STATE STREET CORP (STT) Q2 2025 Earnings Summary

Executive Summary

• Q2 2025 delivered broad-based fee strength and improved adjusted profitability: total fee revenue up 11% YoY, adjusted pre-tax margin ~30%, and adjusted EPS $2.53, beating consensus, while GAAP EPS was $2.17 .
• Revenue and EPS exceeded Wall Street estimates; adjusted EPS beat by ~$0.17 and total revenue beat by ~$0.12B, with FX trading (+28% YoY) and Securities Finance (+17% YoY) as key upside drivers (estimates in “Estimates Context”).
• Guidance raised: full-year fee revenue growth to 5–7% (from 3–5%); expense growth to ~3–4% (from 2–3%); NII roughly flat to 2024; capital return targeted at ~80% payout; planned 11% dividend increase to $0.84 in Q3 2025 .
• Stock-relevant catalysts: improved full-year fee outlook, strong sales/backlog ($444mm to-be-installed fees; $1.1T AUC/A wins), record FX volumes; offset by NIM compression (0.96%) and higher provision ($30mm) tied to CRE reserves .

What Went Well and What Went Wrong

What Went Well

• Fee growth and operating leverage ex-notables: fee revenue +12% YoY ex-notables, fee operating leverage +526 bps, and adjusted pre-tax margin nearly 30% .
• Markets & Investment Services execution: record quarterly FX trading volumes (+17% volumes; FX revenue +28% YoY) and $1.1T AUC/A wins; new servicing fee revenue wins $145mm, well-distributed geographically .
• Management tone on strategic momentum: “We delivered strong financial results…disciplined execution continues to drive positive results” and “surpassed $5 trillion in AUM…record FX trading client volumes” — Ron O’Hanley .

What Went Wrong

• GAAP expense growth and notable items: total expenses +11% YoY GAAP; $138mm pre-tax notable items (including $100mm repositioning charge tied to ~900 severances; $24mm revenue and $18mm expense for Alpha client rescoping) reduced reported EPS by $0.36 .
• NIM compression and macro sensitivity: NIM fell to 0.96% (−17 bps YoY) amid lower average short-end rates and deposit mix; management reiterated NII “roughly flat” for FY25 with variability tied to rates/mix .
• Provision increase: provision for credit losses rose to $30mm on evolving macro conditions and CRE reserve build; allowance ended at $192mm (+32% YoY) .

Financial Results

Summary Financials and Profitability

Fee Revenue Components

KPIs and Capital

Guidance Changes

Earnings Call Themes & Trends

Management Commentary

• Ron O’Hanley (CEO): “We delivered strong financial results…robust fee revenue growth…sixth straight quarter of positive year-over-year total operating leverage, excluding notable items…record FX trading client volumes.”
• Mark Keating (Interim CFO): “Excluding notable items, second quarter EPS grew 18%…fee operating leverage 526 bps…pre-tax margin nearly 30%…ROTCE ~19%.”
• O’Hanley on strategy and growth: “New servicing fee revenue wins of $145 million…two new State Street Alpha mandates…period-end AUM exceeded $5 trillion.”
• Keating on outlook: “We now expect 2025 total fee revenue growth in the 5%–7% range…full-year NII roughly flat…expense growth ~3%–4%…positive fee and total operating leverage this year.”

Q&A Highlights

• Fee leverage and backlog timing: Management emphasized organic drivers (sales flywheel, investment services installs) and noted ~half of backlog installs in 2025; rescoping was limited to a software contract and not servicing fees/AUC/A to-install .
• NII drivers and NIM: Deposit levels up in April with normalization thereafter; mix remains key; reinvestment benefit ~100 bps; asset-sensitive profile with non-US rate cuts a headwind; NII tracking “roughly flat” FY25 .
• Markets volatility: April spike; broader sustained volatility from geopolitics and divergent CB policies supports FX; sequential FX up 18% ex-notables, YoY 27% .
• Capital return: Progressive buybacks toward ~80% payout; managing CET1 at high end of 10–11% range given RWA sensitivity; dividend planned to $0.84 .
• Strategic initiatives: Strong institutional inflows (record $68B) with DC retirement momentum; “One State Street” approach to deepen relationships; tokenization viewed as accelerating over time with regulatory clarity .

Estimates Context

• Q2 2025 beats: Adjusted EPS +$0.17 vs consensus; revenue +$0.10–$0.12B vs consensus (driven by FX trading, Securities Finance, front-office software renewals, and management fees) .
• Note: *Values retrieved from S&P Global.

Where estimates may adjust:

• Fee lines (FX, Securities Finance, Front Office/CRD) likely revised higher near-term given volumes/renewals; NII path remains balanced amid NIM compression and deposit mix normalization .
• FY fee growth raised to 5–7% supports upward revisions to full-year fee revenue and adjusted EPS trajectories .

Key Takeaways for Investors

• Fee engine accelerating: strength across FX, Securities Finance, servicing and management fees, supported by near-record sales/backlog; this underpins the upgraded FY fee guidance (5–7%) .
• Profitability quality: Adjusted EPS beat and near-30% adjusted pre-tax margin with positive operating leverage ex-notables; watch GAAP expense trend and future savings from Q2 repositioning (payback ~4–5 quarters) .
• Capital return intact: planned dividend to $0.84 and buybacks toward ~80% payout remain supportive; CET1 10.7% and LCR robust .
• NII risk balanced: Asset sensitivity and NIM compression temper EPS upside; management’s “roughly flat” NII guide is prudent amid rate/mix variability .
• Trading setup: Sustained volatility, deeper client relationships, and geographic expansion support Markets revenue durability beyond Q2’s April spike .
• Strategic moat: Alpha mandates, rising ARR ($379mm), and “One State Street” cross-sell amplify multi-product engagement and long-term fee growth .
• Near-term trading implication: Positive skew from guidance raise/dividend hike and fee momentum; monitor macro-driven FX/NII variability and CRE reserve build signals in provisions .

Other Relevant Press Releases (Q2 2025)

• Planned dividend increase to $0.84 and preliminary SCB floor at 2.5% .
• Dividend declaration confirming $0.84 common dividend (payable Oct 14, 2025) .
• SPDR Select Sector Premium Income ETF suite launched, reinforcing product innovation and potential fee tailwinds .