State Street Corporation

Good morning and welcome to State Street Corporation's second quarter 2021 earnings conference call and webcast. Today's discussion is being broadcasted live on State Street's website at investors.statestreet.com. This conference call is also being recorded for replay. State Street conference call is copyrighted and all rights are reserved. This call may not be recorded for rebroadcast or distribution in whole or in part without the express written authorization from State Street Corporation. The only authorized broadcast of this call will be housed on the State Street website. Now, I'd like to introduce Eileen Fissel-Beeler, Global Head of Investor Relations at State Street.

Good morning, and thank you all for joining us. On our call today, our CEO, Ron O'Hanley, will speak first. Then Eric Adloff, our CFO, will take you through our second quarter 2021 earnings slide presentation, which is available for download in the Investor Relations section of our website, investors.statestreet.com. Afterwards, we'll be happy to take questions. During the Q&A, please limit yourself to two questions and then re-queue. Before we get started, I would like to remind you that today's presentation will include results presented on a basis that excludes or adjusts one or more items from GAAP. Reconciliations of these non-GAAP measures to the most directly comparable GAAP or regulatory measure are available in the appendix to our slide presentation. In addition, today's presentation will contain forward-looking statements. Actual results may differ materially from those statements due to a variety of important factors, such as those factors referenced in our discussion today and in our SEC filings, including the risk factors in our Form 10-K. Our forward-looking statements speak only as today, and we disclaim any obligation to update them, even if our views change. Now, let me turn it over to Ron.

Thank you, Eileen, and good morning, everyone. Earlier this morning, we released strong second quarter financial results. which demonstrate the meaningful progress we are making towards achieving our medium-term targets as we continue to execute on the multi-year strategic pivot of our business to that of an enterprise outsourced solutions provider. I am particularly pleased with our results as quarterly total fee revenue exceeded 2.5 billion for the first time in the company's history. We delivered a fourth consecutive quarter of servicing fee growth with servicing fees at the highest level in three years. propelled by both strong equity markets and the impact of our actions to strengthen relationship management and sales effectiveness. We continue to differentiate State Street through our unique product and operational capabilities, as well as through delivering enhanced client service quality. Our pipeline continues to deliver as evidenced by another quarter of strong servicing and alpha client mandates, which I will discuss shortly. Additionally, we continue to invest in our business and innovate across the franchise to drive growth and enduring shareholder value creation. For example, we announced the formation of State Street Digital in the second quarter, a new division focused on addressing the industry's evolving shift to digital finance, both as product offerings and as a business model. This is just one example in a long history of innovation that State Street has and is continuing to drive within our industry. We also continue to develop State Street Alpha, our front to back offering. This unique capability has created an attractive value proposition that is resonating with both new and existing clients, as well as contributing to client retention and growth opportunities, which I will also discuss shortly. Turning to slide three, I will review our second quarter highlights before handing the call over to Eric, who will take you through the quarter in more detail. Second quarter EPS was 207, or 197, excluding notable items. Despite the impact of interest rates on our NII, earnings per share X notables reached the highest level since 4Q19, when quarterly NII was notably higher, more than 35% more than it was in 2Q21. Relative to the year-ago period, quarterly total fee revenue exceeded $2.5 for the first time, increasing 6% year-over-year, driven by solid servicing and management fee growth, which increased 10% and 14% year-over-year, respectively, as well as better securities finance results. This strong performance was partially offset by the year-over-year impact on total revenues from lower software and processing fees, continued moderation of FX market volatility, and ongoing interest rate headwinds. Even with record quarterly fee revenue, expenses were well controlled. While second quarter total expenses were up 1% relative to the year-ago period, they were down almost half a percentage point year-over-year, excluding notable items in currency translation as our productivity improvements continued to yield results. We have created a culture of expense discipline over the last two and a half years, and we remain confident in our ability to effectively manage core operating costs over the remainder of 2021. Our strong fee revenue performance, coupled with continued cost discipline, delivered a 200 basis point improvement toward pre-tax margin year over year, which reached nearly 30 percent in the second quarter, excluding notable items. Further, return on equity was 12.6 percent, or 11.9 percent, excluding notable items in the second quarter. AUCA increased to a record $42.6 trillion at quarter end. supported by higher period end equity market levels and new business onboardings. New asset servicing wins increased to $1.2 trillion for the quarter, including the large alpha mandate with Invesco announced in April. We reported two new alpha wins in the second quarter, taking the total number of alpha clients to 15. After the second quarter closed, we also entered into an alpha mandate with legal in general. While Invesco is an example of how alpha is helping to expand and deepen existing client relationships, the legal in general win demonstrates how the alpha strategy is also helping us forge new client relationships with the world's most sophisticated investors. Our experience to date gives us confidence that alpha relationships will drive stronger retention rates for existing clients while also allowing us to broaden and deepen those relationships as we add additional products and services to these existing mandates. Additionally, we are signing alpha clients that are new to State Street, demonstrating that alpha is enabling us to reach new clients and deliver front, middle, and back office services in a differentiated manner. We also created new relationships to help drive revenue growth across client segments and regions. For example, earlier this week, we announced a new strategic alliance with First Abu Dhabi Bank. The alliance will create a full-service enterprise offering for institutional investors in the Middle East and North Africa region. It will provide investors with extensive reach into more than 100 markets around the world. Clients will have access to State Street's full suite of front, middle, and back office capabilities, in addition to our extensive data management and analytic solutions. which seamlessly integrates with First Abu Dhabi Bank's regional suite of security services products, local expertise, and regional direct custody network. At CRD, annual recurring revenue increased 11% year over year to 230 million, and we remain pleased with how the business is performing while also enabling and propelling our alpha strategy. Global advisors continue to demonstrate strong performance. AUM increased to $3.9 trillion, and management fees increased to $504 million, both records benefiting from strong second quarter flows of $83 billion across the ETF, institutional, and cash businesses as we continue to leverage the strengths of our asset management franchise. In ETFs, our low cost and sector funds, as well as our ESG and commodity products, continue to enjoy good market share. with low-cost ETFs expanding share in the second quarter. And in institutional, our sales force and relationship management realignment coupled with a strong product set led to good revenue growth. Turning to our balance sheet and capital, we returned over $600 million of capital to our shareholders during the second quarter, inclusive of $425 million of common share repurchases consistent with the limits set by the Federal Reserve. I am pleased with yet another strong performance under this year's annual stress test. The new SEB framework provides us with additional flexibility to manage our capital base. As examples, yesterday we announced that our board of directors has approved a 10% increase of our third quarter common dividend to $0.57 per share. and authorized a common share repurchase program of up to $3 billion during the third quarter of 2021 through the fourth quarter of 2022. To conclude, we had a very strong quarter. Business momentum is building and we have demonstrated meaningful progress towards our medium-term financial targets. As I look ahead to support our strategic vision and help us achieve those targets, We are continuing to prioritize improvement in our fee revenue growth while controlling costs by transforming the way we work and building a higher performing organization for the future. And with that, let me turn it over to Eric to take you through the quarter in more detail.