STATE STREET CORP (STT) Q1 2025 Earnings Summary

Executive Summary

• EPS beat alongside revenue miss: Diluted EPS of $2.04 vs S&P Global consensus ~$2.01, while total revenue of $3.284B came in below consensus ~$3.323B. Year-over-year margins expanded and fee revenue grew 6% YoY, driven by broad-based franchise strength . EPS/Revenue consensus values from S&P Global.*
• Management reaffirmed FY2025 guidance (fee revenue growth 3–5%, NII roughly flat ± low-single-digits, expenses up ~2–3%) despite heightened macro uncertainty; capital return target ~80% of earnings remains intact with a repurchase “step-up” planned in Q2 .
• Business momentum: AUC/A rose to $46.7T (+6% YoY); AUM at $4.7T (+9% YoY). New servicing fee wins were $55M and backlog “to be installed” rose to $356M revenue and $3.1T AUC/A, underpinning fee trajectory .
• Investors should focus on durability of fee growth, disciplined expense control, and Q2 buyback cadence as potential near-term stock catalysts amid revenue shortfall and NIM compression .

What Went Well and What Went Wrong

What Went Well

• Broad-based fee strength: Total fee revenue up 6% YoY with servicing (+3.8%), management (+10.2%), FX trading (+9.4%), securities finance (+18.8%), and software/processing (+8.7%) contributing .
• Operating leverage and margin expansion: Positive fee and total operating leverage YoY and pre-tax margin up to 25.0% from 19.1% YoY, reflecting expense discipline and franchise growth .
• Pipeline and backlog: $55M new servicing fee wins and $356M fee revenue “to be installed” (highest since disclosure began), plus $3.1T AUC/A to be installed; one new State Street Alpha mandate, ARR for front office software ~$373M (+~15% YoY) .
• Quote: “We achieved positive fee and total operating leverage alongside healthy pre-tax margin expansion, all while continuing to return capital to our shareholders.” – Ron O’Hanley .

What Went Wrong

• Revenue miss and NIM compression: Total revenue fell 3.8% QoQ and missed consensus; NIM (FTE) compressed to 1.00% (from 1.07% in Q4), with NII down 4.7% QoQ on deposit mix shift, lower short-end rates, and day count .
• Sequential fee softness: Front office software and data (-19.8% QoQ) and software/processing (-13.1% QoQ) declined on lower on-prem renewals; management fees (-2.4% QoQ) impacted by absence of performance fees and day count .
• Expense growth ex-notables: Total expenses up 2.9% QoQ excluding notable items due to higher technology and infrastructure investments, partially offset by savings .

Financial Results

Segment breakdown (Total Revenue):

Key KPIs:

Consensus vs actual (S&P Global):

Values retrieved from S&P Global.*

Guidance Changes

Earnings Call Themes & Trends

Management Commentary

• Strategy and resilience: “State Street has a long-standing history of resilience and adaptability… equipped us to effectively support our clients.” – Ron O’Hanley .
• Fee growth and margin delivery: “We generated over 300 bps of fee operating leverage and ~180 bps of total operating leverage this quarter.” – Mark Keating .
• Sales momentum and backlog: “$356M of to be installed revenue is the highest number we have reported… a lot of revenue to be coming onto the P&L.” – Mark Keating .
• Capital return: “We anticipate a nice step up in Q2… expect to return about 80% of earnings back to shareholders.” – Mark Keating .
• Expense flexibility: “We have some flexibility in pulling forward actions, reprioritizing investments… without impairing long-term strategy.” – Ron O’Hanley .

Q&A Highlights

• Capital return pacing: Management reiterated ~80% payout, with Q2 repurchase step-up, acknowledging a wider range of outcomes given macro uncertainty .
• Deposits and NII drivers: Elevated early-Q2 deposits; NII outlook anchored on mix, non‑US rates, loan growth, and investment portfolio rollovers (~$4B/quarter, 100–150bps pickup) .
• Fee growth durability: Guidance intact due to backlog/installs and sustained sales execution; pipeline healthy across regions/private markets .
• Expense management: Flex via transformation/productivity and tech substitution for labor; caution to protect service quality .
• Back-office front-loading: Strategy to accelerate revenue time-to-implementation and cross-sell FX, securities lending, fund accounting .

Estimates Context

• Q1 2025 EPS: Beat. Actual $2.04 vs consensus ~$2.006; 12 EPS estimates counted.*
• Q1 2025 Revenue: Miss. Actual $3.284B vs consensus ~$3.324B; 9 revenue estimates counted.*
• Implications: Modest top-line shortfall offset by margin and fee mix; guidance intact suggests limited estimate revisions near term, but models may trim revenue while retaining EPS given expense control and operating leverage .

Values retrieved from S&P Global.*

Key Takeaways for Investors

• EPS beat with revenue miss; fee growth breadth and margin expansion support the earnings quality despite NIM pressure from deposit mix and lower short-end rates .
• Reaffirmed FY guidance (3–5% fee growth; NII roughly flat; expenses +2–3%) and Q2 buyback step-up provide visibility on capital deployment and near-term support for the stock .
• Backlog and pipeline are strong: $356M fee revenue and $3.1T AUC/A to be installed, with Alpha wins and ARR growth underpinning medium-term fee trajectory .
• Watch deposit trends and non‑US rate paths (ECB/BoE) for NII outcomes; management highlighted sensitivity of $5–$10M per cut per quarter in euro/sterling exposures .
• Continued productivity and tech investments (~$90M quarterly savings; ARR ~$373M) should sustain operating leverage even if markets remain volatile .
• Strong capital and liquidity (CET1 11.0%; LCR 106% corp/139% bank) support ongoing buybacks and dividends ($0.76/quarter) .
• Near-term trading: Focus on Q2 repurchase cadence and fee momentum vs. NIM compression; medium-term thesis: backlog/Alpha/private markets lending and disciplined expenses drive sustained ROE and margin resilience .