State Street’s Q4 Earnings Call: NIM Outlook, Digital Assets Timelines Clash With Prior Guidance

Date of Call: Jan 16, 2026

Financials Results

• Revenue: Record total revenue of approximately $14 billion for full year 2025, up more than 7% YOY.
• EPS: EPS growth of 14% year-over-year in Q4 and 19% for full year 2025, excluding notable items.
• Gross Margin: Pretax margin improved to approximately 31% in Q4 and 29% for full year 2025, up from 28% in 2024.
• Operating Margin: Operating leverage of over 100 basis points in Q4 and nearly 220 basis points for full year 2025.

Guidance:

• Fee revenue expected to be up 4% to 6% in 2026, driven by higher average market levels and organic growth.
• Net interest income expected up low single digits, with improvement in net interest margin.
• Expenses expected up approximately 3% to 4%, driven by strategic growth investments, with productivity savings largely offsetting recurring costs.
• Targeting productivity and other savings comparable to 2025's $500 million.
• Expect positive operating leverage in excess of 100 basis points, implying pretax margin improvement to roughly 30%.
• Effective tax rate expected approximately 22%.
• Total payout ratio expected roughly 80%.

Business Commentary:

Financial Performance and Operating Leverage:

• State Street Corporation reported strong EPS growth of 14% year-over-year for Q4, supported by record quarterly fee and total revenue. Pretax margin improved to 31%, excluding notable items.
• The growth was driven by strategic actions and investments in recent years, including deepening and broadening capabilities, enhancing client value proposition, and leveraging AI-enabled capabilities.

Servicing Fees and Asset Growth:

• Servicing fees increased 8% year-over-year, with record AUC/A of $53.8 trillion, up 16% year-over-year, driven by higher market levels and positive client flows.
• This was attributed to strong performance in private markets, wealth services, and digital assets, along with strategic initiatives like the launch of a digital asset platform.

Investment Management and Product Innovation:

• Management fees reached a new quarterly record of $662 million, up 15% year-over-year, with assets under management increasing to an all-time high of $5.7 trillion.
• The increase was driven by higher average market levels, net inflows, strong performance in ETFs, and innovative product launches such as new alternatives offerings and target maturity ETFs.

Balance Sheet Optimization and Capital Returns:

• State Street achieved a standardized CET1 ratio of 11.7%, and returned over $2.1 billion in capital to shareholders in 2025 through share repurchases and dividends.
• This reflects strong capital and liquidity positions, enabling balance sheet optimization and supporting strategic growth initiatives while maintaining regulatory compliance.

Strategic Growth in Digital Assets and Wealth Services:

• The company made significant strides in digital assets with the launch of a digital asset platform and positioned itself as a bridge between traditional and digital finance.
• Strategic investments in Apex Fintech Solutions and partnerships in wealth services aim to capitalize on new opportunities and strengthen market position, anticipating long-term growth in these sectors.

Sentiment Analysis:

Overall Tone: Positive

• CEO stated: 'Our fourth quarter results represent a strong finish to another successful year for State Street. We entered 2026 with momentum and a proven strategy that continues to deliver strong results.' CFO noted: 'We are feeling good about some of the early progress here as we start to think about managing for a stable and consistent NII with growing net interest margin, which is what our objectives are.'

Q&A:

• Question from Glenn Schorr (Evercore ISI Institutional Equities): Concerns about balancing operating leverage, investment for growth, and the role of AI in enhancing efficiency.
  Response: Management balances investing in multiyear strategic initiatives (private markets, wealth, digital, tech transformation) while driving margin expansion, with AI contributing savings that will accelerate in 2026/2027.

• Question from Betsy Graseck (Morgan Stanley): Inquiry about digital asset client activities and financial impact timing.
  Response: Focus is on tokenizing assets and bridging traditional/digital finance; financial impact is not expected in near term, more medium-term, and not replacing current activity.

• Question from Kenneth Usdin (Bernstein Autonomous LLP): Details on NII overperformance in Q4 and outlook for terminated swaps.
  Response: Q4 NII benefited from seasonal deposit mix (higher noninterest-bearing balances), but NIM expected to be stable and growing in 2026. Terminated hedges provided ~2 bps tailwind in Q4 and will continue to positively impact into 2026.

• Question from James Mitchell (Seaport Research Partners): Balance sheet optimization and deposit assumptions for 2026.
  Response: Balance sheet optimization involves running off low-value wholesale funding and focusing on deep client relationships; deposits assumed stable at ~$250 billion with ~10% noninterest-bearing.

• Question from Alexander Blostein (Goldman Sachs Group, Inc.): Organic growth expectations within fee businesses for 2026.
  Response: Organic growth is built into servicing and management fees, with expectations of continued momentum, offsetting transition headwinds in software business.

• Question from Brennan Hawken (BMO Capital Markets): Software/processing fee declines and transition to SaaS timeline.
  Response: On-prem renewal declines drove software fee drop; transition to SaaS will take 1-2 years to fully convert, with high single-digit annual recurring revenue growth.

• Question from Gerard Cassidy (RBC Capital Markets): Reasons behind 2025 fee revenue outperformance versus guidance and Basel III Endgame expectations.
  Response: 2025 beat due to conservative initial guide, unanticipated market tailwinds, better execution on client onboarding, and strong markets performance. Basel III changes expected to be favorable for GSIB and provide regulatory predictability.

• Question from David Smith (Truist Securities, Inc.): Potential for further return on tangible common equity improvement over medium term.
  Response: Confidence in growing profitability via fee business organic growth, NII solidification, and tech-led operational efficiency; aiming to solidify ~30% pretax margin and build on 20% ROTCE, with more details on multiyear targets to be shared.

• Question from Michael Mayo (Wells Fargo Securities, LLC): Strategic summary to boost investor confidence and stance on M&A.
  Response: Five reasons for confidence: attractive market fundamentals, distinctive capabilities in high-growth areas, proven execution track record, strong team, capital-light income statement. M&A considered if it enhances shareholder returns, but current focus is on organic growth and capital deployment.

Contradiction Point 1

Net Interest Margin (NIM) and Net Interest Income (NII) Outlook

Contradiction on the trajectory of NIM and NII, impacting expectations for future profitability.

What factors contributed to the strong Q4 NII and which are not expected to continue, and what is the run-off of terminated swaps along with its projected trajectory? - Kenneth Usdin (Bernstein)

2025Q4: NIM for 2026 is expected to be a bit lower than Q4 but higher than 2025, implying multiyear growth. - John Woods(CFO)

What is driving the expected Q4 NII improvement—higher balances or a specific factor? - Alexander Blostein (Goldman Sachs Group, Inc., Research Division)

2025Q3: Strong deposit flows... and tailwinds from reinvestment of securities portfolio cash flows at higher yields... support a rise in NII and NIM in Q4 and into 2026. - John Woods(CFO)

Contradiction Point 2

Capital Return and Deployment Priorities

Contradiction on the priority and stability of the capital return ratio, affecting shareholder expectations.

What are the expectations for organic fee growth in 2026 and is a larger buyback expected with a range-bound balance sheet? - Alexander Blostein (Goldman Sachs)

2025Q4: Capital priorities for 2026 include protecting/growing the dividend, deploying RWA into lending, and pursuing strategic M&A. The total payout ratio is expected to be ~80%, similar to 2025, after allocating capital to these opportunities. - John Woods(CFO)

Are there opportunities to adjust balance sheet management and capital returns given the strong capital position? - Ebrahim Poonawala (BofA Securities, Research Division)

2025Q3: The 80% capital return ratio for 2025 will be maintained, balancing returns with strategic deployment. - John Woods(CFO)

Contradiction Point 3

Financial Impact Timeline for Digital Assets

Contradiction on when revenue from digital asset initiatives will materialize, affecting investment in and expectations for this business line.

What are clients' strategies for digital assets and the expected financial impact timeline? - Betsy Graseck (Morgan Stanley)

2025Q4: Financial impact is not expected in 2026; it is a medium-term matter. - John Woods(CFO)

What drives the implied fee update: market conditions or new wins not yet converted? How will new wins be converted over time? - Kenneth Michael Usdin (Autonomous)

2025Q2: Sales momentum remains accelerated... Record $441 million in to-be-installed servicing fee revenue, with about half installed this year. - Ronald O’Hanley(CEO)

Contradiction Point 4

Balance Sheet Growth and Deposit Assumptions

Contradiction on the implied balance sheet growth and deposit trajectory for the upcoming year, impacting understanding of liquidity and leverage strategy.

Does the NII guide imply a flat balance sheet, and what are the balance sheet optimization opportunities and deposit assumptions? - James Mitchell (Seaport)

2025Q4: The low single-digit NII guide implies minimal balance sheet growth. - John Woods(CFO)

What constraints prevent exceeding the 80% payout ratio, and what is the current level and growth drivers of deposit balances? - Ebrahim Huseini Poonawala (BofA Securities)

2025Q2: Deposit levels peaked in April and have since declined toward expected ranges. - Mark R. Keating(Interim CFO)

Contradiction Point 5

Software/SaaS Business Transition Timeline and Impact

Contradiction on the near-term financial impact and speed of the software business model transition, affecting revenue growth expectations.

What caused the decline in software and processing fees beyond on-prem renewals, when will the SaaS transition drive growth, and what is the loan growth outlook? - Brennan Hawken (BMO)

2025Q4: The decline was primarily due to lower on-prem renewals, offset partially by a 7% SaaS increase. Transition to SaaS will take 1-2 years for contracts to turn over. - John Woods(CFO)

Which business areas are holding up better to offset the mark-to-market impact despite reaffirmed fee guidance? - Alexander Blostein (Goldman Sachs)

2025Q1: The company is not seeing any significant deterioration... reaffirmed its $350-$400 million target for new servicing fee revenue wins this year. - Ronald O’Hanley(CEO)