State Street Corp’s 2025 Q4 Call: NII/NIM Signals, Buyback Pacing, and Digital Asset Timelines Clash

Date of Call: Jan 16, 2026

Financials Results

• Revenue: Record total revenue of approximately $14 billion, up more than 7% from the prior year (full year). Q4 fee revenue growth of 8% year-over-year.
• EPS: Full year EPS growth of 19% year over year, Q4 EPS growth of 14% year-over-year (excluding notable items).
• Gross Margin: Pre-tax margin of approximately 29% for full year, up from 28% in 2024, and 31% in Q4 (excluding notable items).
• Operating Margin: Full year pre-tax margin of 29%, up from 28% in 2024. Q4 pre-tax margin of 31% (excluding notable items). Operating leverage of nearly 220 basis points for full year and over 100 basis points in Q4.

Guidance:

• Fee revenue expected to be up 4%-6% in 2026, driven by higher average market levels and organic growth.
• Net interest income (NII) expected to be up low single digits for the full year, with an expected improvement in net interest margin (NIM).
• Expenses expected to be up approximately 3%-4%, primarily due to strategic growth investments, with productivity savings largely offsetting recurring costs.
• Positive operating leverage expected in excess of 100 basis points, implying full-year pre-tax margin improvement to roughly 30%.
• Effective tax rate expected to be approximately 22%.
• Total payout ratio expected to be roughly 80% (subject to board approval).

Business Commentary:

Strong Financial Performance and Operating Leverage:

• State Street Corporation reported a 14% year-over-year increase in EPS for Q4, supported by record quarterly fee and total revenue.
• The company achieved its full year productivity savings target of $500 million, contributing to positive operating leverage and margin expansion.
• The growth was primarily driven by strategic investments in technology, client capabilities, and operational efficiencies.

Investment Services and Asset Management Growth:

• Investment services surpassed $50 trillion in AUCA for the first time in 2025, with servicing fees growing 8% year-over-year.
• State Street Investment Management ended 2025 with record quarterly and full-year management fee revenue, with AUM reaching an all-time high of $5.7 trillion.
• The growth was attributed to rising client satisfaction, innovation in product offerings, and strategic client onboarding.

Digital Transformation and Strategic Investments:

• The launch of a digital asset platform enabled tokenization of assets, aiming to unlock new efficiencies and improve liquidity.
• State Street made strategic investments in companies like Apex Fintech Solutions and Ethic, enhancing capabilities in wealth services and technology.
• These initiatives are part of a broader strategy to leverage AI and digital transformation for long-term growth and competitive advantage.

Balance Sheet Optimization and Capital Return:

• The company focused on balance sheet optimization, leading to a 12% sequential increase in NII, driven by improved net interest margin.
• State Street returned over $2.1 billion in capital to shareholders in 2025, maintaining a strong capital position while investing in growth opportunities.
• The optimization efforts included reducing short-term wholesale funding and focusing on high-quality client relationships.

Market Position and Strategic Expansion:

• State Street's strong position in private market servicing led to double-digit growth in related servicing fees in 2025.
• The company's efforts in expanding its presence in wealth services and digital assets are positioning it to capitalize on emerging market opportunities.
• Continued focus on client engagement and innovation is expected to drive future growth and market expansion.

Sentiment Analysis:

Overall Tone: Positive

• CEO Ronald O’Hanley stated: 'Our fourth quarter results represent a strong finish to another successful year for State Street... We enter 2026 with momentum and a proven strategy that continues to deliver strong results.' CFO John Woods highlighted 'strong' results and guidance implying continued margin expansion and growth.

Q&A:

• Question from Glenn Schorr (Evercore): Unpack the balance between delivering operating leverage and investing for future growth, and how AI will impact operating leverage.
  Response: Management balances driving margins higher (targeting ~30% in 2026) with strategic investments in private markets, wealth, digital assets, and technology transformation; AI contributions will accelerate in 2026/2027.

• Question from Betsy Graseck (Morgan Stanley): Clarify the scope and client demand for digital assets, and the financial impact timeline.
  Response: Focus is on tokenizing assets and bridging traditional/digital finance; digital asset services are not expected to be material in 2026 but will position the company for medium-term growth.

• Question from Ken Houston (Autonomous Research): Detail factors behind the strong Q4 NII that may not continue, and the impact of terminated swaps.
  Response: Q4 NII benefited from seasonal deposit mix (higher non-interest-bearing balances) and terminated hedge run-off (~2 bps tailwind); NIM expected to be lower than Q4 but higher than 2025, with ongoing positive impact from terminated hedges into 2026.

• Question from Jim Mitchell (Seaport Global Securities): Discuss balance sheet optimization and assumptions for 2026.
  Response: Balance sheet optimization involves reducing low-value wholesale funding and focusing on deep-relationship lending; deposits assumed stable at ~$250B with ~10% non-interest bearing.

• Question from Alex Blostein (Goldman Sachs): Unpack organic growth expectations in fee businesses and offsets in the guidance.
  Response: Organic growth is embedded in servicing and management fees (~2-4%), markets, and software transition; guidance assumes flat markets, but upside exists if markets rise.

• Question from Brennan Hawkin (BMO Capital Markets): Explain software fee declines and transition to SaaS, and loan growth outlook.
  Response: Software decline driven by on-prem renewals; transition to SaaS (up 7%) will take 1-2 years to fully convert revenue. Loan growth expected to continue but slower, with focus on high-quality relationships.

• Question from Gerard Cassidy (RBC): Analyze reasons for fee revenue outperformance in 2025 vs. initial guidance, and Basel III Endgame benefits.
  Response: Outperformance due to conservative initial guide, strong execution (client onboarding, markets), and market tailwinds; Basel III Endgame expected to be favorable for GSIBs and bring regulatory predictability.

• Question from David Smith (Truist): Assess State Street's potential to further improve returns via organic growth and efficiency.
  Response: Confidence in revenue growth from core businesses and strategic initiatives; expense control via productivity ($500M target in 2026) and AI transformation; medium-term return on tangible common equity (ROTC) could be in the mid-20s.

• Question from Mike Mayo (Wells Fargo): What will impress investors about State Street's strategy, and under what scenario would you consider a strategic combination or M&A?
  Response: Key points: attractive long-term fundamentals, distinctive capabilities in high-growth areas, proven execution, strong team, capital-light income statement. M&A considered only if it's a good use of capital versus returning to shareholders or organic growth.

Contradiction Point 1

NII Growth Outlook and NIM Expectations

Conflicting signals on NII growth and net interest margin trajectory for 2026.

What does the NII guide indicate regarding balance sheet flatness, optimization opportunities, and deposit assumptions for 2026? - Jim Mitchell (Seaport Global Securities)

2025Q4: Full-year 2026 NIM is expected to be low single-digit growth off a record 2025, implying NIM will be lower than Q4's 110 bps but higher than 2025's 100 bps. - John Woods(CFO)

How are you managing the balance sheet, capital, expenses, and NII? Are there plans for further actions? - Alexander Blostein (Goldman Sachs)

2025Q3: Solid trends in deposits and NII are expected to continue into Q4 and 2026... improving deposit mix. - John Woods(CFO)

Contradiction Point 2

Capital Priorities & Buyback Outlook

Varying emphasis on the 2026 capital return ratio and its execution.

What are the organic growth expectations for fee businesses in 2026 assuming flat markets, and with potential balance sheet constraints, should we expect a larger buyback then? - Alex Blostein (Goldman Sachs)

2025Q4: A strong buyback is still expected (~80% total payout ratio), contingent on these allocations. - John Woods(CFO)

Are there opportunities for alternative balance sheet strategies given the 80% payout ratio? - Ebrahim Poonawala (BofA Securities)

2025Q3: Strong capital profile supports... and ~80% 2025 capital return. - John Woods(CFO)

Contradiction Point 3

Financial Impact and Timeline for the Digital Asset Business

The expected contribution timeline for digital assets shifts from immediate to medium-term.

What are clients' goals for digital assets with State Street, and what is the expected financial impact? - Betsy Graseck (Morgan Stanley)

2025Q4: Digital asset activities focus on... The digital asset business is not expected to be a major P&L contributor in 2026; it is a medium-term growth opportunity. - Ronald O’Hanley(CEO), John Woods(CFO)

Why not increase buybacks beyond the 80% payout ratio, and what's the deposit balance outlook? - Ebrahim Huseini Poonawala (BofA Securities)

2025Q2: Opportunities are broad, including tokenized deposits, money market funds, and real assets. The pace will likely be moderate... State Street aims to participate both as a servicer to asset managers and as a bank... - Ronald Philip O’Hanley(CEO)

Contradiction Point 4

Capital Return Pacing

Guidance on capital return cadence changes from specific step-up to a general strong buyback.

What are the organic growth expectations for the fee businesses in 2026 under flat market assumptions, and could balance sheet constraints lead to a larger buyback that year? - Alex Blostein (Goldman Sachs)

2025Q4: A strong buyback is still expected (~80% total payout ratio), contingent on allocations. - John Woods(CFO)

Do uncertainty in deposit flows impact capital return pacing? - Ken Usdin (Autonomous)

2025Q1: The capital return plan is on track with a progressive cadence, expecting a step-up in Q2. - Mark Keating(CFO)

Contradiction Point 5

Outlook for Non-Interest-Bearing Deposits

Expectation for NIB deposit trend shifts from long-term decline to a specific 2026 forecast.

What does the NII guide imply for the balance sheet, and what are the 2026 balance sheet optimization opportunities and deposit assumptions? - Jim Mitchell (Seaport Global Securities)

2025Q4: Deposit assumptions: ~$250 billion in total deposits for 2026, with ~10% (~$25 billion) in non-interest-bearing deposits. - John Woods(CFO)

How do interest-bearing and noninterest-bearing deposits differ in trends and drivers? - Alexander Blostein (Goldman Sachs)

2025Q1: Long-term, NIB deposits may continue to decline. - Mark Keating(CFO)