Why did GAAP EPS grow only 1% when excluding notable items EPS grew 18%?

The GAAP figure includes $138 million of pre-tax notable items in 2Q25, primarily a $100 million repositioning charge tied to workforce rationalization and an $18 million expense plus $24 million revenue impact from an Alpha-related client rescoping. These items reduced EPS by $0.36. Excluding them, EPS was $2.53 versus $2.15 a year earlier, which is the more representative view of underlying operating performance, though investors should note that the adjustments are management-defined non-GAAP measures.

What is driving the decline in net interest income and margin?

Net interest income fell 1% YoY, to $729 million, primarily because average short-end interest rates were lower and deposits shifted toward interest-bearing balances. Partial offsets came from continued loan growth and securities portfolio repricing. Net interest margin compressed to 0.96% from 1.13%. Management noted that NII rose 2% sequentially, supported by higher non-U.S. deposit balances, so the trend may be stabilizing.

Is the lower CET1 ratio a concern for investors?

The standardized CET1 ratio dropped to 10.7% from 11.2% a year earlier and from 11.0% in 1Q25. The decline reflects growth in risk-weighted assets from business deployment and continued capital returns, partly offset by earnings. The ratio remains above the regulatory minimum, and management highlighted a strong stress test result with a preliminary stress capital buffer held at the 2.5% floor. Investors should monitor whether RWA growth continues to outpace capital generation.

What does the planned dividend increase signal?

State Street announced a planned 11% increase in its quarterly common dividend to $0.84 per share for 3Q25, subject to Board approval. The 2Q25 total payout ratio was 82%, meaning the company returned most of its earnings to shareholders in the quarter. Investors should weigh the dividend increase against the lower CET1 ratio and the still-elevated payout ratio.

STT/STT-PG 8-K: Earnings & Results & Regulation FD

01—Abstract

Summary

Summary of the 8-K filed July 15, 2025. Cited figures are marked; the original filing is the authoritative source.

State Street (STT) reported second-quarter 2025 diluted EPS of $2.17^a on a GAAP basis, up 1% year-over-year, and $2.53 excluding notable items, up 18%.

GAAP total revenue rose 8% to $3.448 billion^b and fee revenue rose 11% to $2.719 billion, led by FX trading services (+28%), management fees (+10%), and servicing fees (+5%). Net interest income fell 1% year-over-year to $729 million as lower short-end rates and deposit mix shift offset loan growth. Total GAAP expenses rose 11%, but excluding a $100 million workforce-rationalization repositioning charge and $18 million of Alpha-related client rescoping expense, expenses grew 6%.

Pre-tax margin was 25.8% on a GAAP basis and 29.6% excluding notable items, and fee operating leverage was positive on an ex-notables basis, indicating the franchise is growing faster than costs. The balance sheet and franchise metrics were strong. Assets under custody and/or administration reached a record $49.0 trillion^c, up 11% year-over-year, and assets under management reached a record $5.1 trillion, up 17%, helped by $82 billion of net inflows.

New servicing AUC/A wins were $1.1 trillion^d, and the company returned $517 million to common shareholders. The standardized CET1 ratio declined to 10.7% from 11.2% a year earlier, mainly because risk-weighted assets grew from business deployment and capital return, which is a point investors should monitor against the company's target range. Management also announced a planned 11% increase in the quarterly dividend to $0.84 per share for 3Q25, subject to Board approval, after strong Federal Reserve stress test results.

The quarter's headline results are flattered by a few items that investors should weigh carefully. Ex-notable items, EPS grew 18%, but the GAAP figure is only up 1%, and the reported expense growth reflects the one-time charges.

Provision for credit losses rose to $30 million from $10 million, citing the macroeconomic environment and commercial real estate reserve builds. Overall, the filing shows solid fee-driven growth, record custody and AUM, and a higher dividend, offset by margin pressure from falling rates, a lower CET1 ratio, and one-time charges that make GAAP comparisons less clean.

02—Key points

Key Highlights

GAAP diluted EPS of $2.17 (up 1% YoY); $2.53 excluding notable items (up 18% YoY), with notable items totaling $138 million pre-tax, or $0.36 per share, including a $100 million repositioning charge.
Total fee revenue rose 11% YoY to $2.719 billion, led by FX trading services (+28%, record quarterly FX volumes up 17%), management fees (+10%), and securities finance (+17%).
Net interest income declined 1% YoY to $729 million, and net interest margin compressed to 0.96% from 1.13%, reflecting lower short-end rates and deposit mix shift.
Record AUC/A of $49.0 trillion (up 11% YoY) and record AUM of $5.1 trillion (up 17% YoY), with $82 billion of total net inflows and $1.1 trillion of new servicing AUC/A wins.
Pre-tax margin of 25.8% GAAP and 29.6% excluding notable items; positive operating leverage ex-notables of 241 bps and a sixth straight quarter of positive ex-notable operating leverage.
Standardized CET1 ratio fell to 10.7% from 11.2% a year earlier due to higher risk-weighted assets, while $517 million was returned to common shareholders and a dividend increase of 11% to $0.84 per share was announced for 3Q25.
Provision for credit losses rose to $30 million from $10 million YoY, reflecting the macroeconomic environment and commercial real estate loan reserve increases.

03—Questions

Frequently Asked Questions

Why did GAAP EPS grow only 1% when excluding notable items EPS grew 18%?
The GAAP figure includes $138 million of pre-tax notable items in 2Q25, primarily a $100 million repositioning charge tied to workforce rationalization and an $18 million expense plus $24 million revenue impact from an Alpha-related client rescoping. These items reduced EPS by $0.36. Excluding them, EPS was $2.53 versus $2.15 a year earlier, which is the more representative view of underlying operating performance, though investors should note that the adjustments are management-defined non-GAAP measures.
What is driving the decline in net interest income and margin?
Net interest income fell 1% YoY, to $729 million, primarily because average short-end interest rates were lower and deposits shifted toward interest-bearing balances. Partial offsets came from continued loan growth and securities portfolio repricing. Net interest margin compressed to 0.96% from 1.13%. Management noted that NII rose 2% sequentially, supported by higher non-U.S. deposit balances, so the trend may be stabilizing.
Is the lower CET1 ratio a concern for investors?
The standardized CET1 ratio dropped to 10.7% from 11.2% a year earlier and from 11.0% in 1Q25. The decline reflects growth in risk-weighted assets from business deployment and continued capital returns, partly offset by earnings. The ratio remains above the regulatory minimum, and management highlighted a strong stress test result with a preliminary stress capital buffer held at the 2.5% floor. Investors should monitor whether RWA growth continues to outpace capital generation.
What does the planned dividend increase signal?
State Street announced a planned 11% increase in its quarterly common dividend to $0.84 per share for 3Q25, subject to Board approval. The 2Q25 total payout ratio was 82%, meaning the company returned most of its earnings to shareholders in the quarter. Investors should weigh the dividend increase against the lower CET1 ratio and the still-elevated payout ratio.

04—Continue

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