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State Street (STT)

Filed: 23 Jul 21, 9:10am
0000093751stt:InvestmentManagementMemberus-gaap:OperatingSegmentsMemberstt:RevenueFromFeesMember2021-04-012021-06-30

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 June 30, 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 July 21, 2021 was 343,503,114.




STATE STREET CORPORATION
QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTERLY PERIOD ENDED
June 30, 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 Costs18
Restructuring and Repositioning Charges18
  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
State Street Corporation | 2



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 Firm
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.
State Street Corporation | 3


MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
PART I. FINANCIAL INFORMATION


GENERAL
State Street Corporation, referred to as the Parent Company, is a financial holding company organized in 1969 under the laws of the Commonwealth of Massachusetts. Our executive offices are located at One Lincoln Street, Boston, Massachusetts 02111 (telephone (617) 786-3000). For purposes of this Quarterly Report on Form 10-Q for the quarter ended June 30, 2021 (Form 10-Q), unless the context requires otherwise, references to "State Street," "we," "us," "our" or similar terms mean State Street Corporation and its subsidiaries on a consolidated basis. The Parent Company is a source of financial and managerial strength to our subsidiaries. Through our subsidiaries, including our principal banking subsidiary, State Street Bank and Trust Company, referred to as State Street Bank, we provide a broad range of financial products and services to institutional investors worldwide, with $42.60 trillion of AUC/A and $3.90 trillion of AUM as of June 30, 2021.
As of June 30, 2021, we had consolidated total assets of $326.53 billion, consolidated total deposits of $263.97 billion, consolidated total shareholders' equity of $25.17 billion and 39,146 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 six 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 State Street Digital, and our enhancement of the capabilities of our existing products and services in light of changed client needs and competitive pressures, may involve costs and dependencies and expose us to increased risk;
Our business may be negatively affected by our failure to update and maintain our technology infrastructure;
Acquisitions, strategic alliances, joint ventures and divestitures, and the integration, retention and development of the benefits of our acquisitions, pose risks for our business;
The COVID-19 pandemic continues to exacerbate certain risks and uncertainties for our business; and
Competition for qualified members of our workforce is intense, and we may not be able to attract and retain the highly skilled people we need to support our business.
Financial Market Risks
We could be adversely affected by geopolitical, economic and market conditions;
We have significant International operations, and disruptions in European and Asian economies could have an adverse effect on our consolidated results of operations or financial condition;
Our investment securities portfolio, consolidated financial condition and consolidated results of operations could be adversely affected by changes in the financial markets;
Our business activities expose us to interest rate risk;
We assume significant credit risk to counterparties, who may also have
State Street Corporation | 5


MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
substantial financial dependencies with other financial institutions, and these credit exposures and concentrations could expose us to financial loss;
Our fee revenue represents a significant portion of our consolidated revenue and is subject to decline based on, among other factors, the investment activities of our clients;
If we are unable to effectively manage our capital and liquidity, our consolidated financial condition, capital ratios, results of operations and business prospects could be adversely affected;
We may need to raise additional capital or debt in the future, which may not be available to us or may only be available on unfavorable terms; and
If we experience a downgrade in our credit ratings, or an actual or perceived reduction in our financial strength, our borrowing and capital costs, liquidity and reputation could be adversely affected.
Compliance and Regulatory Risks
Our business and capital-related activities, including common share repurchases, may be adversely affected by capital and liquidity standards required as a result of capital stress testing;
We face extensive and changing government regulation in the jurisdictions in which we operate, which may increase our costs and compliance risks;
We are subject to enhanced external oversight as a result of the resolution of prior regulatory or governmental matters;
Our businesses may be adversely affected by government enforcement and litigation;
Any misappropriation of the confidential information we possess could have an adverse impact on our business and could subject us to regulatory actions, litigation and other adverse effects;
Our calculations of risk exposures, total RWA and capital ratios depend on data inputs, formulae, models, correlations and assumptions that are subject to change, which could materially impact our risk exposures, our total RWA and our capital ratios from period to period;
Changes in accounting standards may adversely affect our consolidated financial statements;
Changes in tax laws, rules or regulations, challenges to our tax positions and changes in the composition of our pre-tax earnings may increase our effective tax rate; and
The transition away from LIBOR may result in additional costs and increased risk exposure.
Operational Risks
Our control environment may be inadequate, fail or be circumvented, and, if so, operational risks could adversely affect our consolidated results of operations;
Cost shifting to non-U.S. jurisdictions and outsourcing may expose us to increased operational risk and reputational harm and may not result in expected cost savings;
Attacks or unauthorized access to our information technology systems or facilities, or those of the third parties with which we do business, or disruptions to our or their continuous operations, could result in significant costs, reputational damage and impacts 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.
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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 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 June 30,% Change
(Dollars in millions, except per share amounts)20212020
Total fee revenue$2,514 $2,378 %
Net interest income467 559 (16)
Total other income53 — nm
Total revenue3,034 2,937 
Provision for credit losses(15)52 nm
Total expenses2,111 2,082 
Income before income tax expense938 803 17 
Income tax expense175 109 61 
Net income$763 $694 10 
Adjustments to net income:
Dividends on preferred stock(1)
$(34)$(32)
Earnings allocated to participating securities(2)
(1)— nm
Net income available to common shareholders$728 $662 10 
Earnings per common share:
Basic$2.11 $1.88 12 
Diluted2.07 1.86 11 
Average common shares outstanding (in thousands):
Basic345,889 352,157 (2)
Diluted351,582 356,413 (1)
Cash dividends declared per common share$.52 $.52 — 
Return on average common equity12.6 %12.1 %50 bps
Pre-tax margin30.9 27.3 360 
Six Months Ended June 30,% Change
(Dollars in millions, except per share amounts)20212020
Total fee revenue$4,997 $4,777 %
Net interest income934 1,223 (24)
Total other income53 — nm
Total revenue5,984 6,002 — 
Provision for credit losses(24)88 nm
Total expenses4,443 4,337 
Income before income tax expense1,565 1,577 (1)
Income tax expense283 249 14 
Net income$1,282 $1,328 (3)
Adjustments to net income:
Dividends on preferred stock(1)
$(64)$(85)(25)
Earnings allocated to participating securities(2)
(1)(1)— 
Net income available to common shareholders$1,217 $1,242 (2)
Earnings per common share:
Basic$3.49 $3.52 (1)
Diluted3.44 3.48 (1)
Average common shares outstanding (in thousands):
Basic348,303 352,952 (1)
Diluted353,434 357,028 (1)
Cash dividends declared per common share$1.04 $1.04 — 
Return on average common equity10.5 %11.5 %(100) bps
Pre-tax margin26.2 26.3 (10)
(1) Additional information about our preferred stock dividends is provided in Note 12 to the consolidated financial statements in this Form 10-Q.
(2) Represents the portion of net income available to common equity allocated to participating securities, composed of unvested and fully vested SERP (Supplemental executive retirement plans) shares and fully vested deferred director stock awards, which are equity-based awards that contain non-forfeitable rights to dividends, and are considered to participate with the common stock in undistributed earnings.
nm Not meaningful
State Street Corporation | 7


MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following “Financial Results and Highlights” section provides information related to significant events, as well as highlights of our consolidated financial results for the second 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 three and six months ended June 30, 2021, compared to the same periods 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
Second quarter of 2021 financial performance:
EPS of $2.07 in the second quarter of 2021, up 11%, from $1.86 in the same period in 2020.
Total fee revenue was up 6% in the second quarter of 2021, compared to the same period in 2020, including 2% due to currency translation.
Servicing fee revenues were up 10% in the second quarter of 2021, compared to the same period in 2020, including 3% due to currency translation. Management fee revenues were up 14% in the second quarter of 2021, compared to the same period in 2020, including 2% due to currency translation.
In the second quarter of 2021, return on equity of 12.6% increased from 12.1% in the same period in 2020, primarily due to an increase in net income available to common shareholders. Pre-tax margin of 30.9% in the second quarter of 2021 increased from 27.3% in the same period in 2020, primarily due to an increase in total revenue.
Operating leverage was 1.9% points in the second quarter of 2021, predominantly due to a $53 million gain on the sale of a majority share of our Wealth Management Services (WMS) business. Operating leverage represents the difference between the percentage change in total
revenue and the percentage change in total expenses, in each case relative to the prior year period.
During the second 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 June 30, 2021.
We continued to experience high levels of client deposits in the second quarter of 2021 amidst the Federal Reserve's expansionary monetary policy.
Revenue
Total revenue increased 3% in the second quarter of 2021, compared to the same period in 2020, including 2% due to currency translation, as the increase in total fee revenue was partially offset by a decline in NII. Total fee revenue increased 6% in the second quarter of 2021, compared to the same period in 2020, primarily driven by increases in servicing fees, management fees and securities finance revenue, partially offset by lower foreign exchange trading services revenue and software and processing fees.
Servicing fee revenue increased 10% in the second quarter of 2021, compared to the same period in 2020, primarily due to higher average equity market levels, client flows, and net new business, partially offset by normal pricing headwinds and lower client activity in the second quarter of 2021. Currency translation increased servicing fees by 3% in the second quarter of 2021, relative to the same period in 2020.
Management fee revenue increased 14% in the second quarter of 2021, compared to the same period in 2020, primarily due to higher average equity market levels and net inflows from ETFs, partially offset by a previously reported idiosyncratic institutional client asset reallocation in the first quarter of 2021 and higher money market fee waivers. Currency translation increased management fees by 2% in the second quarter of 2021, relative to the same period in 2020.
Foreign exchange trading services decreased 12% in the second quarter of 2021, compared to the same period in 2020, primarily due to lower FX volatility, as compared to the high levels of volatility experienced in the second quarter of 2020
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
during the COVID-19 pandemic, partially offset by higher client FX volumes.
Securities finance revenue increased 18% in the second quarter of 2021, compared to the same period in 2020, reflecting higher agency lending and enhanced custody balances, partially offset by lower spreads.
Software and processing fees revenue decreased 12% in the second quarter of 2021, compared to the same period in 2020, primarily due to the absence of prior year market-related adjustments.
NII decreased 16% in the second quarter of 2021, compared to the same period in 2020, primarily due to lower investment portfolio yields and a decline in average short-end market rates, partially offset by growth in deposits, the investment portfolio size and loan balances.
Provision for Credit Losses
The provision for credit losses was a $15 million reserve release in the second quarter of 2021, compared to an expense of $52 million in the same period in 2020, which reflects a positive shift in management's economic outlook.
Expenses
Total expenses increased 1% in the second quarter of 2021, compared to the same period in 2020, primarily reflecting the impact of currency translation, partially offset by lower notable items. Currency translation increased expenses by 2% in the second quarter of 2021, relative to the same period in 2020.
The impact of notable items in the second quarter of 2021 includes:
$53 million gain on the sale of a majority share of our WMS business, recorded in other income;
legal accrual release of approximately $11 million; and
acquisition and restructuring costs of approximately $11 million, primarily related to CRD.
The impact of notable items in the second quarter of 2020 includes acquisition and restructuring costs of approximately $12 million, primarily related to CRD.
AUC/A and AUM
AUC/A of $42.60 trillion increased 27% as of June 30, 2021, compared to June 30, 2020, primarily due to higher period-end market levels, net new business growth and client
flows. In the second quarter of 2021, newly announced asset servicing mandates totaled approximately $1.19 trillion. Servicing assets remaining to be installed in future periods totaled approximately $1.24 trillion as of June 30, 2021.
AUM of $3.90 trillion increased 28% as of June 30, 2021, compared to June 30, 2020, primarily due to higher period-end market levels and net inflows from ETFs and cash, partially offset by institutional net outflows.
Capital
In the second quarter of 2021, we returned a total of approximately $606 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 $179 million in the second quarter of 2021, compared to $0.52 per share, totaling $183 million in the second quarter of 2020.
In the second quarter of 2021, we acquired 5.0 million shares of common stock, under a share repurchase program approved by our Board in April 2021, at an average per share cost of $84.71 and an aggregate cost of approximately $425 million. We had no repurchases of our common stock in the second quarter of 2020.
In July 2021, we announced a third-quarter dividend of $0.57 per share on our common stock, representing a 10% increase on a per share basis from both the third quarter of 2020 and the second quarter of 2021.
In July 2021, our Board authorized share repurchases of up to $3.0 billion of our common stock through the end of 2022.
Our CET1 capital ratio decreased to 11.2% as of June 30, 2021, compared to 12.3% as of December 31, 2020, primarily due to higher risk-weighted assets. Our Tier 1 leverage ratio decreased to 5.2% as of June 30, 2021 compared to 6.4% as of December 31, 2020, primarily due to higher client deposit levels. As of both June 30, 2021 and December 31, 2020, standardized capital ratios were binding.
CONSOLIDATED RESULTS OF OPERATIONS
This section discusses our consolidated results of operations for the three and six months ended June 30, 2021, compared to the same periods in 2020, and should be read in conjunction with the consolidated financial statements and accompanying notes to the consolidated financial statements in this Form 10-Q.
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Total Revenue
TABLE 2: TOTAL REVENUE
Three Months Ended June 30,% Change
(Dollars in millions)20212020
Fee revenue:
Servicing fees$1,399 $1,272 10 %
Management fees(1)
504 444 14 
Foreign exchange trading services(1)
286 325 (12)
Securities finance109 92 18 
Software and processing fees216 245 (12)
Total fee revenue(2)
2,514 2,378 
Net interest income:
   Interest income467 674 (31)
   Interest expense 115 nm
Net interest income467 559 (16)
Other income:
Other income53 — nm
Total other income53 — nm
Total revenue(1)
$3,034 $2,937 
Six Months Ended June 30,% Change
(Dollars in millions)20212020
Fee revenue:
Servicing fees$2,770 $2,559 %
Management fees(1)
997 908 10 
Foreign exchange trading services(1)
632 769 (18)
Securities finance208 184 13 
Software and processing fees390 357 
Total fee revenue(2)
4,997 4,777 
Net interest income:
Interest income938 1,542 (39)
Interest expense4 319 (99)
Net interest income934 1,223 (24)
Other income:
Gains (losses) related to investment securities, net nm
Other income53 — nm
Total other income53 nm
Total revenue$5,984 $6,002 — 
(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 $19 million and $34 million in the three and six months ended June 30, 2020, respectively.
(2) The impact of State Street Global Advisors gross money market fund fee waivers on management fee revenue was approximately $25 million and $40 million in the three and six months ended June 30, 2021, respectively, with an additional approximately $21 million and $31 million of gross money market fund fee waivers attributable to other fee revenue lines in the same periods, respectively.
nm Not meaningful
Fee Revenue
Table 2: Total Revenue, provides the breakout of fee revenue for the three and six months ended June 30, 2021 and 2020. Servicing and management fees collectively made up approximately 76% and 75% of
the total fee revenue in the three and six months ended June 30, 2021, respectively, compared to 72% and 73% in the same periods in 2020, respectively.
Servicing Fee Revenue
Generally, our servicing fee revenues are affected by several factors including changes in market valuations, client activity and asset flows, net new business and the manner in which we price our services. We provide a range of services to our clients, including core custody services, accounting, reporting and administration and middle office services, and the nature and mix of services provided affects our servicing fees. The basis for fees will differ across regions and clients.
Changes in Market Valuations
Our servicing fee revenue is impacted by both our levels and the geographic and product mix of our AUC/A. Increases or decreases in market valuations have a corresponding impact on the level of our AUC/A and servicing fee revenues, though the degree of impact will vary depending on asset types and classes and geography of assets held within our clients’ portfolios.
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 June 30, 2021 that a 10% increase or decrease in worldwide equity valuations, on a weighted average basis, over the relevant periods for which our servicing fees are calculated, would result in a corresponding change in our total servicing fee revenues, on average and over multiple quarters, of approximately 3%. We estimate, similarly assuming all other factors constant and using relevant information as of June 30, 2021, that changes in worldwide fixed income markets, which on a weighted average basis and over time are typically less volatile than worldwide equity markets, have a smaller impact on our servicing fee revenues on average and over time.
State Street Corporation | 10


MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
TABLE 3: DAILY AVERAGES, MONTH-END AVERAGES AND QUARTER-END EQUITY INDICES(1)
Daily Averages of IndicesMonth-End Averages of IndicesQuarter-End Indices
Three Months Ended June 30,Three Months Ended June 30,As of June 30,
20212020% Change20212020% Change20212020% Change
S&P 500®
4,184 2,932 43 %4,228 3,019 40 %4,298 3,100 39 %
MSCI EAFE®
2,307 1,681 37 2,302 1,721 34 2,305 1,781 29 
MSCI® Emerging Markets
1,351 930 45 1,366 950 44 1,375 995 38 
Daily Averages of IndicesMonth-End Averages of Indices
Six Months Ended June 30,Six Months Ended June 30,
20212020% Change20212020% Change
S&P 500®
4,027 2,993 35 %4,030 2,970 36 %
MSCI EAFE®
2,254 1,774 27 2,235 1,754 27 
MSCI® Emerging Markets
1,357 980 38 1,347 961 40 
(1) The index names listed in the table are service marks of their respective owners.
TABLE 4: QUARTER-END DEBT INDICES(1)
As of June 30,
20212020% Change
Barclays Capital U.S. Aggregate Bond Index®
2,354 2,362 — %
Barclays Capital Global Aggregate Bond Index®
541 527 
(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 June 30,
(In billions)20212020
North America - (US Domiciled) - Morningstar Direct Market Data(1)(2)(3)
Long-Term Funds(4)
$167.4 $56.3 
Money Market24.2 259.4 
Exchange-Traded Fund148.1 69.6 
Total Flows$339.7 $385.3 
Europe - Morningstar Direct Market Data(1)(2)(5)
Long-Term Funds(4)
$206.0 $167.6 
Money Market6.9 152.8 
Exchange-Traded Fund53.0 36.2 
Total Flows$265.9 $356.6 
(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 second quarter of 2021 data for North America (US domiciled) includes Morningstar direct actuals for April and May 2021 and Morningstar direct estimates for June 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 second quarter of 2021 data is on a rolling three month basis for March 2021 through May 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 $1.19 trillion in the second quarter of 2021 and $1.3 trillion per year on average over the past five years. Over the five years ended December 31, 2020, gross annual investment servicing mandates ranged from $750 billion to nearly $2.0 trillion.
New business impacting servicing fees can include: custody; product accounting; daily valuation and administration; record-keeping; cash management; and other services. Revenues associated with new servicing mandates may vary based on the breadth of services provided, the time required to install the assets, and the types of assets installed.
Revenues associated with new mandates are not reflected in our servicing fee revenue until the assets have been installed. Our installation timeline, in general, can range from 6 to 36 months, with the average installation timeline being approximately 9 to 12 months over the 2 years ended December 31, 2020. Our more complex installations, including new State Street Alpha mandates, will generally be on the longer end of that range. With respect to the current asset mandates that are yet to be installed as of June 30, 2021, we expect the conversion will occur over the coming 12 to 24 months, with the associated revenue benefits beginning in 2022, and expected to be largely realized in 2023.
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.
State Street Corporation | 12


MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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 $25 million in the second quarter of 2021. As of June 30, 2021, and assuming short-term spot interest rates and the amount of money market fund assets remain constant, we estimate that the impact of gross money market fee waivers on our management fees would be in the range of approximately $20 million to $25 million in each subsequent quarter of 2021. 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 June 30, 2021 and assuming that all other factors remain constant, including the impact of business won and lost and client flows, that:
A 10% increase or decrease in worldwide equity valuations, on a weighted average basis, over the relevant periods for which our management fees are calculated, would result in a corresponding change in our total management fee revenues, on average and over multiple quarters, of approximately 5%; and
We estimate, similarly assuming all other factors constant and using relevant information as of June 30, 2021, that changes in worldwide fixed income markets, which on a weighted average basis and over time are typically less volatile than worldwide equity markets, will have a smaller impact on our management fee revenues on average and over time.
Daily averages, month-end averages and quarter-end indices demonstrate worldwide changes in equity and debt markets that affect our management fee revenue. Quarter-end indices affect the values of AUM as of those dates. See Table 3: Daily Averages, Month-End Averages and Quarter-End Equity Indices for selected indices.
Additional information about fee revenue is provided under "Line of Business Information" included in this Management's Discussion and Analysis.
State Street Corporation | 13


MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

Net Interest Income
See Table 2: Total Revenue, for the breakout of interest income and interest expense for the three and six months ended June 30, 2021, compared to the same periods in 2020.
NII is defined as interest income earned on interest-earning assets less interest expense incurred on interest-bearing liabilities. Interest-earning assets, which principally consist of investment securities, interest-bearing deposits with banks, loans, resale agreements and other liquid assets, are financed primarily by client deposits, short-term borrowings and long-term debt.
NIM represents the relationship between annualized FTE NII and average total interest-earning assets for the period. It is calculated by dividing FTE NII by average interest-earning assets. Revenue that is exempt from income taxes, mainly earned from certain investment securities (state and political subdivisions), is adjusted to a FTE basis using the U.S. federal and state statutory income tax rates.
NII on a FTE basis decreased in the three and six months ended June 30, 2021, compared to the same periods in 2020, primarily due to lower investment portfolio yields and a decline in average short-end market rates, partially offset by growth in deposits, the investment portfolio size, and loan balances.
Investment securities net premium amortization, which is included in interest income, was $157 million and $326 million in the three and six months ended June 30, 2021, respectively, compared to $109 million and $217 million in the same periods in 2020, respectively. The increase is primarily driven by low 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 June 30,
(Dollars in millions)20212020
MBSNon -MBS
Total(1)
MBSNon- MBSTotal
Unamortized premiums, net of discounts at period end$895 $575 $1,470 $998 $668 $1,666 
Net premium amortization(2)
101 56 157 89 20 109 
(1) The investment securities portfolio duration is 3.1 years as of June 30, 2021.
(2) Net of discount accretion on MMLF HTM securities.









State Street Corporation | 14


MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
See Table 7: Average Balances and Interest Rates - Fully Taxable-Equivalent Basis, for the breakout of NII on a FTE basis for the three and six months ended June 30, 2021, compared to the same periods in 2020.
TABLE 7: AVERAGE BALANCES AND INTEREST RATES - FULLY TAXABLE-EQUIVALENT BASIS(1)
Three Months Ended June 30,
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)
$99,438 $(4)(.02)%$86,744 $.01 %
Securities purchased under resale agreements(3)
3,958 3 .28 3,342 24 2.95 
Trading account assets729   877 — — 
Investment securities:
Investment securities available for sale66,225 145 .88 57,462 189 1.31 
Investment securities held-to-maturity45,243 166 1.47 40,127 231 2.32 
Investment securities held-to-maturity purchased under money market liquidity facility13  1.28 19,037 70 1.49 
Total investment securities111,481 311 1.12 116,626 490 1.69 
Loans29,471 157 2.14 27,369 157 2.30 
Other interest-earning assets20,939 3 .07 9,831 .13 
Average total interest-earning assets$266,016 $470 .71 $244,789 $679 1.12 
Interest-bearing deposits:
U.S.$110,269 $1  %$91,097 $.03 %
Non-U.S.(2)(4)
83,248 (66)(.32)66,977 (61)(.36)
Total interest-bearing deposits(4)(5)
193,517 (65)(.14)158,074 (54)(.13)
Securities sold under repurchase agreements477  (.02)3,394 .03 
Short-term borrowings under money market liquidity facility13  1.25 19,036 58 1.23 
Other short-term borrowings893 1 .27 3,073 .66 
Long-term debt13,461 54 1.60 15,574 95 2.45 
Other interest-bearing liabilities5,682 10 .80 3,461 10 1.07 
Average total interest-bearing liabilities$214,043 $  $202,612 $115 .23 
Interest rate spread.71 %.89 %
Net interest income, fully taxable-equivalent basis$470 $564 
Net interest margin, fully taxable-equivalent basis.71 %.93 %
Tax-equivalent adjustment(3)(5)
Net interest income, GAAP-basis$467 $559 
Six Months Ended June 30,
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)
$97,348 $(13)(.03)%$76,931 $85 .22 %
Securities purchased under resale agreements(3)
4,261 13 .60 2,574 89 6.96 
Trading account assets764   896 — — 
Investment securities:
Investment securities available for sale62,728 285 .91 55,852 404 1.45 
Investment securities held-to-maturity46,294 349 1.51 40,700 503 2.47 
Investment securities held-to-maturity purchased under money market liquidity facility634 4 1.35 10,541 78 1.49 
Total investment securities109,656 638 1.17 107,093 985 1.84 
Loans28,752 299 2.10 27,919 342 2.46 
Other interest-earning assets19,625 8 .09 10,298 50 0.95 
Average total interest-earning assets$260,406 $945 .73 $225,711 $1,551 1.38 
Interest-bearing deposits:
U.S.$105,647 $4 .01 %$85,672 $107 .25 %
Non-U.S.(2)(4)
80,854 (138)(.34)65,658 (93)(.28)
Total interest-bearing deposits(4)(5)
186,501 (134)(.15)151,330 14 .02 
Securities sold under repurchase agreements745  .02 2,584 .21 
Short-term borrowings under money market liquidity facility635 4 1.21 10,612 64 1.22 
Other short-term borrowings829 1 .21 3,017 15 0.98 
Long-term debt13,639 114 1.67 14,431 183 2.53 
Other interest-bearing liabilities5,268 19 .77 3,446 40 2.31 
Average total interest-bearing liabilities$207,617 $4  $185,420 $319 .34 
Interest rate spread.73 %1.04 %
Net interest income, fully taxable-equivalent basis$941 $1,232 
Net interest margin, fully taxable-equivalent basis.73 %1.10 %
Tax-equivalent adjustment(7)(9)
Net interest income, GAAP basis$934 $1,223 
(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 $61.59 billion and $74.41 billion in the three and six months ended June 30, 2021, respectively, compared to $103.15 billion and $113.56 billion in the same periods in 2020, respectively. Excluding the impact of netting, the average interest rates would be approximately 0.02% and 0.03% in the three and six months ended June 30, 2021, respectively, compared to 0.09% and 0.15% in the same periods in 2020, respectively.
(4) Average rate includes the impact of FX swap costs of approximately ($16) million and ($37) million in the three and six months ended June 30, 2021, respectively, compared to ($17) million and ($19) million for the same periods in 2020, respectively. Average rates for total interest-bearing deposits excluding the impact of FX swap costs were (0.10)% in both the three and six months ended June 30, 2021, compared to (0.09)% and 0.04% in the same periods in 2020, respectively.
(5) Total deposits averaged $242.31 billion and $234.32 billion in the three and six months ended June 30, 2021, respectively, compared to $197.07 billion and $188.61 billion in the same periods in 2020, respectively.
State Street Corporation | 15


MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Changes in the components of interest-earning assets and interest-bearing liabilities are discussed in more detail below. Additional information about the components of interest income and interest expense is provided in Note 14 to the consolidated financial statements within this Form 10-Q.
Average total interest-earning assets were $266.02 billion and $260.41 billion in the three and six months ended June 30, 2021, respectively, compared to $244.79 billion and $225.71 billion in the same periods in 2020, respectively. The increase is primarily due to higher interest-bearing deposits with banks, investment securities and other interest- earning assets, partially offset by a decrease in investment securities purchased under the MMLF facility.
Interest-bearing deposits with banks averaged $99.44 billion and $97.35 billion in the three and six months ended June 30, 2021, respectively, compared to $86.74 billion and $76.93 billion in the same periods in 2020, respectively. These deposits primarily reflect our maintenance of cash balances at the Federal Reserve, the European Central Bank (ECB) and other non-U.S. central banks. The higher levels of average cash balances with central banks reflect higher levels of client deposits.
Securities purchased under resale agreements averaged $3.96 billion and $4.26 billion in the three and six months ended June 30, 2021, respectively, compared to $3.34 billion and $2.57 billion in the same periods in 2020, respectively. The impact of balance sheet netting decreased to $61.59 billion and $74.41 billion in the three and six months ended June 30, 2021, respectively, compared to $103.15 billion and $113.56 billion in the same periods in 2020, respectively. We maintain an agreement with Fixed Income Clearing Corporation (FICC), a clearing organization that enables us to net securities sold under repurchase agreements against those purchased under resale agreements with counterparties that are also members of the clearing organization, when specific netting criteria are met. The decrease in average balance sheet netting in the three and six months ended June 30, 2021, compared to the same periods in 2020, is primarily due to lower FICC repo volumes from an increased cash supply and lower short-term interest rates driven by 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 generally obtain a security interest from our sponsored clients in the high quality securities collateral that they receive, which is designed to mitigate our potential exposure to FICC.
Average investment securities were $111.48 billion and $109.66 billion, including $13 million and $634 million MMLF securities, in the three and six months ended June 30, 2021, respectively, compared to $116.63 billion and $107.09 billion, including $19.04 billion and $10.54 billion MMLF securities, in the same periods in 2020, respectively. Average investment securities, excluding MMLF HTM securities, increased to $111.47 billion and $109.02 billion in the three and six months ended June 30, 2021, respectively, compared to $97.59 billion and $96.55 billion in the same periods in 2020, respectively, primarily driven by MBS balances, U.S. Treasuries and foreign government bonds. The growth reflects our deployment of higher structural deposit levels that resulted from the COVID-19 pandemic.
Loans averaged $29.47 billion and $28.75 billion in the three and six months ended June 30, 2021, respectively, compared to $27.37 billion and $27.92 billion in the same periods in 2020, respectively. Average core loans, which exclude overdrafts and highlight our efforts to grow our lending portfolio, averaged $25.49 billion and $24.65 billion in the three and six months ended June 30, 2021, respectively, compared to $22.55 billion and $22.36 billion in the same periods in 2020, respectively.
Average other interest-earning assets, largely associated with our enhanced custody business, increased to $20.94 billion and $19.63 billion in the three and six months ended June 30, 2021, respectively, from $9.83 billion and $10.30 billion in the same periods in 2020, respectively, primarily driven by an increase in the level of cash collateral posted. Enhanced custody is our securities financing business where we act as principal with respect to our custody clients and generate securities finance revenue. The NII earned on these transactions is generally lower than the interest earned on other alternative investments.
Aggregate average total interest-bearing deposits increased to $193.52 billion and $186.50 billion in the three and six months ended June 30, 2021, respectively, from $158.07 billion and $151.33 billion in the same periods in 2020, respectively. Average U.S. interest-bearing deposits increased as a result of the market uncertainty due to the
State Street Corporation | 16


MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
COVID-19 pandemic, U.S. monetary policy and the level of global interest rates. We expect deposits to remain elevated within the current environment of low interest rates and continued expansion of the money supply by the Federal Reserve, but modestly reduced from second quarter of 2021 levels. Future deposit levels will be influenced by the underlying asset servicing business, client deposit behavior and market conditions, including the general levels of U.S. and non-U.S. interest rates.
Average other short-term borrowings decreased to $0.89 billion and $0.83 billion in the three and six months ended June 30, 2021, respectively, from $3.07 billion and $3.02 billion in the same periods in 2020, respectively.
Average long-term debt was $13.46 billion and $13.64 billion in the three and six months ended June 30, 2021, respectively, compared to $15.57 billion and $14.43 billion in the same periods in 2020, respectively. These amounts reflect issuances, redemptions and maturities of senior debt during the respective periods.
Average other interest-bearing liabilities were $5.68 billion and $5.27 billion in the three and six months ended June 30, 2021, respectively, compared to $3.46 billion and $3.45 billion in the same periods in 2020, respectively. Other interest-bearing liabilities primarily reflect our level of cash collateral received from clients in connection with our enhanced custody business, which is presented on a net basis where we have enforceable netting agreements.
Several factors could affect future levels of NII and NIM, including the volume and mix of client deposits and funding sources; central bank actions; balance sheet management activities; changes in the level and slope of U.S. and non-U.S. interest rates; revised or proposed regulatory capital or liquidity standards, or interpretations of those standards; the yields earned on securities purchased compared to the yields earned on securities sold or matured; and changes in the type and amount of credit or other loans we extend.
Based on market conditions and other factors, including regulatory standards, we continue to reinvest the majority of the proceeds from pay-downs and maturities of investment securities in highly-rated U.S. and non-U.S. securities, such as federal agency MBS, sovereign debt securities and U.S. Treasury and agency securities. The pace at which we reinvest and the types of investment securities purchased will depend on the impact of market conditions, the implementation of regulatory standards, including interpretation of those standards and other factors over time. We expect these factors and the levels of global interest rates to impact our reinvestment program and future levels of NII and NIM.
Other Income
In the second quarter of 2021, we sold a majority share of our WMS business, which resulted in a gain on sale of $53 million that was recorded in other income.
Provision for Credit Losses
There was a $15 million reserve release for the provision for credit losses in the second quarter of 2021, which reflects a positive shift in management's economic outlook. This compares to a $52 million provision for credit losses in the second 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 three and six months ended June 30, 2021 compared to the same periods in 2020.
TABLE 8: EXPENSES
Three Months Ended June 30,% Change
(Dollars in millions)20212020
Compensation and employee benefits$1,077 $1,051 %
Information systems and communications398 376 
Transaction processing services263 233 13 
Occupancy100 109 (8)
Amortization of other intangible assets63 58 
Acquisition costs11 12 (8)
Other:
Professional services75 91 (18)
Other124 152 (18)
Total other199 243 (18)
Total expenses$2,111 $2,082 
Number of employees at quarter-end39,146 39,068 — 
Six Months Ended June 30,% Change
(Dollars in millions)20212020
Compensation and employee benefits$2,319 $2,259 %
Information systems and communications819 761 
Transaction processing services533 487 
Occupancy209 218 (4)
Amortization of other intangible assets121 116 
Acquisition costs22 23 (4)
Restructuring charges, net(1)— nm
Other:
Professional services155 172 (10)
Other266 301 (12)
Total other421 473 (11)
Total expenses$4,443 $4,337 

State Street Corporation | 17


MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Compensation and employee benefits expenses increased 2% in the second quarter of 2021, compared to the same period in 2020, primarily due to the impact of currency translation. Compensation and employee benefits expenses increased 3% in the six months ended June 30, 2021, compared to the same period in 2020, primarily due to currency translation and higher seasonal expenses, partially offset by lower headcount in high cost locations and incentive compensation. Currency translation increased compensation and employee benefits expenses by 2% and 3% in the three and six months ended June 30, 2021, respectively, compared to the same periods in 2020.
Total headcount was flat as of June 30, 2021 compared to June 30, 2020, primarily driven by hiring in global hubs, offset by a reduction in high cost locations.
Information systems and communications expenses increased 6% in the second quarter of 2021, compared to the same period in 2020, primarily due to higher technology and infrastructure investments, partially offset by transformation initiatives. Information systems and communications expenses increased 8% in the six months ended June 30, 2021, compared to the same period in 2020, primarily related to higher software costs, technology infrastructure investments and notable items, partially offset by transformation initiatives. Currency translation increased information systems and communications expenses by 1% in both the three and six months ended June 30, 2021, relative to the same periods in 2020.
Transaction processing services expenses increased 13% and 9% in the three and six months ended June 30, 2021, respectively, compared to the same periods in 2020, primarily due to higher sub-custody and market data costs. Currency translation increased transaction processing services expenses by 3% and 2% in the three and six months ended June 30, 2021, respectively, relative to the same periods in 2020.
Occupancy expenses decreased 8% and 4% in the three and six months ended June 30, 2021, respectively, compared to the same periods in 2020, primarily due to footprint optimization. Currency translation increased occupancy expenses by 5% and 3% in the three and six months ended June 30, 2021, respectively, relative to the same periods in 2020.
Amortization of other intangible assets increased 9% and 4% in the three and six months ended June 30, 2021, respectively, compared to the same periods in 2020, primarily due to the lift-out in the first quarter of 2021 of the depository bank and fund administrator activities of Fideuram Bank Luxembourg, a subsidiary of Intesa Sanpaolo.
Other expenses decreased 18% and 11% in the three and six months ended June 30, 2021, respectively, compared to the same periods in 2020, primarily driven by lower professional services and securities processing losses.
Acquisition Costs
We recorded approximately $11 million and $22 million in the three and six months ended June 30, 2021, respectively, compared to $12 million and $23 million in the same periods in 2020, respectively, related to our acquisition of CRD. As we integrate CRD into our business, we expect to incur up to approximately $225 million in total of acquisition costs for the period beginning the last quarter of 2018 through 2021, after which we will no longer distinguish certain CRD costs as acquisition costs. As of June 30, 2021, we have incurred a total of $186 million of acquisition costs related to CRD.
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 $$$198 
Payments and Other Adjustments(33)(1)— (34)
Accrual Balance at March 31, 2020157 164 
Payments and Other Adjustments(25)(1)— (26)
Accrual Balance at June 30, 2020$132 $$$138 
Accrual Balance at December 31, 2020$190 $$— $196 
Accruals for Beacon(1)— — (1)
Accruals for Repositioning Charges— — 
Payments and Other Adjustments(9)(2)— (11)
Accrual Balance at March 31, 2021$180 $$— $186 
Payments and Other Adjustments(34)  (34)
Accrual Balance at June 30, 2021$146 $6 $ $152 
Income Tax Expense
Income tax expense was $175 million and $283 million in the three and six months ended June 30, 2021, respectively, compared to $109 million and $249 million in the same periods in 2020, respectively. Our effective tax rate was 18.6% and 18.1% in the three and six months ended June 30, 2021, respectively, compared to 13.6% and 15.8% in the same periods in 2020, respectively. The increase was primarily due to higher foreign tax credits in the second quarter of 2020 and lower benefits from tax credit investments in 2021.
State Street Corporation | 18


MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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 June 30,% Change
20212020
Servicing fees$1,399 $1,272 10 %
Foreign exchange trading services270 312 (13)
Securities finance106 88 20 
Software and processing fees209 229 (9)
Total fee revenue1,984 1,901 
Net interest income468 571 (18)
Total other income — — 
Total revenue2,452 2,472 (1)
Provision for credit losses(15)52 (129)
Total expenses1,755 1,717 
Income before income tax expense$712 $703 
Pre-tax margin29 %28 %
(Dollars in millions, except where otherwise noted)Six Months Ended June 30,% Change
20212020
Servicing fees$2,770 $2,559 %
Foreign exchange trading services603 746 (19)
Securities finance201 177 14 
Software and processing fees381 366 
Total fee revenue3,955 3,848 
Net interest income941 1,234 (24)
Total other income (100)
Total revenue4,896 5,084 (4)
Provision for credit losses(24)88 (127)
Total expenses3,634 3,576 
Income before income tax expense$1,286 $1,420 (9)
Pre-tax margin26 %28 %
nm Not meaningful
State Street Corporation | 19


MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Servicing Fees
Servicing fees, as presented in Table 10: Investment Servicing Line of Business Results, increased 10% and 8% in the three and six months ended June 30, 2021, respectively, compared to the same periods in 2020, respectively, primarily due to higher average equity market levels, client flows, and net new business, partially offset by normal pricing headwinds and lower client activity in the second quarter of 2021. Currency translation increased servicing fees by 3% in both the three and six months ended June 30, 2021. Currency translation decreased servicing fees by 1% in both the same periods in 2020.
Servicing fees generated outside the U.S. were approximately 49% and 48% of total servicing fees in the three and six months ended June 30, 2021, respectively, compared to approximately 47% and 46% in the same periods in 2020, respectively.
TABLE 11: ASSETS UNDER CUSTODY AND/OR ADMINISTRATION BY PRODUCT(1)
(In billions)June 30, 2021December 31, 2020June 30, 2020
Collective funds$15,048 $13,387 $11,230 
Mutual funds10,873 9,810 8,265 
Insurance and other products8,385 8,000 7,331 
Pension products8,291 7,594 6,689 
Total$42,597 $38,791 $33,515 
TABLE 12: ASSETS UNDER CUSTODY AND/OR ADMINISTRATION BY ASSET CLASS
(In billions)June 30, 2021December 31, 2020June 30, 2020
Equities$24,792 $21,626 $18,190 
Fixed-income13,079 12,834 11,342 
Short-term and other investments4,726 4,331 3,983 
Total$42,597 $38,791 $33,515 
TABLE 13: ASSETS UNDER CUSTODY AND/OR ADMINISTRATION BY GEOGRAPHY(2)
(In billions)June 30, 2021December 31, 2020June 30, 2020
Americas$31,280 $28,245 $24,375 
Europe/Middle East/Africa8,716 8,101 7,155 
Asia/Pacific2,601 2,445 1,985 
Total$42,597 $38,791 $33,515 
(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 second quarter of 2021 totaled approximately $1,187 billion. Servicing assets remaining to be installed in future periods totaled approximately $1,236 billion as of June 30, 2021, which will be reflected in AUC/A in future periods after installation and will generate servicing fee revenue in subsequent periods. The full revenue impact of such mandates will be realized over several quarters as the assets are installed and additional services are added over that period. With respect to the current asset mandates that are yet to be installed as of June 30, 2021, we expect the conversion will occur over the coming 12 to 24 months, with the associated revenue benefits beginning in 2022, and expected to be largely realized in 2023.
New asset servicing mandates may be subject to completion of definitive agreements, approval of applicable boards and shareholders and customary regulatory approvals. New asset servicing mandates and servicing assets remaining to be installed in future periods exclude certain new business which has been contracted, but for which the client has not yet provided permission to publicly disclose and the expected installation date extends beyond one quarter. These excluded assets, which from time to time may be significant, will be included in new asset servicing mandates and reflected in servicing assets remaining to be installed in the period in which the client provides its permission. Servicing mandates and servicing assets remaining to be installed in future periods are presented on a gross basis and therefore also do not include the impact of clients who have notified us during the period of their intent to terminate or reduce their relationship with us, which may from time to time be significant.
With respect to these new servicing mandates, once installed we may provide various services, including accounting, bank loan servicing, compliance reporting and monitoring, custody, depository banking services, FX, fund administration, hedge fund servicing, middle office outsourcing, performance and analytics, private equity administration, real estate administration, securities finance, transfer agency and wealth management services. Revenues associated with new servicing mandates may vary based on the breadth of services provided and the timing of installation, and the types of assets.
State Street Corporation | 20


MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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.
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 13% and 19% in the three and six months ended June 30, 2021, respectively, compared to the same periods in 2020, primarily due to lower FX volatility, as compared to the high levels of volatility experienced in the first half of 2020 during the COVID-19 pandemic, 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 66% and 34%, respectively, of foreign exchange trading services revenue in both the second quarters of 2021 and 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.
State Street Corporation | 21


MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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 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 20% and 14% in the three and six months ended June 30, 2021, respectively, compared to the same periods in 2020, driven by higher agency lending and enhanced custody balances, partially offset by lower spreads.
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, decreased 9% in the three months ended June 30, 2021 and increased 4% in the six months ended June 30, 2021, compared to the same periods in 2020, respectively, and reflects approximately $136 million and $223 million from CRD in the three and six months ended June 30, 2021, respectively, compared to approximately $134 million and $225 million from CRD in the same periods in 2020, respectively. Revenue related to the front office solutions provided by CRD is primarily driven by the sale of term software licenses and software as service arrangements, including professional services such as consulting and implementation services, software support and maintenance. Approximately 50%-70% of revenue associated with a sale of software to be installed on-premises is recognized at a point in time when the customer benefits from obtaining access to and use of the software license, with the percentage varying based on the length of the contract and other contractual terms. The remainder of revenue for on-premise installations is recognized over the length of the contract as maintenance and other services are provided. Upon renewal of an on-premises software contract, the same pattern of revenue recognition is followed with 50%-70% recognized upon renewal and the balance recognized over the term of the contract. Revenue for a Software as a Service (SaaS) related arrangement, where the customer does not take possession of the software, is recognized over the term of the contract as services are provided. Upon renewal of a SaaS arrangement, revenue continues to be recognized as services are provided under the new contract. As a result of these differences in how portions of CRD revenue are accounted for, CRD revenue may vary more than other business units quarter to quarter. CRD contributed approximately $140 million and $230 million in total revenue in the three and six months ended June 30, 2021, respectively, compared to approximately $138 million and $233 million in the same periods in 2020, respectively, which included in the three and six months ended June 30, 2021 approximately $136 million and $223 million in software and processing fees, respectively, and $3 million and $6 million in brokerage and other trading services, respectively, within foreign exchange trading services.
State Street Corporation | 22


MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Amortization of tax advantage investments negatively impacted software and processing fees by approximately $30 million and $56 million in the three and six months ended June 30, 2021, respectively, compared to $20 million and $43 million in the same periods in 2020, respectively.
In addition, FX and market-related adjustments, which also includes certain fair value adjustments, impacted software and processing fees by approximately ($1) million and ($5) million in the three and six months ended June 30, 2021, respectively, compared to $8 million and ($13) million in the same periods in 2020, respectively.
Expenses
Total expenses for Investment Servicing increased 2% in both the three and six months ended June 30, 2021, compared to the same periods in 2020, primarily reflecting unfavorable currency translation. Currency translation increased expenses for Investment Servicing by 2% in both the three and six months ended June 30, 2021 relative to the same periods in 2020. Seasonal deferred incentive compensation expense and payroll taxes were $141 million in the six months ended June 30, 2021 compared to $125 million in the same period in 2020. Total expenses contributed by CRD were approximately $70 million and $137 million in the three and six months ended June 30, 2021, respectively, compared to $61 million and $119 million in the same periods in 2020, respectively. Additional information about expenses is provided under "Expenses" in "Consolidated Results of Operations" included in this Management's Discussion and Analysis.
Investment Management
TABLE 14: INVESTMENT MANAGEMENT LINE OF BUSINESS RESULTS
(Dollars in millions, except where otherwise noted)Three Months Ended June 30,% Change
20212020
Management fees(1)(2)
$504 $444 14 %
Foreign exchange trading services(1)(3)
16 13 23 
Securities finance3 (25)
Software and processing fees(4)
7 16 (56)
Total fee revenue530 477 11 
Net interest income(1)(12)(92)
Total revenue529 465 14 
Total expenses346 353 (2)
Income before income tax expense$183 $112 63 
Pre-tax margin35 %24 %
(Dollars in millions, except where otherwise noted)Six Months Ended June 30,% Change
20212020
Management fees(1)(2)
$997 $908 10 %
Foreign exchange trading services(1)(3)
29 23 26 
Securities finance7 — 
Software and processing fees(4)
9 (9)(200)
Total fee revenue1,042 929 12 
Net interest income(7)(11)(36)
Total revenue1,035 918 13 
Total expenses743 738 
Income before income tax expense$292 $180 62 
Pre-tax margin28 %20 %
(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 $19 million and $34 million in the three and six months ended June 30, 2020, respectively.
(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 14% and 13% in the three and six months ended June 30, 2021, respectively, compared to the same periods in 2020.

Management Fees
Management fees increased 14% and 10% in the three and six months ended June 30, 2021, respectively, compared to the same periods in 2020, primarily due to higher average equity market levels and net inflows from ETFs, partially offset by a previously reported idiosyncratic institutional client asset reallocation in the first quarter of 2021 and higher money market fee waivers. As of June 30, 2021, and assuming short-term spot interest rates and
State Street Corporation | 23


MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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 in the range of approximately $20 million to $25 million in each subsequent quarter of 2021. Currency translation increased management fees by 2% in both the three and six months ended June 30, 2021, relative to the same periods in 2020.
Management fees generated outside the U.S. were approximately 26% of total management fees in both the three and six months ended June 30, 2021, compared to approximately 25% and 27% in the same periods in 2020, respectively.
TABLE 15: ASSETS UNDER MANAGEMENT BY ASSET CLASS AND INVESTMENT APPROACH
(In billions)June 30, 2021December 31, 2020June 30, 2020
Equity:
  Active$83 $85 $77 
  Passive2,378 2,086 1,768 
Total equity (1)
2,461 2,171 1,845 
Fixed-income:
  Active100 90 88 
  Passive510 459 405 
Total fixed-income(1)
610 549 493 
Cash(1)(2)
381 349 376 
Multi-asset-class solutions:
  Active35 40 41 
  Passive172 146 116 
Total multi-asset-class solutions(1)
207 186 157 
Alternative investments(3):
  Active63 39 28 
  Passive175 173 155 
Total alternative investments(1)
238 212 183 
Total$3,897 $3,467 $3,054 
(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.
TABLE 16: EXCHANGE-TRADED FUNDS BY ASSET CLASS(1)
(In billions)June 30, 2021December 31, 2020June 30, 2020
Alternative Investments(2)(3)
$73$83$77
Equity(3)
844708570
Multi Asset1
Fixed-Income(3)
128115107
Total Exchange-Traded Funds$1,046$906$754
(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)June 30, 2021December 31, 2020June 30, 2020
North America$2,749 $2,411 $2,102 
Europe/Middle East/Africa570 512 464 
Asia/Pacific578 544 488 
Total$3,897 $3,467 $3,054 
(1) Geographic mix is based on client location or fund management location.
State Street Corporation | 24


MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
TABLE 18: ACTIVITY IN ASSETS UNDER MANAGEMENT BY PRODUCT CATEGORY
(In billions)
Equity(1)
Fixed-Income(1)
Cash(1)(2)
Multi-Asset-Class Solutions(1)
Alternative Investments(1)(3)
Total
Balance as of December 31, 2019$1,990 $479 $317 $157 $173 $3,116 
Long-term institutional flows, net(4)
21 (10)(1)— — 10 
Exchange-traded fund flows, net(14)— — (3)
Cash fund flows, net— — 32 — — 32 
Total flows, net(3)31 — 39 
Market appreciation (depreciation)(419)(16)(8)(436)
Foreign exchange impact(17)(3)(2)(1)(7)(30)
Total market/foreign exchange impact(436)— (17)(15)(466)
Balance as of March 31, 20201,561 478 348 140 162 2,689 
Long-term institutional flows, net(4)
(17)(10)— (5)(31)
Exchange-traded fund flows, net— — 12 26 
Cash fund flows, net— — 28 — — 28 
Total flows, net(9)(4)28 23 
Market appreciation (depreciation)283 17 (1)15 10 324 
Foreign exchange impact10 18 
Total market/foreign exchange impact293 19 — 16 14 342 
Balance as of June 30, 2020$1,845 $493 $376 $157 $183 $3,054 
Balance as of December 31, 2020$2,171 $549 $349 $186 $212 $3,467 
Long-term institutional flows, net(4)
(35)26 (1)(8)
Exchange-traded fund flows, net21 — — (7)23 
Cash fund flows, net— — 24 — — 24 
Total flows, net(14)35 23 (6)39 
Market appreciation (depreciation)148 (24)— (11)116 
Foreign exchange impact(23)(6)— (1)(1)(31)
Total market/foreign exchange impact125 (30)— (12)85 
Balance as of March 31, 20212,282 554 372 189 194 3,591 
Long-term institutional flows, net(4)
13 37  7 (2)55 
Exchange-traded fund flows, net15 5   1 21 
Cash fund flows, net  7   7 
Total flows, net28 42 7 7 (1)83 
Market appreciation (depreciation)152 14 2 11 45 224 
Foreign exchange impact(1)    (1)
Total market/foreign exchange impact151 14 2 11 45 223 
Balance as of June 30, 2021$2,461 $610 $381 $207 $238 $3,897 
(1) The implementation of an improved internal data management system for product level data in the first quarter of 2021 resulted in some AUM reclassifications between the categories presented for prior periods to align with the current presentation. There was no impact to the total level of reported AUM.
(2) Includes both floating- and constant-net-asset-value portfolios held in commingled structures or separate accounts.
(3) Includes real estate investment trusts, currency and commodities, including SPDR® Gold Shares and SPDR® Gold MiniSharesSM Trust. We are not the investment manager for the SPDR® Gold Shares and SPDR®Gold MiniSharesSM Trust, but act as the marketing agent.
(4) Amounts represent long-term portfolios, excluding ETFs.

State Street Corporation | 25


MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Expenses
Total expenses for Investment Management decreased 2% in the three months ended June 30, 2021, compared to the same period in 2020, primarily due to expense savings initiatives, partially offset by unfavorable currency translation. Total expenses for Investment Management increased 1% in the six months ended June 30, 2021, compared to the same period in 2020, primarily due to higher seasonal expenses and currency translation. Seasonal deferred incentive compensation expense and payroll taxes were $35 million in the six months ended June 30, 2021, compared to $26 million in the same period in 2020. Currency translation increased expenses for Investment Management by 2% in both the three and six months ended June 30, 2021, relative to the same periods 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)
Six Months Ended June 30,
(In millions)20212020
Assets:
Interest-bearing deposits with banks$97,348 $76,931 
Securities purchased under resale agreements4,261 2,574 
Trading account assets764 896 
Investment securities:
Investment securities available-for-sale62,728 55,852 
Investment securities held-to-maturity46,294 40,700 
Investment securities held to maturity purchased under money market liquidity facility634 10,541 
Total investment securities109,656 107,093 
Loans28,752 27,919 
Other interest-earning assets19,625 10,298 
Average total interest-earning assets260,406 225,711 
Cash and due from banks5,065 3,668 
Other non-interest-earning assets36,823 38,556 
Average total assets$302,294 $267,935 
Liabilities and shareholders’ equity:
Interest-bearing deposits:
U.S.$105,647 $85,672 
Non-U.S.80,854 65,658 
Total interest-bearing deposits(2)
186,501 151,330 
Securities sold under repurchase agreements745 2,584 
Short-term borrowings under money market liquidity facility635 10,612 
Other short-term borrowings829 3,017 
Long-term debt13,639 14,431 
Other interest-bearing liabilities5,268 3,446 
Average total interest-bearing liabilities207,617 185,420 
Non-interest-bearing deposits(2)
47,815 37,284 
Other non-interest-bearing liabilities21,269 20,867 
Preferred shareholders’ equity2,177 2,666 
Common shareholders’ equity23,416 21,698 
Average total liabilities and shareholders’ equity$302,294 $267,935 
(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 $234.32 billion in the six months ended June 30, 2021 compared to $188.61 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)June 30, 2021December 31, 2020
Available-for-sale:
U.S. Treasury and federal agencies:
Direct obligations$12,904 $6,575 
Mortgage-backed securities16,213 14,305 
Total U.S. Treasury and federal agencies29,117 20,880 
Non-U.S. debt securities:
Mortgage-backed securities2,002 1,996 
Asset-backed securities2,451 2,291 
Foreign sovereign, supranational and non-agency20,690 22,087 
Other(1)
3,432 3,355 
Total non-U.S. debt securities28,575 29,729 
Asset-backed securities:
Student loans(2)
258 314 
Collateralized loan obligations(3)
4,694 2,966 
Non-agency CMBS and RMBS(4)
65 78 
Other92 90 
Total asset-backed securities5,109 3,448 
State and political subdivisions1,491 1,548 
Other U.S. debt securities(5)
3,205 3,443 
Total available-for-sale securities(6)
$67,497 $59,048 
Held-to-maturity:
U.S. Treasury and federal agencies:
Direct obligations$4,696 $6,057 
Mortgage-backed securities33,408 36,901 
Total U.S. Treasury and federal agencies38,104 42,958 
Non-U.S. debt securities:
Mortgage-backed securities233 303 
Foreign sovereign, supranational and non-agency1,595 342 
Total non-U.S. debt securities1,828 645 
Asset-backed securities:
Student loans(2)
4,860 4,774 
Non-agency CMBS and RMBS(7)
392 554 
Total asset-backed securities5,252 5,328 
Total(6)(8)
45,184 48,931 
Held-to-maturity under money market mutual fund liquidity facility 3,300 
Total held-to-maturity securities(6)
$45,184 $52,231 
(1) As of June 30, 2021 and December 31, 2020, the fair value includes non-U.S. corporate bonds of $1.94 billion and $1.88 billion, respectively.
(2) Primarily comprised of securities guaranteed by the federal government with respect to at least 97% of defaulted principal and accrued interest on the underlying loans.
(3) Excludes collateralized loan obligations in loan form. Refer to Note 4 for additional information.
(4) Consists entirely of non-agency CMBS as of both June 30, 2021 and December 31, 2020.
(5) As of June 30, 2021 and December 31, 2020, the fair value of U.S. corporate bonds was $3.20 billion and $3.42 billion, respectively.
(6) An immaterial amount of accrued interest related to HTM and AFS investment securities was excluded from the amortized cost basis for the period ended June 30, 2021.
(7) As of June 30, 2021 and December 31, 2020, the total amortized cost included $319 million and $464 million, respectively, of non-agency CMBS and $73 million and $90 million of non-agency RMBS, respectively.
(8) As of June 30, 2021, we recognized an allowance for credit losses of $2 million on HTM investment securities.
Additional information about our investment securities portfolio is provided in Note 3 to the consolidated financial statements in this Form 10-Q.
We manage our investment securities portfolio to align with the interest rate and duration characteristics of our client liabilities and in the context of the overall structure of our consolidated statement of condition, in consideration of the global interest rate environment. We consider a well-diversified, high-credit quality investment securities portfolio to be an important element in the management of our consolidated statement of condition.
Average duration of our investment securities portfolio was 3.1 years and 3.0 years as of June 30, 2021 and December 31, 2020, respectively. The duration remained slightly above 3 years despite the continued growth in the portfolio due to lower long-end rates and resulting higher prepayment speeds in our mortgage backed securities portfolio.
Approximately 92% of the carrying value of the portfolio was rated “AAA” or “AA” as of both June 30, 2021 and December 31, 2020.
TABLE 21: INVESTMENT PORTFOLIO BY EXTERNAL CREDIT RATING (EXCLUDING SECURITIES PURCHASED UNDER THE MMLF PROGRAM)
June 30, 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 June 30, 2021 and December 31, 2020, the investment portfolio was diversified with respect to asset class composition. The following table presents the composition of these asset classes.
TABLE 22: INVESTMENT PORTFOLIO BY ASSET CLASS
June 30, 2021December 31, 2020
U.S. Agency
Mortgage-backed securities
35 %39 %
Foreign sovereign19 20 
U.S. Treasuries16 11 
Asset-backed securities13 11 
Other credit(1)
17 19 
100 %100 %
(1) Includes the securities purchased under the MMLF program.
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
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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 June 30, 2021 and December 31, 2020.
TABLE 23: NON-U.S. DEBT SECURITIES(1)
(In millions)June 30, 2021December 31, 2020
Available-for-sale:
Canada$3,977 $3,163 
France2,531 2,829 
Australia2,273 2,809 
Germany2,116 2,155 
United Kingdom1,404 1,209 
Japan1,392 560 
Austria1,349 1,544 
Netherlands1,285 1,528 
Spain1,263 1,642 
Belgium1,106 1,618 
Finland896 1,222 
Italy885 1,014 
Ireland793 1,226 
Brazil203 74 
Other(2)
7,102 7,136 
Total$28,575 $29,729 
Held-to-maturity:
Singapore$216 $342 
Australia72 90 
Spain77 84 
Other(2)
1,463 129 
Total$1,828 $645 
(1) Geography is determined primarily based on the domicile of collateral or issuer.
(2) As of June 30, 2021, other non-U.S. investments include $6.4 billion supranational bonds in AFS securities and $1.4 billion supranational bonds in HTM securities.
Approximately 79% of the aggregate carrying value of these non-U.S. debt securities was rated “AAA” or “AA” as of both June 30, 2021 and December 31, 2020. The majority of these securities comprised senior positions within the security structures; these positions have a level of protection provided through subordination and other forms of credit protection. As of both June 30, 2021 and December 31, 2020, approximately 26% of the aggregate carrying value of these non-U.S. debt securities was floating-rate.
As of June 30, 2021, our non-U.S. debt securities had an average market-to-book ratio of 100.7%, and an aggregate pre-tax net unrealized gain of $226 million, composed of gross unrealized gains of $290 million and gross unrealized losses of $64 million. These unrealized amounts included:
a pre-tax net unrealized gain of $160 million, composed of gross unrealized gains of $221 million and gross unrealized losses of $61 million, associated with non-U.S. AFS debt securities; and
a pre-tax net unrealized gain of $66 million, composed of gross unrealized gains of $69 million and gross unrealized losses of $3 million, associated with non-U.S. HTM debt securities.
As of June 30, 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 June 30, 2021, as shown in Table 21: Carrying Values of Investment Securities, all of which were classified as AFS. As of June 30, 2021, we also provided approximately $9.1 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
June 30, 2021
State of Issuer:
Texas$261 $2,200 $2,461 23 %
California110 2,0722,182 21 
New York285 1,2571,542 15 
Massachusetts374 7291,103 10 
Tennessee 491 491 5 
Total$1,030 $6,749 $7,779 
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 $10.56 billion and $11.06 billion across our businesses as of June 30, 2021 and December 31, 2020, respectively.
(2) Includes municipal loans which are also presented within Table 25: U.S. and Non-U.S. Loans.
Our aggregate municipal securities exposure presented in Table 24: State and Municipal Obligors, was concentrated primarily with highly-rated counterparties, with approximately 88% of the obligors rated “AAA” or “AA” as of June 30, 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 geographically, with the states that represent our largest exposures widely dispersed across the U.S.
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
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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)June 30, 2021December 31, 2020
Domestic(1):
Commercial and financial:
Fund Finance(2)
$12,029 $11,531 
Leveraged loans3,385 2,923 
Overdrafts2,196 1,894 
Other(3)
2,056 2,688 
Commercial real estate2,334 2,096 
Total domestic22,000 21,132 
Foreign(1):
Commercial and financial:
Fund Finance(2)
6,003 4,432 
Leveraged loans1,169 1,242 
Overdrafts1,532 1,088 
Other(3)
 31 
Total foreign8,704 6,793 
Total loans(2)(4)
30,704 27,925 
Allowance for loan losses(100)(122)
Loans, net of allowance$30,604 $27,803 
(1) Domestic and foreign categorization is based on the borrower’s country of domicile.
(2) Fund finance loans include primarily $6,419 million loans to real money funds, $8,710 million private equity capital call finance loans, $1,043 million loans to business development companies and $1,580 million collateralized loan obligations in loan form, as of June 30, 2021, compared to $6,391 million loans to real money funds, $8,380 million private equity capital call finance loans and $821 million loans to business development companies as of December 31, 2020.
(3) Includes $1,406 million securities finance loans, $629 million loans to municipalities and $21 million other loans as of June 30, 2021 and $1,911 million securities finance loans, $754 million loans to municipalities and $54 million other loans as of December 31, 2020.
(4) As of June 30, 2021, excluding overdrafts, floating rate loans totaled $24,477 million and fixed rate loans totaled $2,497 million.
The increase in foreign loans as of June 30, 2021 compared to December 31, 2020 was primarily driven by the purchase of $1,580 million collateralized loan obligations in loan form in the second quarter of 2021. In the second quarter of 2021, in addition to our CLOs in the investment portfolio, we began purchasing CLOs in loan form.
As of June 30, 2021 and December 31, 2020, our leveraged loans totaled approximately $4.55 billion and $4.17 billion, respectively. We sold $21 million of leveraged loans in the second quarter of 2021, of which $16 million remained unsettled and was held for sale as of June 30, 2021.
In addition, we had binding unfunded commitments as of June 30, 2021 and December 31, 2020 of $541 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 88% and 85% of the loans rated “BB” or “B” as of June 30, 2021 and December 31, 2020, respectively. Our investment strategy involves generally limiting our investment to larger, more liquid credits underwritten by major global financial institutions, applying our internal credit analysis process to each potential investment and diversifying our exposure by counterparty and industry segment. However, these loans have significant exposure to credit losses relative to higher-rated loans in our portfolio.
Additional information about all of our loan segments, as well as underlying classes, is provided in Note 4 to the consolidated financial statements in this Form 10-Q.
No loans were modified in troubled debt restructurings as of both June 30, 2021 and December 31, 2020.
Allowance for credit losses
TABLE 26: ALLOWANCE FOR CREDIT LOSSES
Six Months Ended June 30,
(In millions)20212020
Allowance for credit losses:
Beginning balance$148 $93 
Provision for credit losses (funded commitments)(1)
(19)86 
Provisions for credit losses (unfunded commitments)(3)(1)
Provisions for credit losses (held-to-maturity securities and all other)(2)
Charge-offs(2)
(1)(19)
Currency translation(2)
Ending balance$121 $163 
(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 other financial assets held at amortized cost, including investment securities classified as HTM and off-balance sheet commitments, was a $15 million and $24 million reserve release in the three and six months ended June 30, 2021, compared to $52 million and $88 million reserve build in the same periods in 2020, respectively.
As of June 30, 2021, approximately $74 million of our allowance for credit losses was related to leveraged loans included in the commercial and financial segment compared to $113 million as of June 30, 2020. The reduction in the allowance in the second quarter of 2021 reflects a positive shift in
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
management's economic outlook. As our view on current and future economic scenarios change, our allowance for credit losses related to these loans may be impacted through a change to the provisions for credit losses, reflecting credit migration within our loan portfolio, as well as changes in management's economic outlook as of year-end. The remaining $47 million and $50 million as of June 30, 2021 and 2020, respectively, was related to other loans, commercial real estate loans, off-balance sheet commitments and other financial assets held at amortized cost, including investment securities held to maturity.
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 27% and 30% of our consolidated total assets as of June 30, 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
June 30, 2021  
Germany$28,810 $258 $29,068 
United Kingdom17,992 1,200 19,192 
Australia11,005 1,060 12,065 
Luxembourg5,799 2,041 7,840 
Canada6,675 907 7,582 
Japan6,785 479 7,264 
Ireland2,684 2,770 5,454 
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 June 30, 2021, aggregate cross-border outstandings in France amounted to between 0.75% and 1% of our consolidated assets, at approximately $3.15 billion. As of December 31, 2020, aggregate cross-border outstandings in each of Switzerland and Ireland amounted to between 0.75% and 1% of our consolidated assets, at approximately $3.13 billion and $2.93 billion, respectively.
Risk Management
In the normal course of our global business activities, we are exposed to a variety of risks, some inherent in the financial services industry, others more specific to our business activities. Our risk management framework focuses on material risks, which include the following:
credit and counterparty risk;
liquidity risk, funding and management;
operational risk;
information technology risk;
market risk associated with our trading activities;
market risk associated with our non-trading activities, which we refer to as asset-and-liability management, and which consists primarily of interest rate risk;
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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 second quarter of 2021 reflects a positive shift in management's economic outlook. Allowance
estimates remain subject to continued model and economic uncertainty and management may use qualitative adjustments. If future data and forecasts deviate relative to the forecasts utilized to determine our allowance for credit losses as of June 30, 2021, or if credit risk migration is higher or lower than forecasted for reasons independent of the economic forecast, our allowance for credit losses will also change.
Additional information about the allowance for credit losses is provided in 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
AND RESULTS OF OPERATIONS
SSIF continue to be available to the Parent Company. As of June 30, 2021, our Parent Company and State Street Bank had no senior notes or subordinated debentures outstanding that will mature in the next twelve months.
As a systemically important financial institution, our liquidity risk management activities are subject to heightened and evolving regulatory requirements, including interpretations of those requirements, under specific U.S. and international regulations and also resulting from published and unpublished guidance, supervisory activities, such as stress tests, resolution planning, examinations and other regulatory interactions. Satisfaction of these requirements could, in some cases, result in changes in the composition of our investment portfolio, reduced NII or NIM, a reduction in the level of certain business activities or modifications to the way in which we deliver our products and services. If we fail to meet regulatory requirements to the satisfaction of our regulators, we could receive negative regulatory stress test results, incur a resolution plan deficiency or determination of a non-credible resolution plan or otherwise receive an adverse regulatory finding. Our efforts to satisfy, or our failure to satisfy, these regulatory requirements could materially adversely affect our business, financial condition or results of operations.
For additional information on our liquidity risk management, as well as liquidity metrics, refer to pages 94 to 99 included under Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, Liquidity Risk Management, in our 2020 Form 10-K. For additional information on our liquidity ratios, including LCR and the net stable funding ratio, refer to page 14 included under Item 1, Business, in our 2020 Form 10-K.
Asset Liquidity
Central to the management of our liquidity is asset liquidity, which consists primarily of HQLA. HQLA is the amount of liquid assets that qualify for inclusion in the LCR. As a banking organization, we are subject to a minimum LCR under the LCR rule approved by U.S. banking regulators. The LCR is intended to promote the short-term resilience of internationally active banking organizations, like us, to improve the banking industry's ability to absorb shocks arising from market stress over a 30 calendar day period and improve the measurement and management of liquidity risk. The LCR measures an institution’s HQLA against its net cash outflows. HQLA primarily consists of unencumbered cash and certain high quality liquid securities that qualify for inclusion under the LCR rule. The LCR was fully implemented beginning on January 1, 2017. We report LCR to the Federal Reserve daily. For the
quarters ended June 30, 2021 and December 31, 2020, daily average LCR for the Parent Company was 104% and 108%, respectively, with the lower daily average LCR for the quarter ended June 30, 2021 driven primarily by higher deposits, the maturity of long-term debt and the use of cash to facilitate common share repurchases. The impact of higher deposits on the Parent Company's LCR is offset by a cap on the HQLA from State Street Bank and Trust that can be recognized at the Parent Company as defined in the U.S. LCR Final Rule as it prohibits the upstreaming of liquidity under stress. The average HQLA for the Parent Company under the LCR final rule definition was $169.11 billion and $143.61 billion, post-prescribed haircuts, for the quarters ended June 30, 2021 and December 31, 2020, respectively. The increase in average HQLA for the quarter ended June 30, 2021, compared to the quarter ended December 31, 2020, was primarily due to a higher level of client deposits. For the quarter ended June 30, 2021, LCR for State Street Bank and Trust was approximately 131%. State Street Bank and Trust's LCR is higher than the Parent Company's LCR, primarily due to application of the transferability restriction in the LCR Final Rule to the calculation of the Parent Company's LCR. This restriction limits the HQLA used in the calculation of the Parent Company's LCR to the amount of net cash outflows of its principal banking subsidiary (State Street Bank and Trust). This transferability restriction does not apply in the calculation of State Street Bank and Trust's LCR, and therefore State Street Bank and Trust's LCR reflects the benefit of all of its HQLA holdings.
We maintained average cash balances in excess of regulatory requirements governing deposits with the Federal Reserve of approximately $96.82 billion at the Federal Reserve, the ECB and other non-U.S. central banks for the quarter ended June 30, 2021, and $75.68 billion for the quarter ended December 31, 2020. The higher levels of average cash balances with central banks reflect higher levels of client deposits.
Liquid securities carried in our asset liquidity include securities pledged without corresponding advances from the Federal Reserve Bank of Boston (FRBB), the FHLB, and other non-U.S. central banks. State Street Bank is a member of the FHLB. This membership allows for advances of liquidity in varying terms against high-quality collateral, which helps facilitate asset-and-liability management. As of June 30, 2021 and December 31, 2020, we had no outstanding borrowings from the FHLB.
Access to primary, intra-day and contingent liquidity provided by these utilities is an important source of contingent liquidity with utilization subject to underlying conditions. As of June 30, 2021 and
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
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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 $97.02 billion for the quarter ended June 30, 2021, compared to $89.12 billion for the quarter ended December 31, 2020.
Uses of Liquidity
Significant uses of our liquidity could result from the following: withdrawals of client deposits; draw-downs by our custody clients of lines of credit; advances to clients to settle securities transactions; increases in our investment and loan portfolios; or other permitted purposes. Such circumstances would generally arise under stress conditions including 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 $34.97 billion and $34.21 billion and standby letters of credit totaling $3.47 billion and $3.33 billion as of June 30, 2021 and December 31, 2020, respectively. These amounts do not reflect the value of any collateral. As of June 30, 2021, approximately 71% of our unfunded commitments to extend credit and 27% 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.
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 published on June 29, 2020 the scope for the 2021 targeted resolution plan, to include the core elements of resolution planning and some specific firm level information, as well as the impact of the COVID-19 pandemic. We submitted our 2021 targeted resolution plan to the Agencies on 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
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
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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.
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 2021 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. On June 25, 2021, the FDIC issued a statement adjusting the timing of IDI plan submissions to a triennial filing for State Street and the other U.S. G-SIBs.
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Funding
Deposits
We provide products and services including custody, accounting, administration, daily pricing, FX services, cash management, financial asset management, securities finance and investment advisory services. As a provider of these products and services, we generate client deposits, which have generally provided a stable, low-cost source of funds. As a global custodian, clients place deposits with our entities in various currencies. As of both June 30, 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 the British pound Sterling (GBP) and 10% in all other currencies.
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 $0.66 billion and $3.41 billion as of June 30, 2021 and December 31, 2020, respectively.
State Street Bank currently maintains a line of credit with a financial institution of CAD $1.40 billion, or approximately $1.13 billion, as of June 30, 2021, to support its Canadian securities processing operations. The line of credit has no stated termination date and is cancelable by either party with prior notice. As of both June 30, 2021 and December 31, 2020, there was no balance outstanding on this line of credit.
Long-Term Funding
We have the ability to issue debt and equity securities under our current universal shelf registration statement to meet current commitments and business needs, including accommodating the transaction and cash management needs of our clients. The total amount remaining for issuance under the registration statement is $6.15 billion as of June 30, 2021. In addition, State Street Bank also
has current authorization from the Board to issue up to $5 billion in unsecured senior debt.
On March 3, 2021, we issued $850 million aggregate principal amount of 2.200% Senior Subordinated Notes due 2031.
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
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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. See also “Information Technology Risk Management” below.
For additional information about our operational risk framework, refer to pages 100 to 103 included under Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, "Operational Risk Management", in our 2020 Form 10-K.
Information Technology Risk Management
We define information technology risk as the risk associated with the use, ownership, operation, involvement, influence and adoption of information technology. Information technology risk includes risks triggered by technology non-compliance with regulatory obligations, information security and privacy incidents, business disruption, technology internal control and process gaps, technology operational events and adoption of new business technologies.
For additional information about our information technology risk framework and associated risks, refer to pages 103 to 104 included under Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, "Information Technology Risk Management" in our 2020 Form 10-K, and pages 48 to 49 included under Item 1A, Risk Factors, in our 2020 Form 10-K - "Any failures of or damage to, attack on or unauthorized access to our information technology systems or facilities or disruptions to our continuous operations, including the systems, facilities or operations of third parties with which we do business, such as resulting from cyber-attacks, could result in significant costs, reputational damage and limits on our ability to conduct our business activities".
Market Risk Management
Market risk is defined by U.S. banking regulators as the risk of loss that could result from broad market movements, such as changes in the general level of
interest rates, credit spreads, foreign exchange rates or commodity prices. We are exposed to market risk in both our trading and certain of our non-trading, or asset-and-liability management, activities.
Information about the market risk associated with our trading activities is provided below under “Trading Activities.” Information about the market risk associated with our non-trading activities, which consists primarily of interest rate risk, is provided below under “Asset-and-Liability Management Activities.”
Trading Activities
In the conduct of our trading activities, we assume market risk, the level of which is a function of our overall risk appetite, business objectives and liquidity needs, our clients' requirements and market volatility and our execution against those factors.
For additional information about the market risk associated with our trading activities, refer to pages 104 to 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 June 30, 2021, the notional amount of these derivative contracts was $2.75 trillion, of which $2.73 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.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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.
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 quarters ended June 30, 2021, March 31, 2021 and June 30, 2020. At a 99% confidence interval, the statistical expectation for a VaR model is to witness one exception every hundred trading days (or two to three exceptions per year).
The following tables present VaR and stressed VaR associated with our trading activities for covered positions held during the quarters ended June 30, 2021, March 31, 2021 and June 30, 2020, respectively, as measured by our VaR methodology. Diversification effect in the tables below represents the difference between total VaR and the sum of the VaRs for each trading activity. This effect arises because the risks present in our trading activities are not perfectly correlated.
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
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TABLE 28: TEN-DAY VALUE-AT-RISK ASSOCIATED WITH TRADING ACTIVITIES FOR COVERED POSITIONS
Three Months EndedAs of June 30, 2021As of March 31, 2021As of June 30, 2020
June 30, 2021March 31, 2021June 30, 2020
(In thousands)Avg.Max.Min.Avg.Max.Min.Avg.Max.Min.VaRVaRVaR
Global Markets$15,283 


$25,020 


$6,974 $13,008 


$25,411 


$5,252 $10,072 $19,152 $5,618 $20,989 $14,587 $8,534 
Global Treasury4,342 


9,451 


460 5,915 


9,762 


3,820 3,856 8,043 423 3,667 9,655 4,040 
Diversification(2,671)


(7,136)


474 (3,736)


(2,884)


(2,576)(2,673)(5,294)(307)(812)(8,973)(2,293)
Total VaR$16,954 


$27,335 


$7,908 $15,187 


$32,289 


$6,496 $11,255 $21,901 $5,734 $23,844 $15,269 $10,281 
TABLE 29: TEN-DAY STRESSED VALUE-AT-RISK ASSOCIATED WITH TRADING ACTIVITIES FOR COVERED POSITIONS
Three Months EndedAs of June 30, 2021As of March 31, 2021As of June 30, 2020
June 30, 2021March 31, 2021June 30, 2020
(In thousands)Avg.Max.Min.Avg.Max.Min.Avg.Max.Min.VaRVaRVaR
Global Markets$36,478 


$74,475 


$13,037 $34,572 


$79,687 


$13,779 $29,533 $59,530 $17,545 $56,998 $21,264 $30,684 
Global Treasury12,644 


29,651 


2,042 17,714 


26,312 


10,095 8,987 16,010 1,713 6,462 25,763 9,755 
Diversification(6,471)


(8,193)


1,690 (7,398)(10,440)(3,453)(7,766)(12,256)1,951 8,473 (26,260)(12,779)
Total Stressed VaR$42,651 


$95,933 


$16,769 $44,888 


$95,559 


$20,421 $30,754 $63,284 $21,209 $71,933 $20,767 $27,660 
The three month average of our stressed VaR-based measure was approximately $43 million for the quarter ended June 30, 2021, compared to an average of approximately $45 million for the quarter ended March 31, 2021 and $31 million for the quarter ended June 30, 2020. The decrease in the average stressed VaR for the quarter ended June 30, 2021, compared to the quarter ended March 31, 2021, is primarily attributed to lower 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 June 30, 2021, March 31, 2021 and June 30, 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 June 30, 2021As of March 31, 2021As of June 30, 2020
(In thousands)Foreign Exchange RiskInterest Rate RiskVolatility RiskForeign Exchange RiskInterest Rate RiskVolatility RiskForeign Exchange RiskInterest Rate RiskVolatility Risk
By component:
Global Markets$6,859 $16,327 $701 $12,476 $11,164 $857 $6,243 $8,706 $239 
Global Treasury97 3,950  39 9,734 — 16 4,244 — 
Diversification(234)687  (22)(5,477)— (15)(2,249)— 
Total VaR$6,722 $20,964 $701 $12,493 $15,421 $857 $6,244 $10,701 $239 
TABLE 31: TEN-DAY STRESSED VaR ASSOCIATED WITH TRADING ACTIVITIES BY RISK FACTOR(1)
As of June 30, 2021As of March 31, 2021As of June 30, 2020
(In thousands)Foreign Exchange RiskInterest Rate RiskVolatility RiskForeign Exchange RiskInterest Rate RiskVolatility RiskForeign Exchange RiskInterest Rate RiskVolatility Risk
By component:
Global Markets$10,456 $59,710 $747 $16,046 $26,866 $939 $16,712 $32,549 $285 
Global Treasury117 6,350  62 25,260 — 34 9,484 — 
Diversification(191)8,450  (16)(6,387)— (56)(9,946)— 
Total Stressed VaR$10,382 $74,510 $747 $16,092 $45,739 $939 $16,690 $32,087 $285 
(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.
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
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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 shocks. The baseline view of NII is updated on a regular basis. Relative to the year ago period, the June 30, 2021 baseline forecast is based on an increased balance sheet size. Compared to March 31, 2021, the baseline forecast assumes a modest reduction in balance sheet size over the subsequent twelve-month horizon. Table 32, Key Interest Rates for Baseline Forecasts, presents the spot and 12-month forward rates used in our baseline forecasts at June 30, 2021 and June 30, 2020. Our June 30, 2021 baseline forecast assumes no changes by the Federal Reserve over the next 12 months.
TABLE 32: KEY INTEREST RATES FOR BASELINE FORECASTS
June 30, 2021June 30, 2020
Fed Funds Target10-Year TreasuryFed Funds Target10-Year Treasury
Spot rates0.25 %1.47 %0.25 %0.66 %
12-month forward rates0.25 1.83 0.25 0.92 
In Table 33: Net Interest Income Sensitivity, we report the expected change in NII over the next twelve months from instantaneous shocks to various tenors on the yield curve, including the impacts from U.S. and non-U.S. rates. Each scenario assumes no management action is taken to mitigate the adverse effects of interest rate changes on our financial performance. While investment securities balances and composition can fluctuate with the level of rates as prepayment assumptions change, our modeling approach during the relevant periods has 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 June 30, 2021 reporting period, we did deviate in June 2020 experiencing a rapid increase in client deposits at the beginning of the global pandemic. For the +100bp shock scenario in the June 30, 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 June 30, 2020 reporting period is restated in the table below using enhanced modeling for negative rates.
TABLE 33: NET INTEREST INCOME SENSITIVITY
June 30, 2021
 June 30, 2020(1)
(In millions)U.S. DollarAll Other CurrenciesTotalU.S. DollarAll Other CurrenciesTotal
Rate change:Benefit (Exposure)Benefit (Exposure)
Parallel shifts:
+100 bps shock$644 $286 $930 $314 $149 $463 
–100 bps shock804 155 959 506 181 687 
Steeper yield curve:
'+100 bps shift in long-end rates(2)
134 1 135 194 198 
'-100 bps shift in short-end rates(2)
954 156 1,110 710 188 898 
Flatter yield curve:
'+100 bps shift in short-end rates(2)
510 284 794 133 145 278 
'-100 bps shift in long-end rates(2)
(148)(2)(150)(190)(6)(196)
(1) Represents June 30, 2020 results using the enhanced modeling approach including negative interest rates for all currencies that was implemented starting with the December 31, 2020 reporting period.
(2) The short-end is 0-3 months. The long-end is 5 years and above. Interim term points are interpolated.
State Street Corporation | 39


MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
As of June 30, 2021, NII and U.S. dollar NII is expected to benefit from both parallel increases and decreases in interest rates. Compared to June 30, 2020, our NII and U.S. dollar NII is more sensitive to parallel rate increases, primarily due to higher forecasted levels of deposits and hedging activity, partially offset by growth in fixed rate securities.
Compared to June 30, 2020, our NII and U.S. dollar NII benefit to lower rates has increased primarily due to growth in fixed and contractually floored securities and loans, partially offset by hedging activity. Our projection of an NII benefit to a larger upward rate shock of +100bps assumes deposit betas remain low consistent with the last rising rate cycle. Our projection of an NII benefit from a larger downward rate shock of -100 bps 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. market interest rates increase or (decrease) by 5 bps, we estimate the annualized impact to be approximately $20 million in higher (or lower) NII primarily due to the impact on our sponsored repo activity.
NII is still positioned to benefit from changes in non-U.S. interest rates with the majority of our sensitivity derived from the short-end of the curve given deposit pricing expectations. Compared to June 30, 2020, our non-U.S. benefit from higher rates increased due to higher non-U.S. deposit balances. Our benefit from lower rates decreased due to lower levels of non-U.S. securities.
EVE sensitivity is a discounted cash flow model designed to estimate the fair value of assets and liabilities under a series of interest rate shocks over a long-term horizon. In the following table, we report our EVE sensitivity to 200 bps instantaneous rate shocks, relative to spot interest rates. Management compares the change in EVE sensitivity against our aggregate Tier 1 and Tier 2 risk-based capital, calculated in conformity with current applicable regulatory requirements. EVE sensitivity is dependent on the timing of interest and principal cash flows. Also, the measure only evaluates the spot balance sheet and does not include the impact of new business assumptions.
TABLE 34: ECONOMIC VALUE OF EQUITY SENSITIVITY
As of June 30,
(In millions)20212020
Rate change:Benefit (Exposure)
+200 bps shock$(1,739)$(1,202)
–200 bps shock4,921 5,174 
As of June 30, 2021, EVE sensitivity remains exposed to upward shifts in interest rates. Compared to June 30, 2020, the sensitivity to the up 200 shock scenarios increased due to growth in our investment portfolio, partially offset by our hedging activity.
Both NII sensitivity and EVE sensitivity are routinely monitored as market conditions change. For additional information about our Asset and Liability Management Activities, refer to "Risk Management" in this Management's Discussion and Analysis of Financial Condition and Results of Operations.
Model Risk Management
The use of models is widespread throughout the financial services industry, with large and complex organizations relying on sophisticated models to support numerous aspects of their financial decision making. The models contemporaneously represent both a significant advancement in financial management and a source of risk. In large banking organizations like us, model results influence business decisions, and model failure could have a harmful effect on our financial performance. As a result, the Model Risk Management Framework seeks to mitigate our model risk.
For additional information about our model risk management framework, including our governance and model validation, refer to pages 112 to 113 included under Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, "Model Risk Management", in our 2020 Form 10-K.
Strategic Risk Management
We define strategic risk as the current or prospective impact on earnings or capital arising from adverse business decisions, improper implementation of strategic initiatives, or lack of responsiveness to industry-wide changes. Strategic risks are influenced by changes in the competitive environment; decline in market performance or changes in our business activities; and the potential secondary impacts of reputational risks, not already captured as market, interest rate, credit, operational, model or liquidity risks. We incorporate strategic risk into our assessment of our business plans and risk and capital management processes.
On March 5, 2021, the Intercontinental Exchange Benchmark Administration announced, in conjunction with the United Kingdom Financial Conduct Authority (FCA), that it would cease the publication of GBP, EUR, Swiss Franc and the Japanese Yen LIBOR settings for all tenors, as well as one week and two months U.S. dollar LIBOR settings on December 31, 2021 and would cease the publication of overnight and twelve months U.S. dollar LIBOR settings on June 30, 2023.
State Street Corporation | 40


MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
On April 6, 2021, the state of New York adopted Alternative Reference Rate Committee sponsored legislation that would, among other things, provide for the replacement of LIBOR references in hard to modify legacy financial contracts governed by New York law with a benchmark rate based on SOFR. Other states may adopt similar legislation.
U.S. bank regulators have issued guidance strongly encouraging banking organizations to cease using U.S. dollar LIBOR as a reference rate in new contracts as soon as practicable and in any event by December 31, 2021. We are continuing our efforts to work to facilitate an orderly transition from LIBOR, and other interbank offered rates, to alternative reference rates for us and our clients in a manner consistent with supervisory expectations.
For additional information about our strategic risk management framework and associated risks, refer to page 113 included under Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, "Strategic Risk Management", in our 2020 Form 10-K, and page 46 included under Item 1A, Risk Factors, in our 2020 Form 10-K - "The market transition away from broad use of the London Interbank Offered Rate (LIBOR) as an interest rate benchmark may impose additional costs on us and may expose us to increased operational, model and financial risk."
Capital
Managing our capital involves evaluating whether our actual and projected levels of capital are commensurate with our risk profile, are in compliance with all applicable regulatory requirements and are sufficient to provide us with the financial flexibility to undertake future strategic business initiatives. We assess capital adequacy based on relevant regulatory capital requirements, as well as our own internal capital goals, targets and other relevant metrics.
Our designation as a G-SIB is based on a number of factors, as evaluated by banking regulators, and requires us to maintain an additional capital surcharge above the minimum capital ratios set forth in the Basel III final rule. Further, like all other U.S. G-SIBs, we are also currently subject to a 2.0% SLR buffer in addition to the required minimum of 3% under the Basel III final rule. If we fail to exceed any regulatory buffer or surcharge, we will be subject to increased restrictions (depending upon the extent of the shortfall) regarding capital distributions and discretionary executive bonus payments.
Not all of our competitors have similarly been designated as systemically important nor are all of them subject to the same degree of regulation as a bank or financial holding company, and therefore some of our competitors may not be subject to the same capital, liquidity and other regulatory requirements.
For additional information about our capital, refer to pages 113 to 121 included under Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, in our 2020 Form 10-K.
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.
State Street Corporation | 41


MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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, include a CCB of 2.5% and a SCB of 2.5% for the advanced approaches and standardized approach, respectively, a G-SIB surcharge of 1.0%, and a countercyclical buffer of 0.0%. This results in minimum risk-based ratios of 8.0% for the Common Equity Tier 1 (CET1) capital ratio, 9.5% for the tier 1 capital ratio, and 11.5% for the total capital ratio.
Based on a calculation date of December 31, 2019, our current G-SIB surcharge, through December 31, 2022, is 1.0%. Based on a calculation date of December 31, 2020, our G-SIB surcharge beginning January 1, 2023 could have been 1.5%. However, in May 2021, the Federal Reserve granted our request for relief relating to the effects of the MMLF program on the calculation of our G-SIB surcharge. As a result of this relief, our G-SIB surcharge for 2023 will be 1.0%.
To maintain the status of the Parent Company as a financial holding company, we and our insured depository institution subsidiaries are required, among other requirements, to be "well capitalized" as defined by Regulation Y and Regulation H.
The market risk capital rule requires us to use internal models to calculate daily measures of VaR, which reflect general market risk for certain of our trading positions defined by the rule as “covered positions,” as well as stressed-VaR measures to supplement the VaR measures. The rule also requires a public disclosure composed of qualitative and quantitative information about the market risk associated with our trading activities and our related VaR and stressed-VaR measures. The qualitative and quantitative information required by the rule is provided under "Market Risk Management" included in this Management's Discussion and Analysis.
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.
State Street Corporation | 42


MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

TABLE 35: REGULATORY CAPITAL STRUCTURE AND RELATED REGULATORY CAPITAL RATIOS
State Street CorporationState Street Bank
(Dollars in millions)Basel III Advanced Approaches June 30, 2021Basel III Standardized Approach June 30, 2021Basel III Advanced Approaches December 31, 2020Basel III Standardized Approach December 31, 2020Basel III Advanced Approaches June 30, 2021Basel III Standardized Approach June 30, 2021Basel III Advanced Approaches December 31, 2020Basel III Standardized Approach December 31, 2020
 Common shareholders' equity:
Common stock and related surplus$10,750 $10,750 $10,709 $10,709 $12,893 $12,893 $12,893 $12,893 
Retained earnings24,300 24,300 23,442 23,442 14,229 14,229 12,939 12,939 
Accumulated other comprehensive income (loss)(422)(422)187 187 (227)(227)371 371 
Treasury stock, at cost(11,437)(11,437)(10,609)(10,609)  — — 
Total23,191 23,191 23,729 23,729 26,895 26,895 26,203 26,203 
Regulatory capital adjustments:
Goodwill and other intangible assets, net of associated deferred tax liabilities(9,070)(9,070)(9,019)(9,019)(8,798)(8,798)(8,745)(8,745)
Other adjustments(1)
(430)(430)(333)(333)(244)(244)(152)(152)
 Common equity tier 1 capital13,691 13,691 14,377 14,377 17,853 17,853 17,306 17,306 
Preferred stock1,976 1,976 2,471 2,471   — — 
 Tier 1 capital15,667 15,667 16,848 16,848 17,853 17,853 17,306 17,306 
Qualifying subordinated long-term debt1,592 1,592 961 961 756 756 966 966 
Allowance for credit losses 120 148  120 10 148 
 Total capital$17,259 $17,379 $17,810 $17,957 $18,609 $18,729 $18,282 $18,420 
 Risk-weighted assets:
Credit risk(2)
$69,357 $119,659 $63,367 $114,892 $62,321 $116,435 $58,960 $110,797 
Operational risk(3)
44,838 NA44,150 NA43,413 NA43,663 NA
Market risk2,263 2,263 2,188 2,188 2,263 2,263 2,188 2,188 
Total risk-weighted assets$116,458 $121,922 $109,705 $117,080 $107,997 $118,698 $104,811 $112,985 
Adjusted quarterly average assets$298,682 $298,682 $263,490 $263,490 $295,431 $295,431 $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 %11.8 %11.2 %13.1 %12.3 %16.5 %15.0 %16.5 %15.3 %
Tier 1 capital9.5 9.5 13.5 12.9 15.4 14.4 16.5 15.0 16.5 15.3 
Total capital11.5 11.5 14.8 14.3 16.2 15.3 17.2 15.8 17.4 16.3 
(1) Other adjustments within CET1 capital primarily include the overfunded portion of our defined benefit pension plan obligation net of associated deferred tax liabilities, disallowed deferred tax assets, and other required credit risk 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 | 43


MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Our CET1 capital decreased $0.69 billion as of June 30, 2021, compared to December 31, 2020, primarily driven by common stock repurchases, lower capital related to AOCI and capital distributions from common and preferred dividends, partially offset by net income.
Our Tier 1 capital decreased $1.18 billion as of June 30, 2021, compared to December 31, 2020, primarily due to lower CET1 capital and the partial redemption of the Series F preferred stock. Total capital decreased under both the advanced approaches and standardized approach by $0.55 billion and $0.58 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 six months ended June 30, 2021 and for the year ended December 31, 2020.
TABLE 36: CAPITAL ROLL-FORWARD
(In millions)Basel III Advanced Approaches June 30, 2021Basel III Standardized Approach June 30, 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 income1,282 1,282 2,420 2,420 
Changes in treasury stock, at cost(828)(828)(400)(400)
Dividends declared(244)(244)(886)(886)
Goodwill and other intangible assets, net of associated deferred tax liabilities(51)(51)93 93 
Effect of certain items in accumulated other comprehensive income (loss)(609)(609)1,057 1,057 
Other adjustments(236)(236)(120)(120)
Changes in common equity tier 1 capital(686)(686)2,164 2,164 
Common equity tier 1 capital balance, end of period13,691 13,691 14,377 14,377 
Additional tier 1 capital:
Tier 1 capital balance, beginning of period16,848 16,848 15,175 15,175 
Changes in common equity tier 1 capital(686)(686)2,164 2,164 
Net issuance (redemption) of preferred stock(495)(495)(491)(491)
Changes in tier 1 capital(1,181)(1,181)1,673 1,673 
Tier 1 capital balance, end of period15,667 15,667 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 2631 631 (134)(134)
Changes in allowance for credit losses(1)(28)(4)58 
Changes in tier 2 capital630 603 (138)(76)
Tier 2 capital balance, end of period1,592 1,712 962 1,109 
Total capital:
Total capital balance, beginning of period17,810 17,957 16,275 16,360 
Changes in tier 1 capital(1,181)(1,181)1,673 1,673 
Changes in tier 2 capital630 603 (138)(76)
Total capital balance, end of period$17,259 $17,379 $17,810 $17,957 
State Street Corporation | 44


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 six months ended June 30, 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 June 30, 2021Basel III Advanced Approaches December 31, 2020Basel III Standardized Approach June 30, 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(279)3,008 (279)1,762 
Net increase (decrease) in loans2,310 2,973 1,660 3,638 
Net increase (decrease) in securitization exposures626 578 590 351 
Net increase (decrease) in repo-style transaction exposures(190)1,763 (2,545)3,895 
Net increase (decrease) in over-the-counter derivatives exposures(1)
(746)780 5,076 457 
Net increase (decrease) in all other(2)
4,269 (498)265 2,422 
Net increase (decrease) in credit risk-weighted assets5,990 8,604 4,767 12,525 
Net increase (decrease) in market risk-weighted assets75 550 75 550 
Net increase (decrease) in operational risk-weighted assets688 (3,813)N/AN/A
Total risk-weighted assets, end of period$116,458 $109,705 $121,922 $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 June 30, 2021, total advanced approaches RWA increased $6.75 billion compared to December 31, 2020, mainly due to an increase in credit risk RWA. The increase in credit risk RWA was primarily driven by a net increase in all other, and loans RWA.
As of June 30, 2021, total standardized approach RWA increased $4.84 billion compared to December 31, 2020, mainly due to higher credit risk RWA. The increase in credit risk RWA was primarily driven by an increase in FX trading and loans RWA, partially offset by repo-style transactions RWA.
The regulatory capital ratios as of June 30, 2021, presented in Table 35: Regulatory Capital Structure and Related Regulatory Capital Ratios, are calculated under the advanced approaches and standardized approach in conformity with the Basel III final rule. The advanced approaches-based ratios reflect calculations and determinations with respect to our capital and related matters as of June 30, 2021, based on our and external data, quantitative formulae, statistical models, historical correlations and assumptions, collectively referred to as “advanced systems,” in effect and used by us for those purposes as of the time we first reported such ratios in a quarterly report on Form 10-Q or an annual report on Form 10-K. Significant components of these advanced systems involve the exercise of judgment by us and our regulators, and our advanced systems may not, individually or collectively, precisely represent or calculate the scenarios, circumstances, outputs or other results for which they are designed or intended.
Our advanced systems are subject to update and periodic revalidation in response to changes in our business activities and our historical experiences, forces and events experienced by the market broadly or by individual financial institutions, changes in regulations and regulatory interpretations and other factors, and are also subject to continuing regulatory review and approval. For example, a significant operational loss experienced by another financial institution, even if we do not experience a related loss, could result in a material change in the output of our advanced systems and a corresponding material change in our risk exposures, our total RWA and our capital ratios compared to prior periods. An operational loss that we experience could also result in a material change in our capital requirements for operational risk under the advanced approaches, depending on the severity of the loss event, its characterization among the seven Basel-defined UOM, and the stability of the distributional approach for a particular UOM, and without direct correlation to the effects of the loss event, or the timing of such effects, on our results of operations.
Due to the influence of changes in these advanced systems, whether resulting from changes in data inputs, regulation or regulatory supervision or interpretation, specific to us or market activities or experiences or other updates or factors, we expect that our advanced systems and our capital ratios calculated in conformity with the Basel III final rule will change and may be volatile over time, and that those latter changes or volatility could be material as calculated and measured from period to period. The full effects of the Basel III final rule on us and State Street Bank are therefore subject to further evaluation and also to further regulatory guidance, action or rule-making.
State Street Corporation | 45


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)June 30, 2021December 31, 2020
State Street:
Tier 1 capital$15,667 $16,848 
Average assets308,195 277,055 
Less: adjustments for deductions from tier 1 capital and other(9,513)(13,565)
Adjusted average assets for tier 1 leverage ratio298,682 263,490 
Derivatives and repo-style transactions and off-balance sheet exposures31,020 34,379 
Adjustments for deductions of qualifying central bank deposits(97,459)(90,322)
Total assets for SLR$232,243 $207,547 
Tier 1 leverage ratio(1)
5.2 %6.4 %
Supplementary leverage ratio6.7 8.1 
State Street Bank(2):
Tier 1 capital$17,853 $17,306 
Average assets304,486 273,599 
Less: adjustments for deductions from tier 1 capital and other(9,055)(13,110)
Adjusted average assets for tier 1 leverage ratio295,431 260,489 
Off-balance sheet exposures31,022 38,591 
Adjustments for deductions of qualifying central bank deposits(97,459)(80,935)
Total assets for SLR$228,994 $218,145 
Tier 1 leverage ratio(1)
6.0 %6.6 %
Supplementary leverage ratio7.8 7.9 
(1) Tier 1 leverage ratios were calculated in conformity with the Basel III final rule.
(2) The SLR rule requires that, as of January 1, 2018, (i) State Street Bank maintains an SLR of at least 6.0% to be well capitalized under the U.S. banking regulators’ Prompt Corrective Action Framework and (ii) we maintain an SLR of at least 5.0% to avoid limitations on capital distributions and discretionary bonus payments. In addition to the SLR, State Street Bank is subject to a well-capitalized Tier 1 leverage ratio requirement of 5.0%.
Total Loss-Absorbing Capacity (TLAC)
In 2016, the Federal Reserve released its final rule on TLAC, LTD and clean holding company requirements for U.S. domiciled G-SIBs, such as us, that is intended to improve the resiliency and resolvability of certain U.S. banking organizations through enhanced prudential standards. Among other things, the TLAC final rule requires us to comply with minimum requirements for external TLAC and external LTD effective January 1, 2019. Specifically, we must hold:
Amount equal to:
Combined eligible tier 1 regulatory capital and LTD
Greater of:
21.5% of total RWA (18.0% minimum plus 2.5% plus a G-SIB surcharge calculated for these purposes under Method 1 of 1.0% plus any applicable counter- cyclical buffer, which is currently 0%); and
 
9.5% of total leverage exposure (7.5% minimum plus the SLR buffer of 2.0%), as defined by the SLR final rule.

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 June 30, 2021.
TABLE 39: TOTAL LOSS-ABSORBING CAPACITY
As of June 30, 2021
(Dollars in millions)ActualRequirement
Total loss-absorbing capacity (eligible Tier 1 regulatory capacity and long-term debt):
Risk-weighted assets$28,612 23.5 %$26,213 21.5 %
Supplemental leverage ratio28,612 12.3 22,063 9.5 
Long-term debt:
Risk-weighted assets11,676 9.6 8,535 7.0 
Supplemental leverage ratio11,676 5.0 10,451 4.5 
Regulatory Developments
In April 2018, the Federal Reserve issued a proposed rule which would replace the current 2.0% SLR buffer for G-SIBs, with a buffer equal to 50% of their G-SIB surcharge. This proposal would also make conforming modifications to our TLAC and eligible LTD requirements applicable to G-SIBs. At
State Street Corporation | 46


MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
this point in time, it is unclear whether this proposal will be implemented as proposed.
In November 2019, the Federal Reserve and other U.S. federal banking agencies issued a final rule to implement the Standardized Approach for Counterparty Credit Risk (SA-CCR) as a replacement of the Current Exposure Method for calculating exposure-at-default of derivatives exposures. Mandatory compliance with the final rule is required by January 1, 2022.
On March 4, 2020, the U.S. federal banking agencies issued the SCB final rule that replaces, under the standardized approach, the capital conservation buffer (2.5%) with a SCB calculated as the difference between an institution’s starting and lowest projected CET1 ratio under the CCAR severely adverse scenario plus planned common stock dividend payments (as a percentage of RWA) from the fourth through seventh quarter of the CCAR planning horizon. The SCB requirement, which became effective October 1, 2020, can be no less than 2.5% of RWA.
The Federal Reserve and other U.S. federal banking agencies issued an interim final rule effective in March 2020 and later finalized on a permanent basis on August 26, 2020, which revised the definition of eligible retained income for all U.S. banking organizations. The revised definition of eligible retained income makes any automatic limitations on capital distributions, where a banking organization's regulatory ratios were to decline below the respective minimum requirements, take effect on a more gradual basis.
Following the launch of the MMLF program, which we participated 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. No new credit extensions were made after March 31, 2021, as the program had expired.
On March 27, 2020, the BCBS announced the deferral of the implementation of the revisions to the Basel III framework to January 1, 2023. As of now, the U.S. federal banking agencies have not formally proposed the implementation of the BCBS revisions.
Effective April 1, 2020, the Federal Reserve and other U.S. federal banking agencies adopted a final rule as part of EGRRCPA that establishes a deduction for qualifying central bank deposits from a custodial banking organization’s total leverage
exposure equal to the lesser of (i) the total amount of funds the custodial banking organization and its consolidated subsidiaries have on deposit at qualifying central banks and (ii) the total amount of client funds on deposit at the custodial banking organization that are linked to fiduciary or custodial and safekeeping accounts. For the quarter ended June 30, 2021, we deducted $97.5 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.
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 became effective on April 1, 2021.
In light of 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.
In light of the decision to administer a new stress test, the Federal Reserve limited 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 December 18, 2020, following the release of a second round of stress test results for 2020, the Federal Reserve modified the restrictions on capital distributions for the first quarter of 2021. 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, provided that we did not increase the amount of our common stock dividends to be larger than the level paid in the second quarter of 2020. On March 25, 2021, the Federal Reserve extended these restrictions through the second quarter of 2021.
State Street Corporation | 47


MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
On June 24, 2021, we were notified by the Federal Reserve of the results from the 2021 supervisory stress test. Our preliminary SCB calculated under this year's supervisory stress test was well below the 2.5% minimum, resulting in an SCB at that floor, which will go into effect starting October 1, 2021 and run through September 30, 2022. The Federal Reserve also lifted the restrictions on capital distributions implemented in response to the COVID-19 pandemic and we are currently governed in our capital distributions by minimum capital requirements inclusive of SCB.
For additional information about our capital, refer to pages 113 to 121 included under Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, in our 2020 Form 10-K.
Capital Actions
Preferred Stock
The following table summarizes selected terms of each of the series of the preferred stock issued and outstanding as of June 30, 2021:
TABLE 40: PREFERRED STOCK ISSUED AND OUTSTANDING
Preferred Stock(1):
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 June 30, 2021
(In millions)
Redemption Date(2)
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 3.71588% effective June 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) The preferred stock and corresponding depositary shares may be redeemed at our option in whole, but not in part, prior to the redemption date upon the occurrence of a regulatory capital treatment event, as defined in the certificate of designation, at a redemption price equal to the liquidation price per share and liquidation price per depositary share plus any declared and unpaid dividends, without accumulation of any undeclared dividends.
(2) On the redemption date, or any dividend payment date thereafter, the preferred stock and corresponding depositary shares may be redeemed by us, in whole or in part, at the liquidation price per share and liquidation price per depositary share plus any declared and unpaid dividends, without accumulation of any undeclared dividends.
(3) Series F preferred stock is redeemable on September 15, 2020 and on each succeeding dividend payment date. We did not elect redemption on September 15, 2020 or December 15, 2020.
On March 15, 2021, we redeemed an aggregate of $500 million, or 5,000 of the 7,500 outstanding shares of our non-cumulative perpetual preferred stock, Series F, for cash at a redemption price of $100,000 per share (equivalent to $1,000 per depositary share) plus all declared and unpaid dividends.
State Street Corporation | 48


MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following tables present the dividends declared for each of the series of preferred stock issued and outstanding for the periods indicated:
TABLE 41: PREFERRED STOCK DIVIDENDS
Three Months Ended June 30,
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$ $ $ $— $— $— 
Series D1,475 0.37 11 1,475 0.37 11 
Series F966 9.66 2 — — — 
Series G1,338 0.33 7 1,338 0.33 
Series H2,813 28.13 14 2,813 28.13 14 
Total$34 $32 
Six Months Ended June 30,
20212020
(Dollars in millions, except per share amounts)Dividends Declared per ShareDividends Declared per Depositary ShareTotalDividends Declared per ShareDividends Declared per Depositary ShareTotal
Preferred Stock:
Series C$ $ $ $1,313 $0.33 $
Series D2,950 0.74 22 2,950 0.74 22 
Series F1,919 19.19 9 2,625 26.25 20 
Series G2,676 0.66 14 2,676 0.66 14 
Series H2,813 28.13 14 2,813 28.13 14 
Total$59 $76 
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. We repurchased $425 million of our common stock in the second quarter of 2021. In July 2021, our Board authorized a share repurchase program for the purchase of up to $3.0 billion of our common stock through the end of 2022.
The table below presents the activity under our common stock purchase program for the periods indicated:
TABLE 42: SHARES REPURCHASED
Three Months Ended June 30, 2021Six Months Ended June 30, 2021
Shares Acquired
(In millions)
Average Cost per Share
Total Acquired
(In millions)
Shares Acquired
(In millions)
Average Cost per Share
Total Acquired
(In millions)
5.0 $84.71 $425 11.2 $80.00 $900 
Three Months Ended June 30, 2020Six Months Ended June 30, 2020
Shares Acquired
(In millions)
Average Cost per ShareTotal Acquired
(In millions)
Shares Acquired
(In millions)
Average Cost per ShareTotal Acquired
(In millions)
2019 Program— $— $— 6.5 $77.35 $500 
State Street Corporation | 49


MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The table below presents the dividends declared on common stock for the periods indicated:
TABLE 43: COMMON STOCK DIVIDENDS
Three Months Ended June 30,
20212020
Dividends Declared per ShareTotal (In millions)Dividends Declared per ShareTotal (In millions)
Common Stock$0.52 $179 $0.52 $183 
Six Months Ended June 30,
20212020
Dividends Declared per ShareTotal (In millions)Dividends Declared per ShareTotal (In millions)
Common Stock$1.04 $361 $1.04 $366 

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 transactions, including open-market purchases, accelerated share repurchases or other transactions off the market, and may be made under Rule 10b5-1 trading programs. The timing and amount of any stock purchases and the type of transaction will depend on several factors, including investment opportunities, our capital position, our financial performance, market conditions and the amount of common stock issued as part of employee compensation programs. 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 $421.86 billion and $440.88 billion as of June 30, 2021 and December 31, 2020, respectively. We require the borrower to provide collateral in an amount in excess of 100% of the fair market value of the securities borrowed. We hold the collateral received in connection with these securities lending services as agent, and the collateral is not recorded in our consolidated statement of condition. We revalue the securities on loan and the collateral daily to determine if additional collateral is necessary or if excess collateral is required to be returned to the borrower. We held, as agent, cash and securities totaling $442.44 billion and $463.27 billion as collateral for indemnified securities on loan as of June 30, 2021 and December 31, 2020, respectively.
The cash collateral held by us as agent is invested on behalf of our clients. In certain cases, the cash collateral is invested in third-party repurchase agreements, for which we indemnify the client against loss of the principal invested. We require the counterparty to the indemnified repurchase agreement to provide collateral in an amount in excess of 100% of the amount of the repurchase agreement. In our role as agent, the indemnified repurchase agreements and the related collateral held by us are not recorded in our consolidated statement of condition. Of the collateral of $442.44 billion and $463.27 billion, referenced above, $66.69 billion and $54.43 billion was invested in indemnified repurchase agreements as of June 30, 2021 and December 31, 2020, respectively. We or our agents held $71.90 billion and $58.09 billion as collateral for indemnified investments in repurchase agreements as of June 30, 2021 and December 31, 2020, respectively.
Additional information about our securities finance activities and other off-balance sheet arrangements is provided in Notes 7, 9 and 11 to the consolidated financial statements in this Form 10-Q.
RECENT ACCOUNTING DEVELOPMENTS
Information with respect to recent accounting developments is provided in Note 1 to the consolidated financial statements in this Form 10-Q.
State Street Corporation | 50



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 June 30, 2021, our management carried out an evaluation, with the participation of the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on the evaluation of these disclosure controls and procedures, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of June 30, 2021.
We have established and maintain internal control over financial reporting as a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in conformity with U.S. GAAP. In the ordinary course of business, we routinely enhance our internal controls and procedures for financial reporting by either upgrading our current systems or implementing new systems. Changes have been made and may be made to our internal controls and procedures for financial reporting as a result of these efforts. During the quarter ended June 30, 2021, no change occurred in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.


State Street Corporation | 51



STATE STREET CORPORATION
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
Three Months Ended June 30,Six Months Ended June 30,
(Dollars in millions, except per share amounts)2021202020212020
Fee revenue:
Servicing fees$1,399 $1,272 $2,770 $2,559 
Management fees504 444 997 908 
Foreign exchange trading services286 325 632 769 
Securities finance109 92 208 184 
Software and processing fees216 245 390 357 
Total fee revenue2,514 2,378 4,997 4,777 
Net interest income:
Interest income467 674 938 1,542 
Interest expense0 115 4 319 
Net interest income467 559 934 1,223 
Other income:
Gains (losses) related to investment securities, net0 0 
Other income53 0 53 
Total other income53 53 
Total revenue3,034 2,937 5,984 6,002 
Provision for credit losses(15)52 (24)88 
Expenses:
Compensation and employee benefits1,077 1,051 2,319 2,259 
Information systems and communications398 376 819 761 
Transaction processing services263 233 533 487 
Occupancy100 109 209 218 
Acquisition and restructuring costs11 12 21 23 
Amortization of other intangible assets63 58 121 116 
Other199 243 421 473 
Total expenses2,111 2,082 4,443 4,337 
Income before income tax expense938 803 1,565 1,577 
Income tax expense175 109 283 249 
Net income$763 $694 $1,282 $1,328 
Net income available to common shareholders$728 $662 $1,217 $1,242 
Earnings per common share:
Basic$2.11 $1.88 $3.49 $3.52 
Diluted2.07 1.86 3.44 3.48 
Average common shares outstanding (in thousands):
Basic345,889 352,157 348,303 352,952 
Diluted351,582 356,413 353,434 357,028 
Cash dividends declared per common share$.52 $.52 $1.04 $1.04 










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




STATE STREET CORPORATION
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME(LOSS)
(UNAUDITED)
Three Months Ended June 30,
(In millions)20212020
Net income$763 $694 
Other comprehensive income (loss), net of related taxes:
Foreign currency translation, net of related taxes of ($8) and $4, respectively49 152