ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
This Management's Discussion and Analysis should be read in conjunction with our consolidated financial statements and accompanying notes in this Form 10-K. Certain previously reported amounts presented in this Form 10-K have been reclassified to conform to current-period presentation.
As of December 31, 2025, we had consolidated total assets of $366.05 billion, consolidated total deposits of $274.35 billion, consolidated total shareholders’ equity of $27.84 billion and approximately 52,000 employees. Through our two lines of business, Investment Se rvicing and Investment Management, we operate in more than 100 geographic markets worldwide, including the United States, Canada, Latin America, Europe, the Middle East and Asia.
For the description of our lines of business, refer to “Lines of Business” in Item 1 in this Form 10-K. For financial and other information about our lines of business, refer to “Line of Business Information” in this Management’s Discussion and Analysis and Note 24 to the consolidated financial statements in this Form 10-K.
We prepare our consolidated financial statements in conformity with U.S. GAAP. The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions in its application of certain accounting policies that materially affect the reported amounts of assets, liabilities, equity, revenue and expenses.
Information about the significant accounting policies that require us to make judgments, estimates and assumptions that are difficult, subjective or complex about matters that are uncertain and may change in subsequent periods is included under “Significant Accounting Estimates” in this Management’s Discussion and Analysis and in Note 1 to the consolidated financial statements in this Form 10-K.
Certain financial information provided in this Form 10-K, including this Management’s Discussion and Analysis, is presented using both a U.S. GAAP, or reported basis, and a non-GAAP basis, including certain non-GAAP measures used in the calculation of identified regulatory ratios. We measure and compare certain financial information on a non-GAAP basis, including information that management uses in evaluating our business and activities. Non-GAAP financial information should be considered in addition to, and not as a substitute for or as superior to,
financial information prepared in conformity with U.S. GAAP. Any non-GAAP financial information presented in this Form 10-K, including this Management’s Discussion and Analysis, is reconciled to its most directly comparable currently applicable regulatory ratio or U.S. GAAP-basis measure. As part of our non-GAAP-basis measures, we present a fully taxable-equivalent NII that reports non-taxable revenue, such as interest income associated with tax-exempt investment securities, on a fully taxable-equivalent basis, which we believe facilitates an investor’s understanding and analysis of our underlying financial performance and trends.
In this Management’s Discussion and Analysis, where we describe the effects of changes in foreign currency translation, those effects are determined by applying applicable weighted average FX rates from the relevant 2024 period to the relevant 2025 period results.
This Management’s Discussion and Analysis contains statements that are considered “forward-looking statements” within the meaning of U.S. securities laws. These forward-looking statements involve certain risks and uncertainties which could cause actual results to differ materially. Additional information about forward-looking statements and related risks and uncertainties is provided in “Forward-Looking Statements”, “Risk Factors Summary” and “Risk Factors” in this Form 10-K.
Information regarding additional disclosures and materials available on our website is provided under “Additional Information” in Item 1 in this Form 10-K.
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FINANCIAL RESULTS AND HIGHLIGHTS
Summary of Financial Results
TABLE 1: OVERVIEW OF FINANCIAL RESULTS
Years Ended December 31,
(Dollars in millions, except per share amounts)
Total fee revenue
Net interest income
Total other income
Total revenue
Provision for credit losses
Total expenses
Income before income tax expense
Income tax expense
Net income
Adjustments to net income:
Dividends on preferred stock (1)
Earnings allocated to participating securities (2)
Net income available to common shareholders
Earnings per common share:
Basic
Diluted
Average common shares outstanding (in thousands):
Basic
Diluted
Cash dividends declared per common share
Return on average common equity
Pre-tax margin
Return on average assets
Common dividend payout
Average common equity to average total assets
( 1) Additional information about our preferred stock dividends is provided in Note 15 to the consolidated financial statements in this Form 10-K.
(2) Represents the portion of net income available to common equity allocated to participating securities, composed of unvested and fully vested SERP (Supplemental executive retirement plans) shares and fully vested deferred director stock awards, which are equity-based awards that contain non-forfeitable rights to dividends, and are considered to participate with the common stock in undistributed earnings.
The following section provides information related to significant events, as well as highlights of our consolidated financial results for the year ended December 31, 2025 presented in Table 1: Overview of Financial Results. More detailed information about our consolidated financial results, including the comparison of our financial results for the year ended December 31, 2025 to those of the year ended December 31, 2024, is provided under “Consolidated Results of Operations”, “Line of Business Information” and “Capital” sections which follow “Financial Results and Highlights”, as well as in our consolidated financial statements in this Form 10-K.
The comparison of our financial results for the year ended December 31, 2024 to those of the years ended December 31, 2023 is included in the Management’s Discussion and Analysis in our Annual Report on Form 10-K for the year ended December 31, 2024 filed with the SEC on February 13, 2025.
2025 Performance Highlights
• Total revenu e increased 7% compared to 2024, driven by higher fee revenue and net interest income:
◦ Total fee revenue increased 8% compared to 2024, reflecting higher servicing fees, management fees, foreign exchange trading services revenue and securities finance revenue, partially offset by lower other fee revenue.
◦ NII increased 1% co mpared to 2024, primarily driven by 11% growth in average interest-earnings assets, partially offset by a 10 bps decline in NIM.
• Total expense s increased 7% compared to 2024, primarily due to higher business and technology investments, revenue-related costs and higher impact of notables items in the current year, partially offset by productivity and other savings. See “Notable Items” below.
• Pre-tax margin of 26.8% increased fr om 26.1% in 2024, while return on equity of 11.5% increased from 11.1% in 2024.
• EPS of $9.40, increased from $8.21 in 2024, primarily reflecting higher total revenue, partially offset by higher total expenses, including the higher impact of notable items in the current year, which decreased EPS by net $0.44 relative to 2024.
Notable Items
• Notable items reduced income before income tax expense by $344 million in 2025, including repositioning charges of $326 million and other notable items of $18 million, net.
• In 2024, notable items reduced income before income tax expense by $188 million, including a net loss on sale of investment securities of $81 million related to an investment portfolio repositioning, a deferred compensation expense acceleration of approximately $79 million and other notable items of $30 million, net.
AUC/A and AUM
• AUC/A of $53.80 trillion as of December 31, 2025 increased 16% compared to December 31, 2024, primarily due to higher market levels and client flows. In 2025, newly announced investment servicing mandates totaled approximately $2.12 trillion of AUC/A. We onboarded approximately $2.12 trillion of AUC/A during 2025. Investment servicing
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assets remaining to be installed in future periods totaled approximately $2.50 trillion as of December 31, 2025.
• AUM of $5.67 trillion as of December 31, 2025 increased 20% compared to December 31, 2024, primarily due to higher market levels and net inflows.
Capital
• In 2025, we returned approximately $2.1 billion to our shareholders in the form of common share repurchases and common stock dividends.
◦ We declared aggregate common stock dividends of $3.20 per share, totaling $909 million compared to $2.90 per share, totaling $859 million in 2024.
◦ We increased the quarterly common stock dividend declared per common share by 11% in the third quarter of 2025.
◦ We acquired an aggregate of 11.5 million shares of common stock at an average per share cost of $104.05 and an aggregate cost of approximately $1.2 billion. In 2024, we acquired an aggregate of 15.1 million shares of common stock, at an average per share cost of $85.89 and an aggregate cost of approximately $1.3 billion. These purchases were all conducted under the share repurchase program approved by our Board of Directors.
• Our CET1 capital ratio was 11.6% as of December 31, 2025, compared to 10.9% as of December 31, 2024, primarily due to capital generated from earnings, partially offset by continued capital return. Our Tier 1 leverage ratio increased to 5.5% as of December 31, 2025, compared to 5.2% as of December 31, 2024, mainly driven by capital generated from earnings and higher preferred equity, partially offset by continued capital return and higher average balance sheet levels. Our target ranges for CET1 capital and Tier 1 leverage ratios remain at 10-11% and 5.25-5.75%, respectively. Standardized capital ratios were binding for both periods.
CONSOLIDATED RESULTS OF OPERATIONS
This section discusses our consolidated results of operations for 2025 compared to 2024 and should be read in conjunction with the consolidated financial statements and accompanying notes to the consolidated financial statements in this Form 10-K.
Total Revenue
TABLE 2: TOTAL REVENUE
Years Ended December 31,
% Change 2025 vs. 2024
% Change 2024 vs. 2023
(Dollars in millions)
Fee revenue:
Servicing fees
Management fees
Foreign exchange trading services
Securities finance
Front office software and data
Lending related and other fees
Software and processing fees
Other fee revenue
Total fee revenue
Net interest income:
Interest income
Interest expense
Net interest income
Other income:
Gains (losses) from sales of available-for-sale securities, net
Total other income
Total revenue
nm Not meaningful
Fee Revenue
Table 2: Total Revenue, provides the breakout of fee revenue for the years ended December 31, 2025, 2024 and 2023. Servicing and management fees collectively made up approximately 70% of the total fee revenue in both 2025 and 2024, and 72% in 2023.
Servicing Fee Revenue
Servicing fees, as presented in Table 2: Total Revenue, increased 6% in 2025 compared to 2024, primarily reflecting higher average market levels and net new business.
Servicing fees generated outside the United States were approximately 48% of total servicing fees in 2025, compared to approximately 47% of total servicing fees in 2024.
Servicing fee revenue comprises revenue from a range of services provided to our clients, including certain Alpha servicing mandates, consisting of core custody services, accounting, reporting and administration, which we refer to collectively as back office services and middle office services. The nature and mix of services provided and the asset classes for which the services are performed affect our servicing fees. The basis for fees will differ across regions and clients. Generally, our servicing fee revenues are affected by several factors, including changes in market valuations, client activity and asset flows, net new business and the manner in which we price our services. For servicing fees for which we
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have not yet issued an invoice to our clients as of period end, we include an estimate of the impact of changes in market valuations, client activity and flows, net new business and changes in pricing in our revenues.
Changes in Market Valuations
Our servicing fee revenue is impacted by both our levels and the geographic and product mix of our AUC/A. Changes in market valuations have an associated impact on the level of our AUC/A and servicing fee revenues, though the degree of impact will vary depending on asset types and classes, and geography of assets held within our clients’ portfolios. For certain asset classes where the valuation process is more complex, including alternative investments, or where our valuation is dependent on third party information, AUC/A is reported on a time lag, typically one-month. For those asset classes, which represent a significant portion of AUC/A, the impact of market levels on our reported AUC/A, and to a lesser extent servicing fee revenue, does not reflect current period-end market levels.
Over the five years ended December 31, 2025, we estimate that worldwide equity and fixed income market valuations impacted our servicing fees revenue by approximately 3% on average with a range of (4)% to 8% annually and approximately 4% and 5% in 2025 and 2024, respectively.
Assuming that all other factors remain constant, including client activity, asset flows and pricing, we estimate, using relevant information as of December 31, 2025, that a 10% increase or decrease in worldwide equity valuations, on a weighted average basis, over the relevant periods for which our servicing fees are calculated, would result in a corresponding change in our total servicing fee revenues, on average and over multiple quarters, of approximately 3%. We estimate, similarly assuming all other factors remain constant and using relevant information as of December 31, 2025, that changes in worldwide fixed income markets, which on a weighted average basis and over time are typically less volatile than worldwide equity markets, have a smaller
corresponding impact on our servicing fee revenues on average and over time.
Client Activity and Asset Flows
Client activity and asset flows are impacted by the number of transactions we execute on behalf of our clients, including FX settlements, equity and derivative trades, and wire transfer activity, as well as actions by our clients to change the asset class in which their assets are invested. Our servicing fee revenues are impacted by a number of factors, including transaction volumes, asset levels and asset classes in which funds are invested, as well as industry trends associated with these client-related activities.
Our clients may change the asset classes in which their assets are invested, based on their market outlook, risk acceptance tolerance or other considerations. Over the five years ended December 31, 2025, we estimate that client activity and asset flows, together, impacted our servicing fees revenue by approximately (1)% on average with a range of (3)% to 2% annually and approximately 2% and 0% in 2025 and 2024, respectively.
Net New Business
Over the five years ended December 31, 2025, net new business, which includes business both won and lost, has affected our servicing fee revenues by approximately 1% on average with a range of 0% to 2% annually and approximately 2% and 0% in 2025 and 2024, respectively.
Gross investment servicing mandates were $2.12 trillion of AUC/A in 2025 and $2.16 trillion of AUC/A per year on average over the five years ended December 31, 2025, ranging from approximately $904 billion to $3.52 trillion of AUC/A annually in any given year.
Servicing fee revenue associated with new investment servicing mandates is not reflected in our servicing fee revenue until the assets have been installed, and may vary between mandates based on the breadth of services provided, the time required to install the assets, and the types of assets installed.
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Our installation timeline in general can range from 6 to 36 months with the average installation timeline being approximately 9 to 12 months over the past two full fiscal years. We expect that our more complex installations, including new State Street Alpha mandates, will generally be on the longer end of the 6 to 36 months range. With respect to the current asset mandates of approximately $2.5 trillion of AUC/A that are yet to be installed as of December 31, 2025, we expect the conversion will mostly occur over the coming 24 months, with approximately 70% expected to be installed in 2026, with the balance expected to be installed largely in 2027. The expected timing of these installations is subject to change due to a variety of factors, including adjusted implementation schedules agreed with clients, scope adjustments, and product and functionality changes.
Pricing
The industry in which we operate has historically faced pricing pressure, and our servicing fee revenues continue to be affected by such pressures today. Consequently, no assumption should be drawn as to future revenue run rate from announced servicing AUC/A wins, as the amount of revenue associated with AUC/A, once installed, can vary materially between mandates.
On average, over the five years ended December 31, 2025, we estimate that pricing pressure with respect to existing clients has impacted our servicing fees by approximately (2)% annually, with the impact ranging from (2)% to (3)% in any given year and approximately (2)% and (3)% in 2025 and 2024, respectively. Pricing concessions can be a part of a contract renegotiation with a client including terms that may benefit us, such as extending the term of our relationship with the client, expanding the scope of services that we provide or reducing our dependency on manual processes through the standardization of the services we provide. The timing of the impact of additional revenue generated by anticipated additional services and the amount of revenue generated may differ from expectations due to the impact of pricing concessions on existing services due to the necessary time required to onboard those new services or process changes, the nature of those services and client investment practices and other factors. These same market pressures also impact the fees we negotiate when we win business from new clients.
Historically, and based on an indicative sample of revenue, we estimate that approximately 65%, on average, of our servicing fee revenues have been variable due to changes in asset valuations including changes in daily average valuations of AUC/A; another approximately 20%, on average, of our servicing fees are impacted by the volume of activity in the funds we serve; and the remaining approximately 15% of our servicing fees tend not to be variable in nature nor impacted by market fluctuations or values.
TABLE 3: ASSETS UNDER CUSTODY AND/OR ADMINISTRATION BY PRODUCT (1)(2)
(In billions)
December 31, 2025
December 31, 2024
December 31, 2023
% Change
% Change
Collective funds, including ETFs
Mutual funds
Pension products
Insurance and other products
Total
TABLE 4: ASSETS UNDER CUSTODY AND/OR ADMINISTRATION BY ASSET CLASS (2)
(In billions)
December 31, 2025
December 31, 2024
December 31, 2023
% Change
% Change
Equities
Fixed-income
Short-term and other investments
Total
TABLE 5: ASSETS UNDER CUSTODY AND/OR ADMINISTRATION BY GEOGRAPHY (2)(3)
(In billions)
December 31, 2025
December 31, 2024
December 31, 2023
% Change
% Change
Americas
Europe/Middle East/Africa
Asia/Pacific
Total
(1) Certain previously reported amounts presented have been reclassified to conform to current-period presentation.
(2) Consistent with past practice, AUC/A values for certain asset classes are based on a lag, typically one-month.
(3) Geographic mix is generally based on the domicile of the entity servicing the funds and is not necessarily representative of the underlying asset mix.
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Investment servicing mandates newly announced in 2025 totaled approximately $2.12 trillion of AUC/A. Investment servicing assets remaining to be installed in future periods totaled approximately $2.50 trillion as of December 31, 2025, which will be reflected in AUC/A in future periods after installation and will generate servicing fee revenue in subsequent periods. The full revenue impact of such mandates will be realized as the assets are installed and additional services are added over that period.
New investment servicing mandates, including Alpha servicing mandates, may be subject to completion of definitive agreements, consents or assignments, approval of applicable boards, shareholders and customary regulatory approvals or other conditions, the failure to complete any of which will prevent the relevant mandate from being installed and serviced. New investment servicing mandates and servicing assets remaining to be installed in future periods exclude certain new business which has been contracted, but for which the client has not yet provided permission to publicly disclose or anonymously reference. These excluded assets, which from time to time may be significant, will be included in new investment servicing mandates and reflected in investment servicing assets remaining to be installed in the period in which the client provides its permission. Investment servicing mandates and investment servicing assets remaining to be installed in future periods may include assets associated with acquisitions or structured transactions and are presented on a gross basis based on factors present on or about the time we determine the business to be won by us and are not updated based on subsequent developments, including changes in assets, market valuations, scope and, potentially, termination. Such assets therefore do not include the impact of clients who have notified us during the period of their intent to terminate or reduce their relationship with us, which from time to time may be significant.
With respect to these new investment servicing mandates, once installed we may provide various services, including back office services such as custody and safekeeping, transaction processing and trade settlement, fund administration, reporting and record keeping, security servicing, fund accounting, middle office services such as investment book of records, transaction management, loans, cash derivatives and collateral services, recordkeeping, client reporting and investment analytics, markets services such as FX trading services, liquidity solutions, currency and collateral management and securities finance, and front office services such as portfolio management solutions, risk analytics, scenario analysis, performance and attribution, trade order and execution management, pre-trade compliance and ESG investment tools. Revenues associated with new investment servicing mandates may vary based on the breadth of services provided, the timing of installation, and the types of assets.
Management Fee Revenue
Management fees increased 13% in 2025 compared to 2024, primarily due to higher average market levels and net inflows.
Management fees generated outside the United States were approximately 25% of total management fees in both 2025 and 2024.
Management fees generally are affected by our level of AUM, which we report based on month-end valuations. Management fees for certain components of managed assets, such as ETFs, mutual funds and Undertakings for Collective Investment in Transferable Securities, are affected by daily average valuations of AUM. Management fee revenue is more sensitive to market valuations than servicing fee revenue, as a higher proportion of the underlying services provided, and the associated management fees earned, are dependent on equity and fixed-income security valuations. Additional factors, such as the relative mix of assets managed, may have a significant effect on our management fee revenue. While certain management fees are directly determined by the values of AUM and the investment strategies employed, management fees may reflect other factors, including performance fee arrangements, as well as our relationship pricing for clients.
Asset-based management fees for passively managed products, to which our AUM is currently primarily weighted, are generally charged at a lower fee on AUM than for actively managed products. Actively managed products may also include performance fee arrangements which are recorded when the fee is earned, based on predetermined benchmarks associated with the applicable account’s performance.
In light of the above, we estimate, using relevant information as of December 31, 2025 and assuming that all other factors remain constant, including the impact of business won and lost and client flows, that:
• A 10% increase or decrease in worldwide equity valuations, on a weighted average basis, over the relevant periods for which our management fees are calculated, would result in a corresponding change in our total management fee revenues, on average and over multiple quarters, of approximately 5%; and
• Changes in worldwide fixed income markets, which on a weighted average basis and over time are typically less volatile than worldwide equity markets, will have a significantly smaller corresponding impact on our management fee revenues on average and over time.
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TABLE 6: ASSETS UNDER MANAGEMENT BY ASSET CLASS AND INVESTMENT APPROACH
(In billions)
December 31, 2025
December 31, 2024
December 31, 2023
% Change
% Change
Equity:
Active
Passive
Total equity
Fixed-income:
Active
Passive
Total fixed-income
Cash (1)
Multi-asset-class solutions:
Active
Passive
Total multi-asset-class solutions
Alternative investments (2) :
Active
Passive (3)
Total alternative investments
Total
(1) Includes both floating- and constant-net-asset-value portfolios held in commingled structures or separate accounts.
(2) Includes real estate investment trusts, currency and commodities, including SPDR® Gold Shares and SPDR® Gold MiniSharesSM Trust. We are not the investment manager for the SPDR® Gold Shares and SPDR®Gold MiniSharesSM Trust, but act as the marketing agent.
(3) AUM for passive alternative investments has been revised from prior presentations.
TABLE 7: GEOGRAPHIC MIX OF ASSETS UNDER MANAGEMENT (1)
(In billions)
December 31, 2025
December 31, 2024
December 31, 2023
% Change
% Change
Americas
Europe/Middle East/Africa (2)
Asia/Pacific
Total
(1) Geographic mix is based on client location or fund management location.
(2) AUM for passive alternative investments has been revised from prior presentations.
TABLE 8: EXCHANGE - TRADED FUNDS BY ASSET CLASS (1)
(In billions)
December 31, 2025
December 31, 2024
December 31, 2023
% Change
% Change
Alternative Investments (2)
Equity
Fixed-Income
Multi Asset
Total Exchange-Traded Funds
(1) ETFs are a component of AUM presented in the preceding table.
(2) Includes real estate investment trusts, currency and commodities, including SPDR ® Gold Shares and SPDR ® Gold MiniSharesSM Trust. We are not the investment manager for the SPDR ® Gold Shares and SPDR ® Gold MiniSharesSM Trust, but act as the marketing agent.
nm Not meaningful
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TABLE 9: ACTIVITY IN ASSETS UNDER MANAGEMENT BY PRODUCT CATEGORY
(In billions)
Equity
Fixed-Income
Cash (1)
Multi-Asset-Class Solutions
Alternative Investments (2)(4)
Total
Balance as of December 31, 2022
Long-term institutional flows, net (3)
Exchange-traded fund flows, net
Cash fund flows, net
Total flows, net
Market appreciation (depreciation)
Foreign exchange impact
Total market/foreign exchange impact
Balance as of December 31, 2023
Long-term institutional flows, net (3)
Exchange-traded fund flows, net
Cash fund flows, net
Total flows, net
Market appreciation (depreciation)
Foreign exchange impact
Total market/foreign exchange impact
Balance as of December 31, 2024
Long-term institutional flows, net (3)
Exchange-traded fund flows, net
Cash fund flows, net
Total flows, net
Market appreciation (depreciation)
Foreign exchange impact
Total market/foreign exchange impact
Balance as of December 31, 2025
(1) Includes both floating and constant-net-asset-value portfolios held in commingled structures or separate accounts.
(2) Includes real estate investment trusts, currency and commodities, including SPDR® Gold Shares and SPDR® Gold MiniSharesSM Trust. We are not the investment manager for the SPDR® Gold Shares and SPDR®Gold MiniSharesSM Trust, but act as the marketing agent.
(3) Amounts represent long-term portfolios, excluding ETFs.
(4) AUM for passive alternative investments has been revised from prior presentations.
Foreign Exchange Trading Services
Foreign exchange trading services revenue, as presented in Table 2: Total Revenue, increased 15% in 2025 compared to 2024, primarily due to higher volumes supported by client franchise growth and higher currency volatility in the first half of 2025. Foreign exchange trading services revenue comprises revenue generated by FX trading and revenue generated by brokerage and other trading services, which made up 64% and 36%, respectively, of foreign exchange trading services revenue in 2025, and 63% and 37%, respectively, in 2024.
We primarily earn FX trading revenue by acting as a principal market-maker through both “direct sales and trading” and “indirect FX trading.”
• Direct sales and trading: Represents FX transactions at negotiated rates with clients and investment managers that contact our trading desk directly. Clients are able to choose their own execution time and method, trading by voice or electronically on one of the several available multibank platforms. These principal market-making activities include transactions for funds serviced by third party custodians or prime brokers, as well as those funds under custody with us.
• Indirect FX trading: Represents FX transactions with clients, for which we are the funds’ custodian, or their investment managers, routed to our FX desk through our asset-servicing operation. We execute indirect FX trades as a principal at rates disclosed to our clients. Indirect FX is designed to address FX trades that relate to the purchase, sale or holding of a security where clients chose their execution frequency (either hourly or once per day), allowing us to offer straight-through processing and a fully automated service.
Our clients that utilize indirect FX trading can, in addition to executing their FX transactions through dealers not affiliated with us, transition from indirect FX trading to either direct sales and trading execution, including our “Street FX” service. Street FX, in which we continue to act as a principal market-maker, enables our clients to define their FX execution strategy and automate the FX trade execution process, both for funds under custody with us as well as those under custody at another bank.
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We also earn foreign exchange trading services revenue through “electronic FX services” and “other trading, transition management and brokerage revenue.”
• Electronic FX services: Our clients may choose to execute FX transactions through one of our electronic trading platforms (i.e., FX Connect, Currenex). These transactions generate revenue through a “click” fee.
• Other trading, transition management and brokerage revenue: As our clients look to us to enhance and preserve portfolio values, they may choose to utilize our Transition or Currency Management capabilities or transact with our Equity Trade execution group. These transactions, which are not limited to foreign exchange, generate revenue via commissions charged for trades transacted during the management of these portfolios.
Securities Finance
Securities finance revenue, as presented in Table 2: Total Revenue, increased 15% in 2025 compared to 2024, primarily due to higher client lending balances.
Our securities finance business consists of three components:
(1) an agency lending program for State Street Investment Management managed investment funds with a broad range of investment objectives, which we refer to as the State Street Investment Management lending funds;
(2) an agency lending program for third-party investment managers and asset owners, which we refer to as the agency lending funds; and
(3) security lending transactions which we enter into as principal, which we refer to as our prime services business.
Securities finance revenue earned from our agency lending activities, which is composed of our split of both the spreads related to cash collateral and the fees related to non-cash collateral, is principally a function of the volume of securities on loan, the interest rate spreads and fees earned on the underlying collateral and our share of the fee split.
As principal, our prime services business borrows securities from the lending client or other market participants and then lends such securities to the subsequent borrower, either our client or a broker/dealer. We act as principal when the lending client is unable to, or elects not to, transact directly with the market and execute the transaction and furnish the securities. In our role as principal, we provide support to the transaction through our credit rating. While we source a significant proportion of the securities furnished by us in our role as principal from third parties, we have the ability to source securities through assets under custody from clients who have designated us as an eligible borrower.
Software and Processing Fees
Software and processing fees revenue, as presented in Table 2: Total Revenue, increased 2% in 2025 compared to 2024, primarily due to higher front office software and data revenue associated with CRD.
Software and processing fees revenue includes diverse types of fees and revenue, including fees from software licensing and data maintenance and fees from our structured products business.
Front office software and data revenue, which primarily includes revenue from CRD, Alpha Data Platform and Alpha Data Services, increased 3% in 2025 compared to 2024, primarily due to continued growth in software-enabled revenue, partially offset by lower professional services revenue driven by the impact of a notable item related to an Alpha-related client rescoping in the second quarter of 2025.
Revenue related to the front office solutions provided by CRD is primarily driven by the sale of SaaS and on-premises software licenses, which may include professional services such as consulting and implementation services and software support and maintenance. Revenue for a SaaS-related arrangement is recognized over time as services are provided. Approximately 50%-70% of revenue associated with a sale or renewal of software to be installed on-premises is recognized at a point in time when the customer benefits from obtaining access to and use of the software license, with the percentage varying based on the length of the contract and other contractual terms. The remainder of the revenue for on-premises software licenses is recognized over the length of the contract as maintenance and other services are provided. As a result of these differences in how portions of CRD revenue are accounted for, CRD revenue may vary more than other business units quarter to quarter.
Lending related and other fees decreased 1% in 2025 compared to 2024. Lending related and other fees primarily consists of fee revenue associated with our subscription and fund finance, commercial loans, municipal finance, insurance and stable value wrap businesses.
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Other Fee Revenue
Other fee revenue includes bank-owned life insurance income, income associated with equity investments and other market-related adjustments.
Other fee revenue decreased $53 million in 2025, compared to 2024, reflecting the absence of a notable item related to a $66 million gain on sale of an equity investment in the prior year period.
Net Interest Income
See Table 2: Total Revenue, for the breakout of interest income and interest expense for the years ended December 31, 2025, 2024 and 2023.
NII is defined as interest income earned on interest-earning assets less interest expense incurred on interest-bearing liabilities. Interest-earning assets, which principally consist of investment securities, interest-bearing deposits with banks, loans, resale agreements and other liquid assets, are financed primarily by client deposits, short-term borrowings and long-term debt.
NIM represents the relationship between annualized FTE NII and average total interest-earning assets for the period. It is calculated by dividing FTE NII by average interest-earning assets. Revenue that is exempt from income taxes, mainly earned from certain investment securities (state and political subdivisions), is adjusted to an FTE basis using the U.S. federal and state statutory income tax rates.
NII increased 1% in 2025 compared to 2024, primarily driven by 11% growth in average interest-earnings assets, partially offset by a 10 bps decline in NIM.
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
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See Table 10: Average Balances and Interest Rates - Fully Taxable-Equivalent Basis, for the breakout of NII on a FTE basis for the years ended December 31, 2025, 2024 and 2023.
TABLE 10: AVERAGE BALANCES AND INTEREST RATES - FULLY TAXABLE-EQUIVALENT BASIS (1)
Years Ended December 31,
(Dollars in millions; fully taxable-equivalent basis)
Average
Balance
Interest
Revenue/Expense
Rate
Average
Balance
Interest
Revenue/Expense
Rate
Average
Balance
Interest
Revenue/
Expense
Rate
Interest-bearing deposits with banks
Securities purchased under resale agreements (2)
Trading account assets
Investment securities:
Investment securities available-for-sale
Investment securities held-to-maturity
Total Investment securities
Loans (3)
Other interest-earning assets (4)
Average total interest-earning assets
Cash and due from banks
Other non-interest-earning assets
Total assets
Interest-bearing deposits:
Non-U.S.
Total interest-bearing deposits (5)(6)
Securities sold under repurchase agreements
Federal funds purchased
Other short-term borrowings
Long-term debt
Other interest-bearing liabilities (7)
Average total interest-bearing liabilities
Non-interest-bearing deposits (5)
Other non-interest-bearing liabilities
Preferred shareholders’ equity
Common shareholders’ equity
Total liabilities and shareholders’ equity
Interest rate spread
Net interest income, fully taxable-equivalent basis
Net interest margin, fully taxable-equivalent basis
Tax-equivalent adjustment
Net interest income, GAAP basis
(1) Rates earned/paid on interest-earning assets and interest-bearing liabilities include the impact of hedge activities associated with our asset and liability management activities where applicable.
(2) Reflects the impact of balance sheet netting under enforceable netting agreements of approximately $242.73 billion, $191.26 billion and $140.36 billion for the years ended December 31, 2025, 2024 and 2023, respectively. Excluding the impact of netting, the average interest rates would be approximately 0.27%, 0.35% and 0.22% for the years ended December 31, 2025, 2024 and 2023, respectively.
(3) Average loans presented on gross basis. Average loans net of expected credit losses was approximately $45.61 billion, $39.52 billion and $34.69 billion for the years ended December 31, 2025, 2024 and 2023, respectively.
(4) Reflects the impact of balance sheet netting under enforceable netting agreements of approximately $8.45 billion, $6.96 billion and $4.94 billion for the years ended December 31, 2025, 2024 and 2023, respectively. Excluding the impact of netting, the average interest rates would be approximately 4.20%, 5.01% and 4.91% for the years ended December 31, 2025, 2024 and 2023, respectively.
(5) Average rate includes the impact of FX swap costs of approximately ($195) million, $(274) million and $54 million for the years ended December 31, 2025, 2024 and 2023, respectively. Average rates for total interest-bearing deposits excluding the impact of FX swap costs were 2.88%, 3.45% and 2.86% for the years ended December 31, 2025, 2024 and 2023, respectively.
(6) Total deposits averaged $253.00 billion, $225.61 billion and $205.11 billion for the years ended December 31, 2025, 2024 and 2023, respectively.
(7) Reflects the impact of balance sheet netting under enforceable netting agreements of approximately $8.01 billion, $6.30 billion and $4.61 billion for the years ended December 31, 2025, 2024 and 2023, respectively. Excluding the impact of netting, the average interest rates would be approximately 4.51%, 5.46% and 5.43% for the years ended December 31, 2025, 2024 and 2023, respectively.
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Changes in the components of interest-earning assets and interest-bearing liabilities are discussed in more detail below. Additional information about the components of interest income and interest expense is provided in Note 17 to the consolidated financial statements in this Form 10-K.
Average total interest-earning assets were $294.71 billion in 2025, compared to $266.07 billion in 2024. The increase is primarily due to higher levels of client deposits and long-term debt.
Interest-bearing deposits with banks averaged $93.55 billion in 2025, compared to $88.75 billion in 2024. These deposits primarily reflect our maintenance of cash balances at the Federal Reserve, the ECB and other non-U.S. central banks. The higher levels of average cash balances reflect higher levels of client deposits and funding levels.
Securities purchased under resale agreements averaged $8.23 billion in 2025, compared to $6.79 billion in 2024, due to an increase in FICC repurchase agreement volumes. As a member of FICC, we may net securities sold under repurchase agreements against those purchased under resale agreements with counterparties that are also members of the clearing organization when specific netting criteria are met. The impact of balance sheet netting was, on average, $242.73 billion and $191.26 billion in 2025 and 2024, respectively.
Average investment securities were $110.59 billion in 2025, compared to $104.78 billion in 2024, primarily driven by growth in U.S. Treasuries.
Average loans increased to $45.79 billion in 2025, compared to $39.66 billion in 2024. Average loans excluding overdrafts, averaged $42.39 billion in 2025, compared to $36.14 billion in 2024, reflecting our efforts to grow the lending portfolio. The increases are primarily due to growth in CLOs, subscription finance and fund finance loans. Additional information is provided under “Loans” in “Financial Condition” in this Management’s Discussion and Analysis and in Note 4 to the consolidated financial statements in this Form 10-K.
Average other interest-earning assets, largely associated with our prime services business, increased to $35.75 billion in 2025 from $25.30 billion in 2024, primarily driven by an increase in the level of cash collateral posted. Other interest-earning assets primarily reflects prime services assets where cash has been posted to borrow securities from lenders, which are then lent by us, as principal, to borrowers. This cash includes both cash from borrowers and cash utilized from our balance sheet, and is presented on a net basis on the balance sheet where we have enforceable netting agreements. Non-interest earning assets also includes a portion of our prime services assets where we act as lender in a
securities lending transaction and we receive securities as collateral that we are permitted to transfer or re-pledge. Combined with our prime services liabilities, revenue from these activities generates securities finance fee revenue as well as net interest income.
Average total interest-bearing deposits increased to $228.21 billion in 2025 from $200.04 billion in 2024. The increase is driven by market volatility and our active client engagement to support our structural liquidity position and to support business growth on the asset side of the balance sheet. Future interest-bearing deposit levels will be influenced by the underlying investment servicing business, client behavior, the mix of interest-bearing and non-interest-bearing deposits and market conditions, including the general levels of U.S. and non-U.S. interest rates.
Average other short-term borrowings decreased to $9.59 billion in 2025 from $11.43 billion in 2024, due to decreased wholesale funding. The decrease is driven by our response to higher client deposit levels.
Average long-term debt was $25.01 billion in 2025, compared to $20.39 billion in 2024, supporting our businesses and structural liquidity position. These amounts reflect issuances, redemptions and maturities of senior and subordinated debt during the respective periods.
Average other interest-bearing liabilities, largely associated with our prime services business, were $4.03 billion in 2025, compared to $4.83 billion in 2024. Other interest-bearing liabilities is primarily driven by cash received from our custody clients, which is presented on a net basis where we have enforceable netting agreements. Non-interest bearing liabilities also include a portion of our prime services liabilities where client-provided non-cash collateral has been received and we have rehypothecation rights. Securities received as collateral from our custody clients where we have no rehypothecation rights are used as a credit mitigant only and remain off balance sheet.
Based on market conditions and other factors, including regulatory standards, we continue to reinvest the majority of the proceeds from pay-downs and maturities of investment securities in highly-rated U.S. and non-U.S. securities, such as federal agency MBS, sovereign debt securities and U.S. Treasury and agency securities. The pace at which we reinvest, and the types of investment securities purchased will depend on the impact of market conditions, the implementation of regulatory standards, including interpretation of those standards and other factors over time. We expect these factors and the levels of global interest rates to impact our
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
reinvestment program and future levels of NII and NIM.
Other Income
Other income included a gain of $4 million in 2025, compared to a loss of $79 million in 2024 reflecting the 2024 loss on sale of investment securities related to the repositioning of the investment portfolio.
Provision for Credit Losses
In 2025, we recorded a $59 million provision for credit losses, primarily reflecting the evolving macroeconomic environment and an increase in loan loss reserves associated with certain commercial real estate and commercial loans.
Additional information is provided under “Loans” in “Financial Condition” in this Management’s Discussion and Analysis and in Note 4 to the consolidated financial statements in this Form 10-K.
Expenses
Table 11: Expenses, provides t he breakout of expenses for the years ended December 31, 2025, 2024 and 2023. Total expenses increased 7% compared to 2024, primarily due to higher business and technology investments, revenue-related costs and higher impact of notables items in the current year, partially offset by productivity and other savings.
TABLE 11: EXPENSES
Years Ended December 31,
% Change 2025 vs. 2024
% Change 2024 vs. 2023
(Dollars in millions)
Compensation and employee benefits
Information systems and communications
Transaction processing services
Occupancy
Other:
Professional services
Other
Total other
Total expenses
Number of employees at year-end
Notable items reflected in expenses in 2025 included:
• Repositioning charges of $326 million, which included $211 million of compensation and employee benefits expenses related to workforce rationalization, $69 million of occupancy costs associated with real estate footprint optimization, and costs associated with operating model changes of $24 million and $22 million reflected in information systems and communications and other expenses, respectively.
• Other notable items which included an FDIC special assessment release of $60 million, partially offset by $40 million of legal and related costs, both reflected in other expenses, and an Alpha-related client rescoping of $18 million reflected in information systems and communications expenses.
Notable items reflected in expenses in 2024 included:
• Deferred compensation expense acceleration of $79 million.
• Other notable items of $111 million, primarily related to a $99 million increase to the FDIC special assessment, recognized in other expenses.
• Net repositioning release of $2 million, including a $15 million release reflected in compensation and employee benefits expenses, partially offset by $13 million of occupancy charges related to footprint optimization.
Compensation and employee benefits expenses increased 7% in 2025 compared to 2024, primarily due to higher repositioning charges, performance-based incentive compensation as well as merit increases and employee benefit costs which were partially offset by productivity and other savings. The net impact of notable items in the current and prior year periods increased compensation and employee benefits expenses by 2% points in 2025 compared to 2024.
Total headcount decreased 2% as of December 31, 2025 compared to December 31, 2024, primarily driven by our continued efforts to simplify our operations through organization design and technology and automation efforts. These impacts were partially offset by headcount growth in high-cost locations primarily to support clients and revenue generation.
Information systems and communications expenses increased 14% in 2025 compared to 2024, largely driven by higher technology and infrastructure investments and the impact of current year notable items, partially offset by vendor savings.
Transaction processing services expenses increased 5% in 2025 compared to 2024, primarily due to higher broker fees and revenue-related sub-custody and market data costs.
Occupancy expenses increased 11% i n 2025 compared to 2024, primarily reflecting the net impact of the repositioning charges in the current and prior year periods.
Other expenses decreased 5% in 2025 compared to 2024, primarily reflecting the net impact of notable items in the current and prior year periods
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
which decreased other expenses by 7% points in 2025 as compared to 2024, partially offset by higher marketing costs and other revenue-related expenses.
Repositioning Charges
The following table presents aggregate activity for repositioning charges for the periods indicated:
TABLE 12: REPOSITIONING CHARGES
(In millions)
Employee Related Costs
Other
Total
Accrual Balance at December 31, 2022
Accruals for Repositioning Charges
Payments and other adjustments
Accrual Balance at December 31, 2023
Accruals for Repositioning Charges
Payments and other adjustments
Accrual Balance at December 31, 2024
Accruals for Repositioning Charges
Payments and other adjustments
Accrual Balance at December 31, 2025
Income Tax Expense
Income tax expense was $786 million in 2025 compared to $708 million in 2024. Our effective tax rate increased to 21.1% in 2025 compared to 20.8% in 2024.
Additional information regarding income tax expense, including unrecognized tax benefits and tax contingencies, is provided in Notes 13 and 22 to the consolidated financial statements in this Form 10-K.
LINE OF BUSINESS INFORMATION
Our operations are organized into two lines of business: Investment Servicing and Investment Management, which are defined based on products and services provided. The results of operations for these lines of business are not necessarily comparable with those of other companies, including companies in the financial services industry. For the description of our lines of business refer to “Lines of Business” in Item 1 in this Form 10-K. Certain amounts are not allocated to our two lines of business. For further information, please refer to Note 24 to the consolidated financial statements in this Form 10-K.
Investment Servicing
TABLE 13: INVESTMENT SERVICING LINE OF BUSINESS RESULTS
(Dollars in millions, except where otherwise noted)
Years Ended December 31,
% Change 2025 vs. 2024
% Change 2024 vs. 2023
Servicing fees
Foreign exchange trading services
Securities finance
Software and processing fees
Other fee revenue
Total fee revenue
Net interest income
Total other income
Total revenue
Provision for credit losses
Total expenses
Income before income tax expense
Pre-tax margin
Average assets (in billions)
nm Not meaningful
Servicing Fees
Servicing fees, as presented in Table 13: Investment Servicing Line of Business Results, increased 6% in 2025 compared to 2024, primarily reflecting higher average market levels and net new business.
For additional information about servicing fees and the impact of worldwide equity and fixed-income valuations on our fee revenue, as well as other key drivers of our servicing fee revenue, refer to “Fee Revenue” in “Consolidated Results of Operations” included in this Management’s Discussion and Analysis.
Expenses
Total expenses for Investment Servicing increased 5% in 2025 compared to 2024, primarily reflecting higher business and technology investments, compensation costs and revenue-related costs, partially offset by productivity and other savings. Additional information about expenses is provided under “Expenses” in “Consolidated Results of Operations” included in this Management’s Discussion and Analysis.
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
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Investment Management
TABLE 14: INVESTMENT MANAGEMENT LINE OF BUSINESS RESULTS
(Dollars in millions, except where otherwise noted)
Years Ended December 31,
% Change 2025 vs. 2024
% Change 2024 vs. 2023
Management fees (1)
Foreign exchange trading services (2)
Securities finance
Other fee revenue (3)
Total fee revenue
Net interest income
Total revenue
Total expenses
Income before income tax expense
Pre-tax margin
Average assets (in billions)
(1) Includes revenues from SPDR® Gold Shares and SPDR® Gold MiniSharesSM Trust AUM where we are not the investment manager but act as the marketing agent.
(2) Includes revenue for reimbursements received for certain ETFs associated with State Street Investment Management where we act as the distribution and marketing agent.
(3) Includes other revenue items that are primarily driven by equity market movements.
Investment Management total revenue increased 12% i n 2025 compared to 2024.
Management Fees
Management fees increased 13% in 2025 compared to 2024, primarily due to higher average market levels and net inflows.
For additional information about the impact of worldwide equity and fixed-income valuations, as well as other key drivers of our management fees revenue, refer to “Fee Revenue” in “Consolidated Results of Operations” included in this Management’s Discussion and Analysis.
Expenses
Total expenses for Investment Management increased 7% in 2025 compared to 2024, as higher business investments and revenue-related fund expenses were partially offset by productivity and other savings.
Additional information about expenses is provided under “Expenses” in “Consolidated Results of Operations” included in this Management’s Discussion and Analysis.
For additional information about our two lines of business, as well as the revenues, expenses and capital allocation methodologies associated with them, refer to Note 24 to the consolidated financial statements in this Form 10-K.
FINANCIAL CONDITION
The structure of our consolidated statement of condition is primarily driven by the liabilities generated by our Investment Servicing and Investment Management lines of business. Our clients’ needs and our operating objectives determine the volume, mix and currency denomination of our assets and liabilities. As our clients execute their worldwide cash management and investment activities, they utilize deposits and short-term investments that constitute the majority of our liabilities. These liabilities are generally in the form of interest-bearing transaction account deposits, which are denominated in a variety of currencies, and non-interest-bearing demand deposits. Our interest-earning assets consist primarily of securities held in our AFS or HTM portfolios, loans and short-duration financial instruments, such as interest-bearing deposits with banks and securities purchased under resale agreements.
Additional information on our financial condition is presented in Table 10: Average Balances and Interest Rates - Fully Taxable-Equivalent Basis. We believe the average statement of condition is a better measure of the balance sheet trends as period-end balances can be impacted by the timing of client activities including deposits and withdrawals.
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Investment Securities
TABLE 15: CARRYING VALUES OF INVESTMENT SECURITIES
As of December 31,
(In millions)
Available-for-sale:
U.S. Treasury and federal agencies:
Direct obligations
Mortgage-backed securities (1)
Total U.S. Treasury and federal agencies
Non-U.S. debt securities:
Mortgage-backed securities
Asset-backed securities (2)
Non-U.S. sovereign, supranational and non-U.S. agency
Other (3)
Total non-U.S. debt securities
Asset-backed securities:
Student loans (4)
Collateralized loan obligations (5)
Non-agency CMBS and RMBS (6)
Other
Total asset-backed securities
State and political subdivisions
Other U.S. debt securities (7)
Total available-for-sale securities (8)
Held-to-maturity:
U.S. Treasury and federal agencies:
Direct obligations
Mortgage-backed securities (9)
Total U.S. Treasury and federal agencies
Non-U.S. debt securities:
Non-U.S. sovereign, supranational and non-U.S. agency
Total non-U.S. debt securities
Asset-backed securities:
Student loans (4)
Total asset-backed securities
Total held-to-maturity securities (8)
(1) As of December 31, 2025 and 2024, the total fair value included $2.81 billion and $4.36 billion, respectively, of agency CMBS and $12.78 billion and $6.20 billion, respectively, of agency MBS.
(2) As of December 31, 2025 and 2024, the fair value includes non-U.S. collateralized loan obligations of $0.77 billion and $0.70 billion, respectively.
(3) As of December 31, 2025 and 2024, the fair value includes non-U.S. corporate bonds of $2.40 billion and $2.54 billion, respectively.
(4) Primarily comprised of securities guaranteed by the federal government with respect to at least 97% of defaulted principal and accrued interest on the underlying loans.
(5) Excludes CLO loans. Refer to Note 4 for additional information.
(6) Consists entirely of non-agency RMBS as of both December 31, 2025 and 2024.
(7) As of December 31, 2024, the fair value of U.S. corporate bonds was $0.05 billion.
(8) An immaterial amount of accrued interest related to HTM and AFS investment securities was excluded from the amortized cost basis for the period ended December 31, 2025.
(9) As of December 31, 2025 and 2024, the total amortized cost included $5.08 billion and $5.18 billion of agency CMBS, respectively.
Additional information about our investment securities portfolio is provided in Note 3 to the consolidated financial statements in this Form 10-K.
We manage our investment securities portfolio by taking into consideration the interest rate and duration characteristics of our client liabilities along with the context of the overall structure of our consolidated statement of condition, and in consideration of the global interest rate environment. We consider a well-diversified, high-credit quality investment securities portfolio to be an important element in the management of our consolidated statement of condition.
Average duration of our investment securities portfolio, including the impact of hedges, was 2.1 years and 2.2 years as of December 31, 2025 and 2024, respectively.
Approximately 97% of the carrying value of the portfolio was rated “AA” or higher as of both December 31, 2025 and 2024, as follows:
TABLE 16: INVESTMENT PORTFOLIO BY EXTERNAL CREDIT RATING
December 31, 2025
December 31, 2024
AAA (1)
BBB
(1) Includes U.S. Treasury and federal agency securities that are split-rated, “AAA” by Moody’s Investors Service and “AA+” by Standard & Poor’s and also includes Agency MBS securities which are not explicitly rated but which have an explicit or assumed guarantee from the U.S. government.
The following table presents the diversification of the investment portfolio with respect to asset class composition as of December 31, 2025 and 2024.
TABLE 17: INVESTMENT PORTFOLIO BY ASSET CLASS
December 31, 2025
December 31, 2024
U.S. Agency
Mortgage-backed securities
U.S. Treasuries
Non-U.S. sovereign, supranational and non-U.S. agency
Asset-backed securities
Other credit
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following table presents the net unamortized purchase premiums or discounts and net premium amortization or discount accretion related to the investment portfolio for the periods indicated:
TABLE 18: INVESTMENT SECURITIES NET PREMIUM AMORTIZATION (DISCOUNT ACCRETION)
Years Ended December 31,
(Dollars in millions)
MBS
Non-MBS
Total (1)
MBS
Non-MBS
Total (1)
Unamortized purchase premiums and (discounts) at period end
Net premium amortization (discount accretion)
(1) Totals exclude premiums or discounts created from the transfer of securities from AFS to HTM.
Non-U.S. Debt Securities
Approximately 26% and 23% of the aggregate carrying value of our investment securities portfolio was non-U.S. debt securities as of December 31, 2025 and 2024, respectively.
TABLE 19: NON-U.S. DEBT SECURITIES (1)
(In millions)
December 31, 2025
December 31, 2024
Available-for-sale:
Canada
United Kingdom
Australia
France
Germany
Austria
Spain
Netherlands
Finland
Italy
Sweden
Hong Kong
Mexico
Other (2)
Total
Held-to-maturity:
Belgium
Germany
France
Finland
Canada
Other (2)
Total
(1) Geography is determined primarily based on the domicile of collateral or issuer.
(2) As of December 31, 2025, other non-U.S. investments include $9.31 billion supranational bonds in AFS securities and $1.53 billion supranational bonds in HTM securities.
Approximately 88% and 90% of the aggregate carrying value of these non-U.S. debt securities was
rated “AAA” or “AA” as of December 31, 2025 and 2024, respectively. The majority of these securities comprised senior positions within the security structures; these positions have a level of protection provided through subordination and other forms of credit protection. As of December 31, 2025 and 2024, approximately 32% and 29%, respectively, of the aggregate carrying value of these non-U.S. debt securities was floating-rate.
As of December 31, 2025, our non-U.S. debt securities had an average market-to-book ratio of 100.2%, and an aggregate pre-tax net unrealized gain of $62 million, consisting of gross unrealized gains of $130 million and gross unrealized losses of $68 million. These unrealized amounts included:
• a pre-tax net unrealized gain of $89 million, consisting of gross unrealized gains of $126 million and gross unrealized losses of $37 million, associated with non-U.S. AFS debt securities; and
• a pre-tax net unrealized loss of $27 million, consisting of gross unrealized gains of $4 million and gross unrealized losses of $31 million, associated with non-U.S. HTM debt securities.
As of December 31, 2025, the underlying collateral for non-U.S. MBS and ABS primarily included mortgages in Australia, the United Kingdom, and Netherlands. The securities listed under “Canada” were composed of Canadian government securities, corporate debt, covered bonds and non-U.S. agency securities. The securities listed under “France” were composed of sovereign bonds, corporate debt, covered bonds, ABS and non-U.S. agency securities. The securities listed under “Germany” were composed of non-U.S. agency securities, government bonds, ABS and corporate debt.
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Contractual Maturities and Effective Yield
TABLE 20: CONTRACTUAL MATURITIES AND YIELDS (1)
As of December 31, 2025
Under 1 Year
1 to 5 Years
6 to 10 Years
Over 10 Years
Total
(Dollars in millions)
Amount
Yield
Amount
Yield
Amount
Yield
Amount
Yield
Amount
Available-for-sale (2) :
U.S. Treasury and federal agencies:
Direct obligations
Mortgage-backed securities
Total U.S. Treasury and federal agencies
Non-U.S. debt securities:
Mortgage-backed securities
Asset-backed securities
Non-U.S. sovereign, supranational and non-U.S. agency
Other
Total non-U.S. debt securities
Asset-backed securities:
Student loans
Collateralized loan obligations
Non-agency CMBS and RMBS
Other
Total asset-backed securities
State and political subdivisions (3)
Total
Held-to-maturity (2) :
U.S. Treasury and federal agencies:
Direct obligations
Mortgage-backed securities
Total U.S. Treasury and federal agencies
Non-U.S. debt securities:
Non-U.S. sovereign, supranational and non-U.S. agency
Total non-U.S. debt securities
Asset-backed securities:
Student loans
Total asset-backed securities
Total
(1) Weighted-average yields are calculated based on the effective yield of each security owned at the end of the period, excluding the effect of related hedges, weighted based on the face value of each security.
(2) The maturities of MBS and ABS are based on expected principal payments.
(3) Yields were calculated on a FTE basis, using applicable statutory tax rates (21.0% as of December 31, 2025).
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Loans
TABLE 21: LOANS
As of December 31,
(In millions)
Subscription finance
Fund finance (1)
Collateralized loan obligations (2)
Commercial
Commercial real estate
Overdrafts
Other (3)
Total loans (4)(5)
Allowance for credit losses
Loans, net of allowance for credit losses
(1) Fund finance loans primarily include loans to real money funds and business development companies of $8.30 billion and $1.75 billion, respectively, as of December 31, 2025, compared to $7.90 billion and $1.44 billion, respectively, as of December 31, 2024.
(2) Collateralized loan obligations include broadly syndicated and middle market CLO loans of $10.30 billion and $2.51 billion, respectively, as of December 31, 2025, compared to $8.39 billion and $1.10 billion as of December 31, 2024.
(3) Includes securities finance loans and loans to municipalities of $2.52 billion and $0.12 billion, respectively, as of December 31, 2025, compared to $3.01 billion and $0.21 billion, respectively, as of December 31, 2024.
(4) Excluding overdrafts, floating rate loans and fixed rate loans totaled $42.37 billion and $2.45 billion, respectively, as of December 31, 2025. We have entered into interest rate swap agreements to hedge the forecasted cash flows associated with EURIBOR indexed floating-rate loans. See Note 10 to the consolidated financial statements in this Form 10-K for additional details.
(5) Non-U.S. loans totaled $18.78 billion and $16.79 billion as of December 31, 2025 and 2024, respectively.
We segregate our loans into two segments: commercial and financial and commercial real estate. We further classify commercial and financial loans as subscription finance, fund finance loans, collateralized loan obligations, commercial, overdrafts and other loans.
Total loans as of December 31, 2025 increased $3.58 billion compared to December 31, 2024, primarily reflecting higher CLOs and subscription finance loans, partially offset by a decline in commercial loans.
Subscription Finance
Our subscription finance portfolio consists of revolving lines of credit that allow private equity and private credit fund managers to borrow against uncalled investor capital commitments. These facilities are secured by the limited partners’ commitments and the fund’s right to call capital, enabling managers across strategies, including private equity/buyout, private debt, infrastructure, secondaries, and real estate to manage capital calls, fund asset acquisitions, and mitigate timing mismatches. The uncalled capital commitments securing these facilities are predominantly from institutional investors.
Fund Finance
Our fund finance portfolio primarily consists of loans to real money funds (RMF). RMF facilities
provide liquidity and leverage solutions to funds regulated under the Investment Company Act of 1940 (1940 Act), as well as certain non‑U.S. regulated funds. Borrowers, which typically maintain highly diversified portfolios of liquid securities, may access revolving lines of credit for short‑term liquidity needs and structural leverage. Loans to business development companies (BDCs), also included in our fund finance portfolio, are senior secured credit facilities to 1940 Act registered funds that invest in U.S. middle‑market companies. All fund finance facilities to both RMFs and BDCs benefit from regulatory required structural protections.
Collateralized Loan Obligations
Our CLO loans portfolio consists of senior secured debt facilities to both broadly syndicated and middle market CLOs. Broadly syndicated CLOs are backed by diversified pools of broadly syndicated leveraged loans to corporate borrowers, while middle market CLOs are backed by loans typically originated to U.S. middle-market companies. We only invest at the AAA rated tranche.
Commercial
Our commercial portfolio primarily consists of U.S. and European leveraged loan syndications to sub-investment grade borrowers, as well as lines of credit and term loans provided to corporate, insurance and investment advisor clients, primarily large global institutions.
We had binding unfunded commitments as of December 31, 2025 and 2024 of $6 million and $104 million, respectively, to participate in syndications of leveraged loans. Additional information about these unfunded commitments is provided in Note 12 to the consolidated financial statements in this Form 10-K.
These leveraged loans, which are primarily rated “sub-investment grade” under our internal risk-rating framework (refer to Note 4 to the consolidated financial statements in this Form 10-K), are externally rated “BBB,” “BB” or “B,” with approximately 87% and 91% of the loans rated “BB” or “B” as of December 31, 2025 and 2024, respectively. Our investment strategy involves generally limiting our investment to larger, more liquid credits underwritten by major global financial institutions, applying our internal credit analysis process to each potential investment and diversifying our exposure by counterparty and industry segment. However, these loans have significant exposure to credit losses relative to higher-rated loans in our portfolio.
Commercial Real Estate
As of December 31, 2025, the commercial real estate portfolio consists of, by asset class, approximately 40% multifamily residential, 40% office buildings and 20% other asset classes, and the portfolio does not have any construction exposure.
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Additionally, as of December 31, 2025, the commercial real estate loans are on properties located in multiple markets across the United States, with no significant concentrations (New York Metro is the largest concentration at approximately 20%). Despite not having a significant concentration in any one market, a material decline in real estate markets or economic conditions could negatively impact the value or performance of one or more individual properties, which could adversely impact timely loan repayment, which may result in increased provisions for credit losses. We continued to observe these effects in commercial real estate loans during 2025, particularly those collateralized by office buildings, resulting in additional provisions for credit losses. Were conditions, or our evaluation of conditions, in those or other markets to worsen during 2026 or subsequent periods, we may increase our allowance for credit losses during those periods.
Overdrafts
Overdrafts primarily occur with custody clients and totaled $1.96 billion as of December 31, 2025, compared to $1.98 billion as of December 31, 2024. Overdraft balances are recorded within the loan portfolio and are typically repaid over a short period.
Other
Our other loans consist of securities finance and municipal loans. Securities finance loans represent the balance sheet‑funded portion of facilities offered through State Street Markets, in which clients pledge securities to draw cash. We may subsequently lend these securities through our agency lending program to raise cash and reduce the balance sheet‑funded exposure. Municipal loans consist of revolving credit facilities and term loans to U.S. municipal and not‑for‑profit obligors.
Additional information about our loan segments, as well as their underlying classes, is provided in Note 4 to the consolidated financial statements in this Form 10-K.
The following table presents the contractual maturities for loans, by segment, as of December 31, 2025.
TABLE 22: CONTRACTUAL MATURITIES FOR LOANS
As of December 31, 2025
(In millions)
Under 1 year
1 to 5 years
5 to 15 years
Over 15 years
Total
Commercial and financial
Commercial real estate
Total loans
The following table presents the classification of loan balances due after one year, by segment, as of December 31, 2025.
TABLE 23: CLASSIFICATION OF LOAN BALANCES DUE AFTER ONE YEAR
As of December 31, 2025
(In millions)
Loans with predetermined interest rates
Loans with floating or adjustable interest rates
Commercial and financial
Commercial real estate
Total loans
Allowance for Credit Losses
TABLE 24: ALLOWANCE FOR CREDIT LOSSES
Years Ended December 31,
(In millions)
Allowance for credit losses:
Beginning balance
Provision for credit losses (funded commitments) (1)
Provisions for credit losses (unfunded commitments)
Provisions for credit losses (investment securities and all other)
Charge-offs (2)
Ending balance
(1) The provision for credit losses is primarily related to commercial real estate and commercial loans.
(2) The charge-offs are primarily related to commercial loans and a commercial real estate loan.
As of December 31, 2025, the allowance for credit losses increased $20 million compared to December 31, 2024, driven by the provision for credit losses of $59 million primarily reflecting the evolving macroeconomic environment and an increase in loan loss reserves associated with certain commercial real estate and commercial loans, partially offset by charge-offs of $39 million, largely related to a commercial real estate loan and certain commercial loans.
As of December 31, 2025, approximately $120 million of our allowance for credit losses was related to certain commercial real estate loans compared to $102 million as of December 31, 2024. In addition, $69 million and $68 million as of December 31, 2025 and 2024, respectively, was related to commercial loans. The remaining $14 million and $13 million as of December 31, 2025 and 2024, respectively, was related to other loans, off-balance sheet commitments and other financial assets held at amortized cost, including investment securities. As of December 31, 2025, the allowance for credit losses on loans represented 0.4% of total loans.
As our view on current and future economic conditions changes, our allowance for credit losses related to these loans may be impacted through a change to the provisions for credit losses, reflecting factors such as credit migration within our loan portfolio, as well as changes in management’s economic outlook.
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Additional information with respect to the allowance for credit losses, net impairment losses and gross unrealized losses related to investment securities, is provided in “Allowance for Credit Losses” under Significant Accounting Estimates and Note 3 to the consolidated financial statements in this Form 10-K.
RISK MANAGEMENT
Overview
In the normal course of our business activities, we are exposed to a variety of risks, some that are inherent in the financial services industry, and others that are more specific to our business activities. Our risk management framework focuses on material risks, which include the following:
• credit and counterparty risk;
• liquidity risk, including funding and management;
• operational risk;
• information technology and cybersecurity risk;
• resiliency risk;
• market risk associated with our trading activities;
• market risk associated with our non-trading activities, referred to as asset and liability management, consisting primarily of interest rate risk;
• model risk;
• strategic risk; and
• reputational, compliance, fiduciary and business conduct risk.
Many of these risks, as well as certain factors underlying each of them, could affect our businesses and our consolidated financial statements, and are discussed in detail under “Risk Factors” in this Form 10-K.
The identification, assessment, monitoring, mitigation and reporting of risks are essential to our financial performance and successful management of our businesses. Accordingly, the scope of our business requires that we consider these risks as part of a comprehensive and well-integrated risk management function.
These risks, if not effectively managed, can result in losses to us as well as erosion of our capital and damage to our reputation. Our approach to risk management, including Board and senior management oversight and a system of policies, procedures, limits, risk measurement and monitoring and internal controls, allows for an assessment of risks within a framework for evaluating opportunities
for the prudent use of capital that appropriately balances risk and return.
Our objective is to optimize our returns while operating at a prudent level of risk. In support of this objective, we have instituted a risk appetite framework that aligns our business strategy and financial objectives with the level of risk that we are willing to incur.
We manage risk with a focus on the following objectives:
• A culture of risk awareness that extends across all of our business activities;
• The identification, classification and quantification of our material risks;
• The establishment of our risk appetite and associated limits and policies, and our adherence to these limits;
• The establishment of a risk management structure that enables the control and coordination of risk-taking across the business lines;
• The implementation of stress testing practices and a dynamic risk-assessment capability (additional information with respect to our stress-testing process and practices is provided under “Capital” in this Management’s Discussion and Analysis);
• A direct link between risk and strategic decision-making processes and incentive compensation practices; and
• The overall flexibility to adapt to the ever-changing business and market conditions.
Our risk appetite framework outlines the quantitative limits and qualitative goals that define the level and type of risk we are willing to undertake in the course of executing our business strategy, and also serves as a guide in setting risk limits across our business units. It further defines responsibilities for measuring and monitoring risk against limits, and for reporting, escalating, approving and addressing exceptions. Our risk appetite framework is established by ERM, a separate corporate risk oversight group, in conjunction with the ERC and the RC of the Board. The Board formally reviews and approves our risk appetite statement annually, or more frequently in response to shifts in endogenous or exogenous risk conditions.
Governance and Structure
Our approach to risk management involves all levels of management, from the Board and its committees, including its E&A Committee, the RC, the HRC and the TOPS, to each business unit and employee. We allocate responsibility for risk oversight so that risk/return decisions are made under a
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process designed to place appropriate personnel in positions of decision-making authority and subject to robust review and challenge.
Risk management is the responsibility of each employee, and is implemented through three lines of defense:
• The business units and certain corporate functions, which own and manage the risks inherent in their areas, are considered the first line of defense;
• ERM function is the second line of defense and is responsible for overseeing the risk-taking activities of the first line of defense and challenging their execution of risk management responsibilities; and
• Corporate Audit is the third line of defense, reports to the E&A Committee of the Board and is independent from the business units, ERM and other corporate functions. Corporate Audit provides independent and objective assurance to the Board over the design and operating effectiveness of internal controls as well as the effectiveness of our risk management practices. For credit risk, Global Credit Review, which reports administratively to Corporate Audit and functionally to the RC of the Board, provides assurance over our credit risk practices.
The responsibilities for effective review and challenge reside with senior managers, management oversight committees, our risk management function, Corporate Audit and, ultimately, the Board and its committees.
Corporate-level risk committees provide focused oversight, and establish corporate standards and policies for specific risks, including credit, country, market, liquidity, operational, cyber, information technology as well as new business products, regulatory compliance and ethics, vendor risk and model risks. These committees have been delegated the responsibility to develop recommendations and remediation strategies to address issues that affect or have the potential to affect us.
We maintain a risk governance committee structure which serves as the formal governance mechanism through which we seek to undertake the consistent identification, management and mitigation of various risks facing us in connection with our business activities. This governance structure is enhanced and integrated through multi-disciplinary involvement, particularly through ERM. The following chart presents this structure.
While our risk management program is designed to manage the risks in our businesses, internal and external factors may create risks that cannot always be identified or anticipated.
Board Risk Governance Committee Structure
Board Committees:
Risk Committee (RC)
Examining & Audit Committee
(E&A Committee)
Human Resources Committee (HRC)
Technology and Operations Committee
(TOPS)
Management Risk Governance Committee Structure
Executive Management Committee
Enterprise Risk Committee (ERC)
Risk Governance Committees:
Asset-Liability Committee (ALCO)
Business Conduct and Compliance Committee (BCCC)
Credit and Market Risk Committee (CMRC)
Strategic Risk Committee (SRC)
Technology and Operational Risk Committee (TORC)
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Enterprise Risk Management
The goal of ERM is to ensure that risks are proactively identified, well-understood and prudently managed in support of our business strategy. ERM is responsible for identifying, measuring, monitoring, controlling, and reporting aggregate risks, as well as for establishing programs, frameworks, policies, and procedures that set forth principles and requirements for managing and overseeing risk. The second line is responsible for setting the risk appetite limits, developing policies and procedures to evaluate whether risks remain within the appropriate limits, and monitoring risk-taking.
Risk identification and assessments serve to enable ERM’s understanding of business unit strategy, risk profile, and potential exposures and support the management of risk. This is achieved through a series of risk assessments across our business using techniques for the identification, assessment, and measurement of risk across a spectrum of potential frequency and severity combinations. These techniques include business-specific programs, such as new business and product review and approval, new client screening, and, as deemed appropriate, targeted risk assessments.
Two primary risk assessment programs, which are supplemented by other business-specific programs, are the core of this component:
• The Material Risk Identification process utilizes a bottom-up approach to identify State Street’s most significant risk exposures across all on- and off-balance sheet risk-taking activities. The primary output from the program is a firmwide Material Risk Inventory, which forms a holistic view of the firm’s risk profile, irrespective of risk likelihood or frequency, and is used as a foundational element in State Street’s risk management and capital planning processes.
• The Risk and Control Self-Assessment program comprises a structured process to identify, assess, and manage non-financial risks (operational and compliance) within our business lines and corporate functions. See also “Operational Risk Management” below.
In addition, ERM establishes and reviews limits and, in collaboration with business unit management, monitors key risks. Ultimately, ERM works to validate that risk-taking occurs within the risk appetite statements approved by the Board and conforms to associated risk policies, limits and guidelines.
The CRO is responsible for our risk management globally, leads the ERM organization globally and has a dual reporting line to our CEO and the RC of the Board.
Board Committees
The Board has four committees which assist it in discharging its responsibilities with respect to risk management: the RC, the E&A Committee, the HRC and the TOPS.
• The RC oversees the operation and implementation of our enterprise-wide global risk management framework which includes risk management governance, material risk policies and risk control infrastructure. In doing so, the RC reviews our assessment and effective management of all risks applicable to our operations, including credit, market, interest rate, liquidity, operational, compliance, strategic, technology and reputational risks. In addition, the RC oversees capital planning activities, balance sheet management, and applicable risk related metrics and monitoring capital adequacy under business-as-usual and stress conditions. Further, the RC reviews liquidity risk tolerances and operating effectiveness, liquidity risk management strategies and new and emerging risks to State Street.
• The E&A Committee oversees the operation of a comprehensive system of internal controls covering the integrity of our accounting and financial reporting processes, the preparation, audit and disclosure of consolidated financial statements and compliance with laws and regulatory requirements. The E&A Committee monitors and oversees the performance of Corporate Audit and in reviewing certain communications with banking regulators. The E&A Committee has direct responsibility for the appointment, compensation, retention, evaluation and oversight of the work of our independent registered public accounting firm, including sole authority for the establishment of pre-approval policies and procedures for all audit engagements and any non-audit engagements. The E&A Committee also reviews and monitors the effectiveness of our compliance program, advancing a culture of compliance and ethical business practices.
• The HRC has direct responsibility for the oversight of human capital management, all compensation plans, policies and programs in which executive officers participate and incentive, retirement, welfare as well as equity plans in which certain of our other employees participate. In addition, it oversees the alignment of our incentive
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compensation arrangements with our safety and soundness, including the integration of risk management objectives, and related policies, arrangements and control processes consistent with applicable related regulatory rules and guidance.
• The TOPS leads and assists the Board in its oversight of enterprise-wide technology and operations strategy and programs. In addition, the TOPS oversees technology and operational risk management including the associated frameworks, policies, procedures and practices and setting risk tolerances and limits as appropriate. The TOPS further reviews technology and operational risk exposures, resiliency and controls on information security, cybersecurity risk, business continuity, data and access management and third-party risk management, or other related matters.
Executive Management Committee
ERC is the executive management oversight and decision-making body for all risks facing us in alignment with our strategy, risk appetite, balance sheet, and capital adequacy, including credit, interest rate, liquidity, market, operational and technology, compliance, and reputational risks globally. Its key responsibilities include:
• The review and recommendation for approval to the RC of the Board of our global risk policies, capital and liquidity management frameworks, including our risk appetite framework;
• The oversight of our capital adequacy processes and recovery and resolution plans, stress testing program, and monitoring and assessing our capital adequacy; and
• The ongoing monitoring and review of risks undertaken within the businesses, and our senior management oversight and approval of risk strategies and tactics.
ERC is co-chaired by the CRO and the CEO.
Risk Governance Committees
The following risk committees, under the authorization and oversight of the ERC, have focused responsibilities for oversight of specific areas of risk management:
• ALCO is the senior oversight and decision-making body for our balance sheet strategy, capital management, Global Treasury business activities and associated risks, including interest rate and mark-to-market risk, liquidity risk, non-trading market risk and capital adequacy measures. ALCO is co-chaired by the CFO and the Chief Financial Risk Officer;
• BCCC oversees the management of culture, conduct, and compliance risks, programs, framework and compliance risk exposures that could result in reputational risk. The BCCC is co-chaired by the Chief Compliance and Operational Risk Officer and the Chief Human Resources and Citizenship Officer;
• CMRC provides firm-wide oversight of our credit risks and market (trading) risks, including oversight of related risk appetite development, limit setting and breach management, and applicable risk policies. CMRC is co-chaired by the Global Head of Sales, Strategic Growth and Global Credit Finance and the Chief Financial Risk Officer;
• SRC oversees enterprise-wide strategic risk, which is defined as the risk to current or projected financial condition and resilience arising from adverse business decisions, poor implementation of business decisions, or lack of responsiveness to changes in the banking industry and operating environment. The SRC is co-chaired by the CFO and the CRO; and
• TORC provides oversight and assesses the effectiveness of enterprise-wide technology and operational risk management programs. It also reviews areas of improvement to manage and control technology and operational risk consistently across the organization. TORC is co-chaired by the Chief Operating Officer and Chief Compliance and Operational Risk Officer.
Credit and Counterparty Risk Management
Core Policies and Principles
We define credit risk as the risk of financial loss if a counterparty, borrower or obligor, is unable or unwilling to repay borrowings or settle contractual transactions in accordance with underlying terms. Credit risk may occur in our business activities through traditional lending such as loans and standby letters of credit; in our investment securities portfolio; in direct or indemnified agency trading activities, such as foreign exchange, principal securities lending and indemnified agency securities lending, in our treasury operations through deposit placements and other cash balances held with central banks or private sector institutions, and in our custody business through overdrafts. Credit risk is also incurred in our day-to-day settlement operations.
We distinguish between three major types of credit risk:
• Default risk - the risk that a counterparty fails to meet its contractual payment obligations;
• Country risk - the risk that we may suffer a loss, in any given country, due to any of the following reasons: deterioration of economic
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conditions, political and social upheaval, nationalization and appropriation of assets, government repudiation of indebtedness, exchange controls and disruptive currency depreciation or devaluation; and
• Settlement risk - the risk that the settlement or clearance of transactions will fail, which arises whenever the exchange of cash, securities or other assets is not simultaneous.
The acceptance of credit risk by us is governed by corporate policies and guidelines, which include standardized procedures applied across the entire organization. These policies and guidelines include specific requirements related to each counterparty’s risk profile; the markets served; counterparty, industry and country concentrations; and regulatory compliance. These policies and procedures also implement a number of core principles, which include the following:
• We measure and consolidate credit risks attributed to each counterparty, or group of counterparties, in accordance with a “one-obligor” principle that aggregates risks across our business units;
• ERM reviews and approves all material extensions of credit, and material changes to such extensions of credit (such as changes in term, collateral structure or covenants), in accordance with assigned credit-approval authorities;
• Credit-approval authorities are assigned to individuals according to their qualifications, experience and training, and these authorities are periodically reviewed. Our largest exposures require approval by the CC, a subcommittee of the CMRC. With respect to small and low-risk extensions of credit to certain types of counterparties, approval authority may be granted to individuals outside of ERM;
• We seek to avoid or limit undue concentrations of risk. Counterparty (or groups of counterparties), industry, country and product-specific concentrations of risk are subject to frequent review and approval in accordance with our risk policies and appetite;
• We evaluate the creditworthiness of counterparties through a detailed risk assessment, including the use of internal risk-rating methodologies;
• We review all extensions of credit and the creditworthiness of counterparties at least annually. The nature and extent of these reviews are determined by the size, nature
and term of the extensions of credit and the creditworthiness of the counterparty; and
• We subject all corporate policies and guidelines to annual review as an integral part of our periodic assessment of our risk appetite.
Our corporate policies and guidelines require that all extensions of credit are consistent with the bank’s standards, limit credit-related losses, and support our goal of maintaining a strong financial condition.
Structure and Organization
The Credit Risk group within ERM is responsible for the assessment, approval and monitoring of credit risk across our business. The group is managed centrally, has dedicated teams in a number of locations worldwide, and is responsible for related policies and procedures and our internal credit-rating systems and methodologies. In addition, the group, in conjunction with the business units, establishes measurements and limits to control the amount of credit risk accepted across its various business activities, both at the portfolio level and for each individual counterparty or group of counterparties, to individual sectors, and also to counterparties by product and country of risk. These measurements and limits are reviewed periodically, or at least annually.
In conjunction with other groups in ERM, the Credit Risk group is responsible for the design, implementation and oversight of our credit risk measurement and management systems, including data and assessment systems, quantification systems and the reporting framework.
Various key committees within our company are responsible for the oversight of credit risk and associated credit risk policies, systems and models. All credit-related activities are governed by our risk appetite framework and our credit risk guidelines, which define our general philosophy with respect to credit risk and the manner in which we control, manage and monitor such risks.
CMRC and CC have the primary responsibility for the oversight, review and approval of the credit risk guidelines and policies which are reviewed periodically, but at least annually.
The CC has responsibility for assigning credit authority and approving the largest and higher-risk extensions of credit to individual counterparties or groups of counterparties.
CMRC provides periodic updates to ERC and the RC of the Board.
Credit Ratings
We perform initial and ongoing reviews to exercise due diligence on the creditworthiness of our
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counterparties when conducting any business with them or approving any credit limits.
This due diligence process generally includes the assignment of an internal credit rating, which is determined by the use of internally developed and validated methodologies, scorecards and a 15-grade rating scale. This risk-rating process incorporates the use of risk-rating tools in conjunction with management judgment; qualitative and quantitative inputs are captured in a replicable manner and, following a formal review and approval process, an internal credit rating based on our rating scale is assigned. We generally rate our counterparties individually, although some counterparties defined by us as low-risk are rated on a pooled basis. Credit ratings are reviewed and approved by the Credit Risk group or its delegates. We evaluate and rate the credit risk of our counterparties on an ongoing basis. To facilitate comparability across the portfolio, counterparties within a given sector are rated using a risk-rating tool developed for that sector.
Our risk-rating models are subject to periodic internal review and validation. The overall risk rating methodology is reviewed and approved by the CC on an annual basis.
Risk Parameter Estimates
Our internal risk-rating system promotes a clear and consistent approach to determining appropriate credit risk classifications for our credit counterparties and exposures. This allows us to track the changes in risk associated with these counterparties and exposures over time. This capability enhances our ability to calculate both risk exposures and capital, and enables better strategic decision-making across the organization.
More specifically, our internal risk rating system is used for the following purposes:
• The assessment of the creditworthiness of new counterparties and, in conjunction with our risk appetite statement, the development of appropriate credit limits for our products and services, including loans, foreign exchange, securities finance, placements and repurchase agreements;
• The automation of limit approvals for certain low-risk counterparties, as defined in our credit risk guidelines and based on the counterparty’s PD;
• The development of approval authority matrices based on PD; riskier counterparties with higher PDs require higher levels of approval for a comparable PD and limit size compared to less risky counterparties with lower PDs;
• The analysis of risk concentration trends using historical PD and exposure-at-default (EAD), data;
• The determination of the level of management review of short-duration advances depending on PD; riskier counterparties with higher rating class values generally trigger higher levels of management escalation for comparable short-duration advances compared to less risky counterparties with lower rating-class values;
• The monitoring of credit facility utilization levels using EAD values and the identification of instances where counterparties have exceeded limits;
• The aggregation and comparison of counterparty exposures with risk appetite levels to determine if businesses are maintaining appropriate risk levels; and
• The determination of our regulatory capital requirements for the AIRB set forth in the Basel framework.
Credit Risk Mitigation
We seek to limit our credit exposure and reduce any potential credit losses through the use of various types of credit risk mitigation. The Basel III final rule permits us to reflect the application of credit risk mitigation when it meets the standards outlined therein. Examples of forms of credit risk mitigation include a security interest in financial and non-financial assets (collateral), netting and guarantees. Where permissible, we apply the recognition of collateral, guarantees and netting to mitigate overall risk within our counterparty credit portfolio. While credit default swaps are permitted under the Basel III final rule, we do not actively use credit default swaps as a risk mitigation tool.
Collateral
In many parts of our business, we regularly require or agree for collateral to be received from or provided to clients and counterparties in connection with contracts that involve credit risk. In our trading businesses, this collateral is typically in the form of cash, as well as highly-rated and/or liquid securities (i.e. government securities and other bonds or equity securities). Credit risks in our non-trading and securities finance businesses are also often secured by bonds and equity securities and by other types of assets. Collateral serves to reduce the risk of loss inherent in an exposure. However, changing market values of the collateral we hold, unexpected increases in the credit exposure to a client or counterparty, reductions in the value or change in the type of securities held by us, as well as operational
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errors or errors in the manner in which we seek to exercise our rights, may reduce the risk mitigation effects of collateral. While collateral is often an alternative source of repayment, it does not replace the requirement within our policies and guidelines for high-quality underwriting. We also may choose to incur credit exposure without the benefit of collateral or other risk mitigating credits rights.
Our credit risk guidelines require that the collateral we accept for risk mitigation purposes is of high quality, can be reliably valued and is supported by a valid security interest that permits liquidation if or when required. Generally, when collateral is of lower quality, more difficult to value or more challenging to liquidate, higher discounts to market values are applied for the purposes of measuring credit risk. For certain less liquid collateral, longer liquidation periods are assumed when determining the credit exposure.
All types of collateral are assessed regularly by ERM, as is the basis on which the collateral is valued. Our assessment of collateral, including the ability to liquidate collateral in the event of a counterparty default, and also with regard to market values of collateral under a variety of hypothetical market conditions, is an integral component of our assessment of risk and approval of credit limits. We also seek to identify, limit and monitor instances of “wrong-way” risk, where a counterparty’s risk of default is positively correlated with the risk of our collateral eroding in value.
We maintain policies and procedures requiring that documentation used to collateralize a transaction is legal, valid, binding and enforceable in the relevant jurisdictions. We also conduct legal reviews to assess whether our documentation meets these standards on an ongoing basis.
Netting
Netting is a mechanism that allows institutions and counterparties to net offsetting exposures and payment obligations against one another through the use of qualifying master netting agreements. A master netting agreement allows for certain rights and remedies upon a counterparty default, including the right to net obligations arising under derivatives or other transactions under such agreement. In such an event, the netting of obligations would result in a single net claim owed by, or to, the counterparty. This is commonly referred to as “close-out netting,” and is pursued wherever possible. We may also enter into master agreements that allow for the netting of amounts payable on a given day and in the same currency, reducing our settlement risk. This is commonly referred to as “payment netting,” and is widely used in our foreign exchange activities.
As with collateral, we have policies and procedures in place to apply close-out and payment netting only to the extent that we have verified legal
validity and enforceability of the master agreement. In the case of payment netting, operational constraints may preclude us from reducing settlement risk, notwithstanding the legal right to require the same under the master netting agreement. In the event we become unable, due to operational constraints, actions by regulators, changes in accounting principles, law or regulation (or related interpretations) or other factors, to net some or all of our offsetting exposures and payment obligations under those agreements, we would be required to gross up our assets and liabilities on our statement of condition and our calculation of RWA, accordingly. This would result in a potentially material change in our regulatory ratios, including LCR, and present increased credit, liquidity, asset and liability management and operational risks, some of which could be material.
Guarantees
A guarantee is a financial instrument that results in credit support being provided by a third party, (i.e., the protection provider) to the underlying obligor (the beneficiary of the provided protection) on account of an exposure owing by the obligor. The protection provider may support the underlying exposure either in whole or in part. Support of this kind may take different forms. Typical forms of guarantees provided to us include financial guarantees, letters of credit, bankers’ acceptances, purchase undertaking agreement contracts and insurance.
We have established a review process to evaluate guarantees under the applicable requirements of our policies and Basel III requirements. Governance for this evaluation is covered under policies and procedures that require regular reviews of documentation, jurisdictions and credit quality of protection providers.
Credit Limits
Central to our philosophy for our management of credit risk is the approval and imposition of credit limits, against which we monitor the actual and potential future credit exposure arising from our business activities with counterparties or groups of counterparties. Credit limits are a reflection of our risk appetite, which may be determined by the creditworthiness of the counterparty, the nature of the risk inherent in the business undertaken with the counterparty, or a combination of relevant credit factors. Our risk appetite for certain sectors and certain countries and geographic regions may also influence the level of risk we are willing to assume to certain counterparties.
The analysis and approval of credit limits is undertaken similarly across our businesses, although the nature and extent of the analysis may vary, based on the type, term and magnitude of the risk being
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assumed. Credit limits and underlying exposures are assessed and measured on both a gross and net basis where appropriate, with net exposure determined by deducting the value of any collateral held. For certain types of risk being assumed, we will also assess and measure exposures under a variety of hypothetical market conditions. Credit limit approvals across our business are undertaken by the Credit Risk group, by individuals to whom credit authority has been delegated, or by the Credit Committee.
Credit limits are re-evaluated annually, or more frequently as needed, and are revised periodically on prevailing and anticipated market conditions, changes in counterparty or country-specific credit ratings and outlook, changes in our risk appetite for certain counterparties, sectors or countries, and enhancements to the measurement of credit utilization.
Reporting
Ongoing active monitoring and management of our credit risk is an integral part of our credit risk management framework. We maintain management information systems to identify, measure, monitor and report credit risk across businesses and legal entities, enabling ERM and our businesses to have timely access to information on credit limits and exposures. Monitoring is performed along the dimensions of counterparty, industry, country and product-specific risks to facilitate the identification of concentrations of risk and emerging trends.
Key aspects of this credit risk reporting structure include governance and oversight groups and policies that define standards for the reporting of credit risk, data aggregation and sourcing systems.
The Credit Risk group routinely assesses the composition of our overall credit risk portfolio for alignment with our stated risk appetite. This assessment includes routine analysis and reporting of the portfolio, monitoring of market-based indicators, the assessment of industry trends and developments and regular reviews of concentrated risks. The Credit Risk group is also responsible, in conjunction with the business units, for defining the appetite for credit risk in the major sectors in which we have a concentration of business activities. These sector-level risk appetite statements, which include counterparty selection criteria and granular underwriting guidelines, are reviewed periodically and approved by either the CMRC or CC.
Monitoring
Regular surveillance of credit and counterparty risks is undertaken by our business units, the Credit Risk group and designees with ERM, allowing for
oversight. This surveillance process includes, but is not limited to, the following components:
• Annual Reviews. A formal review of counterparties is conducted at least annually and includes a review of operating performance, primary risk factors and our internal credit risk rating. This annual review also includes a review of current and proposed credit limits, an assessment of our ongoing risk appetite and assessment that supporting legal documentation remains effective.
• Interim Monitoring. Monitoring of our largest and riskiest counterparties is undertaken more frequently, utilizing financial information, market indicators and other relevant credit and performance measures. The nature and extent of this interim monitoring is individually tailored to certain counterparties and/or industry sectors to identify material changes to the risk profile of a counterparty (or group of counterparties) and assign an updated internal risk rating in a timely manner.
We maintain an active “surveillance list” for all counterparties. The surveillance list status denotes a concern with some aspect of a counterparty’s risk profile that warrants closer monitoring of the counterparty’s financial performance and related risk factors. Our ongoing monitoring processes are designed to facilitate the early identification of counterparties whose creditworthiness is deteriorating; any counterparty may be placed on the surveillance list by ERM at its sole discretion.
Counterparties on the surveillance list generally correspond with the non-investment grade or near non-investment grade ratings established by the major independent credit-rating agencies. The surveillance list also includes any counterparties rated “Special Mention,” “Substandard,” “Doubtful” and “Loss.”
The Credit Risk group maintains primary responsibility for our surveillance list processes, and generates a quarterly report of all surveillance list counterparties. The surveillance list is formally reviewed at least on a quarterly basis, with participation from senior Credit Risk staff, and representatives from the business units and our corporate finance and legal groups as appropriate. These meetings include a review of individual surveillance list counterparties, together with credit limits and prevailing exposures, and are focused on actions to contain, reduce or eliminate the risk of loss to us. Identified actions are documented and monitored.
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Controls
The GCR function provides a separate level of surveillance and oversight over the integrity of our credit risk management processes, including the internal risk-rating system. GCR reviews counterparty credit ratings for all identified sectors on an ongoing basis. GCR is subject to oversight by the CMRC, and provides periodic updates to the ERC and RC of the Board.
Specific activities of GCR include the following:
• Perform separate and objective assessments of our credit and counterparty exposures to determine the nature and extent of risk undertaken by the business units;
• Execute periodic credit process and credit product reviews to assess the quality of credit analysis, compliance with policies, guidelines and relevant regulation, transaction structures and underwriting standards, and risk-rating integrity;
• Identify and monitor developing counterparty, market and/or industry sector trends to limit risk of loss and protect capital;
• Deliver regular and formal reporting to stakeholders, including exam results, identified issues and the status of requisite actions to remedy identified deficiencies;
• Allocate resources for specialized risk assessments (on an as-needed basis); and
• Liaise with assurance partners and regulatory personnel on matters relating to risk rating, reporting and measurement.
Allowance for Credit Losses
We record an allowance for credit losses related to certain on-balance sheet credit exposures, including our financial assets held at amortized cost, as well as certain off-balance sheet credit exposures, including unfunded commitments and letters of credit. Review and evaluation of the adequacy of the allowance for credit losses is ongoing throughout the year, but occurs at least quarterly, and is based, among other factors, on our evaluation of the level of risk in the portfolio and the estimated effects of our forecasts on our counterparties. We utilize multiple economic scenarios, consisting of a baseline, upside and downside scenarios, to develop our forecast of expected losses.
In 2025, the allowance reflected the evolving macroeconomic environment and an increase in loan loss reserves associated with certain commercial real estate and commercial loans. The allowance is inherently subject to uncertainties, including those inherent in our model and economic assumptions, and management may use qualitative adjustments. If future data and forecasts deviate relative to the
forecasts utilized to determine our allowance for credit losses as of December 31, 2025, or if credit risk migration is higher or lower than forecasted for reasons independent of the economic forecast, our allowance for credit losses will also change.
Additional information about the allowance for credit losses is provided in Notes 3 and 4 to the consolidated financial statements in this Form 10-K.
Liquidity Risk Management
Our liquidity framework contemplates areas of potential risk to our liquidity based on our activities, size and other appropriate risk-related factors. In managing liquidity risk we employ limits, maintain established metrics and early warning indicators and perform routine liquidity stress testing to identify potential liquidity needs. This process involves the evaluation of a combination of internal and external scenarios which assist us in measuring our liquidity position and in identifying potential increases in cash needs or decreases in available sources of cash, as well as the potential impairment of our ability to access the global capital markets.
We manage our liquidity on a global, consolidated basis as well as on a stand-alone basis at the Parent Company and at certain branches and subsidiaries of State Street Bank. State Street Bank generally derives its liquidity from its customer deposit base, capital markets, wholesale funding and funding sources limited to banks, such as the federal funds market and the Federal Reserve’s discount window. The Parent Company is managed to a more conservative liquidity profile, reflecting narrower market access. Additionally, the Parent Company typically holds, or has direct access to, primarily through SSIF, a direct subsidiary of the Parent Company, and the support agreement, as discussed in “Supervision and Regulation” in Business in this Form 10-K, cash and equivalents intended to meet its current debt maturities and other cash needs, as well as those projected over the next twelve-month period. Absent financial distress at the Parent Company, the liquid assets available at SSIF continue to be available to the Parent Company. As of December 31, 2025, the value of our Parent Company’s net liquid assets totaled $627 million, compared with $438 million as of December 31, 2024, excluding available liquidity through SSIF. As of December 31, 2025, we and State Street Bank had approximately $3.85 billion of senior notes or subordinated debentures outstanding that will mature in the next 12 months.
As a G-SIB, our liquidity risk management activities are subject to heightened and evolving regulatory requirements, including interpretations of those requirements, under specific U.S. and international regulations and also resulting from published and unpublished guidance, supervisory
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activities, such as stress tests, resolution planning, examinations and other regulatory interactions. Satisfaction of these requirements could, in some cases, result in changes in the composition of our investment portfolio, reduced NII or NIM, a reduction in the level of certain business activities or modifications to the way in which we deliver our products and services. If we fail to meet regulatory requirements to the satisfaction of our regulators, we could receive negative regulatory stress test results, incur a resolution plan deficiency or determination of a non-credible resolution plan or otherwise receive an adverse regulatory finding. Failure to satisfy these regulatory requirements could have a materially adverse affect on our business, financial condition or results of operations.
Governance
Global Treasury is responsible for our management of liquidity. This includes day-to-day management of our global liquidity position, development and monitoring of early warning indicators and key liquidity risk metrics, creation and execution of liquidity stress tests, evaluation and implementation of regulatory requirements, maintenance and execution of our contingency funding plan (CFP), and routine management reporting to ALCO, ERC and the RC of the Board.
Global Treasury Risk Management, part of ERM, provides separate oversight over the identification, communication and management of Global Treasury’s risks in support of our business strategy. Global Treasury Risk Management reports to the CRO. Global Treasury Risk Management’s responsibilities relative to liquidity risk management include the development and review of liquidity risk policies and guidelines, and development and monitoring of limits related to adherence to the liquidity risk guidelines and associated reporting.
Liquidity Framework
We manage liquidity according to several principles that are equally important to our overall liquidity risk management framework:
• Structural liquidity management addresses liquidity by monitoring and directing the composition of our consolidated statement of condition. In addition, on a regular basis and as described below, our structural liquidity is evaluated under various stress scenarios.
• Tactical liquidity management addresses our day-to-day funding requirements and is largely driven by changes in our primary source of funding, which are client deposits. Fluctuations in client deposits may be supplemented with short-term borrowings, repurchase agreements, FHLB products and certificates of deposit.
• Stress testing includes internal and external liquidity stress testing to support our strategic liquidity risk management practices. Internal regular and ad hoc liquidity stress testing are performed under various severe but plausible scenarios at the consolidated level and at significant subsidiaries, including State Street Bank. These tests contemplate severe market and idiosyncratic events specific to us under various time horizons and severities. Tests contemplate the impact of material changes in key funding sources, credit ratings, additional collateral requirements, contingent uses of funding, systemic shocks to the financial markets and operational failures based on market and assumptions specific to us. These stress tests evaluate the required level of funding versus available sources in an adverse environment. In addition to internal stress testing performed, we also monitor and perform external regulatory stress testing through the LCR and NSFR. As testing contemplates potential forward-looking scenarios, results also serve as a trigger to activate specific liquidity levels and contingent funding actions.
• The contingency funding plan is designed to assist senior management with decision-making associated with any contingency funding response to a possible or actual crisis scenario. The CFP defines roles, responsibilities and management actions to be taken in the event of deterioration of our liquidity profile caused by either an event specific to us or a broader disruption in the capital markets. Specific actions are linked to the level of stress indicated by these measures or by management judgment of market conditions.
Liquidity Risk Metrics
In managing our liquidity, we employ early warning indicators and metrics intended to detect emerging risks which may result in a liquidity stress, including changes in our stock price and spreads on our long-term debt. Additional metrics that are critical to the management of our consolidated statement of condition and monitored as part of our routine liquidity management include measures of our fungible cash position, purchased wholesale funds, unencumbered liquid assets, deposits and the total of investment securities and loans as a percentage of total client deposits.
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Asset Liquidity
Central to the management of our liquidity is asset liquidity, which consists primarily of high quality liquid assets of cash and securities.
We maintained average cash balances in excess of regulatory requirements governing deposits with the Federal Reserve, the ECB and other non-U.S. central banks of approximately $91.35 billion for the quarter ended December 31, 2025, compared to $86.88 billion for the quarter ended December 31, 2024. The higher levels of average cash balances with central banks is a result of an increase in client deposits.
Liquid securities carried in our asset liquidity include securities pledged without corresponding advances from the Federal Reserve Bank of Boston (FRBB), the FHLB, and other non-U.S. central banks. State Street Bank is a member of the FHLB. These arrangements allow for advances of liquidity in varying terms against high-quality collateral, which helps facilitate asset and liability management.
Access to primary, intraday and contingent liquidity provided by these utilities is an important source of contingent liquidity with utilization subject to underlying conditions.
In addition to the investment securities included in our asset liquidity, we have other unencumbered investment securities and certain loans that we can pledge as collateral to access these various facilities. These additional assets are available sources of liquidity, although not as rapidly deployed as those already included in our asset liquidity.
The average fair value of total unencumbered securities was $82.79 billion for the quarter ended December 31, 2025, compared to $63.23 billion for the quarter ended December 31, 2024.
Uses of Liquidity
Significant uses of our liquidity could result from the following: withdrawals of client deposits; draw-downs by our custody clients of lines of credit; advances to clients to settle securities transactions; increases in our investment and loan portfolios; or other permitted purposes. Such circumstances would generally arise under stress conditions, such as a deterioration in credit ratings or significant changes in FX rates. A recurring use of our liquidity involves our deployment of HQLA from our investment portfolio to post collateral to financial institutions and central banks to support various business activities.
We had unfunded commitments to extend credit with gross contractual amounts totaling $35.70 billion and $34.19 billion and standby letters of credit totaling $0.57 billion and $0.91 billion as of December 31, 2025 and 2024, respectively. These amounts do not reflect the value of any collateral. As of
December 31, 2025, approximately 70% of our unfunded commitments to extend credit and 35% of our standby letters of credit expire within one year. Since many of our commitments are expected to expire or renew without being drawn upon, the gross contractual amounts do not necessarily represent our future cash requirements.
Information about our resolution planning and the impact actions under our resolution plans could have on our liquidity is provided in “Supervision and Regulation” in Business in this Form 10-K.
Funding
Deposits
We provide products and services including custody, accounting, administration, daily pricing, FX services, cash management, financial asset management, securities finance and investment advisory services. As a provider of these products and services, we generate client deposits, which have generally provided a stable and low-cost source of funds. As a global custodian, clients place deposits with our entities in various currencies. As of both December 31, 2025 and 2024 , approximately 70% of our average total deposit balances were denominated in U.S. dollars, 15% in EUR, 5% in GBP and 10% in all other currencies.
Short-Term Funding
Our on-balance sheet liquid assets are also an integral component of our liquidity management strategy. These assets provide liquidity through maturities of the assets, but more importantly, they provide us with the ability to raise funds by pledging the securities as collateral for borrowings or through outright sales. In addition, our access to the global capital markets gives us the ability to source incremental funding from wholesale investors through relatively low-cost channels to further support business growth. As discussed earlier under “Asset Liquidity,” State Street Bank’s membership in the FHLB allows for advances of liquidity with varying terms against high-quality collateral. We had $3.5 billion and $9.8 billion outstanding of FHLB funding as of December 31, 2025 and 2024, respectively. These outstanding borrowings have initial maturities of approximately 12 months and are recorded in other short-term borrowings in the consolidated statement of condition.
Short-term secured funding also comes in the form of securities lent or sold under agreements to repurchase. These transactions are short-term in nature, generally overnight and are collateralized by high-quality investment securities. These balances were $0.84 billion and $3.68 billion as of December 31, 2025 and 2024, respectively.
Long-Term Funding
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We have the ability to issue debt and equity securities under our current universal shelf registration statement to meet current commitments and business needs.
On January 27, 2025, we redeemed $500 million aggregate principal amount of 4.857% fixed-to-floating rate senior notes due 2026.
On February 6, 2025, we redeemed $300 million aggregate principal amount of 1.746% fixed-to-floating rate senior notes due 2026.
On February 28, 2025, we issued $1,350 million aggregate principal amount of 4.536% fixed rate senior notes due 2028, $650 million aggregate principal amount of 4.729% fixed rate senior notes due 2030 and $750 million aggregate principal amount of 5.146% fixed-to-floating rate senior notes due 2036.
On March 30, 2025, we redeemed $500 million aggregate principal amount of 2.901% fixed-to-floating rate senior notes due 2026.
On April 24, 2025, we issued $300 million aggregate principal amount of floating rate senior notes due 2028, $700 million aggregate principal amount of 4.543% fixed-to-floating rate senior notes due 2028 and $1 billion aggregate principal amount of 4.834% fixed rate senior notes due 2030.
On May 18, 2025, we redeemed $1 billion aggregate principal amount of 5.104% fixed-to-floating rate senior notes due 2026.
On October 23, 2025, we issued $1 billion aggregate principal amount of 4.784% fixed-to-floating rate senior notes due 2036.
On November 4, 2025, we redeemed $500 million aggregate principal amount of 5.751% fixed-to-floating rate senior notes due 2026.
Agency Credit Ratings
Our ability to maintain consistent access to liquidity is fostered by the maintenance of high investment grade ratings as measured by major credit rating agencies.
TABLE 25: CREDIT RATINGS
As of December 31, 2025
Standard & Poor’s
Moody’s Investors Service
Fitch
State Street:
Senior debt
Subordinated debt
Junior subordinated debt
BBB
Preferred stock
BBB
Baa1
BBB+
Outlook
Stable
Stable
Stable
State Street Bank:
Short-term deposits
Long-term deposits
Senior debt/Long-term issuer
Subordinated debt
Outlook
Stable
Stable
Stable
Factors essential to maintaining high credit ratings include:
• diverse and stable core earnings;
• relative market position;
• strong risk management;
• strong capital ratios;
• diverse liquidity sources, including the global capital markets and client deposits;
• strong liquidity monitoring procedures; and
• preparedness for current or future regulatory developments.
High ratings limit borrowing costs and enhance our liquidity by:
• providing confidence for unsecured funding and depositors;
• increasing the potential market for our debt and improving our ability to offer products;
• facilitating reduced collateral haircuts in secured lending transactions; and
• engaging in transactions in which clients value high credit ratings.
A downgrade or reduction in our credit ratings could have a material adverse effect on our liquidity by restricting our ability to access the capital markets, which could increase the related cost of funds. In turn, this could cause the sudden and large-scale withdrawal of unsecured deposits by our clients, which could lead to drawdowns of unfunded commitments to extend credit or trigger requirements under securities purchase commitments; or require additional collateral or force terminations of certain trading derivative contracts.
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A majority of our derivative contracts have been entered into under bilateral agreements with counterparties who may require us to post collateral or terminate the transactions based on changes in our credit ratings. We assess the impact of these arrangements by determining the collateral that would be required assuming a downgrade by major rating agencies. The additional collateral or termination payments related to our net derivative liabilities under these arrangements that could have been called by counterparties in the event of a downgrade in our credit ratings below levels specified in the agreements is provided in Note 10 to the consolidated financial statements in this Form 10-K. Other funding sources, such as secured financing transactions and other margin requirements, for which there are no explicit triggers, could also be adversely affected.
Contractual Cash Obligations and Other Commitments
The long-term contractual cash obligations included within Table 26: Long-Term Contractual Cash Obligations were recorded in our consolidated statement of condition as of December 31, 2025.
TABLE 26: LONG-TERM CONTRACTUAL CASH OBLIGATIONS
December 31, 2025
Payments Due by Period
(In millions)
Less than 1
year
years
years
Over 5
years
Total
Long-term debt (1)(2)
Operating leases
Finance lease and equipment financing obligations (2)
Total contractual cash obligations
(1) Long-term debt excludes finance lease and equipment financing obligations which are presented as a separate line item.
(2) Additional information about contractual cash obligations related to long-term debt and operating and finance leases is provided in Notes 9 and 20 to the consolidated financial statements in this Form 10-K.
Total contractual cash obligations shown in Table 26: Long-Term Contractual Cash Obligations do not include:
• Obligations which will be settled in cash, primarily in less than one year, such as client deposits, securities sold under repurchase agreements and other short-term borrowings. Additional information about deposits, securities sold under repurchase agreements and other short-term borrowings is provided in Note 8 to the consolidated financial statements in this Form 10-K.
• Obligations related to derivative instruments because the derivative-related amounts recorded in our consolidated statement of condition as of December 31, 2025 did not represent the amounts that may ultimately be paid under the contracts upon settlement. Additional information about our derivative instruments is provided in Note 10 to the consolidated financial statements in this Form 10-K. We have obligations under pension and other post-retirement benefit plans, with additional information provided in Note 19 to the consolidated financial statements in this Form 10-K, which are not included in Table 26: Long-Term Contractual Cash Obligations.
TABLE 27: OTHER COMMERCIAL COMMITMENTS
Duration of Commitment as of December 31, 2025
(In millions)
Less than
1 year
years
years
Over 5
years
Total amounts
committed (1)
Indemnified securities financing
Unfunded credit facilities
Standby letters of credit
Purchase obligations (2)
Total commercial commitments
(1) Total amounts committed reflect participations to independent third parties, if any.
(2) Amounts represent obligations pursuant to legally binding agreements, where we have agreed to purchase products or services with a specific minimum quantity defined at a fixed, minimum or variable price over a specified period of time.
Additional information about the commitments presented in Table 27: Other commercial commitments, except for purchase obligations, is provided in Note 12 to the consolidated financial statements in this Form 10-K.
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Operational Risk Management
Overview
Operational risk is the risk of loss resulting from inadequate or failed internal processes, people and systems, or from external events. This definition excludes strategic and reputational risk.
In providing an array of products and services, we are exposed to operational risk. Operational risk may result from, but is not limited to, errors relating to transaction processing, breaches of internal control systems, or business interruption due to system failures or other events. Operational risk also includes potential legal or regulatory actions that could arise as a byproduct of our failure to maintain and execute an adequate system of internal control. In the case of an operational risk event, we could suffer financial loss and potential regulatory action, as well as reputational damage.
Unforeseen external events, including natural disasters, terrorist attacks, pandemics, global conflicts, volatility in the global equity and fixed income markets driven by recent policy developments and heightened geopolitical tensions (including changes in trade policy of the United States and of other nations, ongoing conflicts in Ukraine and in the Middle East and the recent shutdown of the U.S. federal government) may result in stress on the operating environment and increase operational risk.
Operational risk encompasses fiduciary risk and legal risk. Fiduciary risk is defined as the risk that we fail to properly exercise our fiduciary duties in our provision of products or services to clients. Legal risk is the risk of loss resulting from failure to comply with laws and contractual obligations.
Operational risk is inherent in the performance of investment servicing and investment management activities on behalf of our clients. Whether it be fiduciary risk, risk associated with execution and processing or other types of operational risk, a consistent, transparent and effective operational risk framework is key to identifying, monitoring and managing operational risk. To mitigate these risks, we have established policies, procedures, internal control standards and an operational risk framework. Controls are designed to manage operational risk at levels appropriate to our business model, the business environment and the markets in which we operate taking into account factors such as regulation and competition.
The organizational framework for operational risk is based on risk management activities comprising:
• Governance: We have established governance structures to oversee and assess
our operational risk management activities and our operational risk policy;
• Accountability: Business managers are responsible for maintaining an effective system of internal controls commensurate with their risk profiles and in accordance with State Street policies and procedures. Operational risk management is the second line function responsible for developing risk management policies and tools for assessing, measuring and monitoring operational risk; and
• Operational Risk Management Framework: An established operational risk management framework supports and drives the identification, assessment, mitigation, control and monitoring, and reporting of operational risk.
Governance
Our Board is responsible for the approval and oversight of our overall operational risk policy.
The operational risk policy establishes our approach to our management of operational risk across our business. The policy identifies the responsibilities of individuals and committees charged with oversight of the management of operational risk, and articulates a broad mandate that supports implementation of the operational risk framework.
Executive management manages and oversees our operational risk through membership on risk management committees, including TORC and its subcommittee, the Operational Risk and Controls Committee, each of which ultimately reports to a committee of the Board.
The Operational Risk and Controls Committee, chaired by the Head of Operational Risk Management, oversees the operational risk framework and policies, reviews and monitors program outputs and metrics, and monitors resolution of significant operational risk matters.
Accountability
Accountability for managing operational risk spans the first and second lines of defense:
• The Chief Compliance and Operational Risk Officer, a member of the CRO’s executive management team, leads ERM’s corporate ORM group. ORM is responsible for developing risk management policies and tools for assessing, measuring, monitoring and managing operational risk. The ORM function includes risk oversight of all lines of business and functions; and
• Business Managers are responsible for managing day to day operations, maintaining an effective system of internal controls and
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managing operational risks within risk appetite in its normal course of business.
Corporate Audit, as a third line of defense, performs separate reviews of the application of operational risk management practices and methodologies utilized across our business.
Operational Risk Management Framework
The operational risk management framework has been established in a structured manner to drive the identification, assessment, mitigation, control and monitoring, and reporting of operational risk. Operational risk management framework includes key elements such as risk and control self-assessment, capital analysis, monitoring and reporting and documentation and guidelines. These framework components are described below.
Risk and Control Self-Assessment
The objective of the risk and control self-assessment program is to proactively identify, assess and manage operational risks and related controls associated with day-to-day operations. A key component of understanding how risks are managed is to understand the effectiveness of controls. Effectiveness of controls is concluded through testing, both internal and external, business control assurance activities and self-assessments along with other control function reviews, such as a SOX testing program.
Capital Analysis
The primary measurement tool used to quantify operational risk capital and RWA related to operational risk under the advanced approaches is the loss distribution approach (LDA) model. Such required capital and RWA totaled $4.13 billion and $51.64 billion, respectively, as of December 31, 2025, compared to $3.95 billion and $49.35 billion, respectively, as of December 31, 2024; refer to the “Capital” section in “Financial Condition,” of this Management’s Discussion and Analysis.
The LDA model incorporates the three required operational risk elements described below:
• Internal loss event data is collected from across our business in conformity with our operating loss policy that establishes the requirements for collecting and reporting individual loss events;
• External loss event data from other financial institutions supplements our internal loss data pool with respect to loss event severity; and
• Business environment and internal control factors are those characteristics of a bank’s internal and external operating environment that bear an exposure to operational risk.
Monitoring and Reporting
The objective of risk monitoring is to proactively monitor the changing business environment and corresponding operational risk exposure. It is achieved through monitoring tools that are designed to help us understand changes in the business environment, internal control factors, risk metrics, risk assessments, exposures and operating effectiveness, as well as details of loss events and progress on risk initiatives implemented to mitigate potential risk exposures.
Operational risk reporting is intended to provide transparency, thereby enabling management to manage risk, provide oversight and escalate issues in a timely manner. It is designed to allow the business units, executive management, and the Board’s control functions and committees to gain insight into activities that may result in risks and potential exposures.
Documentation and Guidelines
Documentation and guidelines allow for consistency and repeatability of the various processes that support the operational risk framework across our business.
Operational risk guidelines document our practices and describe the key elements in a business unit’s operational risk management program. The purpose of the guidelines is to set forth and define key operational risk terms, provide further detail on our operational risk programs, and detail the business units’ responsibilities to identify, assess, measure, monitor and report operational risk. The guideline supports our operational risk policy.
Data standards have been established with the intent of maintaining consistent data repositories and systems that are controlled, accurate and available on a timely basis to support operational risk management.
Information Technology Risk Management
Overview and Principles
We define information technology risk as the risk associated with the use, ownership, operation and adoption of information technology. Information technology risk includes risks potentially triggered by non-compliance with regulatory obligations or expectations, information security or cyber incidents, internal control and process gaps, operational events and adoption of new business technologies.
The principal technology risks within our risk policy and risk appetite framework include:
• Third party risk;
• Business disruption and technology resiliency risk;
• Technology change management risk;
• Cyber and information security risk;
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• Technology asset and configuration risk; and
• Technology obsolescence risk.
Governance
Our Board is responsible for the approval and oversight of our overall technology risk framework and program. It does so through the TOPS, which reviews and approves our risk policy and appetite framework annually as well as our cybersecurity policy and related standards.
Our risk policy establishes the approach to management of technology risk across our businesses. The policy identifies the responsibilities of individuals and committees charged with oversight of the management of technology risk and articulates a broad mandate that supports implementation of the risk framework.
Risk control functions in the business are responsible for adopting and executing the risk framework and reporting requirements. They do this, in part, by developing and maintaining an inventory of critical applications and supporting infrastructure, as well as identifying, assessing and measuring technology risk. They are also responsible for monitoring and evaluating risk on a continual basis using key risk indicators, risk reporting and adopting appropriate risk responses to risk issues.
Enterprise Technology Risk Management (ETRM) is the separate risk function responsible for the technology risk management oversight and appetite, and technology risk framework development and execution. ETRM also performs overall technology risk monitoring and reporting to the Board, and provides a separate view of the technology risk posture to executive leadership.
We manage technology risks by:
• Coordinating various risk assessment and risk management activities, including ERM operational risk programs;
• Establishing, through TORC and TOPS of the Board, the enterprise level technology risk and cyber risk appetite and limits;
• Producing enterprise level risk reporting, aggregation, dashboards, profiles and risk appetite statements;
• Validating appropriateness of reporting of information technology and cybersecurity risks and risk acceptance to senior management risk committees and the Board;
• Promoting a strong technology and cybersecurity risk culture through communication;
• Serving as an escalation and challenge point for risk policy guidance, expectations and clarifications;
• Assessing effectiveness of key enterprise information technology and cybersecurity risks, including adoption of emerging technologies and internal control remediation programs; and
• Providing risk oversight, challenge and monitoring for the Enterprise Business Continuity Services function and Third Party Management program, including the collection of risk appetite, metrics and key risk indicators, and reviewing issue management processes and consistent program adoption.
Cybersecurity Risk Management
Cybersecurity risk is managed as part of our overall information technology risk as outlined above. For additional information about our cybersecurity risk management program, refer to Item 1C in this Form 10-K.
The TORC assesses and manages the effectiveness of our cybersecurity program, which is overseen by the TOPS of our Board. The TOPS receives regular cybersecurity updates throughout the year and is responsible for reviewing and approving the policy on an annual basis.
Market Risk Management
Market risk is the risk of loss that could result from broad market movements, such as changes in the general level of interest rates, credit spreads, foreign exchange rates or commodity prices. We are exposed to market risk in both our trading and certain of our non-trading, or asset and liability management, activities.
Information about the market risk associated with our trading activities is provided below under “Trading Activities.” Information about the market risk associated with our non-trading activities, which consists primarily of interest rate risk, is provided below under “Asset and Liability Management Activities.”
Trading Activities
In the conduct of our trading activities, we assume market risk, the level of which is a function of our overall risk appetite, business objectives and liquidity needs, our clients’ requirements and market volatility and our execution against those factors.
We engage in trading activities primarily to support our clients’ needs and to contribute to our overall corporate earnings and liquidity. In connection with certain of these trading activities, we enter into a variety of derivative financial instruments to support our clients' needs and to manage our interest rate and currency risk. These activities are generally intended to generate foreign exchange trading services revenue and to manage potential earnings
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volatility. In addition, we provide services related to derivatives in our role as both a manager and a servicer of financial assets.
Our clients use derivatives to manage the financial risks associated with their investment goals and business activities. With the growth of cross-border investing, our clients often enter into foreign exchange forward contracts to convert currency for international investments and to manage the currency risk in their international investment portfolios. As an active participant in the foreign exchange markets, we provide foreign exchange forward and option contracts in support of these client needs, and act as a dealer in the currency markets.
As part of our trading activities, we assume positions in the foreign exchange and interest rate markets by buying and selling cash instruments and entering into derivative instruments, including foreign exchange forward contracts, foreign exchange options and interest rate swaps, interest rate forward contracts and interest rate futures. As of December 31, 2025, the notional amount of these derivative contracts was $2.92 trillion, of which $2.78 trillion was composed of foreign exchange forward, swap and spot contracts. We seek to match positions closely with the objective of mitigating related currency and interest rate risk. All foreign exchange contracts are valued daily at current market rates.
Governance
Our assumption of market risk in our trading activities is an integral part of our corporate risk appetite. The RC of the Board reviews and oversees our management of market risk, including the approval of key market risk policies and the receipt and review of regular market risk reporting, as well as periodic updates on selected market risk topics.
The Trading and Markets Risk Committee, a subcommittee of the previously described CMRC (refer to “Risk Committees”), oversees all market risk-taking activities across our business associated with trading. The TMRC, which reports to the CMRC, is composed of members of ERM, our State Street Markets business and our Global Treasury group, other control functions, as well as our senior executives who manage our trading businesses and other members of management who possess specialized knowledge. The TMRC meets regularly to monitor the management of our trading market risk activities.
Our business units identify, manage and are responsible for the market risks inherent in their businesses. A dedicated market risk management group within ERM, and other groups within ERM, work with those business units to assist them in the identification, assessment, monitoring, management and control of market risk, and assist business unit
managers with their market risk management and measurement activities. ERM provides an additional line of oversight, support and coordination designed to promote the consistent identification, measurement and management of market risk across business units, separate from those business units’ discrete activities.
The ERM market risk management group is responsible for the management of corporate-wide market risk, the monitoring of key market risks and the development and maintenance of market risk management policies, guidelines and standards aligned with our corporate risk appetite. This group also establishes and approves market risk tolerance limits and trading authorities based on, but not limited to, market risk measures such as notional amounts, sensitivities, VaR and stress. Such limits and authorities are specified in our trading and market risk guidelines which govern our management of trading market risk.
Risk Appetite
Our corporate market risk appetite is specified in policy statements that outline the governance, responsibilities and requirements surrounding the identification, measurement, analysis, management and communication of market risk arising from our trading activities. These policy statements also set forth the market risk control framework designed to monitor, support, manage and control this portion of our risk appetite. All groups involved in the management and control of market risk associated with trading activities are required to comply with the qualitative and quantitative elements of these policy statements. Our trading market risk control framework is composed of the following:
• A trading market risk management process led by ERM, separate from the business units’ discrete activities;
• Defined responsibilities and authorities for the primary groups involved in trading market risk management;
• A trading market risk measurement methodology that captures correlation effects and allows aggregation of market risk across risk types, markets and business lines;
• Daily monitoring, analysis and reporting of market risk exposures associated with trading activities against market risk limits;
• A defined limit structure and escalation process in the event of a market risk limit excess;
• Use of VaR models to measure the one-day market risk exposure of trading positions;
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• Use of VaR as a ten-day-based regulatory capital measure of the market risk exposure of trading positions;
• Use of non-VaR-based limits and other controls;
• Use of stressed-VaR models, stress-testing analysis and scenario analysis to support the trading market risk measurement and management process by assessing how portfolios and global business lines perform under extreme market conditions;
• Use of back-testing as a diagnostic tool to assess the accuracy of VaR models and other risk management techniques; and
• An approval process for new products that requires market risk teams to assess trading-related market risks and apply risk tolerance limits to proposed new products and business activities.
We use our CAP to assess our overall capital and liquidity in relation to our risk profile and provide a comprehensive strategy for maintaining appropriate capital and liquidity levels. With respect to market risk associated with trading activities, our risk management and our calculations of regulatory capital are based primarily on our internal VaR models and stress testing analysis. As discussed in detail under “Value-at-Risk and Stressed VaR” below, VaR is measured daily by ERM.
The TMRC oversees our market risk exposure in relation to limits established within our risk appetite framework. These limits define threshold levels for VaR- and stressed VaR-based measures and are applicable to all trading positions subject to regulatory capital requirements. These limits are designed to mitigate undue concentration of market risk exposure, in light of the primarily non-proprietary nature of our trading activities. The risk appetite framework and associated limits are reviewed and approved by the RC of the Board.
Covered Positions
Our trading positions are subject to regulatory market risk capital requirements if they meet the regulatory definition of a “covered position.” A covered position is generally defined by the U.S. Agencies as an on- or off-balance sheet position associated with the organization’s trading activities that is free of any restrictions on its tradability, but does not include intangible assets, certain credit derivatives recognized as guarantees and certain equity positions not publicly traded. All FX and commodity positions are considered covered positions, regardless of the accounting treatment they receive.
Our covered positions consist primarily of the trading portfolios held by our State Street Markets
business. They also arise from certain positions held by our Global Treasury group. These trading positions include products such as foreign exchange spot, foreign exchange forwards, non-deliverable forwards, foreign exchange options, foreign exchange funding swaps, currency futures, financial futures and interest rate futures. New activities are analyzed to determine if the positions arising from such new activities meet the definition of a covered position and conform to our trading and market risk guidelines.
We use spot rates, forward points, yield curves and discount factors imported from third-party sources to measure the value of our covered positions, and we use such values to mark our covered positions to market on a daily basis. These values are subject to separate validation by us in order to evaluate reasonableness and consistency with market experience. The mark-to-market gain or loss on spot transactions is calculated by applying the spot rate to the foreign currency principal and comparing the resultant base currency amount to the original transaction principal. The mark-to-market gain or loss on a forward foreign exchange contract or forward cash flow contract is determined as the difference between the life-to-date (historical) value of the cash flow and the value of the cash flow at the inception of the transaction. The mark-to-market gain or loss on interest rate swaps is determined by discounting the future cash flows from each leg of the swap transaction.
Value-at-Risk and Stressed VaR
We use a variety of risk measurement tools and methodologies, including VaR, which is an estimate of potential loss for a given period within a stated statistical confidence interval. We use a risk measurement methodology to measure trading-related VaR daily. We have adopted standards for measuring trading-related VaR, and we maintain regulatory capital for market risk associated with our trading activities in conformity with currently applicable bank regulatory market risk requirements.
We utilize an internal VaR model to calculate our regulatory market risk capital requirements. We use a historical simulation model to calculate daily VaR- and stressed VaR-based measures for our covered positions in conformity with regulatory requirements. Our VaR model seeks to capture identified material risk factors associated with our covered positions, including risks arising from market movements such as changes in foreign exchange rates, interest rates and option-implied volatilities.
We have adopted standards and guidelines to value our covered positions which govern our VaR- and stressed VaR-based measures. Our regulatory VaR-based measure is calculated based on historical volatilities of market risk factors during a two-year
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observation period calibrated to a one-tail, 99% confidence interval and a ten-business-day holding period. We also use the same platform to calculate a one-tail, 99% confidence interval, one-business-day VaR for internal risk management purposes. A 99% one-tail confidence interval implies that daily trading losses are not expected to exceed the estimated VaR more than 1% of the time, or less than three business days out of a year.
Our market risk models, including our VaR model, are subject to change in connection with the governance, validation and back-testing processes described below. These models can change as a result of changes in our business activities, our historical experiences, market forces and events, regulations and regulatory interpretations and other factors. In addition, the models are subject to continuing regulatory review and approval. Changes in our models may result in changes in our measurements of our market risk exposures, including VaR, and related measures, including regulatory capital. These changes could result in material changes in those risk measurements and related measures as calculated and compared from period to period.
Value-at-Risk Measures
VaR measures are based on the most recent two years of historical price movements for instruments and related risk factors to which we have exposure. The instruments in question are limited to foreign exchange spot, forward and options contracts and interest rate contracts, including futures and interest rate swaps. Historically, these instruments have exhibited a higher degree of liquidity relative to other available capital markets instruments. As a result, the VaR measures shown reflect our ability to rapidly adjust exposures in highly dynamic markets. For this reason, risk inventory, in the form of net open positions, across all currencies is typically limited. In addition, long and short positions in major, as well as minor, currencies provide risk offsets that limit our potential downside exposure.
Our VaR methodology uses a historical simulation approach based on market-observed changes in foreign exchange rates, U.S. and non-U.S. interest rates and implied volatilities, and incorporates the resulting diversification benefits provided from the mix of our trading positions. Our VaR model incorporates approximately 5,000 risk factors and includes correlations among currency, interest rates and other market rates.
All VaR measures are subject to limitations and must be interpreted accordingly. Some, but not all, of the limitations of our VaR methodology include the following:
• Compared to a shorter observation period, a two-year observation period is slower to reflect increases in market volatility (although temporary increases in market volatility will affect the calculation of VaR for a longer period); consequently, in periods of sudden increases in volatility or increasing volatility, in each case relative to the prior two-year period, the calculation of VaR may understate current risk;
• Compared to a longer observation period, a two-year observation period may not reflect as many past periods of volatility in the markets, because such past volatility is no longer in the observation period; consequently, historical market scenarios of high volatility, even if similar to current or likely future market circumstances, may fall outside the two-year observation period, resulting in a potential understatement of current risk;
• The VaR-based measure is calibrated to a specified level of confidence and does not indicate the potential magnitude of losses beyond this confidence level;
• In certain cases, VaR-based measures approximate the impact of changes in risk factors on the values of positions and portfolios; this may happen because the number of inputs included in the VaR model is necessarily limited; for example, yield curve risk factors do not exist for all future dates;
• The use of historical market information may not be predictive of future events, particularly those that are extreme in nature; this “backward-looking” limitation can cause VaR to understate or overstate risk;
• The effect of extreme and rare market movements is difficult to estimate; this may result from non-linear risk sensitivities as well as the potential for actual volatility and correlation levels to differ from assumptions implicit in the VaR calculations; and
• Intra-day risk is not captured.
We calculate a stressed VaR-based measure using the same model we use to calculate VaR, but with model inputs calibrated to historical data from a range of continuous 12-month periods that reflect significant financial stress. The stressed VaR model is designed to identify the second-worst outcome occurring in the worst continuous one-year rolling period since July 2007. This stressed VaR meets the regulatory requirement as the rolling ten-day period with an outcome that is worse than 99% of other outcomes during that 12-month period of financial
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stress. For each portfolio, the stress period is determined algorithmically by seeking the one-year time horizon that produces the largest ten-business-day VaR from within the available historical data. Our historical dataset encompasses multiple periods of significant market stress, including major global financial disruptions and episodes of heightened volatility across foreign exchange, credit, equity, and debt markets. As the historical data set used to determine the stress period expands over time, future market stress events will be incorporated.
Stress Testing
We have a corporate-wide stress testing program in place that incorporates techniques to measure the potential loss we could suffer in a hypothetical scenario of adverse economic and financial conditions. We also monitor concentrations of risk such as concentration by branch, risk component, and currency pairs. We conduct stress testing on a daily basis based on selected historical stress events that are relevant to our positions in order to estimate the potential impact to our current portfolio should similar market conditions recur, and we also perform stress testing as part of the Federal Reserve’s DFAST process. Stress testing is conducted, analyzed and reported at the corporate, trading desk, division and risk-factor level (for example, exchange risk, interest rate risk and volatility risk).
Stress testing results and limits are actively monitored on a daily basis by ERM and reported to the TMRC. Limit breaches are addressed by ERM risk managers in conjunction with the business units, escalated as appropriate, and reviewed by the TMRC. In addition, we have established several action triggers that prompt review by management and the implementation of a remediation plan.
We perform scenario analysis daily based on selected historical stress events that are relevant to our positions in order to estimate the potential impact to our current portfolio should similar market conditions recur. Relevant scenarios are chosen from an inventory of historical financial stresses and applied to our current portfolio. These historical event scenarios involve spot foreign exchange, credit,
equity, unforeseen geo-political events and natural disasters, and government and central bank intervention scenarios. We continue to update our inventory of historical stress scenarios as new stress conditions emerge in the financial markets.
As each of the historical stress events is associated with a different time horizon, in some instances we normalize results by scaling down the longer horizon events to a ten-day horizon and keeping the shorter horizon events (i.e., events that are shorter than ten days) at their original terms. We also conduct sensitivity analysis daily to calculate the impact of a large predefined shock in a specific risk factor or a group of risk factors on our current portfolio. These predefined shocks include parallel and non-parallel yield curve shifts and foreign exchange spot and volatility surface shifts. In a parallel shift scenario, we apply a constant factor shift across all yield curve tenors. In a non-parallel shift scenario, we apply different shock levels to different tenors of a yield curve, rather than shifting the entire curve by a constant amount. Non-parallel shifts include steepening, flattening and butterflies.
Validation and Back-Testing
We perform frequent back-testing to assess the accuracy of our VaR-based model in estimating loss at the stated confidence level. This back-testing involves the comparison of estimated VaR model outputs to daily, actual P&L outcomes observed from daily market movements. We back-test our VaR model using “clean” P&L, which excludes non-trading revenue such as fees, commissions and NII, as well as estimated revenue from intraday trading.
Our VaR definition of trading losses excludes items that are not specific to the price movement of the trading assets and liabilities themselves, such as fees, commissions, changes to reserves and gains or losses from intraday activity.
We experienced no back-testing exceptions in 2025 and one back-testing exception in 2024. At a 99% confidence interval, the statistical expectation for a VaR model is to witness one exception every hundred trading days (or two to three exceptions per year).
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Our model validation process also evaluates the integrity of our VaR models through the use of regular outcome analysis. This outcome analysis includes back-testing, which compares the VaR model’s predictions to actual outcomes using out-of-sample information. Consistent with regulatory guidance, the back-testing compared a “clean” P&L, defined above, with the one-day VaR produced by the model. The back-testing was performed for a time period not used for model development. The number of occurrences where “clean” trading-book P&L exceeded the one-day VaR was within our expected VaR tolerance level.
Market Risk Reporting
Our ERM market risk management group is responsible for market risk monitoring and reporting. We use a variety of systems and controlled market feeds from third-party services to compile data for several daily, weekly and monthly management reports.
The following tables present VaR and stressed VaR associated with our trading activities for covered positions held during the years ended December 31, 2025 and 2024, respectively, as measured by our VaR methodology. Diversification effect in the tables below represents the difference between total VaR and the sum of the VaRs for each trading activity. This effect arises because the risks present in our trading activities are not perfectly correlated.
TABLE 28: TEN-DAY VALUE-AT-RISK ASSOCIATED WITH TRADING ACTIVITIES FOR COVERED POSITIONS
Year Ended December 31, 2025
As of December 31, 2025
Year Ended December 31, 2024
As of December 31, 2024
(In thousands)
Average
Maximum
Minimum
VaR
Average
Maximum
Minimum
VaR
State Street Markets
Global Treasury
Diversification
Total VaR
TABLE 29: TEN-DAY STRESSED VALUE-AT-RISK ASSOCIATED WITH TRADING ACTIVITIES FOR COVERED POSITIONS
Year Ended December 31, 2025
As of December 31, 2025
Year Ended December 31, 2024
As of December 31, 2024
(In thousands)
Average
Maximum
Minimum
VaR
Average
Maximum
Minimum
VaR
State Street Markets
Global Treasury
Diversification
Total Stressed VaR
The average and period-end stressed VaR-based measures were approximately $47 million and $53 million, respectively, for the year ended December 31, 2025, compared to approximately $45 million and $45 million, respectively, for the year ended December 31, 2024. The increase in average stressed VaR was primarily attributed to higher interest rate risk, with a greater variability observed in daily stressed VaR outcomes.
The VaR-based measures as presented in the preceding tables are primarily a reflection of the overall level of market volatility and our appetite for taking market risk in our trading activities.
We have in the past and may in the future modify and adjust our models and methodologies used to calculate VaR and stressed VaR, subject to regulatory review and approval, and any future modifications and adjustments may result in changes in our VaR-based and stressed VaR-based measures.
The following tables present the VaR and stressed-VaR associated with our trading activities attributable to foreign exchange risk, interest rate risk and volatility risk as of December 31, 2025 and 2024, respectively. Diversification effect in the tables below represents the difference between total VaR and the sum of the VaRs for each trading activity. This effect arises because the risks present in our trading activities are not perfectly correlated.
TABLE 30: TEN-DAY VaR ASSOCIATED WITH TRADING ACTIVITIES BY RISK FACTOR (1)
Year Ended December 31, 2025
Year Ended December 31, 2024
(In thousands)
Foreign Exchange Risk
Interest Rate Risk
Volatility Risk
Foreign Exchange Risk
Interest Rate Risk
Volatility Risk
By component:
State Street Markets
Global Treasury
Diversification
Total VaR
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TABLE 31: TEN-DAY STRESSED VaR ASSOCIATED WITH TRADING ACTIVITIES BY RISK FACTOR (1)
Year Ended December 31, 2025
Year Ended December 31, 2024
(In thousands)
Foreign Exchange Risk
Interest Rate Risk
Volatility Risk
Foreign Exchange Risk
Interest Rate Risk
Volatility Risk
By component:
State Street Markets
Global Treasury
Diversification
Total Stressed VaR
(1) For purposes of risk attribution by component, foreign exchange refers only to the risk from market movements in period-end rates. Forwards, futures, options and swaps with maturities greater than period-end have embedded interest rate risk that is captured by the measures used for interest rate risk. Accordingly, the interest rate risk embedded in these foreign exchange instruments is included in the interest rate risk component.
Asset and Liability Management Activities
The primary objective of asset and liability management is to provide sustainable NII under varying economic conditions, while protecting the economic value of the assets and liabilities carried on our consolidated statement of condition from the adverse effects of changes in interest rates. While many market factors affect the level of NII and the economic value of our assets and liabilities, one of the most significant factors is our exposure to movements in interest rates. Most of our NII is earned from the investment of client deposits generated by our businesses. We invest these client deposits in assets that conform generally to the liquidity characteristics of our balance sheet liabilities, as well as the currency composition of our significant non-U.S. dollar denominated client deposits.
We quantify NII sensitivity using an earnings simulation model that includes our expectations for new business growth, changes in balance sheet mix and investment portfolio positioning. This measure compares our baseline view of NII over a twelve-month horizon, based on our internal forecast of interest rates, to a wide range of rate shocks. Our baseline view of NII is updated on a regular basis. Table 32, Key Interest Rates for Baseline Forecasts, presents the spot and 12-month forward rates used in our baseline forecasts at December 31, 2025 and 2024. Our baseline rate forecast as of December 31, 2025 was generally consistent with common market expectations for global central bank actions at that point in time, which implied that rate cuts will continue in 2026.
TABLE 32: KEY INTEREST RATES FOR BASELINE FORECASTS
December 31, 2025
December 31, 2024
Fed Funds Target
ECB Target (1)
10-Year Treasury
Fed Funds Target
ECB Target (1)
10-Year Treasury
Spot rates
12-month forward rates
(1) ECB deposit facility rate.
In Table 33: Net Interest Income Sensitivity, we report the expected change in NII over the next twelve months from instantaneous 100 basis point shocks to various tenors on the yield curve relative to our baseline rate forecast, including the impacts from U.S. and non-U.S. rates. Each scenario assumes no management action is taken to mitigate the adverse effects of changes in interest rates on our financial performance. While investment securities balances and composition can fluctuate with the level of rates as prepayment assumptions change, for purposes of this analysis our deposit balances and mix are assumed to remain consistent with the baseline forecast. The results of these scenarios should not be extrapolated for other (e.g., more severe) shocks as the impact of interest rate shocks may not be linear. In lower rate scenarios, the full impact of the shock is realized for all currencies even if the result is negative interest rates.
TABLE 33: NET INTEREST INCOME SENSITIVITY
December 31, 2025
December 31, 2024
(In millions)
U.S. Dollar
All Other Currencies
Total
U.S. Dollar
All Other Currencies
Total
Rate change:
Benefit (Exposure)
Benefit (Exposure)
Parallel shifts:
+100 bps shock
–100 bps shock
Steeper yield curve:
+100 bps shift in long-end rates (1)
-100 bps shift in short-end rates (1)
Flatter yield curve:
+100 bps shift in short-end rates (1)
-100 bps shift in long-end rates (1)
(1) The short end is 0-3 months. The long end is 5 years and above. Interim term points are interpolated.
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Our overall balance sheet, including all currencies, continues to be asset sensitive with an NII benefit in higher rate scenarios and NII exposure in lower rate scenarios, primarily driven by our sensitivities on the short-end of the yield curve. Compared to December 31, 2024, our USD balance sheet’s NII asset sensitivity has increased, primarily due to higher client deposit balances and a lower investment portfolio duration. Our non-USD NII asset sensitivity has reduced compared to December 31, 2024, primarily due to interest rate hedging activity.
EVE sensitivity is a discounted cash flow model designed to estimate the fair value of assets and liabilities under a series of interest rate shocks over a long-term horizon. In the following table, we report our EVE sensitivity to 200 bps instantaneous rate shocks, relative to spot interest rates. EVE sensitivity is dependent on the timing of interest and principal cash flows. Also, the measure only evaluates the spot balance sheet and does not include the impact of new business assumptions.
TABLE 34: ECONOMIC VALUE OF EQUITY SENSITIVITY
As of December 31,
(In millions)
Rate change:
Benefit (Exposure)
+200 bps shock
–200 bps shock
As of December 31, 2025, EVE sensitivity remains exposed to upward shifts in interest rates. Compared to December 31, 2024, our sensitivity has reduced, primarily driven by a decrease in investment portfolio duration.
Both NII sensitivity and EVE sensitivity are routinely monitored as market conditions change. For additional information about our Asset and Liability Management Activities, refer to Management’s Discussion and Analysis of Financial Condition and Results of Operations, “Risk Management.”
Model Risk Management
State Street uses models to support its financial decision-making and business activities. Model risk is the potential for adverse outcomes due to incorrectly implemented or misused model outputs. Model Risk Management (MRM) is a separate control function within Enterprise Risk Management (ERM) responsible for specifying and maintaining the firmwide MRM policy and framework designed to monitor and control model risk within our risk appetite.
The MRM framework includes:
• Model risk governance that defines roles and responsibilities, including the authority to restrict model usage, provides policies and guidance, monitors compliance, and reports regularly to relevant internal committees and
the Board of Directors on the overall degree of model risk across the firm;
• Model development standards that focus on conceptual soundness and computational accuracy, data quality, robustness, stability, and sensitivity to assumptions; and
• Model validation standards designed to verify that models are conceptually sound, are computationally accurate, are performing as expected, and are in line with their intended use, and evaluate the level of model risk for each model by considering the model’s materiality, usage, performance, and sufficiency of compensating controls among other factors.
The MRM function is further responsible for model identification.
Governance
Models used in the regulatory capital calculation can only be deployed for use after undergoing a model validation by ERM’s MRM group. The model validation results and/or a decision by the MRC, a subcommittee of TORC, must permit model usage or the model may not be used.
ERM’s MRM group is responsible for defining the corporate-wide model risk management framework and maintaining policies that are designed to achieve the framework’s objectives. All regulatory capital calculation models, including any artificial intelligence and machine learning models, must comply with the model risk management framework and corresponding policies. The group is responsible for overall model risk governance capabilities, with particular emphasis in the areas of model identification, model validation, model risk reporting, model performance monitoring, tracking of new model development status and committee-level review and challenge.
The MRC, which is composed of senior managers representing MRM along with functional areas and business units provides guidance and oversight to the MRM function.
Model Development and Ongoing Monitoring
Models are developed under guidelines governing data sourcing, methodology selection and model integrity testing. Model development includes a statement of purpose to align development with intended use. It may also include a comparison of alternative approaches to promote a sound modeling approach.
Model developers conduct an assessment of data quality and relevance. The development teams conduct a variety of tests of the accuracy, robustness and stability of each model.
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Model owners submit models to the MVG for validation on a regular basis, as per the existing policy. The model owners also conduct ongoing monitoring of each model.
Model Validation
MVG is part of MRM within ERM and performs model validations and reviews. MVG is independent, as contemplated by applicable bank regulatory requirements, of both the developers and users of the models. MVG validates models through an evaluation process that assesses the appropriateness, accuracy, and suitability of data inputs, methodologies, documentation, assumptions, and processing code. Model validation also encompasses an assessment of model performance, sensitivity, and robustness, as well as a model’s potential limitations given its particular assumptions or deficiencies. Based on the results of its review, MVG issues a model use decision and may require remedial actions and/or compensating controls on model use. MVG also maintains a model risk rating system, which assigns a risk rating to each model based on an assessment of a model’s inherent and residual risks. These ratings aid in the understanding and reporting of model risk across the model portfolio, and enable the triaging of needs for remediation.
Although model validation is the primary method of subjecting models to independent review and challenge, in practice, a multi-step governance process provides the opportunity for challenge by multiple parties. First, MVG conducts a model validation and issues a model use decision. MVG communicates their result as one of the following three outcomes: “Approved,” “Approved with conditions,” or “Not Approved”. There are three ways in which a model can be deemed “Not approved for Use” given a validation: 1) the aggregation of the model scoring within MRM’s model risk rating system is poor enough to result in a “high” rating, 2) the scoring of one or more model risk rating system element(s) is deemed “critical” resulting in an automatic “high” rating irrespective of the other elements as the “critical” element(s) undermines the model, or 3) the remediation action is not properly taken by the due date resulting in a severe compliance breach that undercuts the model rating. Second, these decisions may be reviewed, , and confirmed by the MRC. Finally, model use decisions, risk ratings, and overall levels of model risk may be to and reviewed by TORC. MRM also reports regularly on model risk issues to the ERC and Board.
Strategic Risk Management
We define strategic risk as the risk to current or projected financial condition and resilience arising from adverse business decisions, poor
implementation of business decisions or lack of responsiveness to changes in the industry and operating environments. Strategic risks are influenced by changes in the competitive environment; decline in market performance or changes in our business activities; as well as by the potential secondary impacts of reputational risks, not already captured as market, interest rate, credit, operational, model or liquidity risks. We incorporate strategic risk into our assessment of our business plans and risk and capital management processes. Management of strategic risk is an integral component of all aspects of our business.
Strategic risk is managed with a long-term focus, including through oversight of the strategic plan by executive management and the Board, as well as oversight for material transformation and change initiatives, including new business and product proposals. The potential impacts of strategic risk are difficult to quantify, but we assess these through the lens of historical earnings volatility, scenario analysis and stress-testing, and management judgment, among others. Management and control of strategic risks are generally the responsibility of the business units, with oversight from the control functions, as part of their overall strategic planning and internal risk management processes.
CAPITAL
Managing our capital involves evaluating whether our actual and projected levels of capital are commensurate with our risk profile, are in compliance with all applicable regulatory requirements, and are sufficient to provide us with the financial flexibility to undertake future strategic business initiatives. We assess capital adequacy based on relevant regulatory capital requirements, as well as our own internal capital goals, targets and other relevant metrics.
Framework
Our objective with respect to management of our capital is to maintain a strong capital base in order to provide financial flexibility for our business needs, including funding corporate growth and supporting clients’ cash management needs, and to provide protection against loss to depositors and creditors. We strive to maintain an appropriate level of capital, commensurate with our risk profile, on which an attractive return to shareholders is expected to be realized over both the short and long-term, while protecting our obligations to depositors and creditors and complying with regulatory capital requirements.
Our capital management focuses on our risk exposures, the regulatory requirements applicable to us with respect to multiple capital measures, the evaluations and resulting credit ratings of the major independent rating agencies, our return on capital at
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both the consolidated and line-of-business level and our capital position relative to our peers.
Assessment of our overall capital adequacy includes the comparison of capital sources with capital uses, as well as the consideration of the quality and quantity of the various components of capital. The assessment seeks to determine the optimal level of capital and composition of capital instruments to satisfy all constituents of capital, with the lowest overall cost to shareholders. Other factors considered in our assessment of capital adequacy are strategic and contingency planning, stress testing and planned capital actions.
Capital Adequacy Process (CAP)
Our primary federal banking regulator is the Federal Reserve. Both we and State Street Bank are subject to the minimum regulatory capital requirements established by the Federal Reserve and defined in the Federal Deposit Insurance Corporation Improvement Act. State Street Bank must exceed the regulatory capital thresholds for “well capitalized” in order for our Parent Company to maintain its status as a financial holding company. Accordingly, one of our primary objectives with respect to capital management is to exceed all applicable minimum regulatory capital requirements and for State Street Bank to be “well capitalized” under the PCA guidelines established by the FDIC. Our capital management activities are conducted as part of our corporate-wide CAP and associated Capital Policy and Guidelines.
We consider capital adequacy to be a key element of our financial well-being, which affects our ability to attract and maintain client relationships; operate effectively in the global capital markets; and satisfy regulatory, security holders and shareholder needs. Capital is one of several elements that affect our credit ratings and the ratings of our principal subsidiaries.
In conformity with our Capital Policy and Guidelines, we strive to achieve and maintain specific internal capital levels, not just at a point in time, but over time and during periods of stress, to account for changes in our strategic direction, evolving economic conditions, and financial and market volatility. We have developed and implemented a corporate-wide CAP to assess our overall capital in relation to our risk profile and to provide a comprehensive strategy for maintaining appropriate capital levels. The CAP considers material risks under multiple scenarios, with an emphasis on stress scenarios, and encompasses existing processes and systems used to measure our capital adequacy.
Capital Contingency Planning
Contingency planning is an integral component of capital management. The objective of contingency
planning is to monitor current and forecast levels of select capital, liquidity and other measures that serve as early indicators of a potentially adverse capital or liquidity adequacy situation. These measures are one of the inputs used to set our internal capital adequacy level. We review these measures annually for appropriateness and relevance in relation to our financial budget and capital plan. In addition, we maintain an inventory of capital contingency actions designed to conserve or generate capital to support the unique risks in our business model, our client and investor demands and regulatory requirements.
Stress Testing
We administer a robust business-wide stress-testing program that executes stress tests each year to assess the institution’s capital adequacy and/or future performance under adverse conditions. Our stress testing program is structured around what we determine to be the key risks inherent in our business, as assessed through a recurring material risk identification process. The material risk identification process represents a bottom-up approach to identifying the institution’s most significant risk exposures across all on- and off-balance sheet risk-taking activities, including credit, market, liquidity, interest rate, operational, fiduciary, business, reputation and regulatory risks. These key risks serve as an organizing principle for much of our risk management framework, as well as reporting, including the “risk dashboard” provided to the Board.
In connection with the focus on our key risks, each stress test incorporates idiosyncratic loss events tailored to our unique risk profile and business activities. Due to the nature of our business model and our consolidated statement of condition, our risks differ from those of a traditional commercial bank. Over the past few years, stress scenarios have included a deep recession in the United States, including impacts from the COVID-19 pandemic, a break-up of the Eurozone, a severe recession in China and an oil shock precipitated by turmoil in the Middle East/North Africa region.
The Federal Reserve requires bank holding companies with total consolidated assets of $50 billion or more, which includes us, to submit a capital plan on an annual basis. The Federal Reserve uses its annual DFAST process, which incorporates hypothetical financial and economic stress scenarios, to review those capital plans and assess whether banking organizations have capital planning processes that account for idiosyncratic risks and provide for sufficient capital to continue operations throughout times of economic and financial stress. As part of its supervisory stress test process, the Federal Reserve assesses each organization’s capital adequacy, capital planning process and plans to
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distribute capital, such as dividend payments or stock purchase programs. Management and Board risk committees review, challenge and approve supervisory stress test results and assumptions before submission to the Federal Reserve.
Through the evaluation of our capital adequacy and/or future performance under adverse conditions, the stress testing process provides us important insights for capital planning, risk management and strategic decision-making.
Governance
In order to support integrated decision-making, we have identified three management elements to aid in the compatibility and coordination of our CAP:
• Risk Management - identification, measurement, monitoring and forecasting of different types of risk and their combined impact on capital adequacy;
• Capital management - determination of optimal capital levels; and
• Business Management - strategic planning, budgeting, forecasting and performance management.
We have a hierarchical structure supporting appropriate committee review of relevant risk and capital information. The ongoing responsibility for capital management rests with our Treasurer. The Capital Management group within Global Treasury is responsible for the Capital Policy and Guidelines, development of the Capital Plan, the oversight of global capital management and optimization.
The ERC provides oversight of our capital management, our capital adequacy, our internal targets and the expectations of the major independent credit rating agencies. In addition, ERC approves our balance sheet strategy and related activities. The RC of the Board assists the Board in fulfilling its oversight responsibilities related to the assessment and management of risk and capital. Our Capital Policy is reviewed and approved annually by the RC of the Board.
Global Systemically Important Bank
We have been identified by the Financial Stability Board and the Basel Committee on Banking Supervision as a G-SIB. Our designation as a G-SIB is based on a number of factors, as evaluated by banking regulators, and requires us to maintain an additional capital surcharge above the minimum capital ratios set forth in the Basel III rule.
We and our depositary institution subsidiaries are subject to the current Basel III minimum risk-based capital and leverage ratio guidelines.
Additional information about G-SIBs is provided under “Regulatory Capital Adequacy and Liquidity
Standards” in “Supervision and Regulation” in Business in this Form 10-K.
Regulatory Capital
We and State Street Bank are subject to the U.S. Basel III framework. We are also subject to the final market risk capital rule issued by the U.S. Agencies.
The Basel III rule provides two frameworks for monitoring capital adequacy: the “standardized approach” and the “advanced approaches”, applicable to advanced approaches banking organizations, like us. The standardized approach prescribes standardized calculations for credit risk RWA, including specified risk weights for on and certain off-balance sheet exposures. The advanced approaches consist of the Advanced Internal Ratings-Based Approach used for the calculation of credit risk RWA, and the Advanced Measurement Approach used for the calculation of operational risk RWA.
As required by the Dodd-Frank Act enacted in 2010, we and State Street Bank, as advanced approaches banking organizations, are subject to a “capital floor,” also referred to as the Collins Amendment, in the assessment of our regulatory capital adequacy, such that our risk-based capital ratios for regulatory assessment purposes are the lower of each ratio calculated under the advanced approaches and the standardized approach. Under the advanced approaches, we and State Street Bank are subject to a 2.5% CCB requirement, plus any applicable countercyclical capital buffer requirement, which is currently set at 0%. Under the standardized approach, State Street Bank is subject to the same CCB and countercyclical capital buffer requirements, but for State Street, the 2.5% CCB requirement is replaced by the SCB requirement according to the SCB rule issued in 2020. In addition, State Street is subject to a G-SIB surcharge.
The SCB replaced, under the standardized approach, the CCB with a buffer calculated as the difference between the institution’s starting and lowest projected CET1 ratios under the DFAST severely adverse scenario plus planned common stock dividend payments (as a percentage of RWA) from the fourth through seventh quarter of the DFAST planning horizon. The SCB requirement can be no less than 2.5% of RWA. Breaching the SCB or other regulatory buffer or surcharge will limit a banking organization’s ability to make capital distributions and discretionary bonus payments to executive officers.
Our SCB requirement remains at 2.5% for the period from October 1, 2025 through September 30, 2026, based on the results of the 2025 supervisory stress test. Additionally, in February 2026 the Federal Reserve Board voted to maintain the current SCB requirements until 2027.
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Our minimum risk-based capital ratios as of January 1, 2025 include a CCB of 2.5% and a SCB of 2.5% for the advanced approaches and standardized approach, respectively, a G-SIB surcharge of 1.0%, and a countercyclical buffer of 0.0%. This results in minimum risk-based ratios of 8.0% for the Common Equity Tier 1 (CET1) capital ratio, 9.5% for the tier 1 capital ratio, and 11.5% for the total capital ratio.
Our current G-SIB surcharge, through December 31, 2026, is 1.0%. The finalization of the data as of December 31, 2025, which will be used to calculate our G-SIB surcharge through December 31, 2027, is currently pending.
To maintain the status of the Parent Company as a financial holding company, we and our IDI subsidiaries are required, among other requirements, to be “well capitalized” as defined by Regulation Y and Regulation H.
The market risk capital rule requires us to use internal models to calculate daily measures of VaR, which reflect general market risk for certain of our trading positions defined by the rule as “covered positions,” as well as stressed-VaR measures to supplement the VaR measures. The rule also requires a public disclosure composed of qualitative and quantitative information about the market risk associated with our trading activities and our related VaR and stressed-VaR measures. The qualitative and quantitative information required by the rule is provided under “Market Risk Management” included in this Management’s Discussion and Analysis.
The following table presents the regulatory capital structure and related regulatory capital ratios for us and State Street Bank as of the dates indicated. We are subject to the more stringent of the risk-based capital ratios calculated under the standardized approach and those calculated under the advanced approaches in the assessment of our capital adequacy under applicable bank regulatory standards.
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TABLE 35: REGULATORY CAPITAL STRUCTURE AND RELATED REGULATORY CAPITAL RATIOS
State Street Corporation
State Street Bank
(Dollars in millions)
Basel III Advanced Approaches December 31, 2025
Basel III Standardized Approach December 31, 2025
Basel III Advanced Approaches December 31, 2024
Basel III Standardized Approach December 31, 2024
Basel III Advanced Approaches December 31, 2025
Basel III Standardized Approach December 31, 2025
Basel III Advanced Approaches December 31, 2024
Basel III Standardized Approach December 31, 2024
Common shareholders’ equity:
Common stock and related surplus
Retained earnings
Accumulated other comprehensive income (loss)
Treasury stock, at cost
Total
Regulatory capital adjustments:
Goodwill and other intangible assets, net of associated deferred tax liabilities
Other adjustments (1)
Common equity tier 1 capital
Preferred stock
Tier 1 capital
Qualifying subordinated long-term debt
Adjusted allowance for credit losses
Total capital
Risk-weighted assets:
Credit risk (2)
Operational risk (3)
Market risk
Total risk-weighted assets
Capital Ratios:
2025 Minimum Requirements Including Capital Conservation Buffer and G-SIB Surcharge (4)
2024 Minimum Requirements Including Capital Conservation Buffer and G-SIB Surcharge (4)
Common equity tier 1 capital
Tier 1 capital
Total capital
(1) Other adjustments within CET1 capital primarily include disallowed deferred tax assets, cash flow hedges that are not recognized at fair value on the balance sheet, and the overfunded portion of our defined benefit pension plan obligation net of associated deferred tax liabilities.
(2) Under the advanced approaches, credit risk RWA includes a CVA which reflects the risk of potential fair value adjustments for credit risk reflected in our valuation of OTC derivative contracts. We used a simple CVA approach in conformity with the Basel III advanced approaches.
(3) Under the current advanced approaches rules and regulatory guidance concerning operational risk models, RWA attributable to operational risk can vary substantially from period-to-period, without direct correlation to the effects of a particular loss event on our results of operations and financial condition and impacting dates and periods that may differ from the dates and periods as of and during which the loss event is reflected in our financial statements, with the timing and categorization dependent on the processes for model updates and, if applicable, model revalidation and regulatory review and related supervisory processes. An individual loss event can have a significant effect on the output of our operational RWA under the advanced approaches depending on the severity of the loss event and its categorization among the seven Basel-defined UOMs.
(4) Minimum requirements include a CCB of 2.5% and a SCB of 2.5% for the advanced approaches and the standardized approach, respectively, a G-SIB surcharge of 1.0% and a countercyclical buffer of 0%.Our SCB requirement remains at 2.5% for the period from October 1, 2025 through September 30, 2026, based on the results of the 2025 supervisory stress test. Additionally, in February 2026 the Federal Reserve Board voted to maintain the current SCB requirements until 2027.
NA Not applicable
Our CET1 capital increased $1.01 billion as of December 31, 2025 compared to December 31, 2024, under both the advanced approaches and standardized approach, primarily due to an increase in net income and improved AOCI, partially offset by dividends declared and common share repurchases.
Our Tier 1 capital increased $1.76 billion as of December 31, 2025 compared to December 31, 2024 under both the advanced approaches and standardized approach, due to the increase in CET1 capital and net issuance of preferred stock in 2025.
Our Tier 2 capital remained relatively flat as of December 31, 2025 compared to December 31, 2024, under the advanced approaches and standardized approach.
Total capital increased $1.79 billion as of December 31, 2025 compared to December 31, 2024, under the advanced approaches and standardized approach, due to the increase in CET1 capital and net issuance of preferred stock in 2025.
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The table below presents a roll-forward of CET1 capital, Tier 1 capital and total capital for the years ended December 31, 2025 and 2024.
TABLE 36: CAPITAL ROLL-FORWARD
(In millions)
Basel III Advanced Approaches December 31, 2025
Basel III Standardized Approach December, 31, 2025
Basel III Advanced Approaches December 31, 2024
Basel III Standardized Approach December 31, 2024
Common equity tier 1 capital:
Common equity tier 1 capital balance, beginning of period
Net income
Changes in treasury stock, at cost
Dividends declared
Goodwill and other intangible assets, net of associated deferred tax liabilities
Accumulated other comprehensive income (loss) (1)
Other adjustments (1)
Changes in common equity tier 1 capital
Common equity tier 1 capital balance, end of period
Additional tier 1 capital:
Tier 1 capital balance, beginning of period
Changes in common equity tier 1 capital
Net issuance (redemption) of preferred stock
Changes in tier 1 capital
Tier 1 capital balance, end of period
Tier 2 capital:
Tier 2 capital balance, beginning of period
Net issuance (redemption) and changes in long-term debt qualifying as tier 2 capital
Changes in allowance for credit losses
Changes in tier 2 capital
Tier 2 capital balance, end of period
Total capital:
Total capital balance, beginning of period
Changes in tier 1 capital
Changes in tier 2 capital
Total capital balance, end of period
(1) Accumulated other comprehensive income (loss) includes losses on cash flow hedges where the hedged exposures are not recognized at fair value on the balance sheet, which, under the Capital Rule, must be excluded from CET1 capital. This adjustment is captured in the Other Adjustments line.
The following table presents a roll-forward of the Basel III advanced approaches and standardized approach RWA for the years ended December 31, 2025 and 2024.
TABLE 37: ADVANCED & STANDARDIZED APPROACHES RISK-WEIGHTED ASSETS ROLL-FORWARD
(In millions)
Basel III Advanced Approaches December 31, 2025
Basel III Advanced Approaches December 31, 2024
Basel III Standardized Approach December 31, 2025
Basel III Standardized Approach December 31, 2024
Total risk-weighted assets, beginning of period
Changes in credit risk-weighted assets:
Net increase (decrease) in investment securities-wholesale
Net increase (decrease) in loans and overdrafts
Net increase (decrease) in securitization exposures
Net increase (decrease) in repo-style transaction exposures
Net increase (decrease) in over-the-counter derivatives exposures (1)
Net increase (decrease) in all other (2)
Net increase (decrease) in credit risk-weighted assets
Net increase (decrease) in market risk-weighted assets
Net increase (decrease) in operational risk-weighted assets
Total risk-weighted assets, end of period
(1) Under the advanced approaches, includes CVA RWA.
(2) Includes assets not in a definable category, non-material portfolio, cleared transactions, other wholesale, cash and due from banks, interest-bearing deposits with banks and equity exposures.
NA Not applicable.
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As of December 31, 2025, total advanced approaches RWA decreased $0.25 billion compared to December 31, 2024, mainly due to lower derivatives RWA driven by lower market volatility and lower loans and overdrafts RWA driven by change in loan portfolio mix, largely offset by higher operational risk RWA.
As of December 31, 2025, total standardized approach RWA increased $0.98 billion compared to December 31, 2024, mainly reflecting higher repo-style transaction RWA driven by increased volumes, higher other RWA driven by increased cash balances, and higher loans and overdrafts RWA driven by increased balances, largely offset by lower derivatives RWA driven by lower market volatility.
The regulatory capital ratios as of December 31, 2025, presented in Table 35: Regulatory Capital Structure and Related Regulatory Capital Ratios, are calculated under the advanced approaches and standardized approach in conformity with the Basel III final rule. The advanced approaches based ratios reflect calculations and determinations with respect to our capital and related matters as of December 31, 2025, based on our internal and external data, quantitative formulae, statistical models, historical correlations and assumptions, collectively referred to as “advanced systems,” in effect and used by us for those purposes as of the time we first reported such ratios in a quarterly report on Form 10-Q or an annual report on Form 10-K. Significant components of these advanced systems involve the exercise of judgment by us and our regulators, and our advanced systems may not, individually or collectively, precisely represent or calculate the scenarios, circumstances, outputs or other results for which they are designed or intended.
Our advanced systems are subject to update and periodic revalidation in response to changes in our business activities and our historical experiences, forces and events experienced by the market broadly or by individual financial institutions, changes in regulations and regulatory interpretations and other factors, and are also subject to continuing regulatory review and approval. For example, a significant operational loss experienced by another financial institution, even if we do not experience a related loss, could result in a material change in the output of our advanced systems and a corresponding material change in our risk exposures, our total RWA and our capital ratios compared to prior periods. An operational loss that we experience could also result in a material change in our capital requirements for operational risk under the advanced approaches, depending on the severity of the loss event, its characterization among the seven Basel-defined UOM, and the stability of the distributional approach for a particular UOM, and without direct correlation to
the effects of the loss event, or the timing of such effects, on our results of operations.
Due to the influence of changes in these advanced systems, whether resulting from changes in data inputs, regulation or regulatory supervision or interpretation, specific to us or market activities or experiences or other updates or factors, we expect that our advanced systems and our capital ratios calculated in conformity with the Basel III final rule will change and may be volatile over time, and that those latter changes or volatility could be material as calculated and measured from period to period. The full effects of the Basel III final rule on us and State Street Bank are therefore subject to further evaluation and also to further regulatory guidance, action or rule-making.
Tier 1 and Supplementary Leverage Ratios
We are subject to a minimum Tier 1 leverage ratio and a SLR. The Tier 1 leverage ratio is based on Tier 1 capital and adjusted quarterly average on-balance sheet assets. The SLR is based on total leverage exposure and, includes certain off-balance sheet exposures not used in the calculation of the minimum Tier 1 leverage ratio. We must maintain a minimum Tier 1 leverage ratio of 4%.
As a U.S. G-SIB, we are subject to a minimum SLR of 3%, and are also subject to eSLR standards, comprising a 2% SLR buffer at the holding company (in order to avoid limitations on distributions to shareholders and discretionary bonus payments to certain executives) and a 3% SLR buffer at State Street Bank (in order to be considered “well capitalized” under the Federal Reserve’s prompt corrective action framework). If we do not maintain the 2% buffer at the holding company, limitations on these distributions and discretionary bonus payments would be increasingly stringent based upon the extent of the shortfall.
On November 25, 2025, the U.S. Agencies jointly adopted the eSLR Final Rule amending the calibration of the eSLR for U.S. G-SIBs and their IDI subsidiaries. The final rule is effective April 1, 2026, with the option for firms to adopt the modified standards early, effective January 1, 2026. The final rule replaces the current eSLR buffer of 2% at the holding company and 3% at State Street Bank (for State Street Bank to be considered "well capitalized"), with an eSLR buffer for both bank holding companies and IDI subsidiaries calibrated at 50% of a G-SIB’s Method 1 capital surcharge, with the buffer for IDI subsidiaries capped at 1%. Conforming changes were also made to the TLAC and LTD requirements. We adopted the modified standards effective January 1, 2026.
The eSLR Final Rule is not expected to materially impact our total leverage-based capital, which already benefits from the custody bank
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exemption for central bank placements in the SLR denominator from Section 402 of the EGRRCPA. Changes to the TLAC and LTD requirements may have limited implications for us, but, are not expected to change our management of TLAC or LTD.
TABLE 38: TIER 1 AND SUPPLEMENTARY LEVERAGE RATIOS
(Dollars in millions)
December 31, 2025
December 31, 2024
State Street:
Tier 1 capital
Average assets
Less: adjustments for deductions from tier 1 capital and other
Adjusted average assets for tier 1 leverage ratio
Additional SLR exposure
Adjustments for deductions of qualifying central bank deposits
Total assets for SLR
Tier 1 leverage ratio (1)
Supplementary leverage ratio
State Street Bank (2) :
Tier 1 capital
Average assets
Less: adjustments for deductions from tier 1 capital and other
Adjusted average assets for tier 1 leverage ratio
Additional SLR exposure
Adjustments for deductions of qualifying central bank deposits
Total assets for SLR
Tier 1 leverage ratio (1)
Supplementary leverage ratio
(1) Tier 1 leverage ratios were calculated in conformity with the Basel III final rule.
(2) The SLR rule requires that, as of January 1, 2018, (i) State Street Bank maintains an SLR of at least 6.0% to be well capitalized under the U.S. banking regulators’ Prompt Corrective Action Framework and (ii) we maintain an SLR of at least 5.0% to avoid limitations on capital distributions and discretionary bonus payments. In addition to the SLR, State Street Bank is subject to a well capitalized Tier 1 leverage ratio requirement of 5.0%.
Total Loss-Absorbing Capacity
The Federal Reserve’s final rule on TLAC, LTD and clean holding company requirements for U.S. domiciled G-SIBs, such as us, is intended to improve the resiliency and resolvability of certain U.S. banking organizations through enhanced prudential standards, and requires us, among other things, to comply with minimum requirements for external TLAC (combined eligible tier 1 regulatory capital and LTD) and LTD. Specifically, we must hold:
Amount equal to:
External TLAC
Greater of:
• 21.5% of total RWA (18.0% minimum plus 2.5% plus a G-SIB surcharge calculated for these purposes under Method 1 of 1.0% plus any applicable countercyclical buffer, which is currently 0%); and
• 9.5% of total leverage exposure (7.5% minimum plus the SLR buffer of 2.0%), as defined by the SLR final rule.
Qualifying external LTD
Greater of:
• 7.0% of RWA (6.0% minimum plus a G-SIB surcharge calculated for these purposes under method 2 of 1.0%); and
• 4.5% of total leverage exposure, as defined by the SLR final rule.
The following table presents external TLAC and external LTD as of December 31, 2025.
TABLE 39: TOTAL LOSS-ABSORBING CAPACITY
As of December 31, 2025
(Dollars in millions)
Actual
Requirement
Total loss-absorbing capacity:
Risk-weighted assets
Total leverage exposure
Long-term debt:
Risk-weighted assets
Total leverage exposure
Additional information about TLAC is provided under “Total Loss-Absorbing Capacity” in “Supervision and Regulation” in Business in this Form 10-K.
Regulatory Developments
In July 2023, the U.S. Agencies issued the 2023 Basel III Endgame Proposal and separately the 2023 G-SIB Surcharge Proposal. The 2023 Basel III Endgame Proposal would, among other things, eliminate the advanced approaches for monitoring risk-based capital adequacy in favor of a new standardized expanded risk-based approach that includes new standardized methodologies for credit risk, operational risk and CVA risk components, and would also replace the existing market risk rule with the new FRTB framework. The 2023 G-SIB Surcharge Proposal would, among other things, measure the G-SIB surcharge in 0.1% increments as opposed to the 0.5% increments that currently apply.
Public statements by U.S. banking agency officials indicate that the 2023 Basel III Endgame Proposal and 2023 G-SIB Surcharge Proposal are under reconsideration. While a re‑proposal is currently expected in March 2026, the timing and content of any potential re-proposal, and the effects on us, remain uncertain at this stage.
For additional information about regulatory developments, refer to the “Regulatory Capital Adequacy and Liquidity Standards” section of “Supervision and Regulation” in Business in this Form 10-K.
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Capital Actions
Preferred Stock
The following table summarizes selected terms of each of the series of the preferred stock issued and outstanding as of December 31, 2025:
TABLE 40: PREFERRED STOCK ISSUED AND OUTSTANDING
Preferred Stock (1) :
Issuance Date
Depositary Shares Issued
Amount outstanding (in millions)
Ownership Interest Per Depositary Share
Liquidation Preference Per Share
Liquidation Preference Per Depositary Share
Per Annum Dividend Rate
Dividend Payment Frequency
Carrying Value as of December 31, 2025
(In millions)
Redemption Date (2)
Series G
April 2016
Quarterly: March, June, September and December
March 15, 2026
Series I
January 2024
6.700% through March 14, 2029; resets March 15, 2029 and every subsequent five year anniversary at five- year U.S. Treasury rate plus 2.613%
Quarterly: March, June, September and December
March 15, 2029
Series J
July 2024
6.700% through September 14, 2029; resets September 15, 2029 and every subsequent five year anniversary at the five-year U.S. Treasury rate plus 2.628%
Quarterly: March, June, September and December
September 15, 2029
Series K
February 2025
6.450% through September 14, 2030; resets September 15, 2030 and every subsequent five year anniversary at the five- year U.S. Treasury rate plus 2.135%
Quarterly: March, June, September and December
September 15, 2030
(1) The preferred stock and corresponding depositary shares may be redeemed at our option in whole, but not in part, prior to the redemption date upon the occurrence of a regulatory capital treatment event, as defined in the certificate of designation, at a redemption price equal to the liquidation price per share and liquidation price per depositary share plus any declared and unpaid dividends, without accumulation of any undeclared dividends.
(2) On the redemption date, or any dividend payment date thereafter, the preferred stock and corresponding depositary shares may be redeemed by us, in whole or in part, at the liquidation price per share and liquidation price per depositary share plus any declared and unpaid dividends, without accumulation of any undeclared dividends.
(3) The dividend rate for the floating rate period of the Series G preferred stock that begins on March 15, 2026 and all subsequent floating rate periods will remain at the current fixed rate in accordance with the LIBOR Act and the contractual terms of the Series G preferred stock.
On February 6, 2025, we issued 750,000 depositary shares, each representing a 1/100th ownership interest in a share of fixed rate reset, non-cumulative perpetual preferred stock, Series K, without par value per share, with a liquidation preference of $100,000 per share (equivalent to $1,000 per depositary share), in a public offering. The aggregate proceeds, net of underwriting discounts, commissions and other issuance costs, were approximately $743 million.
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The following table presents the dividends declared for each of the series of preferred stock issued and outstanding for the periods indicated:
TABLE 41: PREFERRED STOCK DIVIDENDS
Years Ended December 31,
(Dollars in millions, except per share amounts)
Dividends Declared per Share
Dividends Declared per Depositary Share
Total
Dividends Declared per Share
Dividends Declared per Depositary Share
Total
Preferred Stock:
Series D
Series F
Series G
Series H
Series I
Series J
Series K
Total
In February 2026, we declared dividends on our series G, I, J and K preferred stock of approximately $1,338, $1,675, $1,675 and $1,613, respectively, per share, or approximately $0.33, $16.75, $16.75 and $16.13, respectively, per depositary share. These dividends total approximately $7 million, $25 million, $14 million and $12 million on our Series G, I, J and K preferred stock, respectively, which will be paid in March 2026.
Common Stock
On January 19, 2024, we announced a common share repurchase program, approved by the Board and superseding all prior programs, authorizing the purchase of up to $5.0 billion of our common stock beginning in the first quarter of 2024. During 2025, we repurchased $1.2 billion of our common stock and since its inception we have repurchased an aggregate of $2.5 billion of our common stock under the 2024 Program through December 31, 2025. The program has no set expiration date.
The table below presents the activity under our common share repurchase program for the periods indicated:
TABLE 42: SHARES REPURCHASED
Year Ended December 31,
Shares Acquired
(In millions)
Average Cost per Share
Total Acquired
(In millions)
Shares Acquired
(In millions)
Average Cost per Share
Total Acquired
(In millions)
2024 Program
The table below presents the dividends declared on common stock for the periods indicated:
TABLE 43: COMMON STOCK DIVIDENDS
Years Ended December 31,
Dividends Declared per Share
Total
(In millions)
Dividends Declared per Share
Total
(In millions)
Common Stock
In February 2026, we declared a common stock dividend of $0.84 per share, payable on April 13, 2026, to shareholders of record on April 1, 2026.
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OFF-BALANCE SHEET ARRANGEMENTS
On behalf of clients enrolled in our securities lending program, we lend securities to banks, broker/dealers and other institutions. In most circumstances, we indemnify our clients for the fair market value of those securities against a failure of the borrower to return such securities. Though these transactions are collateralized, the substantial volume of these activities necessitates detailed credit-based underwriting and monitoring processes. The aggregate amount of indemnified securities on loan totaled $371.97 billion and $310.81 billion as of December 31, 2025 and 2024, respectively. We require the borrower to provide collateral in an amount in excess of 100% of the fair market value of the securities borrowed. We hold the collateral received in connection with these securities lending services as agent, and the collateral is not recorded in our consolidated statement of condition. We revalue the securities on loan and the collateral daily to determine if additional collateral is necessary or if excess collateral is required to be returned to the borrower. We held, as agent, cash and securities totaling $393.58 billion and $325.61 billion as collateral for indemnified securities on loan as of December 31, 2025 and 2024, respectively.
The cash collateral held by us as agent is invested on behalf of our clients. In certain cases, the cash collateral is invested in third-party repurchase agreements, for which we indemnify the client against loss of the principal invested. We require the counterparty to the indemnified repurchase agreement to provide collateral in an amount in excess of 100% of the amount of the repurchase agreement. In our role as agent, the indemnified repurchase agreements and the related collateral held by us are not recorded in our consolidated statement of condition. Of the collateral of $393.58 billion and $325.61 billion, referenced above, $51.76 billion and $63.66 billion was invested in indemnified repurchase agreements as of December 31, 2025 and 2024, respectively. We or our agents held $55.94 billion and $68.51 billion as collateral for indemnified investments in repurchase agreements as of December 31, 2025 and 2024, respectively.
Additional information about our securities finance activities and other off-balance sheet arrangements is provided in Notes 10, 12 and 14 to the consolidated financial statements in this Form 10-K.
SIGNIFICANT ACCOUNTING ESTIMATES
Our consolidated financial statements are prepared in conformity with U.S. GAAP, and we apply accounting policies that affect the determination of
amounts reported in the consolidated financial statements.
Certain of our accounting policies, by their nature, include significant accounting estimates and assumptions which require management to make judgments about the effects of matters that are inherently uncertain. These estimates and assumptions are based on information available as of the date of the consolidated financial statements, and changes in this information over time could materially affect the amounts of assets, liabilities, equity, revenue and expenses reported in subsequent consolidated financial statements.
Based on the sensitivity of reported financial statement amounts to the underlying estimates and assumptions, the significant accounting estimates identified by management are:
• Recurring fair value measurements;
• Allowance for credit losses; and
• Contingencies.
These estimates require the most subjective or complex judgments, and could be most subject to revision as new information becomes available. An understanding of these estimates is essential to the understanding of our reported results of operations and financial condition.
The following is a discussion of the above-mentioned significant accounting estimates. Additional information on our significant accounting policies, including references to applicable footnotes, is provided in Note 1 to the consolidated financial statements in this Form 10-K.
Fair Value Measurements
We carry certain of our financial assets and liabilities at fair value in our consolidated financial statements on a recurring basis, including trading account assets and liabilities, AFS debt securities, certain equity securities and various types of derivative financial instruments.
Changes in the fair value of these financial assets and liabilities are recorded either as components of our consolidated statement of income or as components of other comprehensive income within shareholders’ equity in our consolidated statement of condition. In addition to those financial assets and liabilities that we carry at fair value in our consolidated financial statements on a recurring basis, we estimate the fair values of other financial assets and liabilities that we carry at amortized cost in our consolidated statement of condition, and we disclose these fair value estimates in the notes to our consolidated financial statements. We estimate the fair values of these financial assets and liabilities using the definition of fair value described below.
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U.S. GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market for an asset or liability in an orderly transaction between market participants on the measurement date. When we measure fair value for our financial assets and liabilities, we consider the principal or the most advantageous market in which we would transact; we also consider assumptions that market participants would use when pricing the asset or liability. When possible, we look to active and observable markets to measure the fair value of identical, or similar, financial assets and liabilities. When identical financial assets and liabilities are not traded in active markets, we look to market-observable data for similar assets and liabilities. In some instances, certain assets and liabilities are not actively traded in observable markets; as a result, we use alternate valuation techniques to measure their fair value.
We categorize the financial assets and liabilities that we carry at fair value in our consolidated statement of condition on a recurring basis based on U.S. GAAP’s prescribed three-level valuation hierarchy. The hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (level 1) and the lowest priority to valuation methods using significant unobservable inputs (level 3).
With respect to derivative instruments, we evaluate the fair value impact of the credit risk of our counterparties. We consider such factors as the market-based probability of default by our counterparties, and our current and expected potential future net exposures by remaining maturities, in determining the appropriate measurements of fair value.
Additional information with respect to the assets and liabilities carried by us at fair value on a recurring basis is provided in Note 2 to the consolidated financial statements in this Form 10-K.
Allowance for Credit Losses
We record an allowance for credit losses related to certain on-balance sheet credit exposures, including our financial assets held at amortized cost, as well as certain off-balance sheet credit exposures, including unfunded commitments and letters of credit.
Determining the appropriateness of the allowance is complex and requires judgment by management about the effect of matters that are inherently uncertain. In future periods, factors and forecasts then prevailing may result in significant changes in the allowance for credit losses in those future periods. We estimate credit losses over the contractual life of the financial asset while factoring in prepayment activity where supported by data over a
three year reasonable and supportable forecast period. We utilize baseline, upside and downside scenarios that are applied based on a weighting determined by management, in order to better reflect management’s expectation of expected credit losses given existing market conditions and the changes in the economic environment. The multiple scenarios are based on a 13-quarter horizon with reversion period set to be 27 quarters, calculated by subtracting the 13-quarter period from an average 10-year/40-quarter business cycle. The contractual term excludes expected extensions, renewals and modifications, but includes prepayment assumptions where applicable.
Our allowance for credit losses is sensitive to a number of inputs, including macroeconomic forecast assumptions and credit rating migrations during the period. Our macroeconomic forecasts used in determining the December 31, 2025 allowance for credit losses consisted of three scenarios reflecting different assumptions in GDP and unemployment, with the baseline scenario generally in line with market consensus of economic forecasts for GDP and unemployment. We placed the most weight on our baseline scenario, with the remaining weighting split between the upside and downside scenarios.
Keeping all other factors constant, we estimate that if we had applied 100% weighting to the downside scenario, the allowance for credit losses as of December 31, 2025 would have been approximately $90 million higher. This estimate is intended to reflect the sensitivity of the allowance for credit losses to changes in our scenario weights and is not intended to be indicative of future changes in the allowance for credit losses.
Additional information about our allowance for credit losses is provided in Notes 3 and 4 to the consolidated financial statements in this Form 10-K.
Contingencies
Information on significant estimates and judgments related with establishing litigation reserves is discussed in Note 13 of the consolidated financial statements in this Form 10-K.
RECENT ACCOUNTING DEVELOPMENTS
Information with respect to recent accounting developments is provided in Note 1 to the consolidated financial statements in this Form 10-K.
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