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State Street (STT)

Filed: 23 Apr 21, 9:24am

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2021
OR
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)
MA04-2456637
(State or other jurisdiction of incorporation)(I.R.S. Employer Identification No.)
One Lincoln Street
Boston,MA02111
(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 ClassTrading Symbol(s)Name of each exchange on which registered
Common Stock, $1 par value per shareSTTNew York Stock Exchange
Depositary Shares, each representing a 1/4,000th ownership interest in a share ofSTT.PRDNew 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 ofSTT.PRGNew 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.
Large accelerated filerAccelerated 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, 2021 was 347,768,272.




STATE STREET CORPORATION
QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTERLY PERIOD ENDED
March 31, 2021

TABLE OF CONTENTS
Page
PART IFINANCIAL 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
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
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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 customers
Note 19. Non-U.S. Activities
Review Report of Independent Registered Public Accounting Firm88
PART IIOTHER INFORMATION
Item 2Unregistered Sales of Equity Securities and Use of Proceeds
Item 6Exhibits
Signatures































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.
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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, 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 trillion of AUC/A and $3.59 trillion of AUM as of March 31, 2021.
As of March 31, 2021, we had consolidated total assets of $316.89 billion, consolidated total deposits of $244.89 billion, consolidated total shareholders' equity of $25.01 billion and 39,318 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. We did not change these significant accounting policies in the first three 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
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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-run 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
We are subject to intense competition, which could negatively affect our profitability;
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 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; 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
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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 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 business, or disruptions to our or their continuous operations, could result in significant costs, reputational damage and limits 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
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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
Three Months Ended March 31,
(Dollars in millions, except per share amounts)20212020% Change
Total fee revenue$2,483 $2,399 %
Net interest income467 664 (30)
Total other income nm
Total revenue2,950 3,065 (4)
Provision for credit losses(9)36 (125)
Total expenses2,332 2,255 
Income before income tax expense627 774 (19)
Income tax expense108 140 (23)
Net income$519 $634 (18)
Adjustments to net income:
Dividends on preferred stock(1)
$(30)$(53)(43)
Earnings allocated to participating securities(2)
 (1)nm
Net income available to common shareholders$489 $580 (16)
Earnings per common share:
Basic$1.39 $1.64 (15)
Diluted1.37 1.62 (15)
Average common shares outstanding (in thousands):
Basic350,743 353,746 (1)
Diluted355,690 357,993 (1)
Cash dividends declared per common share$.52 $.52 — 
Return on average common equity8.4 %10.9 %(250) bps
Pre-tax margin21.3 25.3 (400)
(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
The following “Financial Results and Highlights” section provides information related to significant events, as well as highlights of our consolidated financial results for the first 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 of 2021 compared to the same period 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
First quarter of 2021 financial performance:
Total fee revenue was up 4% in the first quarter of 2021, compared to the same period in 2020, including 2% due to currency translation.
Servicing fee revenues were up 7% in the first quarter of 2021, compared to the same period in 2020, including 3% due to currency translation. Management fee revenues were up 6% in the first 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.
In the first quarter of 2021, return on equity of 8.4% decreased from 10.9% in the same period in 2020, primarily due to a decrease in net income available to common shareholders. Pre-tax margin of 21.3% in the first quarter of 2021 decreased from 25.3% in the same period in 2020, primarily due to a decrease in total revenue and an increase in total expenses.
Operating leverage was (7.2)% points in the first quarter of 2021. Operating leverage represents the difference between the percentage change in total revenue and the percentage change in total expenses,
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
in each case relative to the prior year period.
During the first quarter of 2021, our business and financial results continued to reflect effects of the COVID-19 pandemic:
Approximately 80% 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 June 2021.
We continued to experience high levels of client deposits in the first quarter of 2021 amidst the Federal Reserve's expansionary monetary policy.
Revenue
Total revenue decreased 4% in the first 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 services revenue.
Servicing fee revenue increased 7% in the first quarter of 2021 compared to the same period in 2020, primarily due to higher average equity market levels, 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% in the first 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 an idiosyncratic institutional client asset reallocation from higher fee products as a result of a change in their investment strategy 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% in the first 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, partially offset by higher client 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.
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The impact of notable items in the first quarter of 2020 includes:
acquisition and restructuring costs of approximately $11 million, primarily related to CRD; and
costs of $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.
AUC/A and AUM
AUC/A of $40.26 trillion increased 26% as of March 31, 2021 compared to March 31, 2020, primarily due to higher period-end market levels, net new business growth and client flows. In the first quarter of 2021, newly announced asset servicing mandates totaled approximately $343 billion. Servicing assets remaining to be installed in future periods totaled approximately $463 billion as of March 31, 2021, of which approximately one-third is attributed to State Street Alpha.
AUM of $3.59 trillion increased 34% as of March 31, 2021 compared to March 31, 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 first quarter of 2021, we returned a total of approximately $659 million to our shareholders in the form of common stock dividends and share repurchases.
We declared common stock dividends of $0.52 per share, totaling $182 million in the first quarter of 2021, compared to $0.52 per share, totaling $183 million in the first 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 April 2021, our Board authorized a share repurchase program for the purchase of up to $425 million of our common stock through June 30, 2021, in compliance with the limit set by the Federal Reserve.
Our CET1 capital ratio decreased to 10.8% as of March 31, 2021, compared to 12.3% as of December 31, 2020, primarily due to an episodic increase in 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% as of March 31, 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. As of 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 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.
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.
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
CONSOLIDATED RESULTS OF OPERATIONS
This section discusses our consolidated results of operations for the first quarter of 2021 compared to the same period 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 March 31,% Change
(Dollars in millions)20212020
Fee revenue:
Servicing fees$1,371 $1,287 %
Management fees(1)
493 464 
Foreign exchange trading services(1)
346 444 (22)
Securities finance99 92 
Software and processing fees174 112 55 
Total fee revenue(2)
2,483 2,399 
Net interest income:
Interest income471 868 (46)
Interest expense4 204 (98)
Net interest income467 664 (30)
Other income:
Gains (losses) related to investment securities, net nm
Other income — nm
Total other income nm
Total revenue$2,950 $3,065 (4)
(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 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.
nm Not meaningful
Fee Revenue
Table 2: Total Revenue, provides the breakout of fee revenue for the first quarters of 2021 and 2020. Servicing and management fees collectively made up approximately 75% and 73% of the total fee revenue in the first quarters of 2021 and 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.
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.
Assuming that all other factors remain constant, including client activity and asset flows and pricing, we estimate, using relevant information as of March 31, 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, 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.
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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)
Daily Averages of IndicesMonth-End Averages of IndicesQuarter-End Indices
Three Months Ended March 31,Three Months Ended March 31,As of March 31,
20212020% Change20212020% Change20212020% Change
S&P 500®
3,866 3,056 27 %3,833 2,921 31 %3,973 2,585 54 %
MSCI EAFE®
2,201 1,868 18 2,167 1,788 21 2,208 1,560 42 
MSCI® Emerging Markets
1,363 1,030 32 1,328 972 37 1,316 849 55 
(1) The index names listed in the table are service marks of their respective owners.
TABLE 4: QUARTER-END DEBT INDICES(1)
As of March 31,
20212020% Change
Barclays Capital U.S. Aggregate Bond Index®
2,311 2,295 %
Barclays Capital Global Aggregate Bond Index®
534 510 
(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)20212020
North America - (US Domiciled) - Morningstar Direct Market Data(1)(2)(3)
Long-Term Funds(4)
$142.0 $(240.1)
Money Market176.2 664.8 
Exchange-Traded Fund180.3 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 Fund61.7 (2.9)
Total Flows$299.0 $(128.9)
(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 first quarter of 2021 data for North America (US domiciled) includes Morningstar direct actuals for January and February 2021 and Morningstar direct estimates for March 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 first quarter of 2021 data is on a rolling three month basis for December 2020 through February 2021, sourced by Morningstar.
State Street Corporation | 11


MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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 $343 billion in the first 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.
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.
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 | 12


MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
be higher in subsequent quarters of 2021. As of March 31, 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 $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 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.
In light of the above, we estimate, using relevant information as of March 31, 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
A 10% increase or decrease in worldwide fixed-income 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 4%.
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 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 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 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.
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:
TABLE 6: INVESTMENT SECURITIES NET PREMIUM AMORTIZATION
Three Months Ended March 31,
(Dollars in millions)20212020
MBSNon -MBS
Total(1)
MBSNon- MBSTotal
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 
(1) The investment securities portfolio duration is 3.1 years as of March 31, 2021.
(2) Net of discount accretion on MMLF HTM securities.
State Street Corporation | 13


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.
TABLE 7: AVERAGE BALANCES AND INTEREST RATES - FULLY TAXABLE-EQUIVALENT BASIS(1)
Three Months Ended March 31,
20212020
(Dollars in millions; fully taxable-equivalent basis)Average
Balance
Interest
Revenue/Expense
RateAverage
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 assets800   915 — — 
Investment securities:
Investment securities available for sale59,191 140 .95 54,242 216 1.59 
Investment securities held-to-maturity47,356 183 1.54 41,273 271 2.62 
Investment securities held-to-maturity purchased under money market liquidity facility1,262 4 1.35 2,045 1.57 
Total Investment securities107,809 327 1.21 97,560 495 2.19 
Loans28,025 142 2.05 28,468 185 2.62 
Other interest-earning assets18,296 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 agreements1,017  .05 1,773 .55 
Short-term borrowings under money market liquidity facility1,264 4 1.21 2,187 1.11 
Other short-term borrowings764  .14 2,960 10 1.32 
Long-term debt13,819 60 1.74 13,288 88 2.64 
Other interest-bearing liabilities4,848 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 
(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 $87.37 billion for the first quarter of 2021 compared to $123.96 billion in the same period in 2020. Excluding the impact of netting, the average interest rates would be approximately 0.04% in the first 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) million 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 expense 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 2021 compared 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 deposit behavior 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 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
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 million reserve release in the first 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 compares to a $36 million provision for credit losses in the first 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 of 2021 and 2020.
TABLE 8: EXPENSES
Three Months Ended March 31,% Change
(Dollars in millions)20212020
Compensation and employee benefits$1,242 $1,208 %
Information systems and communications(1)
421 385 
Transaction processing services(1)
270 254 
Occupancy109 109 — 
Amortization of other intangible assets58 58 — 
Acquisition costs11 11 — 
Restructuring charges, net(1)— — 
Other:
Professional services80 81 (1)
Other(1)
142 149 (5)
Total other222 230 (3)
Total expenses$2,332 $2,255 
Number of employees at quarter-end39,318 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.

Compensation and employee benefits expenses increased 3% in the first quarter of 2021 compared to the same period in 2020, primarily due to higher seasonal expenses, partially offset by lower headcount in high cost locations. 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 of 2021 compared to $151 million in the same period in 2020.
Total headcount was flat as of March 31, 2021 compared to March 31, 2020, primarily driven by hiring in global hubs, offset by a reduction in high cost locations.
Information systems and communications expenses increased 9% 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 first quarter of 2021 compared to the same period in 2020, primarily due to higher sub-custody costs and the impact of notable items, partially offset by savings initiatives. Currency translation increased transaction processing services expenses by 2% in the first quarter of 2021, relative to the same period in 2020.
Occupancy expenses were flat in the first quarter of 2021 compared to the same period in 2020.
Amortization of other intangible assets was flat in the first quarter of 2021 compared to the same period in 2020.
Other expenses decreased 3% in the first quarter of 2021 compared to the same period in 2020, primarily driven by lower travel costs.
Acquisition Costs
We recorded approximately $11 million of acquisition costs in both the first quarters of 2021 and 2020, related to our acquisition of CRD. As we integrate CRD into our business, we expect to incur a total of approximately $225 million of acquisition costs through 2021, after which we will no longer distinguish certain CRD costs as acquisition costs. As of March 31, 2021, we have incurred $175 million of acquisition costs related to CRD. We expect to incur any remaining significant acquisition costs related to CRD in 2021.
Restructuring and Repositioning Charges
The following table presents aggregate activity for repositioning charges for the periods indicated:
TABLE 9: RESTRUCTURING AND REPOSITIONING CHARGES
(In millions)Employee
Related Costs
Real Estate
Actions
Asset and Other Write-offsTotal
Accrual Balance at December 31, 2019$190 $$$198 
Payments and Other Adjustments(33)(1)— (34)
Accrual Balance at March 31, 2020$157 $$$164 
Accrual Balance at December 31, 2020$190 $$— $196 
Accruals for Beacon(1)  (1)
Accruals for Repositioning Charges 2  2 
Payments and Other Adjustments(9)(2) (11)
Accrual Balance at March 31, 2021$180 $6 $ $186 
State Street Corporation | 16


MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Income Tax Expense
Income tax expense was $108 million in the first quarter of 2021 compared to $140 million in the same period in 2020. Our effective tax rate was 17.2% in the first quarter of 2021, compared to 18.1% in the same period in 2020. The effective tax rate for 2021 includes an increase of foreign tax credits.
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.
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.
Investment Servicing
TABLE 10: INVESTMENT SERVICING LINE OF BUSINESS RESULTS
(Dollars in millions, except where otherwise noted)Three Months Ended March 31,% Change 2021 vs. 2020
20212020
Servicing fees$1,371 $1,287 %
Foreign exchange trading services333 434 (23)
Securities finance95 89 
Software and processing fees172 137 26 
Total fee revenue1,971 1,947 
Net interest income473 663 (29)
Total other income nm
Total revenue2,444 2,612 (6)
Provision for credit losses(9)36 nm
Total expenses1,879 1,859 
Income before income tax expense$574 $717 (20)
Pre-tax margin23.5 %27.5 %(400) bps
nm Not meaningful
Servicing Fees
Servicing fees, as presented in Table 10: Investment Servicing Line of Business Results, increased 7% in the first quarter of 2021 compared to the same period in 2020 primarily due to higher average equity market levels, partially offset by normal pricing headwinds. Currency translation increased servicing fees by 3% and 1% in the first quarters of 2021 and 2020, respectively.
Servicing fees generated outside the U.S. were approximately 47% of total servicing fees in the first quarter of 2021 compared to approximately 45% in the same period in 2020.
State Street Corporation | 17


MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
TABLE 11: ASSETS UNDER CUSTODY AND/OR ADMINISTRATION BY PRODUCT(1)
(In billions)March 31, 2021December 31, 2020March 31, 2020
Collective funds$14,052 $13,387 $10,529 
Mutual funds10,439 9,810 7,301 
Insurance and other products7,929 8,000 7,311 
Pension products7,843 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, 2021December 31, 2020March 31, 2020
Equities$22,825 $21,626 $16,267 
Fixed-income13,022 12,834 11,096 
Short-term and other investments4,416 4,331 4,501 
Total$40,263 $38,791 $31,864 
TABLE 13: ASSETS UNDER CUSTODY AND/OR ADMINISTRATION BY GEOGRAPHY(2)
(In billions)March 31, 2021December 31, 2020March 31, 2020
Americas$29,530 $28,245 $22,787 
Europe/Middle East/Africa8,256 8,101 7,112 
Asia/Pacific2,477 2,445 1,965 
Total$40,263 $38,791 $31,864 
(1) Certain previously reported amounts presented have been reclassified to conform to current-period presentation.
(2) Geographic mix is generally based on the domicile of the entity servicing the funds and is not necessarily representative of the underlying asset mix.
Asset servicing mandates newly announced in the first quarter of 2021 totaled approximately $343 billion. Servicing assets remaining to be installed in future periods totaled approximately $463 billion as of March 31, 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.
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.
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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% in the first 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, partially offset by higher client FX volumes. 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% and 30%, respectively, of foreign exchange trading services revenue in the first quarter of 2021, compared to 76% and 24%, respectively, in the same period in 2020.
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.
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% in the first quarter of 2021 compared to the same period in 2020, driven by higher agency lending and enhanced custody balances.
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% in the first quarter of 2021 compared to the same period in 2020 and reflects approximately $87 million from CRD in the first quarter of 2021, compared to approximately $91 million from CRD in the same period in 2020. 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 million in total revenue in the first quarter of 2021, compared to approximately $95 million the same period in 2020, which included in 2021 approximately $91 million in software and processing fees and $4 million in brokerage and other trading services within foreign exchange trading services.
Amortization of tax advantage investments negatively impacted software and processing fees by approximately $26 million and $23 million in the first quarters of 2021and 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 million and $21 million in the first quarters of 2021 and 2020, respectively.
Expenses
Total expenses for Investment Servicing increased 1% in the first quarter of 2021 compared to the same period in 2020, primarily due to higher notable items and seasonal expenses. Currency translation increased expenses for Investment Servicing by 2% in the first quarter of 2021, relative to the same period in 2020. Seasonal deferred incentive compensation expense and payroll taxes were $141 million in the first quarter of 2021 compared to $125 million in the same period in 2020. Total expenses contributed by CRD in the first quarter of 2021 were approximately $67 million, compared to $58 million to the same period in 2020. Additional information about expenses is provided under "Expenses" in "Consolidated Results of Operations" included in this Management's Discussion and Analysis.
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Investment Management
TABLE 14: INVESTMENT MANAGEMENT LINE OF BUSINESS RESULTS
(Dollars in millions, except where otherwise noted)Three Months Ended March 31,% Change 2021 vs. 2020
20212020
Management fees(1)(2)
$493 $464 %
Foreign exchange trading services(1)(3)
13 10 30 
Securities finance4 33 
Software and processing fees(4)
2 (25)nm
Total fee revenue512 452 13 
Net interest income(6)nm
Total revenue506 453 12 
Total expenses397 385 
Income before income tax expense$109 $68 60 
Pre-tax margin21.5 %15.0 %650 bps
(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 million in the first quarter of 2020.
(2) Includes revenues from SPDR® Gold Shares and SPDR® Gold MiniSharesSM 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% in the first quarter of 2021 compared to the same period in 2020.
Management Fees
Management fees increased 6% in the first 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 an idiosyncratic institutional client asset reallocation from higher fee products as a result of a change in their investment strategy 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.
Management fees generated outside the U.S. were approximately 27% of total management fees in the first quarter of 2021 compared to approximately 28% in the same period in 2020.
TABLE 15: ASSETS UNDER MANAGEMENT BY ASSET CLASS AND INVESTMENT APPROACH
(In billions)March 31, 2021December 31, 2020March 31, 2020
Equity:
  Active$84 $85 $69 
  Passive2,198 2,086 1,492 
Total equity (1)
2,282 2,171 1,561 
Fixed-income:
  Active91 90 86 
  Passive463 459 392 
Total fixed-income(1)
554 549 478 
Cash(1)(2)
372 349 348 
Multi-asset-class solutions:
  Active34 40 39 
  Passive155 146 101 
Total multi-asset-class solutions(1)
189 186 140 
Alternative investments(3):
  Active27 39 28 
  Passive167 173 134 
Total alternative investments(1)
194 212 162 
Total$3,591 $3,467 $2,689 
(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.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
TABLE 16: EXCHANGE-TRADED FUNDS BY ASSET CLASS(1)
(In billions)March 31, 2021December 31, 2020March 31, 2020
Alternative Investments(2)(3)
$69 $83 $58 
Equity(3)
777 708 473 
Fixed-Income(3)
122 115 98 
Total Exchange-Traded Funds$968 $906 $629 
(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)
(In billions)March 31, 2021December 31, 2020March 31, 2020
North America$2,512 $2,411 $1,843 
Europe/Middle East/Africa530 512 418 
Asia/Pacific549 544 428 
Total$3,591 $3,467 $2,689 
(1) Geographic mix is based on client location or fund management location.
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)
(101)(1)(11)(100)
Exchange-traded fund flows, net12 16 — — 16 44 
Cash fund flows, net— — 32 — — 32 
Total flows, net(89)20 31 (24)
Market appreciation (depreciation)241 42 (1)18 30 330 
Foreign exchange impact29 45 
Total market/foreign exchange impact270 50 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, net21 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 impact125 (30) 2 (12)85 
Balance as of March 31, 2021$2,282 $554 $372 $189 $194 $3,591 
(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.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Expenses
Total expenses for Investment Management increased 3% in in the first quarter of 2021 compared to the same period in 2020, primarily due to higher seasonal expenses, partially offset by lower delivery costs and an idiosyncratic client asset reallocation. Seasonal deferred incentive compensation expense and payroll taxes were $35 million in the first quarter of 2021 compared to $26 million in the same period in 2020. Currency translation increased expenses for Investment Management by 2% in the first quarter of 2021, relative to the same period 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.
TABLE 19: AVERAGE STATEMENT OF CONDITION(1)
Three Months Ended March 31,
(In millions)20212020
Assets:
Interest-bearing deposits with banks$95,235 $67,120 
Securities purchased under resale agreements4,568 1,805 
Trading account assets800 915 
Investment securities:
Investment securities available-for-sale59,191 54,242 
Investment securities held-to-maturity47,356 41,273 
Investment securities held to maturity purchased under money market liquidity facility1,262 2,045 
Total Investment securities107,809 97,560 
Loans28,025 28,468 
Other interest-earning assets18,296 10,764 
Average total interest-earning assets254,733 206,632 
Cash and due from banks4,529 3,856 
Other non-interest-earning assets37,066 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 agreements1,017 1,773 
Short-term borrowings under money market liquidity facility1,264 2,187 
Other short-term borrowings764 2,960 
Long-term debt13,819 13,288 
Other interest-bearing liabilities4,848 3,434 
Average total interest-bearing liabilities201,119 168,229 
Non-interest-bearing deposits(2)
46,825 35,573 
Other non-interest-bearing liabilities22,423 23,052 
Preferred shareholders’ equity2,378 2,861 
Common shareholders’ equity23,583 21,466 
Average total liabilities and shareholders’ equity$296,328 $251,181 
(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 billion in the first quarter of 2021 compared to $180.16 billion in the same period in 2020.
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
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Investment Securities
TABLE 20: CARRYING VALUES OF INVESTMENT SECURITIES
(In millions)March 31, 2021December 31, 2020
Available-for-sale:
U.S. Treasury and federal agencies:
Direct obligations$8,937 $6,575 
Mortgage-backed securities14,425 14,305 
Total U.S. Treasury and federal agencies23,362 20,880 
Asset-backed securities:
Student loans(1)
288 314 
Credit cards91 90 
Collateralized loan obligations3,775 2,966 
Non-agency CMBS and RMBS(2)
71 78 
Total asset-backed securities4,225 3,448 
Non-U.S. debt securities:
Mortgage-backed securities2,032 1,996 
Asset-backed securities2,297 2,291 
Government securities9,910 12,539 
Other13,709 12,903 
Total non-U.S. debt securities27,948 29,729 
State and political subdivisions1,498 1,548 
Other U.S. debt securities3,479 3,443 
Total available-for-sale securities(3)(7)
$60,512 $59,048 
Held-to-maturity(4):
U.S. Treasury and federal agencies:
Direct obligations$5,530 $6,057 
Mortgage-backed securities34,930 36,901 
Total U.S. Treasury and federal agencies40,460 42,958 
Asset-backed securities:
Student loans(1)
4,745 4,774 
Non-agency CMBS and RMBS(5)
526 554 
Total asset-backed securities5,271 5,328 
Non-U.S. debt securities:
Mortgage-backed securities286 303 
Government securities246 342 
Total non-U.S. debt securities532 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 
(1) 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) Consists entirely of non-agency CMBS as of both March 31, 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, 2021 and December 31, 2020, the total amortized cost included $446 million and $464 million, respectively, of non-agency CMBS and $80 million and $90 million of non-agency RMBS, 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 year ended March 31, 2021.
(8) Consists entirely of U.S. 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, 2021 and December 31, 2020, respectively. The increase in securities duration is primarily driven by slower prepayment speeds amidst higher long-end interest rates.
Approximately 92% of the carrying value of the portfolio was rated “AAA” or “AA” as of both March 31, 2021 and December 31, 2020, respectively.
TABLE 21: INVESTMENT PORTFOLIO BY EXTERNAL CREDIT RATING (EXCLUDING SECURITIES PURCHASED UNDER THE
MMLF PROGRAM)
March 31, 2021December 31, 2020
AAA(1)
79 %78 %
AA13 14 
A4 
BBB4 
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, 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
March 31, 2021December 31, 2020
U.S. Agency
Mortgage-backed securities
38 %39 %
Foreign sovereign18 20 
U.S. Treasuries14 11 
Asset-backed securities13 11 
Other credit(1)
17 19 
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.
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
TABLE 23: NON-U.S. DEBT SECURITIES(1)
(In millions)March 31, 2021December 31, 2020
Available-for-sale:
Canada$3,571 $3,163 
European(2)
3,121 3,275 
Australia2,571 2,809 
France2,468 2,829 
Germany2,022 2,155 
United Kingdom1,421 1,209 
Netherlands1,365 1,528 
Austria1,268 1,544 
Spain1,228 1,642 
Belgium1,220 1,618 
Asian(2)
1,205 1,165 
Italy924 1,014 
Finland850 1,222 
Ireland796 1,226 
Japan510 560 
Hong Kong205 162 
Brazil187 74 
Sweden184 212 
Luxembourg87 83 
Norway79 22 
Other(3)
2,666 2,217 
Total$27,948 $29,729 
Held-to-maturity:
Singapore$247 $342 
Australia84 90 
United Kingdom81 84 
Spain78 84 
Other(4)
42 45 
Total$532 $645 
(1) Geography is determined primarily based on the domicile of collateral or issuer.
(2) Consists entirely of supranational bonds.
(3) Included approximately $2,605 million and $2,166 million as of March 31, 2021 and December 31, 2020, respectively, related to supranational bonds.
(4) Included approximately $42 million 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.
Approximately 80% of the aggregate carrying value of these non-U.S. debt securities was rated “AAA” or “AA” as of both March 31, 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, 2021 and December 31, 2020, approximately 25% of the aggregate carrying value of these non-U.S. debt securities was floating-rate.
As of March 31, 2021, our non-U.S. debt securities had an average market-to-book ratio of 100.9%, and an aggregate pre-tax net unrealized gain of $246 million, composed of gross unrealized gains of $332 million and gross unrealized losses of $86 million. These unrealized amounts included:
a pre-tax net unrealized gain of $179 million, composed of gross unrealized gains of $262 million and gross unrealized losses of $83 million, associated with non-U.S. AFS debt securities; and
a pre-tax net unrealized gain of $67 million, composed of gross unrealized gains of $70 million and gross unrealized losses of $3 million, associated with non-U.S. HTM debt securities.
As of March 31, 2021, the underlying collateral for non-U.S. MBS and ABS primarily included Australian, U.K., Netherlands 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 billion of municipal securities classified as state and political subdivisions in our investment securities portfolio as of March 31, 2021, as shown in Table 20: Carrying Values of Investment Securities, all of which were classified as AFS. As of March 31, 2021, we also provided approximately $9.4 billion of credit and liquidity facilities to municipal issuers.
TABLE 24: STATE AND MUNICIPAL OBLIGORS(1)
(Dollars in millions)Total Municipal
Securities
Credit and
Liquidity 
Facilities(2)
Total% of Total Municipal
Exposure
March 31, 2021
State of Issuer:
Texas$263 $2,332 $2,595 24 %
California111 2,1742,285 21 
New York285 1,2951,580 14 
Massachusetts377 8551,232 11 
Tennessee 500 500 5 
Total$1,036 $7,156 $8,192 
December 31, 2020
State of Issuer:
Texas$268 $2,282 $2,550 23 %
California113 2,174 2,287 21 
New York297 1,363 1,660 15 
Massachusetts382 927 1,309 12 
Total$1,060 $6,746 $7,806 
(1) Represented 5% or more of our aggregate municipal credit exposure of approximately $10.91 billion and $11.06 billion across our businesses as of March 31, 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% of the obligors rated “AAA” or “AA” as of March 31, 2021. As of that date, approximately 23% and 77% of our aggregate municipal securities exposure was associated with general obligation and revenue bonds, respectively. The portfolios are also diversified
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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
(In millions)March 31, 2021December 31, 2020
Domestic(1):
Commercial and financial:
Fund Finance(2)
$11,054 $11,531 
Leveraged loans3,103 2,923 
Overdrafts4,507 1,894 
Other(3)
1,963 2,688 
Commercial real estate2,096 2,096 
Total domestic22,723 21,132 
Foreign(1):
Commercial and financial:
Fund Finance(2)
4,768 4,432 
Leveraged loans1,109 1,242 
Overdrafts2,956 1,088 
Other(3)
29 31 
Total foreign8,862 6,793 
Total loans(2)(4)
31,585 27,925 
Allowance for loan losses(118)(122)
Loans, net of allowance$31,467 $27,803 
(1) Domestic and foreign categorization is based on the borrower’s country of domicile.
(2) Fund finance loans include primarily $6,288 million loans to real money funds, $8,450 million private equity capital call finance loans and $832 million loans to business development companies as of March 31, 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 million securities finance loans, $831 million loans to municipalities and $51 million other loans as of March 31, 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, 2021, floating rate loans totaled $21,118 million and fixed rate loans totaled $3,003 million.
The increase in domestic loans in the commercial and financial segment as of March 31, 2021 compared to December 31, 2020 was primarily driven by an increase in overdrafts.
As of March 31, 2021 and December 31, 2020, our leveraged loans totaled approximately $4.21 billion and $4.17 billion, respectively. We sold $42 million of leveraged loans in the first quarter of 2021, of which $7 million remained unsettled and was held for sale as of March 31, 2021.
In addition, we had binding unfunded commitments as of March 31, 2021 and December 31, 2020 of $466 million and $149 million, respectively, to participate in such syndications. Additional information about these 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% and 85% of the loans rated “BB” or “B” as of March 31, 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, 2021 and December 31, 2020.
Allowance for credit losses
TABLE 26: ALLOWANCE FOR CREDIT LOSSES
Three Months Ended March 31,
(In millions)20212020
Allowance for credit losses:
Beginning balance$148 $93 
Provision for credit losses (funded commitments)(1)
 29 
Provisions for credit losses (unfunded commitments)(7)
Provisions for credit losses (held-to-maturity securities and all other)(2)
Charge-offs(2)
 (5)
Currency translation(4)— 
Ending balance$135 $124 
(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.
The provision for credit losses related to loans and financial assets held at amortized cost, including investment securities classified as HTM and off-balance sheet commitments, was a $9 million reserve release in the first quarter of 2021, compared to $36 million in the same period in 2020.
As of March 31, 2021, approximately $92 million of our allowance for credit losses was related to leveraged loans included in the commercial and financial segment compared to $83 million as of March 31, 2020. The reduction in the allowance in the first quarter of 2021 reflects a shift in management’s economic outlook toward economic expansion and limited negative credit migration within our loan portfolio. As our view on current and future economic
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
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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 million and $41 million as of March 31, 2021 and 2020, respectively, was related to off-balance sheet commitments and other financial assets held at amortized cost, including investment securities 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 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% and 30% of our consolidated total assets as of March 31, 2021 and December 31, 2020, respectively.
TABLE 27: CROSS-BORDER OUTSTANDINGS(1)
(In millions)
Investment Securities and Other Assets 
Derivatives and Securities on LoanTotal Cross-Border Outstandings
March 31, 2021  
United Kingdom$22,240 $1,193 $23,433 
Germany22,924 422 23,346 
Luxembourg6,186 2,162 8,348 
Australia7,197 1,080 8,277 
Japan6,473 1,312 7,785 
Canada5,757 782 6,539 
Ireland1,997 2,659 4,656 
December 31, 2020 
United Kingdom$18,880 $1,797 $20,677 
Japan19,537 560 20,097 
Germany18,734 2,163 20,897 
Canada5,997 3,113 9,110 
Australia5,790 2,908 8,698 
Luxembourg5,036 2,148 7,184 
France3,586 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, 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. 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;
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
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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 first quarter of 2021 reflects a shift in management’s economic outlook toward economic expansion and limited
negative credit migration within our loan portfolio. 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, 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 Note 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 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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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
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SSIF continue to be available to the Parent Company. As of March 31, 2021, our Parent Company and State Street Bank had approximately $0.75 billion of senior notes or subordinated debentures outstanding that will mature in the next twelve months.
As a SIFI, 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, 2021 and December 31,
2020, daily average LCR for the Parent Company was 107% and 108%, respectively, with the lower daily average LCR for the quarter ended March 31, 2021 driven by higher deposits. The average HQLA for the Parent Company under the LCR final rule definition was $158.89 billion and $143.61 billion, post-prescribed haircuts, for the quarters ended March 31, 2021 and December 31, 2020, respectively. The increase in average HQLA for the quarter ended March 31, 2021, compared to the quarter ended December 31, 2020, was primarily due to a higher level of client deposits.
We maintained average cash balances in excess of regulatory requirements governing deposits with the Federal Reserve of approximately $91.68 billion at the Federal Reserve, the ECB and other non-U.S. central banks for the quarter ended March 31, 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, 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 underlying conditions. As of March 31, 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 billion for the quarter ended March 31, 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
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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 billion and $34.21 billion and standby letters of credit totaling $3.50 billion and $3.33 billion as of March 31, 2021 and December 31, 2020, respectively. These amounts do not reflect the value of any collateral. As of March 31, 2021, approximately 72% of our unfunded commitments to extend credit and 23% 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, 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 the scope for the upcoming targeted resolution plan, to include the core elements
of resolution planning and some specific firm level information, including impacts from the COVID-19 pandemic. The next 165(d) resolution plan is a targeted plan to be submitted 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 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.
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
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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 2019 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, 2021, the final IDI rule remains pending with no expectation of a required plan submission in 2021.
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, 2021 and December 31, 2020, approximately 65% of our average total deposit balances were denominated in U.S. dollars, approximately 15% in EUR, 10% in GBP and 10% in all other currencies.
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
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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 billion and $3.41 billion as of March 31, 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 billion, as of March 31, 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, 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. The total amount remaining for issuance under the registration statement is $6.15 billion as of March 31, 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.
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 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.
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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, 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.
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 105 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, 2021, the notional amount of these derivative contracts was $2.76 trillion, of which $2.74 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 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 and Stressed VaR" in our 2020 Form 10-K.
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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. Limit breaches are addressed by ERM risk managers in conjunction with the business units, escalated as appropriate, and reviewed by the TMRC 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 quarter ended March 31, 2021, no back-testing exceptions in the quarter ended December 31, 2020 and four back-testing exceptions in the quarter ended March 31, 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, 2021, December 31, 2020 and March 31, 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 EndedAs of March 31, 2021As of December 31, 2020As of March 31, 2020
March 31, 2021December 31, 2020March 31, 2020
(In thousands)Avg.Max.Min.Avg.Max.Min.Avg.Max.Min.VaRVaRVaR
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 Treasury5,915 


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 EndedAs of March 31, 2021As of December 31, 2020As of March 31, 2020
March 31, 2021December 31, 2020March 31, 2020
(In thousands)Avg.Max.Min.Avg.Max.Min.Avg.Max.Min.VaRVaRVaR
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 Treasury17,714 


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 | 34


MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The three month average of our stressed VaR-based measure was approximately $45 million for the quarter ended March 31, 2021, compared to an average of approximately $42 million for the quarter ended December 31, 2020 and $40 million for the quarter ended March 31, 2020. The increase in the average stressed VaR for the quarter ended March 31, 2021 compared to the quarter ended December 31, 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, 2021, December 31, 2020 and March 31, 2020, respectively. The sum of the VaR-based and stressed VaR-based measures for each attribute exceeded the total VaR and the total stressed VaR as of each period-end. This is primarily due to diversification benefits across attributes.
TABLE 30: TEN-DAY VaR ASSOCIATED WITH TRADING ACTIVITIES BY RISK FACTOR(1)
As of March 31, 2021As of December 31, 2020As of March 31, 2020
(In thousands)Foreign Exchange RiskInterest Rate RiskVolatility RiskForeign Exchange RiskInterest Rate RiskVolatility RiskForeign Exchange RiskInterest Rate RiskVolatility Risk
By component:
Global Markets$12,476 $11,164 $857 $2,977 $8,880 $179 $5,599 $7,017 $162 
Global Treasury39 9,734  33 4,257 — 22 3,609 — 
Diversification(22)(5,477) (42)(2,246)— (28)(3,583)
Total VaR$12,493 $15,421 $857 $2,968 $10,891 $179 $5,593 $7,043 $162 
TABLE 31: TEN-DAY STRESSED VaR ASSOCIATED WITH TRADING ACTIVITIES BY RISK FACTOR(1)
As of March 31, 2021As of December 31, 2020As of March 31, 2020
(In thousands)Foreign Exchange RiskInterest Rate RiskVolatility RiskForeign Exchange RiskInterest Rate RiskVolatility RiskForeign Exchange RiskInterest Rate RiskVolatility Risk
By component:
Global Markets$16,046 $26,866 $939 $5,102 $39,615 $265 $11,695 $51,732 $172 
Global Treasury62 25,260  83 8,465 — 40 10,242 — 
Diversification(16)(6,387) (51)(8,102)— (61)(11,848)— 
Total Stressed VaR$16,092 $45,739 $939 $5,134 $39,978 $265 $11,674 $50,126 $172 
(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.
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. Table 32, Key Interest Rates for Baseline Forecasts, presents the spot and 12-month forward rates used in our baseline forecasts at March 31, 2021 and March 31, 2020. Our March 31, 2021 baseline forecast assumes no changes by the Federal Reserve over the next 12 months.
TABLE 32: KEY INTEREST RATES FOR BASELINE FORECASTS
March 31, 2021 March 31, 2020
Fed Funds Target10-Year TreasuryFed Funds Target10-Year Treasury
Spot rates0.25 %1.74 %0.25 %0.67 %
12-month forward rates0.25 2.05 0.25 0.85 
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 can fluctuate with the level of rates as prepayment assumptions change, our modeling approach during the relevant periods has been to keep our balance sheet 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.
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, 2020 reporting period is restated in the table below using enhanced modeling for negative rates.
TABLE 33: NET INTEREST INCOME SENSITIVITY
March 31, 2021
 March 31, 2020(1)
(In millions)U.S. DollarAll Other CurrenciesTotalU.S. DollarAll Other CurrenciesTotal
Rate change:Benefit (Exposure)Benefit (Exposure)
Parallel shifts:
+100 bps shock$805 $245 $1,050 $310 $144 $454 
–100 bps shock493 129 622 571 176 747 
Steeper yield curve:
'+100 bps shift in long-end rates(2)
154 2 156 172 10 182 
'-100 bps shift in short-end rates(2)
645 131 776 699 186 885 
Flatter yield curve:
'+100 bps shift in short-end rates(2)
659 244 903 151 144 295 
'-100 bps shift in long-end rates(2)
(142)(2)(144)(125)(10)(135)
(1) Represents March 31, 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.

As of March 31, 2021, NII is expected to benefit from both parallel increases and decreases in interest rates. Compared to March 31, 2020, our NII is more sensitive to parallel rate increases primarily due to higher forecasted levels of deposits and hedging activity. 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 as 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. dollar NII benefit to higher rates has increased primarily due to higher forecasted levels of deposits and hedging activity. Compared to March 31, 2020, our U.S. dollar NII benefit to lower rates has modestly declined primarily due to lower hedging activity. We project an NII benefit to a larger upward rate shock 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 interest on client deposits and the effect of contractual floors on loans and securities. NII is also exposed to smaller shocks to short-end U.S. interest rates. If short-end U.S. 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, 2020, our non-U.S. benefit from higher rates increased and the benefit from lower rates decreased due to higher levels of floating rate EUR-denominated assets.
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
As of March 31,
(In millions)20212020
Rate change:Benefit (Exposure)
+200 bps shock$(1,109)$(1,141)
–200 bps shock3,630 3,666 
As of March 31, 2021, EVE sensitivity remains exposed to upward shifts in interest rates. Compared to March 31, 2020, the up and down 200 bps instantaneous shock scenarios were relatively unchanged. Impacts from investment portfolio growth were offset by higher levels of deposits and hedging activities.
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.
For additional information about our strategic risk management framework, 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.
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.
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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.
Our minimum risk-based capital ratios as of January 1, 2021, including a CCB of 2.5% and an 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%, are 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 G-SIB surcharge for 2021 is 1.0%. Based on a calculation date of December 31, 2020, our G-SIB surcharge could increase to 1.5% effective January 1, 2023. We are evaluating opportunities to reduce our surcharge, which could result in us remaining at our current G-SIB surcharge of 1%.
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.
TABLE 35: REGULATORY CAPITAL STRUCTURE AND RELATED REGULATORY CAPITAL RATIOS
State Street CorporationState Street Bank
(Dollars in millions)Basel III Advanced Approaches March 31, 2021Basel III Standardized Approach March 31, 2021Basel III Advanced Approaches December 31, 2020Basel III Standardized Approach December 31, 2020Basel III Advanced Approaches March 31, 2021Basel III Standardized Approach March 31, 2021Basel III Advanced Approaches December 31, 2020Basel 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 earnings23,751 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)  — — 
Total23,029 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 capital13,443 13,443 14,377 14,377 17,021 17,021 17,306 17,306 
Preferred stock1,976 1,976 2,471 2,471   — — 
 Tier 1 capital15,419 15,419 16,848 16,848 17,021 17,021 17,306 17,306 
Qualifying subordinated long-term debt1,801 1,801 961 961 963 963 966 966 
Allowance for loan and lease losses 135 148  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 NA44,150 NA43,600 NA43,663 NA
Market risk2,250 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 capital8.0 %8.0 %11.9 %10.8 %13.1 %12.3 %15.8 %14.0 %16.5 %15.3 %
Tier 1 capital9.5 9.5 13.6 12.4 15.4 14.4 15.8 14.0 16.5 15.3 
Total capital11.5 11.5 15.2 14.0 16.2 15.3 16.7 14.9 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 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 | 39


MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Our CET1 capital decreased $0.93 billion as of March 31, 2021 compared to December 31, 2020, primarily driven by common stock repurchases, capital distributions from common and preferred dividends and lower capital related to AOCI and intangible assets, partially offset by net income.
Our Tier 1 capital decreased $1.43 billion as of March 31, 2021 compared to December 31, 2020, due to lower CET1 capital, primarily due to lower AOCI and the partial redemption of the Series F preferred stock. Total capital decreased under both the advanced approaches and standardized approach by $0.59 billion and $0.60 billion, respectively, due to the changes in our CET1 capital and Tier 1 capital, partially offset by 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 three months ended March 31, 2021 and for the year ended December 31, 2020.
TABLE 36: CAPITAL ROLL-FORWARD
(In millions)Basel III Advanced Approaches March 31, 2021Basel III Standardized Approach March 31, 2021Basel III
Advanced Approaches
December 31, 2020
Basel III Standardized Approach
December 31, 2020
Common equity tier 1 capital:
Common equity tier 1 capital balance, beginning of period$14,377 $14,377 $12,213 $12,213 
Net income519 519 2,420 2,420 
Changes in treasury stock, at cost(426)(426)(400)(400)
Dividends declared(30)(30)(886)(886)
Goodwill and other intangible assets, net of associated deferred tax liabilities(130)(130)93 93 
Effect of certain items in accumulated other comprehensive income (loss)(605)(605)1,057 1,057 
Other adjustments(262)(262)(120)(120)
Changes in common equity tier 1 capital(934)(934)2,164 2,164 
Common equity tier 1 capital balance, end of period13,443 13,443 14,377 14,377 
Additional tier 1 capital:
Tier 1 capital balance, beginning of period16,848 16,848 15,175 15,175 
Change in common equity tier 1 capital(934)(934)2,164 2,164 
Net issuance (redemption) of preferred stock(495)(495)(491)(491)
Changes in tier 1 capital(1,429)(1,429)1,673 1,673 
Tier 1 capital balance, end of period15,419 15,419 16,848 16,848 
Tier 2 capital:
Tier 2 capital balance, beginning of period962 1,109 1,100 1,185 
Net issuance and changes in long-term debt qualifying as tier 2840 840 (134)(134)
Changes in allowance for credit losses(1)(13)(4)58 
Changes in tier 2 capital839 827 (138)(76)
Tier 2 capital balance, end of period1,801 1,936 962 1,109 
Total capital:
Total capital balance, beginning of period17,810 17,957 16,275 16,360 
Changes in tier 1 capital(1,429)(1,429)1,673 1,673 
Changes in tier 2 capital839 827 (138)(76)
Total capital balance, end of period$17,220 $17,355 $17,810 $17,957 
State Street Corporation | 40


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 three months ended March 31, 2021 and for the year ended December 31, 2020.
TABLE 37: ADVANCED & STANDARDIZED APPROACHES RISK-WEIGHTED ASSETS ROLL-FORWARD
(In millions)Basel III Advanced Approaches March 31, 2021Basel III Advanced Approaches December 31, 2020Basel III Standardized Approach March 31, 2021Basel III Standardized Approach December 31, 2020
Total risk-weighted assets, beginning of period$109,705 $104,364 $117,080 $104,005 
Changes in credit risk-weighted assets:
Net increase (decrease) in investment securities-wholesale(226)3,008 (62)1,762 
Net increase (decrease) in loans2,178 2,973 3,439 3,638 
Net increase (decrease) in securitization exposures105 578 99 351 
Net increase (decrease) in repo-style transaction exposures777 1,763 187 3,895 
Net increase (decrease) in Over-the-counter derivatives exposures(1)
(614)780 4,118 457 
Net increase (decrease) in all other(2)
1,139 (498)(599)2,422 
Net increase (decrease) in credit risk-weighted assets3,359 8,604 7,182 12,525 
Net increase (decrease) in market risk-weighted assets62 550 62 550 
Net increase (decrease) in operational risk-weighted assets(75)(3,813)NANA
Total risk-weighted assets, end of period$113,051 $109,705 $124,324 $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, 2021, total advanced approaches RWA increased $3.35 billion compared to December 31, 2020, mainly due to an episodic increase in credit risk RWA. The increase in credit risk RWA was mainly 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.
As of March 31, 2021, total standardized approach RWA increased $7.24 billion compared to December 31, 2020, mainly due to higher credit risk RWA. The episodic increase in credit risk RWA was mainly driven by an increase in FX trading and overdraft activity.
The regulatory capital ratios as of March 31, 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, 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 | 41


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
(Dollars in millions)March 31, 2021December 31, 2020
State Street:
Tier 1 capital$15,419 $16,848 
Average assets296,328 277,055 
Less: adjustments for deductions from tier 1 capital and other(10,848)(13,565)
Adjusted average assets for Tier 1 leverage ratio285,480 263,490 
Derivatives and repo-style transactions and off-balance sheet exposures33,822 34,379 
Adjustments for deductions of qualifying central bank deposits(105,437)(90,322)
Total assets for SLR$213,865 $207,547 
Tier 1 leverage ratio(1)
5.4 %6.4 %
Supplementary leverage ratio7.2 8.1 
State Street Bank(2):
Tier 1 capital$17,021 $17,306 
Average assets292,711 273,599 
Less: adjustments for deductions from tier 1 capital and other(10,392)(13,110)
Adjusted average assets for Tier 1 leverage ratio282,319 260,489 
Off-balance sheet exposures33,822 38,591 
Adjustments for deductions of qualifying central bank deposits(92,596)(80,935)
Total assets for SLR$223,545 $218,145 
Tier 1 leverage ratio(1)
6.0 %6.6 %
Supplementary leverage ratio7.6 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.

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.

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, 2021.
TABLE 39: TOTAL LOSS-ABSORBING CAPACITY
As of March 31, 2021
(Dollars in millions)ActualRequirement
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 ratio28,409 13.3 20,317 9.5 
Long term debt:
Risk-weighted assets12,616 10.1 8,703 7.0 
Supplemental leverage ratio12,616 5.9 9,624 4.5 
State Street Corporation | 42


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 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.
On March 4, 2020, 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 participate 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 be made after March 31, 2021, unless the Federal Reserve and the Department of the Treasury extend the program.
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, 2021, we deducted $92.6 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 to 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, the U.S. federal banking agencies released an interim final rule that also permits insured depository institution subsidiaries of BHCs to temporarily exclude deposits at Federal Reserve Banks 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, 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 in 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 with the decision to administer a new stress test, the Federal Reserve decided to limit 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 modify 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, common 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. On March 25, 2021, the Federal Reserve extended the aforementioned restrictions through the second quarter of 2021. As of now, 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.
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, 2021:
TABLE 40: PREFERRED STOCK ISSUED AND OUTSTANDING
Preferred Stock(2):
Issuance DateDepositary Shares IssuedAmount outstanding (in millions)Ownership Interest Per Depositary ShareLiquidation Preference Per ShareLiquidation Preference Per Depositary SharePer Annum Dividend RateDividend Payment FrequencyCarrying Value as of March 31, 2021
(In millions)
Redemption Date(1)
Series DFebruary 201430,000,000 7501/4,000th100,000 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)
May 2015250,000 2501/100th100,000 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, 2021Quarterly: March, June, September and December247 September 15, 2020
Series GApril 201620,000,000 5001/4,000th100,000 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 December493 March 15, 2026
Series HSeptember 2018500,000 5001/100th100,000 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 December494 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.
(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.
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 $1,000 per depositary share) plus all declared and unpaid dividends.
The following tables present the dividends declared for each of the series of preferred stock issued and outstanding for the periods indicated:
TABLE 41: PREFERRED STOCK DIVIDENDS
Three Months Ended March 31,
20212020
(Dollars in millions, except per share amounts)Dividends Declared per ShareDividends Declared per Depositary ShareTotalDividends Declared per ShareDividends Declared per Depositary ShareTotal
Preferred Stock:
Series C$ $ $ $1,313 $0.33 $
Series D1,475 0.37 11 1,475 0.37 11 
Series F953 9.53 7 2,625 26.25 20 
Series G1,338 0.33 7 1,338 0.33 
Series H   — — — 
Total$25 $44 
Common Stock
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 purchase program authorizing the purchase 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 purchase 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 purchase 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 our common stock purchase program for the periods indicated:
TABLE 42: SHARES REPURCHASED
Three Months Ended March 31, 2021
Shares Acquired
(In millions)
Average Cost per ShareTotal Acquired
(In millions)
6.2 $76.21 $475 
Three Months Ended March 31, 2020
Shares Acquired (In millions)Average Cost per ShareTotal Acquired (In millions)
6.5 $77.35 $500 
The table below presents the dividends declared on common stock for the periods indicated:
TABLE 43: COMMON STOCK DIVIDENDS
Three Months Ended March 31,
20212020
Dividends Declared per ShareTotal
(In millions)
Dividends Declared per ShareTotal
(In millions)
Common Stock$0.52 $182 $0.52 $183 
State Street Corporation | 45


MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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, including open market purchases, accelerated share repurchases or transactions off market and may be made under Rule 10b5-1 trading programs. The timing of stock purchases, types of transactions and number of shares purchased will depend on several factors, including, market conditions and our capital positions, financial performance and investment opportunities. The common stock purchase program does not have specific price targets and may be suspended at any time.
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 billion and $440.88 billion as of March 31, 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 billion and $463.27 billion as collateral for indemnified securities on loan as of March 31, 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 billion and $463.27 billion, referenced above, $59.31 billion and $54.43 billion was invested in indemnified repurchase agreements as of March 31, 2021 and December 31, 2020, respectively. We or our agents held $64.15 billion and $58.09 billion as collateral for indemnified investments in repurchase agreements as of March 31, 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 | 46



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, 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, 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, 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 | 47



STATE STREET CORPORATION
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
Three Months Ended March 31,
(Dollars in millions, except per share amounts)20212020
Fee revenue:
Servicing fees$1,371 $1,287 
Management fees493 464 
Foreign exchange trading services346 444 
Securities finance99 92 
Software and processing fees174 112 
Total fee revenue2,483 2,399 
Net interest income:
Interest income471 868 
Interest expense4 204 
Net interest income467 664 
Other income:
Gains (losses) related to investment securities, net0 
Other income0 0 
Total other income0 2
Total revenue2,950 3,065 
Provision for credit losses(9)36 
Expenses:
Compensation and employee benefits1,242 1,208 
Information systems and communications421 385 
Transaction processing services270 254 
Occupancy109 109 
Acquisition and restructuring costs10 11 
Amortization of other intangible assets58 58 
Other222 230 
Total expenses2,332 2,255 
Income before income tax expense627 774 
Income tax expense108 140 
Net income$519 $634 
Net income available to common shareholders$489 $580 
Earnings per common share:
Basic$1.39 $1.64 
Diluted1.37 1.62 
Average common shares outstanding (in thousands):
Basic350,743 353,746 
Diluted355,690 357,993 
Cash dividends declared per common share$.52 $.52 








The accompanying condensed notes are an integral part of these consolidated financial statements.
State Street Corporation | 48




STATE STREET CORPORATION
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME(LOSS)
(UNAUDITED)
Three Months Ended March 31,
(In millions)20212020
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), respectively12 (7)
Net unrealized gains (losses) on cash flow hedges, net of related taxes of $0 and $44, respectively0 117 
Net unrealized gains (losses) on retirement plans, net of related taxes of $3 and $4, respectively8 12 
Other comprehensive income (loss)(605)(44)
Total comprehensive income (loss)$(86)$590 































The accompanying condensed notes are an integral part of these consolidated financial statements.
State Street Corporation | 49



STATE STREET CORPORATION
CONSOLIDATED STATEMENT OF CONDITION
March 31, 2021December 31, 2020
(Dollars in millions, except per share amounts)(UNAUDITED)
Assets:
Cash and due from banks$4,552 $3,467 
Interest-bearing deposits with banks107,554 116,960 
Securities purchased under resale agreements5,238 3,106 
Trading account assets786 815 
Investment securities available-for-sale60,512 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 receivable3,302 3,105 
Goodwill7,629 7,683 
Other intangible assets2,007 1,827 
Other assets45,233 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 deposits244,893 239,798 
Securities sold under repurchase agreements587 3,413 
Short term borrowings under money market liquidity facility200 3,302 
Other short-term borrowings642 685 
Accrued expenses and other liabilities31,722 27,503 
Long-term debt13,836 13,805 
Total liabilities291,880 288,506 
Commitments, guarantees and contingencies (Notes 9 and 10)00
Shareholders’ equity:
Preferred stock, 0 par, 3,500,000 shares authorized:
Series D, 7,500 shares issued and outstanding742 742 
Series F, 2,500 shares issued and outstanding247 742 
Series G, 5,000 shares issued and outstanding493 493 
Series H, 5,000 shares issued and outstanding494 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 
Surplus10,227 10,205 
Retained earnings23,751 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’ equity25,005 26,200 
Total liabilities and shareholders' equity$316,885 $314,706 






The accompanying condensed notes are an integral part of these consolidated financial statements.
State Street Corporation | 50



STATE STREET CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(UNAUDITED)
(Dollars in millions, except per share amounts, shares in thousands)
Preferred
Stock
Common StockSurplus
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Treasury StockTotal
SharesAmountSharesAmount
Balance at December 31, 2019$2,962 503,880 $504 $10,132 $21,918 $(876)146,490 $(10,209)$24,431 
Net income634 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 acquired6,464 (500)(500)
Common stock awards exercised23 (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 income519 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 acquired6,233 (475)(475)
Common stock awards exercised22 (1,111)49 71 
Other2 2 2 
Balance at March 31, 2021$1,976 503,880 $504 $10,227 $23,751 $(418)155,847 $(11,035)$25,005 
(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 | 51



STATE STREET CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
Three Months Ended March 31,
(In millions)20212020
Operating Activities:
Net income$519 $634 
Adjustments to reconcile net income to net cash provided by operating activities:
Deferred income tax (benefit)(26)
Amortization of other intangible assets58 58 
Other non-cash adjustments for depreciation, amortization and accretion, net359 274 
Losses (gains) related to investment securities, net0 (2)
Provision for credit losses(9)36 
Change in trading account assets, net29 42 
Change in accrued interest and fees receivable, net(197)(43)
Change in collateral deposits, net35 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, net2,000 4,179 
Other, net127 149 
Net cash (used in) provided by operating activities(3,732)4,039 
Investing Activities:
Net (increase) decrease in interest-bearing deposits with banks9,406 (78,770)
Net (increase) decrease in securities purchased under resale agreements(2,132)450 
Proceeds from sales of available-for-sale securities5,168 1,657 
Proceeds from maturities of available-for-sale securities5,004 4,219 
Purchases of available-for-sale securities(12,324)(8,935)
Purchases of held-to-maturity securities under the MMLF program0 (26,061)
Proceeds from maturities of held-to-maturity securities under the MMLF program3,099 451 
Proceeds from maturities of held-to-maturity securities3,840 2,695 
Purchases of held-to-maturity securities(1,268)(2,141)
Sale of loans35 93 
Net (increase) in loans(3,695)(6,164)
Business acquisitions, net of cash acquired(214)
Purchases of equity investments and other long-term assets(34)(794)
Purchases of premises and equipment, net(162)(114)
Other, net81 641 
Net cash provided by (used in) investing activities6,804 (112,773)
Financing Activities:
Net (decrease) increase in time deposits(1,580)18,635 
Net increase (decrease) in all other deposits6,674 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 costs844 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 increase1,085 1,630 
Cash and due from banks at beginning of period3,467 3,302 
Cash and due from banks at end of period$4,552 $4,932 







The accompanying condensed notes are an integral part of these consolidated financial statements.
State Street Corporation | 52


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 signific