Record Q1 revenue of $3.8 billion with fee revenue up 15% and NII up 17% (margin +16 bps to 116 bps); management raised its 2026 outlook for fee revenue (7%–9%) and net interest income (8%–10%) but increased expected expense growth to 5%–6%.
Strong asset and flows momentum: assets under custody and administration rose to $54.5 trillion (+17% YoY) and AUM to $5.6 trillion (+20% YoY), with ETF net inflows of $25 billion (SPLG alone drew $27 billion) and FX trading revenue up 29% on record client volumes.
Capital and returns—standardized CET1 fell to 10.6% (about 100 bps lower QoQ); the firm repurchased $400 million of stock and declared $233 million of dividends, totaling $633 million returned (a 90% payout ratio for the quarter and roughly an 80% GAAP payout target for the year).
State Street (NYSE:STT) reported what executives described as a strong start to 2026, driven by broad-based revenue growth, net interest margin expansion, and elevated client activity in foreign exchange markets. Management also raised its full-year outlook for fee revenue and net interest income, while increasing expense growth expectations primarily due to higher revenue-related costs.
Chairman and CEO Ron O’Hanley said several factors shaped investor sentiment during the quarter, including “the Iran war,” differing views on the long-term impacts of artificial intelligence, and “rising concerns on credit quality in certain parts of the financial system.” Against that backdrop, O’Hanley said State Street remained focused on clients and continued executing on strategy, pointing to contributions from both FX trading and net interest income (NII).
CFO John Woods said total revenue increased 16% year-over-year to a record $3.8 billion (excluding notable items). Fee revenue rose 15% to $3.0 billion, while NII increased 17% to $835 million, which Woods said primarily reflected net interest margin expansion. Expenses increased 9% year-over-year to $2.7 billion (excluding notable items), driven by “higher revenue, strategic investments, and the impact of currency translation.”
Woods said the quarter produced “over 600 basis points of positive operating leverage” excluding notable items and drove 400 basis points of pre-tax margin expansion, with return on tangible common equity rising to 20%. O’Hanley added that the quarter marked the company’s “ninth consecutive quarter of year-over-year positive operating leverage excluding notable items.”
The company recorded $130 million of notable items on a pre-tax basis, or $0.35 per share after tax, which Woods said reflected “repositioning charges and the re-scoping of a middle office client contract.” In Q&A, O’Hanley said the re-scoping was “idiosyncratic,” involved “an existing Alpha client” that “will remain an Alpha client,” and reflected a mutual decision to pause part of the client’s outsourcing journey in middle office.
In investment servicing, Woods said servicing fees increased 11% year-over-year to $1.4 billion, supported by higher average market levels, currency translation, and organic growth from net client asset activity, flows, and new business. Assets under custody and administration (AUCA) ended the quarter at a record $54.5 trillion, up 17% year-over-year. First-quarter servicing fee sales were $56 million, which Woods said were “well-distributed across regions” and aligned with focus areas including back office services and alternatives clients. State Street reiterated its 2026 servicing fee sales target of $350 million to $400 million.
In investment management, management fees rose 23% year-over-year to $724 million, driven by higher market levels and net inflows. Assets under management increased 20% to $5.6 trillion, and net inflows totaled $49 billion, led by index strategies and solutions (including fixed income ETFs) and the cash franchise. Woods said ETF net inflows were $25 billion, supported by flows and market share gains in the firm’s U.S. low-cost suite. O’Hanley highlighted that SPLG, State Street’s low-cost U.S. S&P 500 ETF, ranked as “the number one asset-gathering ETF globally in the first quarter,” with $27 billion of inflows in that fund alone.
Woods also said State Street launched 57 new products and solutions during the quarter. He cited the State Street Bridgewater All Weather ETF surpassing $1 billion in AUM and noted an investment-grade public and private credit ETF developed with Apollo Global Management reached “a new high watermark” with AUM above $800 million.
In markets, Woods said FX trading revenue increased 29% year-over-year to $435 million, driven by a 25% increase in client trading volumes that reached a record level. Securities finance revenue increased 2% year-over-year, supported by growth in client lending balances. Woods and O’Hanley both emphasized that the FX performance reflected not only market volatility but also multi-year investments in client acquisition, product extensions, geographic expansion, and technology enabling clients to trade with the firm.
NII growth was driven largely by margin rather than balance growth. Woods reported net interest margin expanded 16 basis points year-over-year to 116 basis points, while average interest-earning assets grew 1%. In response to analyst questions, Woods said the NII outlook for 2026 was “almost entirely driven by net interest margin,” with interest-earning asset growth “not really what’s going to drive the net interest income in 2026.”
Woods attributed margin improvement to improvements in funding mix, investment portfolio repricing, and runoff from terminated hedges, partially offset by lower average market rates. He said deposit growth in the quarter allowed State Street to reduce short-term wholesale funding, calling it “an appropriate rotation to higher quality funding on the funding mix side.”
On deposit trends, Woods indicated the company is anchoring expectations to roughly $250 billion to $260 billion of deposits through the year and said the share of non-interest-bearing deposits, previously discussed around 10%, appears to offer “a higher non-interest-bearing opportunity” in 2026. He said April trends in deposits and NII were “good,” though he characterized conditions as moderating from the first quarter.
For the full year (excluding notable items), Woods said the firm continues to assume global equity markets are flat on a point-to-point basis from the end of 2025. Against that baseline, State Street raised key elements of its outlook:
Fee revenue growth: now expected at 7% to 9%, up from 4% to 6% previously, reflecting a stronger-than-expected first quarter and continued momentum.
Net interest income growth: now expected at 8% to 10%, compared with a prior outlook calling for low double-digit growth, following strong first-quarter performance.
Expense growth: now expected at 5% to 6%, up from 3% to 4%, primarily reflecting higher revenue-related costs.
Effective tax rate: approximately 22%.
Total payout ratio: roughly 80% on a GAAP basis, subject to board approval and other factors.
Woods said first-quarter expense growth included about a two-percentage-point impact from currency translation, with the remaining increase largely revenue-related. He also referenced productivity savings, describing “the net 4% of productivity that we delivered in the first quarter,” and said the same general expense storyline applies to the full-year guidance range.
State Street’s standardized CET1 ratio was 10.6% at quarter end, down about 100 basis points from the prior quarter. Woods said the decline primarily reflected higher risk-weighted assets tied to a normalization in markets business RWA from “episodically low levels” in the prior quarter, as well as the impact of U.S. dollar appreciation in March and, to a lesser extent, equity market appreciation on the final day of the quarter. He reiterated that the firm’s operating range remains 10% to 11% and said average CET1 over the fourth and first quarters was in the upper end of that range.
On capital return, Woods said the company repurchased $400 million of common shares and declared $233 million in common stock dividends, for total capital return of $633 million, equivalent to a 90% payout ratio for the quarter.
Woods also said the firm added a new appendix slide detailing its non-depository financial institution (NDFI) loan portfolio, describing it as “disciplined and client-focused” and “highly collateralized and diversified.” In Q&A, Woods said State Street has “never had losses in subscription finance or in the AAA CLO book,” which he described as comprising the large majority of the NDFI book. He said BDC lending stands at $1.6 billion and characterized those positions as senior secured with “80% subordination” and other structural protections, adding that the NDFI portfolio could grow low- to mid-single digits with continued client penetration.
On technology, O’Hanley said AI is “comprehensively embedded across the enterprise,” with broad employee access and accelerating adoption. He said the company’s centralized AI hub supports “over 200 AI use cases,” with 70 already live, and that management expects “tangible business impact” to begin emerging in the back half of 2026 and accelerating thereafter. Woods said the company plans to provide more detail in July on medium-term expectations, including how AI contributes to value creation.
O’Hanley also discussed digital asset initiatives, saying tokenization and the bridge between traditional and digital finance represent both client retention and new revenue opportunities. He cited tokenized money market funds as “a real use case” and said building on-ramps and off-ramps between traditional and digital markets is an underdeveloped area that represents another potential revenue source. O’Hanley said State Street continues to weigh “make versus buy” decisions, including partnerships and potential M&A, and referenced the firm’s partnership with Galaxy.
State Street Corporation is a global financial services company that provides a range of investment servicing, investment management and investment research and trading services to institutional investors. Its principal activities include custody and fund administration, securities lending, performance and risk analytics, trading and execution services, and foreign exchange. The company also offers investment management through State Street Global Advisors, a major 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 across North America, Europe, Asia and other global markets.
