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    STT
    Earnings call· Jun 2026(Q2 FY26)

    STATE STREET Q2 FY26 earnings call STT

    Jul 16, 2026 Source

    Executive summary

    State Street Q2 FY26 — Record Revenue and Strong Operating Leverage

    State Street delivered a strong second quarter, achieving record revenue and significant earnings growth, driven by broad-based momentum across its businesses and disciplined execution. The company reported its tenth consecutive quarter of positive operating leverage, leading to substantial margin expansion and improved returns. Management is confident in its ability to deliver sustained growth and expand margins, supported by strategic initiatives and a new set of ambitious medium-term financial targets.

    Highlights

    5

    • EPS (excluding prior year notable items) was $3.65, up 44% year-over-year.

    • Total quarterly revenue reached a record $4 billion, increasing 17% year-over-year.

    • Pretax margin expanded 470 basis points year-over-year to 34%.

    • Return on tangible common equity (ROTCE) increased over 6 percentage points to approximately 26%.

    • Announced a 10% increase to the quarterly common stock dividend, raising it to $0.92 per share.

    Guidance & targets

    14
    CategoryTargetConfidence
    Full-year 2026 fee revenue growth
    12% to 13%
    high materiality
    High
    Full-year 2026 NII growth
    14% to 15%
    high materiality
    High
    Full-year 2026 expenses growth
    roughly 8%
    medium materiality
    High
    Full-year 2026 positive operating leverage
    roughly 500 basis points
    high materiality
    High
    Full-year 2026 pretax margin
    approximately 32%
    high materiality
    High
    Full-year 2026 effective tax rate
    approximately 22%
    medium materiality
    High
    Full-year 2026 total payout ratio
    roughly 80%
    high materiality
    High
    Medium-term pretax margin
    35%
    high materiality
    High
    Medium-term Return on Tangible Common Equity (ROTCE)
    mid-20s
    high materiality
    High
    Transformation run rate benefits
    $1 billion
    high materiality
    High
    Medium-term NII growth
    low to mid-single digits
    medium materiality
    Medium
    Medium-term net interest margin (NIM)
    upper end of 110 to 115 bps range
    medium materiality
    Medium
    Medium-term CET1 ratio
    approximately 11%
    high materiality
    High
    Medium-term Tier 1 leverage ratio
    approximately 5.25% to 5.75%
    high materiality
    High

    Segment performance

    3
    SegmentRevenueYoYQoQMargin
    Investment Services
    Growth primarily reflects organic growth, client activity, flows, net new business, higher average market levels, and currency translation.
    Servicing fees: $1.5 billionServicing fees growth YoY: 13%Servicing fees organic growth: ~7%Assets under custody and administration (AUC/A): $57.9 trillionAUC/A growth YoY: 18%Servicing fee sales: $87 million
    		———Expected to contribute ~300 basis points to enterprise margin expansion over medium term
    Investment Management
    Supported by higher period-end market levels and positive net flows, primarily from strong index ETF and cash net inflows.
    Management fees: $772 millionManagement fees growth YoY: 29%Management fees organic growth: ~9%Assets under management (AUM): $6.3 trillionAUM growth YoY: 23%Net inflows: $114 billion
    		———Expected to contribute ~200 basis points of enterprise margin expansion over medium term
    Markets
    Driven by record high client volumes, particularly strong in Asia Pacific, and higher client lending balances.
    FX trading services revenue: $494 millionFX trading services revenue growth YoY (ex-notable item): 27%Securities finance revenue growth YoY: 19%
    		———Expected to contribute ~100 basis points of enterprise margin expansion over medium term

    Operational metrics

    32
    EPS (excluding prior year notable items)
    $3.65up 44% YoY from $2.17 in 2Q '25
    Q2 FY26

    Reflects strong second quarter performance.

    Total revenue
    $4 billionup 17% YoY
    Q2 FY26

    Achieved an all-time high.

    Positive operating leverage (excluding notable items)
    10th consecutive quarter
    Q2 FY26

    Reflecting disciplined execution and momentum.

    Pretax margin
    34%expanded 470 bps YoY
    Q2 FY26

    Driven by strong revenue performance.

    Return on tangible common equity (ROTCE)
    ~26%increased over 6 percentage points
    Q2 FY26

    Improved profitability.

    Servicing fees organic growth
    ~7%
    Q2 FY26

    Driven by client activity, flows, and net new business.

    Management fees organic growth
    ~9%
    Q2 FY26

    Strong support from higher average market levels.

    Net inflows (Investment Management)
    $114 billion5th consecutive quarter of positive organic growth
    Q2 FY26

    Broad-based across geographies, led by Americas.

    Annual recurring revenue (software and data)
    ~14%YoY growth
    Q2 FY26

    Driven by client onboarding and conversions.

    Revenue backlog (software and data)
    6%YoY growth
    Q2 FY26

    Reflecting continued SaaS implementations and conversions.

    Net interest margin (NIM)
    113up 17 bps YoY
    Q2 FY26

    Partially offset by lower average market rates.

    Average interest-earning assets
    $305 billionlargely stable from prior year quarter
    Q2 FY26

    Growth in deposit balances partially offset by lower short-term borrowings.

    Expenses growth (excluding notable items)
    10%YoY
    Q2 FY26

    Primarily reflecting strong revenue performance.

    Revenue-related costs contribution to expense growth
    ~6 percentage points
    Q2 FY26

    Majority of expense growth tied to higher business activity.

    Strategic investments contribution to expense growth
    ~2.5 percentage points
    Q2 FY26

    Continued investment in the business.

    Underlying run-the-bank costs contribution to expense growth
    ~1.5 percentage points
    Q2 FY26

    Net of productivity savings.

    Headcount change
    down ~3%from a year ago
    Q2 FY26

    Consistent with focus on productivity and disciplined resource allocation.

    Standardized CET1 ratio
    10.8%broadly stable relative to Q1
    Q2 FY26

    Robust capital position.

    Tier 1 leverage ratio
    5.3%broadly stable relative to Q1
    Q2 FY26

    Robust capital position.

    Common share repurchases
    $400 million
    Q2 FY26

    Part of capital return to shareholders.

    Declared common stock dividends
    $231 million
    Q2 FY26

    Part of capital return to shareholders.

    Total payout ratio
    62%
    Q2 FY26

    Combined common share repurchases and dividends.

    Year-to-date payout ratio
    ~73%
    YTD Q2 FY26

    Reflects capital return for the first half of the year.

    Quarterly common dividend per share increase
    10%
    Q3 FY26

    Beginning in the third quarter, reflecting business strength.

    Pretax margin (year-to-date, excluding notable items)
    ~32%
    YTD Q2 FY26

    Reflects strong performance in the first half of the year.

    ROTCE (year-to-date, excluding notable items)
    ~23%
    YTD Q2 FY26

    Reflects strong performance in the first half of the year.

    Transformation benefits (expense productivity)
    75%
    by 2029

    Portion of $1 billion run rate transformation benefits.

    Transformation benefits (revenue)
    25%
    by 2029

    Portion of $1 billion run rate transformation benefits.

    One-time transformation costs (severance)
    ~$500 million
    medium term

    Predominantly severance-related, with attractive ROI.

    Software developer productivity increase (AI-driven)
    30% to 40%
    medium term

    Expected from equipping software developers with AI tools.

    Net interest margin lift (from optimization activities)
    15 to 20
    over several quarters

    Achieved through remixing funding side of balance sheet.

    NIM sensitivity to rates
    3 to 5 bpsfor +/- 50 bps change in rates
    N/A

    Impact on net interest margin from rate environment changes.

    Industry KPIs

    2
    MetricValueDetails
    AUM$6.3 trillionUSD
    Fundraising inflows$114 billionUSD

    Product announcements

    5
    ProductTypeDetails
    Tokenized fund servicing capabilitylaunch
    SPYM (S&P 500 ETF)milestone
    Tokenized money market solutionlaunch
    Stablecoin reserves fundlaunch
    QNDX ETFlaunch

    Deals & partnerships

    2
    91Strategic partnership

    A State Street Alpha client entered into a strategic partnership with State Street Investment Management, demonstrating the 'One State Street' approach.

    U.S. Department of the TreasuryExclusive default ETF provider

    SPYM, State Street's low-cost S&P 500 ETF, was selected as the exclusive default ETF for Trump accounts.

    Q&A highlights

    7

    Seeking granularity on the $250M revenue contribution from transformation and how it impacts firm-wide organic fee growth.

    John Woods explained that the $250M revenue uplift is primarily from State Street-driven strategic initiatives in alternatives, digital, and wealth, with alternatives being the largest contributor due to its maturity. He noted that positive operating leverage of 100-150 bps is the North Star, driven by organic growth and low to mid-single-digit NII growth.

    “the $250 million that we have in there is primarily related to the targeted strategic initiatives that you'll see that we're mentioning here that are on State Street driven. That would be in the alternative space. and in digital and in wealth and among those 3 probably alternatives is the biggest contributor, just given its maturity profile.”

    asked by Alexander Blostein · answered by John Woods

    2 min read6 chapters

    Detailed Narrative

    01

    Strong Q2 Performance and Momentum

    State Street reported strong Q2 FY26 results, with EPS of $3.65 (up 44% YoY excluding notable items) and record total revenue of $4 billion (up 17% YoY). This marks the tenth consecutive quarter of positive operating leverage, driven by record fee revenue across servicing, management, and FX trading, alongside record NII. The performance led to a 470 basis point expansion in pretax margin to 34% and ROTCE increasing to approximately 26%.

    02

    Strategic Growth Initiatives

    The company is focusing on three strategic growth initiatives: alternatives, digital assets, and wealth services. These initiatives span Investment Services, Investment Management, and Markets, aligning with evolving client demand and fast-growing revenue pools. Alternatives are the most mature contributor, while digital assets are gaining momentum with new product launches like tokenized money market funds and stablecoin reserves funds.

    03

    Technology and AI-Enabled Transformation

    State Street is undergoing a significant technology and AI-enabled transformation to simplify operations, accelerate time to market, and improve productivity. This involves migrating to a product platform structure with integrated agile delivery teams, modernizing technology stacks, and leveraging AI. These efforts are expected to deliver approximately $1 billion in run-rate benefits by 2029, with 75% from expense productivity and 25% from revenue.

    04

    Capital Allocation and Shareholder Returns

    The company maintains a robust capital position, reflected in its recent stress test results. It announced a 10% increase in its quarterly common stock dividend to $0.92 per share, effective Q3. State Street returned $631 million to shareholders in Q2, consisting of $400 million in share repurchases and $231 million in dividends, targeting a total payout ratio of approximately 80% for the full year.

    05

    Medium-Term Financial Targets

    State Street introduced new medium-term financial targets, aiming for a pretax margin of 35% and a return on tangible common equity (ROTCE) in the mid-20s over the cycle. These targets are supported by a clear path to sustained organic revenue growth and positive operating leverage, building on the firm's strong momentum and consistent financial performance improvements.

    06

    Investment Management Growth

    Investment Management demonstrated strong performance with AUM reaching a record $6.3 trillion (up 23% YoY) and net inflows of $114 billion, marking the fifth consecutive quarter of positive organic growth. The business is driving growth through scale, expanded client access (ETFs, index investing, fixed income), and strategic focus on wealth, alternatives, and tokenization.

    AI-generated summary of the company’s earnings call. Not investment advice.