State Street: Earnings of $3.69 a Share, Assets Under Custody at a Record $59.2 Trillion, and the Stock Closed Down 3.9%

State Street published its third-quarter report on Wednesday, October 14, before the market opened. Net income: $1.09 billion, $3.69 a share - up 26.6% and 32.7% from the same quarter a year ago. The assets the bank holds for its clients reached a record $59.2 trillion, and the report contains no notable items.

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What Was Reported

Where the Money Was Made

Revenue came to $4,004 million, up 12.9% from a year ago and down 1.1% from $4,048 million in the previous quarter. Fee revenue was $3,140 million (+11.0%), and net interest income $864 million.

Management fees and servicing fees both reached records. Management fees rose 20.0% to $797 million, and servicing fees 9.9% to $1,492 million. Behind servicing fees stand assets under custody and administration (AUC/A) - client assets that the bank holds and services for them - and they reached $59.2 trillion, up 2.3% from the previous quarter and 14.5% from a year ago. The bank booked new wins of $429 billion of assets in the quarter, and about $2.98 trillion more is in the pipeline, not yet installed. In servicing fees, wins came to $68 million, and revenue not yet installed stands at $332 million.

Behind management fees stand assets under management (AUM), which reached $6.31 trillion - a record, up 15.8% from a year ago. Of the $28 billion increase from the previous quarter, $7 billion came from net flows, $11 billion from the market and $10 billion from exchange rates. Net flows of $7 billion were lower than the $114 billion of the previous quarter and the $26 billion a year ago, and the number conceals two opposite movements: exchange-traded funds (ETFs) drew $68 billion, while cash assets fell $62 billion. Excluding cash, flows were positive $69 billion.

FX trading brought in $427 million: up 17.3% from a year ago, and down 13.6% from $494 million in the previous quarter. According to the release, client FX volumes were at a record, up 31%.

Net interest income rose 20.8% and was almost unchanged from $860 million in the previous quarter. The net interest margin, on a tax-equivalent basis, was 1.12%, against 0.96% a year ago and 1.13% in the previous quarter. Software services brought in $175 million (+4.8%), and securities finance $151 million (+9.4%).

The only line in fee revenue that fell from a year ago is other fee revenue: $98 million, down 29.5%. According to the presentation, market-related adjustments inside that line were negative $3 million, against positive $29 million a year ago and $23 million in the previous quarter.

Expenses and Profitability

Expenses rose 7.6% to $2,620 million and fell 1.5% from the previous quarter - against revenue growth of 12.9%. That gap is operating leverage of 531 basis points, and it is what lifted pre-tax income 26.0%, to $1,388 million. Currency translation reduced revenue by $10 million and added $14 million to expenses. The provision for credit losses was negative, $4 million - a reserve release tied to commercial loan sales and repayments.

The pre-tax margin was 34.6%, against 31.1% a year ago and 34.3% in the previous quarter. The company's medium-term targets are a pre-tax margin of 35% and a return on tangible common equity in the mid-20s, in percent. Return on tangible common equity, a non-GAAP measure, was 25.1%, against 25.5% in the previous quarter and 20.9% a year ago. Return on equity was 16.4%.

Net income available to common shareholders came to $1,030 million. Diluted earnings per share rose 1.1% from $3.65 in the previous quarter and 32.7% from a year ago - against a 26.6% rise in net income. The average diluted share count fell 3.1%, to 279.3 million.

Chairman and CEO Ron O'Hanley said the company is entering the final quarter of the year with strong momentum and a clear strategy. According to the release, record servicing and management fees and record FX volumes produced an eleventh consecutive quarter of positive year-over-year operating leverage, excluding notable items. The first Wealth Services mandate, from a large US registered investment adviser, shows in his words that the One State Street model is working.

Capital, and Returns to Shareholders

The Common Equity Tier 1 ratio (CET1) was 11.0%, against 10.8% in the previous quarter and 11.3% a year ago. The Tier 1 leverage ratio was 5.5%, and the liquidity coverage ratio about 106%.

Buybacks came to $400 million - exactly as in the previous quarter and the same quarter a year ago. The dividend came to $251 million, $0.92 a share, against $0.84 previously (+9.5%). Total returned to shareholders: $651 million, a payout of 63%. Year to date, $1.9 billion has been returned, of which $715 million in dividends and $1,200 million in buybacks, a payout of 69%.

On November 18 the company will redeem $500 million of senior notes carrying a 1.684% rate, originally due in 2027. Separately, State Street announced an agreement to acquire the Santander CACEIS Latam securities services joint venture, subject to regulatory approvals; the terms are not set out in the release.

The Outlook

The 2026 outlook was updated; the figures in brackets are the July outlook. Fee revenue is expected to rise about 13-14% (12-13%) and net interest income about 15-16% (14-15%), and expenses about 8-8.5% (about 8%). Operating leverage is expected to reach 500 basis points or more (about 500). The outlook assumes global equity markets flat from current levels, and interest rates in line with forward rates.

In the first nine months of the year revenue came to $11.85 billion (+15.3%), and diluted earnings per share under GAAP were $9.82, against $6.98 a year ago (+40.7%).

Against Expectations, and the Stock

According to a Zacks Equity Research piece published on Yahoo Finance on the day of the report, analysts expected earnings of $3.65 a share and revenue of $4.04 billion. Reported earnings, $3.69, beat expectations by 1.1%, and revenue, $4,004 million, came in about 0.9% below them.

The stock opened on the day of the report down 7.0%, fell as far as 10.1% down at the day's low, and recovered part of it: it closed at $167.29, down 3.91%, against $174.10 the day before. Since the start of the year the stock is up 29.7% (a close of $129.01 at the end of 2025), and at quarter-end, on September 30, the gain stood at 35.3%.

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What interests me here is the gap between the report and the reaction. Earnings per share up 32.7%, a pre-tax margin of 34.6% - close to the 35% target - and an outlook revised upward on revenue, and the stock closed down 3.91%.

There are two ways to read it. One: the stock was already up 35.3% from the start of the year to the end of the quarter, and someone going into a report after a rise like that looks also for direction from quarter to quarter - and there revenue fell 1.1%, slightly below expectations, with FX down 13.6% and other fee revenue down 29.5% from a year ago. Two: those are relatively small lines, and operating leverage and the margin show a bank earning more on every dollar of revenue. Both readings fit the same numbers, and I cannot say which of them decided the day.

And what I will remember from the report: 21 of the 28 billion dollars added to assets under management came from the market and exchange rates, not from flows, and the outlook itself assumes flat equity markets from here. The growth rate of management fees therefore depends also on what the markets do, and not only on what the bank manages to sell.

(To be clear: this is my personal opinion only. Nothing here is a recommendation to take any action, and there is no forecast here of the price of any security.)

Ilan Abramov, the author, or anyone on his behalf may hold some of the securities or funds mentioned in this article.