With a combined revenue of $21 trillion and $2.1 trillion in profits, the 2026 Fortune 500 is the definitive list of America's largest companies.

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Modern Board 2022-State Street

State Street scored high on board expertise, board size, and its CEO succession plan.   
 
State Street’s board includes six former CEOs and two active CEOs—including its own, Ronald O’Hanley; and William Meaney, the president and CEO of Iron Mountain. DonnaLee DeMaio, former president and CEO of MetLife Bank, is also a board member. 
 
As one of the “Big Three” asset managers along with BlackRock and Vanguard, State Street (which has $3.9 trillion in assets under management) has been using its position to advocate for stronger diversity and sustainability measures across corporate America. <a href="https://www.gibsondunn.com/blackrock-vanguard-and-state-street-update-corporate-governance-and-esg-policies-and-priorities-for-2022/">In 2022</a>, all of the Big Three have raised the bar for the companies in which they hold stakes, advocating for disclosures from “carbon intensive” sectors and increased scrutiny over climate-based proposals; they have also said they may vote against or withhold votes from companies that do not have at least one woman on the board or that fail to disclose demographic data. State Street has specifically said it might vote against an independent board director if a company fails to provide sufficient disclosure or progress on such issues.

Fortune Modern Board 25

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Wal-Mart stayed on top as its sales crept closer to half-a-trillion dollars. Apple moved into the top five. And UnitedHealth Group continued its steady climb. 

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One of the oldest financial institutions in the U.S., Boston-based State Street offers a diverse array of products across its asset management and banking divisions. The company helped pioneer exchange-traded products, including launching the first ETF in 1993, and counts as one of the Big Three index fund managers alongside Vanguard and BlackRock. State Street also serves as one of the top asset custodians in the U.S., including expanding into crypto assets such as Bitcoin. State Street continues to launch new investment vehicles. In 2025 the company partnered with private equity giant Apollo to create a private credit ETF available to retail investors. State Street is the second-oldest continuously operating bank in the U.S., with its predecessor receiving a charter from Massachusetts Gov. John Hancock in 1792.

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State Street (STT): Company Profile, Stock Price, News, Rankings

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State Street

state street

Good morning and welcome to State Street Corporation's Third Quarter 2025 Earnings Conference Call and Webcast. Today's call will be hosted by Elizabeth Lin, Head of Investor Relations at State Street. We ask that you please hold all questions until the completion of the formal remarks, at which time you will be given instructions for the question and answer session. Today's discussion is being broadcast live on State Street's website at investors.statestreet.com. This conference call is also being recorded for replay. State Street's conference call is copyrighted and all rights are reserved. This call may not be rerecorded for broadcast or distribution in whole or in part without the express written authorization from State Street Corporation. The only authorized broadcast of this call will be housed on the State Street website. Now I would like to hand the call over to Elizabeth Lin.

Thank you, Operator. Good morning and thank you all for joining us. On our call today, our CEO, Ron O’Hanley, will speak first. John Woods, our CFO, will take you through our Third Quarter 2025 Earnings Presentation, which is available for download in the Investor Relations section of our website, investors.statestreet.com. Afterward, we'll be happy to take questions. Before we get started, I'd like to remind you that today's presentation will include results presented on a basis that excludes or adjusts one or more items from GAAP. Reconciliations of these non-GAAP measures to the most directly comparable GAAP or regulatory measure are available in the appendix to our presentation. In addition, today's call will contain forward-looking statements.

Actual results may differ materially from those statements due to a variety of important factors, such as those referenced in our discussion today and in our SEC filings, including the risk factors section in our Form 10-K. Our forward-looking statements speak only as of today, and we disclaim any obligation to update them, even if our view should change. With that, let me turn it over to Ron.

Thank you, Liz. Good morning, everyone, and thank you for joining us. I'm pleased to welcome John Woods to his first earnings call with State Street. John brings deep and additive expertise to our leadership team, and we're excited about the perspective he adds. Turning to our results, I'll begin with our third quarter highlights before turning it over to John, who will walk you through our financial results in greater detail. Slide two of our investor presentation highlights the strength of our third quarter results, with quarterly earnings per share of $2.78, increasing 23% year-over-year. Our strong financial performance reflects disciplined execution against our strategic priorities and our ability to effectively capitalize on the constructive market environment in the quarter. We continue to demonstrate good business momentum and consistent delivery of improved financial performance.

For example, 3Q marked our seventh consecutive quarter of positive total operating leverage, excluding notable items, as we delivered total revenue growth of 9%, a pre-tax margin of 31%, and a return on tangible common equity of 21%. These metrics highlight our ability to drive profitable growth by executing our growth strategy and continuing the transformation of our operating model. Investor demand, new technology, and a changing regulatory environment are creating new opportunities for us and our clients. Alongside our robust third quarter financial performance, we remain focused on advancing product innovation and enhancing our capabilities to better serve our clients and accelerate growth in key strategic areas. For example, as I'll outline shortly, we launched a series of strategic initiatives and new product capabilities in the third quarter, all designed to position State Street for sustained long-term growth.

In investment services, we delivered strong year-over-year servicing fee growth and ended the quarter with a record $51.7 trillion in AUC/A. We recorded one new Alpha mandate, and another Alpha client went live in Q3. State Street has long been a leader in technology-driven innovation. Today, our investment services team is building on that legacy by developing the tools and client capabilities that will empower our clients to succeed in an evolving market. For example, in the digital assets ecosystem, State Street already provides fund administration and accounting services for digital assets today. As we look ahead, we are strategically positioning State Street to be the bridge between traditional and digital finance, as well as a connection point between digital asset platforms. To that end, we are excited about the forthcoming launch of our digital asset platform, which will enable tokenization of assets, funds, and cash for institutional investors.

As the wealth market expands globally, we have noted the importance of building upon our front office wealth trading and portfolio construction capabilities at Charles River to further access this growing revenue pool. We achieved a key milestone of our wealth services strategy in Q3 with the announcement of a strategic partnership in minority investments in Apex Fintech Solutions. Through this partnership, State Street will leverage Apex's digital custody and clearing platform to expand our wealth services offerings in support of the high-growth wealth management industry. The partnership will deliver a differentiated, fully digital, globally scalable custody and clearing solution and experience for wealth advisors and self-directed wealth platforms, as well as their clients around the world. As a result, this partnership will significantly strengthen State Street's investment servicing capabilities and build on our existing foundation to deliver the industry's first truly global digital wealth custody solution.

The third quarter also marked an important milestone for State Street investment management, which reported record quarterly management fee revenue as period-end AUM climbed to a record $5.4 trillion, just one quarter after surpassing the $5 trillion mark for the first time. We continued to innovate at pace, further strengthening our investment management capabilities to drive growth across several strategic focus areas. For example, we launched 11 select SPDR premium income ETFs, enabling investors to tap into sector-specific opportunities with enhanced income potential. Elsewhere, by broadening our suite of actively managed target maturity ETFs, we further strengthened our capabilities in fixed income solutions, which remains a key strategic priority. Importantly, the third quarter provided several compelling examples of how our partnerships with some of the world's leading investment firms are expanding and strengthening our client capabilities, positioning us for future growth.

For example, in continued partnership with Apollo, we made further progress in expanding access to private markets with the launch of PRSD, an actively managed short-term bond ETF, which combines exposure to investment-grade public and private credit. We also launched a euro-denominated AAA CLO UCITS ETF in partnership with Blackstone, building on our successful track record together, which includes actively managed high-income and senior loan ETFs. Finally, in Europe, we entered a strategic partnership with Van Lanschot Kempen Investment Management that will drive further innovation across our respective investment offerings in this key strategic region. State Street markets continue to see the results of its efforts to deepen client relationships, delivering strong year-over-year revenue growth in both securities finance and FX trading services.

As a testament to the strength of our markets franchise and the value we deliver to clients, we're proud that State Street was recognized with eight category wins in Euromoney Magazine's 2025 FX Awards, doubling our achievements from 2024. These industry recognitions are strong endorsements of our continuous effort to deliver best-in-class trading and financing solutions, technology platforms, and research to our clients globally. Turning to our balance sheet, our solid financial position has enabled us to return nearly $1.5 billion in capital to shareholders year to date through common share repurchases and dividends, including $637 million in the third quarter. As previously announced, we were pleased to increase State Street's quarterly per share common stock dividend by 11% to $0.84 in Q3. We remain committed to returning capital to our shareholders.

Before I conclude my prepared remarks, I'd like to take a moment to extend my gratitude to Mark Keating for his outstanding leadership during his tenure as Interim Chief Financial Officer. Mark stepped into the role during a pivotal time and provided invaluable stability and leadership as we navigated the transition period. Mark will continue to play an important role in shaping our long-term financial strategy and driving enterprise-wide initiatives, working closely with John. To conclude, the third quarter marked several strategic and performance milestones for State Street, reinforcing the effectiveness of our strategy. We delivered our seventh consecutive quarter of positive total operating leverage, excluding notable items, a clear indicator of sustained momentum. Our continued improving financial performance is supported by a range of tangible proof points that highlight how we are expanding product capabilities and driving innovation across the firm.

These efforts continue to position us for future growth and long-term value creation for our shareholders. With that, let me hand the call over to John, who will take you through the quarter in more detail.

Thank you, Ron, and good morning, everyone. Turning to slide three, as Ron mentioned, we delivered strong third quarter financial results that reflect healthy business momentum and consistent execution, driving EPS growth of 23% year over year to $2.78. Total revenue increased 9% year over year to approximately $3.5 billion and included fee revenue growth of nearly 12%, excluding notable items. Fee revenue growth was broad-based, supported by active client engagement amid a constructive market environment. Servicing fees were up 7%, management fees increased 16%, and FX trading services and securities finance revenues were collectively up 17%, excluding notable items year over year. Expenses increased approximately 5% year over year to $2.4 billion as we continued to prudently manage our expense base while also funding key strategic initiatives and technology investments to support future growth.

Taken together, our strong third quarter performance delivered substantial fee and total operating leverage of over 600 basis points and over 300 basis points, respectively, year over year and excluding notable items. Our pre-tax margin expanded approximately 270 basis points to 31%, while our return on tangible common equity was approximately 160 basis points higher at 21% compared to the year-ago period. Turning now to slide four, servicing fees increased 7% year over year, primarily driven by higher average market levels, net new business, and the impact of currency translation. AUC/A reached a new record of $51.7 trillion, increasing 10% year over year, driven by higher period-end market levels and strong client flows. We achieved nearly $50 million in servicing fee revenue wins in the quarter, bringing our year-to-date total to approximately $250 million.

We remain intensely focused on driving servicing fee revenue growth, particularly in core back office solutions and private markets, which together account for the vast majority of both our third quarter and year-to-date wins. Our pipeline remains healthy and well-diversified, and we are on track to meet our full-year target of $350 million-$400 million. This momentum is reflected in our third quarter servicing fee revenue backlog of approximately $400 million, up roughly 40% from the prior year. Installing our backlog remains a top priority as we focus on delivering consistent organic servicing fee growth in the quarters ahead. Additionally, we reported one new Alpha mandate win with another client going live in the quarter. As Ron noted, we recently finalized a strategic partnership and minority investment in Apex Fintech Solutions.

This partnership will expand our wealth services offering through Apex's digital custody and clearing platform and supports the long-term growth of our investment servicing business. Turning to slide five, management fees increased 16% year over year to a quarterly record of $612 million, primarily driven by higher average market levels and net inflows. Assets under management increased 15% year over year to a record $5.4 trillion, supported by higher period-end market levels and client inflows. Net inflows totaled $26 billion for the quarter, reflecting solid momentum across ETFs, cash, and institutional index fixed income. In ETFs, our U.S. low-cost suite continued to gain market share, achieving record flows in the quarter. Our gold ETF suite further strengthened its market leadership, reaching a record AUM of approximately $145 billion. This strong performance reflects both robust inflows, supported by our expanded distribution globally, as well as elevated spot prices.

As Ron mentioned, innovation remains a cornerstone of our investment management growth strategy. In the third quarter, we launched 39 new products, including an expansion of our select sector suite and new alternatives exposures. These initiatives broaden the capabilities available to clients and support organic net new asset growth. We are encouraged by the robust performance of our investment management business in the third quarter, which delivered a pre-tax margin of approximately 36%, up nearly 600 basis points from the prior year quarter. Turning to slide six, State Street markets delivered strong third quarter results with solid year-over-year growth in both FX trading services and securities finance. Our markets franchise is strategically positioned to support both our investment services and investment management businesses, delivering integrated value across the entire franchise. FX trading revenue increased 16% year over year, excluding prior period notable items.

While FX volatility was relatively muted, client volumes increased 11% year over year with strong growth across all of our trading venues. Securities finance revenues increased 19% year over year, driven by robust balance growth across both agency lending and prime services. In agency lending, third quarter performance benefited from increased assets on loan and specials activity, while in prime services, our targeted client engagement supported solid revenue growth for the quarter. Moving to slide seven, software and processing fees increased 9% year over year. Front office software and data revenue increased 14% year over year, driven by higher on-premises renewals, growth in professional services, and continued expansion of software-enabled revenue as we converted and implemented more clients onto our cloud-based SaaS platform. In turn, annual recurring revenue increased by approximately 13% year over year to approximately $400 million in the third quarter.

Our front office revenue backlog remains healthy, increasing 45% year over year and reinforcing our confidence in the future growth of this business. Moving to slide eight, net interest income of $715 million was down 1% year over year. This performance reflects an 11 basis point decline in the net interest margin to 96 basis points, primarily driven by lower average short end rates and deposit mix shift, partially offset by the reinvestment of securities portfolio cash flows at higher yields and higher interest earning assets supported by higher deposit balances. On a sequential basis, net interest income declined 2%, primarily due to a reduction in the interest earning assets resulting from lower deposit balances compared to elevated second quarter levels, as well as lower average short end rates.

These factors were partially mitigated by the reinvestment of securities portfolio cash flows at higher yields, along with continued client-driven loan growth, which contributed to an improvement in interest earning asset mix, supporting a stable net interest margin on a linked quarter basis. Turning to slide nine, expenses increased approximately 5% year over year, primarily driven by continued investments in technology and strategic initiatives, higher revenue-related costs, and the impact of currency translation, partially offset by continued productivity savings. Compensation-related costs were well contained, increasing 2% year over year in the third quarter. This increase was primarily driven by higher salaries and benefits and the impact of currency translation, partially mitigated by a reduction in headcount, including from ongoing operating model transformation and process improvements.

Information systems and communications expense increased 12% year over year, primarily due to ongoing investments in platform modernization and resiliency, AI tools, enhanced data delivery, and improved user experience, as well as higher client implementation activity and volumes. In parallel, we continue to advance our productivity and optimization initiatives, generating approximately $125 million in year-over-year savings during the quarter. These efforts have delivered approximately $370 million of savings year to date, keeping us firmly on track to achieve our full-year savings target of $500 million. Our ongoing productivity and other savings initiatives have enabled us to deliver both fee and total operating leverage, while also creating capacity to invest strategically in growth areas such as wealth services, Alpha, private markets, AI, and process automation.

Moving to slide 10, our standardized CET1 ratio was 11.3% at quarter end, up approximately 60 basis points quarter over quarter, reflecting capital generated from earnings and a decline in risk-weighted assets coming off of the elevated FX volatility of the prior quarter. We returned $637 million of capital to common shareholders during the third quarter, consisting of $400 million in common share repurchases and $237 million in declared common stock dividends, for a total payout ratio of 79%. As Ron noted, in the third quarter, we were pleased to increase our per share quarterly common dividend by 11% to $0.84. To wrap up, let's turn to our outlook, which, as a reminder, excludes notable items.

Building on our strong year-to-date performance and a constructive market environment, we now expect 2025 total fee revenue growth in the 8.5%-9% range, an improvement to our prior outlook of at or slightly above the 5%-7% range. We expect full-year NII to be down slightly relative to last year's record performance. Turning to expenses, with our improved outlook for fee revenue, full-year expense growth is now expected to be roughly 4.5%, up from our prior outlook of the upper end of the 3%-4% range, reflecting ongoing investments in technology and strategic initiatives, along with higher revenue-related costs. Importantly, we continue to generate significant positive fee and total operating leverage this year.

Given where we are in the year, our full-year outlook implies that for the fourth quarter, fee revenue will be flat to down slightly quarter over quarter, reflecting a normalization in other fee revenue from an elevated 3Q, while suggesting a sequential increase in NII. On expenses, our updated full-year outlook suggests that expenses will be up slightly in 4Q compared to the prior quarter. Finally, we continue to target a total payout ratio of approximately 80% for 2025, subject to market conditions and other factors, while also deploying capital to support our clients, drive organic growth, and fund strategic investments. In conclusion, our third quarter results reflect the strength of our execution and the resilience of our strategy, driving consistent business momentum and delivering meaningful fee and total operating leverage.

On a personal note, I'm excited to be partnering with Ron and the rest of the State Street management team, and I'm very optimistic about the opportunity ahead of us at State Street as we aim to build upon the strong results we've achieved year to date. With that, Operator, we can now open the call for questions.

At this time, we will open the floor for questions. If you would like to ask a question, please press star five on your telephone keypad. You may remove yourself at any time by pressing star five again. Please note, you will be allowed one question and one related follow-up question. Again, that is star five to ask a question. We'll pause just a moment for the queue to form. Thank you. Our first question will come from Alex Blostein with Goldman Sachs. Your line is open. Please go ahead.

Hey, good morning, everybody. Thank you for the question, John. Welcome to the call. I wanted to maybe get your thoughts as you get your feet wet with the new business here with State Street. How are you thinking about both the balance sheet management and sort of operating dynamics in the company? Any additional steps you're looking to pursue as far as your early observations across the business go, either on the capital management, expense management, NII, any of those thoughts would be helpful just to get your first impressions.

Yeah, thanks for the question and good to be on the call. I think maybe I mentioned this previously at a conference that, you know, when I think about the priorities broadly, it starts with just partnering with the management team to drive execution and profitability. In my, I guess I'm completing my month two here. I'm exceptionally impressed with the level of innovation and momentum that we have here at State Street. That's the foundation that I thought I was joining. All systems go on that front. Excited there. I will say that, you know, where are some of the areas that I'll be partnering with Ron and the management team on? I will spend time in the balance sheet space. I think there are optimization opportunities on the balance sheet that I've been digging into in my early days here.

That'll be nice to see as that plays out in the coming quarters. The other couple of items I'd also hasten to add is there's an exceptional opportunity in the productivity space that this management team has been hard at for quite some time. There is a lot ahead of us that we can accomplish together that's got a lot of tailwinds associated with it heading into 2026. That gives us opportunity to continue to invest and drive tech-related innovation over time. I'll be plugging in on that front. Lastly, all of the strategic initiatives that we have in front of us, both within the United States and around the world, with respect to geographic expansion and product development, those are broadly the areas of optimization and focus that I think I'm going to be looking at.

Bringing it back to maybe the specific point you raised with respect to balance sheet. Based upon all of that, maybe just to add, you look at some of the balance sheet trends more in the micro here at the end of the third quarter, heading into the fourth quarter. They're really solid trends coming out of all of that. Some strong deposit flows. You saw our net interest margin was flat quarter over quarter. As you may have seen in the overall guide for the year, sort of seeing net interest income and net interest margin both headed up as we head into the fourth quarter with some solid tailwinds there. That's encouraging. I think there's more, you know, more opportunities on the balance sheet to keep that momentum heading into 2026.

Great. That's helpful. Thank you. Just as a follow-up related to NII, your point just now around NII improving in the fourth quarter relative to the third quarter, is it a function of just the balances being higher? I know they tend to pick up seasonally, or is there something more specific that you guys are already starting to work through to drive NII higher from here?

Yeah, that's a good question. We did see the balance sheet come down in the third quarter. I think the outlook into the fourth quarter is for the balance sheet size to be about stable. I wouldn't call that the reason why we see NII and net interest margin rising into the fourth quarter, but it is important to stabilize that. It's important, the all-important deposit levels, which were down this quarter overall, but frankly, mix was improved into the third quarter. Non-interest-bearing deposits held in, and we expect that to continue into Q4. We see deposits stabilizing with a number of tailwinds there that will ensure that stable deposits are something that we can count on in Q4. I'd say the real drivers are more about some other non-rate-related tailwinds.

We've got the recurring turnover of the investment portfolio where you see cash flows maturing at lower rates, being reinvested at higher rates. That was a tailwind in the third quarter. It will continue to be one in the fourth quarter and beyond. I'd also highlight the fact that in the past, we had terminated some interest rate risk management hedges. The negative drag related to that is already in our third quarter run rate. That's going to start to run down in the fourth quarter, which will become a recurring tailwind in Q4 and in 2026. Those two mostly non-rate-related tailwinds are giving us some good confidence about not only net interest margin growth into the fourth quarter, but those tailwinds will continue into 2026. I see some positive mix opportunities on an ongoing basis.

When you see how we're servicing, I mean, serving our customers in the loan space, loan mix was an improvement in 3Q, and I could see that being a potential supporter over time as well. Yeah, feeling pretty constructive about Q4 and NII.

Our next question will come from Glen Schorr with Evercore. Your line is open. Please ask your question.

Thanks very much. Maybe just a quick follow-up on that conversation. I think a couple of us have asked this in the past, but John, you being new to the party and getting a fresh look, I wonder how you think about or how we should think about this year's State Street, struggling around flat on net interest income. Last year, as you mentioned, record net interest income at your peers. This year is a good year. I'm just trying to think of from your fresh eyes, is there something different about the client mix? Is there something different about how you interact with the client base and ways you can talk through what operating deposits clients can park with you? Your business overall grows plenty, and deposits usually come along with that.

We don't have to rehash all the deposit beta stuff, but should we expect, I'm curious to get your thoughts on that, and then should we expect similar enough performance going forward in 2026 and beyond, or is there something about the client mix that just deposits are different and you got to look at the totality of the earnings?

Yeah, I mean, a couple of comments, and we'll spend some more time on this as we get to the 2026 outlook, and we'll cover this in a fair bit of additional detail. I do observe what drives the bus here on the balance sheet is going to be deposit levels, both the level and quality of the mix of deposits, and pretty true for almost all banks, right? When I think about the trends in the deposit base, I think the macro is coming together relatively with a net tailwind, certainly heading into 4Q. We'll update in January again, but in all likelihood into 2026. The few tailwinds I'd highlight are when you have the rate environment, we're heading, we've started the easing cycle that likely continues in the fourth quarter, maybe a bit into 2026 as well, as we see where rates are headed.

That's typically a tailwind for deposit levels and often good for mix. You heard Chairman Powell talk about possibly Q2 ending. That also is a solid tailwind for system-level deposits. Just bringing it back to really the core franchise in terms of our fee-based drivers, AUC/A drivers are all coming together quite nicely, and we'll talk about that being a really solid tailwind for deposit levels, which is where we generate our deposits. When I put all that together, I feel pretty good about the fact that the balance sheet being stable to rising over time is coming together nicely. You flip over to the other drivers, which would be impact of rates, where we're somewhat diversified across. We've got a balance sheet, majority of the balance sheet is in the U.S., but the asset sensitivity on the short end is close to neutral there.

We have exposures to the euro area as well as sterling, where there's a different rate that we're asset sensitive outside the U.S. It seems like rate stability there tells me that rates won't be nearly the headwind that it was year over year. Finally, the mix and the optimization work that we're going to continue to do, I think along with the idiosyncratic factors I mentioned about Q4 with terminated hedges running off, as well as the turnover of the balance sheet and investment portfolio in particular, where cash flows are getting reinvested at higher levels, which are less rate dependent. All of that comes together with some pretty solid forces that we'll talk to you more about in January to put it all together, but feeling pretty optimistic about some of the tailwinds there going forward.

I appreciate all that. Maybe a quickie on the investment management side. A lot of product innovation, a lot of good flows, and more to come. I like it. I don't know if you mentioned, I apologize if I missed it, what the outflows were on the institutional side. The bigger picture is maybe talk a little bit towards your aspirations outside of your core footprint. Meaning it would be blasphemy in the past if I asked if State Street was going to broaden their actively managed footprint, but actually the world's a little different. There's more growth avenue. Outside of your core ETF and passive business, maybe longer-term aspirations, and thank you for all that.

Yeah, Glenn, it's Ron. Why don't I take that? John can add in. On flows, we're positive, as you saw, but that was net of some outflows in institutional, really mostly around one particular client, and you know these things happen. To your broader question, we know what our strengths are, and our strengths are in the passive and systematic exposures from an investment management perspective. We're also a leader in product structures such as ETFs and target date funds. We've been able to turn the SPDR franchise into a platform that's recognized and operating around the world and operates really as a distributor for us and others. We have actually broadened quite significantly beyond that core passive, but typically have been doing it, in the fixed income space, doing it ourselves. Outside of that, with key partnerships, I talked about some of them.

Some of them are recent, such as Apollo. Some of them go back years, really strong partnerships with the likes of Blackstone. We will continue to do that. More and more, you see firms coming together, recognizing that a platform like the SPDR platform is hard to replicate. There really is a limited number of platforms like that, and the fact that ours is open architecture in the sense that we will work with high-quality partners. You'll see us expand that way. To the extent to which there's select opportunities for us to move into active, we're only going to do that in places where, one, we think we can actually add value to clients, and two, that it can generate scalable, repeatable revenues is the way to think about it.

Ron, thanks for all that. I appreciate it.

Our next question will come from Mike Mayo with Wells Fargo. Your line is open. Please go ahead.

Hey. John, back to that fresh set of eyes. State Street stock for the last five years has underperformed the bank index by about 10% and one of your big competitors by over 100%. Recently, State Street showed better fee growth, better operating leverage, innovation, and clearly you wouldn't have come to State Street if you didn't see some potential to provide greater shareholder value than has been delivered for the last five years. With that, and especially with less credit risk compared to your old firm too, what do you think is not understood about the State Street story and what would you do to help change that? Kind of separate but related, Ron, I was just wondering how many more years you're thinking about staying on as CEO. Thank you.

Thanks, Mike. Happy to take that first part. Here's what I find exceptionally interesting. When you look at the fee-based tailwinds here and in the third quarter in particular, the core growth, even when you strip out market and FX on the investment management side, since we just spoke about that, is 5% year over year, just core net growth, excluding the other tailwinds. Same on the servicing fee side of things where there's 2% net growth year over year. The tailwinds there continue to grow. When you look at the composition of our backlog and the pace of installations and in servicing and what you see from an innovation standpoint on the management side of things, I think that story is underappreciated. I think the opportunities over the medium term on the fee revenue side of things are underappreciated.

I also think that the strategic overlap of our markets business with investment management and investment servicing is also underappreciated and just how integrated that service offering is. I think we'll try to do a better job of shining and highlighting all of those things across those three large businesses. The second thing that comes to mind is the stability and visibility to net interest margin and NII over time. I think we have opportunity there, and it's right in front of us. We have an exceptionally attractive deposit growth opportunity driven by our custody growth over time and a number of optimization opportunities that will allow us to, I believe, manage that in a way that creates more shareholder value in the future. Maybe I'll just close out with on the expense front.

The management team has done a heck of a lot from what I can see in my, I'm in month two here, but from what I can see, there's been just massive movement in productivity, but there's a huge amount in front of us, which I find very exciting. All of that is our resources to continue to reallocate to customer-centric investments, as well as potentially share that to the bottom line on productivity, sorry, on profitability. That's what I was hoping to see. Check the box across the board with some upside and even more excitement being inside the place than even when I was outside State Street. That's how I would talk about it.

On your question, I will remain as CEO as long as the board and myself are confident in my leadership and ability to add value that translates into continuing improving shareholder value creation.

Our next question will come from Ken Houston with Autonomous. Your line is open. Please go ahead.

Oh, we're both here. Sorry about that. I was fighting the mute button. On the fee side, guys, I just wanted to ask, you know, we saw another $350 million plus of wins this quarter, good underlying strength on the services side. Can you just talk about any update to your expected trajectory of how that comes on, especially now that, you know, we're crowded towards the year with 40% this year? More importantly, how are those installations going? There is still some talk in the market about whether things are going as smoothly as we wanted to see on Alpha or not. We just want to ask you to talk through the installation cycle and the timing of that win base. Thank you.

Yeah, great. I'll start off there, and others may add. So, you know, $400 million in backlog at 9/30, a significant increase year over year. You know, we see the installation outlook there to be quite attractive, as much as half of that being installed by the end of the year and a significant portion of the remainder being done by the end of 2026. That backlog level probably comes down a bit, which is reflective of installation pace. You know, we're going to want a healthy backlog balanced by sales and installations over time. We're feeling pretty good about the installation cycle on the backlog from 9/30.

Yeah, and in terms of how is it going, I mean, we're largely on track to what we said we would do at the beginning of the year. We said that there was a real focus on installations that was a combination of, one, some of the early development kinds of things that we were doing with some of the earlier on Alpha partners were coming to a close and being installed, and there's been a lot of progress on that this year. Secondly, just getting better and more repeatable at it. We've really focused on turning this into a one-at-a-time kind of thing to a repeatable process and building installation into the early sales and engineering phases of the Alpha discussions, which is helping us immensely.

As John noted, as some of the later businesses come on, it's actually on a faster implementation pace than some of the earlier businesses, which is what you'd want to see from us.

Yeah, just adding to that, I'd like to add that the mix of the backlog is actually quite attractive, much more back office with all that ancillary opportunity to drive other products into a back office installation, as well as privates, which has attractive profitability associated with it. We're pleased about where the backlog is and where it'll get installed, but also the mix of that business is quite attractive as well.

Okay, got it. Second question, just completely understanding the linkup and the expenses, FX translation, and also better revenues. It's obviously been a really good, still being able to put up good operating leverage. Kind of when triangulate what you're saying about NII backup in the fourth, and we'll see what happens with the curves and all next year. How do you think about the magnitude of operating leverage that the company is capable of? Maybe John, a question for you, how are you starting to triangulate the save and spend balance as you think about what the right expense growth rate is for State Street? Thank you.

Yeah, a couple of different thoughts on that. I'd first try to remind that in the year over year, although the expenses are up 5%, 1% of that is FX. Of the remaining 4%, about half of that is revenue-related, and the rest of it is net investment, which really contains all of our productivity initiatives, which will continue and allow us to keep investing over time. There's real operating leverage year over year, as we've articulated, and feeling very good about the ongoing productivity as you head into 2026, as well as to allow us to keep investing and to keep the ability to maintain profitability.

The other thing I'd highlight is that even without, and if I go back to top of the house, even without, if you say, fees up 12%, ex-notables year over year, and if you take out the markets and FX tailwinds, you nevertheless have significant operating leverage against the 4% growth in expenses ex-FX year over year as well. A lot of our marginal business that we've brought on is all fee and operating leverage accretive. The foundation and incremental activity all seems to be heading in the right direction for fee operating leverage as well as total operating leverage.

What I would add to that, it's Ron here. As you know, we've had an ongoing transformation and productivity effort. We are on pace to deliver what we said we would deliver for this year, which is about $500 million. At the same time, we, like I'm certain many others are doing, have leaned heavily into AI, and we're all early in that journey. We're seeing lots of opportunity to create improvement in the client experiences, in the employee experience, in productivity, in unit costs, and speed. What's incumbent upon that and where the team is really leaning in, and we'll talk more about this next year, is how do we capture all that and deliver that back to shareholders.

Our next question will come from Jim Mitchell with Seaport Global. Your line is open. Please go ahead.

Hey, good morning. You talked about strength on the market side. I think relative to some of your peers, it stood out, particularly on the FX side. Can you just talk about the environment versus what you're doing to grab share and how you're thinking about the growth outlook in those businesses from kind of elevated levels here?

Yeah, sure. I mean, I think as we head into the fourth quarter, we had a sense that volatility is typically good for these businesses. We had a sense that volatility would rise from the third quarter, which was a little bit on the muted end of things. We didn't expect that it would be this high in October, but nevertheless, from where you see volatility, both in terms of equities as well as in the FX space, those are tailwinds to the markets business heading into the fourth quarter. We see some opportunity there. I would hasten to add, as I hinted at earlier, the overlap of the markets business with our core investment services clients in what we call an integrated FX offering. That's just flow business that continues to grow as our custody business continues to grow as a global custodian.

That's something that would be a core, as core growth continues in servicing fees, which we had in the third quarter, we will have again in the fourth quarter. As growth continues in investment management, where on the other side of the house, the securities lending business overlaps significantly with our investment management customers and clients, as investment management continues to grow, we'll see securities finance opportunities continue to grow. There really is an integrated offering across each of those three businesses. That's the underpinning of why we feel good about markets heading into the fourth quarter. Of course, there are market-dependent factors that you have to keep track of early on that frankly actually are constructive for the markets business. That's how I think about it. We have the core strategic business, and then you have the toggle and market-dependent based upon the environment.

That's how I think about how we did so well in the third quarter and what the trends might be going forward.

Jim, what I would add to that is we've talked for a long time now about building up our channel capability within FX and meeting our clients where they want to be and how they want to trade. We have built multiple venues and access points for our clients. Some of those are quite active in these decisions. Some of them are actually not, in the sense they set it on a sort of auto. We have all those offerings in place. What I would point to is in addition to revenues being up, FX revenues, which is a combination of volume and volatility, volumes were up. Volumes were up on a double-digit basis year over year. That just reflects the efforts we've taken to, one, build share and continue to grow share, and secondly, to deliver a really strong client experience that then gets translated into repeated business.

Okay, yeah, that's helpful. Just maybe a follow-up on the expenses for next year and operating leverage. It seems like you, John, you feel like there's an opportunity to even maybe accelerate expense saves, and then you have to balance that with investment. Is the message that you have a good amount of flex if the revenue environment doesn't come out as good as you might think? Can you flex downward to maintain positive operating leverage? Just how should we think about your flexibility next year and beyond?

Yeah, stay tuned in January. We'll give you the contours of this. There's no question there are discretionary levers that we can pull as management. We do want to continue to invest through downturns should one occur, and there are crown jewels that we're going to protect. We have that financial strength to be able to do that. However, if in fact there are drawdowns that put some pressure on servicing fees or management fees, a couple of things. I would hasten to add that the markets business and frankly NII can be shock absorbers in that kind of environment. First and foremost, we need to think about that, and those are significant revenue categories that would mute the impact.

Of course, there's the discretionary aspect of the pace of investment that we would recalibrate as we do on a continuous basis based upon what our revenue picture is and is expected to be. I'd say there are a number of levers that would allow us to continue to drive strong profitability, even if we ended up with some kind of downturn that hypothetically could occur.

Our next question will come from Ebrahim Poonawala with Bank of America. Your line is open. Please go ahead.

Maybe just following up on the capital piece. It sounds like everything you said, we should be setting up for some version of a franchise efficiency plan on the expense side, as well as how you can tap into growth, even in a much better way than you've done so far. Similarly, from a capital standpoint, are there opportunities to do things differently when we think about just the balance sheet management? I think the capital return has been about 80% payout. I would love your thoughts there, John. Thanks.

Yeah, I mean, on the capital side of things, I think we have an exceptionally strong capital profile, as you saw at 9/30. I think when we think about how to manage capital, we think about supporting a very strong dividend. You saw excellent growth in the dividend in the second quarter that was announced.

We think about the fact that making capital available to deploy that into growth in RWA, as well as investing in strategic initiatives. You also would have seen the use of our strong capital base to make a few bolt-on acquisitions that accelerate our strategy in a number of our businesses in the wealth space in particular, and there were others. Those are all exciting uses of capital, and that will continue. Given our strong profitability, it does allow us to also be able to make the statement that we're also going to have a very strong return of capital to shareholders of roughly 80% for 2025. We'll continue to work through that waterfall, as you know, on an ongoing basis, balancing return of capital with the ability to deploy capital over time.

Nothing, no real huge pivots expected on the capital front, other than continuing to evaluate the opportunities to put capital to work to serve our clients.

Thanks. Just maybe sticking with that, you mentioned strategic investments as the third sort of capital priority. Given the regulatory backdrop that we are seeing, does that allow for something more larger as opposed to bolt-on acquisitions that could strategically put the firm on a much better growth trajectory or just tap into businesses? I mean, obviously, we had the acquisition from a few years ago with BBH, but would love to hear in terms of just from appetite for larger deal-making, is there an opportunity? If so, where would that make more sense? Thanks.

Ebrahim, as you know, we've been quite clear and disciplined about how we think about M&A. M&A is not a strategy, but it's a way to implement and accelerate a strategy. It's a very high bar for us because shareholders have alternatives and alternative use of that capital. We would agree with your assessment that the environment, particularly in the U.S., is probably a little bit more benign than it's been in the past, but that doesn't change our standards. We are confident in our organic growth capabilities, but we will continue to look at opportunities to accelerate our strategy. What we did with Apex is actually a great example of that. We've been talking about wealth services now for a little over a year with you.

We like the trajectory we're on, the opportunity to make this investment in Apex, and more importantly, to have some significant influence and control over the commercial direction of it as it relates to wealth custody, was a way that we felt could absolutely accelerate our revenue gathering capability. That's an example. Whether it's a large acquisition or a small acquisition, it'll go through that same kind of discipline bar.

Our next question will come from David Smith with Truist. Your line is open. Please go ahead.

Thank you. On the topic about the Apex investment and overall your integrated model, you spoke some about the investment services opportunities with wealth providers that this investment creates for State Street. Does that also create potential opportunities in the investment management side of the house?

Yeah, it's a great question, David, because the rise of wealth management creates real opportunities and has created real opportunities for investment managers. We are already actively participating in that space. A significant portion of State Street's investment management assets under management, well over 20% of it, is associated with wealth. You can see the growth there, for example, in the low-cost S&P funds, which are growing at a much higher rate than the industry, than the overall. We continue to build share there. That is very much a part of our strategy as we think about wealth services, which is providing the infrastructure and the servicing capabilities to our clients, but also in a very user-friendly and convenient way, providing them with these asset management exposures that we can provide at very low cost.

Our next question will come from Vivek Juneja with JPMorgan. Your line is open. Please ask your question.

Thanks. John, just a quick question on your loans that are very much in the spotlight right now, NBFI or NDFI, whatever you want to call them. You've got, what is your exposure there? From what we can see, it seems like over 60% of it is to BDCs. Any thoughts on that? Any color on sort of what's the strategic rationale for that higher percentage going to BDCs?

Yeah, thanks for the question, Vivek. I'd say the 60% is broadly NDFIs, not all BDCs, but the way I would talk about this, first, we have a much smaller loan portfolio than most of the banks that you would be in the peer set, just so from a quantum standpoint. When you look at the mix and where we're playing, our growth and the loan portfolio itself is really concentrated in the private market space. Subscription finance, which is exceptionally low credit risk over time, is a huge portion of our loan book, not only outstanding, but also the marginal growth. We do a fair bit of AAA CLOs, the second big category for us. There is a category supporting private credit and BDCs, but those are integrated clients that we're serving from a custody standpoint and from a servicing standpoint. These are really deep customer relationships.

The substantial portion of our loan book is exceptionally high quality. It's relatively diversified. There is a CRI book, but it's relatively small, and it's been shrinking over time. Broadly, no real signs of deterioration in credit that we've seen to date. We're keeping an eye on it, but feeling reasonably comfortable with what I've seen so far in the loan book.

When I said BDCs, I meant BDCs from the data we could pull, looks like 60% of your NDFI exposure.

Yeah, it's broadly NDFIs, you know, rather than just BDCs.

Ron, a question for you maybe. What are you seeing as regards to Charles River with the fixed income plans? Obviously, there's been the issue with Invesco, but beyond that, are you seeing more outflows in the fixed income auto management systems or any color, any update you can give us there because there have been some questions on that?

As you know, that was an area that we have put a lot of development effort into to not only bring it to par, but to bring it to be a distinctive platform. A lot of that development was delivered last year. Even more is being delivered this year. Not only are we not seeing outflows, but we've got much of the backlog that you see, of the Alpha backlog that you see, includes clients that will be coming on to the fixed income side of it. It's both equities and fixed income are equally important to us.

State Street (STT) Q3 2025 Earnings Call Transcript

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