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State Street Posted Strong Second Quarter 2026 Resultswith earnings per share of $3.65 versus $2.17 a year ago and revenue up 17% to a record $4 billion. Management highlighted record fee income, record net interest income and strong performance in services, investment management and markets.
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The company raised its outlook for the full year.It now expects fee income growth of 12% to 13% and net interest income growth of 14% to 15%. It also raised spending guidance but still expects around 500 basis points of positive operating leverage and a pre-tax margin close to 32%.
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State Street Set Ambitious Medium-Term Goalsincluding a 35% pre-tax margin and a return of around 20 years on tangible common equity over the cycle. Executives said growth will come from core businesses, alternatives, digital assets and wealth services, supported by a transformation program driven by technology and artificial intelligence.
State Street (NYSE:STT) reported sharply higher earnings in the second quarter of 2026 and raised its full-year outlook, as executives pointed to record fee income, record net interest income and continued momentum in investment services, investment management and markets.
Chief Executive Ron O’Hanley said the quarter reflected “disciplined execution, deep customer commitment and continued momentum across our businesses.” The company reported second-quarter earnings per share of $3.65, up from $2.17 in the prior-year period. Excluding notable items from the prior year, earnings grew 44% year over year, according to O’Hanley.
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Total revenue increased 17% from a year earlier to a record $4 billion. Chief Financial Officer John Woods said fee income rose 16% to $3.2 billion, while net interest income rose 18% to $860 million, supported by a 17 basis point rise in net interest margin to 113 basis points.
Expenses increased 10% year over year to $2.7 billion, excluding notable items, primarily due to higher revenue-related costs and continued strategic investments. The results raised pre-tax margin by 470 basis points to 34%, while return on tangible common equity rose more than six percentage points to approximately 26%.
Services, management and markets drive growth
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State Street’s investment services business posted servicing fees of $1.5 billion in the second quarter, a 13% year-over-year increase. Woods said the increase reflected approximately 7% organic growth in client activity, flows and net new business, with additional support from higher average market levels and currency translation.
Assets under custody and administration ended the quarter at a record $57.9 trillion, up 18% from a year earlier. Service fee sales totaled $87 million, with Woods citing continued demand across all regions and strength in strategic growth areas, including alternatives.
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In investment management, fees increased 29% year over year to $772 million, supported by approximately 9% organic growth and higher average market levels. Assets under management hit a record $6.3 trillion, up 23% year-on-year, while net inflows totaled $114 billion. Woods said the quarter marked the fifth consecutive quarter of positive organic growth, led by $66 billion of indexed ETF inflows and $35 billion of cash inflows.
State Street also launched 38 new products and solutions during the quarter, including a tokenized money market solution and a stablecoin reserve fund. O’Hanley noted that SPYM, the company’s low-cost S&P 500 ETF, was selected by the U.S. Treasury Department as the exclusive default ETF for Trump Accounts.
Market revenues also strengthened. Revenue from foreign exchange trading services increased 27% year over year, excluding a notable item from the previous year, to $494 million, driven by record client volumes. Securities financing revenue increased 19% year over year due to higher customer loan balances. Software services revenue was down 14%, excluding one notable item from the prior year, reflecting elevated local renewal activity in the prior year, although Woods said software and data revenue was up 10%.
High outlook for 2026
State Street raised its full-year outlook, excluding notable items. The company now expects fee income growth of 12% to 13%, up from its previous guidance of 7% to 9%. Net interest income is expected to grow between 14% and 15%, compared to a previous outlook of between 8% and 10%.
Woods said the improved net interest income outlook primarily reflected stronger average deposit balances. The company expects expenses to increase approximately 8%, up from a previous forecast of 5% to 6%, reflecting higher revenue-related costs and continued investment.
Based on its current outlook, State Street expects approximately 500 basis points of positive operating leverage in 2026 and a pretax margin of approximately 32%. The company continues to expect an effective tax rate of around 22% and a total payout ratio of approximately 80%, subject to board approval and other factors.
State Street’s capital position remained stable, with standardized CET1 and Tier 1 leverage ratios of 10.8% and 5.3%, respectively, at the end of the quarter. The company returned $631 million to shareholders during the quarter through $400 million in share repurchases and $231 million in common dividends declared. Following the results of the Federal Reserve’s stress tests, State Street announced a 10% increase in its quarterly common dividend to $0.92 per share beginning in the third quarter.
The company establishes medium-term margin and profitability objectives
Executives also outlined new medium-term financial goals, including a 35% pre-tax margin and a return on tangible common equity in the mid-20s “over the cycle.” O’Hanley said the company’s next phase of growth will be driven by three strategic pillars: growth in core businesses, initiatives in alternatives, digital assets and wealth services, and an operating model transformation enabled by technology and artificial intelligence.
Woods said investment services are expected to contribute approximately 300 basis points to enterprise margin expansion over the medium term through organic revenue growth and productivity initiatives. Investment management is expected to contribute around 200 basis points, backed by ETFs, index investments, fixed income, wealth, alternatives and tokenization. Markets are expected to add around 100 basis points through geographic expansion, product innovation and efficiency initiatives.
The company expects its transformation program to generate approximately $1 billion in run-rate benefits by 2029, of which approximately 75% will come from expense productivity and 25% from revenue. Woods said the company anticipates about $500 million in one-time costs, mostly related to severance, as part of the transformation.
During the Q&A session, Woods said State Street expects positive operating leverage of 100 to 150 basis points on average in the medium term, which could allow the company to achieve the 35% margin target towards the former end of its three to five year framework. It said the company’s net interest income is expected to grow in the low to mid-single digits over the medium term, supported by low-single-digit balance sheet growth and net interest margin moving toward the upper end of its range of 110 to 115 basis points.
Executives discuss digital assets and artificial intelligence
O’Hanley described State Street’s digital asset strategy as focused on serving as infrastructure for clients moving between traditional and digital finance. He said the company is “picking our spots” based on customer demand, including tokenized money market funds. Woods said State Street’s digital asset platform is designed to support wallet management and on- and off-ramps between traditional finance and on-chain activity.
Regarding artificial intelligence, Woods said AI will be integrated into State Street’s operating model, including the use of agent capabilities in cross-functional teams. He also said the company expects AI tools to improve software developer productivity by 30% to 40%, with additional productivity gains among eligible employees through standardized AI tools.
O’Hanley said the company is entering its next phase “from a position of strength,” citing the scale of its custody, asset management, ETF and markets franchises. “These are the objectives we pursue,” he said. “They are ambitious, but we are going to attack them.”
About State Street (NYSE:STT)
State Street Corporation is a global financial services company that provides a range of investment, investment management and investment research and trading services to institutional investors. Its main activities include custody and fund administration, securities lending, risk and performance analysis, trading and execution services, and foreign exchange. The company also offers investment management through State Street Global Advisors, a leading provider of exchange-traded funds and institutional investment strategies.
State Street serves a broad client base of asset managers, insurance companies, pension funds, endowments and other institutions in North America, Europe, Asia and other global markets.
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The article “Highlights from State Street’s Second Quarter Earnings Calls” was originally published by MarketBeat.
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