UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-Q
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| ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31,September 30, 2021
OR
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| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File No. 001-07511
STATE STREET CORPORATION
(Exact name of registrant as specified in its charter)
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| MA | | | | | | 04-2456637 | |
| (State or other jurisdiction of incorporation) | | | | | | (I.R.S. Employer Identification No.) | |
| One Lincoln Street | | | | | | | |
| Boston, | MA | | | | | 02111 | |
| (Address of principal executive offices) | | | | | (Zip Code) | |
| | (617) | 786-3000 | | | | |
| | (Registrant's telephone number, including area code) | | | |
| |
| Securities registered pursuant to Section 12(b) of the Act: | |
| Title of Each Class | | Trading Symbol(s) | | | Name of each exchange on which registered | |
| Common Stock, $1 par value per share | | STT | | | New York Stock Exchange | |
| | | | | | |
| Depositary Shares, each representing a 1/4,000th ownership interest in a share of | | STT.PRD | | | New York Stock Exchange | |
| Fixed-to-Floating Rate Non-Cumulative Perpetual Preferred Stock, Series D, without par value per share | | | | |
| | | | | | |
| Depositary Shares, each representing a 1/4,000th ownership interest in a share of | | STT.PRG | | | New York Stock Exchange | |
| Fixed-to-Floating Rate Non-Cumulative Perpetual Preferred Stock, Series G, without par value per share | | | | |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer", "accelerated filer", "smaller reporting company", and "emerging growth company" in Rule 12b-2 of the Exchange Act.
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| Large accelerated filer | ☒ | | Accelerated filer | ☐ | | Non-accelerated filer | ☐ | | Smaller reporting company | ☐ |
| 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. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The number of shares of the registrant’s common stock outstanding as of April 21,October 20, 2021 was 347,768,272.365,629,173.
STATE STREET CORPORATION
QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTERLY PERIOD ENDED
March 31,September 30, 2021
TABLE OF CONTENTS
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| PART I | FINANCIAL INFORMATION | |
| Management's Discussion and Analysis of Financial Condition and Results of Operations | |
| General | |
| Overview of Financial Results | |
| Consolidated Results of Operations | |
| Total Revenue | |
| Net Interest Income | |
| Provision for Credit Losses | |
| Expenses | |
| Acquisition Costs | |
| Restructuring and Repositioning Charges | |
| Income Tax Expense | |
| Line of Business Information | |
| Investment Servicing | |
| Investment Management | |
| Financial Condition | |
| Investment Securities | |
| Loans | |
| Cross-Border Outstandings | |
| Risk Management | |
| Credit Risk Management | |
| Liquidity Risk Management | |
| Operational Risk Management | |
| Information Technology Risk Management | |
| Market Risk Management | |
| Model Risk Management | |
| Strategic Risk Management | |
| Capital | |
| Off-Balance Sheet Arrangements | |
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| Recent Accounting Developments | |
| Quantitative and Qualitative Disclosures About Market Risk | |
| Controls and Procedures | |
| Consolidated Financial Statements | |
| Consolidated Statement of Income (unaudited) | |
| Consolidated Statement of Comprehensive Income (loss) (unaudited) | |
| Consolidated Statement of Condition | |
| Consolidated Statement of Changes in Shareholders' Equity (unaudited) | |
| Consolidated Statement of Cash Flows (unaudited) | |
| Note 1. Summary of Significant Accounting Policies | |
| Note 2. Fair Value | |
| Note 3. Investment Securities | |
| Note 4. Loans and Allowance for Credit Losses | |
| Note 5. Goodwill and Other Intangible Assets | |
State Street Corporation | 2
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| Note 6. Other Assets | |
| Note 7. Derivative Financial Instruments | |
| Note 8. Offsetting Arrangements | |
| Note 9. Commitments and Guarantees | |
| Note 10. Contingencies | |
| Note 11. Variable Interest Entities | |
| Note 12. Shareholders' Equity | |
| Note 13. Regulatory Capital | |
| Note 14. Net Interest Income | |
| Note 15. Expenses | |
| Note 16. Earnings Per Common Share | |
| Note 17. Line of Business Information | |
| Note 18. Revenue From Contracts with customersCustomers | |
| Note 19. Non-U.S. Activities | |
| Review Report of Independent Registered Public Accounting Firm | |
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| PART II | OTHER INFORMATION | |
| Item 1A | Risk Factors | |
| Item 2 | Unregistered Sales of Equity Securities and Use of Proceeds | |
| Item 6 | Exhibits | |
| Signatures | | |
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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.
State Street Corporation | 3
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
PART I. FINANCIAL INFORMATION
GENERAL
State Street Corporation, referred to as the Parent Company, is a financial holding company organized in 1969 under the laws of the Commonwealth of Massachusetts. Our executive offices are located at One Lincoln Street, Boston, Massachusetts 02111 (telephone (617) 786-3000). For purposes of this Quarterly Report on Form 10-Q for the quarter ended March 31,September 30, 2021 (Form 10-Q), unless the context requires otherwise, references to "State Street," "we," "us," "our" or similar terms mean State 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 as State Street Bank, we provide a broad range of financial products and services to institutional investors worldwide, with $40.26$43.34 trillion of AUC/A and $3.59$3.86 trillion of AUM as of March 31,September 30, 2021.
As of March 31,September 30, 2021, we had consolidated total assets of $316.89$323.14 billion, consolidated total deposits of $244.89$259.37 billion, consolidated total shareholders' equity of $25.01$27.31 billion and 39,31838,932 employees. We operate in more than 100 geographic markets worldwide, including in the U.S., Canada, Europe, the Middle East and Asia.
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 2020 Annual Report on Form 10-K for the year ended December 31, 2020 previously filed with the SEC (2020 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 2020 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 with U.S. GAAP. The preparation of financial statements in conformity with U.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 123 to 125, “Significant Accounting Estimates” included under Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, in our 2020 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.10-K. We did not change these significant accounting policies in the first threenine months of 2021.
Certain financial information provided in this Form 10-Q, including in this Management's Discussion and Analysis, is prepared on both a U.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 with U.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 comparable U.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-
State Street Corporation | 4
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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-runrun stress 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:
Strategic Risks
•The possibility that some or all of the anticipated business, financial, capital, staffing, operational or other benefits or synergies of the acquisition of the BBH Investor Services business will not be realized when expected or at all, including as a result of the impact of, additional costs or unanticipated negative synergies associated with, or problems arising from, the integration of the BBH Investor Services business (including challenges in transitioning clients, systems, technology or personnel), as a result of regulatory or operational challenges we may experience, as a result of disruptions from the transaction harming relationships (including those resulting from the announcement of the transaction) with our clients, employees or regulators, or as a result of the strength of the economy and competitive factors in the areas where we and the BBH Investor Services business do business;
•The failure to obtain necessary regulatory approvals (and the risk that such approvals may result in the imposition of conditions that could adversely affect us or the expected benefits of the transaction, perhaps materially), to satisfy any of the other conditions to the acquisition or at all, in each case, on a timely basis or at all; and, if delayed, the resulting effects, including in magnitude and timing of the expected financial benefits of the acquisition of the BBH Investor Services business, of a delayed closing of the acquisition (which expected financial benefits are presented and determined assuming a closing date of December 31, 2021);
•The occurrence of any event, change or other circumstances that could give rise to the termination of the definitive purchase agreement in respect of the acquisition of the BBH Investor Services business;
•Potential adverse changes in demand for the products and services of State Street and of the BBH Investor Services business;
•We are subject to intense competition, which could negatively affect our profitability;
State Street Corporation | 5
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
•We are subject to significant pricing pressure and variability in our financial results and our AUC/A and AUM;
•Our development and completion of new products and services, including State Street Alpha and State Street Digital, and our enhancement of the capabilities of our existing products and services in light of changed client needs and competitive pressures, may involve costs and dependencies and expose us to increased risk;
•Our business may be negatively affected by our failure to update and maintain our technology infrastructure;
•The COVID-19 pandemic continues to create and exacerbate significant risks and uncertainties for our business;
•Acquisitions, strategic alliances, joint ventures and divestitures, and the integration, retention and development of the benefits of our acquisitions, pose risks for our business;
•The COVID-19 pandemic continues to exacerbate certain risks and uncertainties for our business; and
•Competition for qualified members of our workforce is intense, and we may not be able to attract and retain the highly skilled people we need to support our business.
Financial Market Risks
•We could be adversely affected by geopolitical, economic and market conditions;
•We have significant International operations, and disruptions in European and Asian economies could have an adverse effect on our consolidated results of operations or financial condition;
•Our investment securities portfolio, consolidated financial condition and consolidated results of operations could be adversely affected by changes in the financial markets;
•Our business activities expose us to interest rate risk;
•We assume significant credit risk to counterparties, who may also have
State Street Corporation | 5
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
substantial financial dependencies with other financial institutions, and these credit exposures and concentrations could expose us to financial loss;
•Our fee revenue represents a significant portion of our consolidated revenue and is subject to decline based on, among other factors, the investment activities of our clients;
•If we are unable to effectively manage our capital and liquidity, our consolidated financial condition, capital ratios, results of operations and business prospects could be adversely affected;
•We may need to raise additional capital or debt in the future, which may not be available to us or may only be available on unfavorable terms; and
•If we experience a downgrade in our credit ratings, or an actual or perceived reduction in our financial strength, our borrowing and capital costs, liquidity and reputation could be adversely affected.
Compliance and Regulatory Risks
•Our business and capital-related activities, including common share repurchases, may be adversely affected by capital and liquidity standards required as a result of capital stress testing;
•We face extensive and changing government regulation in the jurisdictions in which we operate, which may increase our costs and compliance risks;
•We are subject to enhanced external oversight as a result of the resolution of prior regulatory or governmental matters;
•Our businesses may be adversely affected by government enforcement and litigation;
•We are subject to various legal proceedings relating to the manner in which we have invoiced certain expenses, the outcome of which could materially adversely affect our results of operations or harm our business or reputation;
•Any misappropriation of the confidential information we possess could have an adverse impact on our business and could subject us to regulatory actions, litigation and other adverse effects;
•Our calculations of risk exposures, total RWA and capital ratios depend on data inputs, formulae, models, correlations and assumptions that are subject to change, which could materially impact our risk exposures, our total RWA and our capital ratios from period to period;
•Changes in accounting standards may adversely affect our consolidated financial statements;
•Changes in tax laws, rules or regulations, challenges to our tax positions and changes in the composition of our pre-tax earnings may increase our effective tax rate; and
•The transition away from LIBOR may result in additional costs and increased risk exposure.
Operational Risks
•Our control environment may be inadequate, fail or be circumvented, and, if so, operational risks could adversely affect our consolidated results of operations;
•Cost shifting to non-U.S. jurisdictions and outsourcing may expose us to increased operational risk and reputational harm and may not result in expected cost savings;
•Attacks or unauthorized access to our information technology systems or facilities, or those of the third parties with which we do
State Street Corporation | 6
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
business, or disruptions to our or their continuous operations, could result in significant costs, reputational damage and limitsimpacts on our business activities;
•Long-term contracts expose us to pricing and performance risk;
•Our businesses may be negatively affected by adverse publicity or other reputational harm;
•We may not be able to protect our intellectual property;
•The quantitative models we use to manage our business may contain errors that could result in material harm;
•Our reputation and business prospects may be damaged if our clients incur substantial losses or are restricted in redeeming their interests in investment pools that we sponsor or manage;
•The impacts of climate change could adversely affect our business operations; and
•We may incur losses as a result of unforeseen events, including terrorist attacks, natural disasters, the emergence of a new pandemic or acts of embezzlement.
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 SEC filings. 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 SEC. We undertake no obligation to revise our
State Street Corporation | 6
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
forward-looking statements after the time they are made. The factors discussed herein are not intended to be a complete statement of all risks and uncertainties that may affect our businesses. We cannot anticipate all developments that may adversely affect our business or operations or our consolidated results of operations, financial condition or cash flows.
Forward-looking statements should not be viewed as predictions and should not be the primary basis on which investors evaluate State Street. Any investor in State Street should consider all risks and uncertainties disclosed in our SEC filings, including our filings under the Securities Exchange Act of 1934, in particular our annual reports on Form 10-K, our quarterly reports on Form 10-Q and our current reports on Form 8-K, and our registration statements filed under the Securities Act of 1933, all of which are accessible on the SEC's website at www.sec.gov or on the “Investor Relations” section of our corporate website at www.statestreet.com.
OVERVIEW OF FINANCIAL RESULTS
| | TABLE 1: OVERVIEW OF FINANCIAL RESULTS | TABLE 1: OVERVIEW OF FINANCIAL RESULTS | TABLE 1: OVERVIEW OF FINANCIAL RESULTS |
| | | Three Months Ended September 30, | | % Change | |
| (Dollars in millions, except per share amounts) | | (Dollars in millions, except per share amounts) | 2021 | | 2020 | | |
| Total fee revenue | | Total fee revenue | $ | 2,504 | | | $ | 2,306 | | | 9 | % | |
| Net interest income | | Net interest income | 487 | | | 478 | | | 2 | |
| Total other income | | Total other income | (1) | | | — | | | nm | |
| Total revenue | | Total revenue | 2,990 | | | 2,784 | | | 7 | | |
| Provision for credit losses | | Provision for credit losses | (2) | | | — | | | nm | |
| Total expenses | | Total expenses | 2,116 | | | 2,103 | | | 1 | | |
| Income before income tax expense | | Income before income tax expense | 876 | | | 681 | | | 29 | | |
| Income tax expense | | Income tax expense | 162 | | | 126 | | | 29 | | |
| | Net income | | Net income | $ | 714 | | | $ | 555 | | | 29 | | |
| Adjustments to net income: | | Adjustments to net income: | | | | | |
Dividends on preferred stock(1) | | Dividends on preferred stock(1) | $ | (21) | | | $ | (38) | | | (45) | | |
Earnings allocated to participating securities(2) | | Earnings allocated to participating securities(2) | — | | | — | | | nm | |
| Net income available to common shareholders | | Net income available to common shareholders | $ | 693 | | | $ | 517 | | | 34 | | |
| Earnings per common share: | | Earnings per common share: | | | | | |
| Basic | | Basic | $ | 1.99 | | | $ | 1.47 | | | 35 | | |
| Diluted | | Diluted | 1.96 | | | 1.45 | | | 35 | | |
| Average common shares outstanding (in thousands): | | Average common shares outstanding (in thousands): | | |
| Basic | | Basic | 347,718 | | | 352,586 | | | (1) | | |
| Diluted | | Diluted | 353,494 | | | 357,168 | | | (1) | | |
| Cash dividends declared per common share | | Cash dividends declared per common share | $ | .57 | | | $ | .52 | | | 10 | | |
| Return on average common equity | | Return on average common equity | 11.6 | % | | 8.9 | % | | 270 bps | |
| Pre-tax margin | | Pre-tax margin | 29.3 | | | 24.5 | | | 480 | | |
| | Three Months Ended March 31, | | | | Nine Months Ended September 30, | | % Change | |
| (Dollars in millions, except per share amounts) | (Dollars in millions, except per share amounts) | 2021 | | 2020 | | % Change | | (Dollars in millions, except per share amounts) | 2021 | | 2020 | | |
| Total fee revenue | Total fee revenue | $ | 2,483 | | | $ | 2,399 | | | 4 | % | | Total fee revenue | $ | 7,501 | | | $ | 7,083 | | | 6 | % | |
| Net interest income | Net interest income | 467 | | | 664 | | | (30) | | Net interest income | 1,421 | | | 1,701 | | | (16) | |
| Total other income | Total other income | — | | | 2 | | | nm | | Total other income | 52 | | — | | 2 | | | nm | |
| Total revenue | Total revenue | 2,950 | | | 3,065 | | | (4) | | | Total revenue | 8,974 | | | 8,786 | | | 2 | | |
| Provision for credit losses | Provision for credit losses | (9) | | | 36 | | | (125) | | | Provision for credit losses | (26) | | | 88 | | | nm | |
| Total expenses | Total expenses | 2,332 | | | 2,255 | | | 3 | | | Total expenses | 6,559 | | | 6,440 | | | 2 | | |
| Income before income tax expense | Income before income tax expense | 627 | | | 774 | | | (19) | | | Income before income tax expense | 2,441 | | | 2,258 | | | 8 | | |
| Income tax expense | Income tax expense | 108 | | | 140 | | | (23) | | | Income tax expense | 445 | | | 375 | | | 19 | | |
| | Net income | Net income | $ | 519 | | | $ | 634 | | | (18) | | | Net income | $ | 1,996 | | | $ | 1,883 | | | 6 | | |
| Adjustments to net income: | Adjustments to net income: | | | | | | | Adjustments to net income: | | | | | |
Dividends on preferred stock(1) | Dividends on preferred stock(1) | $ | (30) | | | $ | (53) | | | (43) | | | Dividends on preferred stock(1) | $ | (85) | | | $ | (123) | | | (31) | | |
Earnings allocated to participating securities(2) | Earnings allocated to participating securities(2) | — | | | (1) | | | nm | | Earnings allocated to participating securities(2) | (1) | | | (1) | | | — | | |
| Net income available to common shareholders | Net income available to common shareholders | $ | 489 | | | $ | 580 | | | (16) | | | Net income available to common shareholders | $ | 1,910 | | | $ | 1,759 | | | 9 | | |
| Earnings per common share: | Earnings per common share: | | | | | | | Earnings per common share: | | | | | |
| Basic | Basic | $ | 1.39 | | | $ | 1.64 | | | (15) | | | Basic | $ | 5.49 | | | $ | 4.99 | | | 10 | | |
| Diluted | Diluted | 1.37 | | | 1.62 | | | (15) | | | Diluted | 5.40 | | | 4.93 | | | 10 | | |
| Average common shares outstanding (in thousands): | Average common shares outstanding (in thousands): | | | Average common shares outstanding (in thousands): | | |
| Basic | Basic | 350,743 | | | 353,746 | | | (1) | | | Basic | 348,106 | | | 352,829 | | | (1) | | |
| Diluted | Diluted | 355,690 | | | 357,993 | | | (1) | | | Diluted | 353,376 | | | 356,971 | | | (1) | | |
| Cash dividends declared per common share | Cash dividends declared per common share | $ | .52 | | | $ | .52 | | | — | | | Cash dividends declared per common share | $ | 1.61 | | | $ | 1.56 | | | 3 | | |
| Return on average common equity | Return on average common equity | 8.4 | % | | 10.9 | % | | (250) bps | | Return on average common equity | 10.8 | % | | 10.6 | % | | 20 bps | |
| Pre-tax margin | Pre-tax margin | 21.3 | | | 25.3 | | | (400) | | | Pre-tax margin | 27.2 | | | 25.7 | | | 150 | | |
| |
(1) Additional information about our preferred stock dividends is provided in Note 12 to the consolidated financial statements in this Form 10-Q.
(2) 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
State Street Corporation | 7
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following “Financial Results and Highlights” section provides information related to significant events, as well as highlights of our consolidated financial results for the firstthird quarter of 2021 presented in Table 1: Overview of Financial Results. More detailed information about our consolidated financial results, including the comparison of our financial results for the first quarter ofthree and nine months ended September 30, 2021, compared to the same periodperiods in 2020, 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 foreign currency translation, those effects are determined by applying applicable weighted average FX rates from the relevant 2020 period to the relevant 2021 period results.
Financial Results and Highlights
•FirstThird quarter of 2021 financial performance:
◦EPS of $1.96 in the third quarter of 2021, up 35%, from $1.45 in the same period in 2020.
◦Total fee revenue was up 4%9% in the firstthird quarter of 2021, compared to the same period in 2020, including 2%less than 1% due to currency translation.
◦Servicing fee revenues were up 7% in the firstthird quarter of 2021, compared to the same period in 2020, including 3% due to currency translation.2020. Management fee revenues were up 6%10% in the firstthird quarter of 2021, compared to the same period in 2020, including 2% due to currency translation.
◦EPS of $1.37 in the first quarter of 2021 decreased 15% compared to $1.62 in the same period in 2020, driven by lower net interest income and higher expenses.2020.
◦In the firstthird quarter of 2021, return on equity of 8.4% decreased11.6% increased from 10.9%8.9% in the same period in 2020, primarily due to a decreasean increase in net income available to common shareholders. Pre-tax margin of 21.3%29.3% in the firstthird quarter of 2021 decreasedincreased from 25.3%24.5% in the same period in 2020, primarily due to a decrease in total revenue and an increase in total expenses.revenue.
◦Operating leverage was (7.2)%6.8% points in the firstthird quarter of 2021. Operating leverage represents the difference between the percentage change in total revenue and the percentage change in total expenses,
State Street Corporation | 7
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
in each case relative to the prior year period.
•In September 2021, we announced that we had entered into a definitive agreement to acquire the BBH Investor Services business for $3.5 billion in cash. This proposed acquisition is subject to regulatory approvals and the satisfaction or waiver of other closing conditions.
◦We expect to finance the proposed acquisition of the BBH Investor Services business primarily with the proceeds of $1.9 billion from a common stock offering completed in September 2021, a temporary suspension of repurchases of our common stock and with cash on hand.
•During the firstthird quarter of 2021, our business and financial results continued to reflect effects of the COVID-19 pandemic:
◦Approximately 80%77% of our employees globally continue to work remotely as of March 31, 2021.
◦The Federal Reserve Board announced in March 2021 that it will maintain the restrictions on capital distributions of bank holding companies until JuneSeptember 30, 2021.
◦We continued to experience high levels of client deposits in the firstthird quarter of 2021 amidst the Federal Reserve's expansionary monetary policy.
Revenue
•Total revenue decreased 4%increased 7% in the firstthird quarter of 2021, compared to the same period in 2020. Total fee revenue increased 9% in the third quarter of 2021, compared to the same period in 2020, including 2% due to currency translation, as the increase in total fee revenue was offset by a decline in NII. Total fee revenue increased 4% in the first quarter of 2021 compared to the same period in 2020, primarily driven by increases in servicing fees, management fees, securities finance and software and processing fees, partially offset by lower foreign exchange trading servicesacross all categories of fee revenue.
•Servicing fee revenue increased 7% in the firstthird quarter of 2021, compared to the same period in 2020, primarily due to higher average equity market levels, client activity and flows, and net new business, partially offset by normal pricing headwinds. Currency translation increased servicing fees by 3% in the first quarter of 2021, relative to the same period in 2020.
•Management fee revenue increased 6%10% in the firstthird quarter of 2021, compared to the same period in 2020, primarily due to higher average equity market levels and net inflows from ETFs, and cash, partially offset by idiosyncratic actions by an idiosyncratic institutional client, asset reallocation from higher fee products as a result of a change in their investment strategypreviously reported, and higher money market fee waivers. Currency translation increased management fees by 2% in the first quarter of 2021, relative to the same period in 2020.
•Foreign exchange trading services decreased 22%increased 3% in the firstthird quarter of 2021, compared to the same period in 2020, primarily due to lower FX volatility as compared to the levels
seen at the beginning of the COVID-19 pandemic in the first quarter of 2020,higher direct sales and trading revenue and indirect volumes, partially offset by higher clientlower FX volumes.
•Securities finance revenue increased 8% in the first quarter of 2021 compared to the same period in 2020, reflecting higher agency lending and enhanced custody balances.
•Software and processing fees revenue increased 55% in the first quarter of 2021 compared to the same period in 2020, primarily driven by higher market-related adjustments.
•NII decreased 30% in the first quarter of 2021 compared to the same period in 2020, primarily due to lower global interest rates and the absence of episodic market-related benefits in the first quarter of 2020, partially offset by higher deposits reflecting the impact of the Federal Reserve’s expansionary monetary policy, and growth in the investment portfolio.
Provision for Credit Losses
•The provision for credit losses was a $9 million reserve release in the first quarter of 2021, compared to an expense of $36 million in the same period in 2020, which reflects a shift in management’s economic outlook toward economic expansion and limited negative credit migration within our loan portfolio.
Expenses
•Total expenses increased 3% in the first quarter of 2021 compared to the same period in 2020, primarily reflecting higher notable items. Currency translation increased expenses by 2% in the first quarter of 2021, relative to the same period in 2020.
•The impact of notable items in the first quarter of 2021 includes:
◦legal and other expenses of approximately $29 million, including $20 million in information systems and communications, $8 million in transaction processing services and $1 million in other expenses.
◦acquisition and restructuring costs of approximately $10 million, primarily related to CRD; and
◦costs of $5 million due to the partial redemption of outstanding Series F non-cumulative perpetual preferred stock representing the difference between the redemption value and the net carrying value of the preferred stock.volatility.
State Street Corporation | 8
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
•Securities finance revenue increased 26% in the third quarter of 2021, compared to the same period in 2020, reflecting higher client securities loan balances and spreads, as well as new business wins in enhanced custody.
•Software and processing fees revenue increased 15% in the third quarter of 2021, compared to the same period in 2020, primarily due to higher CRD revenues.
•NII increased 2% in the third quarter of 2021, compared to the same period in 2020, primarily due to higher loan balances and growth in the investment portfolio and deposits, as well as the absence of a $20 million non-recurring true-up in the third quarter of 2020, partially offset by lower investment portfolio yields.
Provision for Credit Losses
•The provision for credit losses was a $2 million reserve release in the third quarter of 2021, compared to no provision for credit losses in the same period in 2020, which is primarily driven by improvements in credit quality and stable economic outlook.
Expenses
•Total expenses increased 1% in the third quarter of 2021, compared to the same period in 2020, primarily reflecting the impact of notable items and currency translation. Currency translation increased expenses by less than 1% in the third quarter of 2021, relative to the same period in 2020.
•The impact of notable items in the firstthird quarter of 2020 includes:
◦2021 includes acquisition and restructuring costs of approximately $18 million, of which $11 million related to CRD and $7 million related to our proposed acquisition of the BBH Investor Services business.
•The impact of notable items in the third quarter of 2020 includes acquisition and restructuring costs of approximately $15 million, primarily related to CRD;CRD, and
◦costs of a $9 million due to the redemption of all outstanding Series C non-cumulative perpetual preferred stock representing the difference between the redemption value and the net carrying value of the preferred stock.accrual release.
AUC/A and AUM
•AUC/A of $40.26$43.34 trillion increased 26%18% as of March 31,September 30, 2021, compared to March 31,September 30, 2020, primarily due to higher period-end market levels, client flows and net new business growth and client flows.growth. In the firstthird quarter of 2021, newly announced asset servicing mandates totaled approximately $343 billion.$1.66 trillion, with State Street AlphaSM representing a large proportion of the wins. Servicing assets
remaining to be installed in future periods totaled approximately $463 billion$2.73 trillion as of March 31, 2021, of which approximately one-third is attributed to State Street Alpha.September 30, 2021.
•AUM of $3.59$3.86 trillion increased 34%23% as of March 31,September 30, 2021, compared to March 31,September 30, 2020, primarily due to higher period-end market levels and net inflows from ETFs and cash, partially offset by institutional net outflows.
Capital
•In the firstthird quarter of 2021, we returned a total of approximately $659$179 million to our shareholders in the form of common stock dividends and share repurchases.paid.
◦•We declared common stock dividends of $0.52$0.57 per share, totaling $182$209 million in the firstthird quarter of 2021 to be paid in the fourth quarter of 2021, compared to $0.52 per share, totaling $183$184 million in the firstthird quarter of 2020, representing a 10% increase on a per share basis from the third quarter of 2020.
◦•In the first quarter of 2021, we acquired 6.2 million shares of common stock, under a share repurchase program approved by our Board in January 2021, at an average per share cost of $76.21 and an aggregate cost of approximately $475 million. In the first quarter of 2020, we acquired 6.5 million shares of common stock at an average per share cost of $77.35 and an aggregate cost of approximately $500 million.
▪In AprilJuly 2021, our Board authorized a common share repurchase program for the purchaseplan of up to $425 million$3.0 billion of our common stock through June 30,the end of 2022, however, in connection with our proposed acquisition of the BBH Investor Services business, we did not repurchase any common stock during the third quarter of 2021. We do not intend to repurchase any common stock during the fourth quarter of 2021 in compliance withand the limit set byfirst quarter of 2022. We intend to resume our common share repurchases during the Federal Reserve.second quarter of 2022.
•In September 2021, we completed a public offering of approximately 21.7 million shares of our common stock. The offering price was $87.60 per share and net proceeds totaled approximately $1.9 billion. We expect to use these net proceeds to finance our proposed acquisition of the BBH Investor Services business.
•Our CET1 capital ratio decreasedincreased to 10.8%13.5% as of March 31,September 30, 2021, compared to 12.3% as of December 31, 2020, primarily due to an episodic increasehigher retained earnings and the issuance of common stock in September 2021, partially offset by higher risk-weighted assets related to FX trading and overdraft activity, as well as lower capital related to accumulated other comprehensive income and intangible assets. Our Tier 1 leverage ratio decreased to 5.4%6.3% as of March 31,September 30, 2021 compared to 6.4% as of December 31, 2020, primarily due to an increase in adjusted average assets driven by higher deposits, partially offset by higher retained earnings. As2020. Following the planned closing of our acquisition of the BBH Investor Services business, we expect both March 31, 2021 and December 31, 2020, standardized capital ratios were binding.
Capital Redemptions
•On March 15, 2021, we redeemed an aggregate of $500 million, or 5,000 ofto be at the 7,500 outstanding shareslower end of our non-cumulative perpetual preferred stock, Series F,target ranges of 10-11% for cash at a redemption price of $100,000 per share (equivalent to $1,000 per depositary share) plus all declaredCET1 ratio and unpaid dividends.
Debt Issuances
•On March 3, 2021, we issued $850 million aggregate principal amount of 2.200% Senior Subordinated Notes due 2031. The offering was structured utilizing an underwriting syndicate substantially made up of Minority-, Women- or Veteran-owned Business Enterprises (MWVBE) as bookrunners and co-managers.
State Street Corporation | 9
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
5.25%-5.75% for Tier 1 Leverage ratio . As of both September 30, 2021 and December 31, 2020, standardized capital ratios were binding.
CONSOLIDATED RESULTS OF OPERATIONS
This section discusses our consolidated results of operations for the first quarter ofthree and nine months ended September 30, 2021, compared to the same periodperiods in 2020, and should be read in conjunction with the consolidated financial statements and accompanying notes to the consolidated financial statements in this Form 10-Q.
Total Revenue
| | TABLE 2: TOTAL REVENUE | TABLE 2: TOTAL REVENUE | TABLE 2: TOTAL REVENUE |
| | | Three Months Ended September 30, | | % Change | |
| | | (Dollars in millions) | | (Dollars in millions) | 2021 | | 2020 | | % Change | | | |
| Fee revenue: | | Fee revenue: | | | | | | | |
| Servicing fees | | Servicing fees | $ | 1,395 | | | $ | 1,301 | | | | 7 | % | |
Management fees(1) | | Management fees(1) | 526 | | | 479 | | | | 10 | | |
Foreign exchange trading services(1) | | Foreign exchange trading services(1) | 279 | | | 270 | | | | 3 | | |
| Securities finance | | Securities finance | 106 | | | 84 | | | | 26 | | |
| Software and processing fees | | Software and processing fees | 198 | | | 172 | | | | 15 | | |
| Total fee revenue | | Total fee revenue | 2,504 | | | 2,306 | | | | 9 | | |
| Net interest income: | | Net interest income: | | | | |
| Interest income | | Interest income | 487 | | | 520 | | | | (6) | | |
| Interest expense | | Interest expense | — | | | 42 | | | | nm | |
| Net interest income | | Net interest income | 487 | | | 478 | | | | 2 | | |
| Other income: | | Other income: | | | | |
| Gains (losses) related to investment securities, net | | Gains (losses) related to investment securities, net | (1) | | | — | | | | nm | |
| Other income | | Other income | — | | | — | | | | nm | |
| Total other income | | Total other income | (1) | | | — | | | | nm | |
Total revenue(1) | | Total revenue(1) | $ | 2,990 | | | $ | 2,784 | | | | 7 | | |
| | | Three Months Ended March 31, | | | % Change | | | Nine Months Ended September 30, | | | % Change | |
| (Dollars in millions) | (Dollars in millions) | 2021 | | 2020 | | | (Dollars in millions) | 2021 | | 2020 | | | % Change | |
| Fee revenue: | Fee revenue: | | | | | | | | Fee revenue: | | | | | | |
| Servicing fees | Servicing fees | $ | 1,371 | | | $ | 1,287 | | | | 7 | % | | Servicing fees | $ | 4,165 | | | $ | 3,860 | | | | 8 | % | |
Management fees(1) | Management fees(1) | 493 | | | 464 | | | | 6 | | | Management fees(1) | 1,523 | | | 1,387 | | | | 10 | | |
Foreign exchange trading services(1) | Foreign exchange trading services(1) | 346 | | | 444 | | | | (22) | | | Foreign exchange trading services(1) | 911 | | | 1,039 | | | | (12) | | |
| Securities finance | Securities finance | 99 | | | 92 | | | | 8 | | | Securities finance | 314 | | | 268 | | | | 17 | | |
| Software and processing fees | Software and processing fees | 174 | | | 112 | | | | 55 | | | Software and processing fees | 588 | | | 529 | | | | 11 | | |
Total fee revenue(2) | 2,483 | | | 2,399 | | | | 4 | | | |
| Total fee revenue | | Total fee revenue | 7,501 | | | 7,083 | | | | 6 | | |
| Net interest income: | Net interest income: | | | | | Net interest income: | | | | |
| Interest income | Interest income | 471 | | | 868 | | | | (46) | | | Interest income | 1,425 | | | 2,062 | | | | (31) | | |
| Interest expense | Interest expense | 4 | | | 204 | | | | (98) | | | Interest expense | 4 | | | 361 | | | | (99) | | |
| Net interest income | Net interest income | 467 | | | 664 | | | | (30) | | | Net interest income | 1,421 | | | 1,701 | | | | (16) | | |
| Other income: | Other income: | | | | | Other income: | | | | |
| Gains (losses) related to investment securities, net | Gains (losses) related to investment securities, net | — | | | 2 | | | | nm | | Gains (losses) related to investment securities, net | (1) | | | 2 | | | | nm | |
| Other income | Other income | — | | | — | | | | nm | | Other income | 53 | | | — | | | | nm | |
| Total other income | Total other income | — | | | 2 | | | | nm | | Total other income | 52 | | | 2 | | | | nm | |
| Total revenue | Total revenue | $ | 2,950 | | | $ | 3,065 | | | | (4) | | | Total revenue | $ | 8,974 | | | $ | 8,786 | | | | 2 | | |
(1) Certain fees associated with our GLD ETFs have been reclassified from foreign exchange trading services to management fees to better reflect the nature of those fees. Prior periods have been reclassified to conform to current-period presentation. These fees were approximately $15$24 million and $58 million in the first quarter of 2020.
(2) The impact of State Street Global Advisors gross money market fund fee waivers on management fee revenue was approximately $15 million in the first quarter of 2021, with an additional approximately $10 million of gross money market fund fee waivers attributable to other fee revenue lines in the same period.three and nine months ended September 30, 2020, respectively.
nm Not meaningful
Fee Revenue
Table 2: Total Revenue, provides the breakout of fee revenue for the first quarters ofthree and nine months ended September 30, 2021 and 2020. Servicing and management fees collectively made up approximately 75%77% and 73%76% of the total fee revenue in the first quarters ofthree and nine months ended September 30, 2021, respectively, compared to 77% and 74% in the same periods in 2020, respectively.
Servicing Fee Revenue
Generally, our servicing fee revenues are affected by several factors including changes in market valuations, client activity and asset flows, net new business and the manner in which we price our services. We provide a range of services to our clients, including core custody services, accounting, reporting and administration and middle office services, and the nature and mix of services provided affects our servicing fees. The basis for fees will differ across regions and clients.
Changes in Market Valuations
Our servicing fee revenue is impacted by both our levels and the geographic and product mix of our AUC/A. Increases or decreases in market valuations have a corresponding impact on the level of our AUC/A and servicing fee revenues, though the degree of impact will vary depending on asset types and classes and geography of assets held within our clients’ portfolios. For certain asset classes where the valuation process is more complex, including alternative investments, or where our valuation is dependent on third party information, AUC/A is reported on a lag, typically one-month. For those asset classes, the impact of market levels on our reported AUC/A does not reflect current period-end market levels.
Over the five years ended December 31, 2020, we estimate that worldwide market valuations impacted our servicing fee revenues by approximately (1)% to 5% annually. See Table 3: Daily Averages, Month-End Averages and Quarter-End Equity Indices for selected indices. While the specific indices presented are indicative of general market trends, the asset types and classes relevant to individual client portfolios can and do differ, and the performance of associated relevant indices and of client portfolios can therefore differ from the performance of the indices presented. In addition, our asset classifications may differ from those industry classifications presented.
State Street Corporation | 10
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Assuming that all other factors remain constant, including client activity and asset flows and pricing, we estimate, using relevant information as of March 31,September 30, 2021 that a 10% increase or decrease in worldwide equity valuations, on a weighted average basis, over the relevant periods for which our servicing fees are calculated, would result in a corresponding change in our total servicing fee revenues, on average and over multiple quarters, of approximately 3%. We estimate, similarly assuming all other factors constant and using relevant information as of March 31,September 30, 2021, that changes in worldwide fixed income markets, which on a weighted average basis and over time are typically less volatile than worldwide equity markets, have a smaller impact on our servicing fee revenues on average and over time.
State Street Corporation | 10
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
| TABLE 3: DAILY AVERAGES, MONTH-END AVERAGES AND QUARTER-END EQUITY INDICES(1) | TABLE 3: DAILY AVERAGES, MONTH-END AVERAGES AND QUARTER-END EQUITY INDICES(1) | TABLE 3: DAILY AVERAGES, MONTH-END AVERAGES AND QUARTER-END EQUITY INDICES(1) |
| | Daily Averages of Indices | | Month-End Averages of Indices | | Quarter-End Indices | | Daily Averages of Indices | | Month-End Averages of Indices | | Quarter-End Indices |
| | Three Months Ended March 31, | | Three Months Ended March 31, | | As of March 31, | | Three Months Ended September 30, | | Three Months Ended September 30, | | As of September 30, |
| | 2021 | | 2020 | | % Change | | 2021 | | 2020 | | % Change | | 2021 | | 2020 | | % Change | | 2021 | | 2020 | | % Change | | 2021 | | 2020 | | % Change | | 2021 | | 2020 | | % Change |
S&P 500® | S&P 500® | 3,866 | | | 3,056 | | | 27 | % | | 3,833 | | | 2,921 | | | 31 | % | | 3,973 | | | 2,585 | | | 54 | % | S&P 500® | 4,422 | | | 3,320 | | | 33 | % | | 4,408 | | | 3,378 | | | 30 | % | | 4,308 | | | 3,363 | | | 28 | % |
MSCI EAFE® | MSCI EAFE® | 2,201 | | | 1,868 | | | 18 | | | 2,167 | | | 1,788 | | | 21 | | | 2,208 | | | 1,560 | | | 42 | | MSCI EAFE® | 2,338 | | | 1,871 | | | 25 | | | 2,320 | | | 1,862 | | | 25 | | | 2,281 | | | 1,855 | | | 23 | |
MSCI® Emerging Markets | MSCI® Emerging Markets | 1,363 | | | 1,030 | | | 32 | | | 1,328 | | | 972 | | | 37 | | | 1,316 | | | 849 | | | 55 | | MSCI® Emerging Markets | 1,295 | | | 1,084 | | | 19 | | | 1,280 | | | 1,087 | | | 18 | | | 1,253 | | | 1,082 | | | 16 | |
| | | | Daily Averages of Indices | | Month-End Averages of Indices |
| | | Nine Months Ended September 30, | | Nine Months Ended September 30, |
| | | | 2021 | | 2020 | | % Change | | | 2021 | | 2020 | | % Change |
S&P 500® | | S&P 500® | | 4,162 | | | 3,104 | | | 34 | % | | 4,156 | | | 3,106 | | | 34 | % |
MSCI EAFE® | | MSCI EAFE® | | 2,283 | | | 1,807 | | | 26 | | | 2,263 | | | 1,790 | | | 26 | |
MSCI® Emerging Markets | | MSCI® Emerging Markets | | 1,336 | | | 1,015 | | | 32 | | | 1,325 | | | 1,003 | | | 32 | |
(1) The index names listed in the table are service marks of their respective owners.
| TABLE 4: QUARTER-END DEBT INDICES(1) | TABLE 4: QUARTER-END DEBT INDICES(1) | TABLE 4: QUARTER-END DEBT INDICES(1) |
| | As of March 31, | | As of September 30, |
| | 2021 | | 2020 | | % Change | | 2021 | | 2020 | | % Change |
Barclays Capital U.S. Aggregate Bond Index® | Barclays Capital U.S. Aggregate Bond Index® | 2,311 | | | 2,295 | | | 1 | % | Barclays Capital U.S. Aggregate Bond Index® | 2,355 | | | 2,376 | | | (1) | % |
Barclays Capital Global Aggregate Bond Index® | Barclays Capital Global Aggregate Bond Index® | 534 | | | 510 | | | 5 | | Barclays Capital Global Aggregate Bond Index® | 536 | | | 541 | | | (1) | |
(1) The index names listed in the table are service marks of their respective owners.
Client Activity and Asset Flows
Client activity and asset flows are impacted by the number of transactions we execute on behalf of our clients, including FX settlements, equity and derivative trades, and wire transfer activity, as well as actions by our clients to change the asset class in which their assets are invested. Our servicing fee revenues are impacted by a number of factors, including transaction volumes, asset levels and asset classes in which funds are invested, as well as industry trends associated with these client-related activities.
Our clients may change the asset classes in which their assets are invested, based on their market outlook, risk acceptance tolerance or other considerations. Over the five years ended December 31, 2020, we estimate that client activity and asset flows, together, impacted our servicing fee revenues by approximately (1)% to 2% annually. See Table 5: Industry Asset Flows for selected asset flow information. While the asset flows presented are indicative of general market trends, the asset types and classes relevant to individual client portfolios can and do differ, and our flows may differ from those market trends. In addition, our asset classifications may differ from those industry classifications presented.
| | | | | | | | | | | |
| TABLE 5: INDUSTRY ASSET FLOWS |
| Three Months Ended March 31, |
| (In billions) | 2021 | | 2020 |
North America - (US Domiciled) - Morningstar Direct Market Data(1)(2)(3) | | | |
Long-Term Funds(4) | $ | 142.0 | | | $ | (240.1) | |
| Money Market | 176.2 | | | 664.8 | |
| Exchange-Traded Fund | 180.3 | | | 22.1 | |
| Total Flows | $ | 498.5 | | | $ | 446.8 | |
| | | |
Europe - Morningstar Direct Market Data(1)(2)(5) | | | |
Long-Term Funds(4) | $ | 290.1 | | | $ | (137.6) | |
| Money Market | (52.8) | | | 11.6 | |
| Exchange-Traded Fund | 61.7 | | | (2.9) | |
| | | |
| | | |
| Total Flows | $ | 299.0 | | | $ | (128.9) | |
State Street Corporation | 11
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
| | | | | | | | | | | |
| TABLE 5: INDUSTRY ASSET FLOWS |
| Three Months Ended September 30, |
| (In billions) | 2021 | | 2020 |
North America - (US Domiciled) - Morningstar Direct Market Data(1)(2)(3) | | | |
Long-Term Funds(4) | $ | 130.0 | | | $ | 21.4 | |
| Money Market | 20.8 | | | (165.8) | |
| Exchange-Traded Fund | 103.2 | | | 60.1 | |
| Total Flows | $ | 254.0 | | | $ | (84.3) | |
| | | |
Europe - Morningstar Direct Market Data(1)(2)(5) | | | |
Long-Term Funds(4) | $ | 213.4 | | | $ | 134.4 | |
| Money Market | 47.9 | | | 60.0 | |
| Exchange-Traded Fund | 36.7 | | | 32.4 | |
| | | |
| | | |
| Total Flows | $ | 298.0 | | | $ | 226.8 | |
(1) Industry data is provided for illustrative purposes only. It is not intended to reflect our activity or our clients' activity and is indicative of only segments of the entire industry.
(2) Source: Morningstar. The data includes long-term mutual funds, ETFs and money market funds. Mutual fund data represents estimates of net new cash flow, which is new sales minus redemptions combined with net exchanges, while ETF data represents net issuance, which is gross issuance less gross redemptions. Data for Fund of Funds, Feeder funds and Obsolete funds were excluded from the series to prevent double counting. Data is from the Morningstar Direct Asset Flows database.
(3) The firstthird quarter of 2021 data for North America (US domiciled) includes Morningstar direct actuals for JanuaryJuly and FebruaryAugust 2021 and Morningstar direct estimates for MarchSeptember 2021.
(4) The long-term fund flows reported by Morningstar direct in North America are composed of US domiciled market flows mainly in Equities, Allocation and Fixed-Income asset classes. The long-term fund flows reported by Morningstar direct in EMEA are composed of the European market flows mainly in Equities, Allocation and Fixed-Income asset classes.
(5) The firstthird quarter of 2021 data for Europe is on a rolling three month basis for December 2020June 2021 through FebruaryAugust 2021, sourced by Morningstar.
State Street Corporation | 11
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Net New BusinessProvision for Credit Losses
Over•The provision for credit losses was a $2 million reserve release in the five years ended December 31,third quarter of 2021, compared to no provision for credit losses in the same period in 2020, which is primarily driven by improvements in credit quality and stable economic outlook.
Expenses
•Total expenses increased 1% in the third quarter of 2021, compared to the same period in 2020, primarily reflecting the impact of notable items and currency translation. Currency translation increased expenses by less than 1% in the third quarter of 2021, relative to the same period in 2020.
•The impact of notable items in the third quarter of 2021 includes acquisition and restructuring costs of approximately $18 million, of which $11 million related to CRD and $7 million related to our proposed acquisition of the BBH Investor Services business.
•The impact of notable items in the third quarter of 2020 includes acquisition and restructuring costs of approximately $15 million, primarily related to CRD, and a $9 million accrual release.
AUC/A and AUM
•AUC/A of $43.34 trillion increased 18% as of September 30, 2021, compared to September 30, 2020, primarily due to higher market levels, client flows and net new business which includes business both won and lost, has affected our servicing fee revenues by approximately 2% on average with a rangegrowth. In the third quarter of 0% to 3% annually. Gross investment2021, newly announced asset servicing mandates were $343totaled approximately $1.66 trillion, with State Street AlphaSM representing a large proportion of the wins. Servicing assets
remaining to be installed in future periods totaled approximately $2.73 trillion as of September 30, 2021.
•AUM of $3.86 trillion increased 23% as of September 30, 2021, compared to September 30, 2020, primarily due to higher market levels and net inflows from ETFs and cash, partially offset by institutional net outflows.
Capital
•In the third quarter of 2021, we returned a total of approximately $179 million to our shareholders in the form of common stock dividends paid.
•We declared common stock dividends of $0.57 per share, totaling $209 million in the third quarter of 2021 to be paid in the fourth quarter of 2021, compared to $0.52 per share, totaling $184 million in the third quarter of 2020, representing a 10% increase on a per share basis from the third quarter of 2020.
•In July 2021, our Board authorized a common share repurchase plan of up to $3.0 billion of our common stock through the end of 2022, however, in connection with our proposed acquisition of the BBH Investor Services business, we did not repurchase any common stock during the third quarter of 2021. We do not intend to repurchase any common stock during the fourth quarter of 2021 and the first quarter of 2022. We intend to resume our common share repurchases during the second quarter of 2022.
•In September 2021, we completed a public offering of approximately 21.7 million shares of our common stock. The offering price was $87.60 per share and $1.3 trillion per year on average overnet proceeds totaled approximately $1.9 billion. We expect to use these net proceeds to finance our proposed acquisition of the past five years. Over the five years endedBBH Investor Services business.
•Our CET1 capital ratio increased to 13.5% as of September 30, 2021, compared to 12.3% as of December 31, 2020, gross annual investment servicing mandates ranged from $750 billionprimarily due to nearly $2.0 trillion.
New business impacting servicing fees can include: custody; product accounting; daily valuation and administration; record-keeping; cash management; and other services. Revenues associated with new servicing mandates may vary based on the breadth of services provided, the time required to install the assets,higher retained earnings and the typesissuance of assets installed.
Revenues associated with new mandates are not reflectedcommon stock in our servicing fee revenue until the assets have been installed.September 2021, partially offset by higher risk-weighted assets. Our installation timeline, in general, can range from 6Tier 1 leverage ratio decreased to 36 months, with the average installation timeline being approximately 96.3% as of September 30, 2021 compared to 12 months over the 2 years ended6.4% as of December 31, 2020. Our more complex installations, including new State Street Alpha mandates, will generallyFollowing the planned closing of our acquisition of the BBH Investor Services business, we expect both capital ratios to be onat the longerlower end of that range.
Pricing
The industry in which we operate has historically faced pricing pressure,our target ranges of 10-11% for CET1 ratio and our servicing fee revenues are also affected by such pressures today. Consequently, no assumption should be drawn as to future revenue run rate from announced servicing wins, as the amount of revenue associated with AUC/A can vary materially. On average, over the five years ended December 31, 2020, we estimate that pricing pressure with respect to existing clients has impacted our servicing fees by approximately (2)% annually, with the impact ranging from (1)% to (4)% in any given year. Pricing concessions can be a part of a contract renegotiation with a client including terms that may benefit us, such as extending the terms of our relationship with the client, expanding the scope of services that we provide or reducing our dependency on manual processes through the standardization of the services we provide. The timing of the impact of additional revenue generated by anticipated additional services, and the amount of revenue generated, may differ from the impact of pricing concessions on existing services due to the necessary time required to onboard those new services, the nature of those services and client investment practices. These same market pressures also impact the fees we negotiate when we win business from new clients.
In order to offset the typical client attrition and normal pricing headwinds, we estimate that we need at least $1.5 trillion of new AUC/A per year; although, notwithstanding increases in AUC/A, servicing fees remain subject to several factors, including changes in market valuations, client activity and asset flows, the manner in which we price our services, the nature of the assets being serviced and the type of services and the other factors described in Item 1A, "Risk Factors", in our 2020 Form 10-K.
Historically, and based on an indicative sample of revenue, we estimate that approximately 55%, on average, of our servicing fee revenues have been variable due to changes in asset valuations including changes in daily average valuations of AUC/A; another 15%, on average, of our servicing fees are impacted by the volume of activity in the funds we serve; and the remaining approximately 30% of our servicing fees tend not to be variable in nature nor impacted by market fluctuations or values.
The impact of the above, client activity and asset flows, net new business and pricing, noted drivers of our servicing fee revenue will vary depending on the mix of products and services we provide to our clients. The full impact of changes in market valuations and the volume of activity in the funds may not be fully reflected in our servicing fee revenues in the periods in which the changes occur, particularly in periods of higher volatility.
Management Fee Revenue
Management fees generally are affected by our level of AUM, which we report based on month-end valuations. Management fees for certain components of managed assets, such as ETFs, mutual funds and UCITS, are affected by daily average valuations of AUM. Management fee revenue is more sensitive to market valuations than servicing fee revenue, as a higher proportion of the underlying services provided, and the associated management fees earned, are dependent on equity and fixed-income security valuations. Additional factors, such as the relative mix of assets managed, may have a significant effect on our management fee revenue. While certain management fees are directly determined by the values of AUM and the investment strategies employed, management fees may reflect other factors, including performance fee arrangements, as well as our relationship pricing for clients. In addition, in a prolonged low-interest rate environment, such as we are currently experiencing, we have waived and may in the future waive certain fees for our clients for money market products.
The impact of State Street Global Advisors gross money market fund fee waivers on total management fee revenue was approximately $15 million in the first quarter of 2021; however, we anticipate that gross money market fee waivers will
State Street Corporation | 129
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
be higher in subsequent quarters of 2021.5.25%-5.75% for Tier 1 Leverage ratio . As of March 31,both September 30, 2021 and assuming short-term spot interest ratesDecember 31, 2020, standardized capital ratios were binding.
CONSOLIDATED RESULTS OF OPERATIONS
This section discusses our consolidated results of operations for the three and nine months ended September 30, 2021, compared to the same periods in 2020, and should be read in conjunction with the consolidated financial statements and accompanying notes to the consolidated financial statements in this Form 10-Q.
Total Revenue
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| TABLE 2: TOTAL REVENUE |
| Three Months Ended September 30, | | % Change | | | |
| (Dollars in millions) | 2021 | | 2020 | | | | | | |
| Fee revenue: | | | | | | | | | | |
| Servicing fees | $ | 1,395 | | | $ | 1,301 | | | | | 7 | % | | | |
Management fees(1) | 526 | | | 479 | | | | | 10 | | | | |
Foreign exchange trading services(1) | 279 | | | 270 | | | | | 3 | | | | |
| Securities finance | 106 | | | 84 | | | | | 26 | | | | |
| Software and processing fees | 198 | | | 172 | | | | | 15 | | | | |
| Total fee revenue | 2,504 | | | 2,306 | | | | | 9 | | | | |
| Net interest income: | | | | | | | | | | |
| Interest income | 487 | | | 520 | | | | | (6) | | | | |
| Interest expense | — | | | 42 | | | | | nm | | | |
| Net interest income | 487 | | | 478 | | | | | 2 | | | | |
| Other income: | | | | | | | | | | |
| Gains (losses) related to investment securities, net | (1) | | | — | | | | | nm | | | |
| Other income | — | | | — | | | | | nm | | | |
| Total other income | (1) | | | — | | | | | nm | | | |
Total revenue(1) | $ | 2,990 | | | $ | 2,784 | | | | | 7 | | | | |
| | | | | | | | | | |
| Nine Months Ended September 30, | | | | % Change | | | |
| (Dollars in millions) | 2021 | | 2020 | | | | | |
| Fee revenue: | | | | | | | | | | |
| Servicing fees | $ | 4,165 | | | $ | 3,860 | | | | | 8 | % | | | |
Management fees(1) | 1,523 | | | 1,387 | | | | | 10 | | | | |
Foreign exchange trading services(1) | 911 | | | 1,039 | | | | | (12) | | | | |
| Securities finance | 314 | | | 268 | | | | | 17 | | | | |
| Software and processing fees | 588 | | | 529 | | | | | 11 | | | | |
| Total fee revenue | 7,501 | | | 7,083 | | | | | 6 | | | | |
| Net interest income: | | | | | | | | | | |
| Interest income | 1,425 | | | 2,062 | | | | | (31) | | | | |
| Interest expense | 4 | | | 361 | | | | | (99) | | | | |
| Net interest income | 1,421 | | | 1,701 | | | | | (16) | | | | |
| Other income: | | | | | | | | | | |
| Gains (losses) related to investment securities, net | (1) | | | 2 | | | | | nm | | | |
| Other income | 53 | | | — | | | | | nm | | | |
| Total other income | 52 | | | 2 | | | | | nm | | | |
| Total revenue | $ | 8,974 | | | $ | 8,786 | | | | | 2 | | | | |
(1) Certain fees associated with our GLD ETFs have been reclassified from foreign exchange trading services to management fees to better reflect the nature of those fees. Prior periods have been reclassified to conform to current-period presentation. These fees were approximately $24 million and $58 million in the three and nine months ended September 30, 2020, respectively.
nm Not meaningful
Fee Revenue
Table 2: Total Revenue, provides the breakout of fee revenue for the three and nine months ended September 30, 2021 and 2020. Servicing and management fees collectively made up approximately 77% and 76% of the total fee revenue in the three and nine months ended September 30, 2021, respectively, compared to 77% and 74% in the same periods in 2020, respectively.
Servicing Fee Revenue
Generally, our servicing fee revenues are affected by several factors including changes in market valuations, client activity and asset flows, net new business and the amountmanner in which we price our services. We provide a range of moneyservices to our clients, including core custody services, accounting, reporting and administration and middle office services, and the nature and mix of services provided affects our servicing fees. The basis for fees will differ across regions and clients.
Changes in Market Valuations
Our servicing fee revenue is impacted by both our levels and the geographic and product mix of our AUC/A. Increases or decreases in market fundvaluations have a corresponding impact on the level of our AUC/A and servicing fee revenues, though the degree of impact will vary depending on asset types and classes and geography of assets remain constant,held within our clients’ portfolios. For certain asset classes where the valuation process is more complex, including alternative investments, or where our valuation is dependent on third party information, AUC/A is reported on a lag, typically one-month. For those asset classes, the impact of market levels on our reported AUC/A does not reflect current period-end market levels.
Over the five years ended December 31, 2020, we estimate that the impact of gross moneyworldwide market valuations impacted our servicing fee waivers on our management fees would be approximately $35 million per quarter. We believe that a further decline in short-term interest rates, primarily one- and three-month interest rates, to zero would not materially impact this estimate. Alternatively, if short-term interest rates were to riserevenues by approximately 10bps,(1)% to 5% annually. See Table 3: Daily Averages, Month-End Averages and Quarter-End Equity Indices for selected indices. While the impactspecific indices presented are indicative of gross moneygeneral market fee waivers on our management fees would be largely mitigated intrends, the subsequent quarterly periods.
Asset-based management fees for passively managed products,asset types and classes relevant to which our AUM is currently primarily weighted, are generally charged at a lower fee on AUM than for actively managed products. Actively managed products may also includeindividual client portfolios can and do differ, and the performance fee arrangements which are recorded whenof associated relevant indices and of client portfolios can therefore differ from the fee is earned, based on predetermined benchmarks associated with the applicable account's performance.
In lightperformance of the above,indices presented. In addition, our asset classifications may differ from those industry classifications presented.
State Street Corporation | 10
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Assuming that all other factors remain constant, including client activity and asset flows and pricing, we estimate, using relevant information as of March 31,September 30, 2021 and assuming that all other factors remain constant, including the impact of business won and lost and client flows, that:
•Aa 10% increase or decrease in worldwide equity valuations, on a weighted average basis, over the relevant periods for which our managementservicing fees are calculated, would result in a corresponding change in our total managementservicing fee revenues, on average and over multiple quarters, of approximately 5%;3%. We estimate, similarly assuming all other factors constant and
•A 10% increase or decrease using relevant information as of September 30, 2021, that changes in worldwide fixed-income valuations,fixed income markets, which on a weighted average basis and over the relevant periods for whichtime are typically less volatile than worldwide equity markets, have a smaller impact on our management fees are calculated, would result in a corresponding change in our total managementservicing fee revenues on average and over multiple quarters, of approximately 4%.time.
Daily averages, month-end averages and quarter-end indices demonstrate worldwide changes in equity and debt markets that affect our management fee revenue. Quarter-end indices affect the values of AUM as of those dates. See Table 3: Daily Averages, Month-End Averages and Quarter-End Equity Indices for selected indices. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
TABLE 3: DAILY AVERAGES, MONTH-END AVERAGES AND QUARTER-END EQUITY INDICES(1) |
| Daily Averages of Indices | | Month-End Averages of Indices | | Quarter-End Indices |
| Three Months Ended September 30, | | Three Months Ended September 30, | | As of September 30, |
| 2021 | | 2020 | | % Change | | 2021 | | 2020 | | % Change | | 2021 | | 2020 | | % Change |
S&P 500® | 4,422 | | | 3,320 | | | 33 | % | | 4,408 | | | 3,378 | | | 30 | % | | 4,308 | | | 3,363 | | | 28 | % |
MSCI EAFE® | 2,338 | | | 1,871 | | | 25 | | | 2,320 | | | 1,862 | | | 25 | | | 2,281 | | | 1,855 | | | 23 | |
MSCI® Emerging Markets | 1,295 | | | 1,084 | | | 19 | | | 1,280 | | | 1,087 | | | 18 | | | 1,253 | | | 1,082 | | | 16 | |
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| Daily Averages of Indices | | | | Month-End Averages of Indices |
| Nine Months Ended September 30, | | | | Nine Months Ended September 30, |
| | | 2021 | | 2020 | | % Change | | | | | | 2021 | | 2020 | | % Change |
S&P 500® | | 4,162 | | | 3,104 | | | 34 | % | | | | | | 4,156 | | | 3,106 | | | 34 | % |
MSCI EAFE® | | 2,283 | | | 1,807 | | | 26 | | | | | | | 2,263 | | | 1,790 | | | 26 | |
MSCI® Emerging Markets | | 1,336 | | | 1,015 | | | 32 | | | | | | | 1,325 | | | 1,003 | | | 32 | |
Additional information about fee revenue is provided under "Line of Business Information" included in this Management's Discussion and Analysis.Net Interest Income
See Table 2: Total Revenue, for the breakout of
interest income and interest expense for the first quarters of 2021 and 2020.
NII is defined as interest income earned on interest-earning assets less interest expense incurred on interest-bearing liabilities. Interest-earning assets, which principally consist of investment securities, interest-bearing deposits with banks, loans, resale agreements and other liquid assets, are financed primarily by client deposits, short-term borrowings and long-term debt.
NIM represents the relationship between annualized FTE NII and average total interest-earning assets for the period. It is calculated by dividing FTE NII by average interest-earning assets. Revenue that is exempt from income taxes, mainly earned from certain investment securities (state and political subdivisions), is adjusted to a FTE basis using the U.S. federal and state statutory income tax rates.
NII on a FTE basis decreased(1) The index names listed in the first quartertable are service marks of 2021 compared to the same period in 2020, primarily due to lower global interest rates and the absence of episodic market-related benefits in the first quarter of 2020, partially offset by growth in deposits and the investment portfolio.
Investment securities net premium amortization, which is included in interest income, was $169 million in the first quarter of 2021 compared to $108 million in the same period in 2020. The increase is primarily driven by higher MBS premium amortization as a result of lower interest rates and faster prepayments. their respective owners.
Interest income related to debt securities is recognized in our consolidated statement of income using the effective interest method, or on a basis approximating a level rate of return over the contractual or estimated life of the security. The rate of return considers any non-refundable fees or costs, as well as purchase premiums or discounts, resulting in amortization or accretion, accordingly. The amortization of premiums and accretion of discounts are adjusted for prepayments when they occur, which primarily impact mortgage-backed securities.
The following table presents the investment securities amortizable purchase premium net of discount accretion for the periods indicated:
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| TABLE 6: INVESTMENT SECURITIES NET PREMIUM AMORTIZATION | | | | | | | | | | |
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| Three Months Ended March 31, | | | | | | | | | | |
| (Dollars in millions) | 2021 | | 2020 | | | | | | | | | | | | |
| MBS | | Non -MBS | | Total(1) | | MBS | | Non- MBS | | Total | | | | | | | | | | | | |
| Unamortized premiums, net of discounts at period end | $ | 1,008 | | | $ | 602 | | | $ | 1,610 | | | $ | 983 | | | $ | 670 | | | $ | 1,653 | | | | | | | | | | | | | |
Net premium amortization(2) | 105 | | | 64 | | | 169 | | | 66 | | | 42 | | | 108 | | | | | | | | | | | | | |
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TABLE 4: QUARTER-END DEBT INDICES(1) |
| As of September 30, |
| 2021 | | 2020 | | % Change |
Barclays Capital U.S. Aggregate Bond Index® | 2,355 | | | 2,376 | | | (1) | % |
Barclays Capital Global Aggregate Bond Index® | 536 | | | 541 | | | (1) | |
(1)The investment securities portfolio duration is 3.1 years asindex names listed in the table are service marks of March 31, 2021.their respective owners.
(2) NetClient Activity and Asset Flows
Client activity and asset flows are impacted by the number of discount accretiontransactions we execute on MMLF HTM securities.behalf of our clients, including FX settlements, equity and derivative trades, and wire transfer activity, as well as actions by our clients to change the asset class in which their assets are invested. Our servicing fee revenues are impacted by a number of factors, including transaction volumes, asset levels and asset classes in which funds are invested, as well as industry trends associated with these client-related activities.
Our clients may change the asset classes in which their assets are invested, based on their market outlook, risk acceptance tolerance or other considerations. Over the five years ended December 31, 2020, we estimate that client activity and asset flows, together, impacted our servicing fee revenues by approximately (1)% to 2% annually. See Table 5: Industry Asset Flows for selected asset flow information. While the asset flows presented are indicative of general market trends, the asset types and classes relevant to individual client portfolios can and do differ, and our flows may differ from those market trends. In addition, our asset classifications may differ from those industry classifications presented.
State Street Corporation | 1311
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
See Table 7: Average Balances and Interest Rates - Fully Taxable-Equivalent Basis, for the breakout of NII on a FTE basis for the first quarters of 2021 and 2020.
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TABLE 7: AVERAGE BALANCES AND INTEREST RATES - FULLY TAXABLE-EQUIVALENT BASIS(1) | | | | | | |
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| Three Months Ended March 31, | | | | | | |
| 2021 | | 2020 | | | | |
| (Dollars in millions; fully taxable-equivalent basis) | Average
Balance | | Interest
Revenue/Expense | | Rate | | Average
Balance | | Interest
Revenue/Expense | | Rate | | | | | | | | | | | | |
Interest-bearing deposits with banks(2) | $ | 95,235 | | | $ | (9) | | | (.04) | % | | $ | 67,120 | | | $ | 81 | | | .49 | % | | | | | | | | | | | | |
Securities purchased under resale agreements(3) | 4,568 | | | 10 | | | .88 | | | 1,805 | | | 65 | | | 14.38 | | | | | | | | | | | | | |
| Trading account assets | 800 | | | — | | | — | | | 915 | | | — | | | — | | | | | | | | | | | | | |
| Investment securities: | | | | | | | | | | | | | | | | | | | | | | | |
| Investment securities available for sale | 59,191 | | | 140 | | | .95 | | | 54,242 | | | 216 | | | 1.59 | | | | | | | | | | | | | |
| Investment securities held-to-maturity | 47,356 | | | 183 | | | 1.54 | | | 41,273 | | | 271 | | | 2.62 | | | | | | | | | | | | | |
| Investment securities held-to-maturity purchased under money market liquidity facility | 1,262 | | | 4 | | | 1.35 | | | 2,045 | | | 8 | | | 1.57 | | | | | | | | | | | | | |
| Total Investment securities | 107,809 | | | 327 | | | 1.21 | | | 97,560 | | | 495 | | | 2.19 | | | | | | | | | | | | | |
| Loans | 28,025 | | | 142 | | | 2.05 | | | 28,468 | | | 185 | | | 2.62 | | | | | | | | | | | | | |
| Other interest-earning assets | 18,296 | | | 5 | | | .10 | | | 10,764 | | | 46 | | | 1.70 | | | | | | | | | | | | | |
| Average total interest-earning assets | $ | 254,733 | | | $ | 475 | | | .76 | | | $ | 206,632 | | | $ | 872 | | | 1.70 | | | | | | | | | | | | | |
| Interest-bearing deposits: | | | | | | | | | | | | | | | | | | | | | | | |
| U.S. | $ | 100,974 | | | $ | 3 | | | .01 | % | | $ | 80,247 | | | $ | 100 | | | .50 | % | | | | | | | | | | | | |
Non-U.S.(2)(4) | 78,433 | | | (72) | | | (.37) | | | 64,340 | | | (32) | | | (.20) | | | | | | | | | | | | | |
Total interest-bearing deposits(4)(5) | 179,407 | | | (69) | | | (.16) | | | 144,587 | | | 68 | | | .19 | | | | | | | | | | | | | |
| Securities sold under repurchase agreements | 1,017 | | | — | | | .05 | | | 1,773 | | | 2 | | | .55 | | | | | | | | | | | | | |
| Short-term borrowings under money market liquidity facility | 1,264 | | | 4 | | | 1.21 | | | 2,187 | | | 6 | | | 1.11 | | | | | | | | | | | | | |
| Other short-term borrowings | 764 | | | — | | | .14 | | | 2,960 | | | 10 | | | 1.32 | | | | | | | | | | | | | |
| Long-term debt | 13,819 | | | 60 | | | 1.74 | | | 13,288 | | | 88 | | | 2.64 | | | | | | | | | | | | | |
| Other interest-bearing liabilities | 4,848 | | | 9 | | | .73 | | | 3,434 | | | 30 | | | 3.55 | | | | | | | | | | | | | |
| Average total interest-bearing liabilities | $ | 201,119 | | | $ | 4 | | | .01 | | | $ | 168,229 | | | $ | 204 | | | .49 | | | | | | | | | | | | | |
| Interest rate spread | | | | | .75 | % | | | | | | 1.21 | % | | | | | | | | | | | | |
| Net interest income, fully taxable-equivalent basis | | | $ | 471 | | | | | | | $ | 668 | | | | | | | | | | | | | | | |
| Net interest margin, fully taxable-equivalent basis | | | | | .75 | % | | | | | | 1.30 | % | | | | | | | | | | | | |
| Tax-equivalent adjustment | | | (4) | | | | | | | (4) | | | | | | | | | | | | | | | |
| Net interest income, GAAP basis | | | $ | 467 | | | | | | | $ | 664 | | | | | | | | | | | | | | | |
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| TABLE 5: INDUSTRY ASSET FLOWS |
| Three Months Ended September 30, |
| (In billions) | 2021 | | 2020 |
North America - (US Domiciled) - Morningstar Direct Market Data(1)(2)(3) | | | |
Long-Term Funds(4) | $ | 130.0 | | | $ | 21.4 | |
| Money Market | 20.8 | | | (165.8) | |
| Exchange-Traded Fund | 103.2 | | | 60.1 | |
| Total Flows | $ | 254.0 | | | $ | (84.3) | |
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Europe - Morningstar Direct Market Data(1)(2)(5) | | | |
Long-Term Funds(4) | $ | 213.4 | | | $ | 134.4 | |
| Money Market | 47.9 | | | 60.0 | |
| Exchange-Traded Fund | 36.7 | | | 32.4 | |
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| Total Flows | $ | 298.0 | | | $ | 226.8 | |
(1) Rates earned/paid on interest-earning assetsIndustry data is provided for illustrative purposes only. It is not intended to reflect our activity or our clients' activity and interest-bearing liabilities includeis indicative of only segments of the impact of hedge activities associated with our asset and liability management activities where applicable.entire industry.
(2) Negative values reflectSource: Morningstar. The data includes long-term mutual funds, ETFs and money market funds. Mutual fund data represents estimates of net new cash flow, which is new sales minus redemptions combined with net exchanges, while ETF data represents net issuance, which is gross issuance less gross redemptions. Data for Fund of Funds, Feeder funds and Obsolete funds were excluded from the interest rate environment outside ofseries to prevent double counting. Data is from the U.S. where central bank rates are below zero for several major currencies.Morningstar Direct Asset Flows database.
(3) Reflects the impact of balance sheet netting under enforceable netting agreements of approximately $87.37 billion for the firstThe third quarter of 2021 compared to $123.96 billiondata for North America (US domiciled) includes Morningstar direct actuals for July and August 2021 and Morningstar direct estimates for September 2021.
(4) The long-term fund flows reported by Morningstar direct in North America are composed of US domiciled market flows mainly in Equities, Allocation and Fixed-Income asset classes. The long-term fund flows reported by Morningstar direct in EMEA are composed of the same periodEuropean market flows mainly in 2020. Excluding the impact of netting, the average interest rates would be approximately 0.04% in the firstEquities, Allocation and Fixed-Income asset classes.
(5) The third quarter of 2021 compared to 0.21% in the first quarter of 2020.
(4) Average rate includes the impact of FX swap costs of approximately ($21) milliondata for the first quarter of 2021 compared to ($2) million for the same period in 2020. Average rates for total interest-bearing deposits excluding the impact of FX swap costs were (0.11)% in the first quarter of 2021 compared to 0.19% in the same period in 2020.
(5) Total deposits averaged $226.23 billion in the first quarter of 2021 compared to $180.16 billion in the same period in 2020.
Changes in the components of interest-earning assets and interest-bearing liabilities are discussed in more detail below. Additional information about the components of interest income and interest expenseEurope is provided in Note 14 to the consolidated financial statements in this Form 10-Q.
Average total interest-earning assets were $254.73 billion in the first quarter of 2021 compared to $206.63 billion in the same period in 2020. The increase is primarily due to higher interest-bearing deposits with banks and investment securities.
Interest-bearing deposits with banks averaged $95.24 billion in the first quarter of 2021 compared to $67.12 billion in the same period in 2020. These deposits primarily reflect our maintenance of cash balances at the Federal Reserve, the European Central Bank (ECB) and other non-U.S. central banks. The higher levels of average cash balances with central banks reflect higher levels of client deposits.
State Street Corporation | 14
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Securities purchased under resale agreements averaged $4.57 billion in the first quarter of 2021 compared to $1.81 billion in the same period in 2020. The impact of balance sheet netting decreased to $87.37 billion on average in the first quarter of 2021compared to $123.96 billion in the same period in 2020. We maintain an agreement with Fixed Income Clearing Corporation (FICC), a clearing organization that enables us to net all securities sold under repurchase agreements against those purchased under resale agreements with counterparties that are also members of the clearing organization. The decrease in average balance sheet netting in the first quarter of 2021 compared to the same period in 2020 is primarily due to lower FICC repo volumes from an increased cash supply and lower short-term interest rates driven by the COVID-19 pandemic stimulus measures and Federal Reserve intervention.
We have been a sponsoring member within FICC since 2005 and continue to expand our client base as program eligibility parameters broaden. We enter into repurchase and resale transactions in eligible securities with sponsored clients and with other FICC members and, pursuant to FICC Government Securities Division rules, submit, novate and net the transactions. We may sponsor clients to clear their eligible repurchase transactions with FICC, backed by our guarantee to FICC of the prompt and full payment and performance of our sponsored member clients’ respective obligations. We obtain a security interest from our sponsored clients in the high quality securities collateral that they receive, which is designed to mitigate our potential exposure to FICC.
Average investment securities increased to $107.81 billion in the first quarter of 2021 from $97.56 billion in the same period in 2020 primarily driven by MBS balances and foreign government bonds. The growth reflects our deployment of higher structural deposit levels that resulted from the COVID-19 pandemic.
Loans averaged $28.03 billion in the first quarter of 2021 compared to $28.47 billion in the same period in 2020. Average core loans, which exclude overdrafts and highlight our efforts to grow our lending portfolio, averaged $23.80 billion in the first quarter of 2021 compared to $22.18 billion in the same period in 2020.
Average other interest-earning assets, largely associated with our enhanced custody business, increased to $18.30 billion in the first quarter of 2021 from $10.76 billion in the same period in 2020, primarily driven by an increase in the level of cash collateral posted. Enhanced custody is our securities financing business where we act as principal with respect to our custody clients and generate securities finance revenue. The NII earned on these
transactions is generally lower than the interest earned on other alternative investments.
Aggregate average total interest-bearing deposits increased to $179.41 billion in the first quarter of 2021 from $144.59 billion in the same period in 2020. Average U.S. interest-bearing deposits increased as a result of the market uncertainty due to the COVID-19 pandemic, U.S. monetary policy and the level of global interest rates. We expect deposits to remain elevated within the current environment of low-interest rates and continued expansion of the money supply by the Federal Reserve. Future deposit levels will be influenced by the underlying asset servicing business, client depositbehavior and market conditions, including the general levels of U.S. and non-U.S. interest rates.
Average other short-term borrowings, typically associated with our tax-exempt investment program, decreased to $0.76 billion in the first quarter of 2021 from $2.96 billion in the same period in 2020.
Average long-term debt was $13.82 billion in the first quarter of 2021 compared to $13.29 billion in the same period in 2020. These amounts reflect issuances, redemptions and maturities of senior debt during the respective periods, including the issuance of $850 million aggregate principal amount of senior subordinated debt in March 2021.
Average other interest-bearing liabilities were $4.85 billion in the first quarter of 2021 compared to $3.43 billion in the same period in 2020. Other interest-bearing liabilities primarily reflect our level of cash collateral received from clients in connection with our enhanced custody business, which is presented on a netrolling three month basis where we have enforceable netting agreements.
Several factors could affect future levels of NII and NIM, including the volume and mix of client deposits and funding sources; central bank actions; balance sheet management activities; changes in the level and slope of U.S. and non-U.S. interest rates; revised or proposed regulatory capital or liquidity standards, or interpretations of those standards; the yields earned on securities purchased compared to the yields earned on securities sold or matured; and changes in the type and amount of credit or other loans we extend.
Based on market conditions and other factors, including regulatory standards, we continue to reinvest the majority of the proceeds from pay-downs and maturities of investment securities in highly-rated U.S. and non-U.S. securities, such as federal agency MBS, sovereign debt securities and U.S. Treasury and agency securities. The pace at which we reinvest and the types of investment securities purchased will depend on the impact of market conditions, the
State Street Corporation | 15
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
implementation of regulatory standards, including interpretation of those standards and other factors over time. We expect these factors and the levels of global interest rates to impact our reinvestment program and future levels of NII and NIM.
Provision for Credit Losses
•The provision for credit losses was a $9$2 million reserve release in the firstthird quarter of 2021, which reflects a shift in management’s economic outlook toward economic expansion and limited negative credit migration within our loan portfolio. This comparescompared to a $36 millionno provision for credit losses in the same period in 2020, which is primarily driven by improvements in credit quality and stable economic outlook.
Expenses
•Total expenses increased 1% in the third quarter of 2021, compared to the same period in 2020, primarily reflecting the impact of notable items and currency translation. Currency translation increased expenses by less than 1% in the third quarter of 2021, relative to the same period in 2020.
•The impact of notable items in the third quarter of 2021 includes acquisition and restructuring costs of approximately $18 million, of which $11 million related to CRD and $7 million related to our proposed acquisition of the BBH Investor Services business.
•The impact of notable items in the third quarter of 2020 includes acquisition and restructuring costs of approximately $15 million, primarily related to CRD, and a $9 million accrual release.
AUC/A and AUM
•AUC/A of $43.34 trillion increased 18% as of September 30, 2021, compared to September 30, 2020, primarily due to higher market levels, client flows and net new business growth. In the third quarter of 2021, newly announced asset servicing mandates totaled approximately $1.66 trillion, with State Street AlphaSM representing a large proportion of the wins. Servicing assets
remaining to be installed in future periods totaled approximately $2.73 trillion as of September 30, 2021.
•AUM of $3.86 trillion increased 23% as of September 30, 2021, compared to September 30, 2020, primarily due to higher market levels and net inflows from ETFs and cash, partially offset by institutional net outflows.
Capital
•In the third quarter of 2021, we returned a total of approximately $179 million to our shareholders in the form of common stock dividends paid.
•We declared common stock dividends of $0.57 per share, totaling $209 million in the third quarter of 2021 to be paid in the fourth quarter of 2021, compared to $0.52 per share, totaling $184 million in the third quarter of 2020, representing a 10% increase on a per share basis from the third quarter of 2020.
•In July 2021, our Board authorized a common share repurchase plan of up to $3.0 billion of our common stock through the end of 2022, however, in connection with our proposed acquisition of the BBH Investor Services business, we did not repurchase any common stock during the third quarter of 2021. We do not intend to repurchase any common stock during the fourth quarter of 2021 and the first quarter of 2022. We intend to resume our common share repurchases during the second quarter of 2022.
•In September 2021, we completed a public offering of approximately 21.7 million shares of our common stock. The offering price was $87.60 per share and net proceeds totaled approximately $1.9 billion. We expect to use these net proceeds to finance our proposed acquisition of the BBH Investor Services business.
•Our CET1 capital ratio increased to 13.5% as of September 30, 2021, compared to 12.3% as of December 31, 2020, primarily due to higher retained earnings and the issuance of common stock in September 2021, partially offset by higher risk-weighted assets. Our Tier 1 leverage ratio decreased to 6.3% as of September 30, 2021 compared to 6.4% as of December 31, 2020. Following the planned closing of our acquisition of the BBH Investor Services business, we expect both capital ratios to be at the lower end of our target ranges of 10-11% for CET1 ratio and
State Street Corporation | 9
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
5.25%-5.75% for Tier 1 Leverage ratio . As of both September 30, 2021 and December 31, 2020, standardized capital ratios were binding.
CONSOLIDATED RESULTS OF OPERATIONS
This section discusses our consolidated results of operations for the three and nine months ended September 30, 2021, compared to the same periods in 2020, and should be read in conjunction with the consolidated financial statements and accompanying notes to the consolidated financial statements in this Form 10-Q.
Total Revenue
| | | | | | | | | | | | | | | | | | | | | | |
| TABLE 2: TOTAL REVENUE |
| Three Months Ended September 30, | | % Change | | | |
| (Dollars in millions) | 2021 | | 2020 | | | | | | |
| Fee revenue: | | | | | | | | | | |
| Servicing fees | $ | 1,395 | | | $ | 1,301 | | | | | 7 | % | | | |
Management fees(1) | 526 | | | 479 | | | | | 10 | | | | |
Foreign exchange trading services(1) | 279 | | | 270 | | | | | 3 | | | | |
| Securities finance | 106 | | | 84 | | | | | 26 | | | | |
| Software and processing fees | 198 | | | 172 | | | | | 15 | | | | |
| Total fee revenue | 2,504 | | | 2,306 | | | | | 9 | | | | |
| Net interest income: | | | | | | | | | | |
| Interest income | 487 | | | 520 | | | | | (6) | | | | |
| Interest expense | — | | | 42 | | | | | nm | | | |
| Net interest income | 487 | | | 478 | | | | | 2 | | | | |
| Other income: | | | | | | | | | | |
| Gains (losses) related to investment securities, net | (1) | | | — | | | | | nm | | | |
| Other income | — | | | — | | | | | nm | | | |
| Total other income | (1) | | | — | | | | | nm | | | |
Total revenue(1) | $ | 2,990 | | | $ | 2,784 | | | | | 7 | | | | |
| | | | | | | | | | |
| Nine Months Ended September 30, | | | | % Change | | | |
| (Dollars in millions) | 2021 | | 2020 | | | | | |
| Fee revenue: | | | | | | | | | | |
| Servicing fees | $ | 4,165 | | | $ | 3,860 | | | | | 8 | % | | | |
Management fees(1) | 1,523 | | | 1,387 | | | | | 10 | | | | |
Foreign exchange trading services(1) | 911 | | | 1,039 | | | | | (12) | | | | |
| Securities finance | 314 | | | 268 | | | | | 17 | | | | |
| Software and processing fees | 588 | | | 529 | | | | | 11 | | | | |
| Total fee revenue | 7,501 | | | 7,083 | | | | | 6 | | | | |
| Net interest income: | | | | | | | | | | |
| Interest income | 1,425 | | | 2,062 | | | | | (31) | | | | |
| Interest expense | 4 | | | 361 | | | | | (99) | | | | |
| Net interest income | 1,421 | | | 1,701 | | | | | (16) | | | | |
| Other income: | | | | | | | | | | |
| Gains (losses) related to investment securities, net | (1) | | | 2 | | | | | nm | | | |
| Other income | 53 | | | — | | | | | nm | | | |
| Total other income | 52 | | | 2 | | | | | nm | | | |
| Total revenue | $ | 8,974 | | | $ | 8,786 | | | | | 2 | | | | |
(1) Certain fees associated with our GLD ETFs have been reclassified from foreign exchange trading services to management fees to better reflect the nature of those fees. Prior periods have been reclassified to conform to current-period presentation. These fees were approximately $24 million and $58 million in the three and nine months ended September 30, 2020, respectively.
nm Not meaningful
Fee Revenue
Table 2: Total Revenue, provides the breakout of fee revenue for the three and nine months ended September 30, 2021 and 2020. Servicing and management fees collectively made up approximately 77% and 76% of the total fee revenue in the three and nine months ended September 30, 2021, respectively, compared to 77% and 74% in the same periods in 2020, respectively.
Servicing Fee Revenue
Generally, our servicing fee revenues are affected by several factors including changes in market valuations, client activity and asset flows, net new business and the manner in which we price our services. We provide a range of services to our clients, including core custody services, accounting, reporting and administration and middle office services, and the nature and mix of services provided affects our servicing fees. The basis for fees will differ across regions and clients.
Changes in Market Valuations
Our servicing fee revenue is impacted by both our levels and the geographic and product mix of our AUC/A. Increases or decreases in market valuations have a corresponding impact on the level of our AUC/A and servicing fee revenues, though the degree of impact will vary depending on asset types and classes and geography of assets held within our clients’ portfolios. For certain asset classes where the valuation process is more complex, including alternative investments, or where our valuation is dependent on third party information, AUC/A is reported on a lag, typically one-month. For those asset classes, the impact of market levels on our reported AUC/A does not reflect current period-end market levels.
Over the five years ended December 31, 2020, we estimate that worldwide market valuations impacted our servicing fee revenues by approximately (1)% to 5% annually. See Table 3: Daily Averages, Month-End Averages and Quarter-End Equity Indices for selected indices. While the specific indices presented are indicative of general market trends, the asset types and classes relevant to individual client portfolios can and do differ, and the performance of associated relevant indices and of client portfolios can therefore differ from the performance of the indices presented. In addition, our asset classifications may differ from those industry classifications presented.
State Street Corporation | 10
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Assuming that all other factors remain constant, including client activity and asset flows and pricing, we estimate, using relevant information as of September 30, 2021 that a 10% increase or decrease in worldwide equity valuations, on a weighted average basis, over the relevant periods for which our servicing fees are calculated, would result in a corresponding change in our total servicing fee revenues, on average and over multiple quarters, of approximately 3%. We estimate, similarly assuming all other factors constant and using relevant information as of September 30, 2021, that changes in worldwide fixed income markets, which on a weighted average basis and over time are typically less volatile than worldwide equity markets, have a smaller impact on our servicing fee revenues on average and over time.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
TABLE 3: DAILY AVERAGES, MONTH-END AVERAGES AND QUARTER-END EQUITY INDICES(1) |
| Daily Averages of Indices | | Month-End Averages of Indices | | Quarter-End Indices |
| Three Months Ended September 30, | | Three Months Ended September 30, | | As of September 30, |
| 2021 | | 2020 | | % Change | | 2021 | | 2020 | | % Change | | 2021 | | 2020 | | % Change |
S&P 500® | 4,422 | | | 3,320 | | | 33 | % | | 4,408 | | | 3,378 | | | 30 | % | | 4,308 | | | 3,363 | | | 28 | % |
MSCI EAFE® | 2,338 | | | 1,871 | | | 25 | | | 2,320 | | | 1,862 | | | 25 | | | 2,281 | | | 1,855 | | | 23 | |
MSCI® Emerging Markets | 1,295 | | | 1,084 | | | 19 | | | 1,280 | | | 1,087 | | | 18 | | | 1,253 | | | 1,082 | | | 16 | |
| | | | | | | | | | | | | | | | | |
| Daily Averages of Indices | | | | Month-End Averages of Indices |
| Nine Months Ended September 30, | | | | Nine Months Ended September 30, |
| | | 2021 | | 2020 | | % Change | | | | | | 2021 | | 2020 | | % Change |
S&P 500® | | 4,162 | | | 3,104 | | | 34 | % | | | | | | 4,156 | | | 3,106 | | | 34 | % |
MSCI EAFE® | | 2,283 | | | 1,807 | | | 26 | | | | | | | 2,263 | | | 1,790 | | | 26 | |
MSCI® Emerging Markets | | 1,336 | | | 1,015 | | | 32 | | | | | | | 1,325 | | | 1,003 | | | 32 | |
(1) The index names listed in the table are service marks of their respective owners.
| | | | | | | | | | | | | | | | | |
TABLE 4: QUARTER-END DEBT INDICES(1) |
| As of September 30, |
| 2021 | | 2020 | | % Change |
Barclays Capital U.S. Aggregate Bond Index® | 2,355 | | | 2,376 | | | (1) | % |
Barclays Capital Global Aggregate Bond Index® | 536 | | | 541 | | | (1) | |
(1) The index names listed in the table are service marks of their respective owners.
Client Activity and Asset Flows
Client activity and asset flows are impacted by the number of transactions we execute on behalf of our clients, including FX settlements, equity and derivative trades, and wire transfer activity, as well as actions by our clients to change the asset class in which their assets are invested. Our servicing fee revenues are impacted by a number of factors, including transaction volumes, asset levels and asset classes in which funds are invested, as well as industry trends associated with these client-related activities.
Our clients may change the asset classes in which their assets are invested, based on their market outlook, risk acceptance tolerance or other considerations. Over the five years ended December 31, 2020, we estimate that client activity and asset flows, together, impacted our servicing fee revenues by approximately (1)% to 2% annually. See Table 5: Industry Asset Flows for selected asset flow information. While the asset flows presented are indicative of general market trends, the asset types and classes relevant to individual client portfolios can and do differ, and our flows may differ from those market trends. In addition, our asset classifications may differ from those industry classifications presented.
State Street Corporation | 11
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
| | | | | | | | | | | |
| TABLE 5: INDUSTRY ASSET FLOWS |
| Three Months Ended September 30, |
| (In billions) | 2021 | | 2020 |
North America - (US Domiciled) - Morningstar Direct Market Data(1)(2)(3) | | | |
Long-Term Funds(4) | $ | 130.0 | | | $ | 21.4 | |
| Money Market | 20.8 | | | (165.8) | |
| Exchange-Traded Fund | 103.2 | | | 60.1 | |
| Total Flows | $ | 254.0 | | | $ | (84.3) | |
| | | |
Europe - Morningstar Direct Market Data(1)(2)(5) | | | |
Long-Term Funds(4) | $ | 213.4 | | | $ | 134.4 | |
| Money Market | 47.9 | | | 60.0 | |
| Exchange-Traded Fund | 36.7 | | | 32.4 | |
| | | |
| | | |
| Total Flows | $ | 298.0 | | | $ | 226.8 | |
(1) Industry data is provided for illustrative purposes only. It is not intended to reflect our activity or our clients' activity and is indicative of only segments of the entire industry.
(2) Source: Morningstar. The data includes long-term mutual funds, ETFs and money market funds. Mutual fund data represents estimates of net new cash flow, which is new sales minus redemptions combined with net exchanges, while ETF data represents net issuance, which is gross issuance less gross redemptions. Data for Fund of Funds, Feeder funds and Obsolete funds were excluded from the series to prevent double counting. Data is from the Morningstar Direct Asset Flows database.
(3) The third quarter of 2021 data for North America (US domiciled) includes Morningstar direct actuals for July and August 2021 and Morningstar direct estimates for September 2021.
(4) The long-term fund flows reported by Morningstar direct in North America are composed of US domiciled market flows mainly in Equities, Allocation and Fixed-Income asset classes. The long-term fund flows reported by Morningstar direct in EMEA are composed of the European market flows mainly in Equities, Allocation and Fixed-Income asset classes.
(5) The third quarter of 2021 data for Europe is on a rolling three month basis for June 2021 through August 2021, sourced by Morningstar.
Net New Business
Over the five years ended December 31, 2020, net new business, which includes business both won and lost, has affected our servicing fee revenues by approximately 2% on average with a range of 0% to 3% annually. Gross investment servicing mandates were $1.66 trillion in the third quarter of 2021 and $1.3 trillion per year on average over the past five years. Over the five years ended December 31, 2020, gross annual investment servicing mandates ranged from $750 billion to nearly $2.0 trillion.
New business impacting servicing fees can include: custody; product accounting; daily valuation and administration; record-keeping; cash management; and other services. Revenues associated with new servicing mandates may vary based on the breadth of services provided, the time required to install the assets, and the types of assets installed.
Revenues associated with new mandates are not reflected in our servicing fee revenue until the assets have been installed. Our installation timeline, in general, can range from 6 to 36 months, with the average installation timeline being approximately 9 to 12 months over the 2 years ended December 31, 2020. Our more complex installations, including new State Street Alpha mandates, will generally be on the longer end of that range. With respect to the current asset mandates of approximately $2.73 trillion that are yet to be installed as of September 30, 2021, we expect the conversion will occur over the coming 12 to 24 months, with approximately half of the annualized revenue expected to be recognized through 2022, and the remainder primarily in 2023.
State Street Corporation | 12
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Pricing
The industry in which we operate has historically faced pricing pressure, and our servicing fee revenues are also affected by such pressures today. Consequently, no assumption should be drawn as to future revenue run rate from announced servicing wins, as the amount of revenue associated with AUC/A can vary materially. On average, over the five years ended December 31, 2020, we estimate that pricing pressure with respect to existing clients has impacted our servicing fees by approximately (2)% annually, with the impact ranging from (1)% to (4)% in any given year. Pricing concessions can be a part of a contract renegotiation with a client including terms that may benefit us, such as extending the terms of our relationship with the client, expanding the scope of services that we provide or reducing our dependency on manual processes through the standardization of the services we provide. The timing of the impact of additional revenue generated by anticipated additional services, and the amount of revenue generated, may differ from the impact of pricing concessions on existing services due to the necessary time required to onboard those new services, the nature of those services and client investment practices. These same market pressures also impact the fees we negotiate when we win business from new clients.
In order to offset the typical client attrition and normal pricing headwinds, we estimate that we need at least $1.5 trillion of new AUC/A per year; although, notwithstanding increases in AUC/A, servicing fees remain subject to several factors, including changes in market valuations, client activity and asset flows, the manner in which we price our services, the nature of the assets being serviced and the type of services and the other factors described in Item 1A, "Risk Factors", in our 2020 Form 10-K.
Historically, and based on an indicative sample of revenue, we estimate that approximately 55%, on average, of our servicing fee revenues have been variable due to changes in asset valuations including changes in daily average valuations of AUC/A; another 15%, on average, of our servicing fees are impacted by the volume of activity in the funds we serve; and the remaining approximately 30% of our servicing fees tend not to be variable in nature nor impacted by market fluctuations or values.
Based on the impact of the above, client activity and asset flows, net new business and pricing, noted drivers of our servicing fee revenue will vary depending on the mix of products and services we provide to our clients. The full impact of changes in market valuations and the volume of activity in the funds may not be fully reflected in our servicing fee revenues in the periods in which the changes occur, particularly in periods of higher volatility.
Management Fee Revenue
Management fees generally are affected by our level of AUM, which we report based on month-end valuations. Management fees for certain components of managed assets, such as ETFs, mutual funds and UCITS, are affected by daily average valuations of AUM. Management fee revenue is more sensitive to market valuations than servicing fee revenue, as a higher proportion of the underlying services provided, and the associated management fees earned, are dependent on equity and fixed-income security valuations. Additional factors, such as the relative mix of assets managed, may have a significant effect on our management fee revenue. While certain management fees are directly determined by the values of AUM and the investment strategies employed, management fees may reflect other factors, including performance fee arrangements, as well as our relationship pricing for clients. In addition, in a prolonged low-interest rate environment, such as we are currently experiencing, we have waived and may in the future waive certain fees for our clients for money market products.
The impact of State Street Global Advisors gross money market fund fee waivers on total management fee revenue was approximately $20 million in the third quarter of 2021. As of September 30, 2021, and assuming short-term spot interest rates and the amount of money market fund assets remain constant, we estimate that the impact of gross money market fee waivers on our management fees would be approximately $20 million in the fourth quarter of 2021. We believe that a further decline in short-term interest rates, primarily one- and three-month interest rates, would not materially impact this estimate. Alternatively, if short-term interest rates were to rise by approximately 10bps, the impact of gross money market fee waivers on our management fees would be largely mitigated in the subsequent quarterly periods.
Asset-based management fees for passively managed products, to which our AUM is currently primarily weighted, are generally charged at a lower fee on AUM than for actively managed products. Actively managed products may also include performance fee arrangements which are recorded when the fee is earned, based on predetermined benchmarks associated with the applicable account's performance.
State Street Corporation | 13
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
In light of the above, we estimate, using relevant information as of September 30, 2021 and assuming that all other factors remain constant, including the impact of business won and lost and client flows, that:
•A 10% increase or decrease in worldwide equity valuations, on a weighted average basis, over the relevant periods for which our management fees are calculated, would result in a corresponding change in our total management fee revenues, on average and over multiple quarters, of approximately 5%; and
•We estimate, similarly assuming all other factors constant and using relevant information as of September 30, 2021, that changes in worldwide fixed income markets, which on a weighted average basis and over time are typically less volatile than worldwide equity markets, will have a smaller impact on our management fee revenues on average and over time.
Daily averages, month-end averages and quarter-end indices demonstrate worldwide changes in equity and debt markets that affect our management fee revenue. Quarter-end indices affect the values of AUM as of those dates. See Table 3: Daily Averages, Month-End Averages and Quarter-End Equity Indices for selected indices.
Additional information about fee revenue is provided under "Line of Business Information" included in this Management's Discussion and Analysis.
Net Interest Income
See Table 2: Total Revenue, for the breakout of interest income and interest expense for the three and nine months ended September 30, 2021, compared to the same periods in 2020.
NII is defined as interest income earned on interest-earning assets less interest expense incurred on interest-bearing liabilities. Interest-earning assets, which principally consist of investment securities, interest-bearing deposits with banks, loans, resale agreements and other liquid assets, are financed primarily by client deposits, short-term borrowings and long-term debt.
NIM represents the relationship between annualized FTE NII and average total interest-earning assets for the period. It is calculated by dividing FTE NII by average interest-earning assets. Revenue that is exempt from income taxes, mainly earned from certain investment securities (state and political subdivisions), is adjusted to a FTE basis using the U.S. federal and state statutory income tax rates.
NII on an FTE basis increased in the three months ended September 30, 2021, compared to the same period in 2020, primarily due to higher loan
balances and growth in the investment portfolio and deposits, as well as the absence of a non-recurring true-up in the third quarter of 2020, partially offset by lower investment portfolio yields.
NII on an FTE basis decreased in the nine months ended September 30, 2021, compared to the same period in 2020, primarily due to lower investment portfolio yields, partially offset by deposit, investment portfolio and loan growth, and the absence of a non-recurring true-up in the third quarter of 2020.
Investment securities net premium amortization, which is included in interest income, was $128 million and $454 million in the three and nine months ended September 30, 2021, respectively, compared to $179 million and $396 million in the same periods in 2020, respectively. The decrease in MBS premium amortization in the three months ended September 30, 2021, compared to the same period in 2020, is primarily driven by lower prepayments and the absence of a non-recurring true-up of $20 million, which impacted the third quarter of 2020. The increase in the nine months ended September 30, 2021, compared to the same period in 2020, is primarily driven by low level of interest rates and the absence of the MMLF discount accretion.
Interest income related to debt securities is recognized in our consolidated statement of income using the effective interest method, or on a basis approximating a level rate of return over the contractual or estimated life of the security. The rate of return considers any non-refundable fees or costs, as well as purchase premiums or discounts, resulting in amortization or accretion, accordingly. The amortization of premiums and accretion of discounts are adjusted for prepayments when they occur, which primarily impact mortgage-backed securities.
The following table presents the investment securities amortizable purchase premium net of discount accretion for the periods indicated:
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| TABLE 6: INVESTMENT SECURITIES NET PREMIUM AMORTIZATION | | | | | | | | | | |
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| Three Months Ended September 30, | | | | | | | | | | | | |
| 2021 | | 2020 | | | | | | | | | | | | |
| (Dollars in millions) | MBS | | Non -MBS | | Total(1) | | MBS | | Non- MBS | | Total | | | | | | | | | | | | |
| Unamortized premiums, net of discounts at period end | $ | 768 | | | $ | 497 | | | $ | 1,265 | | | $ | 1,281 | | | $ | 735 | | | $ | 2,016 | | | | | | | | | | | | | |
Net premium amortization(2) | 78 | | | 50 | | | 128 | | | 128 | | | 51 | | | 179 | | | | | | | | | | | | | |
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(1) The investment securities portfolio duration is 3.1 years as of September 30, 2021.
(2) Net of discount accretion on MMLF HTM securities.
State Street Corporation | 14
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
See Table 7: Average Balances and Interest Rates - Fully Taxable-Equivalent Basis, for the breakout of NII on a FTE basis for the three and nine months ended September 30, 2021, compared to the same periods in 2020.
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TABLE 7: AVERAGE BALANCES AND INTEREST RATES - FULLY TAXABLE-EQUIVALENT BASIS(1) | | | | | | |
| Three Months Ended September 30, | | | | | | | | | | | | |
| 2021 | | 2020 | | | | | | | | |
| (Dollars in millions; fully taxable-equivalent basis) | Average
Balance | | Interest
Revenue/Expense | | Rate | | Average
Balance | | Interest
Revenue/Expense | | Rate | | | | | | | | | | | | |
Interest-bearing deposits with banks (2) | $ | 79,375 | | | $ | — | | | — | % | | $ | 72,717 | | | $ | (6) | | | (.03) | % | | | | | | | | | | | | |
Securities purchased under resale agreements(3) | 4,061 | | | 6 | | | .65 | | | 4,181 | | | 20 | | | 1.91 | | | | | | | | | | | | | |
| Trading account assets | 733 | | | — | | | .02 | | | 900 | | | — | | | — | | | | | | | | | | | | | |
| Investment securities: | | | | | | | | | | | | | | | | | | | | | | | |
| Investment securities available-for-sale | 69,621 | | | 150 | | | .86 | | | 59,593 | | | 169 | | | 1.13 | | | | | | | | | | | | | |
| Investment securities held-to-maturity | 44,014 | | | 161 | | | 1.47 | | | 43,367 | | | 174 | | | 1.61 | | | | | | | | | | | | | |
| Investment securities held-to-maturity purchased under money market liquidity facility | — | | | — | | | — | | | 7,488 | | | 25 | | | 1.32 | | | | | | | | | | | | | |
| Total investment securities | 113,635 | | | 311 | | | 1.10 | | | 110,448 | | | 368 | | | 1.33 | | | | | | | | | | | | | |
| Loans | 32,035 | | | 168 | | | 2.08 | | | 25,974 | | | 139 | | | 2.13 | | | | | | | | | | | | | |
| Other interest-earning assets | 24,662 | | | 5 | | | .08 | | | 11,586 | | | 3 | | | .10 | | | | | | | | | | | | | |
| Average total interest-earning assets | $ | 254,501 | | | $ | 490 | | | .76 | | | $ | 225,806 | | | $ | 524 | | | .92 | | | | | | | | | | | | | |
| Interest-bearing deposits: | | | | | | | | | | | | | | | | | | | | | | | |
| U.S. | $ | 104,575 | | | $ | 6 | | | .02 | % | | $ | 85,432 | | | $ | 4 | | | .02 | % | | | | | | | | | | | | |
Non-U.S.(2)(4) | 82,230 | | | (68) | | | (.33) | | | 69,514 | | | (65) | | | (.37) | | | | | | | | | | | | | |
Total interest-bearing deposits(4)(5) | 186,805 | | | (62) | | | (.13) | | | 154,946 | | | (61) | | | (.16) | | | | | | | | | | | | | |
| Securities sold under repurchase agreements | 332 | | | — | | | — | | | 2,891 | | | — | | | .08 | | | | | | | | | | | | | |
| Short-term borrowings under money market liquidity facility | — | | | — | | | — | | | 7,449 | | | 23 | | | 1.24 | | | | | | | | | | | | | |
| Other short-term borrowings | 837 | | | — | | | .17 | | | 1,724 | | | 2 | | | .44 | | | | | | | | | | | | | |
| Long-term debt | 13,021 | | | 51 | | | 1.59 | | | 14,794 | | | 69 | | | 1.86 | | | | | | | | | | | | | |
| Other interest-bearing liabilities | 5,461 | | | 11 | | | .78 | | | 2,764 | | | 9 | | | 1.28 | | | | | | | | | | | | | |
| Average total interest-bearing liabilities | $ | 206,456 | | | $ | — | | | — | | | $ | 184,568 | | | $ | 42 | | | .09 | | | | | | | | | | | | | |
| Interest rate spread | | | | | .76 | % | | | | | | .83 | % | | | | | | | | | | | | |
| Net interest income, fully taxable-equivalent basis | | | $ | 490 | | | | | | | $ | 482 | | | | | | | | | | | | | | | |
| Net interest margin, fully taxable-equivalent basis | | | | | .76 | % | | | | | | .85 | % | | | | | | | | | | | | |
| Tax-equivalent adjustment | | | (3) | | | | | | | (4) | | | | | | | | | | | | | | | |
| Net interest income, GAAP-basis | | | $ | 487 | | | | | | | $ | 478 | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, | | | | | | |
| 2021 | | 2020 | | | | |
| (Dollars in millions; fully taxable-equivalent basis) | Average
Balance | | Interest
Revenue/Expense | | Rate | | Average
Balance | | Interest
Revenue/Expense | | Rate | | | | | | | | | | | | |
Interest-bearing deposits with banks(2) | $ | 91,291 | | | $ | (13) | | | (.02) | % | | $ | 75,517 | | | $ | 79 | | | .14 | % | | | | | | | | | | | | |
Securities purchased under resale agreements(3) | 4,194 | | | 19 | | | .61 | | | 3,114 | | | 109 | | | 4.68 | | | | | | | | | | | | | |
| Trading account assets | 754 | | | — | | | .01 | | | 897 | | | — | | | — | | | | | | | | | | | | | |
| Investment securities: | | | | | | | | | | | | | | | | | | | | | | | |
| Investment securities available-for-sale | 65,051 | | | 435 | | | .89 | | | 57,109 | | | 609 | | | 1.42 | | | | | | | | | | | | | |
| Investment securities held-to-maturity | 45,526 | | | 510 | | | 1.49 | | | 41,595 | | | 641 | | | 2.06 | | | | | | | | | | | | | |
| Investment securities held-to-maturity purchased under money market liquidity facility | 420 | | | 4 | | | 1.35 | | | 9,516 | | | 103 | | | 1.45 | | | | | | | | | | | | | |
| Total investment securities | 110,997 | | | 949 | | | 1.14 | | | 108,220 | | | 1,353 | | | 1.67 | | | | | | | | | | | | | |
| Loans | 29,858 | | | 467 | | | 2.09 | | | 27,266 | | | 482 | | | 2.36 | | | | | | | | | | | | | |
| Other interest-earning assets | 21,322 | | | 13 | | | .08 | | | 10,729 | | | 52 | | | .64 | | | | | | | | | | | | | |
| Average total interest-earning assets | $ | 258,416 | | | $ | 1,435 | | | .74 | | | $ | 225,743 | | | $ | 2,075 | | | 1.23 | | | | | | | | | | | | | |
| Interest-bearing deposits: | | | | | | | | | | | | | | | | | | | | | | | |
| U.S. | $ | 105,286 | | | $ | 10 | | | .01 | % | | $ | 85,592 | | | $ | 111 | | | .17 | % | | | | | | | | | | | | |
Non-U.S.(2)(4) | 81,318 | | | (206) | | | (.34) | | | 66,953 | | | (158) | | | (.31) | | | | | | | | | | | | | |
Total interest-bearing deposits(4)(5) | 186,604 | | | (196) | | | (.14) | | | 152,545 | | | (47) | | | (.04) | | | | | | | | | | | | | |
| Securities sold under repurchase agreements | 606 | | | — | | | .02 | | | 2,687 | | | 3 | | | .16 | | | | | | | | | | | | | |
| Short-term borrowings under money market liquidity facility | 421 | | | 4 | | | 1.21 | | | 9,550 | | | 87 | | | 1.22 | | | | | | | | | | | | | |
| Other short-term borrowings | 832 | | | 1 | | | .20 | | | 2,582 | | | 17 | | | .86 | | | | | | | | | | | | | |
| Long-term debt | 13,431 | | | 165 | | | 1.64 | | | 14,553 | | | 252 | | | 2.31 | | | | | | | | | | | | | |
| Other interest-bearing liabilities | 5,332 | | | 30 | | | .77 | | | 3,217 | | | 49 | | | 2.01 | | | | | | | | | | | | | |
| Average total interest-bearing liabilities | $ | 207,226 | | | $ | 4 | | | — | | | $ | 185,134 | | | $ | 361 | | | .26 | | | | | | | | | | | | | |
| Interest rate spread | | | | | .74 | % | | | | | | .97 | % | | | | | | | | | | | | |
| Net interest income, fully taxable-equivalent basis | | | $ | 1,431 | | | | | | | $ | 1,714 | | | | | | | | | | | | | | | |
| Net interest margin, fully taxable-equivalent basis | | | | | .74 | % | | | | | | 1.01 | % | | | | | | | | | | | | |
| Tax-equivalent adjustment | | | (10) | | | | | | | (13) | | | | | | | | | | | | | | | |
| Net interest income, GAAP-basis | | | $ | 1,421 | | | | | | | $ | 1,701 | | | | | | | | | | | | | | | |
(1) Rates earned/paid on interest-earning assets and interest-bearing liabilities include the impact of hedge activities associated with our asset and liability management activities where applicable.
(2) Negative values reflect the interest rate environment outside of the U.S. where central bank rates are below zero for several major currencies.
(3) Reflects the impact of balance sheet netting under enforceable netting agreements of approximately $52.17 billion and $66.92 billion in the three and nine months ended September 30, 2021, respectively, compared to $83.48 billion and $103.46 billion in the same periods in 2020, respectively. Excluding the impact of netting, the average interest rates would be approximately 0.05% and 0.04% in the three and nine months ended September 30, 2021, respectively, compared to 0.09% and 0.14% in the same periods in 2020, respectively.
(4) Average rate includes the impact of FX swap costs of approximately ($16) million and ($53) million in the three and nine months ended September 30, 2021, respectively, compared to ($19) million and ($39) million for the same periods in 2020, respectively. Average rates for total interest-bearing deposits excluding the impact of FX swap costs were (0.10)% in both the three and nine months ended September 30, 2021, compared to (0.11)% and (0.01)% in the same periods in 2020, respectively.
(5) Total deposits averaged $233.27 billion and $233.96 billion in the three and nine months ended September 30, 2021, respectively, compared to $189.23 billion and $188.82 billion in the same periods in 2020, respectively.
State Street Corporation | 15
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Changes in the components of interest-earning assets and interest-bearing liabilities are discussed in more detail below. Additional information about the components of interest income and interest expense is provided in Note 14 to the consolidated financial statements within this Form 10-Q.
Average total interest-earning assets were $254.50 billion and $258.42 billion in the three and nine months ended September 30, 2021, respectively, compared to $225.81 billion and $225.74 billion in the same periods in 2020, respectively. The increase is primarily due to higher interest-bearing deposits with banks, investment securities, loans and other interest- earning assets, partially offset by a decrease in investment securities purchased under the MMLF facility.
Interest-bearing deposits with banks averaged $79.38 billion and $91.29 billion in the three and nine months ended September 30, 2021, respectively, compared to $72.72 billion and $75.52 billion in the same periods in 2020, respectively. These deposits primarily reflect our maintenance of cash balances at the Federal Reserve, the European Central Bank (ECB) and other non-U.S. central banks. The higher levels of average cash balances with central banks reflect higher levels of client deposits.
Securities repurchased under resale agreements averaged $4.06 billion and $4.19 billion in the three and nine months ended September 30, 2021, respectively, compared to $4.18 billion and $3.11 billion in the same periods in 2020, respectively. The impact of balance sheet netting decreased to $52.17 billion and $66.92 billion in the three and nine months ended September 30, 2021, respectively, compared to $83.48 billion and $103.46 billion in the same periods in 2020, respectively. We maintain an agreement with Fixed Income Clearing Corporation (FICC), a clearing organization that enables us to net securities sold under repurchase agreements against those repurchased under resale agreements with counterparties that are also members of the clearing organization, when specific netting criteria are met. The decrease in average balance sheet netting in the three and nine months ended September 30, 2021, compared to the same periods in 2020, is primarily due to lower FICC repo volumes from an increased cash supply and lower short-term interest rates driven by extensive Federal Reserve stimulus.
We have been a sponsoring member within FICC since 2005 and continue to expand our client base as program eligibility parameters broaden. We enter into repurchase and resale transactions in eligible securities with sponsored clients and with other FICC members and, pursuant to FICC Government Securities Division rules, submit, novate
and net the transactions. We may sponsor clients to clear their eligible repurchase transactions with FICC, backed by our guarantee to FICC of the prompt and full payment and performance of our sponsored member clients’ respective obligations. We generally obtain a security interest from our sponsored clients in the high quality securities collateral that they receive, which is designed to mitigate our potential exposure to FICC.
Average investment securities were $113.64 billion and $111.00 billion, in the three and nine months ended September 30, 2021, respectively, including $420 million MMLF securities in the nine months ended September 30, 2021, compared to $110.45 billion and $108.22 billion, including $7.49 billion and $9.52 billion MMLF securities, in the same periods in 2020, respectively. We did not have any MMLF securities in the three months ended September 30, 2021. Average investment securities, excluding MMLF HTM securities, increased to $113.64 billion and $110.58 billion in the three and nine months ended September 30, 2021, respectively, compared to $102.96 billion and $98.70 billion in the same periods in 2020, respectively, primarily driven by U.S. Treasuries, CMBS balances and foreign government bonds. The growth reflects our deployment of higher structural deposit levels that resulted from the COVID-19 pandemic.
Loans averaged $32.04 billion and $29.86 billion in the three and nine months ended September 30, 2021, respectively, compared to $25.97 billion and $27.27 billion in the same periods in 2020, respectively. Average core loans, which exclude overdrafts and highlight our efforts to grow our lending portfolio, averaged $28.41 billion and $25.92 billion in the three and nine months ended September 30, 2021, respectively, compared to $22.54 billion and $22.42 billion in the same periods in 2020, respectively. The increases in both periods are primarily due to growth in CLOs in loan form and fund finance loans. Additional information about these loans is provided in Note 4 to the consolidated financial statements in this Form 10-Q.
Average other interest-earning assets, largely associated with our enhanced custody business, increased to $24.66 billion and $21.32 billion in the three and nine months ended September 30, 2021, respectively, from $11.59 billion and $10.73 billion in the same periods in 2020, respectively, primarily driven by an increase in the level of cash collateral posted. Enhanced custody is our securities financing business where we act as principal with respect to our custody clients and generate securities finance revenue. The NII earned on these transactions is generally lower than the interest earned on other alternative investments.
State Street Corporation | 16
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Aggregate average total interest-bearing deposits increased to $186.81 billion and $186.60 billion in the three and nine months ended September 30, 2021, respectively, from $154.95 billion and $152.55 billion in the same periods in 2020, respectively. Average U.S. interest-bearing deposits increased as a result of the market uncertainty due to the COVID-19 pandemic, U.S. monetary policy and the level of global interest rates. We expect deposits to remain elevated within the current environment of low interest rates and continued expansion of the money supply by the Federal Reserve, but modestly reduced from third quarter of 2021 levels. Future deposit levels will be influenced by the underlying asset servicing business, client deposit behavior and market conditions, including the general levels of U.S. and non-U.S. interest rates.
Average other short-term borrowings decreased to $0.84 billion and $0.83 billion in the three and nine months ended September 30, 2021, respectively, from $1.72 billion and $2.58 billion in the same periods in 2020, respectively. The decrease is primarily due to lower borrowings from the FHLB in the three and nine months ended September 30, 2021, compared to the same periods in 2020.
Average long-term debt was $13.02 billion and $13.43 billion in the three and nine months ended September 30, 2021, respectively, compared to $14.79 billion and $14.55 billion in the same periods in 2020, respectively. These amounts reflect issuances, redemptions and maturities of senior debt during the respective periods.
Average other interest-bearing liabilities were $5.46 billion and $5.33 billion in the three and nine months ended September 30, 2021, respectively, compared to $2.76 billion and $3.22 billion in the same periods in 2020, respectively. Other interest-bearing liabilities primarily reflect our level of cash collateral received from clients in connection with our enhanced custody business, which is presented on a net basis where we have enforceable netting agreements.
Several factors could affect future levels of NII and NIM, including the volume and mix of client deposits and funding sources; central bank actions; balance sheet management activities; changes in the level and slope of U.S. and non-U.S. interest rates; revised or proposed regulatory capital or liquidity standards, or interpretations of those standards; the yields earned on securities purchased compared to the yields earned on securities sold or matured; and changes in the type and amount of credit or other loans we extend.
Based on market conditions and other factors, including regulatory standards, we continue to
reinvest the majority of the proceeds from pay-downs and maturities of investment securities in highly-rated U.S. and non-U.S. securities, such as federal agency MBS, sovereign debt securities and U.S. Treasury and agency securities. The pace at which we reinvest and the types of investment securities purchased will depend on the impact of market conditions, the implementation of regulatory standards, including interpretation of those standards and other factors over time. We expect these factors and the levels of global interest rates to impact our reinvestment program and future levels of NII and NIM.
Provision for Credit Losses
There was a $2 million reserve release for the provision for credit losses in the third quarter of 2021, which is primarily driven by improvements in credit quality and stable economic outlook. We recorded no provision for credit losses in the third quarter of 2020.
Additional information is provided under “Loans” in "Financial Condition" in this Management's Discussion and Analysis and in Note 4 to the consolidated financial statements in this Form 10-Q.
Expenses
Table 8: Expenses, provides the breakout of expenses for the first quarters ofthree and nine months ended September 30, 2021 andcompared to the same periods in 2020.
| | TABLE 8: EXPENSES | TABLE 8: EXPENSES | TABLE 8: EXPENSES |
| | Three Months Ended March 31, | | | % Change | | | Three Months Ended September 30, | | | % Change | |
| (Dollars in millions) | (Dollars in millions) | 2021 | | 2020 | | | | (Dollars in millions) | 2021 | | 2020 | | | % Change |
| Compensation and employee benefits | Compensation and employee benefits | $ | 1,242 | | | $ | 1,208 | | | | 3 | % | | Compensation and employee benefits | $ | 1,054 | | | $ | 1,062 | | | (1) | % | |
Information systems and communications(1) | 421 | | | 385 | | | | 9 | | | |
Transaction processing services(1) | 270 | | | 254 | | | | 6 | | | |
| Information systems and communications | | Information systems and communications | 406 | | | 395 | | | | 3 | | |
| Transaction processing services | | Transaction processing services | 253 | | | 234 | | | | 8 | | |
| Occupancy | | Occupancy | 102 | | | 109 | | | | (6) | | |
| Amortization of other intangible assets | | Amortization of other intangible assets | 62 | | | 59 | | | | 5 | | |
| Acquisition costs | | Acquisition costs | 18 | | | 15 | | | | 20 | | |
| | Other: | | Other: | | | | |
| Professional services | | Professional services | 91 | | | 89 | | | | 2 | | |
Other(1) | | Other(1) | 130 | | | 140 | | | | (7) | | |
| Total other | | Total other | 221 | | | 229 | | | | (3) | | |
| Total expenses | | Total expenses | $ | 2,116 | | | $ | 2,103 | | | | 1 | | |
| Number of employees at quarter-end | | Number of employees at quarter-end | 38,932 | | | 38,979 | | | | — | | |
| | | | Nine Months Ended September 30, | | | % Change | |
| (Dollars in millions) | | (Dollars in millions) | 2021 | | 2020 | | | |
| Compensation and employee benefits | | Compensation and employee benefits | $ | 3,373 | | | $ | 3,321 | | | | 2 | % | |
| Information systems and communications | | Information systems and communications | 1,225 | | | 1,156 | | | | 6 | | |
| Transaction processing services | | Transaction processing services | 786 | | | 721 | | | | 9 | | |
| Occupancy | Occupancy | 109 | | | 109 | | | | — | | | Occupancy | 311 | | | 327 | | | | (5) | | |
| Amortization of other intangible assets | Amortization of other intangible assets | 58 | | | 58 | | | | — | | | Amortization of other intangible assets | 183 | | | 175 | | | | 5 | | |
| Acquisition costs | Acquisition costs | 11 | | | 11 | | | | — | | | Acquisition costs | 40 | | | 38 | | | | 5 | | |
| Restructuring charges, net | Restructuring charges, net | (1) | | | — | | | | — | | | Restructuring charges, net | (1) | | | — | | | | nm | |
| Other: | Other: | | | | | Other: | | | | |
| Professional services | Professional services | 80 | | | 81 | | | | (1) | | | Professional services | 246 | | | 261 | | | | (6) | | |
Other(1) | 142 | | | 149 | | | | (5) | | | |
| Other | | Other | 396 | | | 441 | | | | (10) | | |
| Total other | Total other | 222 | | | 230 | | | | (3) | | | Total other | 642 | | | 702 | | | | (9) | | |
| Total expenses | Total expenses | $ | 2,332 | | | $ | 2,255 | | | | 3 | | | Total expenses | $ | 6,559 | | | $ | 6,440 | | | | 2 | | |
| Number of employees at quarter-end | 39,318 | | | 39,318 | | | | — | | | |
|
(1) Legal and other expenses notable item of $29 million in the first quarter of 2021 included $20 million in information systems and communications, $8 million in transaction processing services and $1 million in other expenses.State Street Corporation | 17
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Compensation and employee benefits expenses increased 3%decreased 1% in the firstthird quarter of 2021, compared to the same period in 2020, primarily due to higher salary deferrals and lower headcount, partially offset by higher medical benefits costs. Compensation and employee benefits expenses increased 2% in the nine months ended September 30, 2021, compared to the same period in 2020, primarily due to currency translation and higher seasonal expenses, partially offset by lower headcount in high cost locations.locations and incentive compensation. Currency translation increased compensation and employee benefits expenses by 2% in the first quarter of 2021, relative to the same period in 2020.
Seasonal deferred incentive compensation expenses were $176 million in the first quarter ofnine months ended September 30, 2021, compared to $151 million in the same period in 2020.
Total headcount was flat as of March 31,September 30, 2021 compared to March 31,September 30, 2020, primarily driven by hiring in global hubs, offset by a reduction in high cost locations.
Information systems and communications expenses increased 9%3% in the first quarter of 2021 compared to the same period in 2020. The increase was primarily related to higher software costs and technology infrastructure investments, as well as the impact of notable items. Currency translation increased information systems and communications expenses by 1% in the first quarter of 2021, relative to the same period in 2020.
Transaction processing services expenses increased 6% in the firstthird quarter of 2021, compared to the same period in 2020, primarily due to higher sub-custodytechnology and infrastructure investments. Information systems and communications expenses increased 6% in the nine months ended September 30, 2021, compared to the same period in 2020, primarily related to higher software costs, technology infrastructure investments and the impact of notable items, partially offset by savingstransformation initiatives. Currency translation increased information systems and communications expenses by 1% in the nine months ended September 30, 2021, compared to the same period in 2020.
Transaction processing services expenses increased 8% and 9% in the three and nine months ended September 30, 2021, respectively, compared to the same periods in 2020, primarily due to higher sub-custody costs and market data fees. Currency translation increased transaction processing services and communications expenses by 2% in the first quarter ofnine months ended September 30, 2021, relativecompared to the same period in 2020.
Occupancy expenses were flatdecreased 6% and 5% in the first quarter ofthree and nine months ended September 30, 2021, respectively, compared to the same periods in 2020, primarily due to footprint optimization. Currency translation increased occupancy expenses by 2% in the nine months ended September 30, 2021, compared to the same period in 2020.
Amortization of other intangible assets was flatincreased 5% in both the three and nine months ended September 30, 2021 compared to the same periods in 2020, primarily due to the lift-out in the first quarter of 2021 compared toof the same period in 2020.depository bank and fund administrator activities of Fideuram Bank Luxembourg, a subsidiary of Intesa Sanpaolo.
Other expenses decreased 3% in the firstthird quarter of 2021, compared to the same period in 2020, primarily driven by lower sub-advisor costs and marketing costs, partially offset by the absence of notable items from the third quarter of 2020. Other expenses decreased 9% in the nine months ended September 30, 2021, compared to the same period in 2020, primarily due to lower securities processing losses, professional services and travel costs.
Acquisition Costs
We recorded approximately $11 million and $33 million of acquisition costs in both the first quarters ofthree and nine months ended September 30, 2021, respectively, compared to $15 million and $38 million in the same periods in 2020, respectively, related to our acquisition of CRD. As we integrate CRD into our business, we expect to incur a total ofup to approximately $225 million in total of acquisition costs for the period beginning the last quarter of 2018 through 2021, after which we will no longer distinguish certain CRD costs as acquisition costs. As of March 31,September 30, 2021, we have incurred $175a total of $197 million of acquisition costs related to CRD.
In addition, we recorded approximately $7 million of acquisition costs in the third quarter of 2021 related to our proposed acquisition of the BBH Investor Services business. We expect to incur any remaining significantup to approximately $590 million of total acquisition and integration costs related to CRD in 2021.the acquisition through the third year following its closing.
Restructuring and Repositioning Charges
The following table presents aggregate activity for repositioning charges for the periods indicated:
| | TABLE 9: RESTRUCTURING AND REPOSITIONING CHARGES | TABLE 9: RESTRUCTURING AND REPOSITIONING CHARGES | TABLE 9: RESTRUCTURING AND REPOSITIONING CHARGES |
| (In millions) | (In millions) | Employee
Related Costs | | Real Estate
Actions | | | Asset and Other Write-offs | | Total | (In millions) | Employee
Related Costs | | Real Estate
Actions | | | Asset and Other Write-offs | | Total |
| Accrual Balance at December 31, 2019 | | Accrual Balance at December 31, 2019 | $ | 190 | | | $ | 7 | | | | $ | 1 | | | $ | 198 | |
| | Accrual Balance at December 31, 2019 | $ | 190 | | | $ | 7 | | | | $ | 1 | | | $ | 198 | | |
| Payments and Other Adjustments | | Payments and Other Adjustments | (33) | | | (1) | | | | — | | | (34) | |
| Accrual Balance at March 31, 2020 | | Accrual Balance at March 31, 2020 | 157 | | | 6 | | | | 1 | | | 164 | |
| | Payments and Other Adjustments | Payments and Other Adjustments | (33) | | | (1) | | | | — | | | (34) | | Payments and Other Adjustments | (25) | | | (1) | | | | — | | | (26) | |
| Accrual Balance at March 31, 2020 | $ | 157 | | | $ | 6 | | | | $ | 1 | | | $ | 164 | | |
| Accrual Balance at June 30, 2020 | | Accrual Balance at June 30, 2020 | $ | 132 | | | $ | 5 | | | | $ | 1 | | | $ | 138 | |
| Payments and Other Adjustments | | Payments and Other Adjustments | (10) | | | 1 | | | | (1) | | | (10) | |
| Accrual Balance at September 30, 2020 | | Accrual Balance at September 30, 2020 | $ | 122 | | | $ | 6 | | | | $ | — | | | $ | 128 | |
| | Accrual Balance at December 31, 2020 | Accrual Balance at December 31, 2020 | $ | 190 | | | $ | 6 | | | | $ | — | | | $ | 196 | | Accrual Balance at December 31, 2020 | $ | 190 | | | $ | 6 | | | | $ | — | | | $ | 196 | |
| Accruals for Beacon | Accruals for Beacon | (1) | | | — | | | | — | | | (1) | | Accruals for Beacon | (1) | | | — | | | | — | | | (1) | |
| Accruals for Repositioning Charges | Accruals for Repositioning Charges | — | | | 2 | | | | — | | | 2 | | Accruals for Repositioning Charges | — | | | 2 | | | | — | | | 2 | |
| Payments and Other Adjustments | Payments and Other Adjustments | (9) | | | (2) | | | | — | | | (11) | | Payments and Other Adjustments | (9) | | | (2) | | | | — | | | (11) | |
| Accrual Balance at March 31, 2021 | Accrual Balance at March 31, 2021 | $ | 180 | | | $ | 6 | | | | $ | — | | | $ | 186 | | Accrual Balance at March 31, 2021 | $ | 180 | | | $ | 6 | | | | $ | — | | | $ | 186 | |
| | Payments and Other Adjustments | | Payments and Other Adjustments | (34) | | | — | | | | — | | | (34) | |
| Accrual Balance at June 30, 2021 | | Accrual Balance at June 30, 2021 | $ | 146 | | | $ | 6 | | | | $ | — | | | $ | 152 | |
| Payments and other adjustments | | Payments and other adjustments | (23) | | | — | | | | — | | | (23) | |
| Accrual Balance at September 30, 2021 | | Accrual Balance at September 30, 2021 | $ | 123 | | | $ | 6 | | | | $ | — | | | $ | 129 | |
State Street Corporation | 1618
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Income Tax Expense
Income tax expense was $108$162 million and $445 million in the first quarter ofthree and nine months ended September 30, 2021, respectively, compared to $140$126 million and $375 million in the same periodperiods in 2020.2020, respectively. Our effective tax rate was 17.2%18.5% and 18.2% in the first quarter ofthree and nine months ended September 30, 2021, respectively, compared to 18.5% and 16.6% in the same periods in 2020, respectively. The increase in the nine months ended September 30, 2021 compared to 18.1% in the same period in 2020. The effective2020, is primarily due to lower benefits from tax rate for 2021 includes an increase of foreign tax credits.credit investments.
LINE OF BUSINESS INFORMATION
Our operations are organized into two lines of business: Investment Servicing and Investment Management, which are defined based on products and services provided. The results of operations for these lines of business are not necessarily comparable with those of other companies, including companies in the financial services industry.
Investment Servicing, through State Street Institutional Services, State Street Global Markets, State Street Global Exchange and CRD, provides services for institutional clients, including mutual funds, collective investment funds and other investment pools, corporate and public retirement plans, insurance companies, investment managers, foundations and endowments worldwide. Products include: custody; product accounting; daily pricing and administration; master trust and master custody; depotbank services (a fund oversight role created by non-U.S. regulation); record-keeping; cash management; foreign exchange, brokerage and other trading services; securities finance and enhanced custody products; deposit and short-term investment facilities; loans and lease financing; investment manager and alternative investment manager operations outsourcing; performance, risk and compliance analytics; and financial data management to support institutional investors.
Included within our Investment Servicing line of business is CRD, which we acquired in October 2018. The Charles River Investment Management solution
is a technology offering which is designed to automate and simplify the institutional investment process across asset classes, from portfolio management and risk analytics through trading and post-trade settlement, with integrated compliance and managed data throughout. With the acquisition of CRD, we took the first step in building our front-to-back platform, State Street Alpha. Today our State Street Alpha platform combines portfolio management, trading and execution, advanced data aggregation, analytics and compliance tools, and integration with other industry platforms and providers.
Following completion of our proposed acquisition of the BBH Investor Services business, the acquired business will be included within our Investment Servicing line of business.
Investment Management, through State Street Global Advisors, provides a broad range of investment management strategies and products for our clients. Our investment management strategies and products span the risk/reward spectrum for equity, fixed income and cash assets, including core
and enhanced indexing, multi-asset strategies, active quantitative and fundamental active capabilities and alternative investment strategies. Our AUM is currently primarily weighted to indexed strategies. In addition, we provide a breadth of services and solutions, including environmental, social and governance investing, defined benefit and defined contribution and Global Fiduciary Solutions (formerly Outsourced Chief Investment Officer). State Street Global Advisors is also a provider of ETFs, including the SPDR® ETF brand. While management fees are primarily determined by the values of AUM and the investment strategies employed, management fees reflect other factors as well, including the benchmarks specified in the respective management agreements related to performance fees.
For information about our two lines of business, as well as the revenues, expenses and capital allocation methodologies associated with them, refer to Note 17 to the consolidated financial statements in this Form 10-Q.
State Street Corporation | 19
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Investment Servicing
| | TABLE 10: INVESTMENT SERVICING LINE OF BUSINESS RESULTS | TABLE 10: INVESTMENT SERVICING LINE OF BUSINESS RESULTS | | TABLE 10: INVESTMENT SERVICING LINE OF BUSINESS RESULTS | |
| (Dollars in millions, except where otherwise noted) | (Dollars in millions, except where otherwise noted) | | Three Months Ended March 31, | | | % Change 2021 vs. 2020 | | (Dollars in millions, except where otherwise noted) | | Three Months Ended September 30, | | | % Change | |
| 2021 | | 2020 | | | (Dollars in millions, except where otherwise noted) | | 2021 | | 2020 | | % Change | |
| Servicing fees | Servicing fees | | $ | 1,371 | | | $ | 1,287 | | | | 7 | % | | Servicing fees | | $ | 1,395 | | $ | 1,301 | | | | 7 | % | |
| Foreign exchange trading services | Foreign exchange trading services | | 333 | | | 434 | | | | (23) | | | Foreign exchange trading services | | 266 | | | 252 | | | | 6 | | |
| Securities finance | Securities finance | | 95 | | | 89 | | | | 7 | | | Securities finance | | 103 | | | 81 | | | | 27 | | |
| Software and processing fees | Software and processing fees | | 172 | | | 137 | | | | 26 | | | Software and processing fees | | 204 | | | 162 | | | | 26 | | |
| Total fee revenue | Total fee revenue | | 1,971 | | | 1,947 | | | | 1 | | | Total fee revenue | | 1,968 | | | 1,796 | | | | 10 | | |
| Net interest income | Net interest income | | 473 | | | 663 | | | | (29) | | | Net interest income | | 491 | | | 482 | | | | 2 | | |
| Total other income | Total other income | | — | | | 2 | | | | nm | | Total other income | | (1) | | | — | | | | nm | |
| Total revenue | Total revenue | | 2,444 | | | 2,612 | | | | (6) | | | Total revenue | | 2,458 | | | 2,278 | | | | 8 | | |
| Provision for credit losses | Provision for credit losses | | (9) | | | 36 | | | | nm | | Provision for credit losses | | (2) | | | — | | | | nm | |
| Total expenses | Total expenses | | 1,879 | | | 1,859 | | | | 1 | | | Total expenses | | 1,755 | | | 1,739 | | | | 1 | | |
| Income before income tax expense | Income before income tax expense | | $ | 574 | | | $ | 717 | | | | (20) | | | Income before income tax expense | | $ | 705 | | | $ | 539 | | | | 31 | | |
| Pre-tax margin | Pre-tax margin | | 23.5 | % | | 27.5 | % | | | (400) bps | | Pre-tax margin | | 29 | % | | 24 | % | | | | |
| | (Dollars in millions, except where otherwise noted) | | (Dollars in millions, except where otherwise noted) | | Nine Months Ended September 30, | | | % Change | |
| | 2021 | | 2020 | | |
| Servicing fees | | Servicing fees | | $ | 4,165 | | | $ | 3,860 | | | | 8 | % | |
| Foreign exchange trading services | | Foreign exchange trading services | | 869 | | | 998 | | | | (13) | | |
| Securities finance | | Securities finance | | 304 | | | 258 | | | | 18 | | |
| Software and processing fees | | Software and processing fees | | 585 | | | 528 | | | | 11 | | |
| Total fee revenue | | Total fee revenue | | 5,923 | | | 5,644 | | | | 5 | | |
| Net interest income | | Net interest income | | 1,432 | | | 1,716 | | | | (17) | | |
| Total other income | | Total other income | | (1) | | | 2 | | | | nm | |
| Total revenue | | Total revenue | | 7,354 | | | 7,362 | | | | — | | |
| Provision for credit losses | | Provision for credit losses | | (26) | | | 88 | | | | nm | |
| Total expenses | | Total expenses | | 5,389 | | | 5,315 | | | | 1 | | |
| Income before income tax expense | | Income before income tax expense | | $ | 1,991 | | | $ | 1,959 | | | | 2 | | |
| Pre-tax margin | | Pre-tax margin | | 27 | % | | 27 | % | | | | |
nm Not meaningful
Servicing Fees
Servicing fees, as presented in Table 10: Investment Servicing Line of Business Results, increased 7% and 8% in the first quarter ofthree and nine months ended September 30, 2021, respectively, compared to the same periodperiods in 2020, respectively, primarily due to higher average equity market levels, client activity and flows, and net new business, partially offset by normal pricing headwinds. Currency translation increased servicing fees by 3% and 1%2% in the first quarters ofnine months ended September 30, 2021, and 2020, respectively.compared to the same period in 2020.
Servicing fees generated outside the U.S. were approximately 47%48% of total servicing fees in both the first quarter ofthree and nine months ended September 30, 2021, compared to approximately 45%47% and 46% in the same periodperiods in 2020.
2020, respectively.State Street Corporation | 17 | | | | | | | | | | | | | | | | | | | | | | | | | | | |
TABLE 11: ASSETS UNDER CUSTODY AND/OR ADMINISTRATION BY PRODUCT(1)(2) | | |
| (In billions) | September 30, 2021 | | December 31, 2020 | | September 30, 2020 | | | | | | | | | | |
| Collective funds | $ | 15,159 | | | $ | 13,387 | | | $ | 12,204 | | | | | | | | | | | |
| Mutual funds | 11,505 | | | 9,810 | | | 9,183 | | | | | | | | | | | |
| Insurance and other products | 8,176 | | | 8,000 | | | 7,939 | | | | | | | | | | | |
| Pension products | 8,497 | | | 7,594 | | | 7,317 | | | | | | | | | | | |
| Total | $ | 43,337 | | | $ | 38,791 | | | $ | 36,643 | | | | | | | | | | | |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
TABLE 12: ASSETS UNDER CUSTODY AND/OR ADMINISTRATION BY ASSET CLASS(2) | | |
| (In billions) | September 30, 2021 | | December 31, 2020 | | September 30, 2020 | | | | | | | | | | | | |
| Equities | $ | 25,350 | | | $ | 21,626 | | | $ | 20,094 | | | | | | | | | | | | | |
| Fixed-income | 12,808 | | | 12,834 | | | 12,403 | | | | | | | | | | | | | |
| Short-term and other investments | 5,179 | | | 4,331 | | | 4,146 | | | | | | | | | | | | | |
| Total | $ | 43,337 | | | $ | 38,791 | | | $ | 36,643 | | | | | | | | | | | | | |
AND RESULTS OF OPERATIONS
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
TABLE 11: ASSETS UNDER CUSTODY AND/OR ADMINISTRATION BY PRODUCT(1) | | |
| (In billions) | March 31, 2021 | | December 31, 2020 | | March 31, 2020 | | | | | | | | | | |
| Collective funds | $ | 14,052 | | | $ | 13,387 | | | $ | 10,529 | | | | | | | | | | | |
| Mutual funds | 10,439 | | | 9,810 | | | 7,301 | | | | | | | | | | | |
| Insurance and other products | 7,929 | | | 8,000 | | | 7,311 | | | | | | | | | | | |
| Pension products | 7,843 | | | 7,594 | | | 6,723 | | | | | | | | | | | |
| Total | $ | 40,263 | | | $ | 38,791 | | | $ | 31,864 | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| TABLE 12: ASSETS UNDER CUSTODY AND/OR ADMINISTRATION BY ASSET CLASS | | |
| (In billions) | March 31, 2021 | | December 31, 2020 | | March 31, 2020 | | | | | | | | | | | | |
| Equities | $ | 22,825 | | | $ | 21,626 | | | $ | 16,267 | | | | | | | | | | | | | |
| Fixed-income | 13,022 | | | 12,834 | | | 11,096 | | | | | | | | | | | | | |
| Short-term and other investments | 4,416 | | | 4,331 | | | 4,501 | | | | | | | | | | | | | |
| Total | $ | 40,263 | | | $ | 38,791 | | | $ | 31,864 | | | | | | | | | | | | | |
| TABLE 13: ASSETS UNDER CUSTODY AND/OR ADMINISTRATION BY GEOGRAPHY(2)(3) | TABLE 13: ASSETS UNDER CUSTODY AND/OR ADMINISTRATION BY GEOGRAPHY(2)(3) | | TABLE 13: ASSETS UNDER CUSTODY AND/OR ADMINISTRATION BY GEOGRAPHY(2)(3) | |
| (In billions) | (In billions) | March 31, 2021 | | December 31, 2020 | | March 31, 2020 | | (In billions) | September 30, 2021 | | December 31, 2020 | | September 30, 2020 | |
| Americas | Americas | $ | 29,530 | | | $ | 28,245 | | | $ | 22,787 | | | Americas | $ | 31,934 | | | $ | 28,245 | | | $ | 26,666 | | |
| Europe/Middle East/Africa | Europe/Middle East/Africa | 8,256 | | | 8,101 | | | 7,112 | | | Europe/Middle East/Africa | 8,748 | | | 8,101 | | | 7,675 | | |
| Asia/Pacific | Asia/Pacific | 2,477 | | | 2,445 | | | 1,965 | | | Asia/Pacific | 2,655 | | | 2,445 | | | 2,302 | | |
| Total | Total | $ | 40,263 | | | $ | 38,791 | | | $ | 31,864 | | | Total | $ | 43,337 | | | $ | 38,791 | | | $ | 36,643 | | |
(1) Certain previously reported amounts presented have been reclassified to conform to current-period presentation.
(2) Consistent with past practice, AUC/A values for certain asset classes are based on a lag, typically one-month.
(3) Geographic mix is generally based on the domicile of the entity servicing the funds and is not necessarily representative of the underlying asset mix.
State Street Corporation | 20
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Asset servicing mandates newly announced in the firstthird quarter of 2021 totaled approximately $343 billion.$1.66 trillion, with State Street Alpha representing a large proportion of the wins. Servicing assets remaining to be installed in future periods totaled approximately $463 billion$2.73 trillion as of March 31,September 30, 2021, which will be reflected in AUC/A in future periods after installation and will generate servicing fee revenue in subsequent periods. Approximately one-third of servicing assets to be installed as of March 31, 2021 were attributed to State Street Alpha. The full revenue impact of such mandates will be realized over several quarters as the assets are installed and additional services are added over that period. With respect to the current asset mandates of approximately $2.73 trillion that are yet to be installed as of September 30, 2021, we expect the conversion will occur over the coming 12 to 24 months, with approximately half of the annualized revenue expected to be recognized through 2022, and the remainder primarily in 2023.
New asset servicing mandates may be subject to completion of definitive agreements, approval of applicable boards and shareholders and customary regulatory approvals. New asset servicing mandates and servicing assets remaining to be installed in future periods exclude certain new business which has been contracted, but for which the client has not yet provided permission to publicly disclose and the expected installation date extends beyond one quarter. 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. 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 have notified us during the period of their intent to terminate or reduce their relationship with us, which may from time to time be significant.
With respect to these new servicing mandates, once installed we may provide various services, including accounting, bank loan servicing, compliance reporting and monitoring, custody, depository banking services, FX, fund administration, hedge fund servicing, middle office outsourcing, performance and analytics, private equity administration, real estate administration, securities finance, transfer agency and wealth management services. Revenues associated with new servicing mandates may vary based on the breadth of services provided and the timing of installation, and the types of assets.
As a result of a decision to diversify providers, one of our large asset servicing clients has advised us it expects to move a significant portion of its ETF assets currently with State Street to one or more other providers, pending necessary approvals. We expect to continue as a significant service provider for this client after this transition and for the client to
continue to be meaningful to our business. The transition is expected to begin in 2022 but will principally occur in 2023. For the year ended December 31, 2020, the fee revenue associated with the transitioning assets represented approximately 1.5% of our total fee revenue. The total revenue and income impact of this transition will depend upon a range of factors, including potential growth in our continuing business with the client and expense reductions associated with the transition.
State Street Corporation | 18
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
For additional information about the impact of worldwide equity and fixed-income valuations on our fee revenue, as well as other key drivers of our servicing fee revenue, refer to "Fee Revenue" in "Consolidated Results of Operations" included in this Management's Discussion and Analysis.
Foreign Exchange Trading Services
Foreign exchange trading services revenue, as presented in Table 10: Investment Servicing Line of Business Results, decreased 23%increased 6% in the first quarterthree months ended September 30, 2021, compared to the same period in 2020, primarily due to higher direct sales and trading revenue and indirect volumes, partially offset by lower FX volatility. Foreign exchange trading services revenue, as presented in Table 10: Investment Servicing Line of Business Results, decreased 13% in the nine months ended September 30, 2021, compared to the same period in 2020, primarily due to lower FX volatility, as compared to the high levels seen at the beginning of the COVID-19 pandemicvolatility experienced in the first quarternine months of 2020 partially offset by higher client FX volumes.due to the COVID-19 pandemic. Foreign exchange trading services is composed of revenue generated by FX trading and revenue generated by brokerage and other trading services, which made up 70%66% and 30%34%, respectively, of foreign exchange trading services revenue in the firstthird quarter of 2021, compared to 76%61% and 24%39%, respectively, in the same period in 2020. The impact of gross money market fund fee waivers on foreign exchange trading services was $15 million and $38 million in the three and nine months ended September 30, 2021, respectively, compared to $2 million and $4 million in the same periods in 2020, respectively.
We primarily earn FX trading revenue by acting as a principal market-maker through both "direct sales and trading” and “indirect FX trading.”
•Direct sales and trading: Represent FX transactions at negotiated rates with clients and investment managers that contact our trading desk directly. These principal market-making activities include transactions for funds serviced by third party custodians or prime brokers, as well as those funds under custody with us.
State Street Corporation | 21
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
•Indirect FX trading: Represents FX transactions with clients, for which we are the funds' custodian, or their investment managers, routed to our FX desk through our asset-servicing operation. We execute indirect FX trades as a principal at rates disclosed to our clients.
Our FX trading revenue is influenced by multiple factors, including: the volume and type of client FX transactions and related spreads; currency volatility, reflecting market conditions; and our management of exchange rate, interest rate and other market risks associated with our FX activities. The relative impact of these factors on our total FX trading revenues often differs from period to period. For example, assuming all other factors remain constant, increases or decreases in volumes or bid-offer spreads across product mix tend to result in increases or decreases, as the case may be, in client-related FX revenue.
Our clients that utilize indirect FX trading can, in addition to executing their FX transactions through dealers not affiliated with us, transition from indirect FX trading to either direct sales and trading
execution, including our “Street FX” service, or to one of our electronic trading platforms. Street FX, in which we continue to act as a principal market-maker, enables our clients to define their FX execution strategy and automate the FX trade execution process, both for funds under custody with us as well as those under custody at another bank.
We also earn foreign exchange trading services revenue through "electronic FX services" and "other trading, transition management and brokerage revenue."
•Electronic FX services: Our clients may choose to execute FX transactions through one of our electronic trading platforms. These transactions generate revenue through a “click” fee.
•Other trading, transition management and brokerage revenue: As our clients look to us to enhance and preserve portfolio values, they may choose to utilize our Transition or Currency Management capabilities or transact with our Equity Trade execution group. These transactions, which are not limited to foreign exchange, generate revenue via commissions charged for trades transacted during the management of these portfolios.
Securities Finance
Our securities finance business consists of three components:
(1) an agency lending program for State Street Global Advisors managed investment funds with a broad range of investment objectives, which we refer to as the State Street Global Advisors lending funds;
(2) an agency lending program for third-party investment managers and asset owners, which we refer to as the agency lending funds; and
(3) security lending transactions which we enter into as principal, which we refer to as our enhanced custody business.
Securities finance revenue earned from our agency lending activities, which is composed of our split of both the spreads related to cash collateral and the fees related to non-cash collateral, is principally a function of the volume of securities on loan, the interest rate spreads and fees earned on the underlying collateral and our share of the fee split.
As principal, our enhanced custody business borrows securities from the lending client or other market participants and then lends such securities to the subsequent borrower, either our client or a broker/dealer. We act as principal when the lending client is unable to, or elects not to, transact directly with the
State Street Corporation | 19
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
market and execute the transaction and furnish the securities. In our role as principal, we provide support to the transaction through our credit rating. While we source a significant proportion of the securities furnished by us in our role as principal from third parties, we have the ability to source securities through assets under custody from clients who have designated us as an eligible borrower.
Securities finance revenue, as presented in Table 10: Investment Servicing Line of Business Results, increased 7%27% in the first quarter ofthree months ended September 30, 2021, compared to the same period in 2020, primarily driven by higher client securities loan balances and spreads, as well as new business wins in enhanced custody. Securities finance revenue, as presented in Table 10: Investment Servicing Line of Business Results, increased 18% in the nine months ended September 30, 2021, compared to the same period in 2020, primarily driven by higher agency lending and enhanced custody balances.balances, partially offset by lower spreads.
State Street Corporation | 22
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Market influences may continue to affect client demand for securities finance, and as a result our revenue from, and the profitability of, our securities lending activities in future periods. In addition, the constantly evolving regulatory environment, including revised or proposed capital and liquidity standards, interpretations of those standards, and our own balance sheet management activities, may influence modifications to the way in which we deliver our agency lending or enhanced custody businesses, the volume of our securities lending activity and related revenue and profitability in future periods.
Software and Processing Fees
Software and processing fees revenue includes diverse types of fees and revenue, including fees from software licensing and maintenance, fees from our structured products business and other revenue including equity income from our joint venture investments, gains and losses on sales of other assets, market-related adjustments and income associated with certain tax-advantaged investments.
Software and processing fees revenue, presented in Table 10: Investment Servicing Line of Business Results, increased 26% and 11% in the first quarter ofthree and nine months ended September 30, 2021, compared to the same periodperiods in 2020, respectively, and reflects approximately $87$104 million and $327 million from CRD in the first quarter ofthree and nine months ended September 30, 2021, respectively, compared to approximately $91$86 million and $303 million from CRD in the same periodperiods in 2020.2020, respectively. Revenue related to the front office solutions provided by CRD is primarily driven by the sale of term software licenses and software as service arrangements, including professional services such as consulting and implementation services, software support and maintenance. Approximately 50%-70% of revenue associated with a sale of software to be installed on-premises is recognized at a point in time when the customer benefits from obtaining access to and use of the software license, with the percentage
varying based on the length of the contract and other contractual terms. The remainder of revenue for on-premise installations is recognized over the length of the contract as maintenance and other services are provided. Upon renewal of an on-premises software contract, the same pattern of revenue recognition is followed with 50%-70% recognized upon renewal and the balance recognized over the term of the contract. Revenue for a Software as a Service (SaaS) related arrangement, where the customer does not take possession of the software, is recognized over the term of the contract as services are provided. Upon
renewal of a SaaS arrangement, revenue continues to be recognized as services are provided under the new contract. As a result of these differences in how portions of CRD revenue are accounted for, CRD revenue may vary more than other business units quarter to quarter. CRD contributed approximately $90$106 million and $336 million in total revenue in the first quarter ofthree and nine months ended September 30, 2021, respectively, compared to approximately $95$89 million and $314 million in the same periodperiods in 2020, respectively, which included in the three and nine months ended September 30, 2021 approximately $91$104 million and $327 million in software and processing fees, respectively, and $4$3 million and $9 million in brokerage and other trading services, respectively, within foreign exchange trading services.
Amortization of tax advantage investments negatively impacted software and processing fees by approximately $26$23 million and $23$79 million in the first quarters of 2021andthree and nine months ended September 30, 2021, respectively, compared to $24 million and $67 million in the same periods in 2020, respectively.
In addition, FX and market-related adjustments, which also includes certain fair value adjustments, negatively impacted software and processing fees by approximately $4$14 million and $21$16 million in the first quarters ofthree and nine months ended September 30, 2021, respectively, compared to ($2) million and $3 million in the same periods in 2020, respectively.
Expenses
Total expenses for Investment Servicing increased 1% in both the first quarter ofthree and nine months ended September 30, 2021, compared to the same periodperiods in 2020, primarily due to higherreflecting the impact of notable items and seasonal expenses.unfavorable currency translation. Currency translation increased expenses for Investment Servicing by 2%1% in both the first quarter ofthree and nine months ended September 30, 2021 relative to the same periodperiods in 2020. Seasonal deferred incentive compensation expense and payroll taxes were $141 million in the first quarter ofnine months ended September 30, 2021 compared to $125 million in the same period in 2020. Total expenses contributed by CRD were approximately $74 million and $211 million in the first quarter ofthree and nine months ended September 30, 2021, were approximately $67 million,respectively, compared to $58$62 million toand $181 million in the same periodperiods in 2020.2020, respectively. Additional information about expenses is provided under "Expenses" in "Consolidated Results of Operations" included in this Management's Discussion and Analysis.
State Street Corporation | 2023
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Investment Management
| | TABLE 14: INVESTMENT MANAGEMENT LINE OF BUSINESS RESULTS | TABLE 14: INVESTMENT MANAGEMENT LINE OF BUSINESS RESULTS | | TABLE 14: INVESTMENT MANAGEMENT LINE OF BUSINESS RESULTS | |
| (Dollars in millions, except where otherwise noted) | (Dollars in millions, except where otherwise noted) | | Three Months Ended March 31, | | % Change 2021 vs. 2020 | | (Dollars in millions, except where otherwise noted) | | Three Months Ended September 30, | | | % Change | |
| 2021 | | 2020 | | | (Dollars in millions, except where otherwise noted) | | 2021 | | 2020 | % Change | |
Management fees(1)(2) | Management fees(1)(2) | | $ | 493 | | | $ | 464 | | | | 6 | % | | Management fees(1)(2) | | $ | 526 | | | | 10 | % | |
Foreign exchange trading services(1)(3) | Foreign exchange trading services(1)(3) | | 13 | | | 10 | | | | 30 | | | Foreign exchange trading services(1)(3) | | 13 | | | 18 | | | | (28) | | |
| Securities finance | Securities finance | | 4 | | | 3 | | | | 33 | | | Securities finance | | 3 | | | 3 | | | | — | | |
Software and processing fees(4) | Software and processing fees(4) | | 2 | | | (25) | | | | nm | | Software and processing fees(4) | | (6) | | | 10 | | | | nm | |
| Total fee revenue | Total fee revenue | | 512 | | | 452 | | | | 13 | | | Total fee revenue | | 536 | | | 510 | | | | 5 | | |
| Net interest income | Net interest income | | (6) | | | 1 | | | | nm | | Net interest income | | (4) | | | (4) | | | | — | | |
| Total revenue | Total revenue | | 506 | | | 453 | | | | 12 | | | Total revenue | | 532 | | | 506 | | | | 5 | | |
| Provision for credit losses | | Provision for credit losses | | — | | | — | | | | nm | |
| Total expenses | Total expenses | | 397 | | | 385 | | | | 3 | | | Total expenses | | 339 | | | 358 | | | | (5) | | |
| Income before income tax expense | Income before income tax expense | | $ | 109 | | | $ | 68 | | | | 60 | | | Income before income tax expense | | $ | 193 | | | $ | 148 | | | | 30 | | |
| Pre-tax margin | Pre-tax margin | | 21.5 | % | | 15.0 | % | | | 650 bps | | Pre-tax margin | | 36 | % | | 29 | % | | | | |
| | | | (Dollars in millions, except where otherwise noted) | | (Dollars in millions, except where otherwise noted) | | Nine Months Ended September 30, | | | % Change | |
| | 2021 | | 2020 | | |
Management fees(1)(2) | | Management fees(1)(2) | | $ | 1,523 | | | $ | 1,387 | | | | 10 | % | |
Foreign exchange trading services(1)(3) | | Foreign exchange trading services(1)(3) | | 42 | | | 41 | | | | 2 | | |
| Securities finance | | Securities finance | | 10 | | | 10 | | | | — | | |
Software and processing fees(4) | | Software and processing fees(4) | | 3 | | | 1 | | | | nm | |
| Total fee revenue | | Total fee revenue | | 1,578 | | | 1,439 | | | | 10 | | |
| Net interest income | | Net interest income | | (11) | | | (15) | | | | (27) | | |
| Total revenue | | Total revenue | | 1,567 | | | 1,424 | | | | 10 | | |
| Provision for credit losses | | Provision for credit losses | | — | | | — | | | | nm | |
| Total expenses | | Total expenses | | 1,082 | | | 1,096 | | | | (1) | | |
| Income before income tax expense | | Income before income tax expense | | $ | 485 | | | $ | 328 | | | | 48 | | |
| Pre-tax margin | | Pre-tax margin | | 31 | % | | 23 | % | | | | |
(1)Certain fees associated with our GLD ETFs have been reclassified from Foreign exchange trading services to Managementmanagement fees to better reflect the nature of those fees. Prior periods have been reclassified to conform to current-period presentation. These fees were approximately $15$24 million and $58 million in the first quarter of 2020.three and nine months ended September 30, 2020, respectively.
(2)Includes revenues from SPDR® Gold Shares and SPDR® Gold MiniSharesSMMiniSharesSM Trust AUM where we are not the investment manager but act as the marketing agent.
(3) Includes revenue for reimbursements received for certain ETFs associated with State Street Global Advisors where we act as the distribution and marketing agent.
(4) Includes other revenue items that are primarily driven by equity market movements.
nm Not meaningful
Investment Management total revenue increased 12%5% and 10% in the first quarter ofthree and nine months ended September 30, 2021, respectively, compared to the same periodperiods in 2020.
Management Fees
Management fees increased 6%10% in both the first quarter ofthree and nine months ended September 30, 2021, compared to the same periodperiods in 2020, primarily due to higher average equity market levels and net inflows from ETFs, and cash, partially offset by idiosyncratic actions by an idiosyncratic institutional client, asset reallocation from higher fee products as a result of a change in their investment strategypreviously reported, and higher money market fee waivers. As of September 30, 2021, and assuming short-term spot interest rates and the amount of money market fund assets remain constant, we estimate that the impact of gross money market fee waivers on our management fees would be approximately $20 million in the fourth quarter of 2021. Currency translation increased management fees by 2% in the first quarter ofnine months ended September 30, 2021, relative to the same period in 2020.
State Street Corporation | 24
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Management fees generated outside the U.S. were approximately 27%26% of total management fees in both the first quarter ofthree and nine months ended September 30, 2021, compared to approximately 28%25% and 26% in the same periodperiods in 2020.2020, respectively.
| | TABLE 15: ASSETS UNDER MANAGEMENT BY ASSET CLASS AND INVESTMENT APPROACH | TABLE 15: ASSETS UNDER MANAGEMENT BY ASSET CLASS AND INVESTMENT APPROACH | | TABLE 15: ASSETS UNDER MANAGEMENT BY ASSET CLASS AND INVESTMENT APPROACH | |
| (In billions) | (In billions) | March 31, 2021 | | December 31, 2020 | | March 31, 2020 | | (In billions) | September 30, 2021 | | December 31, 2020 | | September 30, 2020 | |
| Equity: | Equity: | | Equity: | |
| Active | Active | $ | 84 | | | $ | 85 | | | $ | 69 | | | Active | $ | 79 | | | $ | 85 | | | $ | 82 | | |
| Passive | Passive | 2,198 | | | 2,086 | | | 1,492 | | | Passive | 2,361 | | | 2,086 | | | 1,876 | | |
Total equity (1) | Total equity (1) | 2,282 | | | 2,171 | | | 1,561 | | | Total equity (1) | 2,440 | | | 2,171 | | | 1,958 | | |
| Fixed-income: | Fixed-income: | | Fixed-income: | |
| Active | Active | 91 | | | 90 | | | 86 | | | Active | 101 | | | 90 | | | 85 | | |
| Passive | Passive | 463 | | | 459 | | | 392 | | | Passive | 509 | | | 459 | | | 424 | | |
Total fixed-income(1) | Total fixed-income(1) | 554 | | | 549 | | | 478 | | | Total fixed-income(1) | 610 | | | 549 | | | 509 | | |
Cash(1)(2) | Cash(1)(2) | 372 | | | 349 | | | 348 | | | Cash(1)(2) | 367 | | | 349 | | | 321 | | |
| Multi-asset-class solutions: | Multi-asset-class solutions: | | Multi-asset-class solutions: | |
| Active | Active | 34 | | | 40 | | | 39 | | | Active | 35 | | | 40 | | | 40 | | |
| Passive | Passive | 155 | | | 146 | | | 101 | | | Passive | 174 | | | 146 | | | 124 | | |
Total multi-asset-class solutions(1) | Total multi-asset-class solutions(1) | 189 | | | 186 | | | 140 | | | Total multi-asset-class solutions(1) | 209 | | | 186 | | | 164 | | |
Alternative investments(3): | Alternative investments(3): | | Alternative investments(3): | |
| Active | Active | 27 | | | 39 | | | 28 | | | Active | 58 | | | 39 | | | 28 | | |
| Passive | Passive | 167 | | | 173 | | | 134 | | | Passive | 178 | | | 173 | | | 168 | | |
Total alternative investments(1) | Total alternative investments(1) | 194 | | | 212 | | | 162 | | | Total alternative investments(1) | 236 | | | 212 | | | 196 | | |
| Total | Total | $ | 3,591 | | | $ | 3,467 | | | $ | 2,689 | | | Total | $ | 3,862 | | | $ | 3,467 | | | $ | 3,148 | | |
(1) The implementation of an improved internal data management system for product level data in the first quarter of 2021 resulted in some AUM reclassifications between the categories presented for prior periods to align with the current presentation. There was no impact to the total level of reported AUM.
(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 and SPDR® Gold MiniSharesSM Trust. We are not the investment manager for the SPDR® Gold Shares and SPDR®Gold MiniSharesSM Trust, but act as the marketing agent.
State Street Corporation | 21
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
| TABLE 16: EXCHANGE-TRADED FUNDS BY ASSET CLASS(1) | TABLE 16: EXCHANGE-TRADED FUNDS BY ASSET CLASS(1) | | TABLE 16: EXCHANGE-TRADED FUNDS BY ASSET CLASS(1) | |
| (In billions) | (In billions) | March 31, 2021 | | December 31, 2020 | | March 31, 2020 | | (In billions) | September 30, 2021 | | December 31, 2020 | | September 30, 2020 | |
Alternative Investments(2)(3) | Alternative Investments(2)(3) | $ | 69 | | | $ | 83 | | | $ | 58 | | | Alternative Investments(2)(3) | $ | 69 | | $ | 83 | | $ | 88 | |
| Equity(3) | Equity(3) | 777 | | | 708 | | | 473 | | | Equity(3) | 849 | | 708 | | 605 | |
| | Multi Asset | | Multi Asset | 1 | | — | | — | |
Fixed-Income(3) | Fixed-Income(3) | 122 | | | 115 | | | 98 | | | Fixed-Income(3) | 131 | | 115 | | 108 | |
| Total Exchange-Traded Funds | Total Exchange-Traded Funds | $ | 968 | | | $ | 906 | | | $ | 629 | | | Total Exchange-Traded Funds | $ | 1,050 | | $ | 906 | | $ | 801 | |
(1) ETFs are a component of AUM presented in the preceding table.
(2) Includes real estate investment trusts, currency and commodities, including SPDR® Gold Shares and SPDR® Gold MiniSharesSM Trust. We are not the investment manager for the SPDR® Gold Shares and SPDR®Gold MiniSharesSM Trust, but act as the marketing agent.
(3) The implementation of an improved internal data management system for product level data in the first quarter of 2021 resulted in some AUM reclassifications between the categories presented for prior periods to align with the current presentation. There was no impact to the total level of reported AUM.
| TABLE 17: GEOGRAPHIC MIX OF ASSETS UNDER MANAGEMENT(1) | TABLE 17: GEOGRAPHIC MIX OF ASSETS UNDER MANAGEMENT(1) | | TABLE 17: GEOGRAPHIC MIX OF ASSETS UNDER MANAGEMENT(1) | |
| (In billions) | (In billions) | March 31, 2021 | | December 31, 2020 | | March 31, 2020 | | (In billions) | September 30, 2021 | | December 31, 2020 | | September 30, 2020 | |
| North America | North America | $ | 2,512 | | | $ | 2,411 | | | $ | 1,843 | | | North America | $ | 2,732 | | | $ | 2,411 | | | $ | 2,163 | | |
| Europe/Middle East/Africa | Europe/Middle East/Africa | 530 | | | 512 | | | 418 | | | Europe/Middle East/Africa | 558 | | | 512 | | | 483 | | |
| Asia/Pacific | Asia/Pacific | 549 | | | 544 | | | 428 | | | Asia/Pacific | 572 | | | 544 | | | 502 | | |
| Total | Total | $ | 3,591 | | | $ | 3,467 | | | $ | 2,689 | | | Total | $ | 3,862 | | | $ | 3,467 | | | $ | 3,148 | | |
(1) Geographic mix is based on client location or fund management location.
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| TABLE 18: ACTIVITY IN ASSETS UNDER MANAGEMENT BY PRODUCT CATEGORY | |
| (In billions) | Equity(1) | | Fixed-Income(1) | | Cash(1)(2) | | Multi-Asset-Class Solutions(1) | | Alternative Investments(1)(3) | | Total | |
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| Balance as of December 31, 2019 | $ | 1,990 | | | $ | 479 | | | $ | 317 | | | $ | 157 | | | $ | 173 | | | $ | 3,116 | | |
Long-term institutional flows, net(4) | (101) | | | 4 | | | (1) | | | 9 | | | (11) | | | (100) | | |
| Exchange-traded fund flows, net | 12 | | | 16 | | | — | | | — | | | 16 | | | 44 | | |
| Cash fund flows, net | — | | | — | | | 32 | | | — | | | — | | | 32 | | |
| Total flows, net | (89) | | | 20 | | | 31 | | | 9 | | | 5 | | | (24) | | |
| Market appreciation (depreciation) | 241 | | | 42 | | | (1) | | | 18 | | | 30 | | | 330 | | |
| Foreign exchange impact | 29 | | | 8 | | | 2 | | | 2 | | | 4 | | | 45 | | |
| Total market/foreign exchange impact | 270 | | | 50 | | | 1 | | | 20 | | | 34 | | | 375 | | |
| Balance as of December 31, 2020 | $ | 2,171 | | | $ | 549 | | | $ | 349 | | | $ | 186 | | | $ | 212 | | | $ | 3,467 | | |
Long-term institutional flows, net(4) | $ | (35) | | | $ | 26 | | | $ | (1) | | | $ | 1 | | | $ | 1 | | | $ | (8) | | |
| Exchange-traded fund flows, net | 21 | | | 9 | | | — | | | — | | | (7) | | | 23 | | |
| Cash fund flows, net | — | | | — | | | 24 | | | — | | | — | | | 24 | | |
| Total flows, net | (14) | | | 35 | | | 23 | | | 1 | | | (6) | | | 39 | | |
| Market appreciation (depreciation) | 148 | | | (24) | | | — | | | 3 | | | (11) | | | 116 | | |
| Foreign exchange impact | (23) | | | (6) | | | — | | | (1) | | | (1) | | | (31) | | |
| Total market/foreign exchange impact | 125 | | | (30) | | | — | | | 2 | | | (12) | | | 85 | | |
| Balance as of March 31, 2021 | $ | 2,282 | | | $ | 554 | | | $ | 372 | | | $ | 189 | | | $ | 194 | | | $ | 3,591 | | |
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State Street Corporation | 25
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| TABLE 18: ACTIVITY IN ASSETS UNDER MANAGEMENT BY PRODUCT CATEGORY | |
| (In billions) | Equity(1) | | Fixed-Income(1) | | Cash(1)(2) | | Multi-Asset-Class Solutions(1) | | Alternative Investments(1)(3) | | Total | |
| Balance as of December 31, 2019 | $ | 1,990 | | | $ | 479 | | | $ | 317 | | | $ | 157 | | | $ | 173 | | | $ | 3,116 | | |
Long-term institutional flows, net(4) | 21 | | | (10) | | | (1) | | | — | | | — | | | 10 | | |
| Exchange-traded fund flows, net | (14) | | | 7 | | | — | | | — | | | 4 | | | (3) | | |
| Cash fund flows, net | — | | | — | | | 32 | | | — | | | — | | | 32 | | |
| Total flows, net | 7 | | | (3) | | | 31 | | | — | | | 4 | | | 39 | | |
| Market appreciation (depreciation) | (419) | | | 5 | | | 2 | | | (16) | | | (8) | | | (436) | | |
| Foreign exchange impact | (17) | | | (3) | | | (2) | | | (1) | | | (7) | | | (30) | | |
| Total market/foreign exchange impact | (436) | | | 2 | | | — | | | (17) | | | (15) | | | (466) | | |
| Balance as of March 31, 2020 | 1,561 | | | 478 | | | 348 | | | 140 | | | 162 | | | 2,689 | | |
Long-term institutional flows, net(4) | (17) | | | (10) | | | — | | | 1 | | | (5) | | | (31) | | |
| Exchange-traded fund flows, net | 8 | | | 6 | | | — | | | — | | | 12 | | | 26 | | |
| Cash fund flows, net | — | | | — | | | 28 | | | — | | | — | | | 28 | | |
| Total flows, net | (9) | | | (4) | | | 28 | | | 1 | | | 7 | | | 23 | | |
| Market appreciation (depreciation) | 283 | | | 17 | | | (1) | | | 15 | | | 10 | | | 324 | | |
| Foreign exchange impact | 10 | | | 2 | | | 1 | | | 1 | | | 4 | | | 18 | | |
| Total market/foreign exchange impact | 293 | | | 19 | | | — | | | 16 | | | 14 | | | 342 | | |
| Balance as of June 30, 2020 | 1,845 | | | 493 | | | 376 | | | 157 | | | 183 | | | 3,054 | | |
Long-term institutional flows, net(4) | (22) | | | 17 | | | — | | | 2 | | | (5) | | | (8) | | |
| Exchange-traded fund flows, net | (4) | | | — | | | — | | | — | | | 5 | | | 1 | | |
| Cash fund flows, net | — | | | — | | | (58) | | | — | | | — | | | (58) | | |
| Total flows, net | (26) | | | 17 | | | (58) | | | 2 | | | — | | | (65) | | |
| Market appreciation (depreciation) | 124 | | | (5) | | | 2 | | | 4 | | | 11 | | | 136 | | |
| Foreign exchange impact | 15 | | | 4 | | | 1 | | | 1 | | | 2 | | | 23 | | |
| Total market/foreign exchange impact | 139 | | | (1) | | | 3 | | | 5 | | | 13 | | | 159 | | |
| Balance as of September 30, 2020 | $ | 1,958 | | | $ | 509 | | | $ | 321 | | | $ | 164 | | | $ | 196 | | | $ | 3,148 | | |
| Balance as of December 31, 2020 | $ | 2,171 | | | $ | 549 | | | $ | 349 | | | $ | 186 | | | $ | 212 | | | $ | 3,467 | | |
Long-term institutional flows, net(4) | (35) | | | 26 | | | (1) | | | 1 | | | 1 | | | (8) | | |
| Exchange-traded fund flows, net | 21 | | | 9 | | | — | | | — | | | (7) | | | 23 | | |
| Cash fund flows, net | — | | | — | | | 24 | | | — | | | — | | | 24 | | |
| Total flows, net | (14) | | | 35 | | | 23 | | | 1 | | | (6) | | | 39 | | |
| Market appreciation (depreciation) | 148 | | | (24) | | | — | | | 3 | | | (11) | | | 116 | | |
| Foreign exchange impact | (23) | | | (6) | | | — | | | (1) | | | (1) | | | (31) | | |
| Total market/foreign exchange impact | 125 | | | (30) | | | — | | | 2 | | | (12) | | | 85 | | |
| Balance as of March 31, 2021 | 2,282 | | | 554 | | | 372 | | | 189 | | | 194 | | | 3,591 | | |
Long-term institutional flows, net(4) | 13 | | | 37 | | | — | | | 7 | | | (2) | | | 55 | | |
| Exchange-traded fund flows, net | 15 | | | 5 | | | — | | | — | | | 1 | | | 21 | | |
| Cash fund flows, net | — | | | — | | | 7 | | | — | | | — | | | 7 | | |
| Total flows, net | 28 | | | 42 | | | 7 | | | 7 | | | (1) | | | 83 | | |
| Market appreciation (depreciation) | 152 | | | 14 | | | 2 | | | 11 | | | 45 | | | 224 | | |
| Foreign exchange impact | (1) | | | — | | | — | | | — | | | — | | | (1) | | |
| Total market/foreign exchange impact | 151 | | | 14 | | | 2 | | | 11 | | | 45 | | | 223 | | |
| Balance as of June 30, 2021 | 2,461 | | | 610 | | | 381 | | | 207 | | | 238 | | | 3,897 | | |
Long-term institutional flows, net(4) | (10) | | | — | | | — | | | 4 | | | — | | | (6) | | |
| Exchange-traded fund flows, net | 12 | | | 4 | | | — | | | — | | | (3) | | | 13 | | |
| Cash fund flows, net | — | | | — | | | (12) | | | — | | | — | | | (12) | | |
| Total flows, net | 2 | | | 4 | | | (12) | | | 4 | | | (3) | | | (5) | | |
| Market appreciation (depreciation) | (13) | | | (1) | | | (1) | | | (1) | | | 4 | | | (12) | | |
| Foreign exchange impact | (10) | | | (3) | | | (1) | | | (1) | | | (3) | | | (18) | | |
| Total market/foreign exchange impact | (23) | | | (4) | | | (2) | | | (2) | | | 1 | | | (30) | | |
| Balance as of September 30, 2021 | $ | 2,440 | | | $ | 610 | | | $ | 367 | | | $ | 209 | | | $ | 236 | | | $ | 3,862 | | |
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(1) The implementation of an improved internal data management system for product level data in the first quarter of 2021 resulted in some AUM reclassifications between the categories presented for prior periods to align with the current presentation. There was no impact to the total level of reported AUM.
(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 and SPDR® Gold MiniSharesSM Trust. We are not the investment manager for the SPDR® Gold Shares and SPDR®Gold MiniSharesSM Trust, but act as the marketing agent.
(4) Amounts represent long-term portfolios, excluding ETFs.
State Street Corporation | 2226
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Expenses
Total expenses for Investment Management increased 3% indecreased 5% in the first quarter ofthree months ended September 30, 2021, compared to the same period in 2020, primarily due to expense savings initiatives, partially offset by higher investments and unfavorable currency translation. Total expenses for Investment Management decreased 1% in the nine months ended September 30, 2021, compared to the same period in 2020, primarily due to expense savings initiatives, partially offset by higher seasonal expenses partially offset by lower delivery costs and an idiosyncratic client asset reallocation.currency translation. Seasonal deferred incentive compensation expense and payroll taxes were $35 million in the first quarter ofnine months ended September 30, 2021, compared to $26 million in the same period in 2020. Currency translation increased expenses for Investment Management by 2%1% in both the first quarter ofthree and nine months ended September 30, 2021, relative to the same periodperiods in 2020.
Additional information about expenses is provided under "Expenses" in "Consolidated Results of Operations" included in this Management's Discussion and Analysis.
FINANCIAL CONDITION
The structure of our consolidated statement of condition is primarily driven by the liabilities generated by our Investment Servicing and Investment Management lines of business. Our clients' needs and our operating objectives determine balance sheet volume, mix and currency denomination. As our clients execute their worldwide cash management and investment activities, they utilize deposits and short-term investments that constitute the majority of our liabilities. These liabilities are generally in the form of interest-bearing transaction account deposits, which are denominated in a variety of currencies; non-interest-bearing demand deposits; and repurchase agreements, which generally serve as short-term investment alternatives for our clients.
Deposits and other liabilities resulting from client initiated transactions are invested in assets that generally have contractual maturities significantly longer than our liabilities; however, we evaluate the operational nature of our deposits and seek to maintain appropriate short-term liquidity of those liabilities that are not operational in nature and maintain longer-termed assets for our operational deposits. Our assets consist primarily of securities held in our AFS or HTM portfolios and short-duration financial instruments, such as interest-bearing deposits with banks and securities purchased under resale agreements. The actual mix of assets is determined by the characteristics of the client liabilities and our desire to maintain a well-diversified portfolio of high-quality assets.
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TABLE 19: AVERAGE STATEMENT OF CONDITION(1) | | | | |
| Three Months Ended March 31, | | |
| (In millions) | 2021 | | 2020 | | | | |
| Assets: | | | | | | | |
| Interest-bearing deposits with banks | $ | 95,235 | | | $ | 67,120 | | | | | |
| Securities purchased under resale agreements | 4,568 | | | 1,805 | | | | | |
| Trading account assets | 800 | | | 915 | | | | | |
| Investment securities: | | | | | | | |
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| Investment securities available-for-sale | 59,191 | | | 54,242 | | | | | |
| Investment securities held-to-maturity | 47,356 | | | 41,273 | | | | | |
| Investment securities held to maturity purchased under money market liquidity facility | 1,262 | | | 2,045 | | | | | |
| Total Investment securities | 107,809 | | | 97,560 | | | | | |
| Loans | 28,025 | | | 28,468 | | | | | |
| Other interest-earning assets | 18,296 | | | 10,764 | | | | | |
| Average total interest-earning assets | 254,733 | | | 206,632 | | | | | |
| Cash and due from banks | 4,529 | | | 3,856 | | | | | |
| Other non-interest-earning assets | 37,066 | | | 40,693 | | | | | |
| Average total assets | $ | 296,328 | | | $ | 251,181 | | | | | |
| Liabilities and shareholders’ equity: | | | | | | | |
| Interest-bearing deposits: | | | | | | | |
| U.S. | $ | 100,974 | | | $ | 80,247 | | | | | |
| Non-U.S. | 78,433 | | | 64,340 | | | | | |
Total interest-bearing deposits(2) | 179,407 | | | 144,587 | | | | | |
| Securities sold under repurchase agreements | 1,017 | | | 1,773 | | | | | |
| Short-term borrowings under money market liquidity facility | 1,264 | | | 2,187 | | | | | |
| Other short-term borrowings | 764 | | | 2,960 | | | | | |
| Long-term debt | 13,819 | | | 13,288 | | | | | |
| Other interest-bearing liabilities | 4,848 | | | 3,434 | | | | | |
| Average total interest-bearing liabilities | 201,119 | | | 168,229 | | | | | |
Non-interest-bearing deposits(2) | 46,825 | | | 35,573 | | | | | |
| Other non-interest-bearing liabilities | 22,423 | | | 23,052 | | | | | |
| Preferred shareholders’ equity | 2,378 | | | 2,861 | | | | | |
| Common shareholders’ equity | 23,583 | | | 21,466 | | | | | |
| Average total liabilities and shareholders’ equity | $ | 296,328 | | | $ | 251,181 | | | | | |
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TABLE 19: AVERAGE STATEMENT OF CONDITION(1) | | | | |
| Nine Months Ended September 30, | | |
| (In millions) | 2021 | | 2020 | | | | |
| Assets: | | | | | | | |
| Interest-bearing deposits with banks | $ | 91,291 | | | $ | 75,517 | | | | | |
| Securities purchased under resale agreements | 4,194 | | | 3,114 | | | | | |
| Trading account assets | 754 | | | 897 | | | | | |
| Investment securities: | | | | | | | |
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| Investment securities available-for-sale | 65,051 | | | 57,109 | | | | | |
| Investment securities held-to-maturity | 45,526 | | | 41,595 | | | | | |
| Investment securities held-to-maturity purchased under money market liquidity facility | 420 | | | 9,516 | | | | | |
| Total investment securities | 110,997 | | | 108,220 | | | | | |
| Loans | 29,858 | | | 27,266 | | | | | |
| Other interest-earning assets | 21,322 | | | 10,729 | | | | | |
| Average total interest-earning assets | 258,416 | | | 225,743 | | | | | |
| Cash and due from banks | 5,077 | | | 3,663 | | | | | |
| Other non-interest-earning assets | 35,150 | | | 37,336 | | | | | |
| Average total assets | $ | 298,643 | | | $ | 266,742 | | | | | |
| Liabilities and shareholders’ equity: | | | | | | | |
| Interest-bearing deposits: | | | | | | | |
| U.S. | $ | 105,286 | | | $ | 85,592 | | | | | |
| Non-U.S. | 81,318 | | | 66,953 | | | | | |
Total interest-bearing deposits(2) | 186,604 | | | 152,545 | | | | | |
| Securities sold under repurchase agreements | 606 | | | 2,687 | | | | | |
| Short-term borrowings under money market liquidity facility | 421 | | | 9,550 | | | | | |
| Other short-term borrowings | 832 | | | 2,582 | | | | | |
| Long-term debt | 13,431 | | | 14,553 | | | | | |
| Other interest-bearing liabilities | 5,332 | | | 3,217 | | | | | |
| Average total interest-bearing liabilities | 207,226 | | | 185,134 | | | | | |
Non-interest-bearing deposits(2) | 47,358 | | | 36,276 | | | | | |
| Other non-interest-bearing liabilities | 18,407 | | | 20,591 | | | | | |
| Preferred shareholders’ equity | 2,110 | | | 2,601 | | | | | |
| Common shareholders’ equity | 23,542 | | | 22,140 | | | | | |
| Average total liabilities and shareholders’ equity | $ | 298,643 | | | $ | 266,742 | | | | | |
(1) Additional information about our average statement of condition, primarily our interest-earning assets and interest-bearing liabilities, is provided in "Net Interest Income" included in this Management's Discussion and Analysis.
(2) Total deposits averaged $226.23$233.96 billion in the first quarter ofnine months ended September 30, 2021compared to $180.16$188.82 billion in the same period in 2020.
State Street Corporation | 2327
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Investment Securities
| | TABLE 20: CARRYING VALUES OF INVESTMENT SECURITIES | TABLE 20: CARRYING VALUES OF INVESTMENT SECURITIES | | TABLE 20: CARRYING VALUES OF INVESTMENT SECURITIES | |
| | | (In millions) | (In millions) | March 31, 2021 | | December 31, 2020 | | (In millions) | September 30, 2021 | | December 31, 2020 | |
| Available-for-sale: | Available-for-sale: | | | | | Available-for-sale: | | | | |
| U.S. Treasury and federal agencies: | U.S. Treasury and federal agencies: | | | U.S. Treasury and federal agencies: | | |
| Direct obligations | Direct obligations | $ | 8,937 | | | $ | 6,575 | | | Direct obligations | $ | 14,339 | | | $ | 6,575 | | |
| Mortgage-backed securities | Mortgage-backed securities | 14,425 | | | 14,305 | | | Mortgage-backed securities | 16,223 | | | 14,305 | | |
| Total U.S. Treasury and federal agencies | Total U.S. Treasury and federal agencies | 23,362 | | | 20,880 | | | Total U.S. Treasury and federal agencies | 30,562 | | | 20,880 | | |
| Asset-backed securities: | | | | | |
Student loans(1) | 288 | | | 314 | | | |
| Credit cards | 91 | | | 90 | | | |
| | Collateralized loan obligations | 3,775 | | | 2,966 | | | |
Non-agency CMBS and RMBS(2) | 71 | | | 78 | | | |
| Total asset-backed securities | 4,225 | | | 3,448 | | | |
| Non-U.S. debt securities: | Non-U.S. debt securities: | | | Non-U.S. debt securities: | | |
| Mortgage-backed securities | Mortgage-backed securities | 2,032 | | | 1,996 | | | Mortgage-backed securities | 2,141 | | | 1,996 | | |
| Asset-backed securities | Asset-backed securities | 2,297 | | | 2,291 | | | Asset-backed securities | 2,365 | | | 2,291 | | |
| Government securities | 9,910 | | | 12,539 | | | |
| Non-U.S. sovereign, supranational and non-U.S. agency | | Non-U.S. sovereign, supranational and non-U.S. agency | 22,854 | | | 22,087 | | |
Other(1) | | Other(1) | 3,306 | | | 3,355 | | |
| Total non-U.S. debt securities | | Total non-U.S. debt securities | 30,666 | | | 29,729 | | |
| Asset-backed securities: | | Asset-backed securities: | | | | |
Student loans(2) | | Student loans(2) | 231 | | | 314 | | |
| Collateralized loan obligations(3) | | Collateralized loan obligations(3) | 4,296 | | | 2,966 | | |
Non-agency CMBS and RMBS(4) | | Non-agency CMBS and RMBS(4) | 59 | | | 78 | | |
| Other | Other | 13,709 | | | 12,903 | | | Other | 92 | | | 90 | | |
| Total non-U.S. debt securities | 27,948 | | | 29,729 | | | |
| Total asset-backed securities | | Total asset-backed securities | 4,678 | | | 3,448 | | |
| State and political subdivisions | State and political subdivisions | 1,498 | | | 1,548 | | | State and political subdivisions | 1,396 | | | 1,548 | | |
| | Other U.S. debt securities | 3,479 | | | 3,443 | | | |
Other U.S. debt securities(5) | | Other U.S. debt securities(5) | 2,977 | | | 3,443 | | |
| Total available-for-sale securities(3)(7) | $ | 60,512 | | | $ | 59,048 | | | |
| Held-to-maturity(4): | | | |
Total available-for-sale securities(6) | | Total available-for-sale securities(6) | $ | 70,279 | | | $ | 59,048 | | |
| Held-to-maturity: | | Held-to-maturity: | | | | |
| U.S. Treasury and federal agencies: | U.S. Treasury and federal agencies: | | | U.S. Treasury and federal agencies: | | |
| Direct obligations | Direct obligations | $ | 5,530 | | | $ | 6,057 | | | Direct obligations | $ | 2,709 | | | $ | 6,057 | | |
| Mortgage-backed securities | Mortgage-backed securities | 34,930 | | | 36,901 | | | Mortgage-backed securities | 33,525 | | | 36,901 | | |
| Total U.S. Treasury and federal agencies | Total U.S. Treasury and federal agencies | 40,460 | | | 42,958 | | | Total U.S. Treasury and federal agencies | 36,234 | | | 42,958 | | |
| Non-U.S. debt securities: | | Non-U.S. debt securities: | | |
| Mortgage-backed securities | | Mortgage-backed securities | 209 | | | 303 | | |
| | Non-U.S. sovereign, supranational and non-U.S. agency | | Non-U.S. sovereign, supranational and non-U.S. agency | 1,508 | | | 342 | | |
| | Total non-U.S. debt securities | | Total non-U.S. debt securities | 1,717 | | | 645 | | |
| Asset-backed securities: | Asset-backed securities: | | | | | Asset-backed securities: | | | | |
Student loans(1) | 4,745 | | | 4,774 | | | |
Student loans(2) | | Student loans(2) | 5,017 | | | 4,774 | | |
| Non-agency CMBS and RMBS(5) | 526 | | | 554 | | | |
Non-agency CMBS and RMBS(7) | | Non-agency CMBS and RMBS(7) | 380 | | | 554 | | |
| Total asset-backed securities | Total asset-backed securities | 5,271 | | | 5,328 | | | Total asset-backed securities | 5,397 | | | 5,328 | | |
| Non-U.S. debt securities: | | | |
| Mortgage-backed securities | 286 | | | 303 | | | |
| | Government securities | 246 | | | 342 | | | |
| | Total non-U.S. debt securities | 532 | | | 645 | | | |
| Total(6)(7) | 46,263 | | | 48,931 | | | |
Held-to-maturity under money market mutual fund liquidity facility(8) | 201 | | | 3,300 | | | |
Total held-to-maturity securities(3)(7) | $ | 46,464 | | | $ | 52,231 | | | |
| Total(6)(8) | | Total(6)(8) | 43,348 | | | 48,931 | | |
| Held-to-maturity under money market mutual fund liquidity facility | | Held-to-maturity under money market mutual fund liquidity facility | — | | | 3,300 | | |
Total held-to-maturity securities(6) | | Total held-to-maturity securities(6) | $ | 43,348 | | | $ | 52,231 | | |
(1) As of September 30, 2021 and December 31, 2020, the fair value includes non-U.S. corporate bonds of $1.76 billion and $1.88 billion, respectively.
(2)Primarily comprised of securities guaranteed by the federal government with respect to at least 97% of defaulted principal and accrued interest on the underlying loans.
(2)(3) Excludes collateralized loan obligations in loan form. Refer to Note 4 for additional information.
(4) Consists entirely of non-agency CMBS as of both March 31,September 30, 2021 and December 31, 2020.
(3) At March 31, 2021, approximately 25% and 12% of the total available-for-sale securities and held-for-maturity securities, respectively, were floating rate securities. Fixed-to-floating rate securities had a book value of approximately $150 million or 0.14% of the total portfolio.
(4) Includes securities at amortized cost or fair value on the date of transfer from AFS.
(5) As of March 31,September 30, 2021 and December 31, 2020, the total amortized cost included $446 millionfair value of U.S. corporate bonds was $2.98 billion and $464 million, respectively, of non-agency CMBS and $80 million and $90 million of non-agency RMBS,$3.44 billion, respectively.
(6) As of March 31, 2021, we recognized an allowance for credit losses of $2 million on HTM investment securities.
(7) An immaterial amount of accrued interest related to HTM and AFS investment securities was excluded from the amortized cost basis for the yearperiod ended MarchSeptember 30, 2021.
(7) As of September 30, 2021 and December 31, 2021.2020, the total amortized cost included $315 million and $464 million, respectively, of non-agency CMBS and $65 million and $90 million of non-agency RMBS, respectively.
(8) Consists entirelyAs of U.S.September 30, 2021, we recognized an allowance for credit losses of $2 million on HTM investment securities.
Additional information about our investment securities portfolio is provided in Note 3 to the consolidated financial statements in this Form 10-Q.
We manage our investment securities portfolio to align with the interest rate and duration characteristics of our client liabilities and in the context of the overall structure of our consolidated statement of condition, in consideration of the global interest rate environment. We consider a well-diversified, high-credit quality investment securities portfolio to be an important element in the management of our consolidated statement of condition.
Average duration of our investment securities portfolio was 3.1 years and 3.0 years as of March 31,September 30, 2021 and December 31, 2020, respectively. The increase in securities duration is primarily driven by higher interest rates leading to slower prepayment speeds amidst higher long-end interest rates.MBS paydowns and the run-off of MMLF securities, partially offset by portfolio activity, including purchases, run-off and sales.
Approximately 92% of the carrying value of the portfolio was rated “AAA” or “AA” as of both March 31,September 30, 2021 and December 31, 2020, respectively.2020.
| TABLE 21: INVESTMENT PORTFOLIO BY EXTERNAL CREDIT RATING (EXCLUDING SECURITIES PURCHASED UNDER THE
MMLF PROGRAM) | TABLE 21: INVESTMENT PORTFOLIO BY EXTERNAL CREDIT RATING (EXCLUDING SECURITIES PURCHASED UNDER THE
MMLF PROGRAM) | TABLE 21: INVESTMENT PORTFOLIO BY EXTERNAL CREDIT RATING (EXCLUDING SECURITIES PURCHASED UNDER THE MMLF PROGRAM) |
| | March 31, 2021 | | December 31, 2020 | | September 30, 2021 | | December 31, 2020 |
AAA(1) | AAA(1) | 79 | % | | 78 | % | AAA(1) | 79 | % | | 78 | % |
| AA | AA | 13 | | | 14 | | AA | 13 | | | 14 | |
| A | A | 4 | | | 4 | | A | 4 | | | 4 | |
| BBB | BBB | 4 | | | 4 | | BBB | 4 | | | 4 | |
| | | 100 | % | | 100 | % | | 100 | % | | 100 | % |
(1) Includes U.S. Treasury and federal agency securities that are split-rated, “AAA” by Moody’s Investors Service and “AA+” by Standard & Poor’s and also includes Agency MBS securities which are not explicitly rated but which have an explicit or assumed guarantee from the U.S. government.
As of March 31,September 30, 2021 and December 31, 2020, the investment portfolio was diversified with respect to asset class composition. The following table presents the composition of these asset classes.
| | TABLE 22: INVESTMENT PORTFOLIO BY ASSET CLASS | TABLE 22: INVESTMENT PORTFOLIO BY ASSET CLASS | TABLE 22: INVESTMENT PORTFOLIO BY ASSET CLASS |
| | March 31, 2021 | | December 31, 2020 | | September 30, 2021 | | December 31, 2020 |
U.S. Agency
Mortgage-backed securities | U.S. Agency
Mortgage-backed securities | 38 | % | | 39 | % | U.S. Agency
Mortgage-backed securities | 34 | % | | 39 | % |
| Foreign sovereign | Foreign sovereign | 18 | | | 20 | | Foreign sovereign | 21 | | | 20 | |
| U.S. Treasuries | U.S. Treasuries | 14 | | | 11 | | U.S. Treasuries | 15 | | | 11 | |
| Asset-backed securities | Asset-backed securities | 13 | | | 11 | | Asset-backed securities | 13 | | | 11 | |
Other credit(1) | Other credit(1) | 17 | | | 19 | | Other credit(1) | 17 | | | 19 | |
| | 100 | % | | 100 | % | | 100 | % | | 100 | % |
(1) Includes the securities purchased under the MMLF program.
Non-U.S. Debt Securities
Approximately 27% of the aggregate carrying value of our investment securities portfolio was non-U.S. debt securities as of both March 31, 2021 and December 31, 2020.
State Street Corporation | 2428
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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TABLE 23: NON-U.S. DEBT SECURITIES(1) |
| (In millions) | March 31, 2021 | | December 31, 2020 |
| Available-for-sale: | | | |
| Canada | $ | 3,571 | | | $ | 3,163 | |
European(2) | 3,121 | | | 3,275 | |
| Australia | 2,571 | | | 2,809 | |
| France | 2,468 | | | 2,829 | |
| Germany | 2,022 | | | 2,155 | |
| United Kingdom | 1,421 | | | 1,209 | |
| Netherlands | 1,365 | | | 1,528 | |
| Austria | 1,268 | | | 1,544 | |
| Spain | 1,228 | | | 1,642 | |
| Belgium | 1,220 | | | 1,618 | |
Asian(2) | 1,205 | | | 1,165 | |
| Italy | 924 | | | 1,014 | |
| Finland | 850 | | | 1,222 | |
| Ireland | 796 | | | 1,226 | |
| Japan | 510 | | | 560 | |
| Hong Kong | 205 | | | 162 | |
| Brazil | 187 | | | 74 | |
| Sweden | 184 | | | 212 | |
| Luxembourg | 87 | | | 83 | |
| Norway | 79 | | | 22 | |
Other(3) | 2,666 | | | 2,217 | |
| Total | $ | 27,948 | | | $ | 29,729 | |
| Held-to-maturity: | | | |
| Singapore | $ | 247 | | | $ | 342 | |
| Australia | 84 | | | 90 | |
| United Kingdom | 81 | | | 84 | |
| Spain | 78 | | | 84 | |
| | | |
Other(4) | 42 | | | 45 | |
| Total | $ | 532 | | | $ | 645 | |
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Approximately 28% and 27% of the aggregate carrying value of our investment securities portfolio was non-U.S. debt securities as of September 30, 2021 and December 31, 2020, respectively.
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TABLE 23: NON-U.S. DEBT SECURITIES(1) |
| (In millions) | September 30, 2021 | | December 31, 2020 |
| Available-for-sale: | | | |
| Canada | $ | 6,444 | | | $ | 3,163 | |
| Germany | 2,297 | | | 2,155 | |
| France | 2,272 | | | 2,829 | |
| Australia | 2,080 | | | 2,809 | |
| Austria | 1,394 | | | 1,544 | |
| Japan | 1,382 | | | 560 | |
| Spain | 1,264 | | | 1,642 | |
| Netherlands | 1,195 | | | 1,528 | |
| United Kingdom | 1,177 | | | 1,209 | |
| Belgium | 1,077 | | | 1,618 | |
| Italy | 867 | | | 1,014 | |
| Finland | 866 | | | 1,222 | |
| Ireland | 768 | | | 1,226 | |
Other(2) | 7,583 | | | 7,210 | |
| Total | $ | 30,666 | | | $ | 29,729 | |
| Held-to-maturity: | | | |
| Singapore | $ | 149 | | | $ | 342 | |
| Australia | 65 | | | 90 | |
| Spain | 70 | | | 84 | |
Other(2) | 1,433 | | | 129 | |
| Total | $ | 1,717 | | | $ | 645 | |
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(1) Geography is determined primarily based on the domicile of collateral or issuer.
(2)Consists entirely As of supranational bonds.
(3) Included approximately $2,605 million and $2,166 million as of March 31,September 30, 2021, and December 31, 2020, respectively, related to other non-U.S. investments include $6.8 billion supranational bonds.
(4) Included approximately $42 million in AFS securities and $45 million as of March 31, 2021 and December 31, 2020, respectively, related to Italy and Portugal, all of which were related to MBS.$1.4 billion supranational bonds in HTM securities.
Approximately 80% of the aggregate carrying value of these non-U.S. debt securities was rated “AAA” or “AA” as of both March 31,September 30, 2021 and December 31, 2020. The majority of these securities comprised senior positions within the security structures; these positions have a level of protection provided through subordination and other forms of credit protection. As of both March 31,September 30, 2021 and December 31, 2020, approximately 25%26% of the aggregate carrying value of these non-U.S. debt securities was floating-rate.
As of March 31,September 30, 2021, our non-U.S. debt securities had an average market-to-book ratio of 100.9%100.6%, and an aggregate pre-tax net unrealized gain of $246$190 million, composed of gross unrealized gains of $332$258 million and gross unrealized losses of $86$68 million. These unrealized amounts included:
•a pre-tax net unrealized gain of $179$130 million, composed of gross unrealized gains of $262$193 million and gross unrealized losses of $83$63 million, associated with non-U.S. AFS debt securities; and
•a pre-tax net unrealized gain of $67$60 million, composed of gross unrealized gains of $70 $65
million and gross unrealized losses of $3$5 million, associated with non-U.S. HTM debt securities.
As of March 31,September 30, 2021, the underlying collateral for non-U.S. MBS and ABS primarily included Australian, U.K., Netherlands, Spanish and Italian mortgages. The securities listed under “Canada” were composed of Canadian government securities and provincial bonds, corporate debt and non-U.S. agency securities. The securities listed under “France” were composed of sovereign bonds, corporate debt, covered bonds, ABS and Non-U.S. agency securities. The securities listed under “Japan” were substantially composed of Japanese government securities.
Municipal Obligations
We carried approximately $1.5$1.4 billion of municipal securities classified as state and political subdivisions in our investment securities portfolio as of March 31,September 30, 2021, as shown in Table 20: Carrying Values of Investment Securities, all of which were classified as AFS. As of March 31,September 30, 2021, we also provided approximately $9.4$9.3 billion of credit and liquidity facilities to municipal issuers.
| TABLE 24: STATE AND MUNICIPAL OBLIGORS(1) | TABLE 24: STATE AND MUNICIPAL OBLIGORS(1) | TABLE 24: STATE AND MUNICIPAL OBLIGORS(1) |
| (Dollars in millions) | (Dollars in millions) | Total Municipal
Securities | | Credit and Liquidity Facilities(2) | | Total | | % of Total Municipal
Exposure | (Dollars in millions) | Total Municipal
Securities | | Credit and Liquidity Facilities(2) | | Total | | % of Total Municipal
Exposure |
| March 31, 2021 | | | | | | | |
| September 30, 2021 | | September 30, 2021 | | | | | | |
| State of Issuer: | State of Issuer: | | State of Issuer: | |
| Texas | Texas | $ | 263 | | | $ | 2,332 | | | $ | 2,595 | | | 24 | % | Texas | $ | 239 | | | $ | 2,388 | | | $ | 2,627 | | | 24 | % |
| California | California | 111 | | | 2,174 | | 2,285 | | | 21 | | California | 109 | | | 2,072 | | | 2,181 | | | 20 | |
| New York | New York | 285 | | | 1,295 | | 1,580 | | | 14 | | New York | 274 | | | 1,257 | | | 1,531 | | | 14 | |
| Massachusetts | Massachusetts | 377 | | | 855 | | 1,232 | | | 11 | | Massachusetts | 322 | | | 698 | | | 1,020 | | | 10 | |
| Tennessee | Tennessee | — | | | 500 | | | 500 | | | 5 | | Tennessee | — | | | 491 | | | 491 | | | 5 | |
| Total | Total | $ | 1,036 | | | $ | 7,156 | | | $ | 8,192 | | | Total | $ | 944 | | | $ | 6,906 | | | $ | 7,850 | | |
| | December 31, 2020 | December 31, 2020 | | December 31, 2020 | |
| State of Issuer: | State of Issuer: | | State of Issuer: | |
| Texas | Texas | $ | 268 | | | $ | 2,282 | | | $ | 2,550 | | | 23 | % | Texas | $ | 268 | | | $ | 2,282 | | | $ | 2,550 | | | 23 | % |
| California | California | 113 | | | 2,174 | | | 2,287 | | | 21 | | California | 113 | | | 2,174 | | | 2,287 | | | 21 | |
| New York | New York | 297 | | | 1,363 | | | 1,660 | | | 15 | | New York | 297 | | | 1,363 | | | 1,660 | | | 15 | |
| Massachusetts | Massachusetts | 382 | | | 927 | | | 1,309 | | | 12 | | Massachusetts | 382 | | | 927 | | | 1,309 | | | 12 | |
| | Total | Total | $ | 1,060 | | | $ | 6,746 | | | $ | 7,806 | | | Total | $ | 1,060 | | | $ | 6,746 | | | $ | 7,806 | | |
(1) Represented 5% or more of our aggregate municipal credit exposure of approximately $10.91$10.73 billion and $11.06 billion across our businesses as of March 31,September 30, 2021 and December 31, 2020, respectively.
(2) Includes municipal loans which are also presented within Table 25: U.S. and Non-U.S. Loans.
Our aggregate municipal securities exposure presented in Table 24: State and Municipal Obligors, was concentrated primarily with highly-rated counterparties, with approximately 86%88% of the obligors rated “AAA” or “AA” as of March 31,September 30, 2021. As of that date, approximately 23%24% and 77%75% of our aggregate municipal securities exposure was associated with general obligation and revenue bonds, respectively. The portfolios are also diversified geographically, with the states that represent our largest exposures widely dispersed across the U.S.
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geographically, with the states that represent our largest exposures widely dispersed across the U.S.
Additional information with respect to our assessment of impairment of our municipal securities is provided in Note 3 to the consolidated financial statements in this Form 10-Q.
Loans
| | TABLE 25: U.S. AND NON- U.S. LOANS | TABLE 25: U.S. AND NON- U.S. LOANS | TABLE 25: U.S. AND NON- U.S. LOANS |
| (In millions) | (In millions) | March 31, 2021 | | December 31, 2020 | | (In millions) | September 30, 2021 | | December 31, 2020 | |
Domestic(1): | Domestic(1): | | | | | Domestic(1): | | | | |
| Commercial and financial: | Commercial and financial: | | | Commercial and financial: | | |
Fund Finance(2) | Fund Finance(2) | $ | 11,054 | | | $ | 11,531 | | | Fund Finance(2) | $ | 12,367 | | | $ | 11,531 | | |
| Leveraged loans | Leveraged loans | 3,103 | | | 2,923 | | | Leveraged loans | 3,407 | | | 2,923 | | |
| | Overdrafts | Overdrafts | 4,507 | | | 1,894 | | | Overdrafts | 2,352 | | | 1,894 | | |
Other(3) | Other(3) | 1,963 | | | 2,688 | | | Other(3) | 2,140 | | | 2,688 | | |
| Commercial real estate | Commercial real estate | 2,096 | | | 2,096 | | | Commercial real estate | 2,384 | | | 2,096 | | |
| | Total domestic | Total domestic | 22,723 | | | 21,132 | | | Total domestic | 22,650 | | | 21,132 | | |
Foreign(1): | Foreign(1): | | | Foreign(1): | | | | |
| Commercial and financial: | Commercial and financial: | | | Commercial and financial: | | |
Fund Finance(2) | Fund Finance(2) | 4,768 | | | 4,432 | | | Fund Finance(2) | 7,368 | | | 4,432 | | |
| Leveraged loans | Leveraged loans | 1,109 | | | 1,242 | | | Leveraged loans | 1,317 | | | 1,242 | | |
| | Overdrafts | Overdrafts | 2,956 | | | 1,088 | | | Overdrafts | 1,462 | | | 1,088 | | |
Other(3) | Other(3) | 29 | | | 31 | | | Other(3) | — | | | 31 | | |
| Total foreign | Total foreign | 8,862 | | | 6,793 | | | Total foreign | 10,147 | | | 6,793 | | |
Total loans(2)(4) | Total loans(2)(4) | 31,585 | | | 27,925 | | | Total loans(2)(4) | 32,797 | | | 27,925 | | |
| Allowance for loan losses | Allowance for loan losses | (118) | | | (122) | | | Allowance for loan losses | (95) | | | (122) | | |
| Loans, net of allowance | Loans, net of allowance | $ | 31,467 | | | $ | 27,803 | | | Loans, net of allowance | $ | 32,702 | | | $ | 27,803 | | |
(1) Domestic and foreign categorization is based on the borrower’s country of domicile.
(2) Fund finance loans include primarily $6,288$6,282 million loans to real money funds, $8,450$9,752 million private equity capital call finance loans, and $832$993 million loans to business development companies and $2,412 million collateralized loan obligations in loan form, as of March 31,September 30, 2021, compared to $6,391 million loans to real money funds, $8,380 million private equity capital call finance loans and $821 million loans to business development companies as of December 31, 2020.
(3) Includes $1,110$1,532 million securities finance loans, $831$589 million loans to municipalities and $51$19 million other loans as of March 31,September 30, 2021 and $1,911 million securities finance loans, $754 million loans to municipalities and $54 million other loans as of December 31, 2020.
(4) As of March 31,September 30, 2021, excluding overdrafts, floating rate loans totaled $21,118$26,529 million and fixed rate loans totaled $3,003$2,453 million.
In the second quarter of 2021, in addition to our CLOs in the investment portfolio, we began purchasing CLOs in loan form. The increase in domesticforeign loans in the commercial and financial segment as of March 31,September 30, 2021 compared to December 31, 2020 was primarily driven by an increasethe purchase of $2,412 million collateralized loan obligations in overdrafts.loan form in 2021.
As of March 31,September 30, 2021 and December 31, 2020, our leveraged loans totaled approximately $4.21$4.72 billion and $4.17 billion, respectively. We sold $42$84 million of leveraged loans in the firstthird quarter of 2021, of which $7$46 million remained unsettled and was held for sale as of March 31,September 30, 2021.
In addition, we had binding unfunded commitments as of March 31,September 30, 2021 and December 31, 2020 of $466$279 million and $149 million, respectively, to participate in such syndications.syndications of leveraged loans. Additional information about these unfunded
unfunded commitments is provided in Note 9 to the consolidated financial statements in this Form 10-Q.
These leveraged loans, which are primarily rated “speculative” under our internal risk-rating framework (refer to Note 4 to the consolidated financial statements in this Form 10-Q), are externally rated “BBB,” “BB” or “B,” with approximately 86%88% and 85% of the loans rated “BB” or “B” as of March 31,September 30, 2021 and December 31, 2020, respectively. Our investment strategy involves generally limiting our investment to larger, more liquid credits underwritten by major global financial institutions, applying our internal credit analysis process to each potential investment and diversifying our exposure by counterparty and industry segment. However, these loans have significant exposure to credit losses relative to higher-rated loans in our portfolio.
Additional information about all of our loan segments, as well as underlying classes, is provided in Note 4 to the consolidated financial statements in this Form 10-Q.
No loans were modified in troubled debt restructurings as of both March 31,September 30, 2021 and December 31, 2020.
Allowance for credit losses
| | TABLE 26: ALLOWANCE FOR CREDIT LOSSES | TABLE 26: ALLOWANCE FOR CREDIT LOSSES | | TABLE 26: ALLOWANCE FOR CREDIT LOSSES | |
| | Three Months Ended March 31, | | | Nine Months Ended September 30, | |
| (In millions) | (In millions) | 2021 | | 2020 | | (In millions) | 2021 | | 2020 | |
| Allowance for credit losses: | Allowance for credit losses: | | | | | Allowance for credit losses: | | | | |
| Beginning balance | Beginning balance | $ | 148 | | | $ | 93 | | | Beginning balance | $ | 148 | | | $ | 93 | | |
Provision for credit losses (funded commitments)(1) | Provision for credit losses (funded commitments)(1) | — | | | 29 | | | Provision for credit losses (funded commitments)(1) | (22) | | | 89 | | |
| Provisions for credit losses (unfunded commitments) | Provisions for credit losses (unfunded commitments) | (7) | | | 3 | | | Provisions for credit losses (unfunded commitments) | (2) | | | (4) | | |
| Provisions for credit losses (held-to-maturity securities and all other) | Provisions for credit losses (held-to-maturity securities and all other) | (2) | | | 4 | | | Provisions for credit losses (held-to-maturity securities and all other) | (2) | | | 3 | | |
Charge-offs(2) | Charge-offs(2) | — | | | (5) | | | Charge-offs(2) | (2) | | | (33) | | |
| | Currency translation | (4) | | | — | | | |
Other(3) | | Other(3) | (3) | | | 5 | | |
| Ending balance | Ending balance | $ | 135 | | | $ | 124 | | | Ending balance | $ | 117 | | | $ | 153 | | |
(1) The provision for credit losses is primarily related to commercial and financial loans.
(2) The charge-offs are related to commercial and financial loans.
(3) Consists primarily of foreign currency translation.
The provision for credit losses related to loans and other financial assets held at amortized cost, including investment securities classified as HTM and off-balance sheet commitments, was a $9$2 million and $26 million reserve release in the first quarter ofthree and nine months ended September 30, 2021, compared to $36nil and $88 million reserve build in the same periodperiods in 2020.2020, respectively.
As of March 31,September 30, 2021, approximately $92$68 million of our allowance for credit losses was related to leveraged loans included in the commercial and financial segment compared to $83$106 million as of March 31,September 30, 2020. The reduction in the allowance in the firstthird quarter of 2021 reflects a shiftwas primarily driven by improvements in management’s economic outlook toward economic expansioncredit quality and limited negative credit migration within our loan portfolio. As our view on current and futurestable economic
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conditions. As our view on current and future economic scenarios change, our allowance for credit losses related to these loans may be impacted through a change to the provisions for credit losses, reflecting credit migration within our loan portfolio, as well as changes in management's economic outlook as of year-end. The remaining $43$49 million and $41$47 million as of March 31,September 30, 2021 and 2020, respectively, was related to other loans, commercial real estate loans, off-balance sheet commitments and other financial assets held at amortized cost, including investment securities held to maturity.held-to-maturity.
An allowance for credit losses is recognized on HTM securities upon acquisition of the security, and on AFS securities when the fair value and expected future cash flows of the investment securities are less than their amortized cost basis. Our assessment of impairment involves an evaluation of economic and security-specific factors. Such factors are based on estimates, derived by management, which contemplate current market conditions and security-specific performance. To the extent that market conditions are worse than management's expectations or due to idiosyncratic bond performance, the credit-related component of impairment, in particular, could increase and would be recorded in the provision for credit losses. Additional information with respect to the allowance for credit losses, net impairment losses and gross unrealized losses related to investment securities, is provided in Note 3 to the consolidated financial statements in this Form 10-Q.
Cross-Border Outstandings
Cross-border outstandings are amounts payable to us by non-U.S. counterparties which are denominated in U.S. dollars or other non-local currency, as well as non-U.S. local currency claims not funded by local currency liabilities. Our cross-border outstandings consist primarily of deposits with banks; loans and lease financing, including short-duration advances; investment securities; amounts related to FX and interest rate contracts; and securities finance. In addition to credit risk, cross-border outstandings have the risk that, as a result of political or economic conditions in a country, borrowers may be unable to meet their contractual repayment obligations of principal and/or interest when due because of the unavailability of, or restrictions on, FX needed by borrowers to repay their obligations.
As market and economic conditions change, the major independent credit rating agencies may downgrade U.S. and non-U.S. financial institutions and sovereign issuers which have been, and may in the future be, significant counterparties to us, or whose financial instruments serve as collateral on which we rely for credit risk mitigation purposes, and
may do so again in the future. As a result, we may be exposed to increased counterparty risk, leading to negative ratings volatility.
The cross-border outstandings presented in Table 27: Cross-border outstandings, represented approximately 26%24% and 30% of our consolidated total assets as of March 31,September 30, 2021 and December 31, 2020, respectively.
| TABLE 27: CROSS-BORDER OUTSTANDINGS(1) | TABLE 27: CROSS-BORDER OUTSTANDINGS(1) | TABLE 27: CROSS-BORDER OUTSTANDINGS(1) |
| (In millions) | (In millions) | Investment Securities and Other Assets | | Derivatives and Securities on Loan | | Total Cross-Border Outstandings | (In millions) | Investment Securities and Other Assets | | Derivatives and Securities on Loan | | Total Cross-Border Outstandings |
| March 31, 2021 | | | | | | |
| September 30, 2021 | | September 30, 2021 | | | | | |
| Germany | | Germany | $ | 25,773 | | | $ | 344 | | | $ | 26,117 | |
| United Kingdom | United Kingdom | $ | 22,240 | | | $ | 1,193 | | | $ | 23,433 | | United Kingdom | 12,227 | | | 1,330 | | | 13,557 | |
| Germany | 22,924 | | | 422 | | | 23,346 | | |
| Canada | | Canada | 11,564 | | | 528 | | | 12,092 | |
| Australia | | Australia | 7,238 | | | 903 | | | 8,141 | |
| Luxembourg | Luxembourg | 6,186 | | | 2,162 | | | 8,348 | | Luxembourg | 5,734 | | | 1,833 | | | 7,567 | |
| Australia | 7,197 | | | 1,080 | | | 8,277 | | |
| Ireland | | Ireland | 3,095 | | | 2,345 | | | 5,440 | |
| Japan | Japan | 6,473 | | | 1,312 | | | 7,785 | | Japan | 4,413 | | | 535 | | | 4,948 | |
| Canada | 5,757 | | | 782 | | | 6,539 | | |
| Ireland | 1,997 | | | 2,659 | | | 4,656 | | |
| | December 31, 2020 | December 31, 2020 | | | December 31, 2020 | | |
| United Kingdom | United Kingdom | $ | 18,880 | | | $ | 1,797 | | | $ | 20,677 | | United Kingdom | $ | 18,880 | | | $ | 1,797 | | | $ | 20,677 | |
| Japan | Japan | 19,537 | | | 560 | | | 20,097 | | Japan | 19,537 | | | 560 | | | 20,097 | |
| Germany | Germany | 18,734 | | | 2,163 | | | 20,897 | | Germany | 18,734 | | | 2,163 | | | 20,897 | |
| Canada | Canada | 5,997 | | | 3,113 | | | 9,110 | | Canada | 5,997 | | | 3,113 | | | 9,110 | |
| Australia | Australia | 5,790 | | | 2,908 | | | 8,698 | | Australia | 5,790 | | | 2,908 | | | 8,698 | |
| Luxembourg | Luxembourg | 5,036 | | | 2,148 | | | 7,184 | | Luxembourg | 5,036 | | | 2,148 | | | 7,184 | |
| France | France | 3,586 | | | 3,010 | | | 6,596 | | France | 3,586 | | | 3,010 | | | 6,596 | |
|
(1) Cross-border outstandings included countries in which we do business, and which amounted to at least 1% of our consolidated total assets as of the dates indicated.
As of March 31,September 30, 2021, aggregate cross-border outstandings in each of France Switzerland and South Korea amounted to between 0.75% and 1% of our consolidated assets, at approximately $2.95 billion, $2.49 billion and $2.39 billion, respectively.$2.73 billion. As of December 31, 2020, aggregate cross-border outstandings in each of Switzerland and Ireland amounted to between 0.75% and 1% of our consolidated assets, at approximately $3.13 billion and $2.93 billion, respectively.
Risk Management
In the normal course of our global business activities, we are exposed to a variety of risks, some inherent in the financial services industry, others more specific to our business activities. Our risk management framework focuses on material risks, which include the following:
•credit and counterparty risk;
•liquidity risk, funding and management;
•operational risk;
•information technology risk;
•market risk associated with our trading activities;
•market risk associated with our non-trading activities, which we refer to as asset-and-liability management, and which consists primarily of interest rate risk;asset-and-
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liability management, and which consists primarily of interest rate risk;
•model risk;
•strategic risk; and
•reputational, fiduciary and business conduct risk.
Many of these risks, as well as certain of the factors underlying each of these risks that could affect our businesses and our consolidated financial statements, are discussed in detail on pages 24 to 52 included under Item 1A, Risk Factors, in our 2020 Form 10-K.
For additional information about our risk management, including our risk appetite framework and risk governance committee structure, refer to pages 85 to 89 included under Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, Risk Management, in our 2020 Form 10-K.
Credit Risk Management
We define credit risk as the risk of financial loss if a counterparty, borrower or obligor, collectively referred to as a counterparty, is either unable or unwilling to repay borrowings or settle a transaction in accordance with underlying contractual terms. We assume credit risk in our traditional non-trading lending activities, such as overdrafts, loans and contingent commitments, in our investment securities portfolio, where recourse to a counterparty exists, and in our direct and indirect trading activities, such as securities purchased under a resale agreement, principal securities lending and FX and indemnified agency securities lending. We also assume credit risk in our day-to-day treasury and securities and other settlement operations, in the form of deposit placements and other cash balances, with central banks or private sector institutions and fees receivables.
Allowance for Credit Losses
We maintain an allowance for credit losses to support our financial assets held at amortized cost. We also maintain an allowance for unfunded commitments and letters of credit to support our off-balance sheet credit exposure. The two components together represent the allowance for credit losses. Review and evaluation of the adequacy of the allowance for credit losses is ongoing throughout the year, but occurs at least quarterly, and is based, among other factors, on our evaluation of the level of risk in the portfolio and the estimated effects of our forecasts on our counterparties. We utilize multiple economic scenarios, consisting of a baseline, upside and downside scenarios, to develop management's forecast of future expected losses.
The economic forecast utilized in the firstthird quarter of 2021 reflects a shiftimprovements in management’scredit quality and stable economic outlook toward economic expansion and limited
negative credit migration within our loan portfolio.outlook. Allowance estimates remain subject to continued model and economic uncertainty and management may use qualitative adjustments. If future data and forecasts deviate relative to the forecasts utilized to determine our allowance for credit losses as of March 31,September 30, 2021, or if credit risk migration is higher or lower than forecasted for reasons independent of the economic forecast, our allowance for credit losses will also change.
Additional information about the allowance for credit losses is provided in NoteNotes 3 and 4 to the consolidated financial statements in this Form 10-Q.
For additional information about our credit risk management framework, including our core policies and principles, structure and organization, credit ratings, risk parameter estimates, credit risk mitigation, credit limits, reporting, monitoring and controls, refer to pages 89 to 94 included under Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, Credit Risk Management, in our 2020 Form 10-K.
Liquidity Risk Management
Our liquidity framework contemplates areas of potential risk basedrisk-based on our activities, size and other appropriate risk-related factors. In managing liquidity risk we employ limits, maintain established metrics and early warning indicators and perform routine stress testing to identify potential liquidity needs. This process involves the evaluation of a combination of internal and external scenarios which assist us in measuring our liquidity position and in identifying potential increases in cash needs or decreases in available sources of cash, as well as the potential impairment of our ability to access the global capital markets.
We manage our liquidity on a global, consolidated basis. We also manage liquidity on a stand-alone basis at our Parent Company, as well as at certain branches and subsidiaries of State Street Bank. State Street Bank generally has access to markets and funding sources limited to banks, such as the federal funds market and the Federal Reserve's discount window. The Parent Company is managed to a more conservative liquidity profile, reflecting narrower market access. Additionally, the Parent Company typically holds, or has direct access to, primarily through SSIF, a direct subsidiary of the Parent Company, and the support agreement, as discussed in the "Uses of Liquidity" section of this Management's Discussion and Analysis, enough cash to meet its current debt maturities and cash needs, as well as those projected over the next one-year period. Reference our SPOE Strategy as discussed in the "Uses of Liquidity" section of this Management's Discussion and Analysis. Absent financial distress at the Parent Company, the liquid assets available at
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Discussion and Analysis. Absent financial distress at the Parent Company, the liquid assets available at SSIF continue to be available to the Parent Company. As of March 31,September 30, 2021, our Parent Company and State Street Bank had approximately $0.75 billion ofno senior notes or subordinated debentures outstanding that will mature in the next twelve months.
As a SIFI,systemically important financial institution, our liquidity risk management activities are subject to heightened and evolving regulatory requirements, including interpretations of those requirements, under specific U.S. and international regulations and also resulting from published and unpublished guidance, supervisory activities, such as stress tests, resolution planning, examinations and other regulatory interactions. Satisfaction of these requirements could, in some cases, result in changes in the composition of our investment portfolio, reduced NII or NIM, a reduction in the level of certain business activities or modifications to the way in which we deliver our products and services. If we fail to meet regulatory requirements to the satisfaction of our regulators, we could receive negative regulatory stress test results, incur a resolution plan deficiency or determination of a non-credible resolution plan or otherwise receive an adverse regulatory finding. Our efforts to satisfy, or our failure to satisfy, these regulatory requirements could materially adversely affect our business, financial condition or results of operations.
For additional information on our liquidity risk management, as well as liquidity metrics, refer to pages 94 to 99 included under Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, Liquidity Risk Management, in our 2020 Form 10-K. For additional information on our liquidity ratios, including LCR and the net stable funding ratio, refer to page 14 included under Item 1, Business, in our 2020 Form 10-K.
Asset Liquidity
Central to the management of our liquidity is asset liquidity, which consists primarily of HQLA. HQLA is the amount of liquid assets that qualify for inclusion in the LCR. As a banking organization, we are subject to a minimum LCR under the LCR rule approved by U.S. banking regulators. The LCR is intended to promote the short-term resilience of internationally active banking organizations, like us, to improve the banking industry's ability to absorb shocks arising from market stress over a 30 calendar day period and improve the measurement and management of liquidity risk. The LCR measures an institution’s HQLA against its net cash outflows. HQLA primarily consists of unencumbered cash and certain high quality liquid securities that qualify for inclusion under the LCR rule. The LCR was fully
implemented beginning on January 1, 2017. We report LCR to the Federal Reserve daily. For the quarters ended March 31,September 30, 2021 and December 31,
2020, daily average LCR for the Parent Company was 107%105% and 108%, respectively, with the lower daily average LCR for the quarter ended March 31,September 30, 2021 driven primarily by higher deposits. The impact of higher deposits on the Parent Company's LCR is offset by a cap on the HQLA from State Street Bank and Trust that can be recognized at the Parent Company as defined in the U.S. LCR Final Rule as it prohibits the upstreaming of liquidity under stress. The average HQLA for the Parent Company under the LCR final rule definition was $158.89$151.48 billion and $143.61 billion, post-prescribed haircuts, for the quarters ended March 31,September 30, 2021 and December 31, 2020, respectively. The increase in average HQLA for the quarter ended March 31,September 30, 2021, compared to the quarter ended December 31, 2020, was primarily due to a higher level of client deposits. For the quarter ended September 30, 2021, LCR for State Street Bank and Trust was approximately 127%. State Street Bank and Trust's LCR is higher than the Parent Company's LCR, primarily due to application of the transferability restriction in the LCR Final Rule to the calculation of the Parent Company's LCR. This restriction limits the HQLA used in the calculation of the Parent Company's LCR to the amount of net cash outflows of its principal banking subsidiary (State Street Bank and Trust). This transferability restriction does not apply in the calculation of State Street Bank and Trust's LCR, and therefore State Street Bank and Trust's LCR reflects the benefit of all of its HQLA holdings.
We maintained average cash balances in excess of regulatory requirements governing deposits with the Federal Reserve of approximately $91.68$76.83 billion at the Federal Reserve, the ECB and other non-U.S. central banks for the quarter ended March 31,September 30, 2021, and $75.68 billion for the quarter ended December 31, 2020. The higher levels of average cash balances with central banks reflect higher levels of client deposits.
Liquid securities carried in our asset liquidity include securities pledged without corresponding advances from the Federal Reserve Bank of Boston (FRBB), the FHLB, and other non-U.S. central banks. State Street Bank is a member of the FHLB. This membership allows for advances of liquidity in varying terms against high-quality collateral, which helps facilitate asset-and-liability management. As of March 31,both September 30, 2021 and December 31, 2020, we had no outstanding borrowings from the FHLB.
Access to primary, intra-day and contingent liquidity provided by these utilities is an important source of contingent liquidity with utilization subject to
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underlying conditions. As of March 31,both September 30, 2021 and December 31, 2020, we had no outstanding primary credit borrowings from the FRBB discount window or any other central bank facility.
In addition to the securities included in our asset liquidity, we have significant amounts of other unencumbered investment securities. These securities are available sources of liquidity, although not as rapidly deployed as those included in our asset liquidity.
The average fair value of total unencumbered securities was $91.30$100.03 billion for the quarter ended March 31,September 30, 2021, compared to $89.12 billion for the quarter ended December 31, 2020.
Uses of Liquidity
Significant uses of our liquidity could result from the following: withdrawals of client deposits; draw-downs by our custody clients of lines of credit; advances to clients to settle securities transactions; increases in our investment and loan portfolios; or other permitted purposes. Such circumstances would generally arise under stress conditions including
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
deterioration in credit ratings. A recurring use of our liquidity involves our deployment of HQLA from our investment portfolio to post collateral to financial institutions serving as sources of securities under our enhanced custody program.
We had unfunded commitments to extend credit with gross contractual amounts totaling $34.11$34.47 billion and $34.21 billion and standby letters of credit totaling $3.50$3.33 billion and $3.33 billion as of March 31,September 30, 2021 and December 31, 2020, respectively. These amounts do not reflect the value of any collateral. As of March 31,September 30, 2021, approximately 72%73% of our unfunded commitments to extend credit and 23%28% of our standby letters of credit expire within one year. Since many of our commitments are expected to expire or renew without being drawn upon, the gross contractual amounts do not necessarily represent our future cash requirements.
Resolution Planning
State Street, like other bank holding companies with total consolidated assets of $50 billion or more,considered systemically important, periodically submits a plan for rapid and orderly resolution in the event of material financial distress or failure, commonly referred to as a resolution plan or a living will, to the Federal Reserve and the FDIC under Section 165(d) of the Dodd-Frank Act. Through resolution planning, we seek, in the event of our insolvency, to maintain State Street Bank’s role as a key infrastructure provider within the financial system, while minimizing risk to the financial system and maximizing value for the benefit of our stakeholders. We have and will continue to focus management
attention and resources to meet regulatory expectations with respect to resolution planning.
We submitted our last 2019 165(d) resolution plan filing that describes our preferred resolution strategy to the Federal Reserve and FDIC (the Agencies) before July 1, 2019. In reviewing the 2019 plan, the Agencies noted meaningful improvements over prior plan submissions. The Agencies did not identify any deficiencies in the 2019 plan, but did identify one shortcoming related to the implementation of governance mechanisms. We submitted to the Agencies our plan to remediate this shortcoming in line with the expected timeframe. In addition to the above letter, the Federal Reserve and FDIC jointly issued a final rule that was published in the Federal Register on November 1, 2019. This final rule revised the implementation requirements under the Dodd Frank Act's resolution planning provisions by means of establishing a biennial filing cycle for the U.S. G-SIBs, including State Street. This cycle alternates between a targeted resolution plan, followed two years later by a full resolution plan. The Agencies have published on June 29, 2020 the scope for the upcoming2021 targeted resolution plan, to include the core elements
of resolution planning and some specific firm level information, including impacts fromas well as the impact of the COVID-19 pandemic. The next 165(d)We submitted our 2021 targeted resolution plan is a targeted plan to be submittedthe Agencies by July 1, 2021.
In the event of material financial distress or failure, our preferred resolution strategy is the SPOE Strategy. For additional information about the SPOE Strategy, refer to pages 18 to 20 included under Item 1, Business, in our 2020 Form 10-K. The SPOE Strategy provides that prior to the bankruptcy of the Parent Company and pursuant to a support agreement among the Parent Company, SSIF, our Beneficiary Entities (as defined below) and certain other of our entities, SSIF is obligated, up to its available resources, to recapitalize and/or provide liquidity to State Street Bank and our other entities benefiting from such capital and/or liquidity (collectively with State Street Bank, “Beneficiary Entities”), in amounts designed to prevent the Beneficiary Entities from themselves entering into resolution proceedings. Following the recapitalization of, or provision of liquidity to the Beneficiary Entities, the Parent Company would enter into a bankruptcy proceeding under the U.S. Bankruptcy Code. The Beneficiary Entities and our subsidiaries would be transferred to a newly organized holding company held by a reorganization trust for the benefit of the Parent Company’s claimants.
Under the support agreement, the Parent Company has pre-funded SSIF by contributing certain of its assets (primarily its liquid assets, cash deposits, debt investments, investments in marketable securities and other cash and non-cash equivalent investments) to SSIF contemporaneous with entering into the support agreement and will continue to contribute such assets, to the extent available, on an on-going basis. In consideration for these contributions, SSIF has agreed in the support agreement to provide capital and liquidity support to the Parent Company and all of the Beneficiary Entities in accordance with the Parent Company’s capital and liquidity policies. Under the support agreement, the Parent Company is only permitted to retain certain amounts of cash needed to meet its
State Street Corporation | 34
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
upcoming obligations and to fund expenses during a potential bankruptcy proceeding. SSIF has provided the Parent Company with a committed credit line and issued (and may issue) one or more promissory notes to the Parent Company (the Parent Company Funding Notes) that together are intended to allow us to continue to meet our obligations throughout the period prior to the occurrence of a "Recapitalization Event" (as defined below). The support agreement does not contemplate that SSIF is obligated to maintain any specific level of resources and SSIF may not have sufficient resources to implement the SPOE Strategy.
State Street Corporation | 30
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
In the event a Recapitalization Event occurs, the obligations outstanding under the Parent Company Funding Notes would automatically convert into or be exchanged for capital contributed to SSIF. The obligations of the Parent Company and SSIF under the support agreement are secured through a security agreement that grants a lien on the assets that the Parent Company and SSIF would use to fulfill their obligations under the support agreement to the Beneficiary Entities. SSIF is a distinct legal entity separate from the Parent Company and the Parent Company’s other affiliates.
In accordance with its policies, we are required to monitor, on an ongoing basis, the capital and liquidity needs of State Street Bank and the other Beneficiary Entities. To support this process, we have established a trigger framework that identifies key actions that would need to be taken or decisions that would need to be made if certain events tied to our financial condition occur. In the event that we experience material financial distress, the support agreement requires us to model and calculate certain capital and liquidity triggers on a regular basis to determine whether or not the Parent Company should commence preparations for a bankruptcy filing and whether or not a Recapitalization Event has occurred.
Upon the occurrence of a Recapitalization Event: (1) SSIF would not be authorized to provide any further liquidity to the Parent Company; (2) the Parent Company would be required to contribute to SSIF any remaining assets it is required to contribute to SSIF under the support agreement; (3) SSIF would be required to provide capital and liquidity support to the Beneficiary Entities to support such entities’ continued operation; and (4) the Parent Company would be expected to commence Chapter 11 proceedings under the U.S. Bankruptcy Code. No person or entity, other than a party to the support agreement, should rely, including in evaluating any of our entities from a creditor's perspective or determining whether to enter into a contractual relationship with any of our entities, on any of our affiliates being or remaining a Beneficiary Entity or
receiving capital or liquidity support pursuant to the support agreement.
A “Recapitalization Event” is defined under the support agreement as the earlier occurrence of one or more capital and liquidity thresholds being breached or the authorization by the Parent Company's Board of Directors for the Parent Company to commence bankruptcy proceedings. These thresholds are set at levels intended to provide for the availability of sufficient capital and liquidity to enable an orderly resolution without extraordinary government support. The SPOE Strategy and the obligations under the support agreement may result in the recapitalization of State Street Bank and the
commencement of bankruptcy proceedings by the Parent Company at an earlier stage of financial stress than might otherwise occur without such mechanisms in place. An expected effect of the SPOE Strategy and applicable TLAC regulatory requirements is that losses will be imposed on the Parent Company shareholders and the holders of long-term debt and other forms of TLAC securities currently outstanding or issued in the future by the Parent Company, as well as on any other Parent Company creditors, before any of its losses are imposed on the holders of the debt securities of the Parent Company's operating subsidiaries or any of their depositors or creditors, or before U.S. taxpayers are put at risk.
There can be no assurance that credit rating agencies, in response to our 20192021 resolution plan or the support agreement, will not downgrade, place on negative watch or change their outlook on our debt credit ratings, generally or on specific debt securities. Any such downgrade, placement on negative watch or change in outlook could adversely affect our cost of borrowing, limit our access to the capital markets or result in restrictive covenants in future debt agreements and could also adversely impact the trading prices, or the liquidity, of our outstanding debt securities.
State Street Bank is also required to submit, periodically in accordance with applicable regulations and FDIC guidance, a plan for resolution in the event of its failure, referred to as an Insured Depository Institution (IDI) plan. On April 22, 2019, the Federal Register published the FDIC’s advance notice of proposed rulemaking in which it invited comment on potential revisions to its IDI plan requirements. In addition to this advance notice of proposed rulemaking, on April 16, 2019, the FDIC Board voted to delay the next round of submissions under the IDI Rule until the rulemaking process has been completed. As of March 31,On June 25, 2021, the finalFDIC issued a policy statement adjusting the timing of IDI rule remains pending with no expectation ofplan submissions to a required plan submission in 2021.triennial filing for State Street and the other U.S. G-SIBs.
State Street Corporation | 35
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Funding
Deposits
We provide products and services including custody, accounting, administration, daily pricing, FX services, cash management, financial asset management, securities finance and investment advisory services. As a provider of these products and services, we generate client deposits, which have generally provided a stable, low-cost source of funds. As a global custodian, clients place deposits with our entities in various currencies. As of both March 31,September 30, 2021, approximately 64% of our average total deposit balances were denominated in U.S. dollars, 16% in EUR, 10% in the British pound Sterling (GBP) and 10% in all other currencies, whereas as of December 31, 2020, approximately 65% of our average total deposit balances were denominated in U.S. dollars, approximately 15% in EUR, 10% in GBPthe British pound Sterling (GBP) and 10% in all other currencies.
State Street Corporation | 31
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Short-Term Funding
Our on-balance sheet liquid assets are also an integral component of our liquidity management strategy. These assets provide liquidity through maturities of the assets, but more importantly, they provide us with the ability to raise funds by pledging the securities as collateral for borrowings or through outright sales. In addition, our access to the global capital markets gives us the ability to source incremental funding from wholesale investors. As discussed earlier under “Asset Liquidity,” State Street Bank's membership in the FHLB allows for advances of liquidity with varying terms against high-quality collateral.
Short-term secured funding also comes in the form of securities lent or sold under agreements to repurchase. These transactions are short-term in nature, generally overnight and are collateralized by high-quality investment securities. These balances were $0.59$0.64 billion and $3.41 billion as of March 31,September 30, 2021 and December 31, 2020, respectively.
State Street Bank currently maintains a line of credit with a financial institution of CAD $1.40 billion, or approximately $1.11$1.10 billion, as of March 31,September 30, 2021, to support its Canadian securities processing operations. The line of credit has no stated termination date and is cancelable by either party with prior notice. As of both March 31,September 30, 2021 and December 31, 2020, there was no balance outstanding on this line of credit.
Long-Term Funding
We have the ability to issue debt and equity securities under our current universal shelf registration statement to meet current commitments and business needs, including accommodating the transaction and cash management needs of our clients.needs. The total amount remaining for
issuance under the registration statement is $6.15$4.25 billion as of March 31,September 30, 2021. In addition, State Street Bank also has current authorization from the Board to issue up to $5 billion in unsecured senior debt.
On March 3, 2021, we issued $850 million aggregate principal amount of 2.200% Senior Subordinated Notes due 2031.
In September 2021, we completed a public offering of approximately 21.7 million shares of our common stock to provide partial funding for our $3.5 billion proposed purchase of the BBH Investor Services business. The offering price was $87.60 per share and net proceeds totaled approximately $1.9 billion.
Agency Credit Ratings
Our ability to maintain consistent access to liquidity is fostered by the maintenance of high investment grade ratings as measured by the major independent credit rating agencies. Factors essential to maintaining high credit ratings include:
•diverse and stable core earnings;
•relative market position;
•strong risk management;
•strong capital ratios;
•diverse liquidity sources, including the global capital markets and client deposits;
•strong liquidity monitoring procedures; and
•preparedness for current or future regulatory developments.
High ratings limit borrowing costs and enhance our liquidity by:
•providing assurance for unsecured funding and depositors;
•increasing the potential market for our debt and improving our ability to offer products;
•serving markets; and
•engaging in transactions in which clients value high credit ratings.
A downgrade or reduction of our credit ratings could have a material adverse effect on our liquidity by restricting our ability to access the capital markets, which could increase the related cost of funds. In turn, this could cause the sudden and large-scale withdrawal of unsecured deposits by our clients, which could lead to draw-downs of unfunded commitments to extend credit or trigger requirements under securities purchase commitments; or require additional collateral or force terminations of certain trading derivative contracts.
A majority of our derivative contracts have been entered into under bilateral agreements with counterparties who may require us to post collateral or terminate the transactions based on changes in
State Street Corporation | 36
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
our credit ratings. We assess the impact of these arrangements by determining the collateral that would be required assuming a downgrade by all rating agencies. The additional collateral or termination payments related to our net derivative liabilities under these arrangements that could have been called by counterparties in the event of a downgrade in our credit ratings below levels specified in the agreements is provided in Note 7 to the consolidated financial statements in this Form 10-Q. Other funding sources, such as secured financing transactions and other margin requirements, for which there are no explicit triggers, could also be adversely affected.
Operational Risk Management
Operational risk is the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events.
In light of the COVID-19 pandemic, we continue to have business continuity arrangements in place across our operating locations, and we, and a significant percentage of our key service providers, are operating significantly or entirely in a work from home environment. The current operating environment increases operational risk and information technology risk, including cyber-threats.
State Street Corporation | 32
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
See also “Information Technology Risk Management” below.
For additional information about our operational risk framework, refer to pages 100 to 103 included under Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, "Operational Risk Management", in our 2020 Form 10-K.
Information Technology Risk Management
We define information technology risk as the risk associated with the use, ownership, operation, involvement, influence and adoption of information technology. Information technology risk includes risks triggered by technology non-compliance with regulatory obligations, information security and privacy incidents, business disruption, technology internal control and process gaps, technology operational events and adoption of new business technologies.
For additional information about our information technology risk framework and associated risks, refer to pages 103 to 104 included under Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, "Information Technology Risk Management" in our 2020 Form 10-K.10-K, and pages 48 to 49 included under Item 1A, Risk Factors, in our 2020 Form 10-K - "Any failures of or damage to, attack on or unauthorized access to our information technology systems or facilities or disruptions to our continuous operations, including
the systems, facilities or operations of third parties with which we do business, such as resulting from cyber-attacks, could result in significant costs, reputational damage and limits on our ability to conduct our business activities".
Market Risk Management
Market risk is defined by U.S. banking regulators as the risk of loss that could result from broad market movements, such as changes in the general level of interest rates, credit spreads, foreign exchange rates or commodity prices. We are exposed to market risk in both our trading and certain of our non-trading, or asset-and-liability management, activities.
Information about the market risk associated with our trading activities is provided below under “Trading Activities.” Information about the market risk associated with our non-trading activities, which consists primarily of interest rate risk, is provided below under “Asset-and-Liability Management Activities.”
Trading Activities
In the conduct of our trading activities, we assume market risk, the level of which is a function of our overall risk appetite, business objectives and liquidity needs, our clients' requirements and market volatility and our execution against those factors.
For additional information about the market risk associated with our trading activities, refer to pages 104 to 105106 included under Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, "Market Risk Management" in our 2020 Form 10-K.
As part of our trading activities, we assume positions in the foreign exchange and interest rate markets by buying and selling cash instruments and
entering into derivative instruments, including foreign exchange forward contracts, foreign exchange and interest rate options and interest rate swaps, interest rate forward contracts and interest rate futures. As of March 31,September 30, 2021, the notional amount of these derivative contracts was $2.76$2.40 trillion, of which $2.74$2.38 trillion was composed of foreign exchange forward, swap and spot contracts. We seek to match positions closely with the objective of mitigating related currency and interest rate risk. All foreign exchange contracts are valued daily at current market rates.
Value-at-Risk and Stressed VaR
We use a variety of risk measurement tools and methodologies, including VaR, which is an estimate of potential loss for a given period within a stated statistical confidence interval. We use a risk measurement methodology to measure trading-related VaR daily. We have adopted standards for measuring trading-related VaR, and we maintain regulatory capital for market risk associated with our
State Street Corporation | 37
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
trading activities in conformity with currently applicable bank regulatory market risk requirements. Our regulatory VaR-based measure is calculated based on historical volatilities of market risk factors during a two-year observation period calibrated to a one-tail, 99% confidence interval and a ten-business-day holding period.
We calculate a stressed VaR-based measure using the same model we use to calculate VaR, but with model inputs calibrated to historical data from a range of continuous twelve-month periods that reflect significant financial stress. The stressed VaR model is designed to identify the second-worst outcome occurring in the worst continuous one-year rolling period since July 2007. This stressed VaR meets the regulatory requirement as the rolling ten-day period with an outcome that is worse than 99% of other outcomes during that twelve-month period of financial stress. For each portfolio, the stress period is determined algorithmically by seeking the one-year time horizon that produces the largest ten-business-day VaR from within the available historical data. This historical data set includes the financial crisis of 2008, the highly volatile period surrounding the Eurozone sovereign debt crisis and the Standard & Poor's downgrade of U.S. Treasury debt in August 2011. As the historical data set used to determine the stress period expands over time, future market stress events will be incorporated.
For additional information about our VaR measurement tools and methodologies, refer to pages 107 to 110 included under Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations,"Value-at-Risk "Value-at-Risk and Stressed VaR" in our 2020 Form 10-K.
State Street Corporation | 33
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Stress Testing
We have a corporate-wide stress testing program in place that incorporates an array of techniques to measure the potential loss we could suffer in a hypothetical scenario of adverse economic and financial conditions. We also monitor concentrations of risk such as concentration by branch, risk component, and currency pairs. We conduct stress testing on a daily basis based on selected historical stress events that are relevant to our positions in order to estimate the potential impact to our current portfolio should similar market conditions recur, and we also perform stress testing
as part of the Federal Reserve's CCAR process. Stress testing is conducted, analyzed and reported at the corporate, trading desk, division and risk-factor level (for example, exchange risk, interest rate risk and volatility risk).
Stress testing results and limits are actively monitored on a daily basis by ERM and reported to the TMRC.Credit and Market Risk Committee (CMRC). Limit breaches are addressed by ERM risk managers in conjunction with the business units, escalated as appropriate, and reviewed by the TMRCCMRC if material. In addition, we have established several action triggers that prompt review by management and the implementation of a remediation plan.
Validation and Back-Testing
We perform frequent back-testing to assess the accuracy of our VaR-based model in estimating loss at the stated confidence level. This back-testing involves the comparison of estimated VaR model outputs to daily, actual profit-and-loss (P&L)
outcomes observed from daily market movements. We back-test our VaR model using “clean” P&L, which excludes non-trading revenue such as fees, commissions and NII, as well as estimated revenue from intra-day trading.
Our VaR definition of trading losses excludes items that are not specific to the price movement of the trading assets and liabilities themselves, such as fees, commissions, changes to reserves and gains or losses from intra-day activity.
We experienced no back-testing exceptions in the quarterquarters ended March 31,September 30, 2021, no back-testing exceptions in the quarter ended December 31, 2020June 30, 2021 and four back-testing exceptions in the quarter ended March 31,September 30, 2020. At a 99% confidence interval, the statistical expectation for a VaR model is to witness one exception every hundred trading days (or two to three exceptions per year). The 2020 back-testing exceptions were all noted during the March 2020 market turmoil where some of the largest risk factor shifts since the 2007/2008 financial crisis were observed.
The following tables present VaR and stressed VaR associated with our trading activities for covered positions held during the quarters ended March 31,September 30, 2021, December 31, 2020June 30, 2021 and March 31,September 30, 2020, respectively, as measured by our VaR methodology. Diversification effect in the tables below represents the difference between total VaR and the sum of the VaRs for each trading activity. This effect arises because the risks present in our trading activities are not perfectly correlated.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| TABLE 28: TEN-DAY VALUE-AT-RISK ASSOCIATED WITH TRADING ACTIVITIES FOR COVERED POSITIONS |
| Three Months Ended | | As of March 31, 2021 | | As of December 31, 2020 | | As of March 31, 2020 | |
| March 31, 2021 | | | | December 31, 2020 | | | | March 31, 2020 | | |
| (In thousands) | Avg. | | Max. | | Min. | | | | Avg. | | Max. | | Min. | | | | Avg. | | Max. | | Min. | | VaR | | VaR | | VaR | |
| Global Markets | $ | 13,008 | |
| $ | 25,411 | |
| $ | 5,252 | | | | | $ | 15,662 | | | $ | 33,991 | | | $ | 5,382 | | | | | $ | 9,533 | | | $ | 14,575 | | | $ | 5,220 | | | $ | 14,587 | | | $ | 9,321 | | | $ | 6,496 | | |
| Global Treasury | 5,915 | |
| 9,762 | |
| 3,820 | | | | | 3,685 | | | 8,874 | | | 425 | | | | | 803 | | | 4,018 | | | 112 | | | 9,655 | | | 4,015 | | | 3,335 | | |
| Diversification | (3,736) | |
| (2,884) | |
| (2,576) | | | | | (2,737) | | | (9,062) | | | 1,619 | | | | | (808) | | | (4,048) | | | (121) | | | (8,973) | | | (4,068) | | | (3,341) | | |
| Total VaR | $ | 15,187 | |
| $ | 32,289 | |
| $ | 6,496 | | | | | $ | 16,610 | | | $ | 33,803 | | | $ | 7,426 | | | | | $ | 9,528 | | | $ | 14,545 | | | $ | 5,211 | | | $ | 15,269 | | | $ | 9,268 | | | $ | 6,490 | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| TABLE 29: TEN-DAY STRESSED VALUE-AT-RISK ASSOCIATED WITH TRADING ACTIVITIES FOR COVERED POSITIONS |
| Three Months Ended | | As of March 31, 2021 | | As of December 31, 2020 | | As of March 31, 2020 | |
| March 31, 2021 | | | | December 31, 2020 | | | | March 31, 2020 | | |
| (In thousands) | Avg. | | Max. | | Min. | | | | Avg. | | Max. | | Min. | | | | Avg. | | Max. | | Min. | | VaR | | VaR | | VaR | |
| Global Markets | $ | 34,572 | |
| $ | 79,687 | |
| $ | 13,779 | | | | | $ | 37,822 | | | $ | 62,241 | | | $ | 15,399 | | | | | $ | 39,994 | | | $ | 61,261 | | | $ | 23,402 | | | $ | 21,264 | | | $ | 35,999 | | | $ | 38,401 | | |
| Global Treasury | 17,714 | |
| 26,312 | |
| 10,095 | | | | | 9,612 | | | 23,533 | | | 1,353 | | | | | 3,825 | | | 14,586 | | | 587 | | | 25,763 | | | 8,555 | | | 10,905 | | |
| Diversification | (7,398) | |
| (10,440) | |
| (3,453) | | | | | (5,464) | | | (5,683) | | | 6,106 | | | | | (4,307) | | | (15,622) | | | (615) | | | (26,260) | | | (1,106) | | | (12,045) | | |
| Total Stressed VaR | $ | 44,888 | |
| $ | 95,559 | |
| $ | 20,421 | | | | | $ | 41,970 | | | $ | 80,091 | | | $ | 22,858 | | | | | $ | 39,512 | | | $ | 60,225 | | | $ | 23,374 | | | $ | 20,767 | | | $ | 43,448 | | | $ | 37,261 | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
State Street Corporation | 3438
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| TABLE 28: TEN-DAY VALUE-AT-RISK ASSOCIATED WITH TRADING ACTIVITIES FOR COVERED POSITIONS |
| Three Months Ended | | As of September 30, 2021 | | As of June 30, 2021 | | As of September 30, 2020 | |
| September 30, 2021 | | | | June 30, 2021 | | | | September 30, 2020 | | |
| (In thousands) | Avg. | | Max. | | Min. | | | | Avg. | | Max. | | Min. | | | | Avg. | | Max. | | Min. | | VaR | | VaR | | VaR | |
| Global Markets | $ | 17,071 | |
| $ | 30,485 | |
| $ | 11,417 | | | | | $ | 15,283 | |
| $ | 25,020 | |
| $ | 6,974 | | | | | $ | 14,270 | | | $ | 31,389 | | | $ | 6,589 | | | $ | 15,314 | | | $ | 20,989 | | | $ | 13,964 | | |
| Global Treasury | 1,357 | |
| 5,468 | |
| 220 | | | | | 4,342 | |
| 9,451 | |
| 460 | | | | | 3,206 | | | 7,933 | | | 350 | | | 1,131 | | | 3,667 | | | 1,969 | | |
| Diversification | (925) | |
| (5,444) | |
| (185) | | | | | (2,671) | |
| (7,136) | |
| 474 | | | | | (2,758) | | | (7,914) | | | (342) | | | (1,285) | | | (812) | | | (1,618) | | |
| Total VaR | $ | 17,503 | |
| $ | 30,509 | |
| $ | 11,452 | | | | | $ | 16,954 | |
| $ | 27,335 | |
| $ | 7,908 | | | | | $ | 14,718 | | | $ | 31,408 | | | $ | 6,597 | | | $ | 15,160 | | | $ | 23,844 | | | $ | 14,315 | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| TABLE 29: TEN-DAY STRESSED VALUE-AT-RISK ASSOCIATED WITH TRADING ACTIVITIES FOR COVERED POSITIONS |
| Three Months Ended | | As of September 30, 2021 | | As of June 30, 2021 | | As of September 30, 2020 | |
| September 30, 2021 | | | | June 30, 2021 | | | | September 30, 2020 | | |
| (In thousands) | Avg. | | Max. | | Min. | | | | Avg. | | Max. | | Min. | | | | Avg. | | Max. | | Min. | | VaR | | VaR | | VaR | |
| Global Markets | $ | 53,508 | |
| $ | 101,535 | |
| $ | 26,874 | | | | | $ | 36,478 | |
| $ | 74,475 | |
| $ | 13,037 | | | | | $ | 32,974 | | | $ | 84,755 | | | $ | 17,472 | | | $ | 45,720 | | | $ | 56,998 | | | $ | 39,714 | | |
| Global Treasury | 4,053 | |
| 15,424 | |
| 1,229 | | | | | 12,644 | |
| 29,651 | |
| 2,042 | | | | | 9,075 | | | 23,153 | | | 1,725 | | | 6,230 | | | 6,462 | | | 5,594 | | |
| Diversification | (2,798) | |
| (5,791) | |
| (1,662) | | | | | (6,471) | | | (8,193) | | | 1,690 | | | | | (7,773) | | | (23,190) | | | (1,591) | | | (7,930) | | | 8,473 | | | (4,861) | | |
| Total Stressed VaR | $ | 54,763 | |
| $ | 111,168 | |
| $ | 26,441 | | | | | $ | 42,651 | |
| $ | 95,933 | |
| $ | 16,769 | | | | | $ | 34,276 | | | $ | 84,718 | | | $ | 17,606 | | | $ | 44,020 | | | $ | 71,933 | | | $ | 40,447 | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
The three month average of our stressed VaR-based measure was approximately $45$55 million for the quarter ended March 31,September 30, 2021, compared to an average of approximately $42$43 million for the quarter ended December 31, 2020June 30, 2021 and $40$34 million for the quarter ended March 31,September 30, 2020. The increase in the average stressed VaR for the quarter ended March 31,September 30, 2021, compared to the quarter ended December 31,June 30, 2021 and the quarter ended September 30, 2020, is primarily attributed to higher interest rate risk positions.
The VaR-based measures presented in the preceding tables are primarily a reflection of the overall level of market volatility and our appetite for taking market risk in our trading activities. Overall levels of volatility have been low both on an absolute basis and relative to the historical information observed at the beginning of the period used for the calculations. Both the ten-day VaR-based measures and the stressed VaR-based measures are based on historical changes observed during rolling ten-day periods for the portfolios as of the close of business each day over the past one-year period.
We have in the past and may in the future modify and adjust our models and methodologies used to calculate VaR and stressed VaR, subject to regulatory review and approval, and any future modifications and adjustments may result in changes in our VaR-based and stressed VaR-based measures.
The following tables present the VaR and stressed-VaR associated with our trading activities attributable to foreign exchange risk, interest rate risk and volatility risk as of March 31,September 30, 2021, December 31, 2020June 30, 2021 and March 31,September 30, 2020, respectively. The sum ofDiversification effect in the VaR-based and stressed VaR-based measures for each attribute exceededtables below represents the difference between total VaR and the total stressed VaR assum of the VaRs for each period-end.trading activity. This is primarily due to diversification benefits across attributes.effect arises because the risks present in our trading activities are not perfectly correlated.
| TABLE 30: TEN-DAY VaR ASSOCIATED WITH TRADING ACTIVITIES BY RISK FACTOR(1) | TABLE 30: TEN-DAY VaR ASSOCIATED WITH TRADING ACTIVITIES BY RISK FACTOR(1) | | TABLE 30: TEN-DAY VaR ASSOCIATED WITH TRADING ACTIVITIES BY RISK FACTOR(1) | |
| | As of March 31, 2021 | | As of December 31, 2020 | | | As of March 31, 2020 | | | As of September 30, 2021 | | As of June 30, 2021 | | As of September 30, 2020 | |
| (In thousands) | (In thousands) | Foreign Exchange Risk | | Interest Rate Risk | | Volatility Risk | | | Foreign Exchange Risk | | Interest Rate Risk | | Volatility Risk | | | Foreign Exchange Risk | | Interest Rate Risk | | Volatility Risk | | (In thousands) | Foreign Exchange Risk | | Interest Rate Risk | | Volatility Risk | | | Foreign Exchange Risk | | Interest Rate Risk | | Volatility Risk | | | Foreign Exchange Risk | | Interest Rate Risk | | Volatility Risk | |
| By component: | By component: | | | | | | | | | | | | | | | | | | | | | By component: | | | | | | | | | | | | | | | | | | | | |
| Global Markets | Global Markets | $ | 12,476 | | | $ | 11,164 | | | $ | 857 | | | | $ | 2,977 | | | $ | 8,880 | | | $ | 179 | | | | $ | 5,599 | | | $ | 7,017 | | | $ | 162 | | | Global Markets | $ | 7,411 | | | $ | 16,637 | | | $ | 549 | | | | $ | 6,859 | | | $ | 16,327 | | | $ | 701 | | | | $ | 3,260 | | | $ | 13,634 | | | $ | 771 | | |
| Global Treasury | Global Treasury | 39 | | | 9,734 | | | — | | | | 33 | | | 4,257 | | | — | | | | 22 | | | 3,609 | | | — | | | Global Treasury | 246 | | | 1,304 | | | — | | | | 97 | | | 3,950 | | | — | | | | 16 | | | 2,078 | | | — | | |
| Diversification | Diversification | (22) | | | (5,477) | | | — | | | | (42) | | | (2,246) | | | — | | | | (28) | | | (3,583) | | | | Diversification | (53) | | | (1,335) | | | — | | | | (234) | | | 687 | | | — | | | | (15) | | | (1,804) | | | — | | |
| Total VaR | Total VaR | $ | 12,493 | | | $ | 15,421 | | | $ | 857 | | | | $ | 2,968 | | | $ | 10,891 | | | $ | 179 | | | | $ | 5,593 | | | $ | 7,043 | | | $ | 162 | | | Total VaR | $ | 7,604 | | | $ | 16,606 | | | $ | 549 | | | | $ | 6,722 | | | $ | 20,964 | | | $ | 701 | | | | $ | 3,261 | | | $ | 13,908 | | | $ | 771 | | |
| TABLE 31: TEN-DAY STRESSED VaR ASSOCIATED WITH TRADING ACTIVITIES BY RISK FACTOR(1) | TABLE 31: TEN-DAY STRESSED VaR ASSOCIATED WITH TRADING ACTIVITIES BY RISK FACTOR(1) | | TABLE 31: TEN-DAY STRESSED VaR ASSOCIATED WITH TRADING ACTIVITIES BY RISK FACTOR(1) | |
| | As of March 31, 2021 | | As of December 31, 2020 | | | As of March 31, 2020 | | | As of September 30, 2021 | | As of June 30, 2021 | | As of September 30, 2020 | |
| (In thousands) | (In thousands) | Foreign Exchange Risk | | Interest Rate Risk | | Volatility Risk | | | Foreign Exchange Risk | | Interest Rate Risk | | Volatility Risk | | | Foreign Exchange Risk | | Interest Rate Risk | | Volatility Risk | | (In thousands) | Foreign Exchange Risk | | Interest Rate Risk | | Volatility Risk | | | Foreign Exchange Risk | | Interest Rate Risk | | Volatility Risk | | | Foreign Exchange Risk | | Interest Rate Risk | | Volatility Risk | |
| By component: | By component: | | | | | | | | | | | | | | | | | | | | | By component: | | | | | | | | | | | | | | | | | | | | |
| Global Markets | Global Markets | $ | 16,046 | | | $ | 26,866 | | | $ | 939 | | | | $ | 5,102 | | | $ | 39,615 | | | $ | 265 | | | | $ | 11,695 | | | $ | 51,732 | | | $ | 172 | | | Global Markets | $ | 7,925 | | | $ | 73,540 | | | $ | 575 | | | | $ | 10,456 | | | $ | 59,710 | | | $ | 747 | | | | $ | 8,098 | | | $ | 44,418 | | | $ | 868 | | |
| Global Treasury | Global Treasury | 62 | | | 25,260 | | | — | | | | 83 | | | 8,465 | | | — | | | | 40 | | | 10,242 | | | — | | | Global Treasury | 299 | | | 6,509 | | | — | | | | 117 | | | 6,350 | | | — | | | | 34 | | | 5,679 | | | — | | |
| Diversification | Diversification | (16) | | | (6,387) | | | — | | | | (51) | | | (8,102) | | | — | | | | (61) | | | (11,848) | | | — | | | Diversification | (177) | | | (7,058) | | | — | | | | (191) | | | 8,450 | | | — | | | | (34) | | | (6,468) | | | — | | |
| Total Stressed VaR | Total Stressed VaR | $ | 16,092 | | | $ | 45,739 | | | $ | 939 | | | | $ | 5,134 | | | $ | 39,978 | | | $ | 265 | | | | $ | 11,674 | | | $ | 50,126 | | | $ | 172 | | | Total Stressed VaR | $ | 8,047 | | | $ | 72,991 | | | $ | 575 | | | | $ | 10,382 | | | $ | 74,510 | | | $ | 747 | | | | $ | 8,098 | | | $ | 43,629 | | | $ | 868 | | |
(1) For purposes of risk attribution by component, foreign exchange refers only to the risk from market movements in period-end rates. Forwards, futures, options and swaps with maturities greater than period-end have embedded interest rate risk that is captured by the measures used for interest rate risk. Accordingly, the interest rate risk embedded in these foreign exchange instruments is included in the interest rate risk component.
State Street Corporation | 39
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Asset and Liability Management Activities
The primary objective of asset and liability management is to provide sustainable NII under varying economic conditions, while protecting the economic value of the assets and liabilities carried on our consolidated statement of condition from the adverse effects of changes in interest rates. While many market factors affect the level of NII and the economic value of our assets and liabilities, one of the most significant factors is our exposure to movements in interest rates. Most of our NII is earned from the investment of client deposits generated by our businesses. We invest these client deposits in assets that conform generally to the characteristics of our balance sheet liabilities, including the currency composition of our significant non-U.S. dollar denominated client liabilities.
We quantify NII sensitivity using an earnings simulation model that includes our expectations for new business growth, changes in balance sheet mix and investment portfolio positioning. This measure compares our baseline view of NII over a twelve-month horizon, based on our internal forecast of interest rates, to a wide range of rate
State Street Corporation | 35
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
shocks. The baseline view of NII is updated on a regular basis. Relative to the year ago period, the September 30, 2021 baseline forecast is based on an increased balance sheet size. Compared to June 30, 2021, the baseline forecast assumes a modest reduction in balance sheet size over the subsequent twelve-month horizon. Table 32, Key Interest Rates for Baseline Forecasts, presents the spot and 12-month forward rates used in our baseline forecasts at March 31,September 30, 2021 and March 31,September 30, 2020. Our March 31,September 30, 2021 baseline forecast assumes no changes by the Federal Reserve over the next 12 months.
| | TABLE 32: KEY INTEREST RATES FOR BASELINE FORECASTS | TABLE 32: KEY INTEREST RATES FOR BASELINE FORECASTS | TABLE 32: KEY INTEREST RATES FOR BASELINE FORECASTS |
| | March 31, 2021 | | March 31, 2020 | | September 30, 2021 | | September 30, 2020 |
| | Fed Funds Target | | 10-Year Treasury | | Fed Funds Target | | 10-Year Treasury | | Fed Funds Target | | 10-Year Treasury | | Fed Funds Target | | 10-Year Treasury |
| Spot rates | Spot rates | 0.25 | % | | 1.74 | % | | 0.25 | % | | 0.67 | % | Spot rates | 0.25 | % | | 1.49 | % | | 0.25 | % | | 0.69 | % |
| 12-month forward rates | 12-month forward rates | 0.25 | | | 2.05 | | | 0.25 | | | 0.85 | | 12-month forward rates | 0.25 | | | 1.70 | | | 0.25 | | | 0.77 | |
In Table 33: Net Interest Income Sensitivity, we report the expected change in NII over the next twelve months from instantaneous shocks to various tenors on the yield curve, including the impacts from U.S. and non-U.S. rates. Each scenario assumes no management action is taken to mitigate the adverse effects of interest rate changes on our financial performance. While investment securities balances and composition can fluctuate with the level of rates as prepayment assumptions change, our modeling approach during the relevant periods has beendeposit balances are assumed to keep our balance sheetremain consistent with our baseline outlook in both higher and lower rates scenarios. While this approach was used for the March 31, 2021 reporting period, we did deviate in March 2020 experiencing a rapid increase in client deposits at the beginning of the global pandemic. For the +100bp shock scenario in the March 31, 2020 reporting period, client deposits were modeled to return to average balance levels experienced in the fourth quarter of 2019 with a corresponding reduction in cash and cash equivalents held with central banks.baseline.
Beginning with the December 31, 2020 reporting period, we enhanced our NII sensitivity methodology so that the full impact of rate shocks are realized for all currencies even if the result is negative interest rates. Prior to the December 31, 2020 reporting period, our results in lower rate scenarios were impacted by an assumed floor at zero for certain currencies including U.S. dollar. For consistency in this disclosure, the March 31,September 30, 2020 reporting period is restated in the table below using enhanced modeling for negative rates.
| | TABLE 33: NET INTEREST INCOME SENSITIVITY | TABLE 33: NET INTEREST INCOME SENSITIVITY | TABLE 33: NET INTEREST INCOME SENSITIVITY |
| | March 31, 2021 | | March 31, 2020(1) | | September 30, 2021 | | September 30, 2020(1) |
| (In millions) | (In millions) | U.S. Dollar | | All Other Currencies | | Total | | U.S. Dollar | | All Other Currencies | | Total | (In millions) | U.S. Dollar | | All Other Currencies | | Total | | U.S. Dollar | | All Other Currencies | | Total |
| Rate change: | Rate change: | Benefit (Exposure) | | Benefit (Exposure) | Rate change: | Benefit (Exposure) | | Benefit (Exposure) |
| Parallel shifts: | Parallel shifts: | | | | Parallel shifts: | | | |
| +100 bps shock | +100 bps shock | $ | 805 | | | $ | 245 | | | $ | 1,050 | | | $ | 310 | | | $ | 144 | | | $ | 454 | | +100 bps shock | $ | 507 | | | $ | 323 | | | $ | 830 | | | $ | 426 | | | $ | 134 | | | $ | 560 | |
| –100 bps shock | –100 bps shock | 493 | | | 129 | | | 622 | | | 571 | | | 176 | | | 747 | | –100 bps shock | 921 | | | 96 | | | 1,017 | | | 534 | | | 193 | | | 727 | |
| Steeper yield curve: | Steeper yield curve: | | Steeper yield curve: | |
'+100 bps shift in long-end rates(2) | '+100 bps shift in long-end rates(2) | 154 | | | 2 | | | 156 | | | 172 | | | 10 | | | 182 | | '+100 bps shift in long-end rates(2) | 136 | | | 16 | | | 152 | | | 170 | | | 5 | | | 175 | |
'-100 bps shift in short-end rates(2) | '-100 bps shift in short-end rates(2) | 645 | | | 131 | | | 776 | | | 699 | | | 186 | | | 885 | | '-100 bps shift in short-end rates(2) | 1,070 | | | 111 | | | 1,181 | | | 728 | | | 198 | | | 926 | |
| Flatter yield curve: | Flatter yield curve: | | Flatter yield curve: | |
'+100 bps shift in short-end rates(2) | '+100 bps shift in short-end rates(2) | 659 | | | 244 | | | 903 | | | 151 | | | 144 | | | 295 | | '+100 bps shift in short-end rates(2) | 371 | | | 307 | | | 678 | | | 248 | | | 145 | | | 393 | |
'-100 bps shift in long-end rates(2) | '-100 bps shift in long-end rates(2) | (142) | | | (2) | | | (144) | | | (125) | | | (10) | | | (135) | | '-100 bps shift in long-end rates(2) | (143) | | | (16) | | | (159) | | | (183) | | | (5) | | | (188) | |
(1) Represents March 31,September 30, 2020 results using the enhanced modeling approach including negative interest rates for all currencies that was implemented starting with the December 31, 2020 reporting period.
(2) The short-end is 0-3 months. The long-end is 5 years and above. Interim term points are interpolated.
State Street Corporation | 40
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
As of March 31,September 30, 2021, NII and U.S. dollar NII is expected to benefit from both parallel increases and decreases in interest rates. Compared to March 31,September 30, 2020, our NII and U.S. dollar NII is more sensitive to parallel rate increases, primarily due to higher forecasted levels of deposits and hedging activity.client deposits. Our NII benefit from a parallel decline in rates has decreased due to hedging activity and increased floating non-US assets.
U.S. dollar NII asprojection of March 31, 2021 is positioned to benefit from both parallel increases and decreases in interest rates. Compared to March 31, 2020, our U.S. dollaran NII benefit to higher rates has increased primarily due to higher forecastedan upward rate shock of +100bps assumes deposit betas remain low, consistent with the last rising rate cycle. Our projection also assumes that deposit levels ofremain relatively consistent with third quarter 2021 averages. We expect that our NII benefit in the +100bps scenarios would be lower if deposits and hedging activity. levels decline in a rising rate environment.
Compared to March 31,September 30, 2020, our NII and U.S. dollar NII benefit to lower rates has modestly declinedincreased primarily due to lower hedging activity. We project an NII benefit to a larger upward rate shockgrowth in fixed and contractually floored securities and loans. Our projection of +100bps which assumes deposit rates lag, and we project an NII benefit from a larger downward rate shock of -100 bps which assumes negative interest rates and charging interestare charged on client deposits and the effect of contractual floors are reached on loansour securities and securities.loans. NII is also exposed to smaller shocks to short-end U.S. interest rates. If short-end U.S. market interest rates increase or (decrease) by 5 bps, we estimate the annualized impact to be approximately $20 million in higher (or lower) NII primarily due to the impact on our sponsored repo activity.
NII is still positioned to benefit from changes in non-U.S. interest rates with the majority of our sensitivity derived from the short-end of the curve given deposit pricing expectations. Compared to March 31,September 30, 2020, our non-U.S. benefit from higher rates increased and thedue to higher non-U.S. deposit balances. Our benefit from lower rates decreased due to higherlower levels of floating rate EUR-denominated assets.non-U.S. securities.
State Street Corporation | 36
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
EVE sensitivity is a discounted cash flow model designed to estimate the fair value of assets and liabilities under a series of interest rate shocks over a long-term horizon. In the following table, we report our EVE sensitivity to 200 bps instantaneous rate shocks, relative to spot interest rates. Management compares the change in EVE sensitivity against our aggregate Tier 1 and Tier 2 risk-based capital, calculated in conformity with current applicable regulatory requirements. EVE sensitivity is dependent on the timing of interest and principal cash flows. Also, the measure only evaluates the spot balance sheet and does not include the impact of new business assumptions.
| | TABLE 34: ECONOMIC VALUE OF EQUITY SENSITIVITY | TABLE 34: ECONOMIC VALUE OF EQUITY SENSITIVITY | TABLE 34: ECONOMIC VALUE OF EQUITY SENSITIVITY |
| | As of March 31, | | As of September 30, |
| (In millions) | (In millions) | 2021 | | 2020 | (In millions) | 2021 | | 2020 |
| Rate change: | Rate change: | Benefit (Exposure) | Rate change: | Benefit (Exposure) |
| +200 bps shock | +200 bps shock | $ | (1,109) | | | $ | (1,141) | | +200 bps shock | $ | (1,587) | | | $ | (1,725) | |
| –200 bps shock | –200 bps shock | 3,630 | | | 3,666 | | –200 bps shock | 4,816 | | | 5,145 | |
|
As of March 31,September 30, 2021, EVE sensitivity remains exposed to upward shifts in interest rates. Compared to March 31,September 30, 2020, our sensitivity in both the up and down 200 bps instantaneous shock scenarios were relatively unchanged. Impacts from investment portfolio growth were
decreased due to higher client deposits, partially offset by higher levels of depositsgrowth in our securities portfolio and interest rate hedging activities.activity.
Both NII sensitivity and EVE sensitivity are routinely monitored as market conditions change. For additional information about our Asset and Liability Management Activities, refer to "Risk Management" in this Management's Discussion and Analysis of Financial Condition and Results of Operations.
Model Risk Management
The use of models is widespread throughout the financial services industry, with large and complex organizations relying on sophisticated models to support numerous aspects of their financial decision making. The models contemporaneously represent both a significant advancement in financial management and a source of risk. In large banking organizations like us, model results influence business decisions, and model failure could have a harmful effect on our financial performance. As a result, the Model Risk Management Framework seeks to mitigate our model risk.
For additional information about our model risk management framework, including our governance and model validation, refer to pages 112 to 113 included under Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, "Model Risk Management", in our 2020 Form 10-K.
Strategic Risk Management
We define strategic risk as the current or prospective impact on earnings or capital arising from adverse business decisions, improper implementation of strategic initiatives, or lack of responsiveness to industry-wide changes. Strategic risks are influenced by changes in the competitive environment; decline in market performance or changes in our business activities; and the potential secondary impacts of reputational risks, not already captured as market, interest rate, credit, operational, model or liquidity risks. We incorporate strategic risk into our assessment of our business plans and risk and capital management processes.
On March 5, 2021, the Intercontinental Exchange Benchmark Administration announced, in conjunction with the United Kingdom Financial Conduct Authority (FCA), that it would cease the publication of GBP, EUR, Swiss Franc and the Japanese Yen LIBOR settings for all tenors, as well as one week and two months U.S. dollar LIBOR settings on December 31, 2021 and would cease the publication of overnight and twelve months U.S. dollar LIBOR settings on June 30, 2023.
On April 6, 2021, the state of New York adopted Alternative Reference Rate Committee sponsored
State Street Corporation | 41
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
legislation that would, among other things, provide for the replacement of LIBOR references in hard to modify legacy financial contracts governed by New York law with a benchmark rate based on SOFR. Other states may adopt similar legislation.
U.S. bank regulators have issued guidance strongly encouraging banking organizations to cease using U.S. dollar LIBOR as a reference rate in new contracts as soon as practicable and in any event by December 31, 2021. We are continuing our efforts to work to facilitate an orderly transition from LIBOR, and other interbank offered rates, to alternative reference rates for us and our clients in a manner consistent with supervisory expectations.
For additional information about our strategic risk management framework and associated risks, refer to page 113 included under Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, "Strategic Risk Management", in our 2020 Form 10-K.10-K, and page 46 included under Item 1A, Risk Factors, in our 2020 Form 10-K - "The market transition away from broad use of the London Interbank Offered Rate (LIBOR) as an interest rate benchmark may impose additional costs on us and may expose us to increased operational, model and financial risk."
Capital
Managing our capital involves evaluating whether our actual and projected levels of capital are commensurate with our risk profile, are in compliance with all applicable regulatory requirements and are sufficient to provide us with the financial flexibility to undertake future strategic business initiatives. We assess capital adequacy based on relevant regulatory capital requirements, as well as our own internal capital goals, targets and other relevant metrics.
Our designation as a G-SIB is based on a number of factors, as evaluated by banking regulators, and requires us to maintain an additional capital surcharge above the minimum capital ratios set forth in the Basel III final rule. Further, like all other U.S. G-SIBs, we are also currently subject to a 2.0% SLR buffer in addition to the required minimum of 3% under the Basel III final rule. If we fail to exceed any regulatory buffer or surcharge, we will be subject to increased restrictions (depending upon the extent of the shortfall) regarding capital distributions and discretionary executive bonus payments.
Not all of our competitors have similarly been designated as systemically important nor are all of them subject to the same degree of regulation as a bank or financial holding company, and therefore some of our competitors may not be subject to the same capital, liquidity and other regulatory requirements.
For additional information about our capital, refer to pages 113 to 121 included under Item 7,
Management's Discussion and Analysis of Financial Condition and Results of Operations, in our 2020 Form 10-K.
State Street Corporation | 37
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Regulatory Capital
We and State Street Bank, as advanced approaches banking organizations, are subject to the U.S. Basel III framework. Provisions of the Basel III final rule became effective on January 1, 2014 with full implementation required on January 1, 2019. We are also subject to the final market risk capital rule issued by U.S. banking regulators effective as of January 2013.
The Basel III final rule provides for two frameworks for monitoring capital adequacy: the “standardized approach" and the “advanced approaches", applicable to advanced approaches banking organizations, like us. The standardized approach prescribes standardized calculations for credit risk RWA, including specified risk weights for certain on and off-balance sheet exposures. The advanced approaches consist of the Advanced Internal Ratings-Based Approach used for the calculation of RWA related to credit risk, and the Advanced Measurement Approach used for the calculation of RWA related to operational risk.
As required by the Dodd-Frank Act enacted in 2010 and the Stress Capital Buffer (SCB) rule enacted in 2020, we and State Street Bank, as advanced approaches banking organizations, are subject to a "capital floor," also referred to as the Collins Amendment, in the assessment of our regulatory capital adequacy, including the capital conservation buffer (CCB) and the SCB, for the advanced approaches and standardized approach, respectively, and a countercyclical capital buffer. In addition, we are subject to a G-SIB surcharge. Our risk-based capital ratios for regulatory assessment purposes are the lower of each ratio calculated under the advanced approaches and standardized approach.
The SCB replaced, under the standardized approach, the capital conservation buffer with a buffer calculated as the difference between the institution’s starting and lowest projected CET1 ratio under the CCAR severely adverse scenario plus planned common stock dividend payments (as a percentage
of RWA) from the fourth through seventh quarter of the CCAR planning horizon. The SCB requirement, which became effective October 1, 2020, can be no less than 2.5% of RWA. Breaching the SCB or other regulatory buffer or surcharge will limit a banking organization’s ability to make capital distributions and discretionary bonus payments to executive officers. The countercyclical capital buffer is currently set at zero by U.S. banking regulators.
State Street Corporation | 42
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Our minimum risk-based capital ratios as of January 1, 2021, includinginclude a CCB of 2.5% and ana SCB of 2.5% for the advanced approaches and standardized approach, respectively, a G-SIB surcharge of 1.0%, and a countercyclical buffer of 0%, are0.0%. This results in minimum risk-based ratios of 8.0% for the Common Equity Tier 1 (CET1) capital ratio, 9.5% for the tier 1 capital ratio, and 11.5% for the total capital ratio.
Based on a calculation date of December 31, 2019, our current G-SIB surcharge, for 2021through December 31, 2022, is 1.0%. Based on a calculation date of December 31, 2020, our G-SIB surcharge could increase to 1.5% effectivebeginning January 1, 2023. We are evaluating opportunities2023 could have been 1.5%. However, in May 2021, the Federal Reserve granted our request for relief relating to reducethe effects of the MMLF program on the calculation of our surcharge, which couldG-SIB surcharge. As a result in us remaining atof this relief, our current G-SIB surcharge of 1%for 2023 will be 1.0%.
To maintain the status of the Parent Company as a financial holding company, we and our insured depository institution subsidiaries are required, among other requirements, to be "well capitalized" as defined by Regulation Y and Regulation H.
The market risk capital rule requires us to use internal models to calculate daily measures of VaR, which reflect general market risk for certain of our trading positions defined by the rule as “covered positions,” as well as stressed-VaR measures to supplement the VaR measures. The rule also requires a public disclosure composed of qualitative and quantitative information about the market risk associated with our trading activities and our related VaR and stressed-VaR measures. The qualitative and quantitative information required by the rule is provided under "Market Risk Management" included in this Management's Discussion and Analysis.
State Street Corporation | 38
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following table presents the regulatory capital structure and related regulatory capital ratios for us and State Street Bank as of the dates indicated. We are subject to the more stringent of the risk-based capital ratios calculated under the standardized approach and those calculated under the advanced approaches in the assessment of our capital adequacy under applicable bank regulatory standards.
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| TABLE 35: REGULATORY CAPITAL STRUCTURE AND RELATED REGULATORY CAPITAL RATIOS |
| State Street Corporation | | State Street Bank |
| (Dollars in millions) | Basel III Advanced Approaches March 31, 2021 | | Basel III Standardized Approach March 31, 2021 | | Basel III Advanced Approaches December 31, 2020 | | Basel III Standardized Approach December 31, 2020 | | Basel III Advanced Approaches March 31, 2021 | | Basel III Standardized Approach March 31, 2021 | | Basel III Advanced Approaches December 31, 2020 | | Basel III Standardized Approach December 31, 2020 |
| Common shareholders' equity: | | | | | | | | | | | | | | | |
| Common stock and related surplus | $ | 10,731 | | | $ | 10,731 | | | $ | 10,709 | | | $ | 10,709 | | | $ | 12,893 | | | $ | 12,893 | | | $ | 12,893 | | | $ | 12,893 | |
| Retained earnings | 23,751 | | | 23,751 | | | 23,442 | | | 23,442 | | | 13,479 | | | 13,479 | | | 12,939 | | | 12,939 | |
| Accumulated other comprehensive income (loss) | (418) | | | (418) | | | 187 | | | 187 | | | (221) | | | (221) | | | 371 | | | 371 | |
| Treasury stock, at cost | (11,035) | | | (11,035) | | | (10,609) | | | (10,609) | | | — | | | — | | | — | | | — | |
| Total | 23,029 | | | 23,029 | | | 23,729 | | | 23,729 | | | 26,151 | | | 26,151 | | | 26,203 | | | 26,203 | |
| Regulatory capital adjustments: | | | | | | | | | | | | | | | |
| Goodwill and other intangible assets, net of associated deferred tax liabilities | (9,149) | | | (9,149) | | | (9,019) | | | (9,019) | | | (8,880) | | | (8,880) | | | (8,745) | | | (8,745) | |
Other adjustments(1) | (437) | | | (437) | | | (333) | | | (333) | | | (250) | | | (250) | | | (152) | | | (152) | |
| Common equity tier 1 capital | 13,443 | | | 13,443 | | | 14,377 | | | 14,377 | | | 17,021 | | | 17,021 | | | 17,306 | | | 17,306 | |
| Preferred stock | 1,976 | | | 1,976 | | | 2,471 | | | 2,471 | | | — | | | — | | | — | | | — | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| Tier 1 capital | 15,419 | | | 15,419 | | | 16,848 | | | 16,848 | | | 17,021 | | | 17,021 | | | 17,306 | | | 17,306 | |
| Qualifying subordinated long-term debt | 1,801 | | | 1,801 | | | 961 | | | 961 | | | 963 | | | 963 | | | 966 | | | 966 | |
| | | | | | | | | | | | | | | |
| Allowance for loan and lease losses | — | | | 135 | | | 1 | | | 148 | | | — | | | 135 | | | 10 | | | 148 | |
| | | | | | | | | | | | | | | |
| Total capital | $ | 17,220 | | | $ | 17,355 | | | $ | 17,810 | | | $ | 17,957 | | | $ | 17,984 | | | $ | 18,119 | | | $ | 18,282 | | | $ | 18,420 | |
| Risk-weighted assets: | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
Credit risk(2) | $ | 66,726 | | | $ | 122,074 | | | $ | 63,367 | | | $ | 114,892 | | | $ | 62,082 | | | $ | 119,020 | | | $ | 58,960 | | | $ | 110,797 | |
Operational risk(3) | 44,075 | | | NA | | 44,150 | | | NA | | 43,600 | | | NA | | 43,663 | | | NA |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Market risk | 2,250 | | | 2,250 | | | 2,188 | | | 2,188 | | | 2,250 | | | 2,250 | | | 2,188 | | | 2,188 | |
| Total risk-weighted assets | $ | 113,051 | | | $ | 124,324 | | | $ | 109,705 | | | $ | 117,080 | | | $ | 107,932 | | | $ | 121,270 | | | $ | 104,811 | | | $ | 112,985 | |
| | | | | | | | | | | | | | | | | |
| Adjusted quarterly average assets | $ | 285,480 | | | $ | 285,480 | | | $ | 263,490 | | | $ | 263,490 | | | $ | 282,319 | | | $ | 282,319 | | | $ | 260,489 | | | $ | 260,489 | |
| | | | | | | | | | | | | | | | | |
| Capital Ratios: | 2021 Minimum Requirements Including Capital Conservation Buffer and G-SIB Surcharge(4) | 2020 Minimum Requirements Including Capital Conservation Buffer and G-SIB Surcharge(4) | | | | | | | | | | | | | | | |
| Common equity tier 1 capital | 8.0 | % | 8.0 | % | 11.9 | % | | 10.8 | % | | 13.1 | % | | 12.3 | % | | 15.8 | % | | 14.0 | % | | 16.5 | % | | 15.3 | % |
| Tier 1 capital | 9.5 | | 9.5 | | 13.6 | | | 12.4 | | | 15.4 | | | 14.4 | | | 15.8 | | | 14.0 | | | 16.5 | | | 15.3 | |
| Total capital | 11.5 | | 11.5 | | 15.2 | | | 14.0 | | | 16.2 | | | 15.3 | | | 16.7 | | | 14.9 | | | 17.4 | | | 16.3 | |
| | | | | | | | | | | | | | | | | |
State Street Corporation | 43
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| TABLE 35: REGULATORY CAPITAL STRUCTURE AND RELATED REGULATORY CAPITAL RATIOS |
| State Street Corporation | | State Street Bank |
| (Dollars in millions) | Basel III Advanced Approaches September 30, 2021 | | Basel III Standardized Approach September 30, 2021 | | Basel III Advanced Approaches December 31, 2020 | | Basel III Standardized Approach December 31, 2020 | | Basel III Advanced Approaches September 30, 2021 | | Basel III Standardized Approach September 30, 2021 | | Basel III Advanced Approaches December 31, 2020 | | Basel III Standardized Approach December 31, 2020 |
| Common shareholders' equity: | | | | | | | | | | | | | | | |
| Common stock and related surplus | $ | 11,267 | | | $ | 11,267 | | | $ | 10,709 | | | $ | 10,709 | | | $ | 12,887 | | | $ | 12,887 | | | $ | 12,893 | | | $ | 12,893 | |
| Retained earnings | 24,785 | | | 24,785 | | | 23,442 | | | 23,442 | | | 14,919 | | | 14,919 | | | 12,939 | | | 12,939 | |
| Accumulated other comprehensive income (loss) | (682) | | | (682) | | | 187 | | | 187 | | | (465) | | | (465) | | | 371 | | | 371 | |
| Treasury stock, at cost | (10,032) | | | (10,032) | | | (10,609) | | | (10,609) | | | — | | | — | | | — | | | — | |
| Total | 25,338 | | | 25,338 | | | 23,729 | | | 23,729 | | | 27,341 | | | 27,341 | | | 26,203 | | | 26,203 | |
| Regulatory capital adjustments: | | | | | | | | | | | | | | | |
| Goodwill and other intangible assets, net of associated deferred tax liabilities | (9,040) | | | (9,040) | | | (9,019) | | | (9,019) | | | (8,770) | | | (8,770) | | | (8,745) | | | (8,745) | |
Other adjustments(1) | (467) | | | (467) | | | (333) | | | (333) | | | (281) | | | (281) | | | (152) | | | (152) | |
| Common equity tier 1 capital | 15,831 | | | 15,831 | | | 14,377 | | | 14,377 | | | 18,290 | | | 18,290 | | | 17,306 | | | 17,306 | |
| Preferred stock | 1,976 | | | 1,976 | | | 2,471 | | | 2,471 | | | — | | | — | | | — | | | — | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| Tier 1 capital | 17,807 | | | 17,807 | | | 16,848 | | | 16,848 | | | 18,290 | | | 18,290 | | | 17,306 | | | 17,306 | |
| Qualifying subordinated long-term debt | 1,590 | | | 1,590 | | | 961 | | | 961 | | | 754 | | | 754 | | | 966 | | | 966 | |
| | | | | | | | | | | | | | | |
| Allowance for credit losses | — | | | 117 | | | 1 | | | 148 | | | — | | | 117 | | | 10 | | | 148 | |
| | | | | | | | | | | | | | | |
| Total capital | $ | 19,397 | | | $ | 19,514 | | | $ | 17,810 | | | $ | 17,957 | | | $ | 19,044 | | | $ | 19,161 | | | $ | 18,282 | | | $ | 18,420 | |
| Risk-weighted assets: | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
Credit risk(2) | $ | 66,503 | | | $ | 114,604 | | | $ | 63,367 | | | $ | 114,892 | | | $ | 59,635 | | | $ | 111,464 | | | $ | 58,960 | | | $ | 110,797 | |
Operational risk(3) | 45,750 | | | NA | | 44,150 | | | NA | | 43,113 | | | NA | | 43,663 | | | NA |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Market risk | 2,625 | | | 2,625 | | | 2,188 | | | 2,188 | | | 2,625 | | | 2,625 | | | 2,188 | | | 2,188 | |
| Total risk-weighted assets | $ | 114,878 | | | $ | 117,229 | | | $ | 109,705 | | | $ | 117,080 | | | $ | 105,373 | | | $ | 114,089 | | | $ | 104,811 | | | $ | 112,985 | |
| | | | | | | | | | | | | | | | | |
| Adjusted quarterly average assets | $ | 281,952 | | | $ | 281,952 | | | $ | 263,490 | | | $ | 263,490 | | | $ | 278,705 | | | $ | 278,705 | | | $ | 260,489 | | | $ | 260,489 | |
| | | | | | | | | | | | | | | | | |
| Capital Ratios: | 2021 Minimum Requirements Including Capital Conservation Buffer and G-SIB Surcharge(4) | 2020 Minimum Requirements Including Capital Conservation Buffer and G-SIB Surcharge(4) | | | | | | | | | | | | | | | |
| Common equity tier 1 capital | 8.0 | % | 8.0 | % | 13.8 | % | | 13.5 | % | | 13.1 | % | | 12.3 | % | | 17.4 | % | | 16.0 | % | | 16.5 | % | | 15.3 | % |
| Tier 1 capital | 9.5 | | 9.5 | | 15.5 | | | 15.2 | | | 15.4 | | | 14.4 | | | 17.4 | | | 16.0 | | | 16.5 | | | 15.3 | |
| Total capital | 11.5 | | 11.5 | | 16.9 | | | 16.6 | | | 16.2 | | | 15.3 | | | 18.1 | | | 16.8 | | | 17.4 | | | 16.3 | |
| | | | | | | | | | | | | | | | | |
(1) Other adjustments within CET1 capital primarily include the overfunded portion of our defined benefit pension plan obligation net of associated deferred tax liabilities, disallowed deferred tax assets, and other required credit risk basedrisk-based deductions.
(2) Includes a CVA which reflects the risk of potential fair value adjustments for credit risk reflected in our valuation of OTC derivative contracts. We used a simple CVA approach in conformity with the Basel III advanced approaches.
(3) Under the current advanced approaches rules and regulatory guidance concerning operational risk models, RWA attributable to operational risk can vary substantially from period-to-period, without direct correlation to the effects of a particular loss event on our results of operations and financial condition and impacting dates and periods that may differ from the dates and periods as of and during which the loss event is reflected in our financial statements, with the timing and categorization dependent on the processes for model updates and, if applicable, model revalidation and regulatory review and related supervisory processes. An individual loss event can have a significant effect on the output of our operational RWA under the advanced approaches depending on the severity of the loss event and its categorization among the seven Basel-defined UOMs.
(4) Minimum requirements include a CCB of 2.5% and a SCB of 2.5% for the advanced approaches and the standardized approach, respectively, a G-SIB surcharge of 1.0% and a countercyclical buffer of 0%.
NA Not applicable
State Street Corporation | 3944
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Our CET1 capital decreased $0.93increased $1.45 billion as of March 31,September 30, 2021, compared to December 31, 2020, primarily driven by higher retained earnings and the issuance of common stock repurchases, capital distributions from common and preferred dividends and lower capital related to AOCI and intangible assets, partially offset by net income.stock.
Our Tier 1 capital decreased $1.43increased $0.96 billion as of March 31,September 30, 2021, compared to December 31, 2020, due to lower CET1 capital, primarily due to lower AOCI andhigher CET1 capital, partially offset by the partial redemption of the Series F preferred stock. Total capital decreasedincreased under both the advanced approaches and standardized approach by $0.59$1.59 billion and $0.60$1.56 billion, respectively, due to the changes in our CET1 capital, and Tier 1 capital, partially offset byand the issuance of Tier 2 qualifying debt.
The table below presents a roll-forward of CET1 capital, Tier 1 capital and total capital for the threenine months ended March 31,September 30, 2021 and for the year ended December 31, 2020.
| | TABLE 36: CAPITAL ROLL-FORWARD | TABLE 36: CAPITAL ROLL-FORWARD | TABLE 36: CAPITAL ROLL-FORWARD |
| (In millions) | (In millions) | Basel III Advanced Approaches March 31, 2021 | | Basel III Standardized Approach March 31, 2021 | | Basel III
Advanced Approaches
December 31, 2020 | | Basel III Standardized Approach
December 31, 2020 | (In millions) | Basel III Advanced Approaches September 30, 2021 | | Basel III Standardized Approach September 30, 2021 | | Basel III Advanced Approaches December 31, 2020 | | Basel III Standardized Approach December 31, 2020 |
| Common equity tier 1 capital: | Common equity tier 1 capital: | | | | | | | | Common equity tier 1 capital: | | | | | | | |
| Common equity tier 1 capital balance, beginning of period | Common equity tier 1 capital balance, beginning of period | $ | 14,377 | | | $ | 14,377 | | | $ | 12,213 | | | $ | 12,213 | | Common equity tier 1 capital balance, beginning of period | $ | 14,377 | | | $ | 14,377 | | | $ | 12,213 | | | $ | 12,213 | |
| Net income | Net income | 519 | | | 519 | | | 2,420 | | | 2,420 | | Net income | 1,996 | | | 1,996 | | | 2,420 | | | 2,420 | |
| Changes in treasury stock, at cost | Changes in treasury stock, at cost | (426) | | | (426) | | | (400) | | | (400) | | Changes in treasury stock, at cost | 577 | | | 577 | | | (400) | | | (400) | |
| Dividends declared | Dividends declared | (30) | | | (30) | | | (886) | | | (886) | | Dividends declared | (472) | | | (472) | | | (886) | | | (886) | |
| Goodwill and other intangible assets, net of associated deferred tax liabilities | Goodwill and other intangible assets, net of associated deferred tax liabilities | (130) | | | (130) | | | 93 | | | 93 | | Goodwill and other intangible assets, net of associated deferred tax liabilities | (21) | | | (21) | | | 93 | | | 93 | |
| Effect of certain items in accumulated other comprehensive income (loss) | Effect of certain items in accumulated other comprehensive income (loss) | (605) | | | (605) | | | 1,057 | | | 1,057 | | Effect of certain items in accumulated other comprehensive income (loss) | (869) | | | (869) | | | 1,057 | | | 1,057 | |
| Other adjustments | Other adjustments | (262) | | | (262) | | | (120) | | | (120) | | Other adjustments | 243 | | | 243 | | | (120) | | | (120) | |
| Changes in common equity tier 1 capital | Changes in common equity tier 1 capital | (934) | | | (934) | | | 2,164 | | | 2,164 | | Changes in common equity tier 1 capital | 1,454 | | | 1,454 | | | 2,164 | | | 2,164 | |
| Common equity tier 1 capital balance, end of period | Common equity tier 1 capital balance, end of period | 13,443 | | | 13,443 | | | 14,377 | | | 14,377 | | Common equity tier 1 capital balance, end of period | 15,831 | | | 15,831 | | | 14,377 | | | 14,377 | |
| Additional tier 1 capital: | Additional tier 1 capital: | | | | | | | | Additional tier 1 capital: | | | | | | | |
| Tier 1 capital balance, beginning of period | Tier 1 capital balance, beginning of period | 16,848 | | | 16,848 | | | 15,175 | | | 15,175 | | Tier 1 capital balance, beginning of period | 16,848 | | | 16,848 | | | 15,175 | | | 15,175 | |
| Change in common equity tier 1 capital | (934) | | | (934) | | | 2,164 | | | 2,164 | | |
| Changes in common equity tier 1 capital | | Changes in common equity tier 1 capital | 1,454 | | | 1,454 | | | 2,164 | | | 2,164 | |
| Net issuance (redemption) of preferred stock | Net issuance (redemption) of preferred stock | (495) | | | (495) | | | (491) | | | (491) | | Net issuance (redemption) of preferred stock | (495) | | | (495) | | | (491) | | | (491) | |
| | Changes in tier 1 capital | Changes in tier 1 capital | (1,429) | | | (1,429) | | | 1,673 | | | 1,673 | | Changes in tier 1 capital | 959 | | | 959 | | | 1,673 | | | 1,673 | |
| Tier 1 capital balance, end of period | Tier 1 capital balance, end of period | 15,419 | | | 15,419 | | | 16,848 | | | 16,848 | | Tier 1 capital balance, end of period | 17,807 | | | 17,807 | | | 16,848 | | | 16,848 | |
| Tier 2 capital: | Tier 2 capital: | | | | | | | | Tier 2 capital: | | | | | | | |
| Tier 2 capital balance, beginning of period | Tier 2 capital balance, beginning of period | 962 | | | 1,109 | | | 1,100 | | | 1,185 | | Tier 2 capital balance, beginning of period | 962 | | | 1,109 | | | 1,100 | | | 1,185 | |
| Net issuance and changes in long-term debt qualifying as tier 2 | Net issuance and changes in long-term debt qualifying as tier 2 | 840 | | | 840 | | | (134) | | | (134) | | Net issuance and changes in long-term debt qualifying as tier 2 | 629 | | | 629 | | | (134) | | | (134) | |
| | Changes in allowance for credit losses | Changes in allowance for credit losses | (1) | | | (13) | | | (4) | | | 58 | | Changes in allowance for credit losses | (1) | | | (31) | | | (4) | | | 58 | |
| | Changes in tier 2 capital | Changes in tier 2 capital | 839 | | | 827 | | | (138) | | | (76) | | Changes in tier 2 capital | 628 | | | 598 | | | (138) | | | (76) | |
| Tier 2 capital balance, end of period | Tier 2 capital balance, end of period | 1,801 | | | 1,936 | | | 962 | | | 1,109 | | Tier 2 capital balance, end of period | 1,590 | | | 1,707 | | | 962 | | | 1,109 | |
| Total capital: | Total capital: | | | | | | | | Total capital: | | | | | | | |
| Total capital balance, beginning of period | Total capital balance, beginning of period | 17,810 | | | 17,957 | | | 16,275 | | | 16,360 | | Total capital balance, beginning of period | 17,810 | | | 17,957 | | | 16,275 | | | 16,360 | |
| Changes in tier 1 capital | Changes in tier 1 capital | (1,429) | | | (1,429) | | | 1,673 | | | 1,673 | | Changes in tier 1 capital | 959 | | | 959 | | | 1,673 | | | 1,673 | |
| Changes in tier 2 capital | Changes in tier 2 capital | 839 | | | 827 | | | (138) | | | (76) | | Changes in tier 2 capital | 628 | | | 598 | | | (138) | | | (76) | |
| Total capital balance, end of period | Total capital balance, end of period | $ | 17,220 | | | $ | 17,355 | | | $ | 17,810 | | | $ | 17,957 | | Total capital balance, end of period | $ | 19,397 | | | $ | 19,514 | | | $ | 17,810 | | | $ | 17,957 | |
State Street Corporation | 4045
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following table presents a roll-forward of the Basel III advanced and standardized approaches RWA for the threenine months ended March 31,September 30, 2021 and for the year ended December 31, 2020.
| | TABLE 37: ADVANCED & STANDARDIZED APPROACHES RISK-WEIGHTED ASSETS ROLL-FORWARD | TABLE 37: ADVANCED & STANDARDIZED APPROACHES RISK-WEIGHTED ASSETS ROLL-FORWARD | TABLE 37: ADVANCED & STANDARDIZED APPROACHES RISK-WEIGHTED ASSETS ROLL-FORWARD |
| | (In millions) | (In millions) | Basel III Advanced Approaches March 31, 2021 | | Basel III Advanced Approaches December 31, 2020 | | Basel III Standardized Approach March 31, 2021 | | Basel III Standardized Approach December 31, 2020 | (In millions) | Basel III Advanced Approaches September 30, 2021 | | Basel III Advanced Approaches December 31, 2020 | | Basel III Standardized Approach September 30, 2021 | | Basel III Standardized Approach December 31, 2020 |
| Total risk-weighted assets, beginning of period | Total risk-weighted assets, beginning of period | $ | 109,705 | | | $ | 104,364 | | | $ | 117,080 | | | $ | 104,005 | | Total risk-weighted assets, beginning of period | $ | 109,705 | | | $ | 104,364 | | | $ | 117,080 | | | $ | 104,005 | |
| Changes in credit risk-weighted assets: | Changes in credit risk-weighted assets: | | Changes in credit risk-weighted assets: | |
| Net increase (decrease) in investment securities-wholesale | Net increase (decrease) in investment securities-wholesale | (226) | | | 3,008 | | | (62) | | | 1,762 | | Net increase (decrease) in investment securities-wholesale | (1,072) | | | 3,008 | | | (776) | | | 1,762 | |
| Net increase (decrease) in loans | Net increase (decrease) in loans | 2,178 | | | 2,973 | | | 3,439 | | | 3,638 | | Net increase (decrease) in loans | 2,131 | | | 2,973 | | | 2,822 | | | 3,638 | |
| Net increase (decrease) in securitization exposures | Net increase (decrease) in securitization exposures | 105 | | | 578 | | | 99 | | | 351 | | Net increase (decrease) in securitization exposures | 682 | | | 578 | | | 644 | | | 351 | |
| Net increase (decrease) in repo-style transaction exposures | Net increase (decrease) in repo-style transaction exposures | 777 | | | 1,763 | | | 187 | | | 3,895 | | Net increase (decrease) in repo-style transaction exposures | (45) | | | 1,763 | | | (4,826) | | | 3,895 | |
Net increase (decrease) in Over-the-counter derivatives exposures(1) | (614) | | | 780 | | | 4,118 | | | 457 | | |
Net increase (decrease) in over-the-counter derivatives exposures(1) | | Net increase (decrease) in over-the-counter derivatives exposures(1) | (1,240) | | | 780 | | | 3,016 | | | 457 | |
Net increase (decrease) in all other(2) | Net increase (decrease) in all other(2) | 1,139 | | | (498) | | | (599) | | | 2,422 | | Net increase (decrease) in all other(2) | 2,680 | | | (498) | | | (1,168) | | | 2,422 | |
| Net increase (decrease) in credit risk-weighted assets | Net increase (decrease) in credit risk-weighted assets | 3,359 | | | 8,604 | | | 7,182 | | | 12,525 | | Net increase (decrease) in credit risk-weighted assets | 3,136 | | | 8,604 | | | (288) | | | 12,525 | |
| Net increase (decrease) in market risk-weighted assets | Net increase (decrease) in market risk-weighted assets | 62 | | | 550 | | | 62 | | | 550 | | Net increase (decrease) in market risk-weighted assets | 437 | | | 550 | | | 437 | | | 550 | |
| Net increase (decrease) in operational risk-weighted assets | Net increase (decrease) in operational risk-weighted assets | (75) | | | (3,813) | | | NA | | NA | Net increase (decrease) in operational risk-weighted assets | 1,600 | | | (3,813) | | | N/A | | N/A |
| Total risk-weighted assets, end of period | Total risk-weighted assets, end of period | $ | 113,051 | | | $ | 109,705 | | | $ | 124,324 | | | $ | 117,080 | | Total risk-weighted assets, end of period | $ | 114,878 | | | $ | 109,705 | | | $ | 117,229 | | | $ | 117,080 | |
(1) Under the advanced approaches, includes CVA RWA.
(2) Includes assets not in a definable category, non-material portfolio, cleared transactions, other wholesale, cash and due from banks, interest-bearing deposits with banks, and equity exposures.
NA Not applicable
As of March 31,September 30, 2021, total advanced approaches RWA increased $3.35$5.17 billion compared to December 31, 2020, mainly due to an episodic increase in credit risk and operational risk RWA. The increase in credit risk RWA was mainlyprimarily driven by a net increase in overdraft activity, all other and repo-style transactions RWA, partially offset by a net decrease in FX trading activity.loans RWA.
As of March 31,September 30, 2021, total standardized approach RWA increased $7.24$0.15 billion compared to December 31, 2020, mainly due to higher market risk RWA, partially offset by lower credit risk RWA. The episodic increasedecrease in credit risk RWA was mainlyprimarily driven by a decrease in repo-style transactions RWA, partially offset by an increase in FX trading and overdraft activity.loans RWA.
The regulatory capital ratios as of March 31,September 30, 2021, presented in Table 35: Regulatory Capital Structure and Related Regulatory Capital Ratios, are calculated under the advanced approaches and standardized approach in conformity with the Basel III final rule. The advanced approaches-based ratios reflect calculations and determinations with respect to our capital and related matters as of March 31,September 30, 2021, based on our and external data, quantitative formulae, statistical models, historical correlations and assumptions, collectively referred to as “advanced systems,” in effect and used by us for those purposes as of the time we first reported such ratios in a quarterly report on Form 10-Q or an annual report on Form 10-K. Significant components of these advanced systems involve the exercise of judgment by us and our regulators, and our advanced systems may not, individually or collectively, precisely represent or calculate the scenarios, circumstances, outputs or other results for which they are designed or intended.
Our advanced systems are subject to update and periodic revalidation in response to changes in our business activities and our historical experiences, forces and events experienced by the market broadly or by individual financial institutions, changes in regulations and regulatory interpretations and other factors, and are also subject to continuing regulatory review and approval. For example, a significant operational loss experienced by another financial institution, even if we do not experience a related loss, could result in a material change in the output of our advanced systems and a corresponding material change in our risk exposures, our total RWA and our capital ratios compared to prior periods. An operational loss that we experience could also result in a material change in our capital requirements for operational risk under the advanced approaches, depending on the severity of the loss event, its characterization among the seven Basel-defined UOM, and the stability of the distributional approach for a particular UOM, and without direct correlation to the effects of the loss event, or the timing of such effects, on our results of operations.
Due to the influence of changes in these advanced systems, whether resulting from changes in data inputs, regulation or regulatory supervision or interpretation, specific to us or market activities or experiences or other updates or factors, we expect that our advanced systems and our capital ratios calculated in conformity with the Basel III final rule will change and may be volatile over time, and that those latter changes or volatility could be material as calculated and measured from period to period. The full effects of the Basel III final rule on us and State Street Bank are therefore subject to further evaluation and also to further regulatory guidance, action or rule-making.
State Street Corporation | 4146
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Tier 1 and Supplementary Leverage Ratios
We are subject to a minimum Tier 1 leverage ratio and a supplementary leverage ratio. The Tier 1 leverage ratio is based on Tier 1 capital and adjusted quarterly average on-balance sheet assets. The Tier 1 leverage ratio differs from the SLR primarily in that the denominator of the Tier 1 leverage ratio is a quarterly average of on-balance sheet assets, while the SLR additionally includes off-balance sheet exposures. We must maintain a minimum Tier 1 leverage ratio of 4%.
We are also subject to a minimum SLR of 3%, and as a U.S. G-SIB, we must maintain a 2% SLR buffer in order to avoid any limitations on distributions to shareholders and discretionary bonus payments to certain executives. If we do not maintain this buffer, limitations on these distributions and discretionary bonus payments would be increasingly stringent based upon the extent of the shortfall.
| | TABLE 38: TIER 1 AND SUPPLEMENTARY LEVERAGE RATIOS | TABLE 38: TIER 1 AND SUPPLEMENTARY LEVERAGE RATIOS | TABLE 38: TIER 1 AND SUPPLEMENTARY LEVERAGE RATIOS |
| (Dollars in millions) | (Dollars in millions) | March 31, 2021 | | December 31, 2020 | (Dollars in millions) | September 30, 2021 | | December 31, 2020 |
| State Street: | State Street: | | | | State Street: | | | |
| Tier 1 capital | Tier 1 capital | $ | 15,419 | | | $ | 16,848 | | Tier 1 capital | $ | 17,807 | | | $ | 16,848 | |
| Average assets | Average assets | 296,328 | | | 277,055 | | Average assets | 291,459 | | | 277,055 | |
| Less: adjustments for deductions from tier 1 capital and other | Less: adjustments for deductions from tier 1 capital and other | (10,848) | | | (13,565) | | Less: adjustments for deductions from tier 1 capital and other | (9,507) | | | (13,565) | |
| Adjusted average assets for Tier 1 leverage ratio | 285,480 | | | 263,490 | | |
| Derivatives and repo-style transactions and off-balance sheet exposures | 33,822 | | | 34,379 | | |
| Adjusted average assets for tier 1 leverage ratio | | Adjusted average assets for tier 1 leverage ratio | 281,952 | | | 263,490 | |
| Off-balance sheet exposures | | Off-balance sheet exposures | 32,375 | | | 34,379 | |
| Adjustments for deductions of qualifying central bank deposits | Adjustments for deductions of qualifying central bank deposits | (105,437) | | | (90,322) | | Adjustments for deductions of qualifying central bank deposits | (77,225) | | | (90,322) | |
| Total assets for SLR | Total assets for SLR | $ | 213,865 | | | $ | 207,547 | | Total assets for SLR | $ | 237,102 | | | $ | 207,547 | |
Tier 1 leverage ratio(1) | Tier 1 leverage ratio(1) | 5.4 | % | | 6.4 | % | Tier 1 leverage ratio(1) | 6.3 | % | | 6.4 | % |
| Supplementary leverage ratio | Supplementary leverage ratio | 7.2 | | | 8.1 | | Supplementary leverage ratio | 7.5 | | | 8.1 | |
| State Street Bank(2): | State Street Bank(2): | | State Street Bank(2): | |
| Tier 1 capital | Tier 1 capital | $ | 17,021 | | | $ | 17,306 | | Tier 1 capital | $ | 18,290 | | | $ | 17,306 | |
| Average assets | Average assets | 292,711 | | | 273,599 | | Average assets | 287,756 | | | 273,599 | |
| Less: adjustments for deductions from tier 1 capital and other | Less: adjustments for deductions from tier 1 capital and other | (10,392) | | | (13,110) | | Less: adjustments for deductions from tier 1 capital and other | (9,051) | | | (13,110) | |
| Adjusted average assets for Tier 1 leverage ratio | 282,319 | | | 260,489 | | |
| Adjusted average assets for tier 1 leverage ratio | | Adjusted average assets for tier 1 leverage ratio | 278,705 | | | 260,489 | |
| Off-balance sheet exposures | Off-balance sheet exposures | 33,822 | | | 38,591 | | Off-balance sheet exposures | 32,376 | | | 38,591 | |
| Adjustments for deductions of qualifying central bank deposits | Adjustments for deductions of qualifying central bank deposits | (92,596) | | | (80,935) | | Adjustments for deductions of qualifying central bank deposits | (77,225) | | | (80,935) | |
| Total assets for SLR | Total assets for SLR | $ | 223,545 | | | $ | 218,145 | | Total assets for SLR | $ | 233,856 | | | $ | 218,145 | |
Tier 1 leverage ratio(1) | Tier 1 leverage ratio(1) | 6.0 | % | | 6.6 | % | Tier 1 leverage ratio(1) | 6.6 | % | | 6.6 | % |
| Supplementary leverage ratio | Supplementary leverage ratio | 7.6 | | | 7.9 | | Supplementary leverage ratio | 7.8 | | | 7.9 | |
(1) Tier 1 leverage ratios were calculated in conformity with the Basel III final rule.
(2) The SLR rule requires that, as of January 1, 2018, (i) State Street Bank maintains an SLR of at least 6.0% to be well capitalized under the U.S. banking regulators’ Prompt Corrective Action Framework and (ii) we maintain an SLR of at least 5.0% to avoid limitations on capital distributions and discretionary bonus payments. In addition to the SLR, State Street Bank is subject to a well-capitalized Tier 1 leverage ratio requirement of 5.0%.
Total Loss-Absorbing Capacity (TLAC)
In 2016, the Federal Reserve released its final rule on TLAC, LTD and clean holding company requirements for U.S. domiciled G-SIBs, such as us, that is intended to improve the resiliency and resolvability of certain U.S. banking organizations through enhanced prudential standards. Among other things, the TLAC final rule requires us to comply with minimum requirements for external TLAC and external LTD effective January 1, 2019. Specifically, we must hold:
| | | | | |
| Amount equal to: |
| Combined eligible tier 1 regulatory capital and LTD | Greater of: •21.5% of total RWA (18.0% minimum plus 2.5% plus a G-SIB surcharge calculated for these purposes under Method 1 of 1.0% plus any applicable counter- cyclical buffer, which is currently 0%); and •9.5% of total leverage exposure (7.5% minimum plus the SLR buffer of 2.0%), as defined by the SLR final rule.
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| Qualifying external LTD | Greater of: •7.0% of RWA (6.0% minimum plus a G-SIB surcharge calculated for these purposes under method 2 of 1.0%); and
•4.5% of total leverage exposure, as defined by the SLR final rule.
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As of April 1, 2020, the TLAC and LTD requirements calibrated to the SLR denominator reflect the deduction of certain central bank balances as prescribed by the regulatory relief implemented under the EGRRCPA.
The following table presents external LTD and external TLAC as of March 31,September 30, 2021.
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| TABLE 39: TOTAL LOSS-ABSORBING CAPACITY |
| As of March 31, 2021 |
| (Dollars in millions) | Actual | | Requirement |
| Total loss-absorbing capacity (eligible Tier 1 regulatory capacity and long term debt): | | | | | | | |
| Risk-weighted assets | $ | 28,409 | | | 22.9 | % | | $ | 26,730 | | | 21.5 | % |
| Supplemental leverage ratio | 28,409 | | | 13.3 | | | 20,317 | | | 9.5 | |
| Long term debt: | | | | | | | |
| Risk-weighted assets | 12,616 | | | 10.1 | | | 8,703 | | | 7.0 | |
| Supplemental leverage ratio | 12,616 | | | 5.9 | | | 9,624 | | | 4.5 | |
State Street Corporation | 42
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| TABLE 39: TOTAL LOSS-ABSORBING CAPACITY |
| As of September 30, 2021 |
| (Dollars in millions) | Actual | | Requirement |
| Total loss-absorbing capacity (eligible Tier 1 regulatory capacity and long-term debt): | | | | | | | |
| Risk-weighted assets | $ | 30,708 | | | 26.2 | % | | $ | 25,204 | | | 21.5 | % |
| Supplemental leverage ratio | 30,708 | | | 13.0 | | | 22,525 | | | 9.5 | |
| Long-term debt: | | | | | | | |
| Risk-weighted assets | 11,635 | | | 9.9 | | | 8,206 | | | 7.0 | |
| Supplemental leverage ratio | 11,635 | | | 4.9 | | | 10,670 | | | 4.5 | |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Regulatory Developments
In April 2018, the Federal Reserve issued a proposed rule which would replace the current 2.0% SLR buffer for G-SIBs, with a buffer equal to 50% of their G-SIB surcharge. This proposal would also make conforming modifications to our TLAC and eligible LTD requirements applicable to G-SIBs. At
State Street Corporation | 47
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
this point in time, it is unclear whether this proposal will be implemented as proposed.
In November 2019, the Federal Reserve and other U.S. federal banking agencies issued a final rule to implement the Standardized Approach for Counterparty Credit Risk (SA-CCR) as a replacement of the Current Exposure Method for calculating exposure-at-default of derivatives exposures. Mandatory compliance with the final rule is required by January 1, 2022. Due to the nature of our trading activities, the impact of the final rule may have a greater proportional impact on our RWA than on some of our G-SIB peers.
On March 4, 2020, the U.S. federal banking agencies issued the SCB final rule that replaces, under the standardized approach, the capital conservation buffer (2.5%) with a SCB calculated as the difference between an institution’s starting and lowest projected CET1 ratio under the CCAR severely adverse scenario plus planned common stock dividend payments (as a percentage of RWA) from the fourth through seventh quarter of the CCAR planning horizon. The SCB requirement, which became effective October 1, 2020, can be no less than 2.5% of RWA.
The Federal Reserve and other U.S. federal banking agencies issued an interim final rule effective in March 2020 and later finalized on a permanent basis on August 26, 2020, which revised the definition of eligible retained income for all U.S. banking organizations. The revised definition of eligible retained income makes any automatic limitations on capital distributions, where a banking organization's regulatory ratios were to decline below the respective minimum requirements, take effect on a more gradual basis.
Following the launch of the MMLF program, which we participateparticipated in, the Federal Reserve issued an interim final rule on March 19, 2020 (followed by a final rule on September 29, 2020), allowing Bank Holding Companies (BHCs) to exclude assets purchased with the MMLF program from their RWA, total leverage exposure and average total consolidated assets. For the quarter ended March 31, 2021, we deducted $1.3 billion of MMLF program average HTM securities. No new credit extensions will bewere made after March 31, 2021, unlessas the Federal Reserve and the Department of the Treasury extend the program.program had expired.
On March 27, 2020, the BCBS announced the deferral of the implementation of the revisions to the
Basel III framework to January 1, 2023. As of now, the U.S. federal banking agencies have not formally proposed the implementation of the BCBS revisions.
Effective April 1, 2020, the Federal Reserve and other U.S. federal banking agencies adopted a final rule as part of EGRRCPA that establishes a
deduction for qualifying central bank deposits from a custodial banking organization’s total leverage exposure equal to the lesser of (i) the total amount of funds the custodial banking organization and its consolidated subsidiaries have on deposit at qualifying central banks and (ii) the total amount of client funds on deposit at the custodial banking organization that are linked to fiduciary or custodial and safekeeping accounts. For the quarter ended March 31,September 30, 2021, we deducted $92.6$77.2 billion of average balances held on deposit at central banks from the denominator used in the calculation of our SLR, based on this custodial banking deduction.
In addition toOn October 20, 2020, the regulatory relief granted to custodial banks under the EGRRCPA, an SLR interim final rule released on April 1, 2020 allows all BHCs to deduct their deposits at Federal Reserve Banks and their investments in U.S. Treasuries from their total leverage exposure on a temporary basis, from the second quarter of 2020 through the first quarter of 2021. The temporary deduction of our investment in U.S. Treasuries is incremental to the existing central bank placement deduction granted to custodian banks under EGRRCPA. For the quarter ended March 31, 2021, we deducted $12.8 billion invested in U.S. Treasuries from our total leverage exposure.
On May 15, 2020, theother U.S. federal banking agencies released an interimissued a final rule that also permits insured depository institution subsidiaries of BHCs to temporarily exclude deposits at Federal Reserve Bankswill require us and investments in U.S. Treasuries from their total leverage exposure, subject to certain conditions. State Street Bank has elected not to apply such exclusions as of March 31,make certain deductions from regulatory capital for investments in certain unsecured debt instruments, including eligible LTD under the TLAC rule, issued by the Parent Company and other U.S. and foreign G-SIBs. The final rule became effective on April 1, 2021.
On June 25, 2020, we were notified by the Federal Reserve of the results from the 2020 DFAST stress test, including our preliminary SCB of 2.5% and on August 10, 2020, the Federal Reserve confirmed that our SCB is 2.5% for the period starting on October 1, 2020 and ending on September 30, 2021. Additionally, included in this notification and inIn light of the considerable economic uncertainty created by the COVID-19 pandemic, all participating CCAR banking organizations were required to resubmit their capital plans by November 2, 2020, based on updated scenarios provided by the Federal Reserve on September 17, 2020.
State Street Corporation | 43
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
In line withlight of the decision to administer a new stress test, the Federal Reserve decided to limitlimited the ability of all CCAR banking organizations to make capital distributions in the third and fourth quarters of 2020, although banking organizations were permitted to pay common stock dividends at previous levels provided such distributions did not exceed an amount determined by a formula based on the banking organization's recent income. As a result, CCAR banking organizations, including us, were not permitted to return capital to shareholders in the form of common share repurchases during the third quarter and fourth quarter of 2020.
On October 20, 2020, the Federal Reserve and other U.S. federal banking agencies issued a final rule that will require us and State Street Bank to make certain deductions from regulatory capital for investments in certain unsecured debt instruments, including eligible LTD under the TLAC rule, issued by the Parent Company and other U.S. and foreign G-SIBs. The final rule will become effective on April 1, 2021.
On December 18, 2020, following the release of a second round of stress test results for 2020, the Federal Reserve decided to modifymodified the applicable restrictions on capital distributions for the first quarter of 2021. Provided that we do not increase the amount of our common stock dividends to be larger than the level paid in the second quarter of 2020, commonCommon stock dividends and share repurchases in the first quarter of 2021 were limited to the average of our net income for the four preceding quarters plus a number of shares equal to the share issuances in the quarter related to expensed employee compensation.compensation, provided that we did not increase the amount of our common stock dividends to be larger than the level paid in the second quarter of 2020. On March 25, 2021, the Federal Reserve extended the aforementionedthese restrictions through the second quarter of 2021. As
State Street Corporation | 48
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
On June 24, 2021, we were notified by the Federal Reserve of now,the results from the 2021 supervisory stress test. Our SCB calculated under this year's supervisory stress test was well below the 2.5% minimum, resulting in an SCB at that floor, which will go into effect starting October 1, 2021 and run through September 30, 2022. The Federal Reserve also lifted the restrictions on capital distributions implemented in response to the COVID-19 pandemic and we are currently governed in our capital distributions in the third quarter of 2021 and beyond will be governed by our minimum capital requirements inclusive of the SCB that will not be recalibrated based on the stress test results.
On March 19, 2021, the Federal Reserve confirmed that the temporary change to the SLR, allowing BHCs and insured depository institution subsidiaries of BHCs to deduct deposits at Federal Reserve Banks and investments in U.S. Treasuries from their total leverage exposure, would expire on March 31, 2021.SCB.
For additional information about our capital, refer to pages 113 to 121 included under Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, in our 2020 Form 10-K.
Capital Actions
Preferred Stock
The following table summarizes selected terms of each of the series of the preferred stock issued and outstanding as of March 31,September 30, 2021:
| | TABLE 40: PREFERRED STOCK ISSUED AND OUTSTANDING | TABLE 40: PREFERRED STOCK ISSUED AND OUTSTANDING | TABLE 40: PREFERRED STOCK ISSUED AND OUTSTANDING |
Preferred Stock(2): | | Issuance Date | | Depositary Shares Issued | | Amount outstanding (in millions) | | Ownership Interest Per Depositary Share | | Liquidation Preference Per Share | | Liquidation Preference Per Depositary Share | | Per Annum Dividend Rate | | Dividend Payment Frequency | | Carrying Value as of March 31, 2021
(In millions) | | Redemption Date(1) | |
Preferred Stock(1): | | Preferred Stock(1): | | Issuance Date | | Depositary Shares Issued | | Amount outstanding
(in millions) | | Ownership Interest Per Depositary Share | | Liquidation Preference Per Share | | Liquidation Preference Per Depositary Share | | Per Annum Dividend Rate | | Dividend Payment Frequency | | Carrying Value as of September 30, 2021
(In millions) | | Redemption Date(2) |
| | Series D | Series D | | February 2014 | | 30,000,000 | | | 750 | | 1/4,000th | | 100,000 | | | 25 | | | 5.90% to but excluding March 15, 2024, then a floating rate equal to the three-month LIBOR plus 3.108% | | Quarterly: March, June, September and December | | $ | 742 | | | March 15, 2024 | Series D | | February 2014 | | 30,000,000 | | | $ | 750 | | | 1/4,000th | | $ | 100,000 | | | $ | 25 | | | 5.90% to but excluding March 15, 2024, then a floating rate equal to the three-month LIBOR plus 3.108% | | Quarterly: March, June, September and December | | $ | 742 | | | March 15, 2024 |
Series F(3) | Series F(3) | | May 2015 | | 250,000 | | | 250 | | 1/100th | | 100,000 | | | 1,000 | | | 5.25% to but excluding September 15, 2020, then a floating rate equal to the three-month LIBOR plus 3.597%, or 3.78088% effective March 15, 2021 | | Quarterly: March, June, September and December | | 247 | | | September 15, 2020 | Series F(3) | | May 2015 | | 250,000 | | | 250 | | 1/100th | | 100,000 | | | 1,000 | | | 5.25% to but excluding September 15, 2020, then a floating rate equal to the three-month LIBOR plus 3.597%, or 3.7130% effective September 15, 2021 | | Quarterly: March, June, September and December | | 247 | | | September 15, 2020 |
| Series G | Series G | | April 2016 | | 20,000,000 | | | 500 | | 1/4,000th | | 100,000 | | | 25 | | | 5.35% to but excluding March 15, 2026, then a floating rate equal to the three-month LIBOR plus 3.709% | | Quarterly: March, June, September and December | | 493 | | | March 15, 2026 | Series G | | April 2016 | | 20,000,000 | | | 500 | | 1/4,000th | | 100,000 | | | 25 | | | 5.35% to but excluding March 15, 2026, then a floating rate equal to the three-month LIBOR plus 3.709% | | Quarterly: March, June, September and December | | 493 | | | March 15, 2026 |
| Series H | Series H | | September 2018 | | 500,000 | | | 500 | | 1/100th | | 100,000 | | | 1,000 | | | 5.625% to but excluding December 15, 2023, then a floating rate equal to the three-month LIBOR plus 2.539% | | Semi-annually: June and December | | 494 | | | December 15, 2023 | Series H | | September 2018 | | 500,000 | | | 500 | | 1/100th | | 100,000 | | | 1,000 | | | 5.625% to but excluding December 15, 2023, then a floating rate equal to the three-month LIBOR plus 2.539% | | Semi-annually: June and December | | 494 | | | December 15, 2023 |
(1)On the redemption date, or any dividend payment date thereafter, the preferred stock and corresponding depositary shares may be redeemed by us, in whole or in part, at the liquidation price per share and liquidation price per depositary share plus any declared and unpaid dividends, without accumulation of any undeclared dividends.
(2) The preferred stock and corresponding depositary shares may be redeemed at our option in whole, but not in part, prior to the redemption date upon the occurrence of a regulatory capital treatment event, as defined in the certificate of designation, at a redemption price equal to the liquidation price per share and liquidation price per depositary share plus any declared and unpaid dividends, without accumulation of any undeclared dividends.
(2) On the redemption date, or any dividend payment date thereafter, the preferred stock and corresponding depositary shares may be redeemed by us, in whole or in part, at the liquidation price per share and liquidation price per depositary share plus any declared and unpaid dividends, without accumulation of any undeclared dividends.
(3) Series F preferred stock is redeemable on September 15, 2020 and on each succeeding dividend payment date. We did not elect redemption on September 15, 2020, or December 15, 2020.2020, June 15, 2021 or September 15, 2021.
State Street Corporation | 44
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
On March 15, 2021, we redeemed an aggregate of $500 million, or 5,000 of the 7,500 outstanding shares of our non-cumulative perpetual preferred stock, Series F, for cash at a redemption price of $100,000 per share (equivalent to $1,000 per depositary share) plus all declared and unpaid dividends.
State Street Corporation | 49
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following tables present the dividends declared for each of the series of preferred stock issued and outstanding for the periods indicated:
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| TABLE 41: PREFERRED STOCK DIVIDENDS |
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| | | | | | | | Three Months Ended March 31, | | Three Months Ended September 30, |
| | 2021 | | 2020 | | 2021 | | 2020 |
| (Dollars in millions, except per share amounts) | (Dollars in millions, except per share amounts) | Dividends Declared per Share | | Dividends Declared per Depositary Share | | Total | | Dividends Declared per Share | | Dividends Declared per Depositary Share | | Total | (Dollars in millions, except per share amounts) | Dividends Declared per Share | | Dividends Declared per Depositary Share | | Total | | Dividends Declared per Share | | Dividends Declared per Depositary Share | | Total |
| Preferred Stock: | Preferred Stock: | | | | | | | | | | | | Preferred Stock: | | | | | | | | | | | |
| Series C | Series C | $ | — | | | $ | — | | | $ | — | | | $ | 1,313 | | | $ | 0.33 | | | $ | 6 | | Series C | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| Series D | Series D | 1,475 | | | 0.37 | | | 11 | | | 1,475 | | | 0.37 | | | 11 | | Series D | 1,475 | | | 0.37 | | | 11 | | | 1,475 | | | 0.37 | | | 11 | |
| | Series F | Series F | 953 | | | 9.53 | | | 7 | | | 2,625 | | | 26.25 | | | 20 | | Series F | 950 | | | 9.50 | | | 2 | | | 2,625 | | | 26.25 | | | 20 | |
| Series G | Series G | 1,338 | | | 0.33 | | | 7 | | | 1,338 | | | 0.33 | | | 7 | | Series G | 1,338 | | | 0.33 | | | 7 | | | 1,338 | | | 0.33 | | | 7 | |
| Series H | Series H | — | | | — | | | — | | | — | | | — | | | — | | Series H | — | | | — | | | — | | | — | | | — | | | — | |
| Total | Total | | $ | 25 | | | $ | 44 | | Total | | $ | 20 | | | $ | 38 | |
| | | | Nine Months Ended September 30, |
| | | 2021 | | 2020 |
| (Dollars in millions, except per share amounts) | | (Dollars in millions, except per share amounts) | Dividends Declared per Share | | Dividends Declared per Depositary Share | | Total | | Dividends Declared per Share | | Dividends Declared per Depositary Share | | Total |
| Preferred Stock: | | Preferred Stock: | | | | | | | | | | | |
| Series C | | Series C | $ | — | | | $ | — | | | $ | — | | | $ | 1,313 | | | $ | 0.33 | | | $ | 6 | |
| Series D | | Series D | 4,425 | | | 1.11 | | | 33 | | | 4,425 | | | 1.11 | | | 33 | |
| | Series F | | Series F | 2,869 | | | 28.69 | | | 11 | | | 5,250 | | | 52.50 | | | 40 | |
| Series G | | Series G | 4,014 | | | 0.99 | | | 21 | | | 4,014 | | | 0.99 | | | 21 | |
| Series H | | Series H | 2,813 | | | 28.13 | | | 14 | | | 2,813 | | | 28.13 | | | 14 | |
| Total | | Total | | $ | 79 | | | $ | 114 | |
Common Stock
In September 2021, we completed a public offering of approximately 21.7 million shares of our common stock. The offering price was $87.60 per share and net proceeds totaled approximately $1.9 billion. We expect to use these net proceeds to finance our proposed acquisition of the BBH Investor Services business.
In June 2019, the Federal Reserve issued a non-objection to our capital plan submitted as part of the 2019 CCAR submission; and in connection with that capital plan, our Board approved a common stock purchaseshare repurchase program authorizing the purchaserepurchase of up to $2.0 billion of our common stock from July 1, 2019 through June 30, 2020 (the 2019 Program). We repurchased $500 million of our common stock in the first quarter of 2020 under the 2019 Program.
On March 16, 2020, we, along with the other U.S. G-SIBs, suspended common share repurchases and maintained this suspension through the fourth quarter of 2020 in response to the COVID-19 pandemic. This suspension was consistent with limitations imposed by the Federal Reserve beginning in the second quarter of 2020. As a result, we had no repurchases of our common stock in the second, third or fourth quarters of 2020. In December 2020, the Federal Reserve issued results of 2020 resubmission stress tests and authorized us to continue to pay common stock dividends at current levels and to resume repurchasing common shares in the first quarter of 2021. In January 2021, our Board authorized a common share repurchase program for the purchaserepurchase of up to $475 million of our common stock through March 31, 2021. We repurchased $475 million of our common stock in the first quarter of 2021. In April 2021, our Board authorized a common share repurchase program for the purchaserepurchase of up to $425 million of our common stock through June 30, 2021, in compliance with the limit set by the Federal Reserve.
The tables below present the activity under We repurchased $425 million of our common stock purchasein the second quarter of 2021. In July 2021, our Board authorized a share repurchase program for the periods indicated:
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| | | | | | TABLE 42: SHARES REPURCHASED | | | | | | |
| | Three Months Ended March 31, 2021 | | | | | | |
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| | | | | | Shares Acquired
(In millions) | | Average Cost per Share | | Total Acquired
(In millions) | | | | | | |
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| | | | | | 6.2 | | | $ | 76.21 | | | $ | 475 | | | | | | | |
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| | | | Three Months Ended March 31, 2020 |
| | | | | | | | | | | | Shares Acquired (In millions) | | Average Cost per Share | | Total Acquired (In millions) |
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| | | | | | | | | | | | 6.5 | | | $ | 77.35 | | | $ | 500 | |
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The table below presents the dividends declared onrepurchase of up to $3.0 billion of our common stock forthrough the periods indicated:end of 2022.
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| TABLE 43: COMMON STOCK DIVIDENDS | | | | | | | | |
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| | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | | | | | | | |
| 2021 | | 2020 | | | | | | | | |
| Dividends Declared per Share | | Total
(In millions) | | Dividends Declared per Share | | Total
(In millions) | | | | | | | | |
| Common Stock | $ | 0.52 | | | $ | 182 | | | $ | 0.52 | | | $ | 183 | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
In connection with our proposed acquisition of the BBH Investor Services business, we did not repurchase any common stock during the third quarter of 2021 under the common share repurchase plan approved by our Board in July 2021, and we do not intend to repurchase any common stock during the fourth quarter of 2021 and the first quarter of 2022. We intend to resume our common share repurchases during the second quarter of 2022. State Street Corporation | 4550
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The table below presents the activity under our common share repurchase program for the periods indicated:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | TABLE 42: SHARES REPURCHASED | | | | | | |
| | Three Months Ended September 30, 2021 | | Nine Months Ended September 30, 2021 |
| | | | | | Shares Acquired
(In millions) | | Average Cost per Share | | Total Acquired
(In millions) | | Shares Acquired
(In millions) | | Average Cost per Share | | Total Acquired
(In millions) |
| | | | | | — | | | $ | — | | | $ | — | | | 11.2 | | | $ | 80.00 | | | $ | 900 | |
| | | | | | | | | | | | | | | | |
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| Three Months Ended September 30, 2020 | | Nine Months Ended September 30, 2020 | | |
| Shares Acquired
(In millions) | | Average Cost per Share | | Total Acquired
(In millions) | | Shares Acquired
(In millions) | | Average Cost per Share | | Total Acquired
(In millions) | | | | | | |
| | | | | | | | | | | | | | | | | |
| 2019 Program | — | | | $ | — | | | $ | — | | | 6.5 | | | $ | 77.35 | | | $ | 500 | | | | | | | |
| | | | | | | | | | | | | | | | | |
The table below presents the dividends declared on common stock for the periods indicated:
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| TABLE 43: COMMON STOCK DIVIDENDS | | | | | | | | |
| Three Months Ended September 30, | | |
| 2021 | | 2020 | | | | | | | | |
| Dividends Declared per Share | | Total (In millions) | | Dividends Declared per Share | | Total (In millions) | | | | | | | | |
| | | | | | | |
| Common Stock | $ | 0.57 | | | $ | 209 | | | $ | 0.52 | | | $ | 184 | | | | | | | | | |
| | | | | | | | | | | | | | | |
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| | | | | | | | | | | | | | | |
| Nine Months Ended September 30, | | | | | | | | |
| 2021 | | 2020 | | | | | | | | |
| Dividends Declared per Share | | Total (In millions) | | Dividends Declared per Share | | Total (In millions) | | | | | | | | |
| Common Stock | $ | 1.61 | | | $ | 570 | | | $ | 1.56 | | | $ | 550 | | | | | | | | | |
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| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Federal and state banking regulations place certain restrictions on dividends paid by subsidiary banks to the parent holding company. In addition, banking regulators have the authority to prohibit bank holding companies from paying dividends. For information concerning limitations on dividends from our subsidiary banks, refer to pages 55 and 57 in "Related Stockholder Matters" included under Item 5, Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities, in our 2020 Form 10-K, and to pages 171 to 173 in Note 15 to the consolidated financial statements included under Item 8. Our common stock and preferred stock dividends, including the declaration, timing and amount thereof, are subject to consideration and approval by the Board at the relevant times.
Stock purchases may be made using various types of mechanisms,transactions, including open marketopen-market purchases, accelerated share repurchases or other transactions off the market, and may be made under Rule 10b5-1 trading programs. The timing and amount of any stock purchases typesand the type of transactions and number of shares purchasedtransaction will depend on several factors, including investment opportunities, our capital position, our financial performance, market conditions and our capital positions, financial performance and investment opportunities.the amount of common stock issued as part of employee compensation programs. The common stock purchaseshare repurchase program does not have specific price targets and may be suspended at any time.
State Street Corporation | 51
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OFF-BALANCE SHEET ARRANGEMENTS
On behalf of clients enrolled in our securities lending program, we lend securities to banks, broker/dealers and other institutions. In most circumstances, we indemnify our clients for the fair market value of those securities against a failure of the borrower to return such securities. Though these transactions are collateralized, the substantial volume of these activities necessitates detailed credit-based underwriting and monitoring processes. The aggregate amount of indemnified securities on loan totaled $436.04$402.37 billion and $440.88 billion as of March 31,September 30, 2021 and December 31, 2020, respectively. We require the borrower to provide collateral in an amount in excess of 100% of the fair market value of the securities borrowed. We hold the collateral received in connection with these securities lending services as agent, and the collateral is not recorded in our consolidated statement of condition. We revalue the securities on loan and the collateral daily to determine if additional collateral is necessary or if excess collateral is required to be returned to the borrower. We held, as agent, cash and securities totaling $457.37$422.88 billion and $463.27 billion as collateral for indemnified securities on loan as of March 31,September 30, 2021 and December 31, 2020, respectively.
The cash collateral held by us as agent is invested on behalf of our clients. In certain cases, the cash collateral is invested in third-party repurchase agreements, for which we indemnify the client against loss of the principal invested. We require the counterparty to the indemnified repurchase agreement to provide collateral in an amount in excess of 100% of the amount of the repurchase agreement. In our role as agent, the indemnified repurchase agreements and the related collateral held by us are not recorded in our consolidated statement of condition. Of the collateral of $457.37$422.88 billion and $463.27 billion, referenced above, $59.31$67.83 billion and $54.43 billion was invested in indemnified repurchase agreements as of March 31,September 30, 2021 and December 31, 2020, respectively. We or our agents held $64.15$73.18 billion and $58.09 billion as collateral for indemnified investments in repurchase agreements as of March 31,September 30, 2021 and December 31, 2020, respectively.
Additional information about our securities finance activities and other off-balance sheet arrangements is provided in Notes 7, 9 and 11 to the consolidated financial statements in this Form 10-Q.
RECENT ACCOUNTING DEVELOPMENTS
Information with respect to recent accounting developments is provided in Note 1 to the consolidated financial statements in this Form 10-Q.
State Street Corporation | 4652
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information provided under “Market Risk Management” in "Financial Condition" in our Management's Discussion and Analysis in this Form 10-Q, is incorporated by reference herein.
For more information on our market risk refer to pages 104 to 112 included under Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, in our 2020 Form 10-K.
CONTROLS AND PROCEDURES
We have established and maintain disclosure controls and procedures that are designed to ensure that information related to us and our subsidiaries on a consolidated basis required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. For the quarter ended March 31,September 30, 2021, our management carried out an evaluation, with the participation of the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on the evaluation of these disclosure controls and procedures, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of March 31,September 30, 2021.
We have established and maintain internal control over financial reporting as a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in conformity with U.S. GAAP. In the ordinary course of business, we routinely enhance our internal controls and procedures for financial reporting by either upgrading our current systems or implementing new systems. Changes have been made and may be made to our internal controls and procedures for financial reporting as a result of these efforts. During the quarter ended March 31,September 30, 2021, no change occurred in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
State Street Corporation | 4753
STATE STREET CORPORATION
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
| | | Three Months Ended March 31, | | | Three Months Ended September 30, | | Nine Months Ended September 30, | |
| (Dollars in millions, except per share amounts) | (Dollars in millions, except per share amounts) | 2021 | | 2020 | | (Dollars in millions, except per share amounts) | 2021 | | 2020 | | 2021 | | 2020 | |
| Fee revenue: | Fee revenue: | | | | | Fee revenue: | | | | | | | | |
| Servicing fees | Servicing fees | $ | 1,371 | | | $ | 1,287 | | | Servicing fees | $ | 1,395 | | | $ | 1,301 | | | $ | 4,165 | | | $ | 3,860 | | |
| Management fees | Management fees | 493 | | | 464 | | | Management fees | 526 | | | 479 | | | 1,523 | | | 1,387 | | |
| Foreign exchange trading services | Foreign exchange trading services | 346 | | | 444 | | | Foreign exchange trading services | 279 | | | 270 | | | 911 | | | 1,039 | | |
| Securities finance | Securities finance | 99 | | | 92 | | | Securities finance | 106 | | | 84 | | | 314 | | | 268 | | |
| Software and processing fees | Software and processing fees | 174 | | | 112 | | | Software and processing fees | 198 | | | 172 | | | 588 | | | 529 | | |
| Total fee revenue | Total fee revenue | 2,483 | | | 2,399 | | | Total fee revenue | 2,504 | | | 2,306 | | | 7,501 | | | 7,083 | | |
| Net interest income: | Net interest income: | | | Net interest income: | | |
| Interest income | Interest income | 471 | | | 868 | | | Interest income | 487 | | | 520 | | | 1,425 | | | 2,062 | | |
| Interest expense | Interest expense | 4 | | | 204 | | | Interest expense | — | | | 42 | | | 4 | | | 361 | | |
| Net interest income | Net interest income | 467 | | | 664 | | | Net interest income | 487 | | | 478 | | | 1,421 | | | 1,701 | | |
| Other income: | Other income: | | | Other income: | | |
| | Gains (losses) related to investment securities, net | Gains (losses) related to investment securities, net | 0 | | | 2 | | | Gains (losses) related to investment securities, net | (1) | | | — | | | (1) | | | 2 | | |
| Other income | Other income | 0 | | | 0 | | | Other income | — | | | — | | | 53 | | | — | | |
| Total other income | 0 | | | 2 | | |
| Total other income (loss) | | Total other income (loss) | (1) | | | — | | | 52 | | | 2 | | |
| Total revenue | Total revenue | 2,950 | | | 3,065 | | | Total revenue | 2,990 | | | 2,784 | | | 8,974 | | | 8,786 | | |
| Provision for credit losses | Provision for credit losses | (9) | | | 36 | | | Provision for credit losses | (2) | | | — | | | (26) | | | 88 | | |
| Expenses: | Expenses: | | | Expenses: | | |
| Compensation and employee benefits | Compensation and employee benefits | 1,242 | | | 1,208 | | | Compensation and employee benefits | 1,054 | | | 1,062 | | | 3,373 | | | 3,321 | | |
| Information systems and communications | Information systems and communications | 421 | | | 385 | | | Information systems and communications | 406 | | | 395 | | | 1,225 | | | 1,156 | | |
| Transaction processing services | Transaction processing services | 270 | | | 254 | | | Transaction processing services | 253 | | | 234 | | | 786 | | | 721 | | |
| Occupancy | Occupancy | 109 | | | 109 | | | Occupancy | 102 | | | 109 | | | 311 | | | 327 | | |
| Acquisition and restructuring costs | Acquisition and restructuring costs | 10 | | | 11 | | | Acquisition and restructuring costs | 18 | | | 15 | | | 39 | | | 38 | | |
| Amortization of other intangible assets | Amortization of other intangible assets | 58 | | | 58 | | | Amortization of other intangible assets | 62 | | | 59 | | | 183 | | | 175 | | |
| Other | Other | 222 | | | 230 | | | Other | 221 | | | 229 | | | 642 | | | 702 | | |
| Total expenses | Total expenses | 2,332 | | | 2,255 | | | Total expenses | 2,116 | | | 2,103 | | | 6,559 | | | 6,440 | | |
| Income before income tax expense | Income before income tax expense | 627 | | | 774 | | | Income before income tax expense | 876 | | | 681 | | | 2,441 | | | 2,258 | | |
| Income tax expense | Income tax expense | 108 | | | 140 | | | Income tax expense | 162 | | | 126 | | | 445 | | | 375 | | |
| | Net income | Net income | $ | 519 | | | $ | 634 | | | Net income | $ | 714 | | | $ | 555 | | | $ | 1,996 | | | $ | 1,883 | | |
| Net income available to common shareholders | Net income available to common shareholders | $ | 489 | | | $ | 580 | | | Net income available to common shareholders | $ | 693 | | | $ | 517 | | | $ | 1,910 | | | $ | 1,759 | | |
| Earnings per common share: | Earnings per common share: | | | | | Earnings per common share: | | | | | | | | |
| Basic | Basic | $ | 1.39 | | | $ | 1.64 | | | Basic | $ | 1.99 | | | $ | 1.47 | | | $ | 5.49 | | | $ | 4.99 | | |
| Diluted | Diluted | 1.37 | | | 1.62 | | | Diluted | 1.96 | | | 1.45 | | | 5.40 | | | 4.93 | | |
| Average common shares outstanding (in thousands): | Average common shares outstanding (in thousands): | | | Average common shares outstanding (in thousands): | | |
| Basic | Basic | 350,743 | | | 353,746 | | | Basic | 347,718 | | | 352,586 | | | 348,106 | | | 352,829 | | |
| Diluted | Diluted | 355,690 | | | 357,993 | | | Diluted | 353,494 | | | 357,168 | | | 353,376 | | | 356,971 | | |
| Cash dividends declared per common share | Cash dividends declared per common share | $ | .52 | | | $ | .52 | | | Cash dividends declared per common share | $ | .57 | | | $ | .52 | | | $ | 1.61 | | | $ | 1.56 | | |
|
The accompanying condensed notes are an integral part of these consolidated financial statements.
State Street Corporation | 4854
STATE STREET CORPORATION
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME(LOSS)
(UNAUDITED)
| | | | | | | | | | | | | |
| Three Months Ended March 31, |
| (In millions) | 2021 | | 2020 | | |
| Net income | $ | 519 | | | $ | 634 | | | |
| Other comprehensive income (loss), net of related taxes: | | | | | |
| Foreign currency translation, net of related taxes of $53 and ($10), respectively | (200) | | | (300) | | | |
| Net unrealized gains (losses) on available-for-sale securities, net of reclassification adjustment and net of related taxes of ($161) and $35, respectively | (425) | | | 134 | | | |
| Net unrealized gains (losses) on available-for-sale securities designated in fair value hedges, net of related taxes of $4 and ($3), respectively | 12 | | | (7) | | | |
| | | | | |
| Net unrealized gains (losses) on cash flow hedges, net of related taxes of $0 and $44, respectively | 0 | | | 117 | | | |
| Net unrealized gains (losses) on retirement plans, net of related taxes of $3 and $4, respectively | 8 | | | 12 | | | |
| Other comprehensive income (loss) | (605) | | | (44) | | | |
| Total comprehensive income (loss) | $ | (86) | | | $ | 590 | | | |
| | | | | |
| |
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| | | | | |
| | | | | | | | | | | | | |
| Three Months Ended September 30, |
| (In millions) | 2021 | | 2020 | | |
| Net income | $ | 714 | | | $ | 555 | | | |
| Other comprehensive income (loss), net of related taxes: | | | | | |
| Foreign currency translation, net of related taxes of $18 and ($14), respectively | (156) | | | 283 | | | |
| Net unrealized gains (losses) on available-for-sale securities, net of reclassification adjustment and net of related taxes of ($39) and $4, respectively | (107) | | | 2 | | | |
| Net unrealized gains (losses) on available-for-sale securities designated in fair value hedges, net of related taxes of $4 and $2, respectively | 13 | | | 4 | | | |
| | | | | |
| Net unrealized gains (losses) on cash flow hedges, net of related taxes of ($4) and $8, respectively | (12) | | | 29 | | | |
| Net unrealized gains (losses) on retirement plans, net of related taxes of $1 and zero, respectively | 2 | | | 1 | | | |
| Other comprehensive income (loss) | (260) | | | 319 | | | |
| Total comprehensive income | $ | 454 | | | $ | 874 | | | |
| | | | | |
| Nine Months Ended September 30, |
| (In millions) | 2021 | | 2020 | | |
| Net income | $ | 1,996 | | | $ | 1,883 | | | |
| Other comprehensive income (loss), net of related taxes: | | | | | |
| Foreign currency translation, net of related taxes of $63 and ($20), respectively | (307) | | | 135 | | | |
| Net unrealized gains (losses) on available-for-sale securities, net of reclassification adjustment and net of related taxes of ($214) and $171, respectively | (567) | | | 463 | | | |
| Net unrealized gains (losses) on available-for-sale securities designated in fair value hedges, net of related taxes of $3 and zero, respectively | 9 | | | — | | | |
| | | | | |
| Net unrealized gains (losses) on cash flow hedges, net of related taxes of ($8) and $55, respectively | (16) | | | 152 | | | |
| Net unrealized gains (losses) on retirement plans, net of related taxes of $5 and $5, respectively | 12 | | | 15 | | | |
| Other comprehensive income (loss) | (869) | | | 765 | | | |
| Total comprehensive income | $ | 1,127 | | | $ | 2,648 | | | |
The accompanying condensed notes are an integral part of these consolidated financial statements.
State Street Corporation | 4955
STATE STREET CORPORATION
CONSOLIDATED STATEMENT OF CONDITION
| | | | | | | | | | | |
| March 31, 2021 | | December 31, 2020 |
| |
| (Dollars in millions, except per share amounts) | (UNAUDITED) | | |
| Assets: | | | |
| Cash and due from banks | $ | 4,552 | | | $ | 3,467 | |
| Interest-bearing deposits with banks | 107,554 | | | 116,960 | |
| Securities purchased under resale agreements | 5,238 | | | 3,106 | |
| Trading account assets | 786 | | | 815 | |
| Investment securities available-for-sale | 60,512 | | | 59,048 | |
| Investment securities held-to-maturity purchased under money market liquidity facility (less allowance for credit losses of $0 and $1) (fair value of $201 and $3,304) | 201 | | | 3,299 | |
| Investment securities held-to-maturity (less allowance for credit losses of $2 and $2) (fair value of $46,752 and $50,003) | 46,261 | | | 48,929 | |
| Loans (less allowance for credit losses on loans of $118 and $122) | 31,467 | | | 27,803 | |
| Premises and equipment (net of accumulated depreciation of $4,960 and $4,825) | 2,143 | | | 2,154 | |
| Accrued interest and fees receivable | 3,302 | | | 3,105 | |
| | | |
| Goodwill | 7,629 | | | 7,683 | |
| Other intangible assets | 2,007 | | | 1,827 | |
| Other assets | 45,233 | | | 36,510 | |
| Total assets | $ | 316,885 | | | $ | 314,706 | |
| Liabilities: | | | |
| Deposits: | | | |
| Non-interest-bearing | $ | 57,079 | | | $ | 49,439 | |
| Interest-bearing - U.S. | 108,372 | | | 102,331 | |
| Interest-bearing - non-U.S. | 79,442 | | | 88,028 | |
| Total deposits | 244,893 | | | 239,798 | |
| Securities sold under repurchase agreements | 587 | | | 3,413 | |
| Short term borrowings under money market liquidity facility | 200 | | | 3,302 | |
| Other short-term borrowings | 642 | | | 685 | |
| Accrued expenses and other liabilities | 31,722 | | | 27,503 | |
| Long-term debt | 13,836 | | | 13,805 | |
| Total liabilities | 291,880 | | | 288,506 | |
| Commitments, guarantees and contingencies (Notes 9 and 10) | 0 | | 0 |
| Shareholders’ equity: | | | |
| Preferred stock, 0 par, 3,500,000 shares authorized: | | | |
| | | |
| Series D, 7,500 shares issued and outstanding | 742 | | | 742 | |
| | | |
| Series F, 2,500 shares issued and outstanding | 247 | | | 742 | |
| Series G, 5,000 shares issued and outstanding | 493 | | | 493 | |
| Series H, 5,000 shares issued and outstanding | 494 | | | 494 | |
| Common stock, $1 par, 750,000,000 shares authorized: | | | |
503,879,642 and 503,879,642 shares issued, and 348,032,982 and 353,156,279 shares outstanding | 504 | | | 504 | |
| Surplus | 10,227 | | | 10,205 | |
| Retained earnings | 23,751 | | | 23,442 | |
| Accumulated other comprehensive income (loss) | (418) | | | 187 | |
| Treasury stock, at cost (155,846,660 and 150,723,363 shares) | (11,035) | | | (10,609) | |
| Total shareholders’ equity | 25,005 | | | 26,200 | |
| | | |
| | | |
| Total liabilities and shareholders' equity | $ | 316,885 | | | $ | 314,706 | |
| | | | | | | | | | | |
| September 30, 2021 | | December 31, 2020 |
| |
| (Dollars in millions, except per share amounts) | (UNAUDITED) | | |
| Assets: | | | |
| Cash and due from banks | $ | 4,606 | | | $ | 3,467 | |
| Interest-bearing deposits with banks | 107,553 | | | 116,960 | |
| Securities purchased under resale agreements | 2,847 | | | 3,106 | |
| Trading account assets | 720 | | | 815 | |
| Investment securities available-for-sale | 70,279 | | | 59,048 | |
| Investment securities held-to-maturity purchased under money market liquidity facility (less allowance for credit losses of $0 and $1) (fair value of $0 and $3,304) | — | | | 3,299 | |
| Investment securities held-to-maturity (less allowance for credit losses of $2 and $2) (fair value of $43,728 and $50,003) | 43,346 | | | 48,929 | |
| Loans (less allowance for credit losses on loans of $95 and $122) | 32,702 | | | 27,803 | |
| Premises and equipment (net of accumulated depreciation of $5,235 and $4,825) | 2,191 | | | 2,154 | |
| Accrued interest and fees receivable | 3,407 | | | 3,105 | |
| | | |
| Goodwill | 7,650 | | | 7,683 | |
| Other intangible assets | 1,887 | | | 1,827 | |
| Other assets | 45,951 | | | 36,510 | |
| Total assets | $ | 323,139 | | | $ | 314,706 | |
| Liabilities: | | | |
| Deposits: | | | |
| Non-interest-bearing | $ | 64,885 | | | $ | 49,439 | |
| Interest-bearing - U.S. | 108,909 | | | 102,331 | |
| Interest-bearing - non-U.S. | 85,579 | | | 88,028 | |
| Total deposits | 259,373 | | | 239,798 | |
| Securities sold under repurchase agreements | 637 | | | 3,413 | |
| Short-term borrowings under money market liquidity facility | — | | | 3,302 | |
| Other short-term borrowings | 549 | | | 685 | |
| Accrued expenses and other liabilities | 22,288 | | | 27,503 | |
| Long-term debt | 12,978 | | | 13,805 | |
| Total liabilities | 295,825 | | | 288,506 | |
| Commitments, guarantees and contingencies (Notes 9 and 10) | 0 | | 0 |
| Shareholders’ equity: | | | |
| Preferred stock, no par, 3,500,000 shares authorized: | | | |
| | | |
| Series D, 7,500 shares issued and outstanding | 742 | | | 742 | |
| | | |
| Series F, 2,500 shares issued and outstanding | 247 | | | 742 | |
| Series G, 5,000 shares issued and outstanding | 493 | | | 493 | |
| Series H, 5,000 shares issued and outstanding | 494 | | | 494 | |
| Common stock, $1 par, 750,000,000 shares authorized: | | | |
503,879,642 and 503,879,642 shares issued, and 365,629,173 and 353,156,279 shares outstanding | 504 | | | 504 | |
| Surplus | 10,763 | | | 10,205 | |
| Retained earnings | 24,785 | | | 23,442 | |
| Accumulated other comprehensive income (loss) | (682) | | | 187 | |
| Treasury stock, at cost (138,250,469 and 150,723,363 shares) | (10,032) | | | (10,609) | |
| Total shareholders’ equity | 27,314 | | | 26,200 | |
| | | |
| | | |
| Total liabilities and shareholders' equity | $ | 323,139 | | | $ | 314,706 | |
The accompanying condensed notes are an integral part of these consolidated financial statements.
State Street Corporation | 5056
STATE STREET CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(UNAUDITED)
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| (Dollars in millions, except per share amounts, shares in thousands) | Preferred Stock | | Common Stock | | Surplus | | Retained Earnings | | Accumulated Other Comprehensive Income (Loss) | | Treasury Stock | | Total |
| Shares | | Amount | | | | Shares | | Amount | |
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| Balance at December 31, 2019 | $ | 2,962 | | | 503,880 | | | $ | 504 | | | $ | 10,132 | | | $ | 21,918 | | | $ | (876) | | | 146,490 | | | $ | (10,209) | | | $ | 24,431 | |
| Net income | | | | | | | | | 634 | | | | | | | | | 634 | |
| Other comprehensive income (loss) | | | | | | | | | | | (44) | | | | | | | (44) | |
| Preferred stock redeemed | (491) | | | | | | | | | (9) | | | | | | | | | (500) | |
| Cash dividends declared: | | | | | | | | | | | | | | | | | |
| Common stock - $0.52 per share | | | | | | | | | (183) | | | | | | | | | (183) | |
| Preferred stock | | | | | | | | | (44) | | | | | | | | | (44) | |
| Common stock acquired | | | | | | | | | | | | | 6,464 | | | (500) | | | (500) | |
| Common stock awards exercised | | | | | | | 23 | | | | | | | (1,017) | | | 45 | | | 68 | |
Other (1) | | | | | | | — | | | (1) | | | | | (1) | | | — | | | (1) | |
| Balance at March 31, 2020 | $ | 2,471 | | | 503,880 | | | $ | 504 | | | $ | 10,155 | | | $ | 22,315 | | | $ | (920) | | | 151,936 | | | $ | (10,664) | | | $ | 23,861 | |
| Balance at December 31, 2020 | $ | 2,471 | | | 503,880 | | | $ | 504 | | | $ | 10,205 | | | $ | 23,442 | | | $ | 187 | | | 150,723 | | | $ | (10,609) | | | $ | 26,200 | |
| Net income | | | | | | | | | 519 | | | | | | | | | 519 | |
| Other comprehensive income (loss) | | | | | | | | | | | (605) | | | | | | | (605) | |
| Preferred stock redeemed | (495) | | | | | | | | | (5) | | | | | | | | | (500) | |
| Cash dividends declared: | | | | | | | | | | | | | | | | | |
| Common stock - $0.52 per share | | | | | | | | | (182) | | | | | | | | | (182) | |
| Preferred stock | | | | | | | | | (25) | | | | | | | | | (25) | |
| Common stock acquired | | | | | | | | | | | | | 6,233 | | | (475) | | | (475) | |
| Common stock awards exercised | | | | | | | 22 | | | | | | | (1,111) | | | 49 | | | 71 | |
| Other | | | | | | | | | 2 | | | | | 2 | | | | | 2 | |
| Balance at March 31, 2021 | $ | 1,976 | | | 503,880 | | | $ | 504 | | | $ | 10,227 | | | $ | 23,751 | | | $ | (418) | | | 155,847 | | | $ | (11,035) | | | $ | 25,005 | |
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EQUITY(UNAUDITED) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (Dollars in millions, except per share amounts, shares in thousands) | Preferred Stock | | Common Stock | | Surplus | | Retained Earnings | | Accumulated Other Comprehensive Income (Loss) | | Treasury Stock | | Total |
| Shares | | Amount | | | | Shares | | Amount | |
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| Balance at December 31, 2019 | $ | 2,962 | | | 503,880 | | | $ | 504 | | | $ | 10,132 | | | $ | 21,918 | | | $ | (876) | | | 146,490 | | | $ | (10,209) | | | $ | 24,431 | |
| Net income | | | | | | | | | 634 | | | | | | | | | 634 | |
| Other comprehensive income (loss) | | | | | | | | | | | (44) | | | | | | | (44) | |
| Preferred stock redeemed | (491) | | | | | | | | | (9) | | | | | | | | | (500) | |
| Cash dividends declared: | | | | | | | | | | | | | | | | | |
| Common stock - $0.52 per share | | | | | | | | | (183) | | | | | | | | | (183) | |
| Preferred stock | | | | | | | | | (44) | | | | | | | | | (44) | |
| Common stock acquired | | | | | | | | | | | | | 6,464 | | | (500) | | | (500) | |
| Common stock awards exercised | | | | | | | 23 | | | | | | | (1,017) | | | 45 | | | 68 | |
Other (1) | | | | | | | — | | | (1) | | | | | (1) | | | — | | | (1) | |
| Balance at March 31, 2020 | $ | 2,471 | | | 503,880 | | | $ | 504 | | | $ | 10,155 | | | $ | 22,315 | | | $ | (920) | | | 151,936 | | | $ | (10,664) | | | $ | 23,861 | |
| Net income | | | | | | | | | 694 | | | | | | | | | 694 | |
| Other comprehensive income (loss) | | | | | | | | | | | 490 | | | | | | | 490 | |
| | | | | | | | | | | | | | | | | |
| Cash dividends declared: | | | | | | | | | | | | | | | | | |
| Common stock - $0.52 per share | | | | | | | | | (183) | | | | | | | | | (183) | |
| Preferred stock | | | | | | | | | (32) | | | | | | | | | (32) | |
| Common stock acquired | | | | | | | | | | | | | 0 | | 0 | | — | |
| Common stock awards exercised | | | | | | | 24 | | | | | | | (443) | | | 20 | | | 44 | |
| Other | | | | | | | | | | | | | 3 | | | (1) | | | (1) | |
| Balance at June 30, 2020 | $ | 2,471 | | | 503,880 | | | $ | 504 | | | $ | 10,179 | | | $ | 22,794 | | | $ | (430) | | | 151,496 | | | $ | (10,645) | | | $ | 24,873 | |
| Net income | | | | | | | | | 555 | | | | | | | | | 555 | |
| Other comprehensive income (loss) | | | | | | | | | | | 319 | | | | | | | 319 | |
| Cash dividends declared: | | | | | | | | | | | | | | | | | |
| Common stock - $0.52 per share | | | | | | | | | (184) | | | | | | | | | (184) | |
| Preferred stock | | | | | | | | | (38) | | | | | | | | | (38) | |
| Common stock awards exercised | | | | | | | 13 | | | | | | | (417) | | | 19 | | | 32 | |
| Other | | | | | | | | | 1 | | | | | 3 | | | — | | | 1 | |
| Balance at September 30, 2020 | $ | 2,471 | | | 503,880 | | | $ | 504 | | | $ | 10,192 | | | $ | 23,128 | | | $ | (111) | | | 151,082 | | | $ | (10,626) | | | $ | 25,558 | |
| | | | | | | | | | | | | | | | | |
| Balance at December 31, 2020 | $ | 2,471 | | | 503,880 | | | $ | 504 | | | $ | 10,205 | | | $ | 23,442 | | | $ | 187 | | | 150,723 | | | $ | (10,609) | | | $ | 26,200 | |
| Net income | | | | | | | | | 519 | | | | | | | | | 519 | |
| Other comprehensive income (loss) | | | | | | | | | | | (605) | | | | | | | (605) | |
| Preferred stock redeemed | (495) | | | | | | | | | (5) | | | | | | | | | (500) | |
| Cash dividends declared: | | | | | | | | | | | | | | | | | |
| Common stock - $0.52 per share | | | | | | | | | (182) | | | | | | | | | (182) | |
| Preferred stock | | | | | | | | | (25) | | | | | | | | | (25) | |
| Common stock acquired | | | | | | | | | | | | | 6,233 | | | (475) | | | (475) | |
| Common stock awards exercised | | | | | | | 22 | | | | | | | (1,111) | | | 49 | | | 71 | |
| Other | | | | | | | | | 2 | | | | | 2 | | | | | 2 | |
| Balance at March 31, 2021 | $ | 1,976 | | | 503,880 | | | $ | 504 | | | $ | 10,227 | | | $ | 23,751 | | | $ | (418) | | | 155,847 | | | $ | (11,035) | | | $ | 25,005 | |
| Net income | | | | | | | | | 763 | | | | | | | | | 763 | |
| Other comprehensive income (loss) | | | | | | | | | | | (4) | | | | | | | (4) | |
| | | | | | | | | | | | | | | | | |
| Cash dividends declared: | | | | | | | | | | | | | | | | | |
| Common stock - $0.52 per share | | | | | | | | | (179) | | | | | | | | | (179) | |
| Preferred stock | | | | | | | | | (34) | | | | | | | | | (34) | |
| Common stock acquired | | | | | | | | | | | | | 5,017 | | | (425) | | | (425) | |
| Common stock awards exercised | | | | | | | 19 | | | | | | | (487) | | | 23 | | | 42 | |
| Other | | | | | | | | | (1) | | | | | | | | | (1) | |
| Balance at June 30, 2021 | $ | 1,976 | | | 503,880 | | | $ | 504 | | | $ | 10,246 | | | $ | 24,300 | | | $ | (422) | | | 160,377 | | | $ | (11,437) | | | $ | 25,167 | |
| Net income | | | | | | | | | 714 | | | | | | | | | 714 | |
| Other comprehensive income (loss) | | | | | | | | | | | (260) | | | | | | | (260) | |
| Common stock issued | | | | | | | 516 | | | | | | | (21,724) | | | 1,384 | | | 1,900 | |
| Cash dividends declared: | | | | | | | | | | | | | | | | | |
| Common stock - $0.57 per share | | | | | | | | | (209) | | | | | | | | | (209) | |
| Preferred stock | | | | | | | | | (20) | | | | | | | | | (20) | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Common stock awards exercised | | | | | | | 8 | | | | | | | (399) | | | 20 | | | 28 | |
| Other | | | | | | | (7) | | | | | | | (4) | | | 1 | | | (6) | |
| Balance at September 30, 2021 | $ | 1,976 | | | 503,880 | | | $ | 504 | | | $ | 10,763 | | | $ | 24,785 | | | $ | (682) | | | 138,250 | | | $ | (10,032) | | | $ | 27,314 | |
(1) Includes the impact of transitioning to ASC 326: Measurement of Credit Losses on Financial Instruments, consisting of a decrease in retained earnings of $3 million in the first quarter of 2020.
The accompanying condensed notes are an integral part of these consolidated financial statements.
State Street Corporation | 5157
STATE STREET CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
| | | | | | | | | | | | | |
| Three Months Ended March 31, |
| (In millions) | 2021 | | 2020 | | |
| Operating Activities: | | | | | |
| Net income | $ | 519 | | | $ | 634 | | | |
| Adjustments to reconcile net income to net cash provided by operating activities: | | | | | |
| Deferred income tax (benefit) | (26) | | | 8 | | | |
| Amortization of other intangible assets | 58 | | | 58 | | | |
| Other non-cash adjustments for depreciation, amortization and accretion, net | 359 | | | 274 | | | |
| Losses (gains) related to investment securities, net | 0 | | | (2) | | | |
| Provision for credit losses | (9) | | | 36 | | | |
| Change in trading account assets, net | 29 | | | 42 | | | |
| Change in accrued interest and fees receivable, net | (197) | | | (43) | | | |
| Change in collateral deposits, net | 35 | | | 2,685 | | | |
| Change in unrealized losses (gains) on foreign exchange derivatives, net | (6,250) | | | (3,090) | | | |
| Change in other assets, net | (377) | | | (891) | | | |
| | | | | |
| Change in accrued expenses and other liabilities, net | 2,000 | | | 4,179 | | | |
| | | | | |
| Other, net | 127 | | | 149 | | | |
| Net cash (used in) provided by operating activities | (3,732) | | | 4,039 | | | |
| Investing Activities: | | | | | |
| Net (increase) decrease in interest-bearing deposits with banks | 9,406 | | | (78,770) | | | |
| Net (increase) decrease in securities purchased under resale agreements | (2,132) | | | 450 | | | |
| Proceeds from sales of available-for-sale securities | 5,168 | | | 1,657 | | | |
| Proceeds from maturities of available-for-sale securities | 5,004 | | | 4,219 | | | |
| Purchases of available-for-sale securities | (12,324) | | | (8,935) | | | |
| | | | | |
| Purchases of held-to-maturity securities under the MMLF program | 0 | | | (26,061) | | | |
| | | | | |
| Proceeds from maturities of held-to-maturity securities under the MMLF program | 3,099 | | | 451 | | | |
| Proceeds from maturities of held-to-maturity securities | 3,840 | | | 2,695 | | | |
| Purchases of held-to-maturity securities | (1,268) | | | (2,141) | | | |
| Sale of loans | 35 | | | 93 | | | |
| Net (increase) in loans | (3,695) | | | (6,164) | | | |
| Business acquisitions, net of cash acquired | (214) | | | 0 | | | |
| Purchases of equity investments and other long-term assets | (34) | | | (794) | | | |
| Purchases of premises and equipment, net | (162) | | | (114) | | | |
| | | | | |
| Other, net | 81 | | | 641 | | | |
| Net cash provided by (used in) investing activities | 6,804 | | | (112,773) | | | |
| Financing Activities: | | | | | |
| Net (decrease) increase in time deposits | (1,580) | | | 18,635 | | | |
| Net increase (decrease) in all other deposits | 6,674 | | | 56,596 | | | |
| Net (decrease) increase in securities sold under repurchase agreements | (2,826) | | | 4,271 | | | |
| Net (decrease) increase in short-term borrowings under money market liquidity facility | (3,102) | | | 25,665 | | | |
| Net (decrease) increase in other short-term borrowings | (43) | | | 3,996 | | | |
| Proceeds from issuance of long-term debt, net of issuance costs | 844 | | | 2,497 | | | |
| Payments for long-term debt and obligations under finance leases | (764) | | | (8) | | | |
| Payments for redemption of preferred stock | (500) | | | (500) | | | |
| | | | | |
| | | | | |
| Repurchases of common stock | (475) | | | (515) | | | |
| | | | | |
| Repurchases of common stock for employee tax withholding | (6) | | | (43) | | | |
| Payments for cash dividends | (209) | | | (230) | | | |
| | | | | |
| Net cash (used in) provided by financing activities | (1,987) | | | 110,364 | | | |
| Net increase | 1,085 | | | 1,630 | | | |
| Cash and due from banks at beginning of period | 3,467 | | | 3,302 | | | |
| Cash and due from banks at end of period | $ | 4,552 | | | $ | 4,932 | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | | | | | | | | | |
| Nine Months Ended September 30, |
| (In millions) | 2021 | | 2020 | | |
| Operating Activities: | | | | | |
| Net income | $ | 1,996 | | | $ | 1,883 | | | |
| Adjustments to reconcile net income to net cash provided by operating activities: | | | | | |
| Deferred income tax (benefit) | (52) | | | (35) | | | |
| Amortization of other intangible assets | 183 | | | 175 | | | |
| Other non-cash adjustments for depreciation, amortization and accretion, net | 1,015 | | | (793) | | | |
| Losses (gains) related to investment securities, net | 1 | | | (2) | | | |
| Provision for credit losses | (26) | | | 88 | | | |
| Change in trading account assets, net | 94 | | | 74 | | | |
| Change in accrued interest and fees receivable, net | (302) | | | (60) | | | |
| Change in collateral deposits, net | (7,723) | | | 1,369 | | | |
| Change in unrealized losses (gains) on foreign exchange derivatives, net | (8,131) | | | (2,934) | | | |
| Change in other assets, net | 279 | | | (430) | | | |
| | | | | |
| Change in accrued expenses and other liabilities, net | 1,468 | | | 526 | | | |
| | | | | |
| Other, net | 261 | | | 295 | | | |
| Net cash (used in) provided by operating activities | (10,937) | | | 156 | | | |
| Investing Activities: | | | | | |
| Net (increase) decrease in interest-bearing deposits with banks | 9,407 | | | (7,002) | | | |
| Net (increase) decrease in securities purchased under resale agreements | 259 | | | (3,012) | | | |
| Proceeds from sales of available-for-sale securities | 9,252 | | | 2,245 | | | |
| Proceeds from maturities of available-for-sale securities | 16,281 | | | 16,257 | | | |
| Purchases of available-for-sale securities | (39,972) | | | (30,344) | | | |
| | | | | |
| Purchases of held-to-maturity securities under the MMLF program | — | | | (29,242) | | | |
| | | | | |
| Proceeds from maturities of held-to-maturity securities under the MMLF program | 3,299 | | | 24,457 | | | |
| Proceeds from maturities of held-to-maturity securities | 12,564 | | | 10,863 | | | |
| Purchases of held-to-maturity securities | (5,984) | | | (8,994) | | | |
| Sale of loans | 64 | | | 242 | | | |
| Net (increase) in loans | (4,873) | | | (967) | | | |
| Business acquisitions, net of cash acquired | (346) | | | — | | | |
| Divestitures | 13 | | | — | | | |
| Purchases of equity investments and other long-term assets | (122) | | | (1,237) | | | |
| Purchases of premises and equipment, net | (556) | | | (424) | | | |
| | | | | |
| Other, net | 236 | | | 1,036 | | | |
| Net cash provided by (used in) investing activities | (478) | | | (26,122) | | | |
| Financing Activities: | | | | | |
| Net (decrease) increase in time deposits | (1,643) | | | (35,146) | | | |
| Net increase (decrease) in all other deposits | 21,227 | | | 50,786 | | | |
| Net (decrease) increase in securities sold under repurchase agreements | (2,776) | | | 1,328 | | | |
| Net (decrease) increase in short-term borrowings under money market liquidity facility | (3,302) | | | 4,819 | | | |
| Net (decrease) increase in other short-term borrowings | (137) | | | 4,999 | | | |
| Proceeds from issuance of long-term debt, net of issuance costs | 844 | | | 2,497 | | | |
| Payments for long-term debt and obligations under finance leases | (1,530) | | | (24) | | | |
| Payments for redemption of preferred stock | (500) | | | (500) | | | |
| | | | | |
| Proceeds from issuance of common stock, net of issuance costs | 1,900 | | | — | | | |
| Repurchases of common stock | (900) | | | (515) | | | |
| | | | | |
| Repurchases of common stock for employee tax withholding | (6) | | | (66) | | | |
| Payments for cash dividends | (623) | | | (666) | | | |
| | | | | |
| Net cash (used in) provided by financing activities | 12,554 | | | 27,512 | | | |
| Net increase | 1,139 | | | 1,546 | | | |
| Cash and due from banks at beginning of period | 3,467 | | | 3,302 | | | |
| Cash and due from banks at end of period | $ | 4,606 | | | $ | 4,848 | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
The accompanying condensed notes are an integral part of these consolidated financial statements.
State Street Corporation | 5258
STATE STREET CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1. Summary of Significant Accounting Policies
Basis of Presentation
The accounting and financial reporting policies of State Street Corporation conform to U.S. GAAP. State Street Corporation, the Parent Company, is a financial holding company headquartered in Boston, Massachusetts. Unless otherwise indicated or unless the context requires otherwise, all references in these notes to consolidated financial statements to “State Street,” “we,” “us,” “our” or similar references mean State Street Corporation and its subsidiaries on a consolidated basis, including our principal banking subsidiary, State Street Bank.
The accompanying consolidated financial statements should be read in conjunction with the financial and risk factor information included in our 2020 Form 10-K, which we previously filed with the SEC.
The consolidated financial statements accompanying these condensed notes are unaudited. In the opinion of management, all adjustments, consisting only of normal recurring adjustments, which are necessary for a fair statement of the consolidated results of operations in these financial statements, have been made. Certain previously reported amounts presented in this Form 10-Q have been reclassified to conform to current-period presentation. Events occurring subsequent to the date of our consolidated statement of condition were evaluated for potential recognition or disclosure in our consolidated financial statements through the date we filed this Form 10-Q with the SEC.
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions in the application of certain of our significant accounting policies that may materially affect the reported amounts of assets, liabilities, equity, revenue and expenses. As a result of unanticipated events or circumstances, actual results could differ from those estimates. These accounting estimates reflect the best judgment of management, but actual results could differ.
Our consolidated statement of condition as of December 31, 2020 included in the accompanying consolidated financial statements was derived from the audited financial statements as of that date, but does not include all notes required by U.S. GAAP for a complete set of consolidated financial statements.
In September 2021, we announced that we had entered into a definitive agreement to acquire the BBH Investor Services business for $3.5 billion in cash.
Recent Accounting Developments
We did not adopt any new accounting standards in the firstthird quarter of 2021 that had a material impact to our financial statements. Additionally, we continue to evaluate accounting standards that were recently issued but not yet adopted as of March 31,September 30, 2021; none are expected to have a material impact to our financial statements.
Note 2. Fair Value
Fair Value Measurements
We carry trading account assets and liabilities, AFS debt securities, certain equity securities and various types of derivative financial instruments, at fair value in our consolidated statement of condition on a recurring basis. Changes in the fair values of these financial assets and liabilities are recorded either as components of our consolidated statement of income or as components of AOCI within shareholders' equity in our consolidated statement of condition.
We measure fair value for the above-described financial assets and liabilities in conformity with U.S. GAAP that governs the measurement of the fair value of financial instruments. Management believes that its valuation techniques and underlying assumptions used to measure fair value conform to the provisions of U.S. GAAP. We categorize the financial assets and liabilities that we carry at fair value based on a prescribed three-level valuation hierarchy. For information about our valuation techniques for financial assets and financial liabilities measured at fair value and the fair value hierarchy, refer to pages 135 to 142 in Note 2 to the consolidated financial statements included under Item 8, Financial Statements and Supplementary Data, in our 2020 Form 10-K.
State Street Corporation | 5359
STATE STREET CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The following tables present information with respect to our financial assets and liabilities carried at fair value in our consolidated statement of condition on a recurring basis as of the dates indicated:
| | | Fair Value Measurements on a Recurring Basis | | Fair Value Measurements on a Recurring Basis |
| | As of March 31, 2021 | | As of September 30, 2021 |
| (In millions) | (In millions) | Quoted Market Prices in Active Markets (Level 1) | | Pricing Methods with Significant Observable Market Inputs (Level 2) | | Pricing Methods with Significant Unobservable Market Inputs (Level 3) | | Impact of Netting(1) | | Total Net Carrying Value in Consolidated Statement of Condition | (In millions) | Quoted Market Prices in Active Markets (Level 1) | | Pricing Methods with Significant Observable Market Inputs (Level 2) | | Pricing Methods with Significant Unobservable Market Inputs (Level 3) | | Impact of Netting(1) | | Total Net Carrying Value in Consolidated Statement of Condition |
| Assets: | Assets: | | | | | | | | | | Assets: | | | | | | | | | |
| Trading account assets: | Trading account assets: | | Trading account assets: | |
| U.S. government securities | U.S. government securities | $ | 40 | | | $ | 0 | | | $ | 0 | | | $ | 40 | | U.S. government securities | $ | 40 | | | $ | — | | | $ | — | | | $ | 40 | |
| Non-U.S. government securities | Non-U.S. government securities | 0 | | | 222 | | | 0 | | | 222 | | Non-U.S. government securities | — | | | 135 | | | — | | | 135 | |
| Other | Other | 0 | | | 524 | | | 0 | | | 524 | | Other | — | | | 545 | | | — | | | 545 | |
| | Total trading account assets | Total trading account assets | 40 | | | 746 | | | 0 | | | 786 | | Total trading account assets | 40 | | | 680 | | | — | | | 720 | |
| Available-for-sale investment securities: | Available-for-sale investment securities: | | | | | | | | Available-for-sale investment securities: | | | | | | | |
| U.S. Treasury and federal agencies: | U.S. Treasury and federal agencies: | | U.S. Treasury and federal agencies: | |
| Direct obligations | Direct obligations | 8,937 | | | 0 | | | 0 | | | 8,937 | | Direct obligations | 14,339 | | | — | | | — | | | 14,339 | |
| Mortgage-backed securities | Mortgage-backed securities | 0 | | | 14,425 | | | 0 | | | 14,425 | | Mortgage-backed securities | — | | | 16,223 | | | — | | | 16,223 | |
| Total U.S. Treasury and federal agencies | Total U.S. Treasury and federal agencies | 8,937 | | | 14,425 | | | 0 | | | 23,362 | | Total U.S. Treasury and federal agencies | 14,339 | | | 16,223 | | | — | | | 30,562 | |
| Non-U.S. debt securities: | | Non-U.S. debt securities: | |
| Mortgage-backed securities | | Mortgage-backed securities | — | | | 2,141 | | | — | | | 2,141 | |
| Asset-backed securities | | Asset-backed securities | — | | | 2,365 | | | — | | | 2,365 | |
| Non-U.S. sovereign, supranational and non-U.S. agency | | Non-U.S. sovereign, supranational and non-U.S. agency | — | | | 22,854 | | | — | | | 22,854 | |
| Other | | Other | — | | | 3,306 | | | — | | | 3,306 | |
| Total non-U.S. debt securities | | Total non-U.S. debt securities | — | | | 30,666 | | | — | | | 30,666 | |
| Asset-backed securities: | Asset-backed securities: | | | | | | | | Asset-backed securities: | | | | | | | |
| Student loans | Student loans | 0 | | | 288 | | | 0 | | | 288 | | Student loans | — | | | 231 | | | — | | | 231 | |
| Credit cards | 0 | | | 91 | | | 0 | | | 91 | | |
| | | Collateralized loan obligations | Collateralized loan obligations | 0 | | | 3,669 | | | 106 | | | 3,775 | | Collateralized loan obligations | — | | | 4,296 | | | — | | | 4,296 | |
Non-agency CMBS and RMBS(2) | Non-agency CMBS and RMBS(2) | 0 | | | 71 | | | 0 | | | 71 | | Non-agency CMBS and RMBS(2) | — | | | 59 | | | — | | | 59 | |
| Other | | Other | — | | | 92 | | | — | | | 92 | |
| Total asset-backed securities | Total asset-backed securities | 0 | | | 4,119 | | | 106 | | | 4,225 | | Total asset-backed securities | — | | | 4,678 | | | — | | | 4,678 | |
| Non-U.S. debt securities: | | |
| Mortgage-backed securities | 0 | | | 2,032 | | | 0 | | | 2,032 | | |
| Asset-backed securities | 0 | | | 2,297 | | | 0 | | | 2,297 | | |
| Government securities | 0 | | | 9,910 | | | 0 | | | 9,910 | | |
Other(3) | 0 | | | 13,709 | | | 0 | | | 13,709 | | |
| Total non-U.S. debt securities | 0 | | | 27,948 | | | 0 | | | 27,948 | | |
| | State and political subdivisions | State and political subdivisions | 0 | | | 1,498 | | | 0 | | | 1,498 | | State and political subdivisions | — | | | 1,396 | | | — | | | 1,396 | |
| | Other U.S. debt securities | Other U.S. debt securities | 0 | | | 3,464 | | | 15 | | | 3,479 | | Other U.S. debt securities | — | | | 2,977 | | | — | | | 2,977 | |
| | Total available-for-sale investment securities | Total available-for-sale investment securities | 8,937 | | | 51,454 | | | 121 | | | 60,512 | | Total available-for-sale investment securities | 14,339 | | | 55,940 | | | — | | | 70,279 | |
| Other assets: | Other assets: | | Other assets: | |
| Derivative instruments: | Derivative instruments: | | Derivative instruments: | |
| Foreign exchange contracts | Foreign exchange contracts | 0 | | | 21,892 | | | 6 | | | $ | (13,728) | | | 8,170 | | Foreign exchange contracts | — | | | 16,451 | | | 2 | | | $ | (8,892) | | | 7,561 | |
| Interest rate contracts | Interest rate contracts | 1 | | | 0 | | | 0 | | | (1) | | | 0 | | Interest rate contracts | 4 | | | — | | | — | | | — | | | 4 | |
| | Total derivative instruments | Total derivative instruments | 1 | | | 21,892 | | | 6 | | | (13,729) | | | 8,170 | | Total derivative instruments | 4 | | | 16,451 | | | 2 | | | (8,892) | | | 7,565 | |
| | Other | Other | 0 | | | 549 | | | 0 | | | 0 | | | 549 | | Other | — | | | 652 | | | — | | | — | | | 652 | |
| Total assets carried at fair value | Total assets carried at fair value | $ | 8,978 | | | $ | 74,641 | | | $ | 127 | | | $ | (13,729) | | | $ | 70,017 | | Total assets carried at fair value | $ | 14,383 | | | $ | 73,723 | | | $ | 2 | | | $ | (8,892) | | | $ | 79,216 | |
| Liabilities: | Liabilities: | | | | | | | | | | Liabilities: | | | | | | | | | |
| Accrued expenses and other liabilities: | Accrued expenses and other liabilities: | | Accrued expenses and other liabilities: | |
| | Derivative instruments: | Derivative instruments: | | Derivative instruments: | |
| Foreign exchange contracts | Foreign exchange contracts | $ | 9 | | | $ | 22,036 | | | $ | 0 | | | $ | (15,533) | | | $ | 6,512 | | Foreign exchange contracts | $ | 2 | | | $ | 15,733 | | | $ | — | | | $ | (11,619) | | | $ | 4,116 | |
| Interest rate contracts | Interest rate contracts | 0 | | | 35 | | | 0 | | | (1) | | | 34 | | Interest rate contracts | — | | | 27 | | | — | | | (4) | | | 23 | |
| Other derivative contracts | Other derivative contracts | 0 | | | 181 | | | 0 | | | 0 | | | 181 | | Other derivative contracts | — | | | 176 | | | — | | | — | | | 176 | |
| Total derivative instruments | Total derivative instruments | 9 | | | 22,252 | | | 0 | | | (15,534) | | | 6,727 | | Total derivative instruments | 2 | | | 15,936 | | | — | | | (11,623) | | | 4,315 | |
| | Total liabilities carried at fair value | Total liabilities carried at fair value | $ | 9 | | | $ | 22,252 | | | $ | 0 | | | $ | (15,534) | | | $ | 6,727 | | Total liabilities carried at fair value | $ | 2 | | | $ | 15,936 | | | $ | — | | | $ | (11,623) | | | $ | 4,315 | |
(1) Represents counterparty netting against level 2 financial assets and liabilities where a legally enforceable master netting agreement exists between us and the counterparty. Netting also reflects asset and liability reductions of $1.81$1.23 billion and $3.61$3.96 billion, respectively, for cash collateral received from and provided to derivative counterparties.
(2) Consists entirely of non-agency CMBS.
(3) As of March 31, 2021, the fair value of other non-U.S. debt securities included $10.13 billion of supranational and non-U.S. agency bonds, $1.90 billion of corporate bonds and $0.43 billion of covered bonds.
State Street Corporation | 5460
STATE STREET CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
| | | Fair Value Measurements on a Recurring Basis | | Fair Value Measurements on a Recurring Basis |
| | As of December 31, 2020 | | As of December 31, 2020 |
| (In millions) | (In millions) | Quoted Market
Prices in Active
Markets
(Level 1) | | Pricing Methods
with Significant
Observable
Market Inputs
(Level 2) | | Pricing Methods
with Significant
Unobservable
Market Inputs
(Level 3) | | Impact of Netting(1) | | Total Net
Carrying Value
in Consolidated
Statement of
Condition | (In millions) | Quoted Market
Prices in Active
Markets
(Level 1) | | Pricing Methods
with Significant
Observable
Market Inputs
(Level 2) | | Pricing Methods
with Significant
Unobservable
Market Inputs
(Level 3) | | Impact of Netting(1) | | Total Net
Carrying Value
in Consolidated
Statement of
Condition |
| Assets: | Assets: | | | | | | | | | | Assets: | | | | | | | | | |
| Trading account assets: | Trading account assets: | | Trading account assets: | |
| U.S. government securities | U.S. government securities | $ | 40 | | | $ | 0 | | | $ | 0 | | | $ | 40 | | U.S. government securities | $ | 40 | | | $ | — | | | $ | — | | | $ | 40 | |
| Non-U.S. government securities | Non-U.S. government securities | 0 | | | 239 | | | 0 | | | 239 | | Non-U.S. government securities | — | | | 239 | | | — | | | 239 | |
| Other | Other | 17 | | | 519 | | | 0 | | | 536 | | Other | 17 | | | 519 | | | — | | | 536 | |
| Total trading account assets | Total trading account assets | 57 | | | 758 | | | 0 | | | 815 | | Total trading account assets | 57 | | | 758 | | | — | | | 815 | |
| Available-for-sale investment securities: | Available-for-sale investment securities: | | | | | | | | Available-for-sale investment securities: | | | | | | | |
| U.S. Treasury and federal agencies: | U.S. Treasury and federal agencies: | | U.S. Treasury and federal agencies: | |
| Direct obligations | Direct obligations | 6,575 | | | 0 | | | 0 | | | 6,575 | | Direct obligations | 6,575 | | | — | | | — | | | 6,575 | |
| Mortgage-backed securities | Mortgage-backed securities | 0 | | | 14,305 | | | 0 | | | 14,305 | | Mortgage-backed securities | — | | | 14,305 | | | — | | | 14,305 | |
| Total U.S. Treasury and federal agencies | Total U.S. Treasury and federal agencies | 6,575 | | | 14,305 | | | 0 | | | 20,880 | | Total U.S. Treasury and federal agencies | 6,575 | | | 14,305 | | | — | | | 20,880 | |
| Non-U.S. debt securities: | | Non-U.S. debt securities: | |
| Mortgage-backed securities | | Mortgage-backed securities | — | | | 1,996 | | | — | | | 1,996 | |
| Asset-backed securities | | Asset-backed securities | — | | | 2,291 | | | — | | | 2,291 | |
| Non-U.S. sovereign, supranational and non-U.S. agency | | Non-U.S. sovereign, supranational and non-U.S. agency | — | | | 22,087 | | | — | | | 22,087 | |
| Other | | Other | — | | | 3,355 | | | — | | | 3,355 | |
| Total non-U.S. debt securities | | Total non-U.S. debt securities | — | | | 29,729 | | | — | | | 29,729 | |
| Asset-backed securities: | Asset-backed securities: | | | | | | | | Asset-backed securities: | | | | | | | |
| Student loans | Student loans | 0 | | | 314 | | | 0 | | | 314 | | Student loans | — | | | 314 | | | — | | | 314 | |
| Credit cards | 0 | | | 90 | | | 0 | | | 90 | | |
| | | Collateralized loan obligations | Collateralized loan obligations | 0 | | | 2,952 | | | 14 | | | 2,966 | | Collateralized loan obligations | — | | | 2,952 | | | 14 | | | 2,966 | |
Non-agency CMBS and RMBS(2) | Non-agency CMBS and RMBS(2) | 0 | | | 78 | | | 0 | | | 78 | | Non-agency CMBS and RMBS(2) | — | | | 78 | | | — | | | 78 | |
| Other | | Other | — | | | 90 | | | — | | | 90 | |
| Total asset-backed securities | Total asset-backed securities | 0 | | | 3,434 | | | 14 | | | 3,448 | | Total asset-backed securities | — | | | 3,434 | | | 14 | | | 3,448 | |
| Non-U.S. debt securities: | | |
| Mortgage-backed securities | 0 | | | 1,996 | | | 0 | | | 1,996 | | |
| Asset-backed securities | 0 | | | 2,291 | | | 0 | | | 2,291 | | |
| Government securities | 0 | | | 12,539 | | | 0 | | | 12,539 | | |
Other(3) | 0 | | | 12,903 | | | 0 | | | 12,903 | | |
| Total non-U.S. debt securities | 0 | | | 29,729 | | | 0 | | | 29,729 | | |
| | State and political subdivisions | State and political subdivisions | 0 | | | 1,548 | | | 0 | | | 1,548 | | State and political subdivisions | — | | | 1,548 | | | — | | | 1,548 | |
| | Other U.S. debt securities | Other U.S. debt securities | 0 | | | 3,443 | | | 0 | | | 3,443 | | Other U.S. debt securities | — | | | 3,443 | | | — | | | 3,443 | |
| | Total available-for-sale investment securities | Total available-for-sale investment securities | 6,575 | | | 52,459 | | | 14 | | | 59,048 | | Total available-for-sale investment securities | 6,575 | | | 52,459 | | | 14 | | | 59,048 | |
| Other assets: | Other assets: | | Other assets: | |
| Derivative instruments: | Derivative instruments: | | Derivative instruments: | |
| Foreign exchange contracts | Foreign exchange contracts | 0 | | | 25,941 | | | 2 | | | $ | (20,140) | | | 5,803 | | Foreign exchange contracts | — | | | 25,941 | | | 2 | | | $ | (20,140) | | | 5,803 | |
| Interest rate contracts | Interest rate contracts | 1 | | | 0 | | | 0 | | | 0 | | | 1 | | Interest rate contracts | 1 | | | — | | | — | | | — | | | 1 | |
| | Total derivative instruments | Total derivative instruments | 1 | | | 25,941 | | | 2 | | | (20,140) | | | 5,804 | | Total derivative instruments | 1 | | | 25,941 | | | 2 | | | (20,140) | | | 5,804 | |
| Other | Other | 0 | | | 525 | | | 0 | | | 0 | | | 525 | | Other | — | | | 525 | | | — | | | — | | | 525 | |
| Total assets carried at fair value | Total assets carried at fair value | $ | 6,633 | | | $ | 79,683 | | | $ | 16 | | | $ | (20,140) | | | $ | 66,192 | | Total assets carried at fair value | $ | 6,633 | | | $ | 79,683 | | | $ | 16 | | | $ | (20,140) | | | $ | 66,192 | |
| Liabilities: | Liabilities: | | | | | | | | | | Liabilities: | | | | | | | | | |
| Accrued expenses and other liabilities: | Accrued expenses and other liabilities: | | Accrued expenses and other liabilities: | |
| Trading account liabilities: | Trading account liabilities: | | Trading account liabilities: | |
| | Other | Other | $ | 4 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 4 | | Other | $ | 4 | | | $ | — | | | $ | — | | | $ | — | | | $ | 4 | |
| Derivative instruments: | Derivative instruments: | | Derivative instruments: | |
| Foreign exchange contracts | Foreign exchange contracts | 1 | | | 25,925 | | | 1 | | | (15,558) | | | 10,369 | | Foreign exchange contracts | 1 | | | 25,925 | | | 1 | | | (15,558) | | | 10,369 | |
| Interest rate contracts | Interest rate contracts | 0 | | | 42 | | | 0 | | | 0 | | | 42 | | Interest rate contracts | — | | | 42 | | | — | | | — | | | 42 | |
| Other derivative contracts | Other derivative contracts | 0 | | | 157 | | | 0 | | | 0 | | | 157 | | Other derivative contracts | — | | | 157 | | | — | | | — | | | 157 | |
| Total derivative instruments | Total derivative instruments | 1 | | | 26,124 | | | 1 | | | (15,558) | | | 10,568 | | Total derivative instruments | 1 | | | 26,124 | | | 1 | | | (15,558) | | | 10,568 | |
| | Total liabilities carried at fair value | Total liabilities carried at fair value | $ | 5 | | | $ | 26,124 | | | $ | 1 | | | $ | (15,558) | | | $ | 10,572 | | Total liabilities carried at fair value | $ | 5 | | | $ | 26,124 | | | $ | 1 | | | $ | (15,558) | | | $ | 10,572 | |
(1) Represents counterparty netting against level 2 financial assets and liabilities where a legally enforceable master netting agreement exists between us and the counterparty. Netting also reflects asset and liability reductions of $5.87 billion and $1.29 billion, respectively, for cash collateral received from and provided to derivative counterparties.
(2) Consists entirely of non-agency CMBS.
(3) As of December 31, 2020, the fair value of other non-U.S. debt securities included $9.55 billion of supranational and non-U.S. agency bonds, $1.88 billion of corporate bonds and $0.47 billion of covered bonds.
State Street Corporation | 5561
STATE STREET CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The following tables present activity related to our level 3 financial assets during the three and nine months ended March 31,September 30, 2021 and 2020, respectively. Transfers into and out of level 3 are reported as of the beginning of the period presented. During the three months ended March 31,September 30, 2021, there were no transfers into and out of level 3. During the nine months ended September 30, 2021, transfers into level 3 were primarily related to a U.S. corporate bond, for which fair value was measured using information obtained from third party sources, including non-binding broker/dealer quotes. During the threenine months ended March 31,September 30, 2021, transfers out of level 3 were mainlyprimarily related to collateralized loan obligations and a U.S. corporate bond, for which fair value was measured using prices based onfor which observable market information.information became available. During the three and nine months ended March 31,September 30, 2020, transfers into level 3 were primarily related to collateralized loan obligations. During the three and nine months ended September 30, 2020, there were no transfers into or out of level 3.
| | | Fair Value Measurements Using Significant Unobservable Inputs | | Fair Value Measurements Using Significant Unobservable Inputs |
| | | Three Months Ended March 31, 2021 | | Three Months Ended September 30, 2021 |
| | | Fair Value as of
December 31,
2020 | | Total Realized and
Unrealized Gains (Losses) | | Purchases | | | Sales | | Settlements | | Transfers into Level 3 | | Transfers out of Level 3 | | Fair Value as of March 31, 2021(1) | | Change in Unrealized Gains (Losses) Related to Financial Instruments
Held as of
March 31, 2021 | | Fair Value as of June 30, 2021 | | Total Realized and Unrealized Gains (Losses)(1) | | Purchases | | | Sales | | Settlements | | Transfers into Level 3 | | Transfers out of Level 3 | | Fair Value as of September 30, 2021(1) | | Change in Unrealized Gains (Losses) Related to Financial Instruments
Held as of
September 30, 2021 |
| (In millions) | (In millions) | | Recorded in Revenue(1) | | Recorded in Other Comprehensive Income(1) | | | | (In millions) | | Recorded in Revenue(1) | | Recorded in Other Comprehensive Income(1) | | | |
| Assets: | Assets: | | | | | | | | | | | | | | | | | | | | | Assets: | | | | | | | | | | | | | | | | | | | | |
| Available-for-sale Investment securities: | | | | |
| | Asset-backed securities: | | | | |
| Collateralized loan obligations | $ | 14 | | | $ | 0 | | | $ | 0 | | | $ | 106 | | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | (14) | | | $ | 106 | | | |
| Total asset-backed securities | 14 | | | 0 | | | 0 | | | 106 | | | | 0 | | | 0 | | | 0 | | | (14) | | | 106 | | | |
| | Other U.S. debt securities | 0 | | 0 | | | 0 | | | 0 | | | | 0 | | | 0 | | | 15 | | | 0 | | | 15 | | | |
| Total Available-for-sale investment securities | 14 | | | 0 | | | 0 | | | 106 | | | | 0 | | | 0 | | | 15 | | | (14) | | | 121 | | | |
| | Other assets: | Other assets: | | | | Other assets: | | | |
| Derivative instruments: | Derivative instruments: | | | | Derivative instruments: | | | |
| Foreign exchange contracts | Foreign exchange contracts | 2 | | | 0 | | | 0 | | | 4 | | | | 0 | | | 0 | | | 0 | | | 0 | | | 6 | | | $ | 1 | | Foreign exchange contracts | $ | 2 | | | $ | — | | | $ | — | | | $ | 1 | | | | $ | — | | | $ | (1) | | | $ | — | | | $ | — | | | $ | 2 | | | $ | — | |
| | Total derivative instruments | Total derivative instruments | 2 | | | 0 | | | 0 | | | 4 | | | | 0 | | | 0 | | | 0 | | | 0 | | | 6 | | | 1 | | Total derivative instruments | 2 | | | — | | | — | | | 1 | | | | — | | | (1) | | | — | | | — | | | 2 | | | — | |
| Total assets carried at fair value | Total assets carried at fair value | $ | 16 | | | $ | 0 | | | $ | 0 | | | $ | 110 | | | | $ | 0 | | | $ | 0 | | | $ | 15 | | | $ | (14) | | | $ | 127 | | | $ | 1 | | Total assets carried at fair value | $ | 2 | | | $ | — | | | $ | — | | | $ | 1 | | | | $ | — | | | $ | (1) | | | $ | — | | | $ | — | | | $ | 2 | | | $ | — | |
(1) Total realized and unrealized gains (losses) on derivative instruments are included within foreign exchange trading services.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Fair Value Measurements Using Significant Unobservable Inputs |
| | Nine Months Ended September 30, 2021 |
| | Fair Value as of
December 31,
2020 | | Total Realized and Unrealized Gains (Losses)(1) | | Purchases | | | | Sales | | Settlements | | Transfers into Level 3 | | Transfers out of Level 3 | | Fair Value as of September 30, 2021(1) | | Change in Unrealized Gains (Losses) Related to Financial Instruments
Held as of
September 30, 2021 |
| (In millions) | | Recorded in Revenue(1) | | Recorded in Other Comprehensive Income(1) | | | | | | | | | |
| Assets: | | | | | | | | | | | | | | | | | | | | | |
| Available-for-sale Investment securities: | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| Asset-backed securities: | | | | | | | | | | | | | | | | | | | | | |
| Collateralized loan obligations | $ | 14 | | | $ | — | | | $ | — | | | $ | 106 | | | | | $ | — | | | $ | — | | | $ | — | | | $ | (120) | | | $ | — | | | |
| Total asset-backed securities | 14 | | | — | | | — | | | 106 | | | | | — | | | — | | | — | | | (120) | | | — | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| Other U.S. debt securities | — | | | — | | | — | | | — | | | | | — | | | — | | | 15 | | | (15) | | | — | | | |
| Total available-for-sale investment securities | 14 | | | — | | | — | | | 106 | | | | | — | | | — | | | 15 | | | (135) | | | — | | | |
| Other assets: | | | | | | | | | | | | | | | | | | | | | |
| Derivative instruments: | | | | | | | | | | | | | | | | | | | | | |
| Foreign exchange contracts | 2 | | | (3) | | | — | | | 4 | | | | | — | | | (1) | | | — | | | — | | | 2 | | | $ | (1) | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| Total derivative instruments | 2 | | | (3) | | | — | | | 4 | | | | | — | | | (1) | | | — | | | — | | | 2 | | | (1) | |
| Total assets carried at fair value | $ | 16 | | | $ | (3) | | | $ | — | | | $ | 110 | | | | | $ | — | | | $ | (1) | | | $ | 15 | | | $ | (135) | | | $ | 2 | | | $ | (1) | |
(1) Total realized and unrealized gains (losses) on AFS investment securities are included within gains (losses) related to investment securities, net. Total realized and unrealized gains (losses) on derivative instruments are included within foreign exchange trading services.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Fair Value Measurements Using Significant Unobservable Inputs |
| | Three Months Ended March 31, 2020 |
| | Fair Value
as of
December 31,
2019 | | Total Realized and
Unrealized Gains (Losses) | | Purchases | | | | Sales | | Settlements | | Transfers
into
Level 3 | | Transfers
out of
Level 3 | | Fair Value as of March 31, 2020(1) | | Change in Unrealized Gains (Losses) Related to Financial Instruments
Held as of
March 31, 2020 |
| (In millions) | | Recorded
in
Revenue(1) | | Recorded
in Other
Comprehensive
Income(1) | | | | | | | | | |
| Assets: | | | | | | | | | | | | | | | | | | | | | |
| Available-for-sale Investment securities: | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| Asset-backed securities: | | | | | | | | | | | | | | | | | | | | | |
| Collateralized loan obligations | 1,820 | | | 0 | | | (83) | | | 178 | | | | | (42) | | | (32) | | | 0 | | | 0 | | | 1,841 | | | — | |
| | | | | | | | | | | | | | | | | | | | | |
| Total asset-backed securities | 1,820 | | | 0 | | | (83) | | | 178 | | | | | (42) | | | (32) | | | 0 | | | 0 | | | 1,841 | | | — | |
| Non-U.S. debt securities: | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| Asset-backed securities | 887 | | | 0 | | | (65) | | | 0 | | | | | 0 | | | (2) | | | 0 | | | 0 | | | 820 | | | — | |
| | | | | | | | | | | | | | | | | | | | | |
| Other | 45 | | | 0 | | | (1) | | | 0 | | | | | 0 | | | 0 | | | 0 | | | 0 | | | 44 | | | — | |
| Total non-U.S. debt securities | 932 | | | 0 | | | (66) | | | 0 | | | | | 0 | | | (2) | | | 0 | | | 0 | | | 864 | | | — | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| Total Available-for-sale investment securities | 2,752 | | | 0 | | | (149) | | | 178 | | | | | (42) | | | (34) | | | 0 | | | 0 | | | 2,705 | | | — | |
| Other assets: | | | | | | | | | | | | | | | | | | | | | |
| Derivative instruments: | | | | | | | | | | | | | | | | | | | | | |
| Foreign exchange contracts | 4 | | | 11 | | | 0 | | | 3 | | | | | 0 | | | (1) | | | 0 | | | 0 | | | 17 | | | $ | 12 | |
| Total derivative instruments | 4 | | | 11 | | | 0 | | | 3 | | | | | 0 | | | (1) | | | 0 | | | 0 | | | 17 | | | 12 | |
| Total assets carried at fair value | $ | 2,756 | | | $ | 11 | | | $ | (149) | | | $ | 181 | | | | | $ | (42) | | | $ | (35) | | | $ | 0 | | | $ | 0 | | | $ | 2,722 | | | $ | 12 | |
State Street Corporation | 62
STATE STREET CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Fair Value Measurements Using Significant Unobservable Inputs |
| | Three Months Ended September 30, 2020 |
| | Fair Value
as of
June 30,
2020 | | Total Realized and Unrealized Gains (Losses)(1) | | Purchases | | | | Sales | | Settlements | | Transfers
into
Level 3 | | Transfers
out of
Level 3 | | Fair Value as of September 30, 2020(1) | | Change in Unrealized Gains (Losses) Related to Financial Instruments
Held as of
September 30, 2020 |
| (In millions) | | Recorded
in
Revenue(1) | | Recorded
in Other
Comprehensive
Income(1) | | | | | | | | | |
| Assets: | | | | | | | | | | | | | | | | | | | | | |
| Available-for-sale Investment securities: | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| Asset-backed securities: | | | | | | | | | | | | | | | | | | | | | |
| Collateralized loan obligations | $ | 1,869 | | | $ | — | | | $ | 14 | | | $ | 663 | | | | | $ | (34) | | | $ | (24) | | | $ | 50 | | | $ | — | | | $ | 2,538 | | | |
| | | | | | | | | | | | | | | | | | | | | |
| Total asset-backed securities | 1,869 | | | — | | | 14 | | | 663 | | | | | (34) | | | (24) | | | 50 | | | — | | | 2,538 | | | |
| Non-U.S. debt securities: | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| Asset-backed securities | 876 | | | — | | | 45 | | | — | | | | | — | | | (3) | | | — | | | — | | | 918 | | | |
| | | | | | | | | | | | | | | | | | | | | |
| Other | 45 | | | — | | | 2 | | | — | | | | | — | | | — | | | — | | | — | | | 47 | | | |
| Total non-U.S. debt securities | 921 | | | — | | | 47 | | | — | | | | | — | | | (3) | | | — | | | — | | | 965 | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| Total available-for-sale investment securities | 2,790 | | | — | | | 61 | | | 663 | | | | | (34) | | | (27) | | | 50 | | | — | | | 3,503 | | | |
| Other assets: | | | | | | | | | | | | | | | | | | | | | |
| Derivative instruments: | | | | | | | | | | | | | | | | | | | | | |
| Foreign exchange contracts | 2 | | | (2) | | | — | | | 9 | | | | | — | | | (3) | | | — | | | — | | | 6 | | | $ | (4) | |
| Total derivative instruments | 2 | | | (2) | | | — | | | 9 | | | | | — | | | (3) | | | — | | | — | | | 6 | | | (4) | |
| Total assets carried at fair value | $ | 2,792 | | | $ | (2) | | | $ | 61 | | | $ | 672 | | | | | $ | (34) | | | $ | (30) | | | $ | 50 | | | $ | — | | | $ | 3,509 | | | $ | (4) | |
(1) Total realized and unrealized gains (losses) on AFS investment securities are included within gains (losses) related to investment securities, net. Total realized and unrealized gains (losses) on derivative instruments are included within foreign exchange trading services.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Fair Value Measurements Using Significant Unobservable Inputs |
| | Nine Months Ended September 30, 2020 |
| | Fair Value
as of
December 31,
2019 | | Total Realized and Unrealized Gains (Losses)(1) | | Purchases | | | | Sales | | Settlements | | Transfers
into
Level 3 | | Transfers
out of
Level 3 | | Fair Value as of September 30, 2020(1) | | Change in Unrealized Gains (Losses) Related to Financial Instruments
Held as of
September 30, 2020 |
| (In millions) | | Recorded
in
Revenue(1) | | Recorded
in Other
Comprehensive
Income(1) | | | | | | | | | |
| Assets: | | | | | | | | | | | | | | | | | | | | | |
| Available-for-sale Investment securities: | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| Asset-backed securities: | | | | | | | | | | | | | | | | | | | | | |
| Collateralized loan obligations | $ | 1,820 | | | $ | — | | | $ | (10) | | | $ | 850 | | | | | $ | (95) | | | $ | (77) | | | $ | 50 | | | $ | — | | | $ | 2,538 | | | |
| | | | | | | | | | | | | | | | | | | | | |
| Total asset-backed securities | 1,820 | | | — | | | (10) | | | 850 | | | | | (95) | | | (77) | | | 50 | | | — | | | 2,538 | | | |
| Non-U.S. debt securities: | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| Asset-backed securities | 887 | | | — | | | 35 | | | 1 | | | | | — | | | (5) | | | — | | | — | | | 918 | | | |
| | | | | | | | | | | | | | | | | | | | | |
| Other | 45 | | | — | | | 2 | | | — | | | | | — | | | — | | | — | | | — | | | 47 | | | |
| Total non-U.S. debt securities | 932 | | | — | | | 37 | | | 1 | | | | | — | | | (5) | | | — | | | — | | | 965 | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| Total available-for-sale investment securities | 2,752 | | | — | | | 27 | | | 851 | | | | | (95) | | | (82) | | | 50 | | | — | | | 3,503 | | | |
| Other assets: | | | | | | | | | | | | | | | | | | | | | |
| Derivative instruments: | | | | | | | | | | | | | | | | | | | | | |
| Foreign exchange contracts | 4 | | | (7) | | | — | | | 10 | | | | | — | | | (1) | | | — | | | — | | | 6 | | | $ | (4) | |
| Total derivative instruments | 4 | | | (7) | | | — | | | 10 | | | | | — | | | (1) | | | — | | | — | | | 6 | | | (4) | |
| Total assets carried at fair value | $ | 2,756 | | | $ | (7) | | | $ | 27 | | | $ | 861 | | | | | $ | (95) | | | $ | (83) | | | $ | 50 | | | $ | — | | | $ | 3,509 | | | $ | (4) | |
(1) Total realized and unrealized gains (losses) on AFS investment securities are included within gains (losses) related to investment securities, net. Total realized and unrealized gains (losses) on derivative instruments are included within foreign exchange trading services.
State Street Corporation | 5663
STATE STREET CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The following table presents quantitative information, as of the dates indicated, about the valuation techniques and significant unobservable inputs used in the valuation of our level 3 financial assets and liabilities measured at fair value on a recurring basis for which we use internally-developed pricing models. The significant unobservable inputs for our level 3 financial assets and liabilities whose fair value is measured using pricing information from non-binding broker/dealer quotes are not included in the table, as the specific inputs applied are not provided by the broker/dealer.
| | | Quantitative Information about Level 3 Fair Value Measurements | | Quantitative Information about Level 3 Fair Value Measurements |
| | Fair Value | | Range | | Weighted-Average | | Fair Value | | Range | | Weighted-Average |
| (Dollars in millions) | (Dollars in millions) | As of March 31, 2021 | | As of December 31, 2020 | | Valuation Technique | | Significant Unobservable Input(1) | | As of March 31, 2021 | | As of March 31, 2021 | | As of December 31, 2020 | (Dollars in millions) | As of September 30, 2021 | | As of December 31, 2020 | | Valuation Technique | | Significant Unobservable Input(1) | | As of September 30, 2021 | | As of September 30, 2021 | | As of December 31, 2020 |
| Significant unobservable inputs readily available to State Street: | Significant unobservable inputs readily available to State Street: | | | | | | | | | | | | | | Significant unobservable inputs readily available to State Street: | | | | | | | | | | | | | |
| Assets: | Assets: | | Assets: | |
| Derivative Instruments, foreign exchange contracts | Derivative Instruments, foreign exchange contracts | $ | 6 | | | $ | 2 | | | Option model | | Volatility | | 4.2% | - | 17.8% | | 7.3 | % | | 7.9 | % | Derivative Instruments, foreign exchange contracts | $ | 2 | | | $ | 2 | | | Option model | | Volatility | | 5.0% | - | 12.6% | | 7.6 | % | | 7.9 | % |
| Total | Total | $ | 6 | | | $ | 2 | | | Total | $ | 2 | | | $ | 2 | | |
| Liabilities: | Liabilities: | | | | | Liabilities: | | | | |
| Derivative instruments, foreign exchange contracts | Derivative instruments, foreign exchange contracts | $ | 0 | | | $ | 1 | | | Option model | | Volatility | | 4.7% | - | 7.4% | | 4.7 | % | | 7.7 | % | Derivative instruments, foreign exchange contracts | $ | — | | | $ | 1 | | | Option model | | Volatility | | 6.9% | - | 8.0% | | 7.4 | % | | 7.7 | % |
| Total | Total | $ | 0 | | | $ | 1 | | | Total | $ | — | | | $ | 1 | | |
(1) Significant changes in these unobservable inputs may result in significant changes in fair value measurement of the derivative instrument.
Fair Value Estimates
Estimates of fair value for financial instruments not carried at fair value in our consolidated statement of condition are generally subjective in nature, and are determined as of a specific point in time based on the characteristics of the financial instruments and relevant market information.
The following tables present the reported amounts and estimated fair values of the financial assets and liabilities not carried at fair value, as they would be categorized within the fair value hierarchy, as of the dates indicated:
| | | | | Fair Value Hierarchy | | | Fair Value Hierarchy |
| (In millions) | (In millions) | Reported Amount | | Estimated Fair Value | | Quoted Market Prices in Active Markets (Level 1) | | Pricing Methods with Significant Observable Market Inputs (Level 2) | | Pricing Methods with Significant Unobservable Market Inputs (Level 3) | (In millions) | Reported Amount | | Estimated Fair Value | | Quoted Market Prices in Active Markets (Level 1) | | Pricing Methods with Significant Observable Market Inputs (Level 2) | | Pricing Methods with Significant Unobservable Market Inputs (Level 3) |
| March 31, 2021 | | | | | | | | | | |
| September 30, 2021 | | September 30, 2021 | | | | | | | | | |
| Financial Assets: | Financial Assets: | | | | | | | | | Financial Assets: | | | | | | | | |
| Cash and due from banks | Cash and due from banks | $ | 4,552 | | | 4,552 | | | $ | 4,552 | | | $ | 0 | | | $ | 0 | | Cash and due from banks | $ | 4,606 | | | 4,606 | | | $ | 4,606 | | | $ | — | | | $ | — | |
| Interest-bearing deposits with banks | Interest-bearing deposits with banks | 107,554 | | | 107,554 | | | 0 | | | 107,554 | | | 0 | | Interest-bearing deposits with banks | 107,553 | | | 107,553 | | | — | | | 107,553 | | | — | |
| Securities purchased under resale agreements | Securities purchased under resale agreements | 5,238 | | | 5,238 | | | 0 | | | 5,238 | | | 0 | | Securities purchased under resale agreements | 2,847 | | | 2,847 | | | — | | | 2,847 | | | — | |
HTM securities purchased under the MMLF
program | 201 | | | 201 | | | 0 | | | 201 | | | 0 | | |
| | Investment securities held-to-maturity | Investment securities held-to-maturity | 46,261 | | | 46,953 | | | 5,566 | | | 41,337 | | | 50 | | Investment securities held-to-maturity | 43,346 | | | 43,728 | | | 2,708 | | | 41,020 | | | — | |
Net loans (1) | Net loans (1) | 31,467 | | | 31,512 | | | 0 | | | 29,340 | | | 2,171 | | Net loans(1) | 32,702 | | | 32,806 | | | — | | | 30,292 | | | 2,514 | |
Other(2) | 6,757 | | | 6,757 | | | 0 | | | 6,757 | | | 0 | | |
| | Financial Liabilities: | Financial Liabilities: | | Financial Liabilities: | |
| Deposits: | Deposits: | | Deposits: | |
| Non-interest-bearing | Non-interest-bearing | $ | 57,079 | | | $ | 57,079 | | | $ | 0 | | | $ | 57,079 | | | $ | 0 | | Non-interest-bearing | $ | 64,885 | | | $ | 64,885 | | | $ | — | | | $ | 64,885 | | | $ | — | |
| Interest-bearing - U.S. | Interest-bearing - U.S. | 108,372 | | | 108,372 | | | 0 | | | 108,372 | | | 0 | | Interest-bearing - U.S. | 108,909 | | | 108,909 | | | — | | | 108,909 | | | — | |
| Interest-bearing - non-U.S. | Interest-bearing - non-U.S. | 79,442 | | | 79,442 | | | 0 | | | 79,442 | | | 0 | | Interest-bearing - non-U.S. | 85,579 | | | 85,579 | | | — | | | 85,579 | | | — | |
| Securities sold under repurchase agreements | Securities sold under repurchase agreements | 587 | | | 587 | | | 0 | | | 587 | | | 0 | | Securities sold under repurchase agreements | 637 | | | 637 | | | — | | | 637 | | | — | |
Short-term borrowings under the MMLF
program | 200 | | | 200 | | | 0 | | | 200 | | | 0 | | |
| | Other short-term borrowings | Other short-term borrowings | 642 | | | 642 | | | 0 | | | 642 | | | 0 | | Other short-term borrowings | 549 | | | 549 | | | — | | | 549 | | | — | |
| | Long-term debt | Long-term debt | 13,836 | | | 13,904 | | | 0 | | | 13,801 | | | 103 | | Long-term debt | 12,978 | | | 13,151 | | | — | | | 13,069 | | | 82 | |
Other(1) | 6,757 | | | 6,757 | | | 0 | | | 6,757 | | | 0 | | |
|
(1) Includes $7$61 million of loans classified as held-for-sale that were measured at fair value in level 2 as of March 31,September 30, 2021.
(2) Represents a portion of underlying client assets related to our enhanced custody business, which clients have allowed us to transfer and re-pledge.
State Street Corporation | 5764
STATE STREET CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
| | | Fair Value Hierarchy | | Fair Value Hierarchy |
| (In millions) | (In millions) | Reported Amount | | Estimated Fair Value | | Quoted Market Prices in Active Markets (Level 1) | | Pricing Methods with Significant Observable Market Inputs (Level 2) | | Pricing Methods with Significant Unobservable Market Inputs (Level 3) | (In millions) | Reported Amount | | Estimated Fair Value | | Quoted Market Prices in Active Markets (Level 1) | | Pricing Methods with Significant Observable Market Inputs (Level 2) | | Pricing Methods with Significant Unobservable Market Inputs (Level 3) |
| December 31, 2020 | December 31, 2020 | | | | | | | | | | December 31, 2020 | | | | | | | | | |
| Financial Assets: | Financial Assets: | | Financial Assets: | |
| Cash and due from banks | Cash and due from banks | $ | 3,467 | | | $ | 3,467 | | | $ | 3,467 | | | $ | 0 | | | $ | 0 | | Cash and due from banks | $ | 3,467 | | | $ | 3,467 | | | $ | 3,467 | | | $ | — | | | $ | — | |
| Interest-bearing deposits with banks | Interest-bearing deposits with banks | 116,960 | | | 116,960 | | | 0 | | | 116,960 | | | 0 | | Interest-bearing deposits with banks | 116,960 | | | 116,960 | | | — | | | 116,960 | | | — | |
| Securities purchased under resale agreements | Securities purchased under resale agreements | 3,106 | | | 3,106 | | | 0 | | | 3,106 | | | 0 | | Securities purchased under resale agreements | 3,106 | | | 3,106 | | | — | | | 3,106 | | | — | |
HTM securities purchased under the MMLF
program | HTM securities purchased under the MMLF
program | 3,299 | | | 3,304 | | | 0 | | | 3,304 | | | 0 | | HTM securities purchased under the MMLF
program | 3,299 | | | 3,304 | | | — | | | 3,304 | | | — | |
| Investment securities held-to-maturity | Investment securities held-to-maturity | 48,929 | | | 50,003 | | | 6,115 | | | 43,888 | | | 0 | | Investment securities held-to-maturity | 48,929 | | | 50,003 | | | 6,115 | | | 43,888 | | | — | |
| Net loans | Net loans | 27,803 | | | 27,884 | | | 0 | | | 25,668 | | | 2,216 | | Net loans | 27,803 | | | 27,884 | | | — | | | 25,668 | | | 2,216 | |
Other(1) | Other(1) | 4,753 | | | 4,753 | | | 0 | | | 4,753 | | | 0 | | Other(1) | 4,753 | | | 4,753 | | | — | | | 4,753 | | | — | |
| Financial Liabilities: | Financial Liabilities: | | Financial Liabilities: | |
| Deposits: | Deposits: | 0 | | Deposits: | |
| Non-interest-bearing | Non-interest-bearing | $ | 49,439 | | | $ | 49,439 | | | $ | 0 | | | $ | 49,439 | | | $ | 0 | | Non-interest-bearing | $ | 49,439 | | | $ | 49,439 | | | $ | — | | | $ | 49,439 | | | $ | — | |
| Interest-bearing - U.S. | Interest-bearing - U.S. | 102,331 | | | 102,331 | | | 0 | | | 102,331 | | | 0 | | Interest-bearing - U.S. | 102,331 | | | 102,331 | | | — | | | 102,331 | | | — | |
| Interest-bearing - non-U.S. | Interest-bearing - non-U.S. | 88,028 | | | 88,028 | | | 0 | | | 88,028 | | | 0 | | Interest-bearing - non-U.S. | 88,028 | | | 88,028 | | | — | | | 88,028 | | | — | |
| Securities sold under repurchase agreements | Securities sold under repurchase agreements | 3,413 | | | 3,413 | | | 0 | | | 3,413 | | | 0 | | Securities sold under repurchase agreements | 3,413 | | | 3,413 | | | — | | | 3,413 | | | — | |
Short-term borrowings under the MMLF
program | Short-term borrowings under the MMLF
program | 3,302 | | | 3,302 | | | 0 | | | 3,302 | | | 0 | | Short-term borrowings under the MMLF
program | 3,302 | | | 3,302 | | | — | | | 3,302 | | | — | |
| Other short-term borrowings | Other short-term borrowings | 685 | | | 685 | | | 0 | | | 685 | | | 0 | | Other short-term borrowings | 685 | | | 685 | | | — | | | 685 | | | — | |
| Long-term debt | Long-term debt | 13,805 | | | 14,162 | | | 0 | | | 14,049 | | | 113 | | Long-term debt | 13,805 | | | 14,162 | | | — | | | 14,049 | | | 113 | |
Other(1) | Other(1) | 4,753 | | | 4,753 | | | 0 | | | 4,753 | | | 0 | | Other(1) | 4,753 | | | 4,753 | | | — | | | 4,753 | | | — | |
(1) Represents a portion of underlying client assets related to our enhanced custody business, which clients have allowed us to transfer and re-pledge.
Note 3. Investment Securities
Investment securities held by us are classified as either trading account assets, AFS, HTM or equity securities held at fair value at the time of purchase and reassessed periodically, based on management’s intent. For additional information on our accounting for investment securities, refer to page 143 in Note 3 to the consolidated financial statements included under Item 8, Financial Statements and Supplementary Data, in our 2020 Form 10-K.
Trading assets are carried at fair value. Both realized and unrealized gains and losses on trading assets are recorded in foreign exchange trading services revenue in our consolidated statement of income. AFS securities are carried at fair value, with any allowance for credit losses recorded through the consolidated statement of income and after-tax net unrealized gains and losses are recorded in AOCI. Gains or losses realized on sales of AFS investment securities are computed using the specific identification method and are recorded in gains (losses) related to investment securities, net, in our consolidated statement of income.
Starting in the first quarter of 2020, we supported our clients' liquidity needs through the MMLF program, purchasing a total of $29 billion of investment securities under that program, $0.2 billion of which remain outstanding as of March 31, 2021.
HTM investment securities are carried at cost, adjusted for amortization of premiums and accretion of discounts, with any allowance for credit losses recorded through the consolidated statement of income. As of March 31,September 30, 2021, we recognized an allowance for credit losses on HTM investment securities of $2 million.
State Street Corporation | 5865
STATE STREET CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The following table presents the amortized cost, fair value and associated unrealized gains and losses of AFS and HTM investment securities as of the dates indicated:
| | | | March 31, 2021 | | December 31, 2020 | | September 30, 2021 | | December 31, 2020 |
| | | Amortized Cost | | Gross Unrealized | | Fair Value | | Amortized Cost | | Gross Unrealized | | Fair Value | | Amortized Cost | | Gross Unrealized | | Fair Value | | Amortized Cost | | Gross Unrealized | | Fair Value |
| (In millions) | (In millions) | Gains | | Losses | | Gains | | Losses | | (In millions) | Gains | | Losses | | Gains | | Losses | |
| Available-for-sale: | Available-for-sale: | | | | | | | | | | | | | | | | Available-for-sale: | | | | | | | | | | | | | | | |
| U.S. Treasury and federal agencies: | U.S. Treasury and federal agencies: | | U.S. Treasury and federal agencies: | |
| Direct obligations | Direct obligations | $ | 8,948 | | | $ | 28 | | | $ | 39 | | | $ | 8,937 | | | $ | 6,453 | | | $ | 123 | | | $ | 1 | | | $ | 6,575 | | Direct obligations | $ | 14,372 | | | $ | 30 | | | $ | 63 | | | $ | 14,339 | | | $ | 6,453 | | | $ | 123 | | | $ | 1 | | | $ | 6,575 | |
| Mortgage-backed securities | Mortgage-backed securities | 14,181 | | | 326 | | | 82 | | | 14,425 | | | 13,891 | | | 421 | | | 7 | | | 14,305 | | Mortgage-backed securities | 16,051 | | | 215 | | | 43 | | | 16,223 | | | 13,891 | | | 421 | | | 7 | | | 14,305 | |
| Total U.S. Treasury and federal agencies | Total U.S. Treasury and federal agencies | 23,129 | | | 354 | | | 121 | | | 23,362 | | | 20,344 | | | 544 | | | 8 | | | 20,880 | | Total U.S. Treasury and federal agencies | 30,423 | | | 245 | | | 106 | | | 30,562 | | | 20,344 | | | 544 | | | 8 | | | 20,880 | |
| Asset-backed securities: | | | | | | | | | | | | | | | | |
Student loans(1) | 283 | | | 5 | | | 0 | | | 288 | | | 313 | | | 2 | | | 1 | | | 314 | | |
| Credit cards | 90 | | | 1 | | | 0 | | | 91 | | | 90 | | | 0 | | | 0 | | | 90 | | |
| | Collateralized loan obligations | 3,770 | | | 6 | | | 1 | | | 3,775 | | | 2,969 | | | 3 | | | 6 | | | 2,966 | | |
Non-agency CMBS and RMBS(2) | 70 | | | 1 | | | 0 | | | 71 | | | 76 | | | 2 | | | 0 | | | 78 | | |
| Total asset-backed securities | 4,213 | | | 13 | | | 1 | | | 4,225 | | | 3,448 | | | 7 | | | 7 | | | 3,448 | | |
| Non-U.S. debt securities: | Non-U.S. debt securities: | | Non-U.S. debt securities: | | | | | | | | | | | | | | | |
| Mortgage-backed securities | Mortgage-backed securities | 2,021 | | | 11 | | | 0 | | | 2,032 | | | 1,994 | | | 4 | | | 2 | | | 1,996 | | Mortgage-backed securities | 2,130 | | | 12 | | | 1 | | | 2,141 | | | 1,994 | | | 4 | | | 2 | | | 1,996 | |
| Asset-backed securities | Asset-backed securities | 2,296 | | | 2 | | | 1 | | | 2,297 | | | 2,294 | | | 1 | | | 4 | | | 2,291 | | Asset-backed securities | 2,365 | | | 2 | | | 2 | | | 2,365 | | | 2,294 | | | 1 | | | 4 | | | 2,291 | |
| Government securities | 9,773 | | | 138 | | | 1 | | | 9,910 | | | 12,337 | | | 202 | | | 0 | | | 12,539 | | |
Other(3) | 13,679 | | | 111 | | | 81 | | | 13,709 | | | 12,729 | | | 177 | | | 3 | | | 12,903 | | |
| Non-U.S. sovereign, supranational and non-U.S. agency | | Non-U.S. sovereign, supranational and non-U.S. agency | 22,747 | | | 150 | | | 43 | | | 22,854 | | | 21,769 | | | 321 | | | 3 | | | 22,087 | |
Other(1) | | Other(1) | 3,294 | | | 29 | | | 17 | | | 3,306 | | | 3,297 | | | 58 | | | — | | | 3,355 | |
| Total non-U.S. debt securities | Total non-U.S. debt securities | 27,769 | | | 262 | | | 83 | | | 27,948 | | | 29,354 | | | 384 | | | 9 | | | 29,729 | | Total non-U.S. debt securities | 30,536 | | | 193 | | | 63 | | | 30,666 | | | 29,354 | | | 384 | | | 9 | | | 29,729 | |
State and political subdivisions(4) | 1,431 | | | 69 | | | 2 | | | 1,498 | | | 1,470 | | | 80 | | | 2 | | | 1,548 | | |
| Asset-backed securities: | | Asset-backed securities: | | | | | | | | | | | | | | | |
Student loans(2) | | Student loans(2) | 228 | | | 3 | | | — | | | 231 | | | 313 | | | 2 | | | 1 | | | 314 | |
| | Other U.S. debt securities | 3,437 | | | 51 | | | 9 | | | 3,479 | | | 3,371 | | | 72 | | | 0 | | | 3,443 | | |
| Collateralized loan obligations(3) | | Collateralized loan obligations(3) | 4,293 | | | 4 | | | 1 | | | 4,296 | | | 2,969 | | | 3 | | | 6 | | | 2,966 | |
Non-agency CMBS and RMBS(4) | | Non-agency CMBS and RMBS(4) | 58 | | | 1 | | | — | | | 59 | | | 76 | | | 2 | | | — | | | 78 | |
| Other | | Other | 90 | | | 2 | | | — | | | 92 | | | 90 | | | — | | | — | | | 90 | |
| Total asset-backed securities | | Total asset-backed securities | 4,669 | | | 10 | | | 1 | | | 4,678 | | | 3,448 | | | 7 | | | 7 | | | 3,448 | |
| Total available-for-sale securities(5) | $ | 59,979 | | | $ | 749 | | | $ | 216 | | | $ | 60,512 | | | $ | 57,987 | | | $ | 1,087 | | | $ | 26 | | | $ | 59,048 | | |
| State and political subdivisions(5) | | State and political subdivisions(5) | 1,336 | | | 63 | | | 3 | | | 1,396 | | | 1,470 | | | 80 | | | 2 | | | 1,548 | |
| Other U.S. debt securities(6) | | Other U.S. debt securities(6) | 2,943 | | | 39 | | | 5 | | | 2,977 | | | 3,371 | | | 72 | | | — | | | 3,443 | |
| Total available-for-sale securities(7) | | Total available-for-sale securities(7) | $ | 69,907 | | | $ | 550 | | | $ | 178 | | | $ | 70,279 | | | $ | 57,987 | | | $ | 1,087 | | | $ | 26 | | | $ | 59,048 | |
| Held-to-maturity: | Held-to-maturity: | | | | | | | | | | | | | | | | Held-to-maturity: | | | | | | | | | | | | | | | |
| U.S. Treasury and federal agencies: | U.S. Treasury and federal agencies: | | U.S. Treasury and federal agencies: | |
| Direct obligations | Direct obligations | $ | 5,530 | | | $ | 61 | | | $ | 0 | | | $ | 5,591 | | | $ | 6,057 | | | $ | 83 | | | $ | 0 | | | $ | 6,140 | | Direct obligations | $ | 2,709 | | | $ | 22 | | | $ | — | | | $ | 2,731 | | | $ | 6,057 | | | $ | 83 | | | $ | — | | | $ | 6,140 | |
| Mortgage-backed securities | Mortgage-backed securities | 34,930 | | | 629 | | | 322 | | | 35,237 | | | 36,901 | | | 955 | | | 67 | | | 37,789 | | Mortgage-backed securities | 33,525 | | | 525 | | | 309 | | | 33,741 | | | 36,901 | | | 955 | | | 67 | | | 37,789 | |
| Total U.S. Treasury and federal agencies | Total U.S. Treasury and federal agencies | 40,460 | | | 690 | | | 322 | | | 40,828 | | | 42,958 | | | 1,038 | | | 67 | | | 43,929 | | Total U.S. Treasury and federal agencies | 36,234 | | | 547 | | | 309 | | | 36,472 | | | 42,958 | | | 1,038 | | | 67 | | | 43,929 | |
| Non-U.S. debt securities: | | Non-U.S. debt securities: | | | | | | | | | | | | | | | |
| Mortgage-backed securities | | Mortgage-backed securities | 209 | | | 65 | | | 2 | | | 272 | | | 303 | | | 68 | | | 4 | | | 367 | |
| | Non-U.S. sovereign, supranational and non-U.S. agency | | Non-U.S. sovereign, supranational and non-U.S. agency | 1,508 | | | — | | | 3 | | | 1,505 | | | 342 | | | — | | | — | | | 342 | |
| | Total non-U.S. debt securities | | Total non-U.S. debt securities | 1,717 | | | 65 | | | 5 | | | 1,777 | | | 645 | | | 68 | | | 4 | | | 709 | |
| Asset-backed securities: | Asset-backed securities: | | | | | | | | | | | | | | | | Asset-backed securities: | | | | | | | | | | | | | | | |
Student loans(1) | 4,745 | | | 43 | | | 20 | | | 4,768 | | | 4,774 | | | 33 | | | 25 | | | 4,782 | | |
Non-agency CMBS and RMBS(6) | 526 | | | 32 | | | 1 | | | 557 | | | 554 | | | 30 | | | 1 | | | 583 | | |
Student loans(2) | | Student loans(2) | 5,017 | | | 64 | | | 13 | | | 5,068 | | | 4,774 | | | 33 | | | 25 | | | 4,782 | |
| Non-agency CMBS and RMBS(8) | | Non-agency CMBS and RMBS(8) | 380 | | | 31 | | | — | | | 411 | | | 554 | | | 30 | | | 1 | | | 583 | |
| | Total asset-backed securities | | Total asset-backed securities | 5,397 | | | 95 | | | 13 | | | 5,479 | | | 5,328 | | | 63 | | | 26 | | | 5,365 | |
| | Total asset-backed securities | 5,271 | | | 75 | | | 21 | | | 5,325 | | | 5,328 | | | 63 | | | 26 | | | 5,365 | | |
| Non-U.S. debt securities: | | | | | | | | | | | | | | | | |
| Mortgage-backed securities | 286 | | | 70 | | | 3 | | | 353 | | | 303 | | | 68 | | | 4 | | | 367 | | |
| | Government securities | 246 | | | 0 | | | 0 | | | 246 | | | 342 | | | 0 | | | 0 | | | 342 | | |
| | Total non-U.S. debt securities | 532 | | | 70 | | | 3 | | | 599 | | | 645 | | | 68 | | | 4 | | | 709 | | |
| Total(5)(7) | 46,263 | | | 835 | | | 346 | | | 46,752 | | | 48,931 | | | 1,169 | | | 97 | | | 50,003 | | |
| HTM securities purchased under the MMLF program | 201 | | | 0 | | | 0 | | | 201 | | | 3,300 | | | 4 | | | 0 | | | 3,304 | | |
Total held-to-maturity securities(5) | $ | 46,464 | | | $ | 835 | | | $ | 346 | | | $ | 46,953 | | | $ | 52,231 | | | $ | 1,173 | | | $ | 97 | | | $ | 53,307 | | |
| Total(7)(9) | | Total(7)(9) | 43,348 | | | 707 | | | 327 | | | 43,728 | | | 48,931 | | | 1,169 | | | 97 | | | 50,003 | |
| Held-to-maturity under money market mutual fund liquidity facility | | Held-to-maturity under money market mutual fund liquidity facility | — | | | — | | | — | | | — | | | 3,300 | | | 4 | | | — | | | 3,304 | |
Total held-to-maturity securities(7) | | Total held-to-maturity securities(7) | $ | 43,348 | | | $ | 707 | | | $ | 327 | | | $ | 43,728 | | | $ | 52,231 | | | $ | 1,173 | | | $ | 97 | | | $ | 53,307 | |
(1) As of September 30, 2021 and December 31, 2020, the fair value includes non-U.S. corporate bonds of $1.76 billion and $1.88 billion, respectively, and non-U.S. collateralized loan obligations of $0.88 billion and $0.96 billion, respectively.
(2) Primarily comprised of securities guaranteed by the federal government with respect to at least 97% of defaulted principal and accrued interest on the underlying loans.
(2)(3) Excludes collateralized loan obligations in loan form. Refer to Note 4 for additional information.
(4) Consists entirely of non-agency CMBS as of both March 31,September 30, 2021 and December 31, 2020.
(3) As of March 31, 2021 and December 31, 2020, the fair value of other non-U.S. debt securities included $10.13 billion and $9.55 billion, respectively, primarily of supranational and non-U.S. agency bonds, $1.90 billion and $1.88 billion, respectively, of corporate bonds and $0.43 billion and $0.47 billion, respectively, of covered bonds.
(4)(5) As of both March 31,September 30, 2021 and December 31, 2020, the fair value of state and political subdivisions includes securities in trusts of $0.61 billion and $0.70 billion.billion, respectively. Additional information about these trusts is provided in Note 11.
(5)(6) As of September 30, 2021 and December 31, 2020, the fair value of U.S. corporate bonds was $2.98 billion and $3.44 billion, respectively.
(7) An immaterial amount of accrued interest related to HTM and AFS investment securities was excluded from the amortized cost basis for the period ended March 31,September 30, 2021.
(6)(8) As of March 31,September 30, 2021 and December 31, 2020, the total amortized cost included $446$315 million and $464 million, respectively, of non-agency CMBS and $80$65 million and $90 million of non-agency RMBS, respectively.
(7)(9) As of March 31,September 30, 2021, we recognized an allowance for credit losses of $2 million on HTM investment securities.
State Street Corporation | 5966
STATE STREET CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Aggregate investment securities with carrying values of approximately $71.70$77.85 billion and $70.57 billion as of March 31,September 30, 2021 and December 31, 2020, respectively, were designated as pledged for public and trust deposits, short-term borrowings and for other purposes as provided by law.
The following tables present the aggregate fair values of AFS investment securities that have been in a continuous unrealized loss position for less than 12 months, and those that have been in a continuous unrealized loss position for 12 months or longer, as of the dates indicated:
| | | As of March 31, 2021 | | As of September 30, 2021 |
| | Less than 12 months | | 12 months or longer | | Total | | Less than 12 months | | 12 months or longer | | Total |
| (In millions) | (In millions) | Fair
Value | | Gross
Unrealized
Losses | | Fair
Value | | Gross
Unrealized
Losses | | Fair
Value | | Gross
Unrealized
Losses | (In millions) | Fair
Value | | Gross
Unrealized
Losses | | Fair
Value | | Gross
Unrealized
Losses | | Fair
Value | | Gross
Unrealized
Losses |
| Available-for-sale: | Available-for-sale: | | | | | | | | | | | | Available-for-sale: | | | | | | | | | | | |
| U.S. Treasury and federal agencies: | U.S. Treasury and federal agencies: | | U.S. Treasury and federal agencies: | |
| Direct obligations | Direct obligations | $ | 5,438 | | | $ | 39 | | | $ | 0 | | | $ | 0 | | | $ | 5,438 | | | $ | 39 | | Direct obligations | $ | 11,538 | | | $ | 63 | | | $ | — | | | $ | — | | | $ | 11,538 | | | $ | 63 | |
| Mortgage-backed securities | Mortgage-backed securities | 3,753 | | | 82 | | | 11 | | | 0 | | | 3,764 | | | 82 | | Mortgage-backed securities | 3,847 | | | 41 | | | 162 | | | 2 | | | 4,009 | | | 43 | |
| Total U.S. Treasury and federal agencies | Total U.S. Treasury and federal agencies | 9,191 | | | 121 | | | 11 | | | 0 | | | 9,202 | | | 121 | | Total U.S. Treasury and federal agencies | 15,385 | | | 104 | | | 162 | | | 2 | | | 15,547 | | | 106 | |
| Non-U.S. debt securities: | | Non-U.S. debt securities: | | | | | | | | | | | |
| Mortgage-backed securities | | Mortgage-backed securities | 394 | | | 1 | | | 33 | | | — | | | 427 | | | 1 | |
| Asset-backed securities | | Asset-backed securities | 646 | | | 1 | | | 464 | | | 1 | | | 1,110 | | | 2 | |
| Non-U.S. sovereign, supranational and non-U.S. agency | | Non-U.S. sovereign, supranational and non-U.S. agency | 5,631 | | | 42 | | | 39 | | | 1 | | | 5,670 | | | 43 | |
| Other | | Other | 1,291 | | | 17 | | | 67 | | | — | | | 1,358 | | | 17 | |
| Total non-U.S. debt securities | | Total non-U.S. debt securities | 7,962 | | | 61 | | | 603 | | | 2 | | | 8,565 | | | 63 | |
| Asset-backed securities: | Asset-backed securities: | | | | | | | | | | | | Asset-backed securities: | | | | | | | | | | | |
| | Collateralized loan obligations | | Collateralized loan obligations | 2,516 | | | 1 | | | 62 | | | — | | | 2,578 | | | 1 | |
| | Total asset-backed securities | | Total asset-backed securities | 2,516 | | | 1 | | | 62 | | | — | | | 2,578 | | | 1 | |
| | Collateralized loan obligations | 985 | | | 0 | | | 234 | | | 1 | | | 1,219 | | | 1 | | |
| Total asset-backed securities | 985 | | | 0 | | | 234 | | | 1 | | | 1,219 | | | 1 | | |
| Non-U.S. debt securities: | | | | | | | | | | | | |
| | Asset-backed securities | 231 | | | 0 | | | 895 | | | 1 | | | 1,126 | | | 1 | | |
| Government securities | 1,570 | | | 1 | | | 0 | | | 0 | | | 1,570 | | | 1 | | |
| Other | 4,618 | | | 81 | | | 71 | | | 0 | | | 4,689 | | | 81 | | |
| Total non-U.S. debt securities | 6,419 | | | 82 | | | 966 | | | 1 | | | 7,385 | | | 83 | | |
| | State and political subdivisions | State and political subdivisions | 60 | | | 0 | | | 46 | | | 2 | | | 106 | | | 2 | | State and political subdivisions | 83 | | | — | | | 45 | | | 3 | | | 128 | | | 3 | |
| | Other U.S. debt securities | Other U.S. debt securities | 922 | | | 9 | | | 0 | | | 0 | | | 922 | | | 9 | | Other U.S. debt securities | 573 | | | 5 | | | — | | | — | | | 573 | | | 5 | |
| | Total | Total | $ | 17,577 | | | $ | 212 | | | $ | 1,257 | | | $ | 4 | | | $ | 18,834 | | | $ | 216 | | Total | $ | 26,519 | | | $ | 171 | | | $ | 872 | | | $ | 7 | | | $ | 27,391 | | | $ | 178 | |
|
| | | As of December 31, 2020 | | As of December 31, 2020 |
| | Less than 12 months | | 12 months or longer | | Total | | Less than 12 months | | 12 months or longer | | Total |
| (In millions) | (In millions) | Fair
Value | | Gross
Unrealized
Losses | | Fair
Value | | Gross
Unrealized
Losses | | Fair
Value | | Gross
Unrealized
Losses | (In millions) | Fair
Value | | Gross
Unrealized
Losses | | Fair
Value | | Gross
Unrealized
Losses | | Fair
Value | | Gross
Unrealized
Losses |
| Available-for-sale: | Available-for-sale: | | | | | | | | | | | | Available-for-sale: | | | | | | | | | | | |
| U.S. Treasury and federal agencies: | U.S. Treasury and federal agencies: | | U.S. Treasury and federal agencies: | |
| Direct obligations | Direct obligations | $ | 1,636 | | | $ | 1 | | | $ | 0 | | | $ | 0 | | | $ | 1,636 | | | $ | 1 | | Direct obligations | $ | 1,636 | | | $ | 1 | | | $ | — | | | $ | — | | | $ | 1,636 | | | $ | 1 | |
| Mortgage-backed securities | Mortgage-backed securities | 1,394 | | | 7 | | | 63 | | | 0 | | | 1,457 | | | 7 | | Mortgage-backed securities | 1,394 | | | 7 | | | 63 | | | — | | | 1,457 | | | 7 | |
| Total U.S. Treasury and federal agencies | Total U.S. Treasury and federal agencies | 3,030 | | | 8 | | | 63 | | | 0 | | | 3,093 | | | 8 | | Total U.S. Treasury and federal agencies | 3,030 | | | 8 | | | 63 | | | — | | | 3,093 | | | 8 | |
| Asset-backed securities: | Asset-backed securities: | | | | | | | | | | | | Asset-backed securities: | | | | | | | | | | | |
| Student loans | Student loans | 31 | | | 0 | | | 197 | | | 1 | | | 228 | | | 1 | | Student loans | 31 | | | — | | | 197 | | | 1 | | | 228 | | | 1 | |
| | Collateralized loan obligations | Collateralized loan obligations | 1,498 | | | 4 | | | 369 | | | 2 | | | 1,867 | | | 6 | | Collateralized loan obligations | 1,498 | | | 4 | | | 369 | | | 2 | | | 1,867 | | | 6 | |
| | Total asset-backed securities | Total asset-backed securities | 1,529 | | | 4 | | | 566 | | | 3 | | | 2,095 | | | 7 | | Total asset-backed securities | 1,529 | | | 4 | | | 566 | | | 3 | | | 2,095 | | | 7 | |
| Non-U.S. debt securities: | Non-U.S. debt securities: | | | | | | | | | | | | Non-U.S. debt securities: | | | | | | | | | | | |
| Mortgage-backed securities | Mortgage-backed securities | 600 | | | 1 | | | 120 | | | 1 | | | 720 | | | 2 | | Mortgage-backed securities | 600 | | | 1 | | | 120 | | | 1 | | | 720 | | | 2 | |
| Asset-backed securities | Asset-backed securities | 1,015 | | | 3 | | | 446 | | | 1 | | | 1,461 | | | 4 | | Asset-backed securities | 1,015 | | | 3 | | | 446 | | | 1 | | | 1,461 | | | 4 | |
| Government securities | 489 | | | 0 | | | 0 | | | 0 | | | 489 | | | 0 | | |
| Non-U.S. sovereign, supranational and non-U.S. agency | | Non-U.S. sovereign, supranational and non-U.S. agency | 489 | | | — | | | — | | | — | | | 489 | | | — | |
| Other | Other | 715 | | | 3 | | | 80 | | | 0 | | | 795 | | | 3 | | Other | 715 | | | 3 | | | 80 | | | — | | | 795 | | | 3 | |
| Total non-U.S. debt securities | Total non-U.S. debt securities | 2,819 | | | 7 | | | 646 | | | 2 | | | 3,465 | | | 9 | | Total non-U.S. debt securities | 2,819 | | | 7 | | | 646 | | | 2 | | | 3,465 | | | 9 | |
| State and political subdivisions | State and political subdivisions | 95 | | | 0 | | | 76 | | | 2 | | | 171 | | | 2 | | State and political subdivisions | 95 | | | — | | | 76 | | | 2 | | | 171 | | | 2 | |
| | Other U.S. debt securities | Other U.S. debt securities | 17 | | | 0 | | | 0 | | | 0 | | | 17 | | | 0 | | Other U.S. debt securities | 17 | | | — | | | — | | | — | | | 17 | | | — | |
| | Total | Total | $ | 7,490 | | | $ | 19 | | | $ | 1,351 | | | $ | 7 | | | $ | 8,841 | | | $ | 26 | | Total | $ | 7,490 | | | $ | 19 | | | $ | 1,351 | | | $ | 7 | | | $ | 8,841 | | | $ | 26 | |
|
State Street Corporation | 6067
STATE STREET CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The following table presents the amortized cost and the fair value of contractual maturities of debt investment securities as of March 31,September 30, 2021. The maturities of certain ABS, MBS and collateralized mortgage obligations are based on expected principal payments. Actual maturities may differ from these expected maturities since certain borrowers have the right to prepay obligations with or without prepayment penalties.
| | | As of March 31, 2021 | | As of September 30, 2021 |
| (In millions) | (In millions) | Under 1 Year | | 1 to 5 Years | | 6 to 10 Years | | Over 10 Years | | Total | (In millions) | Under 1 Year | | 1 to 5 Years | | 6 to 10 Years | | Over 10 Years | | Total |
| | Amortized Cost | | Fair Value | | Amortized Cost | | Fair Value | | Amortized Cost | | Fair Value | | Amortized Cost | | Fair Value | | Amortized Cost | | Fair Value | | Amortized Cost | | Fair Value | | Amortized Cost | | Fair Value | | Amortized Cost | | Fair Value | | Amortized Cost | | Fair Value | | Amortized Cost | | Fair Value |
| Available-for-sale: | Available-for-sale: | | | | | | | | | | | | | | | | | | | | Available-for-sale: | | | | | | | | | | | | | | | | | | | |
| U.S. Treasury and federal agencies: | U.S. Treasury and federal agencies: | | U.S. Treasury and federal agencies: | |
| Direct obligations | Direct obligations | $ | 3,211 | | | $ | 3,219 | | | $ | 3,524 | | | $ | 3,513 | | | $ | 2,213 | | | $ | 2,205 | | | $ | 0 | | | $ | 0 | | | $ | 8,948 | | | $ | 8,937 | | Direct obligations | $ | 2,112 | | | $ | 2,114 | | | $ | 11,214 | | | $ | 11,169 | | | $ | 1,046 | | | $ | 1,056 | | | $ | — | | | $ | — | | | $ | 14,372 | | | $ | 14,339 | |
| Mortgage-backed securities | Mortgage-backed securities | 109 | | | 114 | | | 795 | | | 808 | | | 3,808 | | | 3,830 | | | 9,469 | | | 9,673 | | | 14,181 | | | 14,425 | | Mortgage-backed securities | 83 | | | 87 | | | 845 | | | 855 | | | 6,227 | | | 6,248 | | | 8,896 | | | 9,033 | | | 16,051 | | | 16,223 | |
| Total U.S. Treasury and federal agencies | Total U.S. Treasury and federal agencies | 3,320 | | | 3,333 | | | 4,319 | | | 4,321 | | | 6,021 | | | 6,035 | | | 9,469 | | | 9,673 | | | 23,129 | | | 23,362 | | Total U.S. Treasury and federal agencies | 2,195 | | | 2,201 | | | 12,059 | | | 12,024 | | | 7,273 | | | 7,304 | | | 8,896 | | | 9,033 | | | 30,423 | | | 30,562 | |
| Non-U.S. debt securities: | | Non-U.S. debt securities: | |
| Mortgage-backed securities | | Mortgage-backed securities | 212 | | | 213 | | | 540 | | | 543 | | | 40 | | | 40 | | | 1,338 | | | 1,345 | | | 2,130 | | | 2,141 | |
| Asset-backed securities | | Asset-backed securities | 271 | | | 271 | | | 1,286 | | | 1,287 | | | 415 | | | 415 | | | 393 | | | 392 | | | 2,365 | | | 2,365 | |
| Non-U.S. sovereign, supranational and non-U.S. agency | | Non-U.S. sovereign, supranational and non-U.S. agency | 5,828 | | | 5,835 | | | 13,987 | | | 14,081 | | | 2,917 | | | 2,923 | | | 15 | | | 15 | | | 22,747 | | | 22,854 | |
| Other | | Other | 786 | | | 790 | | | 2,077 | | | 2,089 | | | 375 | | | 371 | | | 56 | | | 56 | | | 3,294 | | | 3,306 | |
| Total non-U.S. debt securities | | Total non-U.S. debt securities | 7,097 | | | 7,109 | | | 17,890 | | | 18,000 | | | 3,747 | | | 3,749 | | | 1,802 | | | 1,808 | | | 30,536 | | | 30,666 | |
| Asset-backed securities: | Asset-backed securities: | | | | | | | | | | | | | | | | | | | | Asset-backed securities: | | | | | | | | | | | | | | | | | | | |
| Student loans | Student loans | 123 | | | 127 | | | 54 | | | 53 | | | 0 | | | 0 | | | 106 | | | 108 | | | 283 | | | 288 | | Student loans | 129 | | | 131 | | | — | | | — | | | — | | | — | | | 99 | | | 100 | | | 228 | | | 231 | |
| Credit cards | 0 | | | 0 | | | 0 | | | 0 | | | 90 | | | 91 | | | 0 | | | 0 | | | 90 | | | 91 | | |
| | | Collateralized loan obligations | Collateralized loan obligations | 71 | | | 71 | | | 961 | | | 963 | | | 1,398 | | | 1,399 | | | 1,340 | | | 1,342 | | | 3,770 | | | 3,775 | | Collateralized loan obligations | 29 | | | 30 | | | 760 | | | 761 | | | 1,656 | | | 1,656 | | | 1,848 | | | 1,849 | | | 4,293 | | | 4,296 | |
| Non-agency CMBS and RMBS | Non-agency CMBS and RMBS | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 70 | | | 71 | | | 70 | | | 71 | | Non-agency CMBS and RMBS | — | | | — | | | — | | | — | | | — | | | — | | | 58 | | | 59 | | | 58 | | | 59 | |
| Other | | Other | — | | | — | | | — | | | — | | | 90 | | | 92 | | | — | | | — | | | 90 | | | 92 | |
| Total asset-backed securities | Total asset-backed securities | 194 | | | 198 | | | 1,015 | | | 1,016 | | | 1,488 | | | 1,490 | | | 1,516 | | | 1,521 | | | 4,213 | | | 4,225 | | Total asset-backed securities | 158 | | | 161 | | | 760 | | | 761 | | | 1,746 | | | 1,748 | | | 2,005 | | | 2,008 | | | 4,669 | | | 4,678 | |
| Non-U.S. debt securities: | | |
| Mortgage-backed securities | 276 | | | 277 | | | 576 | | | 578 | | | 49 | | | 50 | | | 1,120 | | | 1,127 | | | 2,021 | | | 2,032 | | |
| Asset-backed securities | 299 | | | 299 | | | 1,101 | | | 1,101 | | | 525 | | | 526 | | | 371 | | | 371 | | | 2,296 | | | 2,297 | | |
| Government securities | 2,526 | | | 2,527 | | | 6,736 | | | 6,866 | | | 453 | | | 458 | | | 58 | | | 59 | | | 9,773 | | | 9,910 | | |
| Other | 1,823 | | | 1,830 | | | 9,370 | | | 9,407 | | | 2,375 | | | 2,367 | | | 111 | | | 105 | | | 13,679 | | | 13,709 | | |
| Total non-U.S. debt securities | 4,924 | | | 4,933 | | | 17,783 | | | 17,952 | | | 3,402 | | | 3,401 | | | 1,660 | | | 1,662 | | | 27,769 | | | 27,948 | | |
| | State and political subdivisions | State and political subdivisions | 144 | | | 144 | | | 609 | | | 631 | | | 506 | | | 544 | | | 172 | | | 179 | | | 1,431 | | | 1,498 | | State and political subdivisions | 159 | | | 160 | | | 544 | | | 563 | | | 528 | | | 567 | | | 105 | | | 106 | | | 1,336 | | | 1,396 | |
| | Other U.S. debt securities | Other U.S. debt securities | 590 | | | 594 | | | 2,786 | | | 2,820 | | | 61 | | | 65 | | | 0 | | | 0 | | | 3,437 | | | 3,479 | | Other U.S. debt securities | 718 | | | 723 | | | 2,183 | | | 2,209 | | | 42 | | | 45 | | | — | | | — | | | 2,943 | | | 2,977 | |
| Total | Total | $ | 9,172 | | | $ | 9,202 | | | $ | 26,512 | | | $ | 26,740 | | | $ | 11,478 | | | $ | 11,535 | | | $ | 12,817 | | | $ | 13,035 | | | $ | 59,979 | | | $ | 60,512 | | Total | $ | 10,327 | | | $ | 10,354 | | | $ | 33,436 | | | $ | 33,557 | | | $ | 13,336 | | | $ | 13,413 | | | $ | 12,808 | | | $ | 12,955 | | | $ | 69,907 | | | $ | 70,279 | |
| Held-to-maturity: | Held-to-maturity: | | | | | | | | | | | | | | | | | | | | Held-to-maturity: | | | | | | | | | | | | | | | | | | | |
| U.S. Treasury and federal agencies: | U.S. Treasury and federal agencies: | | U.S. Treasury and federal agencies: | |
| Direct obligations | Direct obligations | $ | 4,405 | | | $ | 4,444 | | | $ | 1,104 | | | $ | 1,126 | | | $ | 1 | | | $ | 1 | | | $ | 20 | | | $ | 20 | | | $ | 5,530 | | | $ | 5,591 | | Direct obligations | $ | 2,387 | | | $ | 2,403 | | | $ | 304 | | | $ | 309 | | | $ | — | | | $ | — | | | $ | 18 | | | $ | 19 | | | $ | 2,709 | | | $ | 2,731 | |
| Mortgage-backed securities | Mortgage-backed securities | 220 | | | 228 | | | 350 | | | 357 | | | 5,104 | | | 5,031 | | | 29,256 | | | 29,621 | | | 34,930 | | | 35,237 | | Mortgage-backed securities | 171 | | | 177 | | | 285 | | | 290 | | | 4,528 | | | 4,509 | | | 28,541 | | | 28,765 | | | 33,525 | | | 33,741 | |
| Total U.S. Treasury and federal agencies | Total U.S. Treasury and federal agencies | 4,625 | | | 4,672 | | | 1,454 | | | 1,483 | | | 5,105 | | | 5,032 | | | 29,276 | | | 29,641 | | | 40,460 | | | 40,828 | | Total U.S. Treasury and federal agencies | 2,558 | | | 2,580 | | | 589 | | | 599 | | | 4,528 | | | 4,509 | | | 28,559 | | | 28,784 | | | 36,234 | | | 36,472 | |
| Asset-backed securities: | | | | | | | | | | | | | | | | | | | | |
| Student loans | 364 | | | 357 | | | 125 | | | 123 | | | 901 | | | 908 | | | 3,355 | | | 3,380 | | | 4,745 | | | 4,768 | | |
| Non-agency CMBS and RMBS | 135 | | | 147 | | | 253 | | | 255 | | | 2 | | | 2 | | | 136 | | | 153 | | | 526 | | | 557 | | |
| | Total asset-backed securities | 499 | | | 504 | | | 378 | | | 378 | | | 903 | | | 910 | | | 3,491 | | | 3,533 | | | 5,271 | | | 5,325 | | |
| | Non-U.S. debt securities: | Non-U.S. debt securities: | | | | | | | | | | | | | | | | | | | | Non-U.S. debt securities: | |
| Mortgage-backed securities | Mortgage-backed securities | 84 | | | 81 | | | 22 | | | 22 | | | 0 | | | 0 | | | 180 | | | 250 | | | 286 | | | 353 | | Mortgage-backed securities | 38 | | | 37 | | | 18 | | | 18 | | | — | | | — | | | 153 | | | 217 | | | 209 | | | 272 | |
| | Government securities | 246 | | | 246 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 246 | | | 246 | | |
| Non-U.S. sovereign, supranational and non-U.S. agency | | Non-U.S. sovereign, supranational and non-U.S. agency | 275 | | | 275 | | | 1,232 | | | 1,229 | | | 1 | | | 1 | | | — | | | — | | | 1,508 | | | 1,505 | |
| | Total non-U.S. debt securities | Total non-U.S. debt securities | 330 | | | 327 | | | 22 | | | 22 | | | 0 | | | 0 | | | 180 | | | 250 | | | 532 | | | 599 | | Total non-U.S. debt securities | 313 | | | 312 | | | 1,250 | | | 1,247 | | | 1 | | | 1 | | | 153 | | | 217 | | | 1,717 | | | 1,777 | |
| | Asset-backed securities: | | Asset-backed securities: | | | | | | | | | | | | | | | | | | | |
| Student loans | | Student loans | 349 | | | 343 | | | 110 | | | 109 | | | 1,071 | | | 1,088 | | | 3,487 | | | 3,528 | | | 5,017 | | | 5,068 | |
| | Non-agency CMBS and RMBS | | Non-agency CMBS and RMBS | 127 | | | 140 | | | 158 | | | 160 | | | 2 | | | 2 | | | 93 | | | 109 | | | 380 | | | 411 | |
| Total asset-backed securities | | Total asset-backed securities | 476 | | | 483 | | | 268 | | | 269 | | | 1,073 | | | 1,090 | | | 3,580 | | | 3,637 | | | 5,397 | | | 5,479 | |
| Total | Total | 5,454 | | | 5,503 | | | 1,854 | | | 1,883 | | | 6,008 | | | 5,942 | | | 32,947 | | | 33,424 | | | 46,263 | | | 46,752 | | Total | $ | 3,347 | | | $ | 3,375 | | | $ | 2,107 | | | $ | 2,115 | | | $ | 5,602 | | | $ | 5,600 | | | $ | 32,292 | | | $ | 32,638 | | | $ | 43,348 | | | $ | 43,728 | |
| Held-to-maturity under money market mutual fund liquidity facility | 201 | | | 201 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 201 | | | 201 | | |
| Total held-to-maturity securities | $ | 5,655 | | | $ | 5,704 | | | $ | 1,854 | | | $ | 1,883 | | | $ | 6,008 | | | $ | 5,942 | | | $ | 32,947 | | | $ | 33,424 | | | $ | 46,464 | | | $ | 46,953 | | |
|
State Street Corporation | 6168
STATE STREET CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Interest income related to debt securities is recognized in our consolidated statement of income using the effective interest method, or on a basis approximating a level rate of return over the contractual or estimated life of the security. The level rate of return considers any non-refundable fees or costs, as well as purchase premiums or discounts, adjusted as prepayments occur, resulting in amortization or accretion, accordingly.
Allowance for Credit Losses on Debt Securities and Impairment of AFS Securities
We conduct quarterly reviews of HTM and AFS securities on a collective (pool) basis when similar risk characteristics exist to determine whether an allowance for credit losses should be recognized. We review individual AFS securities periodically to assess if additional impairment is required. For additional information about the Current Expected Credit Loss methodology and the review of investment securities for expected credit losses or impairment, refer to pages 148 to 149 in Note 3 to the consolidated financial statements included under Item 8, Financial Statements and Supplementary Data, in our 2020 Form 10-K.
We monitor the credit quality of the HTM and AFS investment securities using a variety of methods, including both external and internal credit ratings. As of March 31,September 30, 2021, 99% of our HTM and AFS investment portfolio is publicly rated investment grade.
Our allowance for credit losses on our HTM securities is approximately $2 million as of March 31,September 30, 2021. In the firstthird quarter of 2021, we recorded a $1 million reserve releaseno provision for credit losses and 0no charge-offs on HTM securities. We have elected to not record an allowance on accrued interest for HTM and AFS securities. Accrued interest on these securities is reversed against interest income when payment on a security is delinquent for greater than 90 days from the date of payment.
After a review of the investment portfolio, taking into consideration then-current economic conditions, adverse situations that might affect our ability to fully collect principal and interest, the timing of future payments, the credit quality and performance of the collateral underlying MBS and ABS and other relevant factors, management considers the aggregate decline in fair value of the investment securities portfolio and the resulting gross pre-tax unrealized losses of $562$505 million related to 664722 securities as of March 31,September 30, 2021 to not be the result of any material changes in the credit characteristics of the securities.
Note 4. Loans and Allowance for Credit Losses
We segregate our loans into 2 segments: commercial and financial loans and commercial real estate loans. We further classify commercial and financial loans as fund finance loans, leveraged loans, overdrafts and other. These classifications reflect their risk characteristics, their initial measurement attributes and the methods we use to monitor and assess credit risk. For additional information on our loans, including our internal risk-rating system used to assess our risk of credit loss for each loan, refer to pages 149 to 154 in Note 4 to the consolidated financial statements included under Item 8, Financial Statements and Supplementary Data, in our 2020 Form 10-K.
The following table presents our recorded investment in loans, by segment, as of the dates indicated:
| | | | | | | | | | | | | |
| (In millions) | March 31, 2021 | | December 31, 2020 | | |
Domestic(1): | | | | | |
| Commercial and financial: | | | | | |
Fund Finance(2) | $ | 11,054 | | | 11,531 | | | |
| Leveraged loans | 3,103 | | | 2,923 | | | |
| Overdrafts | 4,507 | | | 1,894 | | | |
Other(3) | 1,963 | | | 2,688 | | | |
| Commercial real estate | 2,096 | | | 2,096 | | | |
| | | | | |
| Total domestic | 22,723 | | | 21,132 | | | |
Foreign(1): | | | | | |
| Commercial and financial: | | | | | |
Fund Finance(2) | 4,768 | | | 4,432 | | | |
| Leveraged loans | 1,109 | | | 1,242 | | | |
| Overdrafts | 2,956 | | | 1,088 | | | |
Other(3) | 29 | | | 31 | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| Total foreign | 8,862 | | | 6,793 | | | |
Total loans(2) | 31,585 | | | 27,925 | | | |
| Allowance for credit losses | (118) | | | (122) | | | |
| Loans, net of allowance | $ | 31,467 | | | $ | 27,803 | | | |
| | | | | | | | | | | | | |
| (In millions) | September 30, 2021 | | December 31, 2020 | | |
Domestic(1): | | | | | |
| Commercial and financial: | | | | | |
Fund Finance(2) | $ | 12,367 | | | $ | 11,531 | | | |
| Leveraged loans | 3,407 | | | 2,923 | | | |
| | | | | |
| Overdrafts | 2,352 | | | 1,894 | | | |
Other(3) | 2,140 | | | 2,688 | | | |
| Commercial real estate | 2,384 | | | 2,096 | | | |
| | | | | |
| Total domestic | 22,650 | | | 21,132 | | | |
Foreign(1): | | | | | |
| Commercial and financial: | | | | | |
Fund Finance(2) | 7,368 | | | 4,432 | | | |
| Leveraged loans | 1,317 | | | 1,242 | | | |
| | | | | |
| Overdrafts | 1,462 | | | 1,088 | | | |
Other(3) | — | | | 31 | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| Total foreign | 10,147 | | | 6,793 | | | |
Total loans(2) | 32,797 | | | 27,925 | | | |
| Allowance for credit losses | (95) | | | (122) | | | |
| Loans, net of allowance | $ | 32,702 | | | $ | 27,803 | | | |
(1) Domestic and foreign categorization is based on the borrower’s country of domicile.
(2) Fund finance loans include primarily $6,288$6,282 million loans to real money funds, $8,450$9,752 million private equity capital call finance loans, and $832$993 million loans to business development companies and $2,412 million collateralized loan obligations in loan form as of March 31,September 30, 2021, compared to $6,391 million loans to real money funds, $8,380 million private equity capital call finance loans and $821 million loans to business development companies as of December 31, 2020.
(3) Includes $1,110$1,532 million securities finance loans, $831$589 million loans to municipalities and $51$19 million other loans as of March 31,September 30, 2021 and $1,911 million securities finance loans, $754 million loans to municipalities and $54 million other loans as of December 31, 2020.
State Street Corporation | 69
STATE STREET CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The commercial and financial segment is composed of primarily fund finance loans, purchased leveraged loans, overdrafts and other loans. Fund finance loans are composed of revolving credit lines providing liquidity and leverage to mutual fund and private equity fund clients.clients, as well as collateralized loan obligations in loan form.
Certain loans are pledged as collateral for access to the Federal Reserve's discount window. As of March 31,September 30, 2021 and December 31, 2020, the loans
State Street Corporation | 62
STATE STREET CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
pledged as collateral totaled $8.63$9.00 billion and $8.07 billion, respectively.
As of March 31,September 30, 2021 and December 31, 2020, we had 0no loans on non-accrual status.
We purchased $832 million collateralized loan obligations in loan form, which were all rated AAA, in the third quarter of 2021.
We sold $42$84 million of leveraged loans in the firstthird quarter of 2021, of which $7$46 million remained unsettled and was held for sale as of March 31,September 30, 2021. Additionally, we have 1 loan for $15 million which has been classified as doubtful and is pending settlement.
In certain circumstances, we restructure troubled loans by granting concessions to borrowers experiencing financial difficulty. Once restructured, the loans are generally considered impaired until their maturity, regardless of whether the borrowers perform under the modified terms of the loans. There were 0no loans modified in troubled debt restructurings during the firstthird quarter of 2021.
Allowance for Credit Losses
We recognize an allowance for credit losses in accordance with ASC 326 for financial assets held at amortized cost and off-balance sheet commitments. The allowance for credit losses is reviewed on a regular basis, and any provision for credit losses is recorded to reflect the amount necessary to maintain the allowance for expected credit losses at a level which represents what management does not expect to recover due to expected credit losses. For additional discussion on the allowance for credit losses for investment securities, please refer to Note 3, to the consolidated financial statements in this Form 10-Q.
When the allowance is recorded, a provision for credit loss expense is recognized in net income. The allowance for credit losses for financial assets (excluding investment securities, as discussed in Note 3) represents the portion of the amortized cost basis, including accrued interest for financial assets held at amortized cost, which management does not expect to recover due to expected credit losses and is presented on the statement of condition as an offset to the amortized cost basis. The accrued interest balance is presented separately on the statement of
condition within accrued interest and fees receivable. The allowance for off-balance sheet commitments is presented within other liabilities.
The allowance for credit losses may be determined using various methods, including discounted cash flow methods, loss-rate methods, probability-of-default methods, and other quantitative or qualitative methods as determined by us. The method used to estimate expected credit losses may vary depending on the type of financial asset, our ability to predict the timing of cash flows, and the information available to us.
We measure expected credit losses of financial assets on a collective (pool) basis when similar risk characteristic exist. Each reporting period, we assess whether the assets in the pool continue to display similar risk characteristics.
For a financial asset that does not share risk characteristics with other assets, expected credit losses are measured as the difference between the discounted valueseparately using one or more of the expected future cash flows, utilizing the effective interest rate and the amortized cost basis of the asset.methods noted above. As of March 31,September 30, 2021, we had 9 loans for $212$232 million in the commercial and financial segment that no longer met the similar risk characteristics of their collective pool. We recorded an allowance for credit losses of $20$13 million as of March 31,September 30, 2021 on these loans.
Determining the appropriateness of the allowance is complex and requires judgment by management about the effect of matters that are inherently uncertain. In future periods, factors and forecasts then prevailing may result in significant changes in the allowance for credit losses in those future periods.
We estimate credit losses over the contractual life of the financial asset, while factoring in prepayment activity, where supported by data, over a three year reasonable and supportable forecast period. We utilize a baseline, upside and downside scenario which are applied based on a probability weighting, in order to better reflect management’s expectation of expected credit losses given existing market conditions and the changes in the economic environment. The multiple scenarios are based on a three year horizon (or less depending on contractual maturity) and then revert linearly over a two year period to a ten-year historical average thereafter. The contractual term excludes expected extensions, renewals and modifications, but includes prepayment assumptions where applicable.
As part of our allowance methodology, we establish qualitative reserves to address any risks inherent in our portfolio that are not addressed through our quantitative reserve assessment. These factors may relate to, among other things, legislation changes or new regulation, credit concentration, loan markets, scenario weighting and overall model
State Street Corporation | 70
STATE STREET CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
limitations. The qualitative adjustments are applied to our portfolio of financial instruments under the existing governance structure and are inherently judgmental.
For additional information on the allowance for credit losses, refer to pages 150 to 151 in Note 4 to the consolidated financial statements included under item 8, Financial Statements and Supplementary Data, in our 2020 Form 10-K.
State Street Corporation | 63
STATE STREET CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Credit Quality
Credit quality for financial assets held at amortized cost are continuously monitored by management and is reflected within the allowance for credit losses.
We use an internal risk-rating system to assess our risk of credit loss for each loan. This risk-rating process incorporates the use of risk-rating tools in conjunction with management judgment. Qualitative and quantitative inputs are captured in a systematic manner, and following a formal review and approval process, an internal credit rating based on our credit scale is assigned.
When computing allowance levels, credit loss assumptions are estimated using a model that categorizes asset pools based on loss history, delinquency status and other credit trends and risk characteristics, including current conditions and reasonable and supportable forecasts about the future. Determining the appropriateness of the allowance is complex and requires judgment by management about the effect of matters that are inherently uncertain. In future periods evaluations of the overall asset portfolio, in light of the factors and forecasts then prevailing, may result in significant changes in the allowance and credit loss expense in those future periods.
Credit quality is assessed and monitored by evaluating various attributes in order to enable the earliest possible detection of any concerns with the customer’s credit rating. The results of those evaluations are utilized in underwriting new loans and transactions with counterparties and in our process for estimation of expected credit losses.
In assessing the risk rating assigned to each individual loan, among the factors considered are the borrower's debt capacity, collateral coverage, payment history and delinquency experience,
financial flexibility and earnings strength, the expected amounts and source of repayment, the level and nature of contingencies, if any, and the industry
and geography in which the borrower operates. These factors are based on an evaluation of historical and current information, and involve subjective assessment and interpretation. Credit counterparties are evaluated and risk-rated on an individual basis at least annually. Management considers the ratings to be current as of March 31,September 30, 2021.
Our internal risk rating methodology assigns risk ratings to counterparties ranging from Investment Grade, Speculative, Special Mention, Substandard, Doubtful and Loss.
•Investment Grade.Grade: Counterparties with strong credit quality and low expected credit risk and probability of default. Approximately 82% of our loans were rated as investment grade as of March 31,September 30, 2021 with external credit ratings, or equivalent, of "BBB-" or better.
•Speculative.Speculative: Counterparties that have the ability to repay but face significant uncertainties, such as adverse business, financial circumstances that could affect credit risk or economic downturns. Loans to counterparties rated as speculative account for approximately 17% of our loans as of March 31,September 30, 2021, and are concentrated in leveraged loans. Approximately 86%88% of those leveraged loans have an external credit rating, or equivalent, of "BB" or "B" as of March 31,September 30, 2021.
•Special Mention.Mention: Counterparties with potential weaknesses that, if uncorrected, may result in deterioration of repayment prospects.
•Substandard.Substandard: Counterparties with well-defined weakness that jeopardizes repayment with the possibility we will sustain some loss.
•Doubtful.Doubtful: Counterparties with well-defined weakness which make collection or liquidation in full highly questionable and improbable.
•Loss.Loss: Counterparties which are uncollectible or have little value.
State Street Corporation | 6471
STATE STREET CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The following tables present our recorded loans to counterparties by risk rating, as noted above, as of the dates indicated:
| | March 31, 2021 | Commercial and Financial | | Commercial Real Estate | | Total Loans | |
| September 30, 2021 | | September 30, 2021 | Commercial and Financial | | Commercial Real Estate | | Total Loans |
| (In millions) | (In millions) | Commercial and Financial | | Commercial Real Estate | | Total Loans | (In millions) |
| Investment grade | Investment grade | Investment grade | $ | 24,936 | | | $ | 1,963 | | | $ | 26,899 | |
| Speculative | Speculative | 5,088 | | | 421 | | | 5,509 | | Speculative | 5,180 | | | 383 | | | 5,563 | |
| Special mention | Special mention | 111 | | | 0 | | | 111 | | Special mention | 118 | | | 38 | | | 156 | |
| Substandard | Substandard | 127 | | | 0 | | | 127 | | Substandard | 164 | | | — | | | 164 | |
| Doubtful | Doubtful | 16 | | | 0 | | | 16 | | Doubtful | 15 | | | — | | | 15 | |
| Total(1) | Total(1) | $ | 29,489 | | | $ | 2,096 | | | $ | 31,585 | | Total(1) | $ | 30,413 | | | $ | 2,384 | | | $ | 32,797 | |
| | December 31, 2020 | December 31, 2020 | Commercial and Financial | | Commercial Real Estate | | Total Loans | December 31, 2020 | Commercial and Financial | | Commercial Real Estate | | Total Loans |
| (In millions) | (In millions) | (In millions) |
| Investment grade | Investment grade | $ | 20,859 | | | $ | 1,724 | | | $ | 22,583 | | Investment grade | $ | 20,859 | | | $ | 1,724 | | | $ | 22,583 | |
| Speculative | Speculative | 4,852 | | | 372 | | | 5,224 | | Speculative | 4,852 | | | 372 | | | 5,224 | |
| Special mention | Special mention | 67 | | | 0 | | | 67 | | Special mention | 67 | | | — | | | 67 | |
| Substandard | Substandard | 34 | | | 0 | | | 34 | | Substandard | 34 | | | — | | | 34 | |
| Doubtful | Doubtful | 17 | | | 0 | | | 17 | | Doubtful | 17 | | | — | | | 17 | |
Total(1) | Total(1) | $ | 25,829 | | | $ | 2,096 | | | $ | 27,925 | | Total(1) | $ | 25,829 | | | $ | 2,096 | | | $ | 27,925 | |
(1) Loans Include $7,463$3,814 million and $2,982 million of overdrafts as of March 31,September 30, 2021 and December 31, 2020 respectively. Overdrafts are short-term in nature and do not present a significant credit risk to us.
For additional information about credit quality, refer to pages 151 to 154 in Note 4 to the consolidated financial statements included under Item 8, Financial Statements and Supplementary Data, in our 2020 Form 10-K.
The following table presents the amortized cost basis, by year of origination and credit quality indicator, as of March 31,September 30, 2021. For origination years before the fifth annual period, we present the aggregate amortized cost basis of loans. For purchased loans, the date of issuance is used to determine the year of origination, not the date of acquisition. For modified, extended or renewed lending arrangements, we evaluate whether a credit event has occurred which would consider the loan to be a new arrangement.
| | (In millions) | (In millions) | 2021 | | 2020 | | 2019 | | 2018 | | 2017 | | | Prior | | Revolving Loans | | Total(1) | (In millions) | 2021 | | 2020 | | 2019 | | 2018 | | 2017 | | | Prior | | Revolving Loans | | Total(1) |
| Domestic loans: | Domestic loans: | | | | | | | | | | | | | | | | | Domestic loans: | | | | | | | | | | | | | | | | |
| Commercial and financial: | Commercial and financial: | | | | Commercial and financial: | | | |
| Risk Rating: | Risk Rating: | | | | Risk Rating: | | | |
| Investment grade | Investment grade | $ | 4,563 | | | $ | 58 | | | $ | 385 | | | $ | 4 | | | $ | 162 | | | | $ | 200 | | | $ | 11,767 | | | $ | 17,139 | | Investment grade | $ | 2,696 | | | $ | 14 | | | $ | 376 | | | $ | 2 | | | $ | 135 | | | | $ | — | | | $ | 13,120 | | | $ | 16,343 | |
| Speculative | Speculative | 346 | | | 438 | | | 822 | | | 721 | | | 556 | | | | 42 | | | 349 | | | 3,274 | | Speculative | 974 | | | 473 | | | 719 | | | 519 | | | 455 | | | | 67 | | | 457 | | | 3,664 | |
| Special mention | Special mention | 0 | | | 0 | | | 48 | | | 29 | | | 34 | | | | 0 | | | 0 | | | 111 | | Special mention | — | | | — | | | 70 | | | 29 | | | 19 | | | | — | | | — | | | 118 | |
| Substandard | Substandard | 0 | | | 0 | | | 48 | | | 26 | | | 0 | | | | 29 | | | 0 | | | 103 | | Substandard | — | | | 5 | | | 71 | | | 56 | | | 9 | | | | — | | | — | | | 141 | |
| | Total commercial and financing | Total commercial and financing | $ | 4,909 | | | $ | 496 | | | $ | 1,303 | | | $ | 780 | | | $ | 752 | | | | $ | 271 | | | $ | 12,116 | | | $ | 20,627 | | Total commercial and financing | $ | 3,670 | | | $ | 492 | | | $ | 1,236 | | | $ | 606 | | | $ | 618 | | | | $ | 67 | | | $ | 13,577 | | | $ | 20,266 | |
| | Commercial real estate: | Commercial real estate: | | | | Commercial real estate: | | | | | | | | | | | | | | | | |
| Risk Rating: | Risk Rating: | | | | Risk Rating: | | | |
| Investment grade | Investment grade | $ | 0 | | | $ | 129 | | | $ | 383 | | | $ | 689 | | | $ | 277 | | | | $ | 197 | | | $ | 0 | | | $ | 1,675 | | Investment grade | $ | 321 | | | $ | 129 | | | $ | 383 | | | 657 | | | $ | 276 | | | | $ | 197 | | | $ | — | | | $ | 1,963 | |
| Speculative | Speculative | 120 | | | 49 | | | 166 | | | 57 | | | 0 | | | | 29 | | | 0 | | | $ | 421 | | Speculative | 120 | | | 49 | | | 166 | | | 20 | | | — | | | | 28 | | | — | | | 383 | |
| | Special mention | | Special mention | — | | | — | | | — | | | 38 | | | — | | | | — | | | — | | | 38 | |
| | Total commercial real estate | Total commercial real estate | $ | 120 | | | $ | 178 | | | $ | 549 | | | $ | 746 | | | $ | 277 | | | | $ | 226 | | | $ | 0 | | | $ | 2,096 | | Total commercial real estate | $ | 441 | | | $ | 178 | | | $ | 549 | | | $ | 715 | | | $ | 276 | | | | $ | 225 | | | $ | — | | | $ | 2,384 | |
| | Non-U.S. loans: | Non-U.S. loans: | | | | Non-U.S. loans: | | | | | | | | | | | | | | | | |
| Commercial and financial: | Commercial and financial: | | | | Commercial and financial: | | | |
| Risk Rating: | Risk Rating: | | | | Risk Rating: | | | |
| Investment grade | Investment grade | $ | 2,275 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | | $ | 0 | | | $ | 4,733 | | | $ | 7,008 | | Investment grade | $ | 3,655 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | | $ | — | | | $ | 4,938 | | | $ | 8,593 | |
| Speculative | Speculative | 730 | | | 176 | | | 348 | | | 256 | | | 177 | | | | 63 | | | 64 | | | 1,814 | | Speculative | 433 | | | 197 | | | 294 | | | 254 | | | 146 | | | | 31 | | | 161 | | | 1,516 | |
| | Substandard | Substandard | 0 | | | 0 | | | 0 | | | 24 | | | 0 | | | | 0 | | | 0 | | | 24 | | Substandard | — | | | — | | | — | | | 23 | | | — | | | | — | | | — | | | 23 | |
| Doubtful | Doubtful | 0 | | | 0 | | | 0 | | | 0 | | | 16 | | | | 0 | | | 0 | | | 16 | | Doubtful | — | | | — | | | — | | | — | | | 15 | | | | — | | | — | | | 15 | |
| | Total commercial and financing | Total commercial and financing | $ | 3,005 | | | $ | 176 | | | $ | 348 | | | $ | 280 | | | $ | 193 | | | | $ | 63 | | | $ | 4,797 | | | $ | 8,862 | | Total commercial and financing | $ | 4,088 | | | $ | 197 | | | $ | 294 | | | $ | 277 | | | $ | 161 | | | | $ | 31 | | | $ | 5,099 | | | $ | 10,147 | |
| | | Total loans | Total loans | $ | 8,034 | | | $ | 850 | | | $ | 2,200 | | | $ | 1,806 | | | $ | 1,222 | | | | $ | 560 | | | $ | 16,913 | | | $ | 31,585 | | Total loans | $ | 8,199 | | | $ | 867 | | | $ | 2,079 | | | $ | 1,598 | | | $ | 1,055 | | | | $ | 323 | | | $ | 18,676 | | | $ | 32,797 | |
|
(1) Any reserve associated with accrued interest is not material. As of March 31,September 30, 2021, accrued interest receivable of $105$82 million included in the amortized cost basis of loans has been excluded from the amortized cost basis within this table.
State Street Corporation | 6572
STATE STREET CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The following table presents the amortized cost basis, by year of origination and credit quality indicator as of December 31, 2020:
| | (In millions) | (In millions) | 2020 | | 2019 | | 2018 | | 2017 | | 2016 | | | Prior | | Revolving Loans | | Total(1) | (In millions) | 2020 | | 2019 | | 2018 | | 2017 | | 2016 | | | Prior | | Revolving Loans | | Total(1) |
| Domestic loans: | Domestic loans: | | | | | | | | | | | | | | | | | Domestic loans: | | | | | | | | | | | | | | | | |
| Commercial and financial: | Commercial and financial: | | | | Commercial and financial: | | | |
| Risk Rating: | Risk Rating: | | | | Risk Rating: | | | |
| Investment grade | Investment grade | $ | 1,894 | | | $ | 388 | | | $ | 4 | | | $ | 167 | | | $ | 200 | | | | $ | 0 | | | $ | 12,836 | | | $ | 15,489 | | Investment grade | $ | 1,894 | | | $ | 388 | | | $ | 4 | | | $ | 167 | | | $ | 200 | | | | $ | — | | | $ | 12,836 | | | $ | 15,489 | |
| Speculative | Speculative | 432 | | | 942 | | | 822 | | | 610 | | | 43 | | | | 0 | | | 597 | | | 3,446 | | Speculative | 432 | | | 942 | | | 822 | | | 610 | | | 43 | | | | — | | | 597 | | | 3,446 | |
| Special mention | Special mention | 0 | | | 28 | | | 0 | | | 39 | | | 0 | | | | 0 | | | 0 | | | 67 | | Special mention | — | | | 28 | | | — | | | 39 | | | — | | | | — | | | — | | | 67 | |
| Substandard | Substandard | 0 | | | 5 | | | 0 | | | 0 | | | 29 | | | | 0 | | | 0 | | | 34 | | Substandard | — | | | 5 | | | — | | | — | | | 29 | | | | — | | | — | | | 34 | |
| | Total commercial and financing | Total commercial and financing | $ | 2,326 | | | $ | 1,363 | | | $ | 826 | | | $ | 816 | | | $ | 272 | | | | $ | 0 | | | $ | 13,433 | | | $ | 19,036 | | Total commercial and financing | $ | 2,326 | | | $ | 1,363 | | | $ | 826 | | | $ | 816 | | | $ | 272 | | | | $ | — | | | $ | 13,433 | | | $ | 19,036 | |
| | Commercial real estate: | Commercial real estate: | | | | Commercial real estate: | | | | | | | | | | | | | | | | |
| Risk Rating: | Risk Rating: | | | | Risk Rating: | | | |
| Investment grade | Investment grade | $ | 178 | | | $ | 383 | | | $ | 688 | | | $ | 277 | | | $ | 197 | | | | $ | 0 | | | $ | 0 | | | $ | 1,723 | | Investment grade | $ | 178 | | | $ | 383 | | | $ | 688 | | | $ | 277 | | | $ | 197 | | | | $ | — | | | $ | — | | | $ | 1,723 | |
| Speculative | Speculative | 120 | | | 166 | | | 58 | | | 0 | | | 0 | | | | 29 | | | 0 | | | $ | 373 | | Speculative | 120 | | | 166 | | | 58 | | | — | | | — | | | | 29 | | | — | | | 373 | |
| | Total commercial real estate | Total commercial real estate | $ | 298 | | | $ | 549 | | | $ | 746 | | | $ | 277 | | | $ | 197 | | | | $ | 29 | | | $ | 0 | | | $ | 2,096 | | Total commercial real estate | $ | 298 | | | $ | 549 | | | $ | 746 | | | $ | 277 | | | $ | 197 | | | | $ | 29 | | | $ | — | | | $ | 2,096 | |
| | Non-U.S. loans: | Non-U.S. loans: | | | | Non-U.S. loans: | | | | | | | | | | | | | | | | |
| Commercial and financial: | Commercial and financial: | | | | Commercial and financial: | | | |
| Risk Rating: | Risk Rating: | | | | Risk Rating: | | | |
| Investment grade | Investment grade | $ | 1,028 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | | $ | 0 | | | $ | 4,343 | | | $ | 5,371 | | Investment grade | $ | 1,028 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | | $ | — | | | $ | 4,343 | | | $ | 5,371 | |
| Speculative | Speculative | 283 | | | 401 | | | 346 | | | 162 | | | 26 | | | | 66 | | | 121 | | | 1,405 | | Speculative | 283 | | | 401 | | | 346 | | | 162 | | | 26 | | | | 66 | | | 121 | | | 1,405 | |
| | Doubtful | Doubtful | 0 | | | 0 | | | 0 | | | 17 | | | 0 | | | | 0 | | | 0 | | | 17 | | Doubtful | — | | | — | | | — | | | 17 | | | — | | | | — | | | — | | | 17 | |
| | Total commercial and financing | Total commercial and financing | $ | 1,311 | | | $ | 401 | | | $ | 346 | | | $ | 179 | | | $ | 26 | | | | $ | 66 | | | $ | 4,464 | | | $ | 6,793 | | Total commercial and financing | $ | 1,311 | | | $ | 401 | | | $ | 346 | | | $ | 179 | | | $ | 26 | | | | $ | 66 | | | $ | 4,464 | | | $ | 6,793 | |
| | | Total loans | Total loans | $ | 3,935 | | | $ | 2,313 | | | $ | 1,918 | | | $ | 1,272 | | | $ | 495 | | | | $ | 95 | | | $ | 17,897 | | | $ | 27,925 | | Total loans | $ | 3,935 | | | $ | 2,313 | | | $ | 1,918 | | | $ | 1,272 | | | $ | 495 | | | | $ | 95 | | | $ | 17,897 | | | $ | 27,925 | |
|
(1) Any reserve associated with accrued interest is not material. As of December 31, 2020, accrued interest receivable of $72 million included in the amortized cost basis of loans has been excluded from the amortized cost basis within this table.
The following table presentstables present the activity in the allowance for credit losses by portfolio and class for the periods indicated:
| | | Three Months Ended March 31, 2021 | | Three Months Ended September 30, 2021 |
| | Commercial and Financial | | | | | Commercial and Financial | | | |
| (In millions) | (In millions) | Leveraged Loans | | Other Loans(1) | | Commercial Real Estate | | Held-to-Maturity Securities | | Off-Balance Sheet Commitments | | All Other | | Total | (In millions) | Leveraged Loans | | Other Loans(1) | | Commercial Real Estate | | Held-to-Maturity Securities | | Off-Balance Sheet Commitments | | All Other | | Total |
| Allowance for credit losses: | Allowance for credit losses: | | | | | | | | | | | | | | Allowance for credit losses: | | | | | | | | | | | | | |
| Beginning balance | Beginning balance | $ | 97 | | | $ | 17 | | | $ | 8 | | | $ | 3 | | | $ | 22 | | | $ | 1 | | | $ | 148 | | Beginning balance | $ | 74 | | | $ | 12 | | | $ | 14 | | | $ | 2 | | | $ | 19 | | | $ | — | | | $ | 121 | |
| Charge-offs | Charge-offs | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | Charge-offs | (1) | | | — | | | — | | | — | | | — | | | — | | | (1) | |
| Provision | Provision | (1) | | | (5) | | | 6 | | | (1) | | | (7) | | | (1) | | | (9) | | Provision | (4) | | | — | | | 1 | | | — | | | 1 | | | — | | | (2) | |
| | Currency translation | (4) | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | (4) | | |
Other(2) | | Other(2) | (1) | | | — | | | — | | | — | | | — | | | — | | | (1) | |
| | Ending balance | Ending balance | $ | 92 | | | $ | 12 | | | $ | 14 | | | $ | 2 | | | $ | 15 | | | $ | 0 | | | $ | 135 | | Ending balance | $ | 68 | | | $ | 12 | | | $ | 15 | | | $ | 2 | | | $ | 20 | | | $ | — | | | $ | 117 | |
(1) Includes $10$11 million allowance for credit losses on Fund Finance loans and $2$1 million on other loans.
.(2) The amount includes primarily foreign currency translation.
| | | Three Months Ended March 31, 2020 | | Nine Months Ended September 30, 2021 |
| | Commercial and Financial | | | | | Commercial and Financial | | | |
| (In millions) | (In millions) | Leveraged Loans | | Other Loans | | Commercial Real Estate | | Held-to-Maturity Securities | | Off-Balance Sheet Commitments | | All Other | | Total | (In millions) | Leveraged Loans | | Other Loans(1) | | Commercial Real Estate | | Held-to-Maturity Securities | | Off-Balance Sheet Commitments | | All Other | | Total |
| Allowance for credit losses: | Allowance for credit losses: | | | | | | | | | | | | | | Allowance for credit losses: | | | | | | | | | | | | | |
| Beginning balance | Beginning balance | $ | 61 | | | $ | 10 | | | $ | 2 | | | $ | 0 | | | $ | 19 | | | $ | 1 | | | $ | 93 | | Beginning balance | $ | 97 | | | $ | 17 | | | $ | 8 | | | $ | 3 | | | $ | 22 | | | $ | 1 | | | $ | 148 | |
| Charge-offs | Charge-offs | (5) | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | (5) | | Charge-offs | (2) | | | — | | | — | | | — | | | — | | | — | | | (2) | |
| Provision | Provision | 27 | | | 0 | | | 2 | | | 4 | | | 3 | | | 0 | | | 36 | | Provision | (24) | | | (5) | | | 7 | | | (1) | | | (2) | | | (1) | | | (26) | |
| Other(2) | | Other(2) | (3) | | | — | | | — | | | — | | | — | | | — | | | (3) | |
| | Ending balance | Ending balance | $ | 83 | | | $ | 10 | | | $ | 4 | | | $ | 4 | | | $ | 22 | | | $ | 1 | | | $ | 124 | | Ending balance | $ | 68 | | | $ | 12 | | | $ | 15 | | | $ | 2 | | | $ | 20 | | | $ | — | | | $ | 117 | |
(1) Includes $11 million allowance for credit losses on Fund Finance loans and $1 million on other loans.
(2) The amount includes primarily foreign currency translation.State Street Corporation | 6673
STATE STREET CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, 2020 |
| Commercial and Financial | | | | | | | | | |
| (In millions) | Leveraged Loans | | Other Loans(1) | | Commercial Real Estate | | Held-to-Maturity Securities | | Off-Balance Sheet Commitments | | All Other | | Total |
| Allowance for credit losses: | | | | | | | | | | | | | |
| Beginning balance | $ | 113 | | | $ | 20 | | | $ | 8 | | | $ | 3 | | | $ | 18 | | | $ | 1 | | | $ | 163 | |
Charge-offs(2) | (14) | | | — | | | — | | | — | | | — | | | — | | | (14) | |
| Provision | 3 | | | — | | | — | | | — | | | (3) | | | — | | | — | |
| | | | | | | | | | | | | |
| Foreign currency translation | 4 | | | — | | | — | | | — | | | — | | | — | | | 4 | |
| | | | | | | | | | | | | |
| Ending balance | $ | 106 | | | $ | 20 | | | $ | 8 | | | $ | 3 | | | $ | 15 | | | $ | 1 | | | $ | 153 | |
| | | | | | | | | | | | | |
(1) Includes $15 million allowance for credit losses on Fund Finance loans and $5 million on other loans. |
(2) Related to the sale of leveraged loans in the third quarter of 2020. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, 2020 |
| Commercial and Financial | | | | | | | | | |
| (In millions) | Leveraged Loans | | Other Loans | | Commercial Real Estate | | Held-to-Maturity Securities | | Off-Balance Sheet Commitments | | All Other | | Total |
| Allowance for credit losses: | | | | | | | | | | | | | |
| Beginning balance | $ | 61 | | | $ | 10 | | | $ | 2 | | | $ | — | | | $ | 19 | | | $ | 1 | | | $ | 93 | |
Charge-offs(1) | (33) | | | — | | | — | | | — | | | — | | | — | | | (33) | |
| Provision | 73 | | | 10 | | | 6 | | | 3 | | | (4) | | | — | | | 88 | |
| | | | | | | | | | | | | |
| Foreign currency translation | 5 | | | — | | | — | | | — | | | — | | | — | | | 5 | |
| | | | | | | | | | | | | |
| Ending balance | $ | 106 | | | $ | 20 | | | $ | 8 | | | $ | 3 | | | $ | 15 | | | $ | 1 | | | $ | 153 | |
| | | | | | | | | | | | | |
(1) Primarily related to the sale of leveraged loans in the third and third quarters of 2020. |
Loans are reviewed on a regular basis, and any provisions for credit losses that are recorded reflect management's estimate of the amount necessary to maintain the allowance for loan losses at a level considered appropriate to absorb estimated credit losses in the loan portfolio. WeIn the third quarter of 2021, we reduced the allowance for credit losses by $13$4 million, principally through a $9$2 million reserve release in the provision for credit losses, in the first quarter of 2021, versus an increasecompared to a decrease in the allowance for credit losses of $31$10 million principally through a $36 million provision for credit losses, in the firstthird quarter of 2020. The reduction in the allowance reflects a shiftimprovements in management’scredit quality and stable economic outlook toward economic expansion and limited negative credit migration within our loan portfolio.outlook. Allowance estimates remain subject to continued model and economic uncertainty and management may use qualitative adjustments in the allowance estimates. If future data and forecasts deviate relative to the forecasts utilized to determine our allowance for credit losses as of March 31,September 30, 2021, or if credit risk migration is higher or lower than forecasted for reasons independent of the economic forecast, our allowance for credit losses will also change.
Note 5. Goodwill and Other Intangible Assets
The following table presents changes in the carrying amount of goodwill during the periods indicated:
| | (In millions) | (In millions) | Investment Servicing(1) | | Investment
Management | | Total | (In millions) | Investment Servicing(1) | | Investment
Management | | Total |
| Goodwill: | Goodwill: | | | | | | Goodwill: | | | | | |
| | Ending balance December 31, 2019 | Ending balance December 31, 2019 | $ | 7,289 | | | $ | 267 | | | $ | 7,556 | | Ending balance December 31, 2019 | $ | 7,289 | | | $ | 267 | | | $ | 7,556 | |
| | Foreign currency translation | Foreign currency translation | 124 | | | 3 | | | 127 | | Foreign currency translation | 124 | | | 3 | | | 127 | |
| Ending balance December 31, 2020 | Ending balance December 31, 2020 | 7,413 | | | 270 | | | 7,683 | | Ending balance December 31, 2020 | 7,413 | | | 270 | | | 7,683 | |
Acquisitions(2) | Acquisitions(2) | 3 | | | 0 | | | 3 | | Acquisitions(2) | 66 | | | — | | | 66 | |
Divestitures(3) | | Divestitures(3) | (17) | | | — | | | (17) | |
| Foreign currency translation | Foreign currency translation | (56) | | | (1) | | | (57) | | Foreign currency translation | (80) | | | (2) | | | (82) | |
| Ending balance March 31, 2021 | $ | 7,360 | | | $ | 269 | | | $ | 7,629 | | |
| Ending balance September 30, 2021 | | Ending balance September 30, 2021 | $ | 7,382 | | | $ | 268 | | | $ | 7,650 | |
(1) Investment Servicing includes our acquisition of CRD.
(2) On March 31, 2021, Investment Servicing includes our acquisitionacquisitions of the depositary bank and fund administrator activities of Fideuram Bank Luxembourg, a subsidiary of Intesa Sanpaolo, in the first quarter of 2021, with a total purchase price of approximately EUR 220 million or approximately $258 million, and our acquisition of Mercatus, Inc.in the third quarter of 2021, with a total purchase price of approximately $88 million. We accounted for this acquisition of a going concernthese acquisitions as a business combinationcombinations and, in accordance with ASC Topic 805, Business Combinations, we have recorded assets acquired and liabilities assumed at their respective fair values as of the acquisition date. The purchase price accounting reflected is provisional and is based upon estimates and assumptions that are subject to change within the measurement period (up to one year from the acquisition date pursuant to ASC 805). The measurement period remains open for both transactions pending the completion of valuation procedures related to the acquired assets and assumed liabilities, primarily the identifiable intangible assets.
(3) In the second quarter of 2021, we sold a majority share of our WMS business.
State Street Corporation | 74
STATE STREET CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The following table presents changes in the net carrying amount of other intangible assets during the periods indicated:
| | (In millions) | (In millions) | Investment Servicing(1) | | Investment
Management | | Total | (In millions) | Investment Servicing(1) | | Investment
Management | | Total |
| Other intangible assets: | Other intangible assets: | | | | | | Other intangible assets: | | | | | |
| Ending balance December 31, 2019 | Ending balance December 31, 2019 | $ | 1,908 | | | $ | 122 | | | $ | 2,030 | | Ending balance December 31, 2019 | $ | 1,908 | | | $ | 122 | | | $ | 2,030 | |
| | Amortization | Amortization | (206) | | | (28) | | | (234) | | Amortization | (206) | | | (28) | | | (234) | |
| Foreign currency translation | Foreign currency translation | 31 | | | 0 | | | 31 | | Foreign currency translation | 31 | | | — | | | 31 | |
| Ending balance December 31, 2020 | Ending balance December 31, 2020 | 1,733 | | | 94 | | | 1,827 | | Ending balance December 31, 2020 | 1,733 | | | 94 | | | 1,827 | |
Acquisitions(2) | Acquisitions(2) | 253 | | | 0 | | | 253 | | Acquisitions(2) | 263 | | | — | | | 263 | |
| Amortization | Amortization | (52) | | | (6) | | | (58) | | Amortization | (165) | | | (18) | | | (183) | |
| Foreign currency translation | Foreign currency translation | (15) | | | 0 | | | (15) | | Foreign currency translation | (20) | | | — | | | (20) | |
| Ending balance March 31, 2021 | $ | 1,919 | | | $ | 88 | | | $ | 2,007 | | |
| Ending balance September 30, 2021 | | Ending balance September 30, 2021 | $ | 1,811 | | | $ | 76 | | | $ | 1,887 | |
(1) Investment Servicing includes our acquisition of CRD.
(2) On March 31, 2021, Investment Servicing includes our acquisitionacquisitions of the depositary bank and fund administrator activities of Fideuram Bank Luxembourg, a subsidiary of Intesa Sanpaolo, forin the first quarter of 2021, with a total purchase price of approximately EUR 220 million or approximately $258 million, and our acquisition of Mercatus, Inc. in the third quarter of 2021, with a total purchase price of approximately $88 million. We accounted for this acquisition of a going concernthese acquisitions as a business combinationcombinations and, in accordance with ASC Topic 805, Business Combinations, we have recorded assets acquired and liabilities assumed at their respective fair values as of the acquisition date. The purchase price accounting reflected is provisional and is based upon estimates and assumptions that are subject to change within the measurement period (up to one year from the acquisition date pursuant to ASC 805). The measurement period remains open for both transactions pending the completion of valuation procedures related to the acquired assets and assumed liabilities, primarily the identifiable intangible assets.
The following table presents the gross carrying amount, accumulated amortization and net carrying amount of other intangible assets by type as of the dates indicated:
| | | | | | | | | | | | | | | | | |
| March 31, 2021 | Gross
Carrying
Amount | | Accumulated
Amortization | | Net
Carrying
Amount |
| (In millions) | | |
| Other intangible assets: | | | | | |
| Client relationships | $ | 2,827 | | | $ | (1,387) | | | $ | 1,440 | |
| Technology | 386 | | | (115) | | | 271 | |
| Core deposits | 699 | | | (429) | | | 270 | |
| Other | 104 | | | (78) | | | 26 | |
| Total | $ | 4,016 | | | $ | (2,009) | | | $ | 2,007 | |
| | | | | |
| December 31, 2020 | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount |
| (In millions) | | |
| Other intangible assets: | | | | | |
| Client relationships | $ | 2,704 | | | $ | (1,450) | | | $ | 1,254 | |
| Technology | 393 | | | (113) | | | 280 | |
| Core deposits | 690 | | | (425) | | | 265 | |
| Other | 107 | | | (79) | | | 28 | |
| Total | $ | 3,894 | | | $ | (2,067) | | | $ | 1,827 | |
| | | | | |
State Street Corporation | 67
| | | | | | | | | | | | | | | | | |
| September 30, 2021 | Gross
Carrying
Amount | | Accumulated
Amortization | | Net
Carrying
Amount |
| (In millions) | | |
| Other intangible assets: | | | | | |
| Client relationships | $ | 2,803 | | | $ | (1,464) | | | $ | 1,339 | |
| Technology | 404 | | | (133) | | | 271 | |
| Core deposits | 700 | | | (444) | | | 256 | |
| Other | 103 | | | (82) | | | 21 | |
| Total | $ | 4,010 | | | $ | (2,123) | | | $ | 1,887 | |
| | | | | |
| December 31, 2020 | Gross
Carrying
Amount | | Accumulated
Amortization | | Net
Carrying
Amount |
| (In millions) | | |
| Other intangible assets: | | | | | |
| Client relationships | $ | 2,704 | | | $ | (1,450) | | | $ | 1,254 | |
| Technology | 393 | | | (113) | | | 280 | |
| Core deposits | 690 | | | (425) | | | 265 | |
| Other | 107 | | | (79) | | | 28 | |
| Total | $ | 3,894 | | | $ | (2,067) | | | $ | 1,827 | |
| | | | | |
STATE STREET CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 6. Other Assets
The following table presents the components of other assets as of the dates indicated:
| | (In millions) | (In millions) | March 31, 2021 | | December 31, 2020 | (In millions) | September 30, 2021 | | December 31, 2020 |
Securities borrowed(1) | Securities borrowed(1) | $ | 24,773 | | | $ | 18,330 | | Securities borrowed(1) | $ | 26,643 | | | $ | 18,330 | |
| Derivative instruments, net | Derivative instruments, net | 8,170 | | | 5,804 | | Derivative instruments, net | 7,565 | | | 5,804 | |
| Bank-owned life insurance | Bank-owned life insurance | 3,502 | | | 3,479 | | Bank-owned life insurance | 3,548 | | | 3,479 | |
| Investments in joint ventures and other unconsolidated entities | Investments in joint ventures and other unconsolidated entities | 3,027 | | | 3,095 | | Investments in joint ventures and other unconsolidated entities | 3,140 | | | 3,095 | |
| Collateral, net | Collateral, net | 1,639 | | | 2,713 | | Collateral, net | 1,348 | | | 2,616 | |
| Receivable for securities settlement | Receivable for securities settlement | 1,110 | | | 117 | | Receivable for securities settlement | 621 | | | 117 | |
| Right-of-use assets | Right-of-use assets | 632 | | | 720 | | Right-of-use assets | 612 | | | 720 | |
| Prepaid expenses | | Prepaid expenses | 474 | | | 383 | |
| Accounts receivable | Accounts receivable | 468 | | | 379 | | Accounts receivable | 395 | | | 379 | |
| Prepaid expenses | 461 | | | 383 | | |
| Income tax receivable | Income tax receivable | 300 | | | 367 | | Income tax receivable | 359 | | | 367 | |
| Deferred tax assets, net of valuation allowance(2) | Deferred tax assets, net of valuation allowance(2) | 221 | | | 233 | | Deferred tax assets, net of valuation allowance(2) | 196 | | | 233 | |
| Deposits with clearing organizations | Deposits with clearing organizations | 58 | | | 58 | | Deposits with clearing organizations | 62 | | | 58 | |
| Other | 872 | | | 832 | | |
Other(3) | | Other(3) | 988 | | | 929 | |
| Total | Total | $ | 45,233 | | | $ | 36,510 | | Total | $ | 45,951 | | | $ | 36,510 | |
(1) Refer to Note 8, for further information on the impact of collateral on our financial statement presentation of securities borrowing and securities lending transactions.
(2) Deferred tax assets and liabilities recorded in our consolidated statement of condition are netted within the same tax jurisdiction.
(3) Consists primarily of Advances of $532 million and $460 million as of September 30, 2021 and December 31, 2020, respectively.
State Street Corporation | 75
STATE STREET CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 7. Derivative Financial Instruments
We use derivative financial instruments to support our clients' needs and to manage our interest rate and currency risks. These financial instruments consist of FX contracts such as forwards, futures and options contracts; interest rate contracts such as interest rate swaps (cross currency and single currency) and futures; and other derivative contracts. Derivative instruments used for risk management purposes that are highly effective in offsetting the risk being hedged are generally designated as hedging instruments in hedge accounting relationships, while others are economic hedges and not designated in hedge accounting relationships. For additional information on our use and accounting policies on derivative financial instruments, including derivatives not designated as hedging instruments, refer to pages 158 to 159 in Note 10 to the consolidated financial statements included under Item 8, Financial Statements and Supplementary Data, in our 2020 Form 10-K.
Derivatives Designated as Hedging Instruments
For additional information on our derivatives designated as hedging instruments, including our risk management objectives and hedging documentation methodologies, refer to page 159 in Note 10 to the consolidated financial statements included under Item 8, Financial Statements and Supplementary Data, in our 2020 Form 10-K.
Fair Value Hedges
Derivatives designated as fair value hedges are utilized to mitigate the risk of changes in the fair values of recognized assets and liabilities, including long-term debt and AFS securities. We use interest rate contracts in this manner to manage our exposure to changes in the fair value of hedged items caused by changes in interest rates.
Changes in the fair value of the derivative and changes in fair value of the hedged item due to changes in the hedged risk are recognized in earnings in the same line item. If a hedge is terminated, but the hedged item was not derecognized, all remaining adjustments to the carrying amount of the hedged item are amortized over a period that is consistent with the amortization of other discounts or premiums associated with the hedged item.
Cash Flow Hedges
Derivatives designated as cash flow hedges are utilized to offset the variability of cash flows of
recognized assets or liabilities or forecasted transactions. We have entered into FX contracts to hedge the change in cash flows attributable to FX movements in foreign currency denominated investment securities. Additionally, we have entered into interest rate swap agreements to hedge the forecasted cash flows associated with LIBOR indexed floating-rate loans. The interest rate swaps synthetically convert the loan interest receipts from a variable-rate to a fixed-rate, thereby mitigating the risk attributable to changes in the LIBOR benchmark rate.
Changes in fair value of the derivatives designated as cash flow hedges are initially recorded in AOCI and then reclassified into earnings in the same period or periods during which the hedged forecasted transaction affects earnings and are presented in the same income statement line item as the earnings effect of the hedged item. If the hedge relationship is terminated, the change in fair value on the derivative recorded in AOCI is reclassified into earnings consistent with the timing of the hedged item. For hedge relationships that are discontinued because a forecasted transaction is not expected to occur according to the original hedge terms, any related derivative values recorded in AOCI are immediately recognized in earnings.
State Street Corporation | 68
STATE STREET CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The net gain associated with cash flow hedges expected to be reclassified from AOCI within 12 months of September 30, 2021, is approximately $70 million. The maximum length of time over which forecasted cash flows are hedged is 5 years.Net Investment Hedges
Derivatives categorized as net investment hedges are entered into to protect the net investment in our foreign operations against adverse changes in exchange rates. We use FX forward contracts to convert the foreign currency risk to U.S. dollars to mitigate our exposure to fluctuations in FX rates. The changes in fair value of the FX forward contracts are recorded, net of taxes, in the foreign currency translation component of OCI.
The following table presents the aggregate contractual, or notional, amounts of derivative financial instruments, including those entered into for trading and asset-and-liability management activities as of the dates indicated:
| | | | | | | | | | | |
| (In millions) | March 31, 2021 | | December 31, 2020 |
| Derivatives not designated as hedging instruments: | | | |
| Interest rate contracts: | | | |
| | | |
| | | |
| | | |
| Futures | $ | 3,238 | | | $ | 2,842 | |
| Foreign exchange contracts: | | | |
| Forward, swap and spot | 2,735,180 | | | 2,640,989 | |
| Options purchased | 1,333 | | | 946 | |
| Options written | 380 | | | 661 | |
| Futures | 2,639 | | | 1,980 | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| Other: | | | |
Stable value contracts(1) | 32,654 | | | 32,359 | |
Deferred value awards(2) | 443 | | | 332 | |
| Derivatives designated as hedging instruments: | | | |
| Interest rate contracts: | | | |
| Swap agreements | 7,459 | | | 7,449 | |
| Foreign exchange contracts: | | | |
| Forward and swap | 6,055 | | | 5,221 | |
State Street Corporation | 76
STATE STREET CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
| | | | | | | | | | | |
| (In millions) | September 30, 2021 | | December 31, 2020 |
| Derivatives not designated as hedging instruments: | | | |
| Interest rate contracts: | | | |
| | | |
| | | |
| | | |
| Futures | $ | 3,572 | | | $ | 2,842 | |
| Foreign exchange contracts: | | | |
| Forward, swap and spot | 2,372,570 | | | 2,640,989 | |
| Options purchased | 724 | | | 946 | |
| Options written | 221 | | | 661 | |
| Futures | 2,077 | | | 1,980 | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| Other: | | | |
Stable value contracts(1) | 32,704 | | | 32,359 | |
Deferred value awards(2) | 360 | | | 332 | |
| Derivatives designated as hedging instruments: | | | |
| Interest rate contracts: | | | |
| Swap agreements | 13,714 | | | 7,449 | |
| Foreign exchange contracts: | | | |
| Forward and swap | 6,877 | | | 5,221 | |
(1) The notional value of the stable value contracts represents our maximum exposure. However, exposure to various stable value contracts is generally contractually limited to substantially lower amounts than the notional values.
(2) Represents grants of deferred value awards to employees; refer to pages 158 to 159 in Note 10 to the consolidated financial statements included under Item 8, Financial Statements and Supplementary Data, in our 2020 Form 10-K.
Notional amounts are provided here as an indication of the volume of our derivative activity and serve as a reference to calculate the fair values of the derivative.
The following tables presenttable presents the fair value of derivative financial instruments, excluding the impact of master netting agreements, recorded in our consolidated statement of condition as of the dates indicated. The impact of master netting agreements is provided in Note 8.
| | | Derivative Assets(1) | | Derivative Liabilities(2) | | Derivative Assets(1) | | Derivative Liabilities(2) |
| (In millions) | (In millions) | March 31, 2021 | | December 31, 2020 | | March 31, 2021 | | December 31, 2020 | (In millions) | September 30, 2021 | | December 31, 2020 | | September 30, 2021 | | December 31, 2020 |
| Derivatives not designated as hedging instruments: | Derivatives not designated as hedging instruments: | | | | | | | | Derivatives not designated as hedging instruments: | | | | | | | |
| Foreign exchange contracts | Foreign exchange contracts | $ | 21,776 | | | $ | 25,939 | | | $ | 22,044 | | | $ | 25,811 | | Foreign exchange contracts | $ | 16,345 | | | $ | 25,939 | | | $ | 15,735 | | | $ | 25,811 | |
| | Other derivative contracts | Other derivative contracts | 0 | | | 0 | | | 181 | | | 157 | | Other derivative contracts | — | | | — | | | 176 | | | 157 | |
| Total | Total | $ | 21,776 | | | $ | 25,939 | | | $ | 22,225 | | | $ | 25,968 | | Total | $ | 16,345 | | | $ | 25,939 | | | $ | 15,911 | | | $ | 25,968 | |
| | Derivatives designated as hedging instruments: | Derivatives designated as hedging instruments: | | Derivatives designated as hedging instruments: | |
| Foreign exchange contracts | Foreign exchange contracts | $ | 122 | | | $ | 4 | | | $ | 1 | | | $ | 116 | | Foreign exchange contracts | $ | 108 | | | $ | 4 | | | $ | — | | | $ | 116 | |
| Interest rate contracts | Interest rate contracts | 1 | | | 1 | | | 35 | | | 42 | | Interest rate contracts | 4 | | | 1 | | | 27 | | | 42 | |
| Total | Total | $ | 123 | | | $ | 5 | | | $ | 36 | | | $ | 158 | | Total | $ | 112 | | | $ | 5 | | | $ | 27 | | | $ | 158 | |
(1) Derivative assets are included within other assets in our consolidated statement of condition.
(2) Derivative liabilities are included within other liabilities in our consolidated statement of condition.
State Street Corporation | 6977
STATE STREET CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The following tables presenttable presents the impact of our use of derivative financial instruments on our consolidated statement of income for the periods indicated:
| | | Location of Gain (Loss) on
Derivative in Consolidated
Statement of Income | Amount of Gain (Loss) on Derivative Recognized in Consolidated Statement of Income | | Location of Gain (Loss) on
Derivative in Consolidated
Statement of Income | Amount of Gain (Loss) on Derivative Recognized in Consolidated Statement of Income | |
| | | Three Months Ended March 31, | | | Three Months Ended September 30, | | Nine Months Ended September 30, | |
| (In millions) | (In millions) | | 2021 | | 2020 | | (In millions) | | 2021 | | 2020 | | 2021 | | 2020 | |
| | Derivatives not designated as hedging instruments: | Derivatives not designated as hedging instruments: | | | | | | Derivatives not designated as hedging instruments: | | | | | | | | | |
| Foreign exchange contracts | Foreign exchange contracts | Foreign exchange trading services revenue | $ | 242 | | | $ | 333 | | | Foreign exchange contracts | Foreign exchange trading services revenue | $ | 186 | | | $ | 164 | | | $ | 617 | | | $ | 712 | | |
| | Foreign exchange contracts | Foreign exchange contracts | Interest expense | 21 | | | 2 | | | Foreign exchange contracts | Interest expense | 16 | | | 20 | | | 53 | | | 39 | | |
| Interest rate contracts | Interest rate contracts | Foreign exchange trading services revenue | 0 | | | 3 | | | Interest rate contracts | Foreign exchange trading services revenue | — | | | — | | | 1 | | | 3 | | |
| | Other derivative contracts | Other derivative contracts | Compensation and employee benefits | (79) | | | (67) | | | Other derivative contracts | Compensation and employee benefits | (35) | | | (39) | | | (158) | | | (151) | | |
| Total | Total | | $ | 184 | | | $ | 271 | | | Total | | $ | 167 | | | $ | 145 | | | $ | 513 | | | $ | 603 | | |
| | |
The following table shows the carrying amount and associated cumulative basis adjustments related to the application of hedge accounting that is included in the carrying amount of hedged assets and liabilities in fair value hedging relationships:
| | | March 31, 2021 | | | September 30, 2021 | |
| | | Cumulative Fair Value Hedging Adjustment Increasing (Decreasing) the carrying amount | | | | Cumulative Fair Value Hedging Adjustment Increasing (Decreasing) the carrying amount | |
| (In millions) | (In millions) | Carrying Amount of Hedged Assets/Liabilities | | Active | | De-designated(1) | | (In millions) | Carrying Amount of Hedged Assets/Liabilities | | Active | | De-designated(1) | |
| Long-term debt | Long-term debt | $ | 9,771 | | | $ | 0 | | | $ | 636 | | | Long-term debt | $ | 9,024 | | | $ | (14) | | | $ | 554 | | |
| Available-for-sale securities | Available-for-sale securities | 2,814 | | | (8) | | | 37 | | | Available-for-sale securities | 2,420 | | | 4 | | | 28 | | |
| | | December 31, 2020 | | | December 31, 2020 | |
| | | Cumulative Fair Value Hedging Adjustment Increasing (Decreasing) the carrying amount | | | | Cumulative Fair Value Hedging Adjustment Increasing (Decreasing) the carrying amount | |
| (In millions) | (In millions) | Carrying Amount of Hedged Assets/Liabilities | | Active | | De-designated(1) | | (In millions) | Carrying Amount of Hedged Assets/Liabilities | | Active | | De-designated(1) | |
| Long-term debt | Long-term debt | $ | 10,519 | | | $ | 3 | | | $ | 688 | | | Long-term debt | $ | 10,519 | | | $ | 3 | | | $ | 688 | | |
| Available-for-sale securities | Available-for-sale securities | 2,330 | | | 2 | | | 43 | | | Available-for-sale securities | 2,330 | | | 2 | | | 43 | | |
| | | | | | | |
(1) Represents hedged items no longer designated in qualifying fair value hedging relationships for which an associated basis adjustment exists at the balance sheet date.
As of March 31,September 30, 2021 and December 31, 2020, the total notional amount of the interest rate swaps of fair value hedges was $2.61$6.81 billion and $2.60 billion, respectively.
State Street Corporation | 78
STATE STREET CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The following tables present the impact of our use of derivative financial instruments on our consolidated statement of income for the periods indicated:
| | | Three Months Ended March 31, | | Three Months Ended March 31, | | Three Months Ended September 30, | | Three Months Ended September 30, |
| | 2021 | | 2020 | | | 2021 | | 2020 | | | 2021 | | 2020 | | | 2021 | | 2020 | |
| (In millions) | (In millions) | Location of Gain (Loss) on Derivative in Consolidated Statement of Income | | Amount of Gain
(Loss) on Derivative
Recognized in
Consolidated
Statement of Income | | Hedged Item in Fair Value Hedging Relationship | | Location of Gain (Loss) on Hedged Item in Consolidated Statement of Income | | Amount of Gain
(Loss) on Hedged
Item Recognized in
Consolidated
Statement of Income | (In millions) | Location of Gain (Loss) on Derivative in Consolidated Statement of Income | | Amount of Gain
(Loss) on Derivative
Recognized in
Consolidated
Statement of Income | | Hedged Item in Fair Value Hedging Relationship | | Location of Gain (Loss) on Hedged Item in Consolidated Statement of Income | | Amount of Gain
(Loss) on Hedged
Item Recognized in
Consolidated
Statement of Income |
| Derivatives designated as fair value hedges: | Derivatives designated as fair value hedges: | | | | | | | | | | | | Derivatives designated as fair value hedges: | | | | | | | | | | | |
| | Interest rate contracts | Interest rate contracts | Net interest income | | $ | 16 | | | $ | (11) | | | | Available-for-sale securities(1) | | Net interest income | | $ | (16) | | | $ | 10 | | | Interest rate contracts | Net interest income | | $ | 15 | | | $ | 5 | | | | Available-for-sale securities(1) | | Net interest income | | $ | (17) | | | $ | (6) | | |
| Interest rate contracts | Interest rate contracts | Net interest income | | (12) | | | 547 | | | | Long-term debt | | Net interest income | | 11 | | | (535) | | | Interest rate contracts | Net interest income | | (7) | | | (19) | | | | Long-term debt | | Net interest income | | 8 | | | 17 | | |
| | Total | Total | | $ | 4 | | | $ | 536 | | | | $ | (5) | | | $ | (525) | | | Total | | $ | 8 | | | $ | (14) | | | | $ | (9) | | | $ | 11 | | |
| | | | Nine Months Ended September 30, | | | Nine Months Ended September 30, | |
| | | | 2021 | | 2020 | | | | 2021 | | 2020 | |
| (In millions) | | (In millions) | Location of Gain (Loss) on Derivative in Consolidated Statement of Income | | Amount of Gain
(Loss) on Derivative
Recognized in
Consolidated
Statement of Income | | | Hedged Item in Fair Value Hedging Relationship | | Location of Gain (Loss) on Hedged Item in Consolidated Statement of Income | | Amount of Gain
(Loss) on Hedged
Item Recognized in
Consolidated
Statement of Income | |
| Derivatives designated as fair value hedges: | | Derivatives designated as fair value hedges: | | | | | | | | | | | |
| | | Interest rate contracts | | Interest rate contracts | Net interest income | | $ | 9 | | | $ | (3) | | | | Available-for-sale securities(2) | | Net interest income | | $ | (12) | | | $ | — | | |
| Interest rate contracts | | Interest rate contracts | Net interest income | | (26) | | | 564 | | | | Long-term debt | | Net interest income | | 26 | | | (557) | | |
| | Total | | Total | | $ | (17) | | | $ | 561 | | | | $ | 14 | | | $ | (557) | | |
(1) In the first quarter ofthree months ended September 30, 2021, approximately $12$13 million of net unrealized gains on AFS investment securities designated in fair value hedges was recognized in OCI compared to $7$4 million of net unrealized gains in the same period in 2020.
(2) In the nine months ended September 30, 2021, approximately $9 million of net unrealized gains on AFS investment securities designated in fair value hedges was recognized in OCI compared to no net unrealized gains or losses in the same period in 2020.
State Street Corporation | 70
STATE STREET CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
| | | Three Months Ended March 31, | | Three Months Ended March 31, | | Three Months Ended September 30, | | Three Months Ended September 30, |
| | 2021 | | 2020 | | | Location of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income into Income | | 2021 | | 2020 | | | 2021 | | 2020 | | | Location of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income into Income | | 2021 | | 2020 | |
| (In millions) | (In millions) | Amount of Gain or (Loss) Recognized in Other Comprehensive Income on Derivative | | Amount of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income into Income | (In millions) | Amount of Gain or (Loss) Recognized in Other Comprehensive Income on Derivative | | Amount of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income into Income | Location of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income into Income | Amount of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income into Income |
| Derivatives designated as cash flow hedges: | Derivatives designated as cash flow hedges: | | | | | | | | Derivatives designated as cash flow hedges: | | | | | | | |
Interest rate contracts(1) | Interest rate contracts(1) | $ | (16) | | | $ | 158 | | | | Net interest income | | $ | 18 | | | $ | 0 | | | Interest rate contracts(1) | $ | (3) | | | $ | — | | | | Net interest income | | $ | 22 | | | $ | 18 | | |
| Foreign exchange contracts | Foreign exchange contracts | 36 | | | 10 | | | | Net interest income | | 3 | | | 7 | | | Foreign exchange contracts | 12 | | | (30) | | | | Net interest income | | 2 | | | 6 | | |
| Total derivatives designated as cash flow hedges | Total derivatives designated as cash flow hedges | $ | 20 | | | $ | 168 | | | | $ | 21 | | | $ | 7 | | | Total derivatives designated as cash flow hedges | $ | 9 | | | $ | (30) | | | | $ | 24 | | | $ | 24 | | |
| | Derivatives designated as net investment hedges: | Derivatives designated as net investment hedges: | | | | | Derivatives designated as net investment hedges: | | | | |
| Foreign exchange contracts | Foreign exchange contracts | $ | 135 | | | $ | 108 | | | | Gains (Losses) related to investment securities, net | | $ | 0 | | | $ | 0 | | | Foreign exchange contracts | $ | 111 | | | $ | (122) | | | | Gains (Losses) related to investment securities, net | | $ | — | | | $ | — | | |
| Total derivatives designated as net investment hedges | Total derivatives designated as net investment hedges | 135 | | | 108 | | | | 0 | | | 0 | | | Total derivatives designated as net investment hedges | 111 | | | (122) | | | | — | | | — | | |
| Total | Total | $ | 155 | | | $ | 276 | | | | $ | 21 | | | $ | 7 | | | Total | $ | 120 | | | $ | (152) | | | | $ | 24 | | | $ | 24 | | |
| | | | Nine Months Ended September 30, | | | Nine Months Ended September 30, | |
| | | 2021 | | 2020 | | | 2021 | | 2020 | |
| (In millions) | | (In millions) | Amount of Gain or (Loss) Recognized in Other Comprehensive Income on Derivative | | | Location of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income into Income | | Amount of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income into Income | |
| Derivatives designated as cash flow hedges: | | Derivatives designated as cash flow hedges: | | | | | | | |
| Interest rate contracts | | Interest rate contracts | $ | (9) | | | 179 | | | Net interest income | | $ | 62 | | | $ | 32 | | |
| Foreign exchange contracts | | Foreign exchange contracts | 55 | | | $ | (11) | | | | Net interest income | | 8 | | | 20 | | |
| Total derivatives designated as cash flow hedges | | Total derivatives designated as cash flow hedges | $ | 46 | | | $ | 168 | | | | $ | 70 | | | $ | 52 | | |
| | Derivatives designated as net investment hedges: | | Derivatives designated as net investment hedges: | | | | |
| Foreign exchange contracts | | Foreign exchange contracts | $ | 222 | | | $ | (100) | | | | Gains (losses) related to investment securities, net | | $ | — | | | $ | — | | |
| Total derivatives designated as net investment hedges | | Total derivatives designated as net investment hedges | 222 | | | (100) | | | | — | | | — | | |
| | Total | | Total | $ | 268 | | | $ | 68 | | | | $ | 70 | | | $ | 52 | | |
(1) As of March 31,September 30, 2021, the maximum maturity date of the underlying hedged items is approximately 3.45.0 years.
State Street Corporation | 79
STATE STREET CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Derivatives Netting and Credit Contingencies
Netting
Derivatives receivable and payable as well as cash collateral from the same counterparty are netted in the consolidated statement of condition for those counterparties with whom we have legally binding master netting agreements in place. In addition to cash collateral received and transferred presented on a net basis, we also receive and transfer collateral in the form of securities, which mitigate credit risk but are not eligible for netting. Additional information on netting is provided in Note 8.
Credit Contingencies
Certain of our derivatives are subject to master netting agreements with our derivative counterparties containing credit risk-related contingent features, which requires us to maintain an investment grade credit rating with the various credit rating agencies. If our rating falls below investment grade, we would be in violation of the provisions, and counterparties to the derivatives could request immediate payment or demand full overnight collateralization on derivatives instruments in net liability positions. The aggregate fair value of all derivatives with credit contingent features and in a liability position as of March 31,September 30, 2021 totaled approximately $5.15$4.76 billion, against which we provided $3.66$3.90 billion of collateral in the normal course of business. If our credit related contingent features underlying these agreements were triggered as of March 31,September 30, 2021, the maximum additional collateral we would be required to post to our counterparties is approximately $1.49$0.86 billion.
State Street Corporation | 71
STATE STREET CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 8. Offsetting Arrangements
For additional information on our offsetting arrangements, refer to page 163 in Note 11 to the consolidated financial statements included under Item 8, Financial Statements and Supplementary Data, in our 2020 Form 10-K.
As of March 31,September 30, 2021 and December 31, 2020, the value of securities received as collateral from third parties where we are permitted to transfer or re-pledge the securities totaled $9.94$1.97 billion and $6.48 billion, respectively, and the fair value of the portion that had been transferred or re-pledged as of the same dates was $2.89 billionzero and $3.88 billion, respectively.respectively.
The following tables present information about the offsetting of assets related to derivative contracts and secured financing transactions, as of the dates indicated:
| | Assets: | Assets: | March 31, 2021 | | Assets: | September 30, 2021 | |
| | Gross Amounts of Recognized Assets(1)(2) | | Gross Amounts Offset in Statement of Condition(3) | | Net Amounts of Assets Presented in Statement of Condition | | Gross Amounts Not Offset in Statement of Condition | | | Gross Amounts of Recognized Assets(1)(2) | | Gross Amounts Offset in Statement of Condition(3) | | Net Amounts of Assets Presented in Statement of Condition | | Gross Amounts Not Offset in Statement of Condition | |
| (In millions) | (In millions) | | Cash and Securities Received(4) | | Net Amount(5) | | (In millions) | | Cash and Securities Received(4) | | Net Amount(5) | |
| Derivatives: | Derivatives: | | | | | | | | Derivatives: | | | | | | | |
| Foreign exchange contracts | Foreign exchange contracts | $ | 21,898 | | | $ | (11,923) | | | $ | 9,975 | | | $ | — | | | $ | 9,975 | | | Foreign exchange contracts | $ | 16,453 | | | $ | (7,667) | | | $ | 8,786 | | | $ | — | | | $ | 8,786 | | |
Interest rate contracts(6) | Interest rate contracts(6) | 1 | | | (1) | | | 0 | | | — | | | 0 | | | Interest rate contracts(6) | 4 | | | — | | | 4 | | | — | | | 4 | | |
| | Cash collateral and securities netting | Cash collateral and securities netting | NA | | (1,805) | | | (1,805) | | | (1,174) | | | (2,979) | | | Cash collateral and securities netting | NA | | (1,225) | | | (1,225) | | | (1,086) | | | (2,311) | | |
| Total derivatives | Total derivatives | 21,899 | | | (13,729) | | | 8,170 | | | (1,174) | | | 6,996 | | | Total derivatives | 16,457 | | | (8,892) | | | 7,565 | | | (1,086) | | | 6,479 | | |
| Other financial instruments: | Other financial instruments: | | | Other financial instruments: | | |
| Resale agreements and securities borrowing(7)(8) | Resale agreements and securities borrowing(7)(8) | 144,230 | | | (114,219) | | | 30,011 | | | (29,672) | | | 339 | | | Resale agreements and securities borrowing(7)(8) | 87,099 | | | (57,609) | | | 29,490 | | | (29,242) | | | 248 | | |
| Total derivatives and other financial instruments | Total derivatives and other financial instruments | $ | 166,129 | | | $ | (127,948) | | | $ | 38,181 | | | $ | (30,846) | | | $ | 7,335 | | | Total derivatives and other financial instruments | $ | 103,556 | | | $ | (66,501) | | | $ | 37,055 | | | $ | (30,328) | | | $ | 6,727 | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Assets: | December 31, 2020 |
| Gross Amounts of Recognized Assets(1)(2) | | Gross Amounts Offset in Statement of Condition(3) | | Net Amounts of Assets Presented in Statement of Condition | | Gross Amounts Not Offset in Statement of Condition |
| (In millions) | | | | Cash and Securities Received(4) | | Net Amount(5) |
| Derivatives: | | | | | | | | | |
| Foreign exchange contracts | $ | 25,943 | | | $ | (14,271) | | | $ | 11,672 | | | $ | — | | | $ | 11,672 | |
Interest rate contracts(6) | 1 | | | 0 | | | 1 | | | — | | | 1 | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| Cash collateral and securities netting | NA | | (5,869) | | | (5,869) | | | (1,105) | | | (6,974) | |
| Total derivatives | 25,944 | | | (20,140) | | | 5,804 | | | (1,105) | | | 4,699 | |
| Other financial instruments: | | | | | | | | | |
Resale agreements and securities borrowing(7)(8) | 174,461 | | | (153,025) | | | 21,436 | | | (20,568) | | | 868 | |
| Total derivatives and other financial instruments | $ | 200,405 | | | $ | (173,165) | | | $ | 27,240 | | | $ | (21,673) | | | $ | 5,567 | |
State Street Corporation | 80
STATE STREET CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Assets: | December 31, 2020 |
| Gross Amounts of Recognized Assets(1)(2) | | Gross Amounts Offset in Statement of Condition(3) | | Net Amounts of Assets Presented in Statement of Condition | | Gross Amounts Not Offset in Statement of Condition |
| (In millions) | | | | Cash and Securities Received(4) | | Net Amount(5) |
| Derivatives: | | | | | | | | | |
| Foreign exchange contracts | $ | 25,943 | | | $ | (14,271) | | | $ | 11,672 | | | $ | — | | | $ | 11,672 | |
Interest rate contracts(6) | 1 | | | — | | | 1 | | | — | | | 1 | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| Cash collateral and securities netting | NA | | (5,869) | | | (5,869) | | | (1,105) | | | (6,974) | |
| Total derivatives | 25,944 | | | (20,140) | | | 5,804 | | | (1,105) | | | 4,699 | |
| Other financial instruments: | | | | | | | | | |
Resale agreements and securities borrowing(7)(8) | 174,461 | | | (153,025) | | | 21,436 | | | (20,568) | | | 868 | |
| Total derivatives and other financial instruments | $ | 200,405 | | | $ | (173,165) | | | $ | 27,240 | | | $ | (21,673) | | | $ | 5,567 | |
(1) Amounts include all transactions regardless of whether or not they are subject to an enforceable netting arrangement.
(2) Refer to Note 1 and Note 2 for additional information about the measurement basis of derivative instruments.
(3) Amounts subject to netting arrangements which have been determined to be legally enforceable and eligible for netting in the consolidated statement of condition.
(4) Includes securities in connection with our securities borrowing transactions.
(5) Includes amounts secured by collateral not determined to be subject to enforceable netting arrangements.
(6) Variation margin payments presented as settlements rather than collateral.
(7) Included in the $30.01$29.49 billion as of March 31,September 30, 2021 were $5.24$2.85 billion of resale agreements and $24.77$26.64 billion of collateral provided related to securities borrowing. Included in the $21.44 billion as of December 31, 2020 were $3.11 billion of resale agreements and $18.33 billion of collateral provided related to securities borrowing. Resale agreements and collateral provided related to securities borrowing were recorded in securities purchased under resale agreements and other assets, respectively, in our consolidated statement of condition. Refer to Note 9 for additional information with respect to principal securities finance transactions.
(8) Offsetting of resale agreements primarily relates to our involvement in FICC, where we settle transactions on a net basis for payment and delivery through the Fedwire system.
NA Not applicable
State Street Corporation | 72
STATE STREET CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The following tables present information about the offsetting of liabilities related to derivative contracts and secured financing transactions, as of the dates indicated:
| | Liabilities: | Liabilities: | March 31, 2021 | | Liabilities: | September 30, 2021 | |
| | Gross Amounts of Recognized Liabilities(1)(2) | | Gross Amounts Offset in Statement of Condition(3) | | Net Amounts of Liabilities Presented in Statement of Condition | | Gross Amounts Not Offset in Statement of Condition | | | Gross Amounts of Recognized Liabilities(1)(2) | | Gross Amounts Offset in Statement of Condition(3) | | Net Amounts of Liabilities Presented in Statement of Condition | | Gross Amounts Not Offset in Statement of Condition | |
| (In millions) | (In millions) | | Cash and Securities Received(4) | | Net Amount(5) | | (In millions) | | Cash and Securities Received(4) | | Net Amount(5) | |
| Derivatives: | Derivatives: | | | | | | | | Derivatives: | | | | | | | |
| Foreign exchange contracts | Foreign exchange contracts | $ | 22,045 | | | $ | (11,923) | | | $ | 10,122 | | | $ | — | | | $ | 10,122 | | | Foreign exchange contracts | $ | 15,735 | | | $ | (7,663) | | | $ | 8,072 | | | $ | — | | | $ | 8,072 | | |
Interest rate contracts(6) | Interest rate contracts(6) | 35 | | | (1) | | | 34 | | | — | | | 34 | | | Interest rate contracts(6) | 27 | | | (4) | | | 23 | | | — | | | 23 | | |
| Other derivative contracts | Other derivative contracts | 181 | | | 0 | | | 181 | | | — | | | 181 | | | Other derivative contracts | 176 | | | — | | | 176 | | | — | | | 176 | | |
| Cash collateral and securities netting | Cash collateral and securities netting | NA | | (3,610) | | | (3,610) | | | (1,652) | | | (5,262) | | | Cash collateral and securities netting | NA | | (3,956) | | | (3,956) | | | (1,269) | | | (5,225) | | |
| Total derivatives | Total derivatives | 22,261 | | | (15,534) | | | 6,727 | | | (1,652) | | | 5,075 | | | Total derivatives | 15,938 | | | (11,623) | | | 4,315 | | | (1,269) | | | 3,046 | | |
| Other financial instruments: | Other financial instruments: | | | Other financial instruments: | | |
| Repurchase agreements and securities lending(7)(8) | Repurchase agreements and securities lending(7)(8) | 128,605 | | | (114,220) | | | 14,385 | | | (13,815) | | | 570 | | | Repurchase agreements and securities lending(7)(8) | 66,016 | | | (57,609) | | | 8,407 | | | (7,802) | | | 605 | | |
| Total derivatives and other financial instruments | Total derivatives and other financial instruments | $ | 150,866 | | | $ | (129,754) | | | $ | 21,112 | | | $ | (15,467) | | | $ | 5,645 | | | Total derivatives and other financial instruments | $ | 81,954 | | | $ | (69,232) | | | $ | 12,722 | | | $ | (9,071) | | | $ | 3,651 | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Liabilities: | December 31, 2020 |
| Gross Amounts of Recognized Liabilities(1)(2) | | Gross Amounts Offset in Statement of Condition(3) | | Net Amounts of Liabilities Presented in Statement of Condition | | Gross Amounts Not Offset in Statement of Condition |
| (In millions) | | | | Cash and Securities Received(4) | | Net Amount(5) |
| Derivatives: | | | | | | | | | |
| Foreign exchange contracts | $ | 25,927 | | | $ | (14,271) | | | $ | 11,656 | | | $ | — | | | $ | 11,656 | |
Interest rate contracts(6) | 42 | | | 0 | | | 42 | | | — | | | 42 | |
| Other derivative contracts | 157 | | | 0 | | | 157 | | | — | | | 157 | |
| Cash collateral and securities netting | NA | | (1,287) | | | (1,287) | | | (1,732) | | | (3,019) | |
| Total derivatives | 26,126 | | | (15,558) | | | 10,568 | | | (1,732) | | | 8,836 | |
| Other financial instruments: | | | | | | | | | |
Repurchase agreements and securities lending(7)(8) | 165,793 | | | (153,025) | | | 12,768 | | | (12,448) | | | 320 | |
| Total derivatives and other financial instruments | $ | 191,919 | | | $ | (168,583) | | | $ | 23,336 | | | $ | (14,180) | | | $ | 9,156 | |
State Street Corporation | 81
STATE STREET CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Liabilities: | December 31, 2020 |
| Gross Amounts of Recognized Liabilities(1)(2) | | Gross Amounts Offset in Statement of Condition(3) | | Net Amounts of Liabilities Presented in Statement of Condition | | Gross Amounts Not Offset in Statement of Condition |
| (In millions) | | | | Cash and Securities Received(4) | | Net Amount(5) |
| Derivatives: | | | | | | | | | |
| Foreign exchange contracts | $ | 25,927 | | | $ | (14,271) | | | $ | 11,656 | | | $ | — | | | $ | 11,656 | |
Interest rate contracts(6) | 42 | | | — | | | 42 | | | — | | | 42 | |
| Other derivative contracts | 157 | | | — | | | 157 | | | — | | | 157 | |
| Cash collateral and securities netting | NA | | (1,287) | | | (1,287) | | | (1,732) | | | (3,019) | |
| Total derivatives | 26,126 | | | (15,558) | | | 10,568 | | | (1,732) | | | 8,836 | |
| Other financial instruments: | | | | | | | | | |
Repurchase agreements and securities lending(7)(8) | 165,793 | | | (153,025) | | | 12,768 | | | (12,448) | | | 320 | |
| Total derivatives and other financial instruments | $ | 191,919 | | | $ | (168,583) | | | $ | 23,336 | | | $ | (14,180) | | | $ | 9,156 | |
(1) Amounts include all transactions regardless of whether or not they are subject to an enforceable netting arrangement.
(2) Refer to Note 1 and Note 2 for additional information about the measurement basis of derivative instruments.
(3) Amounts subject to netting arrangements which have been determined to be legally enforceable and eligible for netting in the consolidated statement of condition.
(4) Includes securities provided in connection with our securities lending transactions.
(5) Includes amounts secured by collateral not determined to be subject to enforceable netting arrangements.
(6) Variation margin payments presented as settlements rather than collateral.
(7) Included in the $14.39$8.41 billion as of March 31,September 30, 2021 were $0.59$0.64 billion of repurchase agreements and $13.80$7.77 billion of collateral received related to securities lending transactions. Included in the $12.77 billion as of December 31, 2020 were $3.41 billion of repurchase agreements and $9.36 billion of collateral received related to securities lending transactions. Repurchase agreements and collateral received related to securities lending were recorded in securities sold under repurchase agreements and accrued expenses and other liabilities, respectively, in our consolidated statement of condition. Refer to Note 9 for additional information with respect to principal securities finance transactions.
(8) Offsetting of repurchase agreements primarily relates to our involvement in FICC, where we settle transactions on a net basis for payment and delivery through the Fedwire system.
NA Not applicable
The securities transferred under resale and repurchase agreements typically are U.S. Treasury, agency and agency MBS. In our principal securities borrowing and lending arrangements, the securities transferred are predominantly equity securities and some corporate debt securities. The fair value of the securities transferred may increase in value to an amount greater than the amount received under our repurchase and securities lending arrangements, which exposes us to counterparty risk. We require the review of the price of the underlying securities in relation to the carrying value of the repurchase agreements and securities lending arrangements on a daily basis and when appropriate, adjust the cash or security to be obtained or returned to counterparties that is reflective of the required collateral levels.
State Street Corporation | 73
STATE STREET CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The following table summarizes our repurchase agreements and securities lending transactions by category of collateral pledged and remaining maturity of these agreements as of the periods indicated:
| | | | | As of March 31, 2021 | | As of December 31, 2020 | | As of September 30, 2021 | | As of December 31, 2020 |
| (In millions) | (In millions) | Overnight and Continuous | | Up to 30 Days | | Greater than 90 Days | | Total | | Overnight and Continuous | | Up to 30 Days | | Greater than 90 Days | | Total | (In millions) | Overnight and Continuous | | Up to 30 Days | | 30-90 days | | Greater than 90 Days | | Total | | Overnight and Continuous | | Up to 30 Days | | 30-90 days | | Greater than 90 Days | | Total |
| Repurchase agreements: | Repurchase agreements: | | | | | | | | | | | | | | | | Repurchase agreements: | | | | | | | | | | | | | | | | | | | |
| U.S. Treasury and agency securities | U.S. Treasury and agency securities | $ | 110,960 | | | $ | 0 | | | $ | 0 | | | $ | 110,960 | | | $ | 152,140 | | | $ | 0 | | | $ | 0 | | | $ | 152,140 | | U.S. Treasury and agency securities | $ | 53,915 | | | $ | — | | | $ | — | | | $ | — | | | $ | 53,915 | | | $ | 152,140 | | | $ | — | | | $ | — | | | $ | — | | | $ | 152,140 | |
| Total | Total | 110,960 | | | 0 | | | 0 | | | 110,960 | | | 152,140 | | | 0 | | | 0 | | | 152,140 | | Total | 53,915 | | | — | | | — | | | — | | | 53,915 | | | 152,140 | | | — | | | — | | | — | | | 152,140 | |
| Securities lending transactions: | Securities lending transactions: | | | | | | | | | | | | | | | | Securities lending transactions: | | | | | | | | | | | | | | | | | | | |
| US Treasury and agency securities | US Treasury and agency securities | 2 | | | 0 | | | 0 | | | 2 | | | 0 | | | 0 | | | 0 | | | 0 | | US Treasury and agency securities | 2 | | | — | | | — | | | — | | | 2 | | | — | | | — | | | — | | | — | | | — | |
| Corporate debt securities | Corporate debt securities | 96 | | | 0 | | | 0 | | | 96 | | | 110 | | | 0 | | | 0 | | | 110 | | Corporate debt securities | 149 | | | — | | | — | | | — | | | 149 | | | 110 | | | — | | | — | | | — | | | 110 | |
| Equity securities | Equity securities | 9,308 | | | 38 | | | 1,444 | | | 10,790 | | | 7,578 | | | 56 | | | 1,156 | | | 8,790 | | Equity securities | 9,876 | | | 54 | | | 3 | | | 2,016 | | | 11,949 | | | 7,578 | | | 56 | | | 0 | | 1,156 | | | 8,790 | |
Other(1) | Other(1) | 6,757 | | | 0 | | | 0 | | | 6,757 | | | 4,753 | | | 0 | | | 0 | | | 4,753 | | Other(1) | 1 | | | — | | | — | | | — | | | 1 | | | 4,753 | | | — | | | — | | | — | | | 4,753 | |
| Total | Total | 16,163 | | | 38 | | | 1,444 | | | 17,645 | | | 12,441 | | | 56 | | | 1,156 | | | 13,653 | | Total | 10,028 | | | 54 | | | 3 | | | 2,016 | | | 12,101 | | | 12,441 | | | 56 | | | — | | | 1,156 | | | 13,653 | |
| Gross amount of recognized liabilities for repurchase agreements and securities lending | Gross amount of recognized liabilities for repurchase agreements and securities lending | $ | 127,123 | | | $ | 38 | | | $ | 1,444 | | | $ | 128,605 | | | $ | 164,581 | | | $ | 56 | | | $ | 1,156 | | | $ | 165,793 | | Gross amount of recognized liabilities for repurchase agreements and securities lending | $ | 63,943 | | | $ | 54 | | | $ | 3 | | | $ | 2,016 | | | $ | 66,016 | | | $ | 164,581 | | | $ | 56 | | | $ | — | | | $ | 1,156 | | | $ | 165,793 | |
(1) Represents a security interest in underlying client assets related to our enhanced custody business, which assets clients have allowed us to transfer and re-pledge.
State Street Corporation | 82
STATE STREET CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 9. Commitments and Guarantees
For additional information on the nature of the obligations and related business activities for our commitments and guarantees, refer to page 166 in Note 12 to the consolidated financial statements included under Item 8, Financial Statements and Supplementary Data, in our 2020 Form 10-K.
The following table presents the aggregate gross contractual amounts of our off-balance sheet commitments and off-balance sheet guarantees as of the dates indicated:
| | (In millions) | (In millions) | March 31, 2021 | | December 31, 2020 | (In millions) | September 30, 2021 | | December 31, 2020 |
| Commitments: | Commitments: | | | | Commitments: | | | |
| Unfunded credit facilities | Unfunded credit facilities | $ | 34,114 | | | $ | 34,213 | | Unfunded credit facilities | $ | 34,471 | | | $ | 34,213 | |
Guarantees(1): | Guarantees(1): | | Guarantees(1): | |
| Indemnified securities financing | Indemnified securities financing | $ | 436,039 | | | $ | 440,875 | | Indemnified securities financing | $ | 402,369 | | | $ | 440,875 | |
| Standby letters of credit | Standby letters of credit | 3,502 | | | 3,330 | | Standby letters of credit | 3,333 | | | 3,330 | |
(1) The potential losses associated with these guarantees equal the gross contractual amounts and do not consider the value of any collateral or reflect any participations to independent third parties.
As of March 31, 2021, approximately 72%Approximately 73% of our unfunded commitments to extend credit expire within one year compared to approximately 73% as of both September 30, 2021 and December 31, 2020.
Indemnified Securities Financing
For additional information on our indemnified securities financing, refer to page 166 in Note 12 to the consolidated financial statements included under Item 8, Financial Statements and Supplementary Data, in our 2020 Form 10-K.
The following table summarizes the aggregate fair values of indemnified securities financing and related collateral, as well as collateral invested in indemnified repurchase agreements, as of the dates indicated:
| | (In millions) | (In millions) | March 31, 2021 | | December 31, 2020 | (In millions) | September 30, 2021 | | December 31, 2020 |
| Fair value of indemnified securities financing | Fair value of indemnified securities financing | $ | 436,039 | | | $ | 440,875 | | Fair value of indemnified securities financing | $ | 402,369 | | | $ | 440,875 | |
| Fair value of cash and securities held by us, as agent, as collateral for indemnified securities financing | Fair value of cash and securities held by us, as agent, as collateral for indemnified securities financing | 457,367 | | | 463,273 | | Fair value of cash and securities held by us, as agent, as collateral for indemnified securities financing | 422,882 | | | 463,273 | |
| Fair value of collateral for indemnified securities financing invested in indemnified repurchase agreements | Fair value of collateral for indemnified securities financing invested in indemnified repurchase agreements | 59,308 | | | 54,432 | | Fair value of collateral for indemnified securities financing invested in indemnified repurchase agreements | 67,833 | | | 54,432 | |
| Fair value of cash and securities held by us or our agents as collateral for investments in indemnified repurchase agreements | Fair value of cash and securities held by us or our agents as collateral for investments in indemnified repurchase agreements | 64,146 | | | 58,092 | | Fair value of cash and securities held by us or our agents as collateral for investments in indemnified repurchase agreements | 73,176 | | | 58,092 | |
In certain cases, we participate in securities finance transactions as a principal. As a principal, we borrow securities from the lending client and then lend such securities to the subsequent borrower, either our client or a broker/dealer. Our right to receive and obligation to return collateral in connection with our securities lending transactions
are recorded in other assets and other liabilities, respectively, in our consolidated statement of condition. As of March 31,September 30, 2021 and December 31, 2020, we had approximately $24.77$26.64 billion and $18.33 billion, respectively, of collateral provided and approximately $13.80$7.77 billion and $9.36 billion, respectively, of collateral received from clients in connection with our participation in principal securities finance transactions.
State Street Corporation | 74
STATE STREET CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
FICC Guarantee
As a sponsoring member in the FICC member program, we provide a guarantee to FICC in the event a customer fails to perform its obligations under a transaction. In order to minimize the risk associated with this guarantee, sponsored members acting as buyers generally grant a security interest in the subject securities received under and held on their behalf by State Street. For additional information on our repurchase and reverse repurchase agreements, please refer to Note 8 to the consolidated financial statements in this Form 10-Q.
Note 10. Contingencies
Legal and Regulatory Matters
In the ordinary course of business, we and our subsidiaries are involved in disputes, litigation, and governmental or regulatory inquiries and investigations, both pending and threatened. These matters, if resolved adversely against us or settled, may result in monetary awards or payments, fines and penalties or require changes in our business practices. The resolution or settlement of these matters is inherently difficult to predict. Based on our assessment of these pending matters, we do not believe that the amount of any judgment, settlement or other action arising from any pending matter is likely to have a material adverse effect on our consolidated financial condition. However, an adverse outcome or development in certain of the matters described below could have a material adverse effect on our consolidated results of operations for the period in which such matter is resolved, or an accrual is determined to be required, on our consolidated financial condition, or on our reputation.
We evaluate our needs for accruals of loss contingencies related to legal and regulatory proceedings on a case-by-case basis. When we have a liability that we deem probable, and we deem the amount of such liability can be reasonably estimated as of the date of our consolidated financial statements, we accrue our estimate of the amount of loss. We also consider a loss probable and establish an accrual when we make, or intend to make, an offer of settlement. Once established, an accrual is subject to subsequent adjustment as a result of additional information. The resolution of legal and regulatory
State Street Corporation | 83
STATE STREET CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
proceedings and the amount of reasonably estimable loss (or range thereof) are inherently difficult to predict, especially in the early stages of proceedings. Even if a loss is probable, an amount (or range) of loss might not be reasonably estimated until the later stages of the proceeding due to many factors such as the presence of complex or novel legal theories, the discretion of governmental authorities in seeking sanctions or negotiating resolutions in civil and criminal matters, the pace and timing of discovery
and other assessments of facts and the procedural posture of the matter (collectively, "factors influencing reasonable estimates").
As of March 31,September 30, 2021, our aggregate accruals for loss contingencies for legal, regulatory and related matters totaled approximately $146$19 million, including potential fines by government agencies and civil litigation with respect to the matters specifically discussed below. To the extent that we have established accruals in our consolidated statement of condition for probable loss contingencies, such accruals may not be sufficient to cover our ultimate financial exposure associated with any settlements or judgments. Any such ultimate financial exposure, or proceedings to which we may become subject in the future, could have a material adverse effect on our businesses, on our future consolidated financial statements or on our reputation.
As of March 31,September 30, 2021, for those matters for which we have accrued probable loss contingencies (including the Invoicing Matter described below) and for other matters for which loss is reasonably possible (but not probable) in future periods, and for which we are able to estimate a range of reasonably possible loss, our estimate of the aggregate reasonably possible loss (in excess of any accrued amounts) ranges up to approximately $40$45 million. Our estimate with respect to the aggregate reasonably possible loss is based upon currently available information and is subject to significant judgment and a variety of assumptions and known and unknown uncertainties, which may change quickly and significantly from time to time, particularly if and as we engage with applicable governmental agencies or plaintiffs in connection with a proceeding. Also, the matters underlying the reasonably possible loss will change from time to time. As a result, actual results may vary significantly from the current estimate.
In certain pending matters, it is not currently feasible to reasonably estimate the amount or a range of reasonably possible loss, and such losses, which may be significant, are not included in the estimate of reasonably possible loss discussed above. This is due to, among other factors, the factors influencing reasonable estimates described above. An adverse outcome in one or more of the matters for which we have not estimated the amount
or a range of reasonably possible loss, individually or in the aggregate, could have a material adverse effect on our businesses, on our future consolidated financial statements or on our reputation. Given that our actual losses from any legal or regulatory proceeding for which we have provided an estimate of the reasonably possible loss could significantly exceed such estimate, and given that we cannot estimate reasonably possible loss for all legal and
State Street Corporation | 75
STATE STREET CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
regulatory proceedings as to which we may be subject now or in the future, no conclusion as to our ultimate exposure from current pending or potential legal or regulatory proceedings should be drawn from the current estimate of reasonably possible loss.
The following discussion provides information with respect to significant legal, governmental and regulatory matters.
Invoicing Matter
In 2015, we determined that we had incorrectly invoiced clients for certain expenses. We have reimbursed most of our affected customers for those expenses, and we have implemented enhancements to our billing processes. In connection with our enhancements to our billing processes, we continue to review historical billing practices and may from time to time identify additional remediation. In 2017, we identified an additional area of incorrect expense billing associated with mailing services in our retirement services business. We currently expect the cumulative total of our payments to customers for these invoicing errors, including the error in the retirement services business, to be at least $370$360 million, all of which has been paid or is accrued. However, we may identify additional remediation costs.
In March 2017, a purported class action was commenced against us alleging that our invoicing practices violated duties owed to retirement plan customers under the Employee Retirement Income Security Act. We have agreed, subject to court approval, to resolve this matter and pay a cost that is within our established accruals for loss contingencies. In addition, we have received a purported class action demand letter alleging that our invoicing practices were unfair and deceptive under Massachusetts law. A class of customers, or particular customers, may assert that we have not paid to them all amounts incorrectly invoiced, and may seek double or treble damages under Massachusetts law.
We are also cooperatinghave agreed with investigations by governmental and regulatory authorities onthe office of the United States Attorney for the District of Massachusetts to resolve potential criminal claims arising from these matters including the civilby entering into a deferred prosecution agreement and criminal divisions of the DOJ and the DOL, which reviews could resultpaying a $115 million penalty in significant fines or other sanctions, civil and criminal, against us.May 2021. In June 2019, we reached an agreement with the SEC to settle its claims that we violated the
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recordkeeping provisions of Section 34(b) of the Investment Company Act of 1940 and caused violations of Section 31(a) of the Investment Company Act and Rules 31a-1(a) and 31a-1(b) thereunder in connection with our overcharges of customers which are registered investment companies. In reaching this settlement, we neither admitted nor denied the claims contained in the SEC’s order, and agreed to pay a civil monetary penalty of $40 million. Also in June 2019, we reached an agreement with the Massachusetts Attorney
General’s office to resolve its claims related to this matter. In reaching this settlement, we neither admitted nor denied the claims in the order, and agreed to pay a civil monetary penalty of $5.5 million. The costs associated with these settlements were within our related previously established accruals for loss contingencies. The SEC and Massachusetts Attorney General’s office settlements both recognize that the payment of $48.8 million in disgorgement and interest is satisfied by our direct reimbursements of our customers.
In January 2020, We paid fines to resolve claims of the DOJ outlined a framework for a possible resolutionSecurities Divisions of their review. We are discussing the termsSecretaries of a potential settlementthe State of this matterMassachusetts and New Hampshire. The costs associated with the DOJ. Separately, we have inquired of the DOL as to the status of their review butsettlements discussed above were within our related previously established accruals for loss contingencies.
We have not entered into settlement discussions withresolved certain claims that may be made by the DOL. ThereU.S. Department of Labor. We do not know whether any such claims will be brought, and there can be no assurance that any settlement with the DOJ or DOLof any such claims will be reached on financial or other terms acceptable to us or at all. The aggregate amount of penalties that may potentially be imposed upon us in connection with the resolution of all outstanding investigations into our historical billing practicesany such matters is not currently known. We have established a legal accrual with respect to the pending governmental investigations and civil litigation with respect to this matter, however, our ultimate liability with respect to this matter might be significantly in excess of our current accrual. Government authorities have significant discretion in criminal and civil matters as to the fines and other penalties they may seek to impose. Any resolution of the DOJ and DOL claims may involve penalties that could be a significant percentage, or a multiple of, all or a portion of the overcharge. The severity of such fines or penalties could take into account factors such as the amount or duration of our incorrect invoicing and the government’s or regulators’ assessment of the conduct of our employees, as well as prior conduct such as that which resulted in our January 2017 deferred prosecution agreement and settlement of civil claims regarding our indirect FX business.
The outcome of any of these proceedings and, in particular, any criminal sanction could materially adversely affect our results of operations and could have significant additional consequences for our business and reputation.
Shareholder Litigation
A shareholder of ours has filed a derivative complaint against certain of the Company’s past and present officers and directors to recover alleged losses incurred by the Company relating to the invoicing matter and to the Ohio public retirement plans matter. The Suffolk Superior Court Department of the Trial Court of the Commonwealth of Massachusetts, without objection, approved a settlement of the claim in which we agreed to take, or to continue to take, specified steps to improve our ongoing governance and compliance policies, and to pay a fee to plaintiff's counsel.
Gomes, et al. v. State Street Corp.
Eight participants in our Salary Savings Program filed a purported class action complaint in May 2021 on behalf of participants and beneficiaries who participated in the Program and invested in our proprietary investment fund options between May 2015 and the present. The complaint names the Plan Sponsor as well as the committees overseeing the Plan and their respective members as defendants,
and alleges breach of fiduciary duty and violations of other duties owed to retirement plan participants under the Employee Retirement Income and Security Act. We and the other named defendants deny the alleged claims and are proceeding with a defense of the matter.
Edmar Financial Company, LLC et al v. Currenex, Inc. et al
In August 2021, 2 former Currenex clients filed a putative civil class action lawsuit in the Southern District of New York alleging antitrust violations, fraud and a civil Racketeer Influenced and Corrupt Organization Act violation against Currenex, State Street and others.
Income Taxes
In determining our provision for income taxes, we make certain judgments and interpretations with
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respect to tax laws in jurisdictions in which we have business operations. Because of the complex nature of these laws, in the normal course of our business, we are subject to challenges from U.S. and non-U.S. income tax authorities regarding the amount of income taxes due. These challenges may result in adjustments to the timing or amount of taxable income or deductions or the allocation of taxable income among tax jurisdictions. We recognize a tax benefit when it is more likely than not that our position will result in a tax deduction or credit. Unrecognized tax benefits of approximately $310$295 million as of March 31,September 30, 2021 increaseddecreased from $308 million as of December 31, 2020.
We are presently under audit by a number of tax authorities, and the Internal Revenue Service is currently reviewing our U.S. income tax returns, including amended returns, for tax years 2014-2018. The earliest tax year open to examination in jurisdictions where we have material operations is 2013. Management believes that we have sufficiently accrued liabilities as of March 31,September 30, 2021 for potential tax exposures.
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Note 11. Variable Interest Entities
For additional information on our accounting policy and our use of variable interest entities (VIEs), refer to pages 169 to 170 in Note 14 to the consolidated financial statements included under Item 8, Financial Statements and Supplementary Data, "Variable Interest Entities", in our 2020 Form 10-K.
Tax-Exempt Investment Program
In the normal course of our business, we structure and sell certificated interests in pools of tax-exempt investment grade assets, principally to our mutual fund clients. We structure these pools as partnership trusts, and the assets and liabilities of the trusts are recorded in our consolidated statement of condition as AFS investment securities and other short-term borrowings. As of March 31,September 30, 2021 and December 31, 2020, we carried AFS investment
securities, composed of securities related to state and political subdivisions, with a fair value of $0.70$0.61 billion and $0.70 billion, respectively, and other short-term borrowings of $0.61$0.43 billion and $0.62 billion, respectively, in our consolidated statement of condition in connection with these trusts. The interest income and interest expense generated by the investments and certificated interests, respectively, are recorded as components of NII when earned or incurred.
The trusts had a weighted-average life of approximately 2.42.2 years as of March 31,September 30, 2021, compared to approximately 2.7 years as of December 31, 2020.
Interests in Investment Funds
As of March 31,September 30, 2021, the aggregate assets and liabilities of ourwe had no consolidated sponsored investment funds totaled $13 million and $0 million, respectively.funds. As of December 31, 2020, the aggregate assets and liabilities of our consolidated sponsored investment funds totaled $17 million and $4 million, respectively. As of both March 31, 2021 and December 31, 2020, our maximum total exposure associated with the consolidated sponsored investment funds totaled $13 million, and represented the value of our economic ownership interest in the funds.
As of March 31,September 30, 2021 and December 31, 2020, we managed certain funds, considered VIEs, in which we held a variable interest but for which we were not deemed to be the primary beneficiary. Our potential maximum loss exposure related to these unconsolidated funds totaled $11 million and $22 million as of both March 31,September 30, 2021 and December 31, 2020, respectively, and represented the carrying value of our investments, which are recorded in other assets in our consolidated statement of condition. The amount of loss we may recognize during any period is limited to the carrying amount of our investments in the unconsolidated funds.
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Note 12. Shareholders' Equity
Preferred Stock
The following table summarizes selected terms of each of the series of the preferred stock issued and outstanding as of March 31,September 30, 2021:
| Preferred Stock(2): | | Issuance Date | | Depositary Shares Issued | | Amount outstanding (in millions) | Ownership Interest Per Depositary Share | | Liquidation Preference Per Share | | Liquidation Preference Per Depositary Share | | Per Annum Dividend Rate | | Dividend Payment Frequency | | Carrying Value as of March 31, 2021
(In millions) | | Redemption Date(1) | |
Preferred Stock(1): | | Preferred Stock(1): | | Issuance Date | | Depositary Shares Issued | | Amount outstanding (in millions) | | Ownership Interest Per Depositary Share | | Liquidation Preference Per Share | | Liquidation Preference Per Depositary Share | | Per Annum Dividend Rate | | Dividend Payment Frequency | | Carrying Value as of September 30, 2021
(In millions) | | Redemption Date(2) |
| | Series D | Series D | | February 2014 | | 30,000,000 | | | 750 | | 1/4,000th | | 100,000 | | | 25 | | | 5.90% to but excluding March 15, 2024, then a floating rate equal to the three-month LIBOR plus 3.108% | | Quarterly | | $ | 742 | | | March 15, 2024 | Series D | | February 2014 | | 30,000,000 | | | $ | 750 | | | 1/4,000th | | $ | 100,000 | | | $ | 25 | | | 5.90% to but excluding March 15, 2024, then a floating rate equal to the three-month LIBOR plus 3.108% | | Quarterly | | $ | 742 | | | March 15, 2024 |
Series F(3) | Series F(3) | | May 2015 | | 250,000 | | | 250 | | 1/100th | | 100,000 | | | 1,000 | | | 5.25% to but excluding September 15, 2020, then a floating rate equal to the three-month LIBOR plus 3.597%, or 3.78088% effective March 15, 2021 | | Quarterly | | 247 | | | September 15, 2020 | Series F(3) | | May 2015 | | 250,000 | | | 250 | | | 1/100th | | 100,000 | | | 1,000 | | | 5.25% to but excluding September 15, 2020, then a floating rate equal to the three-month LIBOR plus 3.597%, or 3.7130% effective September 15, 2021 | | Quarterly | | 247 | | | September 15, 2020 |
| Series G | Series G | | April 2016 | | 20,000,000 | | | 500 | | 1/4,000th | | 100,000 | | | 25 | | | 5.35% to but excluding March 15, 2026, then a floating rate equal to the three-month LIBOR plus 3.709% | | Quarterly | | 493 | | | March 15, 2026 | Series G | | April 2016 | | 20,000,000 | | | 500 | | | 1/4,000th | | 100,000 | | | 25 | | | 5.35% to but excluding March 15, 2026, then a floating rate equal to the three-month LIBOR plus 3.709% | | Quarterly | | 493 | | | March 15, 2026 |
| Series H | Series H | | September 2018 | | 500,000 | | | 500 | | 1/100th | | 100,000 | | | 1,000 | | | 5.625% to but excluding December 15, 2023, then a floating rate equal to the three-month LIBOR plus 2.539% | | Semi-annually | | 494 | | | December 15, 2023 | Series H | | September 2018 | | 500,000 | | | 500 | | | 1/100th | | 100,000 | | | 1,000 | | | 5.625% to but excluding December 15, 2023, then a floating rate equal to the three-month LIBOR plus 2.539% | | Semi-annually | | 494 | | | December 15, 2023 |
(1)On the redemption date, or any dividend payment date thereafter, the preferred stock and corresponding depositary shares may be redeemed by us, in whole or in part, at the liquidation price per share and liquidation price per depositary share plus any declared and unpaid dividends, without accumulation of any undeclared dividends.
(2) The preferred stock and corresponding depositary shares may be redeemed at our option in whole, but not in part, prior to the redemption date upon the occurrence of a regulatory capital treatment event, as defined in the certificate of designation, at a redemption price equal to the liquidation price per share and liquidation price per depositary share plus any declared and unpaid dividends, without accumulation of any undeclared dividends.
(2) On the redemption date, or any dividend payment date thereafter, the preferred stock and corresponding depositary shares may be redeemed by us, in whole or in part, at the liquidation price per share and liquidation price per depositary share plus any declared and unpaid dividends, without accumulation of any undeclared dividends.
(3) Series F preferred stock is redeemable on September 15, 2020 and on each succeeding dividend payment date. We did not elect redemption on September 15, 2020, or December 15, 2020.2020, June 15, 2021 or September 15, 2021.
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On March 15, 2021, we redeemed an aggregate of $500 million, or 5,000 of the 7,500 outstanding shares of our non-cumulative perpetual preferred stock, Series F, for cash at a redemption price of $100,000 per share (equivalent to $1,000 per depositary share) plus all declared and unpaid dividends.
The following table presents the dividends declared for each of the series of preferred stock issued and outstanding for the periods indicated:
| | | | | Three Months Ended September 30, |
| | | 2021 | | 2020 |
| (Dollars in millions, except per share amounts) | | (Dollars in millions, except per share amounts) | Dividends Declared per Share | | Dividends Declared per Depositary Share | | Total | | Dividends Declared per Share | | Dividends Declared per Depositary Share | | Total |
| Preferred Stock: | | Preferred Stock: | | | | | | | | | | | |
| | Series D | | Series D | $ | 1,475 | | | $ | 0.37 | | | $ | 11 | | | $ | 1,475 | | | $ | 0.37 | | | $ | 11 | |
| | Series F | | Series F | 950 | | | 9.50 | | | 2 | | | 2,625 | | | 26.25 | | | 20 | |
| Series G | | Series G | 1,338 | | | 0.33 | | | 7 | | | 1,338 | | | 0.33 | | | 7 | |
| Series H | | Series H | — | | | — | | | — | | | — | | | — | | | — | |
| Total | | Total | | $ | 20 | | | $ | 38 | |
| | | Three Months Ended March 31, | | Nine Months Ended September 30, |
| | 2021 | | 2020 | | 2021 | | 2020 |
| (Dollars in millions, except per share amounts) | (Dollars in millions, except per share amounts) | Dividends Declared per Share | | Dividends Declared per Depositary Share | | Total | | Dividends Declared per Share | | Dividends Declared per Depositary Share | | Total | (Dollars in millions, except per share amounts) | Dividends Declared per Share | | Dividends Declared per Depositary Share | | Total | | Dividends Declared per Share | | Dividends Declared per Depositary Share | | Total |
| Preferred Stock: | Preferred Stock: | | | | | | | | | | | | Preferred Stock: | | | | | | | | | | | |
| Series C | Series C | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 1,313 | | | $ | 0.33 | | | $ | 6 | | Series C | $ | — | | | $ | — | | | $ | — | | | $ | 1,313 | | | $ | 0.33 | | | $ | 6 | |
| Series D | Series D | 1,475 | | | 0.37 | | | 11 | | | 1,475 | | | 0.37 | | | 11 | | Series D | 4,425 | | | 1.11 | | | 33 | | | 4,425 | | | 1.11 | | | 33 | |
| | Series F | Series F | 953 | | | 9.53 | | | 7 | | | 2,625 | | | 26.25 | | | 20 | | Series F | 2,869 | | | 28.69 | | | 11 | | | 5,250 | | | 52.50 | | | 40 | |
| Series G | Series G | 1,338 | | | 0.33 | | | 7 | | | 1,338 | | | 0.33 | | | 7 | | Series G | 4,014 | | | 0.99 | | | 21 | | | 4,014 | | | 0.99 | | | 21 | |
| Series H | Series H | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | Series H | 2,813 | | | 28.13 | | | 14 | | | 2,813 | | | 28.13 | | | 14 | |
| Total | Total | | $ | 25 | | | $ | 44 | | Total | | $ | 79 | | | $ | 114 | |
|
In AprilOctober 2021, we declared dividends on our series D, F, G and H preferred stock of approximately $1,475, $966,$939, $1,338 and $2,813, respectively, per share, or approximately $0.37, $9.66,$9.39, $0.33 and $28.13, respectively, per depositary share. These dividends total approximately $11 million, $2 million, $7 million and $14 million on our series D, F, G and H preferred stock, respectively, which will be paid in JuneDecember 2021.
Common Stock
In September 2021, we completed a public offering of approximately 21.7 million shares of our common stock. The offering price was $87.60 per share and net proceeds totaled approximately $1.9 billion. We expect to use these net proceeds to finance our proposed acquisition of the BBH Investor Services business.
In June 2019, our Board approved a common stock purchaseshare repurchase program authorizing the purchaserepurchase of up to $2.0 billion of our common stock from July 1, 2019 through June 30, 2020 (the 2019 Program). We repurchased $500 million of our common stock in each of the third and fourth quarters of 2019 and the first quarter of 2020 under the 2019 Program.
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On March 16, 2020, we, along with the other U.S. G-SIBs, suspended common share repurchases and maintained this suspension through the fourth quarter of 2020 in response to the COVID-19 pandemic. This suspension was consistent with limitations imposed by the Federal Reserve beginning in the second quarter of 2020. As a result, we had no repurchases of our common stock in the second, third or fourth quarters of 2020.
In December 2020, the Federal Reserve issued results of 2020 resubmission stress tests and authorized us to continue to pay common stock dividends at current levels and to resume repurchasing common shares in the first quarter of 2021. In January 2021, our Board authorized a share repurchase program for the purchaserepurchase of up to $475 million of our common stock through March 31, 2021. In April 2021, our Board authorized a share repurchase program for the purchaserepurchase of up to $425 million of our common stock through June 30, 2021, consistent with the limit set by the Federal Reserve. In July 2021, our Board authorized a share repurchase program for the repurchase of up to $3.0 billion of our common stock through the end of 2022.
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In connection with our proposed acquisition of the BBH Investor Services business, we did not purchase any common stock during the third quarter of 2021 under the common share repurchase plan approved by our Board in July 2021, and we do not intend to repurchase any common stock during the fourth quarter of 2021 and the first quarter of 2022. We intend to resume our common share repurchases during the second quarter of 2022.
The tables below present the activity under our common stock purchaseshare repurchase program for the periods indicated:
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Three Months Ended March 31, 2021 |
| | | | | | | | | | | | | Shares Acquired (In millions) | | Average Cost per Share | | Total Acquired (In millions) |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | 6.2 | | | $ | 76.21 | | | $ | 475 | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended September 30, 2021 | | Nine Months Ended September 30, 2021 |
| | | | | | | Shares Acquired
(In millions) | | Average Cost per Share | | Total Acquired
(In millions) | | Shares Acquired (In millions) | | Average Cost per Share | | Total Acquired (In millions) |
| | | | | | | | | | | | | | | | | |
| | | | | | | — | | | $ | — | | | $ | — | | | 11.2 | | | $ | 80.00 | | | $ | 900 | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Three Months Ended March 31, 2020 |
| | | | | | | | | | | | | Shares Acquired (In millions) | | Average Cost per Share | | Total Acquired (In millions) |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | 6.5 | | | $ | 77.35 | | | $ | 500 | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended September 30, 2020 | | Nine Months Ended September 30, 2020 |
| | | | | | | Shares Acquired
(In millions) | | Average Cost per Share | | Total Acquired
(In millions) | | Shares Acquired (In millions) | | Average Cost per Share | | Total Acquired (In millions) |
| | | | | | | | | | | | | | | | | |
| 2019 Program | | | | | | | — | | | $ | — | | | $ | — | | | 6.5 | | | $ | 77.35 | | | $ | 500 | |
| | | | | | | | | | | | | | | | | |
The table below presents the dividends declared on common stock for the periods indicated:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | |
| 2021 | | 2020 | | | | |
| Dividends Declared per Share | | Total (In millions) | | Dividends Declared per Share | | Total (In millions) | | | | | | | | |
| Common Stock | $ | 0.52 | | | $ | 182 | | | $ | 0.52 | | | $ | 183 | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | |
| 2021 | | 2020 | | | | |
| Dividends Declared per Share | | Total (In millions) | | Dividends Declared per Share | | Total (In millions) | | | | | | | | |
| Common Stock | $ | 0.57 | | | $ | 209 | | | $ | 0.52 | | | $ | 184 | | | | | | | | | |
| | | | | | | | | | | | | | | |
| Nine Months Ended September 30, | | |
| 2021 | | 2020 | | | | |
| Dividends Declared per Share | | Total (In millions) | | Dividends Declared per Share | | Total (In millions) | | | | | | | | |
| Common Stock | $ | 1.61 | | | $ | 570 | | | $ | 1.56 | | | $ | 550 | | | | | | | | | |
| | | | | | | | | | | | | | | |
Accumulated Other Comprehensive Income (Loss)
The following table presents the after-tax components of AOCI for the periods indicated:
| | | Three Months Ended March 31, | | | Nine Months Ended September 30, | |
| (In millions) | (In millions) | 2021 | | 2020 | | (In millions) | 2021 | | 2020 | |
| Net unrealized gains (losses) on cash flow hedges | Net unrealized gains (losses) on cash flow hedges | $ | 57 | | | $ | 47 | | | Net unrealized gains (losses) on cash flow hedges | $ | 41 | | | $ | 82 | | |
| Net unrealized gains (losses) on available-for-sale securities portfolio | Net unrealized gains (losses) on available-for-sale securities portfolio | 502 | | | 556 | | | Net unrealized gains (losses) on available-for-sale securities portfolio | 353 | | | 976 | | |
| Net unrealized gains (losses) related to reclassified available-for-sale securities | Net unrealized gains (losses) related to reclassified available-for-sale securities | (46) | | | 23 | | | Net unrealized gains (losses) related to reclassified available-for-sale securities | (39) | | | (68) | | |
| Net unrealized gains (losses) on available-for-sale securities | Net unrealized gains (losses) on available-for-sale securities | 456 | | | 579 | | | Net unrealized gains (losses) on available-for-sale securities | 314 | | | 908 | | |
| Net unrealized (losses) on available-for-sale securities designated in fair value hedges | Net unrealized (losses) on available-for-sale securities designated in fair value hedges | (21) | | | (43) | | | Net unrealized (losses) on available-for-sale securities designated in fair value hedges | (24) | | | (36) | | |
| | Net unrealized gains (losses) on hedges of net investments in non-U.S. subsidiaries | Net unrealized gains (losses) on hedges of net investments in non-U.S. subsidiaries | (69) | | | 154 | | | Net unrealized gains (losses) on hedges of net investments in non-U.S. subsidiaries | 18 | | | (54) | | |
| Other-than-temporary impairment on held-to-maturity securities related to factors other than credit | Other-than-temporary impairment on held-to-maturity securities related to factors other than credit | (2) | | | (2) | | | Other-than-temporary impairment on held-to-maturity securities related to factors other than credit | (2) | | | (2) | | |
| Net unrealized (losses) on retirement plans | Net unrealized (losses) on retirement plans | (170) | | | (175) | | | Net unrealized (losses) on retirement plans | (166) | | | (172) | | |
| Foreign currency translation | Foreign currency translation | (669) | | | (1,480) | | | Foreign currency translation | (863) | | | (837) | | |
| Total | Total | $ | (418) | | | $ | (920) | | | Total | $ | (682) | | | $ | (111) | | |
The following table presents changes in AOCI by component, net of related taxes, for the periods indicated:
| | (In millions) | (In millions) | Net Unrealized Gains (Losses) on Cash Flow Hedges | | Net Unrealized Gains (Losses) on Available-for-Sale Securities | | Net Unrealized Gains (Losses) on Hedges of Net Investments in Non-U.S. Subsidiaries | | Other-Than-Temporary Impairment on Held-to-Maturity Securities | | Net Unrealized Losses on Retirement Plans | | Foreign Currency Translation | | Total | (In millions) | Net Unrealized Gains (Losses) on Cash Flow Hedges | | Net Unrealized Gains (Losses) on Available-for-Sale Securities | | Net Unrealized Gains (Losses) on Hedges of Net Investments in Non-U.S. Subsidiaries | | Other-Than-Temporary Impairment on Held-to-Maturity Securities | | Net Unrealized Losses on Retirement Plans | | Foreign Currency Translation | | Total |
| | Balance as of December 31, 2020 | Balance as of December 31, 2020 | $ | 57 | | | $ | 848 | | | $ | (204) | | | $ | (2) | | | $ | (178) | | | $ | (334) | | | $ | 187 | | Balance as of December 31, 2020 | $ | 57 | | | $ | 848 | | | $ | (204) | | | $ | (2) | | | $ | (178) | | | $ | (334) | | | $ | 187 | |
| Other comprehensive income (loss) before reclassifications | Other comprehensive income (loss) before reclassifications | (15) | | | (413) | | | 135 | | | 0 | | | 0 | | | (335) | | | (628) | | Other comprehensive income (loss) before reclassifications | 35 | | | (558) | | | 222 | | | — | | | — | | | (529) | | | (830) | |
| | Amounts reclassified into earnings | 15 | | | 0 | | | 0 | | | 0 | | | 8 | | | 0 | | | 23 | | |
| Amounts reclassified into (out of) accumulated other comprehensive loss | | Amounts reclassified into (out of) accumulated other comprehensive loss | (51) | | | — | | | — | | | — | | | 12 | | | — | | | (39) | |
| Other comprehensive income (loss) | Other comprehensive income (loss) | 0 | | | (413) | | | 135 | | | 0 | | | 8 | | | (335) | | | (605) | | Other comprehensive income (loss) | (16) | | | (558) | | | 222 | | | — | | | 12 | | | (529) | | | (869) | |
| Balance as of March 31, 2021 | $ | 57 | | | $ | 435 | | | $ | (69) | | | $ | (2) | | | $ | (170) | | | $ | (669) | | | $ | (418) | | |
| Balance as of September 30, 2021 | | Balance as of September 30, 2021 | $ | 41 | | | $ | 290 | | | $ | 18 | | | $ | (2) | | | $ | (166) | | | $ | (863) | | | $ | (682) | |
State Street Corporation | 7988
STATE STREET CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
| | (In millions) | (In millions) | Net Unrealized Gains (Losses) on Cash Flow Hedges | | Net Unrealized Gains (Losses) on Available-for-Sale Securities | | Net Unrealized Gains (Losses) on Hedges of Net Investments in Non-U.S. Subsidiaries | | Other-Than-Temporary Impairment on Held-to-Maturity Securities | | Net Unrealized Losses on Retirement Plans | | Foreign Currency Translation | | Total | (In millions) | Net Unrealized Gains (Losses) on Cash Flow Hedges | | Net Unrealized Gains (Losses) on Available-for-Sale Securities | | Net Unrealized Gains (Losses) on Hedges of Net Investments in Non-U.S. Subsidiaries | | Other-Than-Temporary Impairment on Held-to-Maturity Securities | | Net Unrealized Losses on Retirement Plans | | Foreign Currency Translation | | Total |
| Balance as of December 31, 2019 | Balance as of December 31, 2019 | $ | (70) | | | $ | 409 | | | $ | 46 | | | $ | (2) | | | $ | (187) | | | $ | (1,072) | | | $ | (876) | | Balance as of December 31, 2019 | $ | (70) | | | $ | 409 | | | $ | 46 | | | $ | (2) | | | $ | (187) | | | $ | (1,072) | | | $ | (876) | |
| Other comprehensive income (loss) before reclassifications | Other comprehensive income (loss) before reclassifications | 112 | | | 126 | | | 108 | | | 0 | | | 0 | | | (408) | | | (62) | | Other comprehensive income (loss) before reclassifications | 189 | | | 462 | | | (100) | | | — | | | — | | | 235 | | | 786 | |
| | Amounts reclassified into (out of) earnings | 5 | | | 1 | | | 0 | | | 0 | | | 12 | | | 0 | | | 18 | | |
| Amounts reclassified into (out of) accumulated other comprehensive loss | | Amounts reclassified into (out of) accumulated other comprehensive loss | (37) | | | 1 | | | — | | | — | | | 15 | | | — | | | (21) | |
| Other comprehensive income (loss) | Other comprehensive income (loss) | 117 | | | 127 | | | 108 | | | 0 | | | 12 | | | (408) | | | (44) | | Other comprehensive income (loss) | 152 | | | 463 | | | (100) | | | — | | | 15 | | | 235 | | | 765 | |
| Balance as of March 31, 2020 | $ | 47 | | | $ | 536 | | | $ | 154 | | | $ | (2) | | | $ | (175) | | | $ | (1,480) | | | $ | (920) | | |
| Balance as of September 30, 2020 | | Balance as of September 30, 2020 | $ | 82 | | | $ | 872 | | | $ | (54) | | | $ | (2) | | | $ | (172) | | | $ | (837) | | | $ | (111) | |
|
The following table presents after-tax reclassifications into earnings for the periods indicated:
| | | | Three Months Ended September 30, | |
| | | 2021 | | 2020 | |
| (In millions) | | (In millions) | Amounts Reclassified (into)
out of Earnings | | Affected Line Item in Consolidated Statement of Income |
| | | | | | Cash flow hedges: | | Cash flow hedges: | | | |
| (Gain) reclassified from accumulated other comprehensive income into income, net of related taxes of $6 and $7, respectively | | (Gain) reclassified from accumulated other comprehensive income into income, net of related taxes of $6 and $7, respectively | $ | (18) | | | $ | (17) | | | Net interest income reclassified from other comprehensive income |
| Retirement plans: | | Retirement plans: | |
| Amortization of actuarial losses, net of related taxes of $1 and $1, respectively | | Amortization of actuarial losses, net of related taxes of $1 and $1, respectively | 2 | | | 1 | | | Compensation and employee benefits expenses |
| | Total reclassifications into (out of) Accumulated other comprehensive loss | | Total reclassifications into (out of) Accumulated other comprehensive loss | $ | (16) | | | $ | (16) | | |
| | | Three Months Ended March 31, | | | Nine Months Ended September 30, | |
| | 2021 | | 2020 | | | 2021 | | 2020 | |
| (In millions) | (In millions) | Amounts Reclassified into
(out of) Earnings | | Affected Line Item in Consolidated Statement of Income | (In millions) | Amounts Reclassified (into)
out of Earnings | | Affected Line Item in Consolidated Statement of Income |
| | Available-for-sale securities: | Available-for-sale securities: | | | | Available-for-sale securities: | | | |
| Net realized gains (losses) from sales of available-for-sale securities, net of related taxes of $0 and $1, respectively | Net realized gains (losses) from sales of available-for-sale securities, net of related taxes of $0 and $1, respectively | $ | 0 | | | $ | 1 | | | Net gains (losses) from sales of available-for-sale securities | Net realized gains (losses) from sales of available-for-sale securities, net of related taxes of $0 and $1, respectively | $ | — | | | $ | 1 | | | Net gains (losses) from sales of available-for-sale securities |
| | Cash flow hedges: | Cash flow hedges: | | Cash flow hedges: | |
| Gain reclassified from accumulated other comprehensive income into Income, net of related taxes of $6 and $2 | 15 | | | 5 | | | Net interest income reclassified from other comprehensive income | |
| (Gain) reclassified from accumulated other comprehensive income into income, net of related taxes of $19 and $14, respectively | | (Gain) reclassified from accumulated other comprehensive income into income, net of related taxes of $19 and $14, respectively | (51) | | | (37) | | | Net interest income reclassified from other comprehensive income |
| Retirement plans: | Retirement plans: | | Retirement plans: | |
| Amortization of actuarial losses, net of related taxes of $3 and $4, respectively | 8 | | | 12 | | | Compensation and employee benefits expenses | |
| Amortization of actuarial losses, net of related taxes of $5 and $5, respectively | | Amortization of actuarial losses, net of related taxes of $5 and $5, respectively | 12 | | | 15 | | | Compensation and employee benefits expenses |
| | Total reclassifications (into) out of Accumulated other comprehensive loss | $ | 23 | | | $ | 18 | | | |
| Total reclassifications into (out of) Accumulated other comprehensive loss | | Total reclassifications into (out of) Accumulated other comprehensive loss | $ | (39) | | | $ | (21) | | |
State Street Corporation | 89
STATE STREET CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 13. Regulatory Capital
For additional information on our regulatory capital, including the regulatory capital requirements administered by federal banking agencies, and to which we are subject, refer to page 174 in Note 16 to the consolidated financial statements included under Item 8, Financial Statements and Supplementary Data, in our 2020 Form 10-K.
As of March 31,September 30, 2021, we and State Street Bank exceeded all regulatory capital adequacy requirements to which we were subject to. As of March 31,September 30, 2021, State Street Bank was categorized as “well capitalized” under the applicable regulatory capital adequacy framework, and exceeded all “well capitalized” ratio guidelines to which it was subject. Management believes that no conditions or events have occurred since March 31,September 30, 2021 that have changed the capital categorization of State Street Bank.
The following table presents the regulatory capital structure, total RWA, related regulatory capital ratios and the minimum required regulatory capital ratios for us and State Street Bank as of the dates indicated.
State Street Corporation | 80
STATE STREET CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
| | | State Street Corporation | | State Street Bank | | State Street Corporation | | State Street Bank |
| (Dollars in millions) | (Dollars in millions) | Basel III Advanced Approaches March 31, 2021 | | Basel III Standardized Approach March 31, 2021 | | Basel III Advanced Approaches December 31, 2020 | | Basel III Standardized Approach December 31, 2020 | | Basel III Advanced Approaches March 31, 2021 | | Basel III Standardized Approach March 31, 2021 | | Basel III Advanced Approaches December 31, 2020 | | Basel III Standardized Approach December 31, 2020 | (Dollars in millions) | Basel III Advanced Approaches September 30, 2021 | | Basel III Standardized Approach September 30, 2021 | | Basel III Advanced Approaches December 31, 2020 | | Basel III Standardized Approach December 31, 2020 | | Basel III Advanced Approaches September 30, 2021 | | Basel III Standardized Approach September 30, 2021 | | Basel III Advanced Approaches December 31, 2020 | | Basel III Standardized Approach December 31, 2020 |
| Common shareholders' equity: | Common shareholders' equity: | | | | | | | | | | | | | | | | Common shareholders' equity: | | | | | | | | | | | | | | | |
| Common stock and related surplus | Common stock and related surplus | $ | 10,731 | | | $ | 10,731 | | | $ | 10,709 | | | $ | 10,709 | | | $ | 12,893 | | | $ | 12,893 | | | $ | 12,893 | | | $ | 12,893 | | Common stock and related surplus | $ | 11,267 | | | $ | 11,267 | | | $ | 10,709 | | | $ | 10,709 | | | $ | 12,887 | | | $ | 12,887 | | | $ | 12,893 | | | $ | 12,893 | |
| Retained earnings | Retained earnings | 23,751 | | | 23,751 | | | 23,442 | | | 23,442 | | | 13,479 | | | 13,479 | | | 12,939 | | | 12,939 | | Retained earnings | 24,785 | | | 24,785 | | | 23,442 | | | 23,442 | | | 14,919 | | | 14,919 | | | 12,939 | | | 12,939 | |
| Accumulated other comprehensive income (loss) | Accumulated other comprehensive income (loss) | (418) | | | (418) | | | 187 | | | 187 | | | (221) | | | (221) | | | 371 | | | 371 | | Accumulated other comprehensive income (loss) | (682) | | | (682) | | | 187 | | | 187 | | | (465) | | | (465) | | | 371 | | | 371 | |
| Treasury stock, at cost | Treasury stock, at cost | (11,035) | | | (11,035) | | | (10,609) | | | (10,609) | | | 0 | | | 0 | | | 0 | | | 0 | | Treasury stock, at cost | (10,032) | | | (10,032) | | | (10,609) | | | (10,609) | | | — | | | — | | | — | | | — | |
| Total | Total | 23,029 | | | 23,029 | | | 23,729 | | | 23,729 | | | 26,151 | | | 26,151 | | | 26,203 | | | 26,203 | | Total | 25,338 | | | 25,338 | | | 23,729 | | | 23,729 | | | 27,341 | | | 27,341 | | | 26,203 | | | 26,203 | |
| Regulatory capital adjustments: | Regulatory capital adjustments: | | Regulatory capital adjustments: | |
| Goodwill and other intangible assets, net of associated deferred tax liabilities | Goodwill and other intangible assets, net of associated deferred tax liabilities | (9,149) | | | (9,149) | | | (9,019) | | | (9,019) | | | (8,880) | | | (8,880) | | | (8,745) | | | (8,745) | | Goodwill and other intangible assets, net of associated deferred tax liabilities | (9,040) | | | (9,040) | | | (9,019) | | | (9,019) | | | (8,770) | | | (8,770) | | | (8,745) | | | (8,745) | |
Other adjustments(1) | Other adjustments(1) | (437) | | | (437) | | | (333) | | | (333) | | | (250) | | | (250) | | | (152) | | | (152) | | Other adjustments(1) | (467) | | | (467) | | | (333) | | | (333) | | | (281) | | | (281) | | | (152) | | | (152) | |
| Common equity tier 1 capital | Common equity tier 1 capital | 13,443 | | | 13,443 | | | 14,377 | | | 14,377 | | | 17,021 | | | 17,021 | | | 17,306 | | | 17,306 | | Common equity tier 1 capital | 15,831 | | | 15,831 | | | 14,377 | | | 14,377 | | | 18,290 | | | 18,290 | | | 17,306 | | | 17,306 | |
| Preferred stock | Preferred stock | 1,976 | | | 1,976 | | | 2,471 | | | 2,471 | | | 0 | | | 0 | | | 0 | | | 0 | | Preferred stock | 1,976 | | | 1,976 | | | 2,471 | | | 2,471 | | | — | | | — | | | — | | | — | |
| | Tier 1 capital | Tier 1 capital | 15,419 | | | 15,419 | | | 16,848 | | | 16,848 | | | 17,021 | | | 17,021 | | | 17,306 | | | 17,306 | | Tier 1 capital | 17,807 | | | 17,807 | | | 16,848 | | | 16,848 | | | 18,290 | | | 18,290 | | | 17,306 | | | 17,306 | |
| Qualifying subordinated long-term debt | Qualifying subordinated long-term debt | 1,801 | | | 1,801 | | | 961 | | | 961 | | | 963 | | | 963 | | | 966 | | | 966 | | Qualifying subordinated long-term debt | 1,590 | | | 1,590 | | | 961 | | | 961 | | | 754 | | | 754 | | | 966 | | | 966 | |
| | Allowance for credit losses | Allowance for credit losses | 0 | | | 135 | | | 1 | | | 148 | | | 0 | | | 135 | | | 10 | | | 148 | | Allowance for credit losses | — | | | 117 | | | 1 | | | 148 | | | — | | | 117 | | | 10 | | | 148 | |
| | Total capital | Total capital | $ | 17,220 | | | $ | 17,355 | | | $ | 17,810 | | | $ | 17,957 | | | $ | 17,984 | | | $ | 18,119 | | | $ | 18,282 | | | $ | 18,420 | | Total capital | $ | 19,397 | | | $ | 19,514 | | | $ | 17,810 | | | $ | 17,957 | | | $ | 19,044 | | | $ | 19,161 | | | $ | 18,282 | | | $ | 18,420 | |
| Risk-weighted assets: | Risk-weighted assets: | | | | | | | | | | | | | | | | Risk-weighted assets: | | | | | | | | | | | | | | | |
Credit risk(2) | Credit risk(2) | $ | 66,726 | | | $ | 122,074 | | | $ | 63,367 | | | $ | 114,892 | | | $ | 62,082 | | | $ | 119,020 | | | $ | 58,960 | | | $ | 110,797 | | Credit risk(2) | $ | 66,503 | | | $ | 114,604 | | | $ | 63,367 | | | $ | 114,892 | | | $ | 59,635 | | | $ | 111,464 | | | $ | 58,960 | | | $ | 110,797 | |
Operational risk(3) | Operational risk(3) | 44,075 | | | NA | | 44,150 | | | NA | | 43,600 | | | NA | | 43,663 | | | NA | Operational risk(3) | 45,750 | | | NA | | 44,150 | | | NA | | 43,113 | | | NA | | 43,663 | | | NA |
| Market risk | Market risk | 2,250 | | | 2,250 | | | 2,188 | | | 2,188 | | | 2,250 | | | 2,250 | | | 2,188 | | | 2,188 | | Market risk | 2,625 | | | 2,625 | | | 2,188 | | | 2,188 | | | 2,625 | | | 2,625 | | | 2,188 | | | 2,188 | |
| Total risk-weighted assets | Total risk-weighted assets | $ | 113,051 | | | $ | 124,324 | | | $ | 109,705 | | | $ | 117,080 | | | $ | 107,932 | | | $ | 121,270 | | | $ | 104,811 | | | $ | 112,985 | | Total risk-weighted assets | $ | 114,878 | | | $ | 117,229 | | | $ | 109,705 | | | $ | 117,080 | | | $ | 105,373 | | | $ | 114,089 | | | $ | 104,811 | | | $ | 112,985 | |
| | Adjusted quarterly average assets | Adjusted quarterly average assets | $ | 285,480 | | | $ | 285,480 | | | $ | 263,490 | | | $ | 263,490 | | | $ | 282,319 | | | $ | 282,319 | | | $ | 260,489 | | | $ | 260,489 | | Adjusted quarterly average assets | $ | 281,952 | | | $ | 281,952 | | | $ | 263,490 | | | $ | 263,490 | | | $ | 278,705 | | | $ | 278,705 | | | $ | 260,489 | | | $ | 260,489 | |
| | Capital Ratios: | Capital Ratios: | 2021 Minimum Requirements(4) | 2020 Minimum Requirements(4) | | | | Capital Ratios: | 2021 Minimum Requirements(4) | 2020 Minimum Requirements(4) | | | |
| Common equity tier 1 capital | Common equity tier 1 capital | 8.0 | % | 8.0 | % | 11.9 | % | | 10.8 | % | | 13.1 | % | | 12.3 | % | | 15.8 | % | | 14.0 | % | | 16.5 | % | | 15.3 | % | Common equity tier 1 capital | 8.0 | % | 8.0 | % | 13.8 | % | | 13.5 | % | | 13.1 | % | | 12.3 | % | | 17.4 | % | | 16.0 | % | | 16.5 | % | | 15.3 | % |
| Tier 1 capital | Tier 1 capital | 9.5 | | 9.5 | | 13.6 | | | 12.4 | | | 15.4 | | | 14.4 | | | 15.8 | | | 14.0 | | | 16.5 | | | 15.3 | | Tier 1 capital | 9.5 | | 9.5 | | 15.5 | | | 15.2 | | | 15.4 | | | 14.4 | | | 17.4 | | | 16.0 | | | 16.5 | | | 15.3 | |
| Total capital | Total capital | 11.5 | | 11.5 | | 15.2 | | | 14.0 | | | 16.2 | | | 15.3 | | | 16.7 | | | 14.9 | | | 17.4 | | | 16.3 | | Total capital | 11.5 | | 11.5 | | 16.9 | | | 16.6 | | | 16.2 | | | 15.3 | | | 18.1 | | | 16.8 | | | 17.4 | | | 16.3 | |
Tier 1 leverage(5) | Tier 1 leverage(5) | 4.0 | | 4.0 | | 5.4 | | | 5.4 | | | 6.4 | | | 6.4 | | | 6.0 | | | 6.0 | | | 6.6 | | | 6.6 | | Tier 1 leverage(5) | 4.0 | | 4.0 | | 6.3 | | | 6.3 | | | 6.4 | | | 6.4 | | | 6.6 | | | 6.6 | | | 6.6 | | | 6.6 | |
(1) Other adjustments within CET1 capital primarily include the overfunded portion of our defined benefit pension plan obligation net of associated deferred tax liabilities, disallowed deferred tax assets, and other required credit risk basedrisk-based deductions.
(2) Includes a CVA which reflects the risk of potential fair value adjustments for credit risk reflected in our valuation of OTC derivative contracts. We used a simple CVA approach in conformity with the Basel III advanced approaches.
(3) Under the current advanced approaches rules and regulatory guidance concerning operational risk models, RWA attributable to operational risk can vary substantially from period-to-period, without direct correlation to the effects of a particular loss event on our results of operations and financial condition and impacting dates and periods that may differ from the dates and periods as of and during which the loss event is reflected in our financial statements, with the timing and categorization dependent on the processes for model updates and, if applicable, model revalidation and regulatory review and related supervisory processes. An individual loss event can have a significant effect on the output of our operational RWA under the advanced approaches depending on the severity of the loss event and its categorization among the seven Basel-defined UOMs.
(4) Minimum requirements include a CCB of 2.5% and a SCB of 2.5% for the advanced approaches and the standardized approach, respectively, a G-SIB surcharge of 1.0% and a countercyclical buffer of 0%.
(5) State Street Bank is required to maintain a minimum Tier 1 leverage ratio of 5%5.0% as it is the insured depository institution subsidiary of one of the eightState Street Corporation, a U.S. G-SIBs.G-SIB.
NA Not applicable
State Street Corporation | 8190
STATE STREET CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 14. Net Interest Income
The following table presents the components of interest income and interest expense, and related NII, for the periods indicated:
| | | | Three Months Ended March 31, | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| (In millions) | (In millions) | | 2021 | | 2020 | | (In millions) | 2021 | | 2020 | | 2021 | | 2020 | |
| Interest income: | Interest income: | | | | | | Interest income: | | | | | | | | |
| Interest-bearing deposits with banks | Interest-bearing deposits with banks | | $ | (9) | | | $ | 81 | | | Interest-bearing deposits with banks | $ | — | | | $ | (6) | | | $ | (13) | | | $ | 79 | | |
| Investment securities: | Investment securities: | | | | Investment securities: | | |
| | Investment securities available-for-sale | Investment securities available-for-sale | | 140 | | | 213 | | | Investment securities available-for-sale | 150 | | | 169 | | | 435 | | | 609 | | |
| Investment securities held-to-maturity | Investment securities held-to-maturity | | 180 | | | 271 | | | Investment securities held-to-maturity | 158 | | | 171 | | | 501 | | | 631 | | |
| Investment securities purchased under money market liquidity facility | Investment securities purchased under money market liquidity facility | | 4 | | | 8 | | | Investment securities purchased under money market liquidity facility | — | | | 25 | | | 4 | | | 103 | | |
| | Total investment securities | | Total investment securities | 308 | | | 365 | | | 940 | | | 1,343 | | |
| Securities purchased under resale agreements | Securities purchased under resale agreements | | 10 | | | 65 | | | Securities purchased under resale agreements | 6 | | | 20 | | | 19 | | | 109 | | |
| Loans | Loans | | 141 | | | 184 | | | Loans | 168 | | | 138 | | | 466 | | | 479 | | |
| Other interest-earning assets | Other interest-earning assets | | 5 | | | 46 | | | Other interest-earning assets | 5 | | | 3 | | | 13 | | | 52 | | |
| Total interest income | Total interest income | | 471 | | | 868 | | | Total interest income | 487 | | | 520 | | | 1,425 | | | 2,062 | | |
| Interest expense: | Interest expense: | | | | | | Interest expense: | | | | | | | | |
| Interest-bearing deposits | Interest-bearing deposits | | (69) | | | 68 | | | Interest-bearing deposits | (62) | | | (61) | | | (196) | | | (47) | | |
| Short term borrowings under money market liquidity facility | | 4 | | | 6 | | | |
| Short-term borrowings under money market liquidity facility | | Short-term borrowings under money market liquidity facility | — | | | 23 | | | 4 | | | 87 | | |
| Securities sold under repurchase agreements | Securities sold under repurchase agreements | | 0 | | | 2 | | | Securities sold under repurchase agreements | — | | | — | | | — | | | 3 | | |
| Other short-term borrowings | Other short-term borrowings | | 0 | | | 10 | | | Other short-term borrowings | — | | | 2 | | | 1 | | | 17 | | |
| Long-term debt | Long-term debt | | 60 | | | 88 | | | Long-term debt | 51 | | | 69 | | | 165 | | | 252 | | |
| Other interest-bearing liabilities | Other interest-bearing liabilities | | 9 | | | 30 | | | Other interest-bearing liabilities | 11 | | | 9 | | | 30 | | | 49 | | |
| Total interest expense | Total interest expense | | 4 | | | 204 | | | Total interest expense | — | | | 42 | | | 4 | | | 361 | | |
| Net interest income | Net interest income | | $ | 467 | | | $ | 664 | | | Net interest income | $ | 487 | | | $ | 478 | | | $ | 1,421 | | | $ | 1,701 | | |
Note 15. Expenses
The following table presents the components of other expenses for the periods indicated:
| | | | | | | | | | | | | | | | |
| | | Three Months Ended March 31, |
| (In millions) | | | | 2021 | | 2020 | | |
| Professional services | | | | $ | 80 | | | $ | 81 | | | |
| Regulatory fees and assessments | | | | 18 | | | 12 | | | |
| Sales advertising public relations | | | | 17 | | | 18 | | | |
| Securities processing | | | | 12 | | | 15 | | | |
| Insurance | | | | 3 | | | 5 | | | |
| | | | | | | | |
| Bank operations | | | | 2 | | | 9 | | | |
| | | | | | | | |
| Other | | | | 90 | | | 90 | | | |
| Total other expenses | | | | $ | 222 | | | $ | 230 | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| (In millions) | 2021 | | 2020 | | 2021 | | 2020 | | |
| Professional services | $ | 91 | | | $ | 89 | | | $ | 246 | | | $ | 261 | | | |
| Regulatory fees and assessments | 16 | | | 16 | | | 53 | | | 45 | | | |
| Sales advertising public relations | 13 | | | 20 | | | 46 | | | 50 | | | |
| | | | | | | | | |
| | | | | | | | | |
| Securities processing | 8 | | | 10 | | | 22 | | | 40 | | | |
| Insurance | 3 | | | 2 | | | 9 | | | 10 | | | |
| Bank operations | 3 | | | 2 | | | 7 | | | 15 | | | |
| | | | | | | | | |
| Other | 87 | | | 90 | | | 259 | | | 281 | | | |
| Total other expenses | $ | 221 | | | $ | 229 | | | $ | 642 | | | $ | 702 | | | |
Acquisition Costs
We recorded approximately $11 million and $33 million of acquisition costs in the first quarter ofthree and nine months ended September 30, 2021, respectively, compared to $11$15 million and $38 million in the same periodperiods in 2020, respectively, related to our acquisition of CRD. In addition, we recorded approximately $7 million of acquisition costs in the third quarter of 2021 related to our proposed acquisition of the BBH Investor Services business.
State Street Corporation | 91
STATE STREET CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Restructuring and Repositioning Charges
The following table presents aggregate activity for repositioning charges for the periods indicated:
| | (In millions) | (In millions) | Employee
Related Costs | | Real Estate
Actions | | | Asset and Other Write-offs | | Total | (In millions) | Employee
Related Costs | | Real Estate
Actions | | | Asset and Other Write-offs | | Total |
| Accrual Balance at December 31, 2019 | Accrual Balance at December 31, 2019 | $ | 190 | | | $ | 7 | | | | $ | 1 | | | $ | 198 | | Accrual Balance at December 31, 2019 | $ | 190 | | | $ | 7 | | | | $ | 1 | | | $ | 198 | |
| | Payments and Other Adjustments | Payments and Other Adjustments | (33) | | | (1) | | | | 0 | | | (34) | | Payments and Other Adjustments | (33) | | | (1) | | | | — | | | (34) | |
| Accrual Balance at March 31, 2020 | Accrual Balance at March 31, 2020 | $ | 157 | | | $ | 6 | | | | $ | 1 | | | $ | 164 | | Accrual Balance at March 31, 2020 | 157 | | | 6 | | | | 1 | | | 164 | |
| | Payments and Other Adjustments | | Payments and Other Adjustments | (25) | | | (1) | | | | — | | | (26) | |
| Accrual Balance at June 30, 2020 | | Accrual Balance at June 30, 2020 | 132 | | | 5 | | | | 1 | | | 138 | |
| Payments and Other Adjustments | | Payments and Other Adjustments | (10) | | | 1 | | | | (1) | | | (10) | |
| Accrual Balance at September 30, 2020 | | Accrual Balance at September 30, 2020 | $ | 122 | | | $ | 6 | | | | $ | — | | | $ | 128 | |
| Accrual Balance at December 31, 2020 | Accrual Balance at December 31, 2020 | $ | 190 | | | $ | 6 | | | | $ | 0 | | | $ | 196 | | Accrual Balance at December 31, 2020 | $ | 190 | | | $ | 6 | | | | $ | — | | | $ | 196 | |
| Accruals for Beacon | Accruals for Beacon | (1) | | | 0 | | | | 0 | | | (1) | | Accruals for Beacon | (1) | | | — | | | | — | | | (1) | |
| Accruals for Repositioning Charges | Accruals for Repositioning Charges | 0 | | | 2 | | | | 0 | | | 2 | | Accruals for Repositioning Charges | — | | | 2 | | | | — | | | 2 | |
| Payments and Other Adjustments | Payments and Other Adjustments | (9) | | | (2) | | | | 0 | | | (11) | | Payments and Other Adjustments | (9) | | | (2) | | | | — | | | (11) | |
| Accrual Balance at March 31, 2021 | Accrual Balance at March 31, 2021 | $ | 180 | | | $ | 6 | | | | $ | 0 | | | $ | 186 | | Accrual Balance at March 31, 2021 | 180 | | | 6 | | | | — | | | 186 | |
| | | Payments and Other Adjustments | | Payments and Other Adjustments | (34) | | | — | | | | — | | | (34) | |
| | Accrual Balance at June 30, 2021 | | Accrual Balance at June 30, 2021 | 146 | | | 6 | | | | — | | | 152 | |
| Payments and Other Adjustments | | Payments and Other Adjustments | (23) | | | — | | | | — | | | (23) | |
| Accrual Balance at September 30, 2021 | | Accrual Balance at September 30, 2021 | $ | 123 | | | $ | 6 | | | | $ | — | | | $ | 129 | |
Note 16. Earnings Per Common Share
For additional information on our earnings per share calculation methodologies, refer to pages 181 to 182 in Note 23 to the consolidated financial statements included under Item 8, Financial Statements and Supplementary Data, in our 2020 Form 10-K.
The following table presents the computation of basic and diluted earnings per common share for the periods indicated:
| | | Three Months Ended March 31, | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| (Dollars in millions, except per share amounts) | (Dollars in millions, except per share amounts) | 2021 | | 2020 | | (Dollars in millions, except per share amounts) | 2021 | | 2020 | | 2021 | | 2020 | |
| Net income | Net income | $ | 519 | | | $ | 634 | | | Net income | $ | 714 | | | $ | 555 | | | $ | 1,996 | | | $ | 1,883 | | |
| Less: | Less: | | | Less: | | |
| Preferred stock dividends | Preferred stock dividends | (30) | | | (53) | | | Preferred stock dividends | (21) | | | (38) | | | (85) | | | (123) | | |
Dividends and undistributed earnings allocated to participating securities(1) | Dividends and undistributed earnings allocated to participating securities(1) | 0 | | | (1) | | | Dividends and undistributed earnings allocated to participating securities(1) | — | | | — | | | (1) | | | (1) | | |
| Net income available to common shareholders | Net income available to common shareholders | $ | 489 | | | $ | 580 | | | Net income available to common shareholders | $ | 693 | | | $ | 517 | | | $ | 1,910 | | | $ | 1,759 | | |
| Average common shares outstanding (In thousands): | Average common shares outstanding (In thousands): | | | | | Average common shares outstanding (In thousands): | | | | | | | | |
| Basic average common shares | Basic average common shares | 350,743 | | | 353,746 | | | Basic average common shares | 347,718 | | | 352,586 | | | 348,106 | | | 352,829 | | |
| Effect of dilutive securities: equity-based awards | Effect of dilutive securities: equity-based awards | 4,947 | | | 4,247 | | | Effect of dilutive securities: equity-based awards | 5,776 | | | 4,582 | | | 5,270 | | | 4,142 | | |
| Diluted average common shares | Diluted average common shares | 355,690 | | | 357,993 | | | Diluted average common shares | 353,494 | | | 357,168 | | | 353,376 | | | 356,971 | | |
Anti-dilutive securities(2) | Anti-dilutive securities(2) | 255 | | | 918 | | | Anti-dilutive securities(2) | 97 | | | 1,309 | | | 119 | | | 1,351 | | |
| Earnings per common share: | Earnings per common share: | | | Earnings per common share: | | |
| Basic | Basic | $ | 1.39 | | | $ | 1.64 | | | Basic | $ | 1.99 | | | $ | 1.47 | | | $ | 5.49 | | | $ | 4.99 | | |
Diluted(3) | Diluted(3) | 1.37 | | | 1.62 | | | Diluted(3) | 1.96 | | | 1.45 | | | 5.40 | | | 4.93 | | |
|
(1) 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.
(2) Represents equity-based awards outstanding but not included in the computation of diluted average common shares, because their effect was anti-dilutive. Additional information about equity-based awards is provided on pages 176 and 177 in Note 18 to the consolidated financial statements included under Item 8, Financial Statements and Supplementary Data, in our 2020 Form 10-K.
(3) Calculations reflect allocation of earnings to participating securities using the two-class method, as this computation is more dilutive than the treasury stock method.
State Street Corporation | 8292
STATE STREET CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 17. Line of Business Information
Our operations are organized into 2 lines of business: Investment Servicing and Investment Management, which are defined based on products and services provided. The results of operations for these lines of business are not necessarily comparable with those of other companies, including companies in the financial services industry. For information about our 2 lines of business, as well as revenues, expenses and capital allocation methodologies associated with them, refer to pages 182 to 183 in Note 24 to the consolidated financial statements included under Item 8, Financial Statements and Supplementary Data, in our 2020 Form 10-K.
The following table is a summary of our line of business results for the periods indicated. The "Other" columns represent costs incurred that are not allocated to a specific line of business, certain employee costs, including certain severance and restructuring costs, acquisition costs and certain provisions for legal contingencies.
| | | | Three Months Ended September 30, |
| | | Investment
Servicing | | | Investment
Management | | | Other | | | Total |
| (Dollars in millions) | | (Dollars in millions) | 2021 | | 2020 | | | 2021 | | 2020 | | | 2021 | | 2020 | | | 2021 | | 2020 | |
| Servicing fees | | Servicing fees | $ | 1,395 | | | $ | 1,301 | | | | $ | — | | | $ | — | | | | $ | — | | | $ | — | | | | $ | 1,395 | | | $ | 1,301 | | |
| Management fees | | Management fees | — | | | — | | | | 526 | | | 479 | | | | — | | | — | | | | 526 | | | 479 | | |
| Foreign exchange trading services | | Foreign exchange trading services | 266 | | | 252 | | | | 13 | | | 18 | | | | — | | | — | | | | 279 | | | 270 | | |
| Securities finance | | Securities finance | 103 | | | 81 | | | | 3 | | | 3 | | | | — | | | — | | | | 106 | | | 84 | | |
Software and processing fees (1) | | Software and processing fees (1) | 204 | | | 162 | | | | (6) | | | 10 | | | | — | | | — | | | | 198 | | | 172 | | |
| Total fee revenue | | Total fee revenue | 1,968 | | | 1,796 | | | | 536 | | | 510 | | | | — | | | — | | | | 2,504 | | | 2,306 | | |
| Net interest income | | Net interest income | 491 | | | 482 | | | | (4) | | | (4) | | | | — | | | — | | | | 487 | | | 478 | | |
| Total other income | | Total other income | (1) | | | — | | | | — | | | — | | | | — | | | — | | | | (1) | | | — | | |
| Total revenue | | Total revenue | 2,458 | | | 2,278 | | | | 532 | | | 506 | | | | — | | | — | | | | 2,990 | | | 2,784 | | |
| Provision for credit losses | | Provision for credit losses | (2) | | | — | | | | — | | | — | | | | — | | | — | | | | (2) | | | — | | |
| | | | | Total expenses | | Total expenses | 1,755 | | | 1,739 | | | | 339 | | | 358 | | | | 22 | | | 6 | | | | 2,116 | | | 2,103 | | |
| Income before income tax expense | | Income before income tax expense | $ | 705 | | | $ | 539 | | | | $ | 193 | | | $ | 148 | | | | $ | (22) | | | $ | (6) | | | | $ | 876 | | | $ | 681 | | |
| Pre-tax margin | | Pre-tax margin | 29 | % | | 24 | % | | | 36 | % | | 29 | % | | | | | | | | 29 | % | | 24 | % | |
| | | Three Months Ended March 31, | | Nine Months Ended September 30, |
| | Investment
Servicing | | Investment
Management | | Other | | Total | | Investment
Servicing | | | Investment
Management | | | Other | | | Total |
| (Dollars in millions) | (Dollars in millions) | 2021 | | 2020 | | | 2021 | | 2020 | | | 2021 | | 2020 | | | 2021 | | 2020 | | (Dollars in millions) | 2021 | | 2020 | | | 2021 | | 2020 | | | 2021 | | 2020 | | | 2021 | | 2020 | |
| Servicing fees | Servicing fees | $ | 1,371 | | | $ | 1,287 | | | | $ | 0 | | | $ | 0 | | | | $ | 0 | | | $ | 0 | | | | $ | 1,371 | | | $ | 1,287 | | | Servicing fees | $ | 4,165 | | | $ | 3,860 | | | | $ | — | | | $ | — | | | | $ | — | | | $ | — | | | | $ | 4,165 | | | $ | 3,860 | | |
| Management fees | Management fees | 0 | | | 0 | | | | 493 | | | 464 | | | | 0 | | | 0 | | | | 493 | | | 464 | | | Management fees | — | | | — | | | | 1,523 | | | 1,387 | | | | — | | | — | | | | 1,523 | | | 1,387 | | |
| Foreign exchange trading services | Foreign exchange trading services | 333 | | | 434 | | | | 13 | | | 10 | | | | 0 | | | 0 | | | | 346 | | | 444 | | | Foreign exchange trading services | 869 | | | 998 | | | | 42 | | | 41 | | | | — | | | — | | | | 911 | | | 1,039 | | |
| Securities finance | Securities finance | 95 | | | 89 | | | | 4 | | | 3 | | | | 0 | | | 0 | | | | 99 | | | 92 | | | Securities finance | 304 | | | 258 | | | | 10 | | | 10 | | | | — | | | — | | | | 314 | | | 268 | | |
Software and processing fees(2)(1) | Software and processing fees(2)(1) | 172 | | | 137 | | | | 2 | | | (25) | | | | 0 | | | 0 | | | | 174 | | | 112 | | | Software and processing fees(2)(1) | 585 | | | 528 | | | | 3 | | | 1 | | | | — | | | — | | | | 588 | | | 529 | | |
Total fee revenue(1) | 1,971 | | | 1,947 | | | | 512 | | | 452 | | | | 0 | | | 0 | | | | 2,483 | | | 2,399 | | | |
| Total fee revenue | | Total fee revenue | 5,923 | | | 5,644 | | | | 1,578 | | | 1,439 | | | | — | | | — | | | | 7,501 | | | 7,083 | | |
| Net interest income | Net interest income | 473 | | | 663 | | | | (6) | | | 1 | | | | 0 | | | 0 | | | | 467 | | | 664 | | | Net interest income | 1,432 | | | 1,716 | | | | (11) | | | (15) | | | | — | | | — | | | | 1,421 | | | 1,701 | | |
| Total other income | Total other income | 0 | | | 2 | | | | 0 | | | 0 | | | | 0 | | | 0 | | | | 0 | | | 2 | | | Total other income | (1) | | | 2 | | | | — | | | — | | | | 53 | | | — | | | | 52 | | | 2 | | |
Total revenue(1) | 2,444 | | | 2,612 | | | | 506 | | | 453 | | | | 0 | | | 0 | | | | 2,950 | | | 3,065 | | | |
| Total revenue | | Total revenue | 7,354 | | | 7,362 | | | | 1,567 | | | 1,424 | | | | 53 | | | — | | | | 8,974 | | | 8,786 | | |
| Provision for credit losses | Provision for credit losses | (9) | | | 36 | | | | 0 | | | 0 | | | | 0 | | | 0 | | | | (9) | | | 36 | | | Provision for credit losses | (26) | | | 88 | | | | — | | | — | | | | — | | | — | | | | (26) | | | 88 | | |
| Total expenses(1) | 1,879 | | | 1,859 | | | | 397 | | | 385 | | | | 56 | | | 11 | | | | 2,332 | | | 2,255 | | | |
| Total expenses | | Total expenses | 5,389 | | | 5,315 | | | | 1,082 | | | 1,096 | | | | 88 | | | 29 | | | | 6,559 | | | 6,440 | | |
| Income before income tax expense | Income before income tax expense | $ | 574 | | | $ | 717 | | | | $ | 109 | | | $ | 68 | | | | $ | (56) | | | $ | (11) | | | | $ | 627 | | | $ | 774 | | | Income before income tax expense | $ | 1,991 | | | $ | 1,959 | | | | $ | 485 | | | $ | 328 | | | | $ | (35) | | | $ | (29) | | | | 2,441 | | | $ | 2,258 | | |
| Pre-tax margin | Pre-tax margin | 23 | % | | 27 | % | | | 21 | % | | 15 | % | | | | | | | | 21 | % | | 25 | % | | Pre-tax margin | 27 | % | | 27 | % | | | 31 | % | | 23 | % | | | | | | | | 27 | % | | 26 | % | |
|
(1) Investment Servicing includes results from our acquisition of CRD on October 1, 2018.
(2) Investment Management includes other revenue items that are primarily driven by equity market movements.
State Street Corporation | 8393
STATE STREET CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 18. Revenue from Contracts with Customers
For additional information on the nature of services and our revenue from contracts with customers, including revenues associated with both our Investment Servicing and Investment Management lines of business, refer to pages 184 to 186 in Note 25 to the consolidated financial statements included under Item 8, Financial Statements and Supplementary Data, in our 2020 Form 10-K.
Revenue by category
In the following table,tables, revenue is disaggregated by our 2 lines of business and by revenue stream for which the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors.
| | | Three Months Ended March 31, 2021 | | Three Months Ended September 30, 2021 |
| | Investment Servicing | | Investment Management | | | | Total | | Investment Servicing | | Investment Management | | Other | | Total |
| (Dollars in millions) | (Dollars in millions) | Topic 606 revenue | | All other revenue | | Total | | Topic 606 revenue | | All other revenue | | Total | | | | 2021 | (Dollars in millions) | Topic 606 revenue | | All other revenue | | Total | | Topic 606 revenue | | All other revenue | | Total | | Topic 606 revenue | | All other revenue | | Total | | 2021 |
| Servicing fees | Servicing fees | $ | 1,371 | | | $ | 0 | | | $ | 1,371 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | | | $ | 1,371 | | Servicing fees | $ | 1,395 | | | $ | — | | | 1,395 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 1,395 | |
| Management fees | Management fees | 0 | | | 0 | | | 0 | | | 493 | | | 0 | | | 493 | | | | | 493 | | Management fees | — | | | — | | | — | | | 526 | | | — | | | 526 | | | — | | | — | | | — | | | 526 | |
| Foreign exchange trading services | Foreign exchange trading services | 95 | | | 238 | | | 333 | | | 13 | | | 0 | | | 13 | | | | | 346 | | Foreign exchange trading services | 82 | | | 184 | | | 266 | | | 13 | | | — | | | 13 | | | — | | | — | | | — | | | 279 | |
| Securities finance | Securities finance | 60 | | | 35 | | | 95 | | | 0 | | | 4 | | | 4 | | | | | 99 | | Securities finance | 60 | | | 43 | | | 103 | | | — | | | 3 | | | 3 | | | — | | | — | | | — | | | 106 | |
| Software and processing fees | Software and processing fees | 108 | | | 64 | | | 172 | | | 0 | | | 2 | | | 2 | | | | | 174 | | Software and processing fees | 126 | | | 78 | | | 204 | | | — | | | (6) | | | (6) | | | — | | | — | | | — | | | 198 | |
| Total fee revenue | Total fee revenue | 1,634 | | | 337 | | | 1,971 | | | 506 | | | 6 | | | 512 | | | | | 2,483 | | Total fee revenue | 1,663 | | | 305 | | | 1,968 | | | 539 | | | (3) | | | 536 | | | — | | | — | | | — | | | 2,504 | |
| Net interest income | Net interest income | 0 | | | 473 | | | 473 | | | 0 | | | (6) | | | (6) | | | | | 467 | | Net interest income | — | | | 491 | | | 491 | | | — | | | (4) | | | (4) | | | — | | | — | | | — | | | 487 | |
| Total other income | Total other income | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | | | 0 | | Total other income | — | | | (1) | | | (1) | | | — | | | — | | | — | | | — | | | — | | | — | | | (1) | |
| Total revenue | Total revenue | $ | 1,634 | | | $ | 810 | | | $ | 2,444 | | | $ | 506 | | | $ | 0 | | | $ | 506 | | | | | $ | 2,950 | | Total revenue | $ | 1,663 | | | $ | 795 | | | $ | 2,458 | | | $ | 539 | | | $ | (7) | | | $ | 532 | | | $ | — | | | $ | — | | | $ | — | | | $ | 2,990 | |
| | | Three Months Ended March 31, 2020 | | Nine Months Ended September 30, 2021 |
| | Investment Servicing | | Investment Management | | | | Total | | Investment Servicing | | Investment Management | | Other | | Total |
| (Dollars in millions) | (Dollars in millions) | Topic 606 revenue | | All other revenue | | Total | | Topic 606 revenue | | All other revenue | | Total | | | | 2020 | (Dollars in millions) | Topic 606 revenue | | All other revenue | | Total | | Topic 606 revenue | | All other revenue | | Total | | Topic 606 revenue | | All other revenue | | Total | | 2021 |
| Servicing fees | Servicing fees | $ | 1,287 | | | $ | 0 | | | $ | 1,287 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | | | $ | 1,287 | | Servicing fees | $ | 4,165 | | | $ | — | | | $ | 4,165 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 4,165 | |
| Management fees | Management fees | 0 | | | 0 | | | 0 | | | 464 | | | 0 | | | 464 | | | | | 464 | | Management fees | — | | | — | | | — | | | 1,523 | | | — | | | 1,523 | | | — | | | — | | | — | | | 1,523 | |
| Foreign exchange trading services | Foreign exchange trading services | 100 | | | 334 | | | 434 | | | 10 | | | 0 | | | 10 | | | | | 444 | | Foreign exchange trading services | 260 | | | 609 | | | 869 | | | 42 | | | — | | | 42 | | | — | | | — | | | — | | | 911 | |
| Securities finance | Securities finance | 57 | | | 32 | | | 89 | | | 0 | | | 3 | | | 3 | | | | | 92 | | Securities finance | 181 | | | 123 | | | 304 | | | — | | | 10 | | | 10 | | | — | | | — | | | — | | | 314 | |
| Software and processing fees | Software and processing fees | 107 | | | 30 | | | 137 | | | 0 | | | (25) | | | (25) | | | | | 112 | | Software and processing fees | 390 | | | 195 | | | 585 | | | — | | | 3 | | | 3 | | | — | | | — | | | — | | | 588 | |
| Total fee revenue | Total fee revenue | 1,551 | | | 396 | | | 1,947 | | | 474 | | | (22) | | | 452 | | | | | 2,399 | | Total fee revenue | 4,996 | | | 927 | | | 5,923 | | | 1,565 | | | 13 | | | 1,578 | | | — | | | — | | | — | | | 7,501 | |
| Net interest income | Net interest income | 0 | | | 663 | | | 663 | | | 0 | | | 1 | | | 1 | | | | | 664 | | Net interest income | — | | | 1,432 | | | 1,432 | | | — | | | (11) | | | (11) | | | — | | | — | | | — | | | 1,421 | |
| Total other income | Total other income | 0 | | | 2 | | | 2 | | | 0 | | | 0 | | | 0 | | | | | 2 | | Total other income | — | | | (1) | | | (1) | | | — | | | — | | | — | | | — | | | 53 | | | 53 | | | 52 | |
| Total revenue | Total revenue | $ | 1,551 | | | $ | 1,061 | | | $ | 2,612 | | | $ | 474 | | | $ | (21) | | | $ | 453 | | | | | $ | 3,065 | | Total revenue | $ | 4,996 | | | $ | 2,358 | | | $ | 7,354 | | | $ | 1,565 | | | $ | 2 | | | $ | 1,567 | | | $ | — | | | $ | 53 | | | $ | 53 | | | $ | 8,974 | |
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| Three Months Ended September 30, 2020 |
| Investment Servicing | | Investment Management | | | | Total |
| (Dollars in millions) | Topic 606 revenue | | All other revenue | | Total | | Topic 606 revenue | | All other revenue | | Total | | | | | | | | 2020 |
| Servicing fees | $ | 1,301 | | | $ | — | | | $ | 1,301 | | | $ | — | | | $ | — | | | $ | — | | | | | | | | | $ | 1,301 | |
| Management fees | — | | | — | | | — | | | 479 | | | — | | | 479 | | | | | | | | | 479 | |
| Foreign exchange trading services | 90 | | | 162 | | | 252 | | | 18 | | | — | | | 18 | | | | | | | | | 270 | |
| Securities finance | 42 | | | 39 | | | 81 | | | — | | | 3 | | | 3 | | | | | | | | | 84 | |
| Software and processing fees | 108 | | | 54 | | | 162 | | | — | | | 10 | | | 10 | | | | | | | | | 172 | |
| Total fee revenue | 1,541 | | | 255 | | | 1,796 | | | 497 | | | 13 | | | 510 | | | | | | | | | 2,306 | |
| Net interest income | — | | | 482 | | | 482 | | | — | | | (4) | | | (4) | | | | | | | | | 478 | |
| | | | | | | | | | | | | | | | | | | |
| Total revenue | $ | 1,541 | | | $ | 737 | | | $ | 2,278 | | | $ | 497 | | | $ | 9 | | | $ | 506 | | | | | | | | | $ | 2,784 | |
| | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, 2020 |
| Investment Servicing | | Investment Management | | | | Total |
| (Dollars in millions) | Topic 606 revenue | | All other revenue | | Total | | Topic 606 revenue | | All other revenue | | Total | | | | | | | | 2020 |
| Servicing fees | $ | 3,860 | | | $ | — | | | $ | 3,860 | | | $ | — | | | $ | — | | | $ | — | | | | | | | | | $ | 3,860 | |
| Management fees | — | | | — | | | — | | | 1,387 | | | — | | | 1,387 | | | | | | | | | 1,387 | |
| Foreign exchange trading services | 285 | | | 713 | | | 998 | | | 41 | | | — | | | 41 | | | | | | | | | 1,039 | |
| Securities finance | 162 | | | 96 | | | 258 | | | — | | | 10 | | | 10 | | | | | | | | | 268 | |
| Software and processing fees | 366 | | | 162 | | | 528 | | | — | | | 1 | | | 1 | | | | | | | | | 529 | |
| Total fee revenue | 4,673 | | | 971 | | | 5,644 | | | 1,428 | | | 11 | | | 1,439 | | | | | | | | | 7,083 | |
| Net interest income | — | | | 1,716 | | | 1,716 | | | — | | | (15) | | | (15) | | | | | | | | | 1,701 | |
| Total other income | — | | | 2 | | | 2 | | | — | | | — | | | — | | | | | | | | | 2 | |
| Total revenue | $ | 4,673 | | | $ | 2,689 | | | $ | 7,362 | | | $ | 1,428 | | | $ | (4) | | | $ | 1,424 | | | | | | | | | $ | 8,786 | |
State Street Corporation | 94
STATE STREET CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Contract balances and contract costs
As of March 31,September 30, 2021 and December 31, 2020, net receivables of $4.24$2.87 billion and $2.68 billion, respectively, are included in accrued interest and fees receivable, representing amounts billed or currently billable related to revenue from contracts with customers. As performance obligations are satisfied, we have an unconditional right to payment and billing is generally performed monthly or quarterly; therefore, we do not have significant contract assets or liabilities.
No adjustments are made to the promised amount of consideration for the effects of a significant financing component as the period between when we transfer a promised service to a customer and when the customer pays for that service is expected to be one year or less.
State Street Corporation | 84
STATE STREET CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 19. Non-U.S. Activities
We define our non-U.S. activities as those revenue-producing business activities that arise from clients which are generally serviced or managed outside the U.S. Due to the integrated nature of our business, precise segregation of our U.S. and non-U.S. activities is not possible.
Subjective estimates, assumptions and other judgments are applied to quantify the financial results and assets related to our non-U.S. activities, including our application of funds transfer pricing, our asset and liability management policies and our allocation of certain indirect corporate expenses. Management periodically reviews and updates its processes for quantifying the financial results and assets related to our non-U.S. activities.
The following table presents our U.S. and non-U.S. financial results for the periods indicated:
| | | | Three Months Ended September 30, | |
| | | 2021 | | 2020 | |
| | (In millions) | | (In millions) | Non-U.S.(1) | | U.S. | | Total | | Non-U.S.(1) | | U.S. | | Total | |
| Total revenue | | Total revenue | $ | 1,331 | | | $ | 1,659 | | | $ | 2,990 | | | $ | 1,268 | | | $ | 1,516 | | | $ | 2,784 | | |
| Income before income tax expense | | Income before income tax expense | 387 | | | 489 | | | 876 | | | 325 | | | 356 | | | 681 | | |
| | | | | | Three Months Ended March 31, | | | Nine Months Ended September 30, | |
| | 2021 | | 2020 | | | 2021 | | 2020 | |
| (In millions) | (In millions) | Non-U.S.(1) | | U.S. | | Total | | Non-U.S.(1) | | U.S. | | Total | | (In millions) | Non-U.S.(1) | | U.S. | | Total | | Non-U.S.(1) | | U.S. | | Total | |
| Total revenue | Total revenue | $ | 1,337 | | | $ | 1,613 | | | $ | 2,950 | | | $ | 1,357 | | | $ | 1,708 | | | $ | 3,065 | | | Total revenue | $ | 3,987 | | | $ | 4,987 | | | $ | 8,974 | | | $ | 3,894 | | | $ | 4,892 | | | $ | 8,786 | | |
| Income before income tax expense | Income before income tax expense | 312 | | | 315 | | | 627 | | | 339 | | | 435 | | | 774 | | | Income before income tax expense | 1,095 | | | 1,346 | | | 2,441 | | | 1,002 | | | 1,256 | | | 2,258 | | |
(1) Geographic mix is generally based on the domicile of the entity servicing the funds and is not necessarily representative of the underlying asset mix.
Non-U.S. assets were $106.25$96.28 billion and $104.44$92.33 billion as of March 31,September 30, 2021 and 2020, respectively.
State Street Corporation | 8595
Report of Ernst & Young LLP, Independent Registered Public Accounting Firm
The Shareholders and Board of Directors of State Street Corporation
Results of Review of Interim Financial Statements
We have reviewed the accompanying consolidated statement of condition of State Street Corporation (the “Corporation”) as of March 31,September 30, 2021, and the related consolidated statements of income, comprehensive income, changes in shareholders' equity for the three- and nine-month periods ended September 30, 2021 and 2020, cash flows for the three-monthnine-month periods ended March 31,September 30, 2021 and 2020 and the related condensed notes (collectively referred to as the “condensed consolidated interim financial statements”). Based on our reviews, we are not aware of any material modifications that should be made to the condensed consolidated interim financial statements for them to be in conformity with U.S. generally accepted accounting principles.
We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) ("PCAOB"), the consolidated statement of condition of the Corporation as of December 31, 2020, the related consolidated statements of income, comprehensive income, changes in shareholders' equity and cash flows for the year then ended, and the related notes (not presented herein); and in our report dated February 19, 2021, we expressed an unqualified audit opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated statement of condition as of December 31, 2020, is fairly stated, in all material respects, in relation to the consolidated statement of condition from which it has been derived.
Basis for Review Results
These financial statements are the responsibility of the Corporation’s management. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Corporation in accordance with the U.S. federal securities laws and the applicable rules and regulations of the SEC and the PCAOB. We conducted our review in accordance with the standards of the PCAOB. A review of interim financial statements consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the PCAOB, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.
/s/ Ernst & Young LLP
Boston, Massachusetts
April 23,October 22, 2021
State Street Corporation | 8696
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| ACRONYMS |
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| ABS | Asset-backed securities | LCRG-SIB(1)
| Liquidity coverage ratioGlobal systemically important bank |
| AFS | Available-for-sale | LIHTCHQLA(1)
| Low income housing tax credits |
AML | Anti-money laundering | LDA model | Loss distribution approach modelHigh-quality liquid assets |
| AOCI | Accumulated other comprehensive income (loss) | LIBORHTM | London Interbank Offered Rate |
ASU | Accounting Standards Update | LTD | Long-term debtHeld-to-maturity |
| AUC/A | Assets under custody and/or administration | MBSIDI | Mortgage-backed securitiesInsured Depository Institution |
| AUM | Assets under management | MRACEUR | Management Risk and Capital CommitteeEuro |
| BBH | Brown Brothers Harriman & Co | LCR(1) | Liquidity coverage ratio |
| BCC | Business Conduct Committee | MRCLIHTC | Model Risk CommitteeLow income housing tax credits |
| bps | Basis points | MRMLIBOR | Model Risk ManagementLondon Interbank Offered Rate |
| CAP | Capital adequacy process | MVGLTD | Model Validation GroupLong-term debt |
| CCAR | Comprehensive Capital Analysis and Review | NIIMBS | Net interest incomeMortgage-backed securities |
| CRD | Charles River Development | NIMMMLF | Net interest marginMoney Market Mutual Fund Liquidity Facility |
CET1(1) | Common equity tier 1 | NOLNII | Net Operating Lossinterest income |
| CFTC | Commodity Futures Trading Commission | NSFRNIM(1)
| Net stable funding ratiointerest margin |
| CIS | Corporate Information Security | ORM | Operational risk management |
COSO | Committee of Sponsoring Organizations of the Treadway Commission | OTC | Over-the-counter |
CROCLO | Chief Risk Officer | OTTI | Other-than-temporary-impairment |
CRPC | Credit Risk & Policy Committee | PCA | Prompt corrective action |
CVA | Credit valuation adjustmentCollateralized Loan Obligation | PCAOB | Public Company Accounting Oversight Board |
| CVA | Credit valuation adjustment | P&L | Profit-and-loss |
| DOJ | Department of Justice | PDRWA(1)
| Probability-of-defaultRisk-weighted asset |
| DOL | Department of Labor | P&LSCB | Profit-and-loss |
E&A Committee | Examining and Audit Committee | RC | Risk CommitteeStress Capital Buffer |
| ECB | European Central Bank | RWASEC(1)
| Risk-weighted assetSecurities and Exchange Commission |
| EGRRCPA | Economic Growth, Regulatory Relief, and Consumer Protection Act | SCBSLB | Stress CapitalLeverage Buffer |
| EMEA | Europe, Middle East, and Africa | SEC | Securities and Exchange Commission |
EPS | Earnings per share | SIFI | Systemically important financial institutions |
ERM | Enterprise Risk Management | SLB | Stress Leverage Buffer |
ETF | Exchange-Traded Fund | SLR(1) | Supplementary leverage ratio |
EVEEPS | Economic value of equityEarnings per share | SPDR | Spider; Standard and Poor's depository receipt |
FDICERM | Federal Deposit Insurance CorporationEnterprise Risk Management | SPOE Strategy | Single Point of Entry Strategy |
FHLBETF | Federal Home Loan Bank of BostonExchange-Traded Fund | SSIF | State Street Intermediate Funding, LLC |
FICCEVE | Fixed Income Clearing Corporation | TCJA | Tax Cuts and Jobs Act |
FTE | Fully taxable-equivalentEconomic value of equity | TLAC(1) | Total loss-absorbing capacity |
FSOCFDIC | Financial Stability Oversight Council | TMRC | Trading and Markets Risk Committee |
FX | Foreign exchange | TOPS | Technology and Operations Committee |
GAAP | Generally accepted accounting principlesFederal Deposit Insurance Corporation | TORC | Technology and Operational Risk Committee |
GCRFHLB | Global credit reviewFederal Home Loan Bank of Boston | UCITS | Undertakings for Collective Investments in Transferable Securities |
G-SIBFICC | Global systemically important bankFixed Income Clearing Corporation | UOM | Unit of measure |
HQLAFTE(1)
| High-quality liquid assetsFully taxable-equivalent | VaR | Value-at-Risk |
HRCFX | Human Resources CommitteeForeign exchange | VIE | Variable interest entity |
HTMGAAP | Held-to-maturity | WD | Withdrawn |
IDI | Insured Depository InstitutionGenerally accepted accounting principles | | |
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(1) As defined by the applicable U.S. regulations.
State Street Corporation | 8797
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| GLOSSARY | | | |
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Asset-backed securities: A financial security backed by collateralized assets, other than real estate or mortgage backed securities.
Assets under custody and/or administration: Assets that we hold directly or indirectly on behalf of clients under a safekeeping or custody arrangement or for which we provide administrative services for clients. To the extent that we provide more than one AUC/A service (including back and middle office services) for a client’s assets, the value of the asset is only counted once in the total amount of AUC/A.
Assets under management: The total market value of client assets for which we provide investment management strategy services, advisory services and/or distribution services generating management fees based on a percentage of the assets’ market values. These client assets are not included on our balance sheet. Assets under management include managed assets lost but not liquidated. Lost business occurs from time to time and it is difficult to predict the timing of client behavior in transitioning these assets as the timing can vary significantly.
Beacon: A multi-year program, announced in October 2015, to create cost efficiencies through changes in our operational processes and to further digitize our processes and interfaces with our clients.
Certificates of deposit: A savings certificate with a fixed maturity date, specified fixed interest rate and can be issued in any denomination aside from minimum investment requirements. A CD restricts access to the funds until the maturity date of the investment.
Collateralized loan obligations: A loan or security backed by a pool of debt, primarily senior secured leveraged loans. CLOs are similar to collateralized mortgage obligations, except for the different type of underlying loan. With a CLO, the investor receives scheduled loan or debt payments from the underlying loans, assuming most of the risk in the event borrowers default, but is offered greater diversity and the potential for higher-than-average returns.
Commercial real estate: Property intended to generate profit from capital gains or rental income. CRE loans are term loans secured by commercial and multifamily properties. We seek CRE loans with strong competitive positions in major domestic markets, stable cash flows, modest leverage and experienced institutional ownership.
Deposit beta: A measure of how much of an interest rate increase is expected to be passed on to client interest-bearing accounts, on average.
Depot bank: A German term, specified by the country's law on investment companies, which essentially corresponds to 'custodian'.
Doubtful: Doubtful loans and leases meet the same definition of substandard loans and leases (i.e., well-defined weaknesses that jeopardize repayment with the possibility that we will sustain some loss) with the added characteristic that the weaknesses make collection or liquidation in full highly questionable and improbable.
Economic value of equity: A measure designed to estimate the fair value of assets, liabilities and off-balance sheet instruments based on a discounted cash flow model.
Exchange-Traded Fund: A type of exchange-traded investment product that offer investors a way to pool their money in a fund that makes investments in stocks, bonds, or other assets and, in return, to receive an interest in that investment pool. ETF shares are traded on a national stock exchange and at market prices that may or may not be the same as the net asset value.
Exposure-at-default: A measure used in the calculation of regulatory capital under Basel III final rule. It can be defined as the expected amount of loss a bank may be exposed to upon default of an obligor.
Global systemically important bank: A financial institution whose distress or disorderly failure, because of its size, complexity and systemic interconnectedness, would cause significant disruption to the wider financial system and economic activity, which will be subject to additional capital requirements.
Held-to-maturity investment securities: We classify investments in debt securities as held-to-maturity only if we have the positive intent and ability to hold those securities to maturity. Investments in debt securities classified as held-to-maturity are measured subsequently at amortized cost in the statement of financial position.
| High-quality liquid assets: Cash or assets that can be converted into cash at little or no loss of value in private markets and are considered unencumbered.
Investment grade: A rating of loans and leases to counterparties with strong credit quality and low expected credit risk and probability of default. It applies to counterparties with a strong capacity to support the timely repayment of any financial commitment.
Liquidity coverage ratio: The ratio of encumbered high-quality liquid assets divided by expected total net cash outflows over a 30-day stress period. A Basel III framework requirement for banks and bank holding companies to measure liquidity, it is designed to ensure that certain banking institutions, including us, maintain a minimum amount of unencumbered HQLA sufficient to withstand the net cash outflow under a hypothetical standardized acute liquidity stress scenario for a 30-day stress period.
Net asset value: The amount of net assets attributable to each share/unit of the fund at a specific date or time.
Net stable funding ratio: The ratio of the amount of available stable funding relative to the amount of required stable funding. This ratio should be equal to at least 100% on an ongoing basis.
Other-than-temporary-impairment: Impairment charge taken on a security whose fair value has fallen below its carrying value on balance sheet and its value is not expected to recover through the holding period of the security.
Probability of default: A measure of the likelihood that a credit obligor will enter into default status.
Qualified financial contracts: Securities contracts, commodity contracts, forward contracts, repurchase agreements, swap agreements and any other contract determined by the FDIC to be a qualified financial contract.
Risk-weighted assets: A measurement used to quantify risk inherent in our on and off-balance sheet assets by adjusting the asset value for risk. RWA is used in the calculation of our risk-based capital ratios.
Special mention: Loans and leases that consist of counterparties with potential weaknesses that, if uncorrected, may result in deterioration of repayment prospects.
Speculative: Loans and leases that consist of counterparties that face ongoing uncertainties or exposure to business, financial, or economic downturns. However, these counterparties may have financial flexibility or access to financial alternatives, which allow for financial commitments to be met.
Substandard: Loans and leases that consist of counterparties with well-defined weakness that jeopardizes repayment with the possibility we will sustain some loss.
Supplementary leverage ratio: The ratio of our tier 1 capital to our total leverage exposure, which measures our capital adequacy relative to our on and off-balance sheet assets.
Total loss-absorbing capacity: The sum of our tier 1 regulatory capital plus eligible external long-term debt issued by us.
Value-at-Risk: Statistical model used to measure the potential loss in value of a portfolio that could occur in normal markets condition, over a defined holding period, within a certain confidence level.
Variable interest entity: An entity that: (1) lacks enough equity investment at risk to permit the entity to finance its activities without additional financial support from other parties; (2) has equity owners that lack the right to make significant decisions affecting the entity’s operations; and/or (3) has equity owners that do not have an obligation to absorb or the right to receive the entity’s losses or return.
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State Street Corporation | 8898
ITEM 1A. RISK FACTORS
State Street is supplementing the risk factors previously disclosed in its 2020 Form 10-K with the following risk factors. These risk factors should be read in conjunction with the risk factors included in the 2020 Form 10-K.
Consummation of our planned acquisition of the BBH Investor Services business is subject to the satisfaction or closing conditions and regulatory approvals, the failure of which may prevent or delay the consummation of the acquisition.
On September 7, 2021, we announced that we had entered into a definitive agreement with BBH to acquire the BBH Investor Services business, including its custody, accounting, fund administration, global markets and technology services for $3.5 billion in cash, subject to customary adjustments. The transaction is targeted to be completed by the end of 2021, subject to the receipt of regulatory approvals and the satisfaction or waiver of other closing conditions. We cannot provide any assurance that all necessary regulatory approvals will be obtained nor the timing of such regulatory approvals, nor can we provide any assurance that all of the other closing conditions will be satisfied or waived. The failure to obtain necessary regulatory approvals or the failure to satisfy some or all of the other required conditions could delay the completion of the acquisition for a significant period of time or prevent it from occurring.
Even if we successfully consummate our planned acquisition of the BBH Investor Services business, we may fail to realize some or all of the anticipated benefits of the transaction or the benefits may take longer to realize than expected.
Our ability to realize the anticipated benefits of the planned acquisition will depend, to a large extent, on our ability to integrate the BBH Investor Services business into our business and realize anticipated growth opportunities and cost synergies. The integration of the BBH Investor Services business into our business will be a complex, costly and time-consuming process, and our management may face significant challenges in implementing that integration, including, without limitation, challenges related to:
•retaining the business and revenue from the BBH Investor Services business's current clients, many of which have the right to consent to transfer their business to State Street or to transition their business on short notice;
•integrating the BBH Investor Services business's software solutions, including its Infomediary communication platform, with our existing products and services and cross-selling our comprehensive suite of products and services, including State Street Alpha, to clients of the BBH Investor Services business;
•achieving the anticipated cost and revenue synergies from the combination of the BBH Investor Services business with State Street;
•managing systems, operational and business complexities and costs associated with combining two different global securities servicing platforms, including maintaining service consistency, information security, business continuity and compliance, and controlling operational risks associated with large-scale technology conversions; and
•transitioning the BBH Investor Services business's senior management team of investment service partners into roles within our larger company and retaining other key employees of the BBH Investor Services business.
Any delay or failure in achieving any of the foregoing could materially adversely impact the expected benefits of the acquisition.
State Street Corporation | 99
PART2.PART 2. OTHER INFORMATION
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
In June 2019, our Board approved a common stock purchaseshare repurchase program authorizing the purchaserepurchase of up to $2.0 billion of our common stock from July 1, 2019 through June 30, 2020 (the 2019 Program). On March 16, 2020, we, along with the other U.S. G-SIBs, suspended common share repurchases and maintained this suspension through the fourth quarter of 2020 in response to the COVID-19 pandemic. This suspension was consistent with limitations imposed by the Federal Reserve beginning in the second quarter of 2020. As a result, we had no repurchases of our common stock in the second, third or fourth quarters of 2020.
In December 2020, the Federal Reserve issued results of 2020 resubmission stress tests and authorized us to continue to pay common stock dividends at current levels and to resume repurchasing common shares in the first quarter of 2021. In January 2021, our Board authorized a share repurchase program for the purchase of up to $475 million of our common stock through March 31, 2021. In April 2021, our Board authorized a share repurchase program for the purchaserepurchase of up to $425 million of our common stock through June 30, 2021, consistent with the limit set by the Federal Reserve. In July 2021, our Board authorized a share repurchase program for the repurchase of up to $3.0 billion of our common stock through the end of 2022.
In connection with our proposed acquisition of the BBH Investor Services business, we did not repurchase any common stock during the third quarter of 2021 under the common share repurchase plan approved by our Board in July 2021, and we do not intend to repurchase any common stock during the fourth quarter of 2021 and the first quarter of 2022. We intend to resume our common share repurchases during the second quarter of 2022.
Stock purchasesrepurchases may be made using various types of mechanisms,transactions, including open market purchases,open-market repurchases, accelerated share repurchases or other transactions off the market, and may be made under Rule 10b5-1 trading programs. The timing and amount of any stock purchases, typesrepurchases and the type of transactions and number of shares purchasedtransaction will depend on several factors, including investment opportunities, our capital position, our financial performance, market conditions and State Street’s capital positions, financial performance and investment opportunities. Ourthe amount of common stock purchase programs doissued as part of employee compensation programs. The common share repurchase program does not have specific price targets and may be suspended at any time. We may employ third-party broker/dealers to acquire shares on the open market in connection with our common stock purchase programs.
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| Total Number of Shares Purchased (In thousands) | | Average Price Paid Per Share | | Total Number of Shares Purchased as Part of Publicly Announced Program (In thousands) | | Approximate Dollar Value of Shares That May Yet be Purchased Under Publicly Announced Program (In thousands) | |
| Period: | | | | | | | | |
| January 1 - January 31, 2021 | 1,375 | | | $ | 72.85 | | | 1,375 | | | $ | 374,840 | | |
| February 1 - February 28, 2021 | 2,744 | | | 73.83 | | | 2,744 | | | 172,268 | | |
| March 1 - March 31, 2021 | 2,114 | | | 81.49 | | | 2,114 | | | — | | |
| Total | 6,233 | | | $ | 76.21 | | | 6,233 | | | $ | — | | |
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State Street Corporation | 89100
ITEM 6. EXHIBITS
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| Exhibit No. | | Exhibit Description |
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| | | (Note:None of the instruments defining the rights of holders of State Street's outstanding long-term debt are in respect of indebtedness in excess of 10%of the total assets of State Street and its subsidiaries on a consolidated basis. State Street hereby agrees to furnish to the SEC upon request a copy of any other instrument with respect to long-term debt of State Street and its subsidiaries.) |
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| 101.INS | | The instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document |
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| * | 101.SCH | | Inline XBRL Taxonomy Extension Schema Document |
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| * | 101.CAL | | Inline XBRL Taxonomy Calculation Linkbase Document |
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| * | 101.DEF | | Inline XBRL Taxonomy Extension Definition Linkbase Document |
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| * | 101.LAB | | Inline XBRL Taxonomy Label Linkbase Document |
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| * | 101.PRE | | Inline XBRL Taxonomy Presentation Linkbase Document |
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| * | 104 | | Cover Page Interactive Data File (formatted as Inline XBRL and included within the Exhibit 101 attachments) |
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† | | Denotes management contract or compensatory plan or arrangement |
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| * | | Submitted electronically herewith |
Attached as Exhibit 101 to this report are the following formatted in Inline XBRL (Extensible Business Reporting Language): (i) consolidated statement of income for the three and nine months ended March 31,September 30, 2021 and 2020, (ii) consolidated statement of comprehensive income for the three and nine months ended March 31,September 30, 2021 and 2020, (iii) consolidated statement of condition as of March 31,September 30, 2021 and December 31, 2020, (iv) consolidated statement of changes in shareholders' equity for the three and nine months ended March 31,September 30, 2021 and 2020, (v) consolidated statement of cash flows for the threenine months ended March 31,September 30, 2021 and 2020, and (vi) notes to consolidated financial statements.
State Street Corporation | 90101
SIGNATURES
Pursuant to the requirement 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.
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| | | | | STATE STREET CORPORATION |
| | | | | (Registrant) |
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| Date: | April 23,October 22, 2021 | | By: | | /s/ ERIC W. ABOAF |
| | | | | Eric W. Aboaf, |
| | | | | Executive Vice President and Chief Financial Officer (Principal Financial Officer) |
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| Date: | April 23,October 22, 2021 | | By: | | /s/ IAN W. APPLEYARD |
| | | | | Ian W. Appleyard, |
| | | | | Executive Vice President, Global Controller and Chief Accounting Officer (Principal Accounting Officer) |
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State Street Corporation | 91102