the difference between the percentage change in total
revenue and the percentage change in total expenses, in each case relative
to the prior year period.
• In June 2020 , the Federal Reserve released results from the 2020 CCAR
submission, which included preliminary SCB requirements for the twelve
months starting October 1, 2020 . We were notified by the Federal Reserve
that our preliminary SCB is 2.5%, implying no change to our regulatory
capital requirements at this time. The Federal Reserve will provide each
participating CCAR bank organization with its final SCB by August 31,
2020 . Due to the economic challenges created by the COVID-19 pandemic, all
participating CCAR banks will be required to resubmit their capital plans
within 45 days after the Federal Reserve provides updated scenarios. In
line with the decision to administer a new stress test, the Federal
Reserve is limiting the ability of all CCAR banking organizations to
distribute capital during the third quarter of 2020 beyond common
dividends at their current levels.
Revenue
• Total revenue and fee revenue increased 2% and 5%, respectively, in the
second quarter of 2020 compared to the same period in 2019, primarily
driven by increases in servicing fees, foreign exchange trading services
and
software and processing fees, partially offset by lower management fees and
securities finance revenues and, in the case of total revenue, by a decline in
NII.
• Servicing fee revenue increased 2% in the second quarter of 2020 compared
to the same period in 2019, primarily due to higher client activity and
net new business, partially offset by moderating pricing headwinds.
• Management fee revenue decreased 4% in the second quarter of 2020 compared
to the same period in 2019, primarily due to institutional net outflows,
partially offset by net inflows from cash and ETFs, particularly in SPDR®
Portfolio and Sector ETFs.
• Foreign exchange trading services increased 26% in the second quarter of
2020 compared to the same period in 2019, primarily reflecting
significantly elevated FX volume and volatility.
• Securities finance revenue decreased 27% in the second quarter of 2020
compared to the same period in 2019, primarily due to decreases in
enhanced custody balances due to client deleveraging and lower agency
lending revenues due to a mix shift to fixed income assets and lower
spreads.
• Software and processing fees revenue increased 46% in the second quarter
of 2020 compared to the same period in 2019, primarily due to revenue
associated with a significant CRD wealth client implementation and several
client renewals, as well as market-related adjustments.
• CRD contributed approximately $138 million and $61 million in total
revenue and total expenses, respectively, in the second quarter of 2020,
compared to $87 million and $46 million , respectively, in the same period
in 2019. In addition, CRD-related expenses include $16 million and $17
million in amortization of other intangible assets in the second quarters
of 2020 and 2019, respectively. CRD revenue with affiliated entities,
which is eliminated in our consolidated financial statements, was $7
million and $4 million for the second quarters of 2020 and 2019,
respectively.
• NII decreased 9% in the second quarter of 2020 compared to the same period
in 2019, primarily due to the impact of lower market rates, partially
offset by higher deposit balances and our support for our clients'
liquidity needs through the MMLF program.
Provision for Credit Losses
• In the second quarter of 2020, we recorded a provision for credit losses
related to loans and
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
financial assets held at amortized cost, including investment securities
held-to-maturity and off-balance sheet commitments of
losses in the same period in 2019 (which was under the previous incurred
loss model).
Expenses
• Total expenses decreased 3% in the second quarter of 2020 compared to the
same period in 2019, primarily reflecting on-going expense management
initiatives.
AUC/A and AUM
• AUC/A increased 2% as of June 30, 2020 compared to June 30, 2019 ,
primarily due to higher period-end market levels and client flows,
partially offset by a previously announced client transition. In the
second quarter of 2020, newly announced asset servicing mandates totaled
approximately $162 billion . Servicing assets remaining to be installed in
future periods totaled approximately $1.04 trillion as of June 30, 2020 .
• AUM increased 5% as of June 30, 2020 compared to June 30, 2019 , primarily
due to net inflows from cash and ETFs and higher period-end equity market
levels, partially offset by institutional outflows.
Capital
• In the second quarter of 2020, we returned a total of approximately$183 million to our shareholders in the form of common stock dividends. • We declared aggregate common stock dividends of$0.52 per share, totaling$183 million in the second quarter of 2020, compared to$0.47 per share, totaling$175 million in the same period in 2019, representing an increase of approximately 11% on a per share basis. • We had no repurchases of our common stock in the second quarter of 2020 under currentFederal Reserve's requirements. In the second quarter of 2019, we acquired 4.6 million shares of common stock at an average per share cost of$65.25 and an aggregate cost of approximately$300 million . • Our binding CET1 capital ratio was 12.3% as ofJune 30, 2020 compared to 11.7% as ofDecember 31, 2019 , driven by higher retained earnings and a reduction in RWA, with significant headroom above the applicable regulatory requirement. Our Tier 1 leverage ratio decreased to 6.1% as ofJune 30, 2020 , compared to 6.9% as ofDecember 31, 2019 , primarily due to increased leverage assets in the second quarter of 2020. Our standardized approach capital ratios were binding as ofJune 30, 2020 .
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