State Street (NYSE:STT) released first-quarter financial results and hosted an earnings call on Friday. Read the complete transcript below.

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The full earnings call is available at https://state-street-1q-2026-earnings.open-exchange.net/registration

Summary

State Street Corp emphasized the high-quality credit risk profile of its investment services clients, highlighting zero losses in subscription finance and AAA CLOs.

The company expects low to mid single-digit growth in its strategic lending segments, despite minor impacts from elevated redemption requests in the private credit space.

A scoping charge of $41 million was discussed, linked to an existing alpha client, but deemed idiosyncratic and unrelated to previous issues.

Management noted a 2% year-on-year decrease in headcount contributing to a 4% net productivity savings, with plans for further optimization through automation and process re-engineering.

The company reported strong positive operating leverage for the ninth consecutive quarter, driven by organic growth and strategic investments in geographic and product capabilities.

Scale and technology investments, including AI, were highlighted as critical for maintaining competitive advantage over smaller players in the financial services sector.

Full Transcript

OPERATOR

That customer segment. And these are investment services clients by and large. And you know, as part of the broad suite of services we provide them, we support them from a balance sheet standpoint. So this is highly strategic lending for us. When you see NDFIs and each of these categories are extremely well positioned from a risk return credit risk profile standpoint. We've never had losses in, in subscription finance or in the AAA CLO book. And that's really the large majority of the NDFI book is in that space. And we wanted to make it clear that you know, just how high quality, you know, these, these categories are. You know, we're down to $1.6 billion in the actual BDC lending. You know, I would, I would, you know, kind of highlight that, that the points made on the slide with respect to that these are seniors secured with substantial subordination on them. You know, 80% subordination sitting behind the positions that we have in the BDC space. Diversified with ongoing structural protections. This is, this will be a growth area for us. And you know, you could see, you know, low to mid single digit growth and commensurate with our continued penetration of this customer segment, which is really attractive for us. And I think we're feeling very good about the profile here. Great. And on the private market, private credit servicing business, you've made several investments there over the past few years. Do any of the pressures that we're seeing here on the private credit side impact that business? Got it. Appreciate all the details, thank you. Our next question will come from Vivek Janija with JP Morgan. Your line is now open. Please go ahead. Thanks. A couple of questions. Firstly you had a scoping charge of 41 million. This was the second one in the last 12 months. Can you give us some color? Is it the same client? What? Is it the same type of issue? It doesn't seem like it but I just want to, you know, not make assumptions. What's driving these and why have we seen, you know, twice in the last 12 months?

Ron

Yeah, Vivek, it's Ron. These are idiosyncratic. It's not the same client and it's, it's not for the same reason in this case. It was a, it's an existing alpha client and it will remain an alpha client. It was one part of their in source to outsource journey. So we served them in our middle office business. They had intended and we Were working with them to help outsource more of that and we mutually agreed that this was not the time for them to continue that outsourcing journey. So it's within the middle office and it's an insource versus outsourced decision that the client has made. And it's not the same kind of underlying drivers that drove the decisions in both of the client scoping changes?

Vivek

No. Okay, different topic. Ron, you made a comment about the Schwab charging a fee for their distribution platform. I want to clarify your response. Will you absorb it or will you be able to, will you pass it on? What's the plan with that?

Ron

Yeah, we don't have a concrete plan yet because we haven't seen what the final outcome is. I mean and we'll figure out what we, what we'll do once we see what it is and once we know that we'll come back to.

John Woods

Okay, lastly, if you'll indulge me for one, this is John Woods. Just a little detail. The charge off jump you saw this quarter. Any what type of loan? Any color on that?

OPERATOR

Okay, thanks. Our next question comes from Steven Chewback with Wolf Research. Your line is now open. Please go ahead.

Sharon Lung

Hi, good morning. This is actually Sharon Lung filling in for Stephen today. Just wanted to ask, really appreciate the color on the drivers of the expense growth including the 4% from net productivity savings. Just wanted to ask, given the headcount was down 2% year on year, how much did that contribute to the overall efficiency savings? And then looking ahead, do you see the potential for further headcount optimization from here?

OPERATOR

Our final question will come from Gerard Cassidy with rbc. Your line is now open. Please go ahead.

Gerard Cassidy

Good afternoon gentlemen. John, can you talk to us? You've had obviously some real strong positive operating leverage you identified ninth consecutive quarter excluding the notable items of course. You know how much of the positive operating leverage and I guess this plays into your pre tax margin comments as well. How much of it is structural, meaning your scalable platform that you guys have built. The mix shift versus cyclical tailwinds like the FX volatility or rising market levels?

John

Yeah, I'd say sure, it's a good question. I would tell you that across the board we've had organic growth, you know in the quarter and that's been really something that you can see will be durable is multi year investments in business execution and sales culture that is starting to pay dividends. So we're seeing organic growth across all of our line items. As I mentioned earlier, all the investments that we've made in geographic expansion and product capabilities in the markets business, which from a distance you might say is purely environmental. It's really not. I mean it's also environmental. But it's not only environmental. There are long term client relationships and platforms that we've built that our clients find very attractive. And the connectivity between markets and our investment services clients and investment management clients are very strong. And therefore I do think we have a durable opportunity to drive positive operating leverage that's attractive, that will reflect itself in pre tax margin improvements over time. Certainly environmental factors can help that. But even without environmental factors we believe we have a very attractive opportunity to grow pre tax margin through positive operating leverage given all that organic, you know, commentary I just made.

Gerard Cassidy

Great, thank you John. And then Ron, obviously you and I have been around for a fair bit and the custody banks scale has always been so important to success and with all the investing in AI Today, can you share with us, do you think it's even a greater challenge for smaller players to compete against companies like your own and the money center banks in New York or your big competitor down there? Just can you frame that out or is this always. It's always been the same. It's just maybe it's more of a dynamic because everybody talks about AI, but how important is it to really have scale to successfully compete in this business?

Ron

I think it's a really good question, Gerard. I think that the importance of scale certainly hasn't gone down. If you think just about the investments required around technology and cyber and those kinds of things, just to stay where you are, right. Forget about growth, forget about new opportunities, the cost of doing that, which is either being imposed regulatorily on all the other players or increasingly by clients themselves who are saying this is our expectation in terms of what we're gonna expect and demand of you. You then on to that. The, the real revolution that we're seeing both on the AI front and what it means again, not just to bring the technology in, but to actually profit from it. The scale both around, people know-how, et cetera, is just really hard, I think, for a smaller player to do. And then you, if you believe that we're moving towards this true digitization of finance, that will take time. So it's not just about showing up with the fancy new platform, but recognizing that there's this long term transition between digital and digital, that there are these on ramps and off ramps that need to be built. And if that's, if you want to make money, that's what you need to do. Again, puts more scale requirements. So I don't dismiss the innovators. And we look at them and we follow them and in some cases we partner with them and in even smaller number of cases we buy them. But in terms of, you know, do we see one of those developing into a true scaled player to compete in this little pocket that we compete in? We're not seeing that.

OPERATOR

Very good. Thank you. There are no further questions. I will now turn the call back over to Elizabeth Lynn for closing remarks.

Elizabeth Lynn

Thank you all for joining us today. Please feel free to reach out to investor relations with any follow up questions. Thank you again and have a nice day.

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