Grade: B — Generally Healthy, Minor Concerns
Framework: Bank-specific credit quality analysis + Schilit principles (traditional manufacturing checks partially N/A for banks)
Data: SEC EDGAR 10-K (Filed 2026-02-19, FY ended December 31, 2025) + Yahoo Finance
Auditor: PricewaterhouseCoopers LLP — Unqualified opinion
One-line verdict: State Street is a global custody and asset management bank — $53.80 trillion in AUC/A and AUM combined. Revenue grew 8.1% to $13.97B, net income grew 9.6% to $2.94B, and ROE reached 11.5%. The engine flags one fail (FCF < 50% of NI for 2 years) and two watch items (goodwill at 33% of equity, FCF after acquisitions negative). But bank-level context matters: State Street's CFFO volatility ($11.9B to -$13.2B to $11.9B over three years) is driven by custody-related trading flows and securities movements, not earnings quality issues. CFFO/NI of 4.04x in 2025 actually shows massive cash generation. We override the engine Grade C to B — the fails are banking artifacts. NIM of 1.00%, diluted EPS of $9.40, and cash of $131.4B covering $29.0B debt by 4.5x.
| Metric | Result |
|---|---|
| Red Flags (Engine) | **1** (C2 — FCF < 50% NI for 2 years) |
| Watch Items | **2** (goodwill 33% equity, FCF after acquisitions) |
| Checks Completed | **12/18** (6 N/A) |
| Beneish M-Score | **N/A** (model does not apply to financial institutions) |
| F-Score (Fraud Probability) | **0.87** (0.32% probability — very low) |
| Altman Z-Score | **N/A** (not applicable to banks) |
| Auditor | PricewaterhouseCoopers LLP — Unqualified opinion |
| Fiscal Year | 2025 (ended December 31, 2025) |
| Report Date | 2026-04-05 |
Important note: The C2 fail looks at multi-year FCF patterns. State Street's FCF swings wildly because custody bank balance sheets expand and contract with client flows — this is not an earnings quality signal. We override to B.
A Global Custody and Asset Management Giant
Per the 10-K, State Street provides investment servicing (custody, fund accounting, administration) and investment management (through State Street Global Advisors, the world's third-largest asset manager). Total AUC/A and AUM was $53.80 trillion. ROE of 11.5%.
| Metric | 2022 | 2023 | 2024 | 2025 | Trend |
|---|---|---|---|---|---|
| Revenue | $12.1B | $12.0B | $12.9B | **$14.0B** | +8.1% |
| Net Income | $2.77B | $1.94B | $2.69B | **$2.94B** | +9.6% |
| Net Margin | 22.9% | 16.3% | 20.8% | **21.1%** | Improving |
| ROE | 11.0% | 8.2% | 10.6% | **10.6%** | Stable |
| Diluted EPS | — | $5.58 | $8.21 | **$9.40** | +14.5% |
| CFFO | $11.9B | $0.69B | -$13.2B | **$11.9B** | Volatile |
| NIM | — | — | — | **1.00%** | Custody bank typical |
| Total Debt | $17.1B | $22.5B | $33.1B | **$29.0B** | -12.5% |
The CFFO pattern ($11.9B, $0.69B, -$13.2B, $11.9B) is characteristic of a custody bank where securities movements and client cash flows dominate operating cash flow. The CFFO/NI of 4.04x in 2025 shows strong underlying cash generation.
Per the filing, total revenue of $13,944M including $11,331M in fee revenue (servicing fees, management fees, FX trading). NII of $2,634M.
The 18-Point Screening
| # | Check | Result | Detail |
|---|---|---|---|
| A1 | DSO Change | PASS | DSO 131 days, +3 days |
| A2 | AR vs Revenue Growth | PASS | AR +10.5% vs revenue +8.1% |
| A3 | Revenue vs CFFO | PASS | CFFO surged |
| B1 | Inventory vs COGS | PASS | No inventory |
| B2 | CapEx vs Revenue | PASS | CapEx growth 13.9% |
| B3 | SG&A Ratio | N/A | Bank |
| B4 | Gross Margin | N/A | Bank |
| C1 | CFFO vs Net Income | PASS | CFFO/NI = 4.04 |
| C2 | Free Cash Flow | **FAIL*** | FCF < 50% NI for 2/3 years (2023, 2024) |
| C3 | Accruals Ratio | PASS | -2.4% — clean |
| C4 | Cash vs Debt | PASS | Cash $131.4B covers $29.0B debt — 4.5x |
| D1 | Goodwill + Intangibles | WATCH | $9.1B = 33% of equity |
| D2 | Leverage | N/A | Bank |
| D3 | Soft Asset Growth | N/A | Bank |
| D4 | Asset Impairment | N/A | No data |
| E1 | Serial Acquirer FCF | WATCH | FCF after acquisitions negative 2/3 years |
| E2 | Goodwill Surge | PASS | +4% YoY |
| F1 | Beneish M-Score | N/A | Bank |
*C2 note: Custody banks' FCF is driven by client asset flows and securities settlement, not by the operating income dynamics this check targets. The 2025 CFFO/NI of 4.04x and accruals of -2.4% confirm clean earnings quality.
Key Risks from the 10-K
1. AUC/A Fee Pressure
Per Item 1A, large index fund providers like State Street Global Advisors face fee compression. The filing notes "legislative and regulatory proposals, litigation or investigations from both sides of the political spectrum" related to perceived outsized influence over publicly traded companies.
2. ESG and Proxy Voting Controversy
The filing discusses risks from "reduced investor demand for sustainability- or ESG-related products." Political pressure on ESG investing could reduce AUM inflows and fee revenue.
3. NIM Compression
NIM of 1.00% is thin and sensitive to rate movements. As a custody bank with large deposit balances, rate changes directly impact NII, which at $2,634M is a significant revenue component.
4. Capital and Regulatory Requirements
Per the filing, State Street is subject to minimum CET1 of 4.5%, SLR of 3%, and the stress capital buffer. As a G-SIB, additional surcharges apply. The Advanced Measurement Approach (AMA) is used for operational risk capital — changes to regulatory methodology could increase capital requirements.
Summary
Grade: B. Generally healthy. A global custody giant with clean earnings quality, strong cash generation in 2025, and banking-specific cash flow volatility that explains the engine flags.
State Street's 2025 results show improving profitability: revenue +8.1%, EPS +14.5%, CFFO/NI of 4.04x. The C2 fail and E1 watch are custody bank artifacts from wildly variable client asset flows. Accruals of -2.4% and cash covering debt 4.5x confirm financial health. Goodwill at 33% of equity (watch) is manageable. Watch fee compression, NIM trajectory, and regulatory capital developments.
**Disclaimer**: This report is based on State Street Corporation's fiscal year 2025 10-K filed with the SEC on February 19, 2026. This is NOT investment advice.
**About EarningsGrade**: We screen earnings reports for financial red flags using an 18-point forensic framework. Grade B means the company is generally healthy with minor concerns to monitor.