State Street Corporation

Good morning and welcome to State Street Corporation's fourth quarter and full year 2025 earnings conference call and webcast. Today's call will be hosted by Elizabeth Lim, 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'll 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 recorded for rebroadcast or distribution in whole or in part without the expressed written authorization from State Street Corporation. The only authorized broadcast of this call will be housed on State Street's website. Now, I'd like to hand the call over to Elizabeth Lin.

Good morning and thank you all for joining us. On our call today, our CEO, Ron O'Hanley, will speak first. Then John Woods, our CFO, will take you through our fourth quarter and full year 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 just one or more items from GAAP. Reconciliations to 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, including those referenced in our discussion today, as well as in our SEC filings, including the risk factor 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 views should change. With that, let me hand it over to Ron.

Thank you, Liz. Good morning, everyone, and thank you for joining us. Our fourth quarter results represent a strong finish to another successful year for State Street. We enter 2026 with momentum and a proven strategy that continues to deliver strong results and meaningful value for our clients, shareholders, and employees. Our progress reflects the strategic actions and investments we have made in recent years, deepening and broadening our capabilities while elevating our client value proposition, which have strengthened our position as our client's essential partner, enabling us to compete from a position of great strength. This solid foundation positioned us well to capitalize on a dynamic yet constructive market environment in 2025 and deliver another year of accelerating financial performance. Notably, 2025 marked our second consecutive year of positive operating leverage and pre-tax margin expansion, and our four Q results represent the eighth straight quarter of positive operating leverage, excluding notable items. Our strong financial performance underscores the effectiveness of our strategy, and in 2025, we built on that success with a number of key strategic milestones that I will detail shortly. These actions reflect our discipline focused on reinvesting to drive near-term and long-term growth across our franchise, enhance client experience and capabilities, and further strengthen our platform while delivering strong shareholder returns. We are excited about the client opportunities ahead and the significant potential being unlocked by the next generation of our operating model transformation, particularly as we further leverage and embed AI-enabled capabilities throughout the franchise. With that strategic context, let me turn to our fourth quarter and full year highlights on slide two of our investor presentation. Starting with financial performance, excluding notable items, which John will address shortly, we generated strong fourth quarter EPS growth of 14% year over year, supported by both record quarterly fee and total revenue. Healthy positive operating leverage in 4Q helped to drive pre-tax margin to 31% excluding notable items. Our full year results were similarly strong, excluding notable items, earnings per share were $10.30, or up 19% year-over-year, supported by strong revenue growth and growing margins. For 2025, we delivered strong positive operating leverage, expanded pre-tax margin by more than 150 basis points, and achieved return on tangible common equity of 20%, excluding notable items. As we look ahead, our attention is firmly focused on capturing the opportunities before us. Shifts in investor demand, advances in technology, and an evolving regulatory landscape are creating new opportunities for both us and our clients. In response, we meaningfully advanced a number of key strategic initiatives last year and are creating new distinctive capabilities that enhance client engagement, open doors to strategically attractive markets, and further streamline our operations and technology platform, all of which are designed to support continued strong financial performance. Within investment services, which surpassed $50 trillion in AUCA for the first time in 2025, we are encouraged by rising client satisfaction and the good momentum in alpha client onboarding, including meaningful progress with large development partners. We are drawing on our heritage of technology driven innovation and investment services by delivering next generation tools, digital platforms, and client solutions aimed at helping our clients succeed in a constantly evolving market while strategically pivoting State Street to faster growing segments of the market. Our strong industry position in private market servicing is a clear example with related servicing fees growing at a double digit year over year pace in 2025. A further illustration is in the digital assets ecosystem. We finalized and recently launched our digital asset platform, which will enable tokenization of assets, funds, and cash for institutional investors, unlocking new efficiencies, improving liquidity, and creating opportunities for growth. As a result, we are strategically positioning State Street to be the bridge between traditional and digital finance and the connection point among digital asset platforms. Another example is in the wealth services market, which presents a highly attractive opportunity for expansion and long-term growth. In 2025, we strategically advanced our capabilities in the space through a partnership and minority investment in Apex Sintec Solutions. This action enables us to capitalize on new opportunities and significantly strengthen our market position. and we are confident that this partnership will deliver positive results this year. This combination of distinctive capabilities and high service quality, coupled with targeted strategic expansions, enables us to meet our clients where they are going while maintaining price discipline. Within our investment management business, over the last several years, we have innovated at pace with a focus on expanding product and distribution capabilities. These actions are now delivering strong results. State Street Investment Management ended 2025 with record quarterly and full year management fee revenue. We were also delivering a consistent trend of solid asset growth as 2025 marked its third consecutive year of net new asset growth above 3%. This consistent organic growth helped drive period and AUM to an all time high of 5.7 trillion. just two quarters after surpassing the 5 trillion mark for the first time. These results also reflect our ability to innovate in the strategic growth initiatives we executed in 2025. We launched a record 134 new products across our investment management business, expanding our capabilities and delivering greater value to clients. Within our ETF franchise, This included innovative alternatives offerings developed through partnerships with Apollo Global Management, Bridgewater Associates, and Blackstone. We also introduced 11-sector SPDR premium income ETFs and expanded our suite of actively managed target maturity ETFs, further strengthening our fixed income and retirement capabilities, both of which are core strategic priorities. Throughout 2025, Our investment management business also cultivated a series of strategic partnerships that strengthen our investment distribution and technology capabilities and position us for future growth. Early in the year, we invested in Ethic, a technology leader that enables wealth advisors to build tailored client portfolios at scale. We also established a strategic relationship with Smallcase, India's largest model portfolios platform, and partnered with Van Lanshot Kemp and Investment Management to drive further growth in Europe. In addition, we made a strategic minority investment in Collar Capital, one of the world's largest dedicated private market secondaries managers. And after quarter end, we also announced a strategic minority investment in Grow AMC, the asset management arm of one of India's most innovative and fast-growing digital investment platforms. Within our State Street Markets franchise, we have focused on strategically expanding and deepening client relationships in recent years, which is delivering positive results. We generated double-digit, full-year fee revenue growth across both FX Trading Services and Securities Finance in 2025, supported by higher client volumes. As a testament to the strength of our markets franchise and the value we deliver to clients, In 2025, we are proud to see State Street recognized with eight category wins in Euromoney's FX awards, doubling our achievements for 2024. Turning to our operational model, I am pleased to report that we achieved our full-year productivity savings target of $500 million in 2025, or 5.5% of our underlying cost base. Over the last five years, we have generated nearly $2 billion cumulatively in productivity and other savings, including significant recurring cost benefits. This achievement has enabled us to aggressively reinvest in our business, which in turn is driving revenue growth, positive operating leverage, and increasing returns to shareholders. We are intensely focused on capturing the additional opportunities ahead of us, with technology-led innovation and transformation among the most significant. For our next-gen transformation initiatives underpinned by our growing AI-enabled capabilities and associated agentics, we are building a stronger foundation and new platforms that aim to even further improve efficiency and empower smarter decisions. We are positioning State Street to set new industry standards and fundamentally transform the way we and our clients work. Turning to our solid financial position, Our strong balance sheet enabled us to return over $2.1 billion in capital to shareholders in 2025 for common share repurchases and dividends. To conclude, 2025 marked several strategic and performance milestones for State Street, reinforcing the effectiveness of our strategy as we enter 2026 with clear momentum. Our continued improvement is supported by a range of tangible proof points, including stronger financial performance, expanded innovation and product capabilities across our franchise, and ongoing technology-led transformation of our operating model and client experience. We are focused on the growth opportunities ahead through effective execution of our strategic priorities and leading with client service excellence. I am optimistic about 2026 and confident in what we will achieve next as a firm. Advancing transformation to enhance how we operate and serve clients and further embedding digital and AI enabled capabilities more deeply across the organization are the foundation. Our one state street approach to unlock the full value of our franchise by connecting capabilities for clients as demonstrated results and has even greater potential. Continuing to accelerate growth in private markets to strengthen our position as an industry leading platform and operator, driving continued innovation in our investment management business and executing against our growth opportunities and wealth services are enabling us to strengthen our core. Finally, we are advancing innovation in digital assets and digitizing capabilities in a space that is reshaping financial services. These are ambitious steps designed to position us and our shareholders for long-term success. With that, let me turn the call over to John We'll take you through our results in more detail.