State Street Corporation

Good morning and welcome to State Street Corporation's third quarter 2021 earnings conference call and webcast. Today's discussion is being broadcasted live on State Street's website and at investors.statestreet.com. This conference call is also being recorded for replay. State Street's 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 expressed written authorization from State Street Corporation. The authorized broadcast of this call will be housed on the State Street website. Now I would like to introduce Eileen Feazell-Buehler, Global Head of Investor Relations at State Street.

Eileen Feazell- Good morning, and thank you all for joining us. On our call today, our CEO, Ron O'Hanley, will speak first. Then Eric Alboff, our CFO, will take you through our third 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'd 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 of 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 our Q3 results. which reflect continued strong performance across our enterprise. Before I discuss our third quarter financial results, I want to acknowledge our employees for their ongoing achievements in supporting our clients and generating the performance and momentum we are now seeing across the franchise. Thanks to their hard work and execution, we are now seeing measurable progress in our financial results, even as we invest in our business for the future. We continue to successfully execute against our strategic objective of being an enterprise outsource solutions provider across the front, middle, and back office and a leading asset manager. This is just the beginning. We are encouraged by the opportunities we see within our industry, our sales wins, the momentum in our pipeline, and what this means for our ability to drive future growth in 2022 and achieve our recently enhanced medium-term financial targets. We are encouraged by the trajectory of our organic profile is demonstrated by our year-to-date business wins. For example, on a year-to-date basis, we have delivered the strongest AUCA wins in the company's history, while AUCA won but not yet installed stood at $2.7 trillion at quarter end. At Global Advisors, our ETF franchise crossed $1 trillion of AUM this year, with year-to-date SPDR flows on track for a record year and already surpassing the full year 2020 flows. Global Advisor's financial performance continues to strengthen, with pre-tax margin expanding to 36% in Q3. I also want to take a moment to note the intended acquisition of Brown Brothers Harriman Investor Services, which we announced in the third quarter. We are excited by the opportunities this transaction presents. It is a strong demonstration of our confidence in the industry, our investment servicing business, and our overall strategy. The transaction is also financially compelling, as it will enhance State Street's financial profile, and importantly, it will create long-term value for our shareholders. From a strategic perspective, this combination will strengthen our competitive positioning and market leadership and deepen geographic coverage, with State Street becoming the number one provider of asset servicing globally by assets under custody. Further, the accompanying talent will build on State Street's already strong expertise and better position us for growth. The compelling nature of the deal has enabled us to raise our medium-term pre-tax margin target. Turning to slide three, I will review our third quarter highlights. Third quarter EPS was 196, up 35 percent year over year. We delivered about seven percentage points of positive operating leverage this quarter and generated a strong improvement in State Street's third quarter pre-tax margin, which increased by about five percentage points year over year to over 29%. This year-over-year improvement was driven by solid fee revenue growth, good organic results, and higher NII supported by robust loan growth, leading to a strong total revenue performance. Meanwhile, our focus on expense discipline continued to drive earnings growth as expenses remained well-contained. Relative to the year-ago period, quarterly total fee revenue increased 9% as we delivered broad-based improvement across all fee revenue lines. Servicing and management fees increased 7 percent and 10 percent year-over-year respectively, and we delivered solid results within our markets businesses despite a continued moderation of FX market volatility. Even with 9 percent year-over-year total fee revenue growth, expenses were well controlled, increasing just 1 percent over the same period. Though expenses were flat year over year, excluding notable items, as our productivity improvements continued to yield results. AUCA increased to a record $43.3 trillion a quarter end, with new asset servicing wins increasing to $1.7 trillion for the quarter, including a large alpha mandate with legal in general, which was announced in July. As a result, AUCA won, but not yet installed increased to $2.7 trillion at quarter end, as I noted a moment ago. Including the legal and general mandate, we reported three new alpha client wins in the third quarter, taking the total number of alpha clients to 18 at quarter end. At Charles River, annual recurring revenue increased 12% year over year to $239 million. And I am pleased with its business performance and how it continues to propel our alpha strategy. At Global Advisors, assets under management total $3.9 trillion a quarter end, and management fees increased to a record $526 million in the third quarter, benefiting from higher average equity market levels and continued inflows to our ETF franchise, where we continue to innovate. For example, in recent years, we have been expanding our actively managed ETF capabilities. And through three quarters this year, we have the most successful active ETF in the U.S. in terms of asset growth, which is SPDR Blackstone Senior Loan ETF. By quarter end, this fund had gathered $5.5 billion in flows in 2021 and had AUM of $7.7 billion. We also made an addition to our actively managed fixed income ETF range in the third quarter, as a launch of the SPDR Loomis Sales Opportunistic Bond ETF. Turning to our balance sheet and capital, we completed a $1.9 billion common stock offering related to the proposed acquisition of BBH Investor Services in the third quarter. Also related to the transaction, we suspended common share repurchases in the third quarter and currently expect to reinstate common share repurchases during the second quarter of next year. We increased our quarterly common stock dividend by 10% in the third quarter. Capital return remains a key part of our medium-term targets, and we recognize its importance to our shareholders. We believe that the BBH Investor Services acquisition is a financially compelling use of our capital and that it will deliver earnings accretion and value creation for our shareholders over time. And with that, let me turn it over to Eric to take you through the quarter in more detail.