Bank of New York Mellon Stock

Okay. Up next, we have BNY, and we have the CFO of BNY, Dermot McDonogh, with me on stage. Dermot, thanks so much for joining us.

Pleasure to be here, and good to see so many familiar faces in the crowd. Yes.

We appreciate you being at the conference. Dermot, maybe to start with on the macro environment on the earnings call, I think you described the operating environment is dynamic and you described it as constructive. Can you give us an update on what you're seeing in the overall environment today?

So look, as I was saying to a couple of you before we came on stage, we've just wrapped up our kind of summer Board meeting. We held it in D.C. for the last couple of days. D.C., great place to be in America 250th. There was a lot of energy, a lot of optimism in D.C. You can see a lot of work happening on the regulatory agenda in a very positive way. You can see all the kind of noise in the early part of this year around the Fed chair, all that is settling down and look forward to seeing Mr. Warsh's first press next week.

And I think the markets have held up really well in what is a really tough geopolitical environment. I kind of described myself as in CFO speak, a risk-adjusted optimist. And I think there's a lot to be optimistic about. I think where we are with BNY in terms of the firm and how we're set up in terms of taking advantage of the environment, I feel very optimistic about that. But there's a lot of things to be worried about. But overall, I think continuing on from Q1, I think the setup for the firm is quite positive.

What is the risk-adjusted part of that? Is that, I guess, what we're seeing in the geopolitical environment? Anything else you worried about here?

So I think the American consumer [Technical Difficulty] has held up pretty well. The U.S. economy has held up pretty well. I think there was one commentator who I follow quite a lot in terms of the backdrop of trading and how people are setting up for the summer, like people will look back on this time in their career as being a very seminal time in terms of an era of a lot of uncertainty in the geopolitics, huge transformation in the technology space. And I think it's a very exciting time to be part of the market in that.

And one of the things that I put in my materials for the Board is all the events that happened in the quarter when we track it. And when you look back over the course of this year, like if you are planning for '26 in the fall of last year, there isn't -- you wouldn't really have expected it to be -- have played out the way it's played out.

So I think firms who are able to be dynamic and adjust and react in a nimble fashion to the environment, which I think we have become over the last couple of years with our transformation really allows you to take advantage of that environment. And also, it comes back to clients. Clients continue to be active and doing a lot. And with our kind of strategic investments, we are able to support clients in a much more meaningful way.

So you mentioned transformation and BNY has gone through a big strategic transformation as well. You've now entered, I guess, Phase 2 of your transformation to reimagine BNY to become more integrated, more de-siloed. Can you provide a brief overview of this transformation for those who are newer to the story and touch specifically on the platforms operating model and the commercial model?

So I like -- again, 2 insights to how I kind of think about things as well. Over the last -- the only thing that's constant at the moment is change. And it's not like when you say -- when we say transformation, I kind of think for us, transformation will be never done because we're always looking to change and adjust. And it's like, okay, we're done. Now we go back to normal.

We want to move on, as Robin said in his first shareholder letter, we've taken a decade-long view and which for shareholders and investors and people who follow the firm, that's a little like we're going to make long-term strategic investments. And one of the investments that we made 3 -- nearly 4 years ago now was to move to be a platforms operating model company, financial services platforms company at the center of global markets. That's what BNY essentially does.

And the setup of the firm 4 years ago didn't play to that strength. And so over the last 3 to 4 years, we've kind of set around a different way of working, aligning on the platform's model, putting skills, tech, everything in centers of excellence, client platforms, enterprise platforms, de-siloing the firm, getting rid of duplication. And that has many short-term benefits, but I do believe quite strongly that the long-term benefits of that are yet to be revealed.

And just to be a little bit more specific, like the firm now, Q2 of 2026 is fully active in the new way of working. The firm is now kind of speaking one language. Whereas before with the transition into the new way of working, some people working in the old way, some people working in the new way. And that was kind of hard going for our people. But now we're all in one way. And so now we can really kind of talk to the firm, talk to our platforms, really get the strategy going. So I say a lot internally for us being fully active in the platform operating model, it's the end of the beginning.

And I'm very excited about the benefits that we can realize both for top line and continued redeployment and creating capacity. And one of the little vignettes that I gave to the Board in my update was we have one platform, change of leadership, new person coming in, fresh eyes, which also is a very important part of our strategy is leadership mobility. And they took a fresh look at stuff and said, okay, we're going to move this. We're going to move this. I'm going to generate $5 million of capacity, and I'm going to reinvest that in our AI strategy for this particular platform.

4 years ago, that leader would have come to me and asked me for $5 million to invest, whereas they created the capacity themselves. And so you can see AI strategy plus platform operating model plus commercial model working together to deliver a great outcome for the firm and for clients. So very pleasing to see at the moment.

And you can certainly see it in the operating leverage that you guys have generated over the last 2-plus years. When -- I think at 126, you had mentioned that about 70% of your employees had migrated over to the platform's operating model. Did you just say 100% now? Is that?

So like I'll channel my inner accountant here. It's not quite 100%. But if you're, call it, 99%, I think there's 200 or 300 people, stragglers left to go, but for all intents and purposes, we're 100% in the model.

Okay. Fine. That's great. And I guess what were the last few areas to get transitioned over? And I guess what you're saying is that the benefit of that is yet to come, right? The shorter-term benefits of some of it are yet to come and then the longer-term benefits of everything are yet to come.

So like it's -- I would say the last wave was mainly corporate functions. And so yes, largely corporate functions, I would say. But if you -- we had 5 Waves over 3 years, the maturity of Wave 1 relative to Wave 2, Wave 3, Wave 4, now Wave 5 is very different.

And so I think in 2 years' time -- 3 years' time, when Wave 4 is at the same level of maturity as Wave 1 now, then I think we'll really see some great benefits for the firm, not just in terms of efficiency, but just how the firm operates and shows up for each other and for clients. I just think as a firm, we'll be able to move faster. And so that is really the power of the model, I think, yes, for sure. Very exciting.

And then what about the commercial model? Can you talk a little bit more about how that's driving organic growth?

So look, it's a big area of focus for everybody who's listening in this morning. I think if you look back to our organic growth numbers of '22, '23, '24 and look at on a sliding scale up, we're moving in the right direction. I know it was challenged quite a bit on the January earnings call, I used the phrase accelerating organic growth. And I think one of the analysts wasn't that happy with the number of basis points equal accelerated.

But when you come from where we were in '22, which was flat to, I think last year was kind of 3-ish. And I think we continue to grow that number. 10% of sales last year were with new logos. We announced in our Q1 earnings call, a significant deal with AGI, which is a decade-long deal, which is a real partnership and allows us to grow our franchise in Europe. We're able to support the administration with a very important piece of public policy in terms of Invest America or Trump Accounts, which will go live on July 4. The reception in D.C. over the last couple of days has been very positive around that.

And so that creates an environment where clients really want to know what's happening at BNY and how can you help us. And so the client dialogue, the client backdrop, what the leadership team is doing on the commercial model -- you just remember, we started the commercial model in terms of the way we're setting up at the moment only 2 years ago. And last year was a record sales year. We had individual quarters of record sales. Q1 was a record sales quarter. So what we're doing strategically inside the firm is showing up in the numbers.

And so I believe we've got very strong momentum there. Part of it is talent. Part of it is just going at it in a more strategic way. And part of it is just listening to what clients want and explaining to clients what we can deliver for them. So much more of the bundled solutions, cross-selling. We had a 64% growth in clients who buy from 3 or more lines of business. And so we have a lot more data and we can track it and we can create a lot more accountability inside the firm to deliver these results for clients. So I feel very positive about it, and I feel like the firm is kind of moving in the right direction.

So my next question is -- here is the full potential of the integrated model and the transformation, but you just told me that the change is the only constant, right? So you're constantly evolving there. I guess, as we go through these phases, what are the key KPIs that you're looking at that continue to show progress along the continuum that you expect?

Well, top line revenue is a good one to start with. So for us, fundamentally, like to be consistent, positive operating leverage is fundamentally the North Star. Like we talk to the market and to you in terms of positive operating leverage, margin, ROTCE and how we want to move the needle on that. We updated our guides on that in January. We believe what we guided is entirely within our core competency within the medium-term time frame. We're always looking to outperform. We're always looking to go faster.

And in the world of AI and technological innovation and the leadership team we have in place, I just feel very constant or very comfortable about saying that. And then when you take that and you drill it into the platforms and the targets and the individual accountability and how Robin has set the leadership team up to be very much in service of the firm and one BNY and we work as a team. And that really has allowed pillar #3, which has powered our culture.

It really is the transformation and the culture that's powering to run our company better and be more for clients. I'm here a little over 3 years at the firm. I feel like I've been at the firm a lot longer, not because it's been hard work, but because the enjoyment factor and the ambition level that Robin has generated in the firm is quite exciting. Yes.

Got it. Okay. So we should talk about AI because the transformation program is deeply rooted in AI. You've spoken about your vision of AI for everyone, everywhere and everything. Can you talk a little bit more about your AI strategy and where you are in this journey right now?

Yes. So again, it's a very -- I'm an optimist on AI. I actually think a lot is written about [ AI ] when we were doing the spring circuit of investor conferences, there's some people in the room that I was meeting with -- I can't remember what exact week it was, but it was the SaaS-pocalypse week. And everybody thought that everybody was going to set up new companies overnight and what the moats were and what's your moat and this, that. And you kind of have to see through all that fog and be in a position to, in a way, red team yourself constantly. We live in a world of disruption.

And it's important for everybody to understand that we recognize that we have to disrupt ourselves, too. Otherwise, you're going to get disrupted. So we have a big tech budget. We have the power to invest. We believe we have a very good strategy. And we believe competition is good because it makes us better as a firm. So we like healthy competition. We believe we have healthy competition in our segments, but we believe that we have a strategy. And so we feel good about our ability to execute that strategy.

Now if you kind of go back 3 years for BNY, Robin -- ChatGPT was like the fall of '22, early 2023, we said AI is fundamentally important to our future, and we set about what you just said for everyone, for everywhere, for everything. And the last couple of years has really been about how do you get AI as part of the cultural transformation. So people don't feel threatened, worried, job insecurity. And so we've given people the tools, the training, the skills. We've built an agentic workflow model, Eliza, very strategic, very powerful, gives us lots of capabilities and lots of opportunities, close partnerships with the labs on the West Coast.

And so we kind of feel we're at the center of the AI transformation. We're not path followers. We believe we are setting the strategy. And I believe it's very CEO-led. And I think for you to be successful in the world of AI, the strategy has to be tone from the top and CEO-led. And I believe we have that unique set of combinations within the firm. And we have a great engineering team who is kind of like what could be more exciting than transforming a 242-year-old firm in the age of AI.

We came from D.C. where we had our Board at Mount Vernon, and we went through George Washington's artifacts and we were in the national archives yesterday morning, seeing the constitution, et cetera. BNY is only like a little bit -- we're in that ZIP code, right? So we know how to adjust and transform with the times. And I just think we fundamentally believe AI is a superpower that we're going to harness to help us drive growth. And so we're excited about it and what it brings. And I think our people broadly don't feel threatened about it because we've invested in their upskilling over the last 3 years.

So what's the next thing as you think about Eliza and you think about AI overall, what's the next thing that you're most excited about? What's the next phase of this strategy?

So actually -- so look, I'm sure there are a lot of firms in the room who have this as well, but to have large language models and COBOL coexist in the firm at the same time is quite exciting because you want AI to be able to transform COBOL and Fortran and green screens and et cetera. But now everybody was worried about the engineers who are experts in COBOL retiring because they're getting to the end of that. Like now you can -- with large language models, you can do that transformation in a much more smoother way.

And so I think engineering being able to use tools like Windsurf so to be able to deliver software faster in a more controlled way, being able to handle change management in a more controlled way. So just enabling your resources to do more and have more interesting work to do, I think that's a really fundamental part that doesn't get talked about enough allowing -- giving our engineering organization more capacity, more tools to be able to be more innovative and more creative and respond to client needs in a more dynamic way. That's really, really powerful, very important, and we're excited about that.

And then having all our platforms being able to build AI into their strategic road maps about how they can serve clients, better client experience. I think the last time I checked, we have roughly 200 -- somewhere between 250 and 300 AI solutions in place dotted around the firm. And some of them are very powerful. A lot of people talk about onboarding. We're very -- like we feel very sophisticated and very advanced in where we are on the onboarding, but a lot more to do.

Client conversions, I think there's a lot more we can do there, a lot more in the payments space, AI plus digital assets together, I think there's a lot we can do there. And so all of those things will actually attract more talent to the firm. So there's an important cultural dimension to it because it feels like BNY is a place to be at an exciting time.

But we're not talking about riffing, attrition, all that kind of stuff. We're talking about growing, investing, creating capacity, doing more with existing clients. So we're on the other side of that ledger in terms of positive versus negative, like -- so yes, I'd say the mood inside the firm as it relates to AI is very constructive.

Any challenges you're thinking about? One of the things that came up at this conference is token usage costs and eventually, that will -- those costs will scale up. So how are you thinking about that? Any other challenges you're thinking about on the AI side?

So I think that's definitely part of the worry set of a risk-adjusted CFO. But that's a bit like cloud as well in the early days. So cloud usage, cloud bursting. So there are a lot of similarities, a lot of parallels. So I would say the important thing there is to have a risk-adjusted approach to labs and LLMs and not to be hostage to anyone because then you're a price taker. And so at some point, they will be competing with each other. For sure, I think token usage will go up over time. And then it will become more of like what's the ROI on the AI investment versus other ways.

So at the end of the day, it's just math. And as long as you feel like your AI strategy is set up to be, okay, you're too expensive. We're moving here because there's a lot of people in the space. It's not like 2 people and one or the other. And as somebody said to me last week, in 2 years' time, the worst LLM model in 2 years' time will be better than the best LLM model today. That's how quickly things are moving.

And so you need to have a strategy that can adjust and be nimble and calibrate with that. And so you make the right financial decisions when you have the right data and the right return metrics to make those assessments. So I feel like we've created the right infrastructure to be able to analyze that as we go through that next phase of pricing and token usage.

So is it about developing some sort of harness and also like training for employees or anything else?

Yes. And also, I think -- I would say part of our strategy over the last couple of years is it's everywhere for everyone, for everything. And then over time, you end up with more discipline of like where are the strategic bets, what are the top 3 things, what are the top 5 things that we really want to get after where AI will really move the needle as opposed to just a super spreader everywhere. And so I see that as being an important next step as well, like anchoring on 3 or 4 big strategic decisions.

Got it. All right. Let's talk about some of the core businesses, custody, collateral management, treasury settlements. You clearly have a breadth of capabilities there. From a traditional finance perspective, where do you see the greatest opportunities to pull ahead?

So we've spent a lot of time on this in terms of where I would say an opportunity for us is. So we're #1, #2, #3 in a lot of our businesses in a lot of sub-segments of our businesses. And so you can kind of -- you can get into the complacency mode of if you're #1, well, you're #1. And so in the world of -- only the paranoid survive, we're now a lot more -- becoming a lot more focused and granular in terms of the products. We've set up a product practice. So now we will have -- in the same way we have targets by salespeople, we will have targets by product people.

And that is an exciting, I think, next phase for us next year in terms of really developing in a more sophisticated way, our product shops, looking at TAM, where are we? How can we grow domestically, internationally? Where the clients who are buying one and big in one space, but could do a lot of other things? AI can help us with that in terms of analysis. And so we're becoming much more granular about what the opportunity set is in each market.

And as a consequence of that, one of the things that we did with our Board this week is, if you take our medium-term target for margin being 38%, and you wanted to be the best of in everything that you do, even notwithstanding the fact that you are the best in some of them, there's still room to grow, then you can get higher than that. And so we're doing a lot of work to look for opportunity, new areas, new products, new markets. So I kind of think most businesses that we have, have room to grow top line.

And -- so we're quite excited about that in terms of -- I would have said, look, Market and Wealth Services, high-performing segment over the last 3 years, really good margin, I think roughly 50% margin for that segment. Do I think it can go higher? Absolutely.

Custody, 4 years ago, our business, even though we were the world's largest custodian, there was a lot of work that we had to do. And I think like we've changed. I think Emily guided when she was the CFO at Goldman Conference in '21, a margin that we've just blown through. And so -- and we still feel like we haven't reached the end of that.

And so like if you were to do a measure of excitement inside the firm in terms of the opportunity, you would feel, okay, that's pretty good. So -- yes, we feel very optimistic about our ability to grow across pretty much everything. And segments like I don't really talk about that much. Everybody wants to ask me the question about IWM. But I mean, that's a business that is in -- the industry has been quite challenged over the last couple of years, and our margin in that segment has been quite challenged over the last couple of years.

But we believe that we can strategically make better inroads in that over time, and Jose is doing the right thing and he's making all the right calls. And so you have that segment not performing where it needs to be, but beginning to turn around in the context of a firm that's really performing well when that starts to work as well, just think where organic growth can be.

So you're constantly challenging yourselves to be better in every segment. You're making the right investments. You continue to execute on that. One area that you have been making investments in is digital assets, as you just mentioned. Can you give us a quick overview of your competitive positioning in the space and how your leadership in traditional rails translates to digital finance?

Yes. So I think a very important strategic focus for us. We've assembled a great team under Carolyn Weinberg over the last couple of years, very, very important collaboration between Carolyn and Leigh-Ann, who's our CIO, engineering, digital assets coming together. And in a way, the way how I think about digital assets, is that it's in service of the firm because if you think of us as a financial services platform company at the center of financial markets, and we have the rails. We've been at the part of this for the last 240 years, and we want to be -- we want to write the next chapter.

And so each business has to think about how the next chapter is going to disrupt itself. So Carolyn is really in service of all the lines of business in terms of how they, with AI can disrupt over the next 5 to 10 years and what is the consequential impact on P&L there. You're going to gain in some areas, you're going to lose in some areas or you may leak in other areas. There's a lot of discussion like what does it mean for deposits, et cetera, et cetera. But all of that will evolve over time.

And we believe by looking to support clients, but you have some traditional clients, we're not thinking about it. You have some clients who are digitally native. That's all they think about. And so they've come to our platform for thought leadership and are doing traditional business with us. And so we're kind of merging the 2 over time and kind of working that -- evolving that ecosystem because they're not distinct where you're just going to cut from one to the other, but 2 will march in time.

So I would say -- and this has been largely supported by the positive tone from the regulatory agenda and with this administration, having a different view to that space. And so I just think that it's going to be very helpful to BNY because of the network effect that we have by being #1 in a lot of the spaces, the world's largest collateral manager, settling nearly 100% of the treasury market every day. And so our payment rails are quite sophisticated. And so we will like bridge that gap between the old and the new in a way that will be seamless for our clients.

And I think that will allow more clients or attract more clients onto our platform because they'll want one-stop shopping and not have to worry about it, and we will deliver that resilient, safe, innovative product that will reduce friction for them, that will allow us to grow our platform and grow our revenue. So I think our strategy will help clients and grow our business.

So one of the areas you mentioned for disruption, you spoke about deposits. A lot of your clients leave their liquidity with you -- with BNY. How are you thinking about cash sorting in a world where you have more AI agents there?

So I think you need to think of cash sorting in 2 dimensions. There's the retail and there's the institutional. And so our clients are already very, very sophisticated in terms of managing their liquidity. And so if you kind of think of our deposit base as being 2/3 operational. So it's a lot of velocity, a lot of movement supporting payments.

So we have a big balance sheet. We have a nice core set of deposits, but it's constantly turning. It's constantly being managed and it's constantly being optimized by clients already. And so I don't really worry about the cash sorting so much for our set of businesses in a way that others do for theirs.

Got it. All right. Perfect. So I know we're reaching the end of our time. We've gone through a lot of the medium- and longer-term drivers for BNY. As we're thinking maybe to bring this more near-term, rates have been moving around a lot over the past 3 months or so. How are you thinking about interest rate positioning for the balance sheet? And what impact does the higher belly and higher long end of the curve have on the income statement?

So again, like taking the risk management has, we talk about reducing the cone of outcomes. When we guided first in January, we kind of guided top line at the 5%. We didn't give a specific NII -- at Q1, we talked about a 10% year-over-year. We feel very good about that guide. I said at Q1 earnings that deposits probably moderate slightly into Q2. That's largely panned out as follows: record sales quarter in Q1. Again, not necessarily expecting record sales quarter in Q2, but the client dialogue is very strong, and we feel very good about delivering that for the year.

So I would say we are largely on the impact of the rate environment on our overall portfolio. It's consistent with what I've spoken about before. And so we respond in a fairly dynamic way to it. And so look for idiosyncratic opportunities when they pop up, but largely feel pretty good about where we are vis-a-vis rates at the moment.

Got it. All right. I think with that, we're out of time. Dermot, thanks so much for joining us.

Pleasure. Thank you.

Good morning, and welcome to the 2026 first quarter earnings call hosted by BNY. [Operator Instructions] please note that this conference call and webcast will be recorded and will consist of copyrighted material. You may not record or rebroadcast these materials without BNY's consent. I will now turn the call over to Marius Merz, BNY's Head of Investor Relations. Please go ahead.

Thank you, operator. Good morning, everyone, and welcome to our first quarter earnings call. I'm here with Robin Vince, our CEO; and Dermot McDonogh, our CFO. As always, we will reference the quarterly update presentation, which can be found on the Investor Relations page of our website at bny.com. .

And I'll note that our remarks will contain forward-looking statements and non-GAAP measures. Actual results may differ materially from those projected in the forward-looking statements. Information about these statements and non-GAAP measures is available in the earnings press release, financial supplement and quarterly update presentation, all of which can be found on the Investor Relations page of our website. Forward-looking statements made on this call speak only as of today, April 16, 2026 and will not be updated. With that, I will turn it over to Robin.

Thanks, Marius. Good morning, everyone, and thank you for joining us. I'll begin with a few broader comments before Dermot takes you through our financial results. Referring to Page 2 of the quarterly update presentation. BNY has started the year with a strong performance in the first quarter. Earnings per share of $2.24 grew 42% year-over-year, both on a reported basis and excluding notable items. Record revenue of $5.4 billion was up 13% year-over-year, reflecting broad-based growth across our Securities Services and Market and Wealth Services businesses, and we delivered over 800 basis points of positive operating leverage while making meaningful investments in new products, capabilities, AI and critically, our people and culture.

Taken together, this combination of strong top line growth and significant operating leverage resulted in pretax margin expansion to 37% and improved profitability with a return on tangible common equity of 29% in the quarter. BNY's position at the heart of global financial markets with platforms across custody, security settlement, collateral, payments, trading, wealth investments and more supports durable financial performance for our company, enabling us to power our clients' growth as they navigate an increasingly complex landscape.

While the path of global markets is difficult to predict with certainty, what is clear is that the underlying trends, higher levels of activity, greater complexity, new technologies and a resulting need for scale efficiency and connectivity are more relevant than ever for our clients. As I mentioned in my shareholder letter earlier this year, the portfolio of BNY's businesses is unique but it is how we are embracing new ways of working, our adoption and integration of new technologies and our strong culture that allows us to create truly differentiated solutions.

Clients are increasingly recognizing the value of holistic solutions that support the full life cycle of their activity, whether it is managing liquidity, optimizing collateral, supporting higher trading volumes or getting ready for the future of financial market infrastructure. Our work to operate together as one BNY through both our platforms operating model and our commercial model, better enables us to bring the full breadth of our capabilities together in service of our clients.

A good example of this from the first quarter is our work with Allianz Global Investors, one of the world's leading active asset managers. AGI has selected BNY to support optimizing their investment operating model, leveraging the breadth of our global capabilities. This integrated model will help AGI deliver exceptional experience front to back. while placing AI and modern data infrastructure at the heart of their operations to enhance productivity, enable faster work, clearer insights and better outcomes for their teams and clients alike.

In another example, PayPal has selected BNY to provide institutional grade digital asset custody, supporting their digital payments wallets and financial services for millions of users globally. And just last week, the U.S. Treasury Department announced that they have selected BNY as a financial agent for Trump accounts, the U.S. government's investment savings initiative for children aimed at building a strong financial foundation for our next generation. BNY will manage the national infrastructure for the program and collaborate with Robinhood, which will provide brokerage and initial trustee services.

These examples illustrate our strategic evolution toward deeper integration between our products delivered with the technology and scale of BNY's differentiated platforms. Over the next phase of BNY's transformation, one of the most significant enablers of being more for our clients and running our company better is AI. And so we felt that this was an opportune time to spotlight how we are going about AI at BNY.

Turning to Slide 3 of the presentation. As a reminder, our work to set the foundation for reimagining our company has included intentional and consistent investments in AI over the past several years. We took a very deliberate approach to AI through the lens of integration, adoption and importantly, our people and culture. We embraced the platform's approach to embedding AI across the company, creating our AI hub in 2023, so we could develop the enterprise capabilities, strong governance framework and training to empower every employee to embrace AI.

More than 2 years ago, in collaboration with NVIDIA, BNY became the first global bank to deploy a DGX SuperPOD. And in the same year, we launched Eliza, BNY's AI platform. Outlined on Page 4, our vision for AI at BNY is that it is for everyone, everywhere and everything. As is the case with many things, the key to making it work is culture. We took a people-first approach.

Over the last year, we focused on broad adoption. We made Eliza available to 100% of our employees and supported advanced learning and development through a series of training programs. This approach to enterprise-wide enablement has already allowed us to develop more than 200 AI solutions and to introduce digital employees, multi-agentic solutions that operate alongside human colleagues.

In 2026, we are doubling down on depth. Moving from AI point solutions to using AI to enhance end-to-end processes reducing manual touch points, improving cycle times, strengthening control outcomes and to build more connected intelligence by linking data, workflows and expertise to enhance the service and value proposition for our clients.

On Page 5, we show just some of the initial output tangible results of AI enablement and impact across improved business and operating performance, driving greater efficiency and product innovation. None of these metrics individually show a complete picture of AI at BNY. But taken together, they show something important that we are systematically embedding AI in our workflows across the entire company. Already, AI is helping us increase the pace at which we innovate our technology, accelerate onboarding, improve client service and streamline processes and in combination with our broader efforts to run our company better, AI is starting to contribute to the improved financial performance trajectory at the bottom of the page.

Building on our deliberate strategy and the solid foundation we've laid over the past several years, we're confident that AI will enable us to evolve our business model and enhance how we deliver for clients. Our commitment, not just a deep AI enablement but the full reimagination of our company, combined with the role that we play in global financial market infrastructure, the breadth of our businesses and our trusted and deep client relationships together represents a powerful competitive advantage.

Taking a step back and reflecting on the operating environment. While AI was an ever-present theme in markets over the past few months, the first quarter also presented a dynamic market backdrop. Significant volatility was driven by shifting expectations for the path of growth, inflation and interest rates amid geopolitical conflicts and evolving policy outlooks.

Within this constantly changing environment, our diversified business model, combined with our strong balance sheet, allows BNY to serve as a pillar of strength for our clients and for global markets. Before I hand it over to Dermot, I want to take a moment to recognize our employees around the world for rising to the challenge to execute on our long-term plan to unlock BNY's full potential for our clients and shareholders.

We've had a strong start to the year, supported by increasing client engagement and continued progress on our strategic priorities. I'd like to thank our clients for their trust, our employees for their commitment and hard work and our shareholders for their continued support. And with that, over to you, Dermot.

Thank you, Robin, and good morning, everyone. I'll pick up on Page 6 of the presentation with our consolidated financial results for the first quarter. Total revenue of $5.4 billion was up 13% year-over-year. Fee revenue was up 11%. This included 10% growth in investment services fees, reflecting higher client activity, net new business and higher market values. Investment management and performance fees were up 6%, primarily driven by higher market values and a favorable impact of a weaker U.S. dollar, partially offset by the impact of the mix of AUM flows. While not on the page, I will note that firm-wide AUC/A of $59.4 trillion increased by 12% year-over-year. This reflects net client inflows, higher market values and the favorable impact of the weaker dollar.

Assets under management of $2.1 trillion were up 6%, primarily driven by higher market values and the weaker dollar, partially offset by cumulative net outflows. Foreign exchange revenue was up 49% year-over-year on the back of higher volumes resulting from elevated market activity and supported by new products and capabilities. Investment and other revenue was $271 million in the quarter, including approximately $135 million of investment-related gains and $50 million of net securities losses. Net interest income increased by 18% year-over-year, primarily driven by continued reinvestment of investment securities at higher yields and balance sheet growth, partially offset by deposit margin compression.

Expenses of $3.4 billion were up 5% year-over-year, both on a reported basis and excluding notable items. This was primarily driven by our commitments to higher investments in our businesses, higher revenue-related expenses, the unfavorable impact of the weaker dollar and employee merit increases, partially offset by continued efficiency savings. Provision for credit losses was a benefit of $7 million in the quarter, primarily driven by improvements in commercial real estate exposure, partially offset by changes in macroeconomic and other factors.

On the back of significant positive operating leverage of 833 basis points, pretax margin expanded to 37% and return on tangible common equity was 29%. Taken together, we reported earnings per share of $2.24, up 42% year-over-year. On to capital and liquidity on Page 7. Our Tier 1 leverage ratio for the quarter was 6%, flat sequentially. Tier 1 capital increased by $532 million, primarily driven by preferred stock issuance and earnings retention, partially offset by a net decrease in accumulated other comprehensive income.

Average assets increased by 2% on the back of deposit growth. Our CET1 ratio at the end of the quarter was 11%, down 89 basis points sequentially. Our CET1 capital remained approximately flat. This decrease was primarily driven by higher risk-weighted assets reflecting a single day increase in overnight loan balances on the last day of the quarter, along with higher client activity in agency securities lending and foreign exchange.

Over the course of the first quarter, we returned $1.4 billion of capital to our shareholders, representing a total payout ratio of 87%. And our Board of Directors authorized a new $10 billion share repurchase program. Our consolidated liquidity coverage ratio and net stable funding ratio were at 111% and 131%, respectively.

Turning to net interest income and balance sheet trends on Page 8. Net interest income of $1.4 billion was up 18% year-over-year and up 2% quarter-over-quarter. Like the year-over-year increase described earlier, the sequential increase was primarily driven by the continued reinvestment of investment securities at higher yields and balance sheet growth, partially offset by deposit margin compression. Average deposit balances increased by 3% sequentially, reflecting 2% growth in interest-bearing and 6% growth in noninterest-bearing deposits and average interest-earning assets were up 2% quarter-over-quarter.

Cash and reverse repo balances were flat. Loans increased by 6% and investment securities portfolio balances increased by 2%. Turning to our business segments, starting on Page 9. Security Services reported a total revenue of $2.7 billion, up 17% year-over-year. Total investment services fees were up 10%. In Asset Servicing, investment services fees grew by 11%, reflecting higher market values and broad-based client activity. [ ETF AUC/A ] were up 33% year-over-year on the back of higher market values, client inflows and net new business and our alternatives AUC/A were up 20%. I want to highlight that consistent with our strategy to deliver the breadth of BNY to our clients, over 50% of the clients that awarded asset servicing new business in the first quarter also awarded new business to at least one of our other lines of business.

In Issuer Services, Investment Services fees were up 4%, reflecting growth in both Corporate Trust and depository receipts. I'll note that for the first time in our history, Corporate Trust reached $15 trillion of total debt service, and we're particularly pleased with our continued market share gains in CLO servicing. Once again, the breadth of our capabilities is a powerful differentiator. Our clients clearly recognize the superior value proposition of a single provider for corporate trust, asset servicing, collateral, liquidity solutions and more.

In Securities Services overall, foreign exchange revenue was up 44% year-over-year, reflecting higher client volumes. Net interest income for the segment was up 20% year-over-year. Noninterest expenses of $1.6 billion were up 5% year-over-year, primarily driven by higher investments and revenue-related expenses, the unfavorable impact of the weaker dollar and employee merit increases partially offset by efficiency savings.

Security Services reported pretax income of $1 billion, a 46% increase year-over-year and a pretax margin of 39%. [indiscernible] investment-related gains added 3 percentage points to pretax margin in the quarter.

Next, Markets and Wealth Services on Page 10. Markets and Wealth Services reported total revenue of $1.9 billion, up 11% year-over-year. Total investment services fees were up 10%. During the quarter, we formed our Wealth Solutions business by realigning Archer's managed account solutions from asset servicing to Pershing. This integration further strengthens our capabilities to serve wealth advisers by adding Archer's market-leading distribution and managed accounts expertise to deliver fully integrated end-to-end solutions across the entire wealth ecosystem.

In Wealth Solutions, Investment Services fees were up 6% reflecting higher market values and client activity. Net new assets were $22 billion in the quarter, representing an annualized growth rate of 3% and AUC/A of $3.3 trillion were up 14% year-over-year. In Clearance and Collateral Management, Investment Services fees increased by 19%, reflecting broad-based growth in collateral balances and clearance volumes.

Average collateral balances of $7.8 trillion increased by 18% year-over-year reflecting higher market activity and growth on the back of a robust environment for financing with U.S. treasury securities, strong money market fund balances and increasing client demand for noncash collateral. Ahead of the central clearing mandate for U.S. Treasuries, we are engaging with central counterparties and our clients, and we're delivering innovative solutions from across BNY that help them find new ways to access the market clear transactions and manage collateral and margin.

In the quarter, we also saw strong growth in clearing volumes, reflecting net new business wins, particularly in international clearance and from expanding wallet share with existing clients doing more with BNY. In our Payments and Trade business, Investment Services fees were up 5%, primarily reflecting net new business. Payments and Trade delivered another solid quarter with continued sales momentum, including numerous multiline of business wins, particularly with FX and Global Liquidity Solutions.

Net interest income for the segment overall was up 15% year-over-year. Segment expenses of $937 million were up 6% year-over-year, primarily driven by higher investments, employee merit increases, higher revenue-related expenses and the unfavorable impact of the weaker dollar, partially offset by efficiency savings. Taken together, our Markets and Wealth Services segment reported pretax income of $961 million, up 18% year-over-year and a pretax margin of 51%.

Turning to Investment and Wealth Management on Page 11. Investment and Wealth Management reported total revenue of $825 million, up 6% year-over-year. Investment management and performance fees were up 6%, primarily driven by higher market values and the favorable impact of the weaker dollar, partially offset by the impact of the mix of AUM flows. Segment expenses of $726 million were up 2% year-over-year, primarily driven by the weaker dollar, employee merit increases and higher investments, partially offset by efficiency savings.

Investment in Wealth Management reported pretax income of $90 million, up 43% year-over-year and a pretax margin of 11% versus 8% in the prior year quarter. As I mentioned earlier, assets under management of $2.1 trillion increased by 6% year-over-year. In the first quarter, long-term active flows were flat reflecting net inflows into fixed income and LDI strategies and net outflows from equity strategies.

We saw $10 billion of net outflows from cash and $7 billion of net outflows from index strategies. Wealth Management client assets of $339 billion increased by 4% year-over-year, reflecting higher market values.

Page 12 shows the results of the Other segment. I'll close with an update on our financial outlook for the year. In light of our strong performance in the first quarter, we are raising our outlook for total revenue, excluding notable items for the full year 2026 and now expect approximately 6% year-over-year growth. That includes our expectation for full year 2026 net interest income to be up approximately 10% year-over-year.

We expect full year 2026 expense growth, excluding notable items, to be at the top of the 3% to 4% year-over-year growth rate range that we provided in January. And we continue to expect a quarterly tax rate of approximately 23% for the remaining quarters this year. I want to leave you with 3 important points. First, we delivered a strong financial performance in the first quarter and continue to serve as a pillar of strength for our clients amid a dynamic market environment. Second, the combination of our unique portfolio of businesses, our role in global financial market infrastructure, our deep and trusted client relationships, our diversified business model and the strength of our balance sheet represents an exceptional client value proposition and a powerful competitive advantage. And finally, what truly differentiates BNY today is our ability to mobilize all of the above for the benefit of our clients and shareholders. With that, operator, can you please open the line for Q&A?

[Operator Instructions] We'll take our first question from Brennan Hawken with BMO Capital Markets.

I just start with deposits. So the deposit trends were stronger than expected. I was hoping maybe you could speak to quarter-to-date trends and around betas, specifically for the euro and pound deposit betas, given we've got hikes now in the forward curve, how should we be thinking about the betas for those currencies?

Okay. Thanks for the question, Brennan. Let me start with overall balances and trends. As you will recall from our call on Jan 13th, we finished last year with strong momentum on deposits. And with the macro uncertainty and just how the events of the quarter played out, we saw clients holding higher levels of liquidity.

And so as a consequence of that, you see the overall balance being a little bit elevated. And then you saw the mix between IB and NIBs, we attracted more NIBs than anticipated. So overall, on the U.S. dollar side, it really was the balance and the mix that drove the NII outperformance in the quarter. And within particular businesses, it really was an issuer services and asset Servicing, specifically in Corporate Trust that were the 2 businesses that saw the notable benefit.

As it relates to the non-dollar side of things, euro and sterling is really a smaller part of our overall portfolio. It only accounts for roughly 25% of the overall book. So it's not a meaningful contributor to NII. For euros and sterling, the betas roughly peaked at 80% on the way up. And so we kind of, for dollars and non-dollars, we expect betas to perform in a symmetrical fashion going up as well as going down.

That's how we see it.

Great. And then on, I guess, the [indiscernible] formerly known as Pershing. So we had really robust year-over-year, both DARTs and AUC growth. But the revenue growth was not quite as robust as those 2 metrics. So could you maybe help unpack the primary drivers of the revenue growth. And help us understand how we should model that going forward?

Sure. So Wealth Solutions, as we now are going to call it going forward, will be as good as the [indiscernible] formerly known as Pershing. And we kind of just -- we continue to believe you saw net new asset growth in the quarter of roughly 3%. I'd just like to reaffirm our kind of belief and commitment that we can grow the business, net new assets, mid-single-digit growth over the coming years. .

Also, I think for the first time in a few quarters, we -- it's pleasing that we haven't had to talk about a deconversion. So it was a relatively clean quarter with lots of volume. And so with the macro uncertainty, we did see a lot more volume as clients were rehedging and rebalancing their portfolio. So it was more of a volume-driven quarter. And then just to kind of highlight the point about Archer, like we really kind of feel that Archer sitting in Wealth Solutions will be able to drive more capabilities and more product innovation for our clients. So feel really good about the outlook and what Archer can do in the Wealth Solutions space.

We'll move to our next question from Alex Blostein with Goldman Sachs.

So obviously, very strong performance in the quarter, underscoring the benefits of various verticals within BK. And part of that, I guess, is sort of transitory. So I was hoping we could unpack that both on the fee side and NII, perhaps like how much of the benefit the elevated market volatility being created this quarter do you think about the right baseline and then for NII, the NIB performance was obviously quite strong. And it feels like in your guide, you're largely kind of mean reverting that. It doesn't sound like you're assuming much of that is going to stick around, but I was hoping you can unpack that a little more on what's baked into the NII guide on the drivers.

Okay. For your first question, that was a lot of questions, Alex. So here's what I would say. And look, Robin spoke about it well on Squawk Box this morning, we're setting the firm up for really a diversified revenue stream and durable. And so I think what was very pleasing from a CFO lens this quarter was the diversity of the revenue stream, the mix between fees from balances and fees from volumes.

And look, there was a lot of uncertainty in the market over the course of the first quarter and our clients were doing a lot of rebalancing. So we were there to help and support that. And so volatility can also be a good enabler for BNY in terms of the business model because it generates volumes. So you saw that across all of our platforms, and then you saw the mix was roughly 50-50 between balances and volumes. So that was also pleasing to see. And also, I think -- the balance between equities and fixed income was also pretty balanced. So overall, I think it was very pleasing to see in terms of the backdrop.

Look, to be honest, we see that hopefully to continue. And we have scaled platforms that we've invested in over the last couple of years. And with the record sales quarter, you're beginning to see the proof points of clients coming to the platforms, wanting to do more with us across multiple lines of business. So it really is clients doing more against a macro backdrop that was uncertain that generated the volumes. So overall, a very pleasing quarter. As I said in my prepared remarks, there are a few one-offs in there. We particularly highlighted that in security services, which is a 3% contributor to the margin of 39%. But if you back that out, it's 36% margin, still a pretty exceptional quarter for that segment.

Got you. And then just the follow-up on [ NAB ] and what you guys are assuming a sort of temporary deposits given the volatility that could reverse itself over the next quarter or so? And how does that inform your 10% in NII guide?

So we expect we expect deposit balances to kind of revert to more seasonal patterns from here. We expect Q2 to be moderate -- slightly down from Q1. Q3 is usually our -- kind of seasonally our weakest quarter with Q4 being our strongest quarter. But over the balance of the year, we expect balances to be modestly higher relative to 2025. We've run a bunch of scenarios, different rate environments, different levels, take the feedback from the businesses and that kind of gives us confidence around the 10% guide.

We'll take our next question from Ebrahim Poonawala with Bank of America.

I guess maybe Dermot, following up on your response to the previous question. I just want to make sure we get this right. So very clear on deposit, NII outlook. On fees, the guidance implies like 2% to 3% growth for the rest of the year. Is that right? And I'm just wondering -- like what's the -- like what would need to happen? Like do we need a materially better or worse macro for the [ 2% to 3% ] to be much higher or lower? I'm just wondering what are the market assumptions you're making in the guidance for the rest of the year on the fee revenue side?

So look, it's a tricky question. You ask Ebrahim. If you go back to Jan 13, when we gave the guidance for the full year, we went with 5% on top line growth, and we expect this -- when I was pressed on that, we kind of said a little bit higher on NII, a little bit lower on fees. And so we're one quarter into it, I would say, underneath the hood, and we said this on the call again in January, we continue to believe that we're grinding organic growth higher than where it was.

It was 3% in 2025. You will remember way back to '22, it was flat and '23, it was 1%. So we're very focused on it. And as Robin said in his remarks, record sales quarter this year, first quarter, 2 record sales quarters last year, that is going to drive into the organic growth. So we feel pretty good about the outlook for the year, but we're only one quarter in, 3 quarters to go a lot of uncertainty. So we're not really changing our outlook on the fee at the moment.

Got it. And then I guess 1 sort of a bigger picture question. Maybe, Robin, for you, you sort of talked about like the use of AI, all the other sort of efficiency improvements at the bank. And I would argue like there are a few banks that are deploying AI more efficiently than BNY is. Just -- is there a risk that you're underinvesting or like when we look at the pretax margin, and to play devil's advocate, could you be doing more in terms of investing in the business using some of these revenue tailwinds given that I would argue that you think there are a lot more productivity boost that the firm should see due to AI. So why not invest more sort of further improve the growth algo for the firm, would be helpful there.

Sure. Ebrahim. So let me just split it in 2 because you're really asking 2 questions. I recognize they're related, but let me just, first of all, talk about the investments versus the operating leverage. It's very important to do both. We are investing in growth, and we are driving positive operating leverage and margin expansion. And we've said that we're going to do that consistently. And so we're setting ourselves up for those real peer-leading levels of operating leverage while we are also investing in the long term.

And remember this point about long term because that's how we think about it. Now sometimes people ask us the question that you're asking and they're saying, okay, are you investing enough? And then the flip side of that question is, do you have full control of your expenses? So if there was any change in the environment and somehow you could react to that. So we're very careful and thoughtful about that point, both leaning in when there is the space to do so, but not setting ourselves up with such a huge momentum of expenses that somehow it becomes problematic in the future if we wanted to make a calibration.

And so we feel like we're doing that quite well. Now let me flip that into the AI question. And if you remember, we have been investing in AI for 3 years. And we've been investing in a pretty meaningful way. And we have a lot of investment heft behind us because remember, our $4 billion technology spend. Now we've talked before about the evolution of that technology spend. once upon a time, 5 years ago, it was heavily geared towards infrastructure because we were really rewiring literally our underlying infrastructure so that we would be able to build the more modern technology and applications on top of that.

Now we've got this wonderful gift of AI at exactly the time that we're leaning into those types of capabilities. And what we tried to give you on the slide is just a sense of the breadth. We're not going to sit here and talk about all the leading edge AI things that we are doing that are state-of-the-art in the company today. They exist. But that's something that we'll keep for ourselves at the moment. What we do want to do is show you the breadth of what we're doing, so you can get a sense of the fact that it's really everywhere. Remember, we've got 218 AI solutions in production right now all across the company. That's year-over-year. We've got digital employees working side by side. And we have a ton of stuff in pilot. So we feel very good about our AI investments right now. But to your point, if we felt we needed to do more, we could do more, and we would do more.

We'll take our next question from Mike Mayo with Wells Fargo Securities.

I guess AI is the topic of the day or you brought upfront in the deck and AI for everyone, everywhere and everything and you talked about doing this for 3 years and you have 200 solutions. And you said you're starting to see the financial benefits. So I get it, it all sounds deliberate and thoughtful and clear. But then the big question is what will the financial benefits be? And what are the financial benefits now? And in 5 years, do you -- what are your financial expectations as the end result of all these efforts you've been undergoing.

Sure, Mike. So obviously, it's a critical question. And so just talk about a few different things. We see it as a catalyst for real transformational change. We've said from the beginning that the technology is clearly -- and it was -- this has been clear to us for several years that the technology was going to move incredibly rapidly, and it was going to scale in an exponential way, and we're seeing that now in reality.

And so therefore, adoption and integration risk being the limiting factors. And I think as a user of AI it's incredibly important that we find ways to be able to embed it and have our people pulling it in as opposed to potentially pushing it away. So this foundational investment in culture and in the technology is allowing it to be the super power that it really is and can be a capacity multiplier for our people.

So one of the things that we've been focused on is we would like a 47,000 person company, which is what we are today, to be able to deliver like one that is, in fact, many times larger. And that point that I mentioned in answer to the prior question about having a $4 billion technology spend, we've got the scale to actually be able to use AI and deploy it properly. And this scale point is incredibly important in terms of the way that we frame it because if you are a smaller spend, you've got $1 billion spend, you've got $500 million spend, probably true with $2 billion spend as well.

You just don't have the scale to be able to invest in your AI platform. And then you run risk of lock in because of the way that you live in someone else's ecosystem, you become subject to the token price wars and all of those things. And there are some very pleasant consequences that can come from that. So now let me really get to the question. We think the financial outcomes are going to show up in different ways. We think it's going to show up, and we showed a lot of this on the page, the early bits of this in productivity for our people.

This concept of 47,000 people being able to do a lot more delivering more for our clients is really going to start to show up. And we'll see that in the revenue per employee and the pretax employee over time. The progress so far has been largely driven by platforms operating model, the rewiring, the commercial model, all of those different things. But the next leg of that growth is maturing of those 2 programs and powered by AI, which is really kind of wrapped around everything.

The second vector is going to be the capabilities and features of our software, of our platforms as we deliver for clients. And we're already starting to see that showing up with client things. I mentioned this deliberately in the prepared remarks. When you look at our AGI win in Europe the fact that they had an inside look at what we are doing on AI, made them really excited about joining our platform because they saw that AI wasn't just us and our own productivity, it was going to be for them, and they viewed us as an extension of their operating model and therefore, our AI as an extension of what they could actually do, very powerful.

And then the third one is there are going to be things that we can do in an AI-enabled world that frankly just didn't make a lot of sense to do before things that were at the edge of profitability for us as a company, things that clients might have asked us for, but just didn't make a ton of sense to devote resources. But when you get an abundance of capacity, which is how we think about AI, creating for us we can start to think about doing things that previously were things that we had to leave just below the line. So there's a triple play for us in terms of how we're thinking about AI capacity creation, revenue enablement and then this expanding a little bit the perimeter of the firm. And collectively, those things are coming together in a way that really does excite us for the future. But you're right, it's early days, and that's just fine.

I think it's very clear you're -- in the debate, are banks or BNY an AI beneficiary or victim, obviously, you're saying you're a beneficiary. The other side of this, though, are the bad actors with these AI superpowers, as you described them. And all that I know is what I read in the paper about bank CEOs being summing to DC due to Anthropic and the new tools that are out there and the big risk of cyber. And I just have a tough time dimensioning the new cyber risk that's out there, given the new AI tools? And how should investors think about this type of risk? And how do you think about that?

So it's obviously an important question. Cyber defense is something that as a -- as one of the world's leading financial institutions in the G-SIB here in the U.S., we're clearly very focused on. We do a lot of important things. And so defending our clients, defending our role in the financial system has been important for us, frankly, for decades.

And as the technology evolves, so to do the defenses. Now this is a team sport and so doing it with AI providers, other technology partners, all incredibly important. We have [indiscernible] in-house. We're running it. And so it becomes -- it joins the team of defense for us as does the early access preview capability that OpenAI announced a couple of days ago, again, joined the team part of our defense.

And you framed it right, and I used the term for a reason, this concept of superpower because what AI really is now is a superpower. And if you'll forgive the metaphor for a second, it can be used for good and it can be used for evil. And so we're pulling the super power into our environment to use for good in order to be able to defend ourselves. And we view this as sort of an entirely predictable evolution of the technology. When there's a technology, whatever it may be, that is on an exponential curve of growth, it's just inevitable that we'll get surprised by when it takes one of those step functions.

But in a way, it's entirely predictable that, that would happen. And so we've gotten ourselves accustomed to the fact that this is an accelerating thing. We've got to constantly be working to stay ahead of the curve, it goes back to culture, it goes back to humility, and it goes back to being very, very focused on our role in the system. So that's where we are. And all of us have to be vigilant. By the way, as an investor, you have to think about this across all industries. This isn't just a financial services thing. This is an all industry thing. Bad actors can use AI in bad ways across all sorts of different vectors. And so we have 1 of the privileges in the financial services industry is that we've been alert to this topic for a long time.

We'll take our next question from Manan Gosalia with Morgan Stanley.

So very clear message here on AI. It sounds to me like with the investment spend already in the run rate and a lot more of the benefit to come, there is actually a lot more benefit here on the expense side. You're already at a 37% margin even before the full benefit of the platform's operating model. So I guess, is the rationale for keeping the medium-term targets at 38% plus/minus that there may be some of these economics that you have to share with your customers and that will get you more market share in the future?

So I'll take a stab at that first. And it kind of goes back to one of the previous questions about investing in capacity. Look, we just updated our medium-term targets in January. We had -- we're one quarter into that. The medium-term targets were based on a 3- to 5-year horizon. And so we feel good about where we are on the decade-long journey. And so we'll continue to invest, as Robin said, we're continuing to harvest efficiencies. We think the margin targets and the ROCE targets that we gave in January were a stretch for the firm, notwithstanding the Q1 that we've experienced. So that needs to be repeated through the cycle to give us confidence that they can be attained.

So I think it's too early to say. And look, when we see opportunities like Robin said on AI, we may invest more. And so we're at the high end of our guide for expenses this year. We like to believe we've earned credibility with the market on being financially disciplined and stewards of the expense base. So it's something that we actively review continuously. And if we see more opportunity to invest, we will. And at the right time, we will talk to you about how it's turning out for a medium term.

So let's just talk for a second, Manan, about the -- where does the value accrue because this is, I think, quite an important question. We, over the long term, see great value creation with AI, and it's going to accrue to clients. It's going to accrue to employees, and it's going to obviously accrue to shareholders as well. And we think AI over time, is just going to become stable stakes and ubiquitous. And so to some extent, it will.

You're right, some of it will get priced out through that value chain. But we think that companies that have an edge on using and deploying the technology will have an advantage. And there is a certain benefit to being a little bit ahead in terms of product development and cost of doing business. And so we see this early adopter benefit. We think we are actually an early adopter. But we also think the strategy is super important here.

And I'm just going to call out 3 things. So number one, culture is an enabler in AI, and we've made a lot of investment in AI. And so to have a team at BNY who see the power of AI and want to use it, that's actually not a small advantage. That's a meaningful thing. The second thing is we have done work in the company particularly with our platform's operating model, but also with our commercial model to lay the groundwork for being, I think, maybe a better adopter of AI than on average, because of the fact that we brought [ light things ] together, and we've already done some of the rewiring, the data organization and the other stuff, which frankly is incredibly useful when it comes to actually deploying AI.

And then the third thing is this point, and I mentioned it in answer to a prior question. But this point about having the scale because if we think of ourselves as an established player, we've got lots of mini moats all over the place associated with what we do and how we do it and the trust of financial services and people don't necessarily want to give their agent control of all their assets and all of the usual stuff, those things are advantages. We have the mentality of a clean sheet of paper, but we have the benefits of an incumbency because we've got the clients, we've got the business, we've got the connections.

We've got the platforms. And so we've sort of liberated ourselves from a mindset point of view, but we're leveraging our strengths. And so then that final point becomes the scale. And do you have the ability to manage yourself where you're not just going to be providing a ton of revenue to the AI companies and losing control of it because this point about escalation of token usage, escalation of token costs, it's the same story that we've seen before with cloud. If you allow yourself to get locked in and you don't have the breadth of access. You're taking a real risk on the pricing PowerPoint that you essentially raised before. And so for us, it's the how of the is actually, we think, also a bit of a strategic advantage. So look, we've made a bet on AI. We started it 3 years ago. So far, that's been the right strategy, and we're leaning in, and we think this is something that's going to accrue well to our company over time. .

Very clear. I appreciate all the detail. Maybe just on the capital side, given the new rules that we had a few weeks ago it would seem to me that BNY would benefit on the G-SIB surcharge side. It's not entirely clear to me what the benefit would be on the RWA side. So I was wondering if you could comment on that and maybe if this changes how you're thinking about the capital targets.

Thanks for the question. Look, the recent rule is broadly favorable for BNY before when we talked about it on previous calls, we kind of gave a preliminary estimate of 5% to 7% based on the original proposals. And now we expect a flat to modest reduction. And so look, it just reinforces what we say about our balance sheet, the strength of a liquid balance sheet, low-risk nature of the balance sheet. And so we feel good about where we are, and we feel good about the current proposals.

We'll take our next question from Ken Usdin with Autonomous Research.

Just 2 environmental related questions. Given the real big sharp period end balances, the capital ratios went down. Obviously, you have plenty of room assuming that being temporary, you wouldn't have any change to your outlook for your expected total capital return for this year?

That's correct. It was really a spot balance sheet on the last day of the quarter, and that returned to normal levels on April 1. And as you'll see from my remarks, Tier 1 leverage ratio, which is what we're bound by remained steady at 6%.

Okay. And also, given that it was a very volatile quarter with a lot of benefits from the environmental type of shift. Just wondering just how organic growth feels especially given a little bit more uncertainty out there. You had spoken last quarter about trying to be better than the 3% last year. Any changes to this an environment in terms of business wins and decision-making out there from your client set?

So I would just reemphasize the point that Robin made in answer to earlier questions and in these prepared remarks. We saw 3 really nice client wins in Q1 and across different types of clients, which really kind of demonstrated the strength and the breadth of the franchise. I highlighted in my prepared remarks that 50% of client wins in asset servicing in Q1 were also other lines of business were also awarded. So that kind of clients doing more with us across multiple platforms is really becoming more of a thing. And record sales quarter. So we feel we're not guiding on organic growth. It was 3% last year. It was zero 4 years ago, and we've been working the order book higher. And so we expect it to grind higher over the balance of this year. We're excited about the opportunity.

Our next question comes from Glenn Schorr with Evercore ISI.

So when we all look at the [ bank banks ], there's a lot of focus on the [ NBFI ] lending into a bunch of the funds in private credit land. I wondered, as the biggest servicer of a lot of these products, I'm curious how much of lending into the funds is integral part of the service and relationship and if you have any dimensionalizing of size and composition of book and how much it's grown for you?

So our exposure from a balance sheet perspective is de minimis, well managed. We feel very good about our risk in that dimension. I'll point you over to our Corporate Trust. And as I said in my prepared remarks, we went through for the first time, $15 trillion of loan service, and that's where we service a lot of those clients. And so we feel very good about that business. We feel very good about the momentum that's in there and the investments that we've made. So while it's been noteworthy with other banks and through the new cycle over the last several weeks in private credit space, it hasn't materially showing up in our business, and there are no bumps there that I would highlight.

One other one that catches my attention is periodically, you'll see a certain fund or certain even stock get tokenized. And I think there's a lot of investments in, I don't know, experiments being done. And I think you're plenty investing in part of it too. So maybe you could just update us on where we're at and why we're at, meaning like what are we -- money market funds, I get a little bit, but why does the world need everything tokenized. And what would that mean for your businesses if we do go down that path?

Thanks. Look, I don't think the world needs everything tokenized. But there's no question that global financial market infrastructure is transforming and moving towards more of an always-on operating model. And so that's not just about blockchain technology immediately replacing traditional systems. It's about the 2 things working in concert and in some cases, just being able to unlock new possibilities haven't been possible before, without the always on operating model.

So we're in the business of moving, storing, managing money, creating interoperability, all of that stuff is stuff that we do today. And so what we're doing is we're advising clients to use the right tool for the job. And so if they want to do real-time payment systems in the United States, we've got real-time payments in the United States. And same thing is true in Europe, they're actually even more advanced which is why stablecoin usage in traditional financial markets hasn't really taken up as much in Europe, although if you go to an emerging market, and they've got high inflation, then the benefit of that 24/7 dollar based stablecoin actually has quite a lot of advantages to sidestep what otherwise would be inflationary friction.

So it's very much about the case. And what is the BNY strategy, ours is to be a bridge and to be in both places. So we're doing business with traditional clients who frankly would like us to help them with their careful selection of what they should do in the digital assets market. So we're helping clients being able to launch new funds. Maybe they want to launch a new share class for those people who are very focused on digital assets. So maybe it is a bitcoin custody for clients who want to be able to launch an ETF. And we've had one of those recently that we announced with Morgan Stanley.

And so if you look at these different types of innovation, we are helping the clients sort of bridge into the new stuff. And frankly, the new clients, the ones who are really, really digital asset native, they need a lot of traditional capabilities as well, need cash management. They need investment management. They need custody, stablecoin provider would need all of those types of things. So we've invested across this ecosystem. We've stood up a bigger team together with our Head of Product and Innovation and Digital Assets to really make sure that we are able to deliver against these different use cases.

But you're right. An S&P 500 on-chain maybe isn't adding as much incremental value as maybe bringing an asset deeper into the financial system or making an asset a lot more efficient today. S&P 500 equities are pretty efficient. And as you point out, money market funds essentially work pretty well. But when you're talking about the loans market, the commodities market, there are a lot of opportunities to bring things deeper into the financial system and actually improve them from where they are today.

Sounds like evolution, not revolution. .

Our next question comes from David Smith with Truist Securities.

You highlighted some big wins with clients working with your multiple lines of business. Anything you can share on the progress in the percentage of clients with multiple products or lines of business relationships at BNY today versus a year or 2 ago or the average number of products per client or any metrics along those lines?

Sure. So a couple of things, David. Clearly, we've set out on this journey and our commercial model to do several different things. There are new products to be created. We've got a lot of micro innovations across the company that gets us pretty excited, quite frankly, because those are new opportunities. We've actually surprised ourselves to some extent with the number of new logos that there are in. That we're able to attract the platform.

I think the stat is about 10% of our sales were sort of new logos in recent times, which is quite exciting. Dermot highlighted a stat in his prepared remarks about the fact that half of our asset servicing wins weren't just asset servicing wins, they also came to another line of business somewhere in the company. So there's all of that. But this sort of blocking and tackling of delivering more of who we already are to our existing clients is really just a big opportunity for us.

And so what does it mean in practice, some stats for you. So okay, we had a record sales quarter in the first quarter of last year. We had another record sales quarter in the second quarter. It was a record sales quarter year last year. We had another record sales quarter this quarter. We've had 3 consecutive years of year-over-year growth in core fee sales. We've had more than 60% growth. This is very much to your question, in the number of clients buying from 3 or more businesses over the past 2 years, 60% growth. We've had a 20% annual increase in sales productivity, so that's on a per sales person basis.

And so all of these things are showing the traction that our commercial model is gaining. And remember, only 18 months into that journey, we only launched it in the summer of 2024. And so we feel very excited about that. And that's one of the reasons why at the beginning of the year, said that we were really aiming for a growth in our organic growth rate from the 3% ZIP code that we had last year, and we're very focused on growing from that.

But I just want to add one other thing. We do get -- it wasn't directly to your question, but I think there's this underlying theme around the fact that in just regular organic growth is somehow completely disconnected from what's going on in the market and somehow the market is just sort of what it is and then there's separately a thing around organic growth. And we push back a little bit on that assumption for our company because we very deliberately aligned our platforms gradually over the course of the past 3 years, to be able to participate in more environments and be able to be a compounder of value largely irrespective of the environment.

Of course, there are always going to be some environments which are just not great for a firm like ours, but it's very deliberate. So we want to tap into these megatrends, scaling with trusted providers, the sophistication in wealth markets, what people are asking for from private markets, the growth that you can see in AUC/A there. Capital markets transformation, this point about participating in digital assets, this kind of connecting the traditional ecosystems with the new digital ones. And then when you think about the different inputs to diversification, equity market values up, fixed income market values up, cash balances issuance activity, M&A activity, private credit, public credit volatility, transaction volumes, equity fixed income and collateral.

And so you put all of that together and we think that we've really been able to create this diversified global strategic recurring durable attachment to different markets. so that we can participate in all of those and of course, wrapped with AI. And so for us, that strategy is very much and as well as what you might traditionally think about as organic growth.

Would you say that dampens the upside for BNY in a really strong market environment? Or is it the way you can have your cake and eat it, too?

Well, we think actually it just gives us better exposure to more markets, but take the NII as a proxy because Dermot talks about all of this time -- about this all the time. We've cut off the tails in NII. Out of -- if you take 1,000 different scenarios, can we create one for you that's not great for NII?

Sure, a massively inverted curve, not ideal, 0 interest rates across the curve, not ideal. There are always going to be scenarios that aren't great. But we look at those, and we think that doesn't feel super plausible or likely right now. The same thing is going to be true in other environments. But yes, we give up some growth. If you tell me equity markets are up 50%, and that's your base case scenario and you want to be all in on equity markets up 50%. I could tell you to buy somebody else's stock over hours because we represent this more diversified long-term compounding durable play.

Our next question comes from Steven Chubak with Wolfe Research.

I did have a bigger picture question that's getting a little bit more attention that could impact the Wealth Solutions business. And it pertains to AI, specifically the growing adoption in the wealth space of AI. There's been some talk in the industry about the importance of just having greater control over your infrastructure, your tech stack, data, the ability to offer more customized tools and some believe this may compel at least more scale firms to transition to self-clearing models over time. Just recognizing you service the largest RIAs and IVD platforms. I was hoping you could speak to what you're hearing about this potential structural shift that could take place granted over a period of years, most likely? And how do you ensure you can keep those customers within your ecosystem?

Yes, Stephen, it's an important question, actually completely coincidentally, I was having a conversation with one of our largest clients yesterday about this topic. And they were actually just reaffirming how excited they were to be on our platform ironically for all the same reasons that you just listed because as they looked at the question, they say, how we want to grow.

We've got finite investment dollars, what would we like them to be spent on. And for them, it's about rolling up, it's about organic growth, advisers and all of the things that they really want to make part of their core business. They don't want to have to spend the money on the cyber defense, the platform, and they don't want to try to compete as a very large RIA, but nowhere near the $3-plus trillion of scale that we have with the type of ability that we have to be able to invest in that business in the core capabilities that we're providing.

So sure, if you're a $3 trillion, $4 trillion, $5 trillion RIA, you have your own scale. But if you're turning up with $50 billion, $100 billion, $200 billion, you just don't have the scale. And so if you look at something, let's take AI, I'll just pick 1 example, which is AI, but it is a good one, which is if you're at that type of scale and you decide to go it alone, you have to pick a provider in the AI space. You have to put yourself in their ecosystem. You've now become subject to their pricing power and their models, you can't have the cross-platform AI scale that essentially can give you more control of the way in which you deploy the technology. And so there is this theme of scaling with trusted providers that applies to our Pershing business, as it applies to our other businesses. And so as we combined wealth solutions and sort of the pieces in it, to sort of for our Posing business. It continues to be the feedback that we hear from our clients that they like that scaling with us.

Those are great insights, Robin. So I really appreciate that perspective. If I could just squeeze in 1 more, just double-clicking into Glenn's earlier question on tokenization, how that might impact various lines of business. You noted the use case might be stronger for tokenizing some asset classes over others. Just want to better understand how you're thinking about the implications for the ADR business in a world where tokenized securities could become a bit more widespread?

Yes. So that -- look, people have been predicting the decline of the depository receipts business at this point for 20 years. But it is a very defiant and for us, as you know, growing business, which has performed very well. Again, I think there's a little bit of infrastructure connectivity here, which is a slightly different point. It's not scale point for AI here, it's really about the connectivity point and the various different services, connection with exchanges, the connection with the settlement rails an AI agent can't just turn up and offer you all of that connectivity because those providers don't want to provide that type is one thing trying to say, hey, what was the price of the 10-year yesterday or track me my S&P 500.

It's an entirely different thing to give an agent full autonomy and agency over how you connect to infrastructure and controlling your assets. And so we do think that there's some there's some trust benefit that we derive from what we do that's going to be relevant in places like this. But you're right, let's use AI ourselves to make the process even more efficient. And that's what we're doing, in fact, across the life cycle of many of our products because we're not competing with AI, we're competing with other people who use AI better than us.

Our final question comes from the line of Gerard Cassidy with RBC.

Two questions. The first is in the security services area, specifically issue of services. Now I know you just talked about the ADRs or depository receipt business, obviously not going away. But can you give us any color just in the quarter, there was a sequential decline from the fourth quarter in the revenues. It was up, of course, year-over-year, about 4%. What were the factors that may have caused that? And second, as part of that, is there an opportunity for the depository receipt business to pick up if international equity issuers come into the U.S. capital markets later this year.

So I would say on the quarter-over-quarter, Gerard, depository receipts is a seasonal business. And so it just kind of speaks to the seasonality rather than any kind of noticeable trend. Corporate Trust, as I said in my prepared remarks, we continue to grow that. We're growing the revenues. We're growing the margin. We're investing in the business. We've grown the margin quite substantially over the last 3 years. And it's the business where -- it's the most mature in the platform's operating model, and it's where we're beginning to see the most benefit.

So it's 3 years in the model. And so we really like what we see in terms of the leadership, the technology investment and how we're showing up for clients. And so -- it's not an accident that we went through $15 trillion in Q1 in terms of loan service. So I would say overall, great momentum in that part of the world. and we expect it to continue.

And then, Robin, coming back to the AI commentary. Can you frame out, I don't know if this will make sense, but when does AI become ubiquitous to your business as well as others, meaning if you turn back the clock and look at the introduction of the Internet, I don't know if you want to use the late '90s or early 2000s or just digital banking once the iPhone was created and the ramp-up that everybody did. And I know that's not specifically to your business, the ramp-up everybody did to get digital products to consumers and businesses. How long does this take to ramp up AI so that it 5 years from now and 10 years from now, where we say it's just normal operating business and something that everybody is doing.

I think the answer is that it has to be a lot less than those time frames for it to start to become ubiquitous in a company because I think if you don't make it ubiquitous inside of those types of time frames, I just don't know how you're going to be able to keep up and compete because it is such a powerful technology and is accelerating so quickly and we're talking about 10x capabilities in many cases. And so if you're behind the 10x curve by any meaningful period of time, then I think you're going to be in trouble, which is one of the reasons why we are so focused on it. So I think you have to make it ubiquitous, which goes back to the point on culture integration, deeply embedding which are really our principles at this point. And so we aim to make it ubiquitous well inside of those time frames.

And with that, that does conclude our question-and-answer session for today. I would now like to hand the call back over to Robin for any additional or closing remarks.

Thank you, Karen, and thanks, everyone, for your time today. We appreciate your interest in BNY. Please reach out to Marius and the IR team if you have any follow-up questions. Be well.

Thank you. This does conclude today's conference and webcast. A replay of this conference call and webcast will be available on the BNY Investor Relations website at 3 p.m. Eastern Time today. Have a great day.

Next up, we have BNY, which we've talked about BNY as being one of the best run banks in our 40-plus bank coverage universe. And I think under the leadership of Robin Vince and Dermot McDonogh, CFO, who's joining us today, thank you so much for taking the time. I think you all have done a phenomenal job in terms of just the execution of the consistency with which you've delivered over the last few years. And I think investors have very much appreciated that. And you see that in how the stock has performed. You just updated your strategic targets last month. So maybe, Dermot, just to kick it off, what's the secret sauce?

So first of all, thanks for having me. I could spend 40 minutes on that question alone. So I'll try to be brief. I think that there are a lot of elements to the secret sauce. But if you kind of go back 3 years and where we were at 3 years ago, the first most important thing was the Board hired Robin. And why did they hire Robin? They hired him because he had all the requisite skills to be the CEO of BNY in terms of his upbringing in his former life, running operations, running global markets, international assignments, Treasurer, risk. So he really had the composite skill set to be the CEO of BNY, and also incredible familiarity with the product set of BNY from the GFC. That's point number one.

Point number two was BNY has a very rich history, a very deep culture. And as Rob -- and the most important thing, I think that we did in the first year was write that shareholder letter that did the reflection of the prior decade as to why BNY was where it was at the end of '22, early '23. So reflection, re-underwriting of the business, as Robin said many times, a firm that had great bones but underperformed its potential. The assets were there. They just weren't optimized. And then I think really creating the framework about reestablishing credibility with the marketplace around guidance, control over expenses, desiloing the firm, being more for clients, which is Robin articulated in late '23, early '24, the 3 strategic pillars. So creating the framework that 50,000 people around the world could wrap itself around and talk to each other. So clarity on the message, the intent and then deliberate execution.

And so in some ways, the secret sauce is not that magic. It's creating the right framework, having the right leadership and then executing diligently every single day. And so I think BNY's culture has allowed that to happen and has allowed it to thrive -- and personally, I have 5 or 6 people at the firm who have been there 25, 30 years. And I go to them very frequently and I ask, how are we doing? Are you happy? Are we changing? What's the feedback? Because BNY is made up of many different skills and histories and different cultures and people from different places. And so I think the firm has really wrapped itself around the strategy and is executing to a very high degree, and that you see it in the results.

We do. We do. And I think as part of your update last month, I think you laid out, I think, a 10-year walk, you called the last 3 years as the Phase 1, we're entering the Phase II. If you don't mind spending a few minutes around what did we accomplish in Phase 1 in terms of the starting point back in '22, '23 to where we are today. So...

So if you take the 3 strategic pillars, be more for clients, run our company better, power our culture, it's kind of -- it's consultancy 101 in many ways. But underneath that and then the 5 behaviors that we want all our people to exhibit in execution of those 3 pillars, it's pretty straightforward, but the clarity of the communication and the frequency of the communication and exhibiting the examples of where good things are happening has been communication over the last 3 years at BNY has transformed in terms of sophistication and the clarity and the delivery.

Reestablishing financial discipline in the firm in terms of getting value for our money in terms of how we spend it externally has been a critical factor in our success, giving confidence back to our employees and giving them belief in terms of we can do this has been a fundamental thing. And so over the course of like if you just take expenses alone, 8%, '22%, 2.7%, flat, 1%, 3%, 3% to 4% this year. You know what I mean, it's kind of -- I think you believe like we've got our stuff together on that side. If you take NII, there's that famous page in our earnings release from Jan 13, where we kind of showed the commercial model. We showed reducing the kind of volatility around NII.

So for the last 3 years, we've really invested heavily in risk management in terms of how we think about the asset side, how we think about deposits and all that kind of ecosystem that gives us a lot of confidence around how we're managing NII. And BNY as a stock you're not -- when you think NII is going to be good, it's not buy BNY anymore and sell it when you think rates are going down. So I think we've reeducated everybody that it's not an NII play. It can be, but it's not only. And then you take fees and organic growth, which folks like you and your peers kind of drill us on, you kind of go '22, '23, '24 on that deck.

Last year it was 3.2%. We hope to improve it again this year. It was flat in '22. 10% of sales last year were new logos, 64% increase in clients who bought 3 or more products from us over the last 3 years, like they are the metrics that we're showing you to show that it's working. And the two strategic programs that are underpinning all of that. One is the commercial model and two, the platform operating model. And it's just steady execution on both of those pillars over the last 3 years have helped us to kind of accelerate that transformation.

So maybe if you can just spend time on that in terms of the platform operating model. Talk to us in terms of what does it entail? I think about 80% of your headcount was on that model at the end of the year. In terms of what can you do as a result of that, that was harder to do in the prior version of how the bank operated.

Okay. So I received a feedback from an analyst a couple of weeks ago and said, you need to do a better job, Dermot, of truly explaining what platform operating model is to external. So at its core is Robin has a vision for the firm, and you need mechanisms by which to execute the vision. You need to get the firm behind you. You need to get 50,000 people thinking in the same way. It can't be 20 people willing it to happen over time because one person can't do that on its own.

So platform operating model, in a way, it's re-architecting how we show up, how we work, how we organize ourselves. And so the example that I talk about a lot is payments. 4 years ago, we had 5 or 6 different businesses who executed payments in their own silo. They had their own tech stack. They did it their own way. They had their own policies, their own procedures. And so if you were dealing with different parts of BNY, you were going through different tech stacks to do payments.

Now it's one platform. It's got one EPO, executive platform owner. Her name is Isabel Schmidt, and she is responsible for all payments that flow through the pipes of BNY. She sets the policies, she sets the tech stack, she sets the standards. Now you could say, okay, easy job done. Absolutely not because tech stacks are quite monolithic. They're hard to change, and they interact in different ways with different parts of the firm. So Isabel's work this year is something called Project ATLAS, which is harmonizing all that. And so talking to the rest of the firm through APIs and modernizing the tech stack.

So -- in many ways, it's a bit misleading when we say 80% of the people are in the model, which is true, and we plan to move the next 20% this year. But I firmly believe, and I had this conversation with Robin last week, by the end of this year, I actually think we're only getting started on the platform operating model. We've realized efficiencies. We have executed much better than we were 3 years ago. It's helping us de-silo the firm, which helps the commercial model in terms of cross-selling, and we can talk about that. But when you have everybody in the same way and you're beginning to modernize the tech stack and we can talk about AI and using AI to do that, then I feel like there's a lot more runway to come in future years with the platform operating model. So in some ways, I think it's the end of the beginning at the end of this year.

End of the beginning. Okay. And so maybe let's talk about that. So in my mind, there was like the desiloing at the back end and then the cross-sell at the front end. Where would you say on a scale to 0 to 10, where we are in terms of the -- taking care of the dessiloing? And then where are we on the cross-selling part of it?

Okay. So the best way to do this is with stories, I think. So before the holidays, we were pitching for a piece of business, okay? And the business came into a platform. And the BPO, the leader looked at it and said, I don't think we can do that. So kind of said we pass on it. We don't have that skills. And so it bubbled up. And no, we can do this because we need -- we've got that platform over here. We've got that platform. All we have to do is stitch the pieces together and then bring in a partner and then we can do the whole thing.

And so we kind of refused to lose. And so we went at it again, a few weekends of working, and we stitched together a great proposal. Now I don't know whether we win that piece of business. But 5 years ago, it would never have seen the light of day. Now we're in it to win it. And we've put a really competitive -- so that -- so the people can see across platforms, whereas before they couldn't see. Now they know what different parts of the firm are doing, they couldn't do it, and they know who to call. We hired a very senior person a few months ago.

He said, Dermot, the best thing about the platform operating model is, I know what each platform is. I know what they do, and I know who their leader is. So I can navigate the firm much more quickly than I would have been without the model. So the platform culturally makes the firm feel much smaller. So for people who are coming in from the outside, navigation has become a much easier way to do it.

And how many platforms are there?

So at the moment, I think we have roughly 18. And so we split them into 2. We have enterprise platforms who provide services to the firm. So payments will be an enterprise platform. Client onboarding would be an enterprise platform, parts of custody would be an enterprise platform. And then you have client platforms who are dealing with specific segments. So we kind of -- we split them into 2.

Got it. I guess the one question I meant to ask, as you went through this journey over the last 3 years, did that require a lot of churn in terms of the personnel you had the bank? Because I'm assuming big transformation, big cultural change, -- were there some folks who've been with BNY for a long time who probably didn't want to sign up for the new version of it?

So yes, so the way I kind of think about it, if I look at there are many layers to that question. If you take the Executive Committee, right, we have elevated people to the EC, Executive Committee. We have moved EC members from one area of responsibility to another. So that kind of creating mobility internally. We've hired people where we feel like we have a gap in the talent and we need to bring in fresh thinking. So we've hired into the EC. And some people have said, I'm opting out. I don't want to be part of that journey, and that's okay, too. And so if you look at the Executive Committee today, versus 3 years ago, it's quite different in terms of its composition and its trust with each other.

And I don't have to be in every meeting because I trust my colleagues to do it. And I think Robin made a very -- with the benefit of hindsight, it was a good decision at the time with the benefit of hindsight, it was a brilliant decision. We all have coaches. And Robin said there's nothing wrong with you guys. I'm not coaching you to be better. But if you're a cricket player and you're #1 in the world, like you're a man in India, he has a coach. So we don't have coaches to want to be better. And then we coach as a team. So we have the individual and the collective and that's culturally has made a big transformation in terms of how the EC shows up as a leadership group.

And then Robin has done another good job in terms of a broader leadership group. So the next cohort of managing directors, so we can create succession, we can create mobility because you need to bring everybody along at the same time with the message. So leadership is all part of the cultural transformation of the firm. And I think we've made good progress in that. Always more to do, but pleased with where we're at, at the moment.

That was good. That was helpful. I guess maybe the one thing you mentioned around risk management and balance sheet management, right? I think that's been a hallmark over the last few years, the consistency of managing the balance sheet through a volatile interest rate backdrop. Just talk to us in terms of the measures you've taken to sort of get to this point. And as we think about the balance sheet and net interest income going forward, is there a cadence to it? Like is it still super sensitive to what happened with the Fed around rate cuts, the yield curve? Like how should investors think about it?

So it's quite interesting. I was just looking at it last night. You kind of -- if you list out all the things that have happened over the last 6 weeks, when we all came back after the break, I think if you were going to write out the 10 things that were going to happen in the first 6 weeks of the year, what's happened wouldn't have been in the top 10, no. But the rate curve has kind of been rock solid.

And so we analyze it. We look at it every day. When the administration came out and said, as part of its mandate on affordability that they want one of the GSAs to start buying mortgages, like we were on that straight away. You know -- like we're in it, and we're very quick to react. And so I think we -- I feel very good about the team and the dynamic approach, which they take to managing the asset side of the balance sheet. And really, in the Jan 13 call, we really talked about deposits, we kind of feel will be relatively flat this year. And what gives us confidence around our NII guide for this year is what we're doing on the asset side of the balance sheet.

Got it. And just on the deposit side, flat for this year. As we think about for longer-term folks from a medium-term standpoint, is there a way to think about what deposit growth should look like? Should it mirror fee income growth? What would you point to?

So I always look to -- when I think about deposits, I look to the broader franchise because we're not in the retail arena. It's institutional deposits that are operational in nature, so therefore, sticky. And 2/3 of our deposit base are operational. So clients who are doing business with us in other products leave cash with us to service those needs and requests. And so as the broader franchise grows and ecosystem, which we feel quite confident about, there could be on balance that the mix will change if there's more treasury issuance, if corporate trust grows, if there's more M&A activity and we're building out our escrow product, you could see NIBs being a little bit higher depending on the environment. So like really NIBs in terms of how we think about NII is a very important factor. So I would say, given where the rates are now, we're probably in a sweet spot for kind of the overall size of the book.

And when you think about the NII outlook, what would be the biggest risk to that, like much more steeper rate cuts, a flatter yield curve, like...

COVID too wouldn't be great, yes. So rates down a lot wouldn't be great. But there's -- like, again, I feel for '26, I feel pretty good about the backdrop and the setup and how we've kind of positioned the portfolio for that. Once you get to '27, '28 it becomes a little bit more opaque and uncertain.

Just talking about policy, I'm not sure if you -- the Fed Chair nominee has a view around shrinking the Fed balance sheet, maybe moving some of those assets to -- on the private sector side. Like do you think it would influence sort of impact your business in any way, either on balance sheet or from an off-balance sheet perspective?

I don't really think so. On that, I asked somebody last week about their view on the appointment. And he's a good appointment. He's a very credible person. I think he'll do great stuff. He needs to get into the seat. He needs to have his first 100 days. He needs to go on his listening tour, establish the relationship with treasury. And so let's wait and see what he does.

Got it. I guess moving to -- on the fee growth side, I think we've constantly asked this question in terms of as we think about ex markets as the core growth profile of BNY. Just talk to us when you think about 2026 and maybe beyond, what are the 2 or 3 sort of drivers of fee growth that could sort of lead to a much better-than-expected year versus the downside risk?

So I have to give you a government health warning here in terms of as my tenure at BNY has progressed, I've become more optimistic about the outlook. And as I keep saying to Robin, I've predicted 5 out of the last 2 recessions. And so I think we're in a very -- I think BNY is in a very good place at the moment in terms of what we feel is within our wheelhouse for success. And so as it relates to fees, I think the continuation of unlocking and desiloing and cross-selling, we haven't really scratched the surface yet with integrated solutions and how we stitch different parts of the firm together to serve clients in a differentiated way.

We hired Carolyn Weinberg last year as our Head of Digital Assets and also our product strategy. And so in the same way that we talk about the commercial model and the success of Cathinka over the last 3 years, I feel very optimistic about what Carolyn is going to do as it relates to product strategy over the next 3 years. And if you kind of take a step back and you kind of go excellent sales, excellent commercial model, excellent product strategy, excellent products for clients and then operational excellence, which I think we've done a decent job of demonstrating, but we have more runway to go.

You take those 3 elements together and you optimize for it and then you layer on AI on top of that, I feel the fact that we have been around for 241 years, we're constantly looking to innovate and disrupt ourselves in this ever-changing world. And we have a core client base that wants to do more business with us, as is seen by the metrics that we showed on Jan 13. One has to be optimistic about the future of BNY. So I'm fundamentally behind it.

Noted. You mentioned AI. Just talk to us, I mean, I think given you've done a phenomenal job in terms of managing expenses, driving positive operating leverage. I think the question that often comes through is, is there enough on the expense side to extract more savings to fund investments? Or are you going to run out of the runway to get more positive operating leverage? Like how ex AI with AI, like just how do you think about future expense saving opportunities?

So just to demonstrate the fact that I do read your e-mails every Sunday, you said some of that last July when the rumor was in going out around acquisitions and you kind of made the point, "I like BNY, but have they run out of steam? Let's hope not." And then we showed up on our earnings call in July, and you kind of came out and said, okay, I guess they haven't run out of steam. So we fundamentally believe we've got lots of runway, and we have lots of ambition. And I think we have the clarity and the intent about how to go after that.

So the runway thing running out of steam, absolutely off the table in terms of how I think about it. As it relates to efficiency and AI, internally, we don't talk about efficiency and AI in the same sentence. We talk about creating capacity. And so I will give you a couple of examples just through stories to illustrate it. One is I had a demo on a product that we launched in '23 a couple of weeks ago. Funding products, really good stuff, great client uptake. In the scheme of a $20 billion revenue company, it's not a move the needle product, but it's nice. And you get like these small amounts, it adds up to a big number.

So I sat with the team, the product person, the engineer and the salesperson half an hour, it was like, wow, wow, yes, all using Windsurf. The original budget was 8 engineers. Now they're using 4 because they can go at the same pace with 4, where previously budgeted for 8. So now we can put the 4 on to another project. So that's about creating capacity rather than efficiency because now we can go faster with our ambition as opposed to harvest efficiency and hand it back. So there is a little bit of -- when you take a step back at the firm, like how much do you want to harvest as efficiency and how much do you want to kind of go faster as a firm in terms of your ambition.

So I think there are 2 lenses that you have to look at there. And so we think AI as an enabler and how do we get to go faster and create things that will delight customers. And so we had our Board in New York Monday and Tuesday of this week, another great story. It's been in the press, not about us, but about somebody else in terms of client onboarding, et cetera, et cetera. And I read that article and it made me very happy because we were already in that space. So I felt like -- we're a bit ahead of the curve on that one. And all entrepreneurial spirit inside the firm, figuring out how to go faster and using AI.

And as I said to you before we came on stage, in the world of disruption in AI, everybody assumes that the incumbents are doing nothing. And the compliment I would give Robin is he's a very technologically sophisticated CEO. You know that. Anybody who interacts with him know that. And we've been on this journey for 3 years. We didn't wake up on Jan 1 of 2026 and said, "Oh my God, AI is coming." We've had the framework. And the mantra in BNY is AI for everyone, everywhere, for everything. And if you walk the corridors of BNY, nobody is going to say, "Oh, I'm worried about my job" because they're being upskilled. They're getting trained on it. They're embracing it. And as somebody said to me last week, "Dermot, in a couple of years' time, like AI will be like Excel was for you in the '90s." Yes. I used to write a lot of macros when I was a kid. Now you're going to do a lot of prompts. So it's just a different paradigm. So we're very much into it, and we're embracing it, and we're looking to innovate and disrupt ourselves so that we can be better for clients.

So that's a great way to put that. One note to -- I have to be careful what I write in my e-mails. But just on AI, I think the other side of this is like the banks have a lot of duplicative processes, compliance, et cetera, like AI can make them. So I know you don't like to use the word efficient, but create capacity, but just become higher, more profitable businesses. Like would you subscribe to that view that AI can structurally change how investors think about and how you operate the bank from a profitability standpoint?

So I kind of think of that as not a barrier. I think it's opportunity. Are you saying it's opportunity.

There's an opportunity, yes.

1000% agree with that. Yes. And so a lot of people will say, if you kind of go fintech versus BNY, okay, let's do the comparison. Low-cost start-up, 10 engineers, no capital and PhD in AI, BNY. Client base, resilience is a commercial attribute, GSIB, big client base, very good AI strategy. Who are you going to back? Yes. So I know who I back.

Got it. I think the other area that...

The other thing I would say -- sorry to interrupt. I think another important point is in order to capitalize on the opportunity that you've just described, which I think is a big opportunity, you have to be able to reimagine processes end-to-end. And so a lot of companies, whether they're financial institutions or broader have a lot of end-to-end processes that have evolved over time. And so it's worthwhile we're thinking about how to create a kind of a red team approach to reimagining end-to-end processes with AI rather than asking different parts of the process to reimagine. So how do you do the end-to-end? I think that's a strategic opportunity for a lot of companies, not just financial services.

And when you think about this, does it -- I mean, I know it's hard for you to know what competitors are not doing. But does it feel that this will become table stakes where everyone is going to be doing this. They might just have a different time line by which they get there? Or do you think it becomes a competitive advantage for BNY?

So I'm going to say it's going to be a competitive, like I'm biased there. But I would say the way I -- let's take your firm. Bank of America. Bank of America is not going to get disrupted by AI. Bank of America will get disrupted by another company who uses AI better than Bank of America. So it's not the AI is going to disrupt you. It's the humans who are using AI. And I think sometimes we lose sight of that. And so then it becomes a talent play. So it's not the AI, it's the talent that's using the AI. And I think sometimes that gets lost in the discussion.

So I think I feel very good about we can -- everybody can do more on talent. And one of the things that we've done over a sustained period of time through that everywhere, everything, everywhere is training. If you want to really kind of get access to all the really nice AI stuff, you have to be a pioneer. That means you have to have done 40 hours of classroom AI training. That means you have to have taken exams. That means you have to have your badge. And so that's aspiring for people who want to learn in the new way of working. And so enterprise-wide strategy of learning and AI is super important as well. You just can't put something on somebody's desktop and say, give me an AI solution for that tomorrow. It takes time and investment. And so you have to be patient with that journey.

Got it. Two things I wanted to touch upon before we wrap up. One, just talk about digital assets, right tokenization, blockchain. There's a lot of conversation there. What does all of that mean for BNY and kind of the role that you could play, be it tokenizations or in stablecoins? Yes.

Okay. So there are a couple of answers to the question. So the CFO's answer to the question in terms of the numbers side of things, I think industry-wide is not necessarily there yet in terms of its impact from a revenue standpoint. So high thought leadership, high thinking, high partnerships, -- we've been very much a part of the financial market infrastructure for the last 241 years. We have the rails. When you're a firm that settles 99% of the U.S. treasury market every day and you're a top $5 payment clear and you have trillions of dollars of payments going through your pipes every day and 20% of the world's investable assets flows through your pipes every day, that's a lot of stuff.

And so we've assembled a great team that is looking to figure out how do we write the next chapters of financial market infrastructure so that we can be part of that journey and help our clients navigate that journey. And so I would say 3 years ago, we had the beginnings of that with digital asset custody. We were the first out. We have a very small amount of business in that space. The administration and the new SEC Chair has opened -- that aperture has opened up again. And so the conversation has become a lot more meaningful and sustainable. And we are partnering with a lot of firms, and we have a lot of digital natives that are coming to talk to us about how we can partner with them.

So what does that mean from a commercial stance for BNY at the moment is we do a lot of traditional services with digital natives while we partner with them on writing the rules of the road for the future. So in some of these conferences and calls, I get questions, is it a cannibalization or an opportunity? It's probably both, but it's probably for us, more opportunity than cannibalization, if I'm honest. But it's still early days. And again, Carolyn Weinberg is leading our charge on that. And our thought leadership, I think, is top class. And I think we should be -- we are very excited about what Carolyn can and will do for the firm.

And there's obviously a debate in D.C. around the crypto market infrastructure bill. I guess it was called Clarity Act. I'm not sure if it's any longer called that. But is that meaningful in terms of sort of speeding up the process of adoption of digital assets, blockchain, tokenized securities or...

I would say it's like it's going faster than it was 2 years ago. But it's still slow relative to the media print on it. Yes. So the writing is faster than the execution. And so you need to have a long-term view on a lot of this stuff, and some of it will take years. But as I was saying to Marius before we started this call, if you've been to our building, and if you haven't, please do come because we will show you the tour. On one side, we have our Hamilton ledgers from 240 years ago. And on the other side, we have our CTOC center, which is -- so we've been around when the ledgers are there, and we have our CTOC, and we're trying to figure out the landscape for the future, and we're confident that we can deliver that for our clients in a way that will serve our shareholders well.

Got it. I guess one last -- 2 questions. One, obviously, we are expecting some more clarity from a regulatory standpoint, the Basel endgame reproposal, et cetera. There's been also some conversation around liquidity rules that the regulators might look at. I'm just wondering, I know there hasn't been -- or there's not expected any meaningful impact from -- for BNY's business for the trust banks in general. But is there anything that the regulators could tweak from a liquidity perspective that could actually be advantageous or make life easier in any way? Especially given where your binding constraint is on the Tier 1 leverage.

So on liquidity, I would say the thing I worry, I think we're well capitalized, ample liquidity. We -- I always get challenged on the 6%, why are you at 6% and why are you not lower? Capital-light business model, you should be buying back all that kind of stuff. But I like to sleep well at night. We learned a lot of good lessons in the regional bank crisis about having ample liquidity. I would say there was -- they haven't really -- if I remember correctly, they were going to do something on liquidity about a year after. That hasn't happened.

I think Vice Chair Bowman is focused on the capital side of the house. At some point, their attention will turn to liquidity. I would say the big advocacy point that we and others are making is the importance of the recognition of operational deposits in the liquidity framework that they are sticky. I would say that would be advocacy point number one.

Got it. And I guess last point. So you've talked about obviously returning capital to shareholders and buybacks, as you said, asset-light business. Just maybe spend a minute talking about from an inorganic standpoint, now that you've had these last 3 years of thinking about the different businesses, are there opportunities small or large that would sort of enhance the franchise, accelerate like the strategic goals that Robin and you have laid out?

So we've done some small dispositions that don't reach the level of this conversation, stuff that we viewed as noncore. Then we did the Archer acquisition, which I have to say really happy with how that's gone in terms of integration, cultural integration, technological integration. It was really good. And again, it's another classic example of how the platform operating model has helped that integrate. So just to give you -- put a fine point on it, if Archer was bought by BNY 5 years ago, it would have been bought by Asset Servicing and it would have reported into Emily, okay?

All the other parts of the firm wouldn't really have known that it was being bought until an announcement date, okay? And now 18 months ago, we bought Archer for the firm and Jose in Asset Management and Jim Crowley and the leadership team in Wealth Solutions were very heavily involved because we wanted to buy a capability for the firm and not one business. And so that we took an enterprise view from a technological standpoint.

And I think that's very, very important. And if you look at the latest leadership announcements with Adam Vos moving from Markets to Wealth Solutions and Jim Crowley moving into more of the commercial side of the organization, Archer is moving from the asset servicing side of the house to the Wealth Solutions side of the house because we believe that can drive Wealth Solutions in a more meaningful way in the go forward.

Without platform operating model, that couldn't have been contemplated. So I think that's another big cultural unlock. And I would say the last message I would leave you is I think the message that Robin left with the leadership team when we met a couple of weeks ago, the broad leadership team of the firm is we're pivoting towards -- we're facing out more. We're pivoting out to our clients. The last 3 years has been about doing up the house. And now we've kind of renovated the house, and now we can open the door and face out to our clients in a more meaningful way. And I think that's -- at the moment, I think the firm is very excited about what that means for us as a franchise.

With that, Dermot, thank you so much.

Good morning, and welcome to the 2025 Fourth Quarter Earnings Conference Call hosted by BNY.

[Operator Instructions]

Please note that this conference call and webcast will be recorded and will consist of copyrighted material. You may not record or rebroadcast these materials without BNY's consent. I will now turn the call over to Marius Merz, BNY Head of Investor Relations. Please go ahead.

Thank you, operator. Good morning, everyone, and welcome to our fourth quarter earnings call. I'm here with Robin Vince, our CEO; and Dermot McDonogh, our CFO. As always, we will reference our quarterly update presentation, which can be found on the Investor Relations page of our website at bny.com. And I'll note that our remarks will contain forward-looking statements and non-GAAP measures. Actual results may differ materially from those projected in the forward-looking statements. Information about these statements and non-GAAP measures is available in the earnings press release, financial supplement and quarterly update presentation, all of which can be found on the Investor Relations page of our website. Forward-looking statements made on this call speak only as of today, January 13, 2026 and will not be updated.

With that, I will turn it over to Robin.

Thanks, Marius. Good morning, everyone, and thank you for joining us. I'll begin with a strategic update, and then Dermot will take you through our financial performance in the fourth quarter, our outlook for 2026 and our increased targets for the medium term as we look ahead toward the next phase on our journey to unlock BNY's full potential over the long term.

Starting on Page 3 of our quarterly update presentation. 2025 was another successful year for BNY. In short, we delivered record net income of $5.3 billion on record revenue of $20.1 billion and generated a return on tangible common equity of 26%. Total revenue grew by 8% year-over-year. In combination with expense growth of 3%, we drove 507 basis points of positive operating leverage on a reported basis and 411 basis points, excluding notable items, resulting in an improved pretax margin of 35%.

Consistent execution delivered 4 consecutive quarters of positive operating leverage in 2025, bringing us to 8 consecutive quarters overall. Taken together, we grew earnings per share by 28% year-over-year to $7.40 and returned $5 billion of capital to our shareholders through common dividends and share repurchases. This strong financial performance was the output of our work to reimagine BNY and was enabled by tangible progress across strategic priorities over the past year, which we highlight in the 4 boxes on Slide 4.

First, our commercial model is working. Operating as One BNY, we are starting to bring the full breadth of the company together to deliver more products and services to meet our clients' needs. This includes embedding sales practices and behaviors that enable our teams to deliver more and better for clients with greater consistency to drive deeper relationships with existing clients and open the door to new ones. We achieved record sales performance for the year, and we announced several noteworthy wins in the fourth quarter. Further deepening our relationship, WisdomTree selected BNY as their banking as a service provider for the WisdomTree Prime platform.

This solution brings together banking, payments, custody and digital assets to support the growth of WisdomTree's new retail distribution model and its strategy on being a leading digital asset forward investment manager. [ Jupiter ], an active asset manager, selected BNY for a suite of capabilities from front to back from investment operations and data management all the way through to custody, streamlining their operating platform and positioning them for the future. And Japan's Government Pension Investment Fund selected BNY to deliver integrated data and analytics for private markets. This solution aims to help them manage complexity, enhance transparency and improve decision-making across their growing alternative investment portfolio.

Second, we continued to make progress in unlocking the scale and growth potential of our platforms by transitioning approximately half of our people into the platform's operating model over the course of 2025, which brings us to more than 70% of our people working in the model today. This initiative has been a core component of rewiring BNY to make us more agile and intentional in how we deliver to clients. [indiscernible] performs part of a larger collection of initiatives that are at the heart of running our company in a fundamentally different way.

Third, in 2025, we made significant advances in the adoption of AI, underscoring our industry leadership in this burgeoning space. Built upon very deliberate investments over the past several years, our enterprise AI platform, Eliza, is unlocking capacity for our people, allowing them to focus on higher value work for our clients. We recently announced a collaboration with Google Cloud to integrate Gemini Enterprise capabilities into our Eliza platform, enhancing our ability to support deep research, analysis and data-intensive workflows across the company, building on existing collaborations with OpenAI and others.

These collaborations underscore our commitment to deploying AI responsibly and scale. We expect that over time, AI will allow us to remake many of our processes and systems in new and exciting ways. And that, together with embedding AI in our products and services, represents a significant opportunity for our company in the years ahead.

Fourth, BNY has a rich 241-year history of innovation, from issuing the first loan to the U.S. government to becoming the first U.S. [ G-SIB ] to offer digital asset custody. Our focus on innovating new products and solutions is centered on building trusted market infrastructure for the long term and serving our clients in new and evolving ways including increasing delivery of new capabilities connecting the traditional and digital asset worlds.

This past quarter, for example, we launched the Dreyfus Stablecoin Reserves Fund, a government money market fund designed to support stablecoin issuers and institutional participants to manage eligible reserve assets providing BNY's cash and liquidity solutions expertise to the growing digital payments ecosystem. Our recently announced tokenized AAA CLO strategy in partnership with [ Securitize ] brings high rated structured credit product onto the blockchain with BNY serving a sub-adviser and custodian of the underlying assets. And just last week, we announced that we have taken the first step in our strategy to tokenize deposits by enabling the on-chain mirrored representation of client deposit balances on our digital assets platform. As we reflect on the scope of our market-leading businesses, our central position as a provider of financial market infrastructure and the depth and breadth of our client relationships, traditional and digitally native. We believe that we are particularly well positioned to advance the future of financial markets.

From the very beginning of our work 3 years ago, we have taken a long-term view toward unlocking BNY's full opportunity as a financial services platforms company with a commitment to disciplined execution and sustained value creation for our clients and shareholders over time. I'm going to touch briefly on some of the work that has brought us here described on Page 5 of our presentation.

Two years ago, we communicated our strategic road map and a set of medium-term financial targets for what we viewed as the first foundation setting phase in a multiyear transformation of BNY. While there are elements of that work that will continue well into the future, we consider that this is the right moment to begin to turn the page towards our next phase. But before we get to that, I'll take the opportunity to reflect on our efforts, the impact that we've seen across our businesses and operations and how this has started to translate into improved financial performance.

As we embarked on the journey, we recognized early on that we had to work across several fronts at the same time. Simplifying how we operate, improving execution and delivering for our clients and that how we did it as a team was essential to creating deep and enduring change. Thorough strategic and financial business reviews demonstrated to us the powerful combination of capabilities within BNY. We are the #1 custodian in the world and the #1 collateral manager, the leading provider of issuer services and the primary settlement agent for U.S. government securities.

We operate a top-tier payments and liquidity franchise and offer our clients leading investments and wealth capabilities. Individually, these are market-leading businesses together they represent a set of highly adjacent financial services platforms operating at the center of global financial markets, difficult to replicate at scale and increasingly valuable to our clients.

To organize the company around execution, we deliberately framed our work across 3 simple elements of strategy, which we continue to focus on. The first was clients. To be more for them, to deliver more of our existing products to our existing clients to add new clients, to add new products and to meet clients where they are with solutions tailored to their needs and responsive to market trends and opportunities. The second was on how we run our company. We knew we could do that better simplifying, improving financial discipline, breaking down barriers, challenging the status quo and reimagining our operating model as a platform company.

The third was culture. Simple to say, hard to do, but magical when it works, a collective sense of ownership, teamwork and accountability, all coming together to bring the other 2 key strategic pillars to life. This spirit of ownership and accountability is at the heart of our delivery. So it was important to us to build credibility and momentum through consistent execution toward better business and operational performance, some examples of which you can see on Slide 6. What has been and continues to be the single most compelling growth opportunity for BNY is doing more business with our existing clients.

In 2024, we launched our new commercial model designed to encourage our sales and service teams to raise their ambition equip them with new tools and to enable our people to deliver solutions from across BNY, leveraging the full breadth of our platforms. Over the last 2 years, the number of clients buying 3 or more of our services increased by more than 60%, and organic fee growth has climbed to 3%, reflecting good progress with even greater opportunity ahead. In combination with stronger organic growth, we took steady, deliberate actions to reduce sensitivity to interest rates, driving more resilient top line revenue growth in a range of macroeconomic environments.

At the same time, our ongoing transition and increasing maturity in the platform's operating model is reducing friction and driving further productivity improvements. For example, investments in digitization and automation have meaningfully lowered the unit cost for processes like striking a NAV and settling a trade and our people are building innovative AI solutions that we expect over time will have a meaningful impact across the company.

We're proud that in 2025 alone, we deployed over 130 digital employees, industry-leading multi-agentic AI capabilities. Our digital employees work alongside our people, supporting them with tasks like validating payment details and remediating code vulnerabilities, allowing teams to focus on higher value work and client outcomes. Taken together, these metrics give glimpses into the how of our execution, milestones and examples, not end points, but helpful indicators that our strategy is working and that there continues to be meaningful opportunity ahead.

Turning to Slide 7. By centering the company on positive operating leverage as our North Star, we created a clear intuitive framework for our teams to execute on. The cumulative impact of our steady improvement year after year while capitalizing on a relatively supportive market backdrop has resulted in a meaningful improvement in BNY's financial performance over the last few years. More consistent revenue growth and deliberate expense management have resulted in positive operating leverage, margin expansion and improved profitability, together, driving double-digit annual earnings per share growth.

Turning to Slide 8. When compared to BNY's financial performance over the prior decade, we can see the difference that consistent discipline, clear intent and sustained execution make over time. More resilient top line revenue growth has started to build and better control of our expense base has allowed us to continue to self-fund important investments in future growth. While we're encouraged by this progress, we are not satisfied. Our work is far from complete. We remain humble and intensely focused on the opportunity ahead.

To that point, I'll wrap up on Slide 9 with where we are headed next. With the foundations largely in place and more of the people in their seats to help us execute. The next phase of our journey to unlock BNY's potential is about realizing scale and growth opportunities across our company. As we mature in our new commercial and platform models unlock capacity using AI and in so doing, serve our clients in new and better ways, enabling the global financial markets and infrastructure of the future. Taken together, our focus for 2026 and over the medium term represents an exciting shift: Built on the work done over the past 3 years to enable higher growth and deliver on the competitive advantages embedded in BNY as we remain steadfast in our commitment to create value for you, our investors.

I want to thank our teams around the world for their dedication to our clients and their commitment to reimagining our company. We are entering 2026 with positive momentum and we are excited for the work ahead of us. With that, I'll turn it over to Dermot to take you through the financials for the quarter in greater detail before reviewing our outlook for 2026 and our next set of milestones. Dermot?

Thank you, Robin, and good morning, everyone. I'm picking up on Page 12 of the presentation with our results for the fourth quarter. Total revenue of $5.2 billion was up 7% year-over-year. Fee revenue was up 5%. This included 8% growth in investment services fees primarily driven by net new business, higher market values and higher client activity. Investment Management and performance fees were flat as growth primarily resulting from higher market values was offset by the impact of the mix of AUM flows and the adjustment for certain rebates we discussed in prior quarters.

Firm-wide AUC/A of $59.3 trillion increased by 14% year-over-year, reflecting client inflows, higher market values and the favorable impact of a weaker U.S. dollar. Assets under management of $2.2 trillion were up 7%, reflecting higher market values and the weaker dollar, partially offset by cumulative net outflows. Investment and other revenue was $135 million in the quarter, including $43 million of other investment losses and $15 million of net securities losses. Net interest income increased by 13% year-over-year, primarily reflecting the continued reinvestment of maturing investment securities at higher yields and balance sheet growth, partially offset by deposit margin compression.

Expenses of $3.4 billion were flat year-over-year on a reported basis and up 4% excluding notable items. This reflects higher investments and revenue-related expenses, employee merit increases and the unfavorable impact of the weaker dollar, partially offset by efficiency savings. Provision for credit losses was a benefit of $26 million in the quarter, primarily driven by improvements in commercial real estate exposure and changes in the macroeconomic forecast.

Pretax margin was 36% on a reported basis and 37% excluding notable items. And return on tangible common equity was 27%. Taken together, we reported earnings per share of $2.02, up 31% year-over-year. And excluding notable items, earnings per share were $2.08, up 21%. Robin touched on our results for the full year earlier, but turning to Page 13, I'd like to expand on some of the most important items. We grew total revenue by 8% year-over-year to a record $20.1 billion for the full year of 2025. Fee revenue was up 6%. We grew investment services fees by 8%, primarily driven by net new business, higher market values and client activity. Investment Management and performance fees were down 2%, reflecting the mix of AUM flows and lower performance fees, partially offset by higher market values and the weaker dollar.

Net interest income was up 15%, primarily driven by the reinvestment of maturing investment securities at higher yields and balance sheet growth, partially offset by deposit margin compression. Expenses of $13.1 billion were up 3%, both on a reported and on an operating basis. Excluding the impact of notable items, the increase reflects higher investments, employee merit increases, higher revenue-related expenses and the unfavorable impact of the weaker dollar, partially offset by efficiency savings.

Pretax margin was 35% on a reported basis and 36% excluding notable items. And return on tangible common equity was 26% for the year. As Robin noted earlier, we reported earnings per share of $7.40. Excluding notable items, earnings per share were $7.50, up 24% year-over-year.

On to Capital and Liquidity on Page 14. Our Tier 1 leverage ratio for the quarter was 6%, down 9 basis points sequentially. Average assets increased by 3% on the back of deposit growth, and Tier 1 capital increased by $439 million, driven by capital generated through earnings and a net increase in accumulated other comprehensive income partially offset by capital returns through common stock repurchases and dividends. Our CET1 ratio at the end of the quarter was 11.9%, up 17 basis points sequentially. Over the course of the fourth quarter, we returned $1.4 billion of capital to our shareholders, representing a total payout ratio of 100%. Our consolidated liquidity coverage ratio as well as the consolidated net stable funding ratio remained unchanged at 112% and 130%, respectively.

Next, net interest income and balance sheet trends on Page 15. We Net interest income of $1.3 billion was up 13% year-over-year and up 9% quarter-over-quarter. Like the year-over-year increase discussed earlier, the sequential increase was primarily driven by the continued reinvestment of maturing investment securities at higher yields and balance sheet growth, partially offset by deposit margin compression. Average deposit balances increased by 4% sequentially, reflecting 4% growth in interest-bearing and 1% growth in noninterest-bearing deposits.

Average interest earning assets were up 3% quarter-over-quarter. Cash and reverse repo balances increased by 4%, loans increased by 5% and investment securities portfolio balances increased by 2%.

Turning to our business segments, starting on Page 16. Security Services reported total revenue of $2.5 billion, up 7% year-over-year. Total investment services fees were up 11%. In Asset Servicing, investment services fees grew by 11%, primarily reflecting higher client activity and higher market values. Asset Servicing continues to show strong momentum as clients increasingly access the breadth of capabilities across our platforms to help them evolve their operating models.

Sales wins over the course of the year showed broad-based growth across products and segments with particular strength in custody and with alternative asset managers, banks and broker-dealers, a testament to our targeted investments in the fastest-growing segments of the market. ETF AUC/A of $3.8 trillion ended the year up 34% year-over-year, reflecting growth from the more than 2,500 funds serviced on our platform, which was up 22% year-over-year.

Alternatives AUC/A were up 10% year-over-year, including double-digit growth in private markets. We continue to invest in capabilities to support our clients' growth, including in retail alternatives with solutions spanning custody, fund services corporate trust, FX and hedging. Broadly speaking, approximately half of all asset servicing wins this past year represented multiline of business solutions reflecting the growing effectiveness of our new commercial model and client demand for consolidating with trusted partners. In Issuer Services, Investment Services fees were up 12% primarily driven by higher client activity in depository receipts. And in our Corporate Trust business, we're pleased with the momentum across our franchise and see significant multiline of business opportunities ahead especially with corporate and municipal clients.

We maintained our #1 position in conventional debt servicing and in CLOs and munis where we hold #2 positions we increased our market shares by 4 and 3 percentage points year-over-year, respectively. In Security Services, overall, foreign exchange revenue was down 3% year-over-year reflecting lower spreads on the back of lower volatility, partially offset by higher client volumes. Net interest income for the segment was up 8% year-over-year. Segment expenses of $1.7 billion were flat year-over-year, reflecting higher investments and revenue-related expenses, employee merit increases and the unfavorable impact of the weaker dollar, offset by efficiency savings and lower litigation reserves.

Security Services reported pretax income of $838 million, a 30% increase year-over-year and a pretax margin of 34%. It is worth highlighting that for the full year of 2025, Security Services reported a pretax margin of 33%. That was an improvement of 4 percentage points year-over-year and exceeded the medium-term target of equal to or greater than 30% that we established for this segment in December of 2021.

Next, Markets and Wealth Services on Page 17. Markets and Wealth Services reported total revenue of $1.8 billion, up 8% year-over-year. Total Investment Services fees were up 4%. In Pershing, investment services fees were down 2%, reflecting client activity in the prior year quarter related to the de-conversion of lost business, partially offset by higher market values. Net new assets were $51 billion in the fourth quarter, representing healthy growth from both new and existing clients. Over the course of 2025, we earned numerous wins from new $1 billion-plus wealth firms and the business accomplished several multiyear contract renewals with key clients.

Our commitment to serving multibillion-dollar growth-minded wealth firms across a full suite of custody, clearing, lending, investment products and wealth services is met with interest from existing and new clients and we remain focused on capitalizing on the important opportunity to enable growth for breakaway advisers as their platform of choice. For example, this past quarter, 71 West Capital Partners and West [indiscernible] Wealth Partners selected BNY Pershing to provide custody and clearing for their new independent full-service RIA firms.

In Clearance and Collateral Management, Investment Services fees increased by 15%, reflecting broad-based growth in collateral balances and clearance volumes. Average collateral balances of $7.5 trillion increased 15% year-over-year, and average settlements exceeded 1 million per day in the fourth quarter, reflecting higher market activity and new clients on our platform. Against a supportive backdrop from continued issuance and demand for U.S. treasuries, we're focused on innovating solutions that help our clients optimize capital meet evolving regulatory requirements, scale, operational efficiency and access market infrastructure and liquidity.

In our Payments & Trade business previously called Treasury Services, Investment Services fees were up 3%, primarily reflecting net new business. Over the course of the year, this business has shown strong performance on the back of broad-based growth across products and regions. Solid growth in sales wins over the course of the year, enabled by our strategic investments in capabilities and talent, give us good momentum into 2026. Net interest income for the segment overall was up 20% year-over-year. Segment expense of $930 million were up 9% year-over-year reflecting higher investments and revenue-related expenses, employee merit increases and higher severance expense, partially offset by efficiency savings. Taken together, our Market and Wealth Services segment reported pretax income of $882 million, up 9% year-over-year and achieved a pretax margin of 49%.

Turning to Investment and Wealth Management on Page 18. Investment and Wealth Management reported total revenue of $854 million, down 2% year-over-year. Investment Management fees were up 1% driven by higher market values and the favorable impact of the weaker dollar, partially offset by the impact of the mix of AUM flows and the adjustment for certain rebates, which I mentioned before. Segment expenses of $703 million were flat year-over-year as the impact of higher investments and the weaker dollar was offset by efficiency savings.

Investment and Wealth Management reported pretax income of $148 million, down 14% year-over-year and a pretax margin of 17%. As I mentioned earlier, assets under management of $2.2 trillion increased by 7% year-over-year. In the fourth quarter, we saw net outflows of $3 billion including $23 billion of net outflows from long-term strategies and $20 billion of net inflows into cash. Wealth Management client assets of $350 billion increased by 7% year-over-year, reflecting higher market values. Over the past year, we've worked hard to bring our investment in wealth management business closer to our other BNY platforms, streamlined operations and build towards stronger top line growth, including by making several key strategic hires. We expect that 2026 will be the year in which this work will start to translate into improved financial performance.

I'll close with our financial outlook. Page 21 shows the current expectations for 2026. Notwithstanding a very dynamic operating environment, positive operating leverage continues to be our North Star and so we have set ourselves up for another year of more than 100 basis points of positive operating leverage in 2026. This reflects our current expectation for total revenue excluding notable items, to grow by approximately 5% year-over-year in 2026 market-dependent. And accordingly, a plan for approximately 3% to 4% growth in expenses, excluding notable items.

Specific to the first quarter, I would like to remind you that staff expenses are typically elevated due to long-term incentive compensation expense for retirement-eligible employees. And on taxes, I'd like to note that over the course of 2026, we expect a quarterly tax rate of approximately 23%, with the exception of the first quarter, in which we currently expect to see a tax benefit from the annual vesting of stock awards.

Finally, turning to Page 22 for our outlook for the medium term. 2 years ago, we communicated our first set of medium-term financial targets, which were to improve BNY's pretax margin to equal to or greater than 33% and our return on tangible common equity to equal to or greater than 23% while maintaining a strong balance sheet.

Today, we are raising the bar. We are increasing our pretax margin target by 500 basis points to 38% and we are increasing our return on tangible common equity target also by 500 basis points to 28%. These new medium-term financial targets represent the next milestones on our path to unlocking BNY's full potential over the long term. What remains unchanged is our commitment to prudent balance sheet management and with it, our philosophy for capital deployment and distributions. Our Tier 1 leverage ratio management target remains unchanged at 5.5% to 6%, and we will continue to manage ourselves conservatively to the upper end of that range for the foreseeable future.

Robin talked about our strategic priorities for this next phase on our multiyear transformation of BNY earlier. These new medium-term financial targets are a reflection of our confidence in the solid foundation we've built over the past few years and they demonstrate our determination to continue driving positive operating leverage as we realize greater scale and growth opportunities across our platforms. And with that, operator, can you please open the line for Q&A.

[Operator Instructions]

We'll take our first question from Ebrahim Poonawala with Bank of America.

I guess maybe first question for you, Dermot, on the guidance, especially when we look at the revenue growth, just annualizing our fourth quarter NII gets you to about 9% growth on the NII side. So if you don't mind unpacking that a little bit around what are the assumptions underpinning that revenue growth outlook and on fees as we think about '26?

Okay. Ebrahim, hope you're well. So let me start with saying this year, we're doing it slightly differently. We finished the year with $20.1 billion of revenue, and the performance over the last 3 years has given us confidence to guide top line growth. And as I said in my prepared remarks, the guides that we're giving to you for 2026 is up 5%, plus or minus year-on-year on the top line revenue. Now underneath that, you have both fees and net interest income. And I've said previously that Q4 is a good jumping off point but December was a particularly strong month for us in NII. So the way I would think -- the way you should think about NII for us this year is a little bit ahead of 5%, fees may be a little bit lower than 5%. So all in top line growth, up 5%.

Understood. That's helpful. And I guess maybe one bigger picture question, just around as we think about the strategic targets and maybe, Robin, your thoughts, I guess the one missing piece here is how would you want the seat to think about -- I guess, the medium-term earnings growth potential for BNY. And within that construct, for whatever reason, if the revenue growth environment worsens, your level of confidence in defending the margins and the ROTCE targets that you've upgraded today?

Sure. So look, I'll take it, it's kind of got 2 parts. I'll take it both parts of that. But first of all, on the growth targets. Look, we've said all along, the positive operating leverages are North Star. And we've also said that there will be different components to achieving that in any year. And I think it is important to note that, and that's one of the reasons why as Dermot just said, we sort of moved to the total revenue guide because we recognize it's sort of a compositional question. But you should be able to hear from us, certainly, in our prepared remarks, is a bit of an increased conviction inside the company about our ability to win and grow. And we've certainly been setting internal aggressive sales and revenue targets to be able to do that. But to your question, we're certainly humble about the fact that we've got to be careful around any particular assumptions on market environment. And this is where I come back to the fact that we're all risk managers at heart. We're sort of projecting out a lot of different potential scenarios. And we take very seriously the fact that we've got to have levers to the extent that the markets might end up disappointing.

And so we created agility in our expense base. And that's been part of our work over the course of the past 3 years. The platform's operating model work, the work that we originally did around some of the efficiency savings, making choices. And the fact that we've now got the rhythm of saying, "hey, we could actually make different choices on business development expenses, compensation if needed, the investment book of work." And so this agility is extremely important. But I'll just also recap with a reminder of the fact that we've also deliberately positioned the platforms inside the company and the whole company to trying to reduce the macro sensitivity to the world. And so you've seen that in NII.

We actually specifically called it out in the presentation. But if you look at the different cylinders of the revenue engine of BNY equity market values, fixed income market values, equity market transaction volumes, fixed income market volumes, government issuance, private sector issuance, capital markets activity, GDP growth, payments, software, services, execution and clearing, generally, fixed income and equities. That is all very deliberately positioning ourselves to be able to be more resilient. But then, of course, to your question, to the extent that things happen, we can still react to them. That's how I think about it together.

We'll take our next question from Michael Mayo with Wells Fargo Securities.

As part of your new hire targets, how much does your thought about tech and AI play into that and specifically, as it relates to AI, you certainly got our attention. You have over 100 digital employees. How many of those AI digital employees do you expect to have over 3 to 5 years? And what's the savings from them? And again, how does that play into your new hire targets?

Yes. Thanks, Mike. Look, AI, we think, is super important. We think it's just going to be able to be a catalyst for transformational change. We think that's true for the world. One of the most important evolutions in a technology, frankly, in hundreds of years is the way that we think about it. And so given that, it's very hard to project very clearly exactly where we'll be 1, 2, 3, 4, 5 years from now. And so there's always the risk that we haven't properly and fully incorporated it into our medium-term targets because while we thought about it, it's hard to look into the future that clearly. But the way that we think about AI and maybe this will be helpful, therefore, is we think that the technology has already gotten to a level where it can have a very significant impact, frankly, on all of us individually and companies and certainly here at BNY.

And if that follows then we think it follows that adoption and integration risk becoming the limiting factors. So what we focused on is the real cultural side of it. Making AI for everyone, everywhere and for everything at BNY is our mantra. We launched our AI hub in 2023. That was just after the ChatGPT moment. We now have an enterprise AI platform, Eliza, that's general intelligence model-agnostic, and it supports this multi-agent functionality that underpins the digital employees that you referenced. And then we've put in place the resources to support that to really enable the scaling of it. That's all of the GPU compute. We've got our own NVIDIA hardware and tech, but we've also got the collaborations with Google that I mentioned in my prepared remarks and OpenAI and others.

And then the culture point again, and you'll see this, it sort of resonates through the whole set of transformation and rewiring concepts that we're talking about for the company. It's as true for AI because if AI is this great capability, it's a superpower, it can, therefore, be a capacity multiplier for our people and so that's what is causing our people to be able to pull AI towards them, hence, the digital employees working side by side with our people.

Now it is early days. We will continue to give you mark-to-market in terms of how we're making progress on this. But we are short-term enthusiastic, medium-term excited and long term, believing that it will have a significant positive impact.

That was helpful. So I get the enterprise with Eliza scaling culture, you're excited about it, but could you put a little bit more meat on the bones if you could, like you might have 134 digital employees today and does that equate to in savings? And where do you think that number goes to? Or that's a little bit more detail, if you could?

Mike, it's Dermot here. If you review the materials on Page 6 of our financial presentation, you'll see over the last couple of years that our headcount has trended down a little bit, but that's not really anything to do with [ AIES ]. We talk about internally, AI is unlocking capacity we don't think about it as in the narrow definition of efficiency. It's all about growing with clients, increasing revenues and optimizing the potential for our employees. So you have to think that over time, AI as a superpower as Robin just said, is going to increase revenues, create capacity and will allow us to do more with existing resources.

And over the last couple of years, we've been doing this right since the get-go in terms of enterprise-wide strategy. We've been quite constrained in our spending, and we've been very disciplined, we continue to spend more on cyber resiliency than we do on AI. So the return for our money is very, very high from probably getting from the enterprise today. And so we only see upside from here.

We'll move to our next question from Ken Houston with Autonomous Research.

I wonder if you can detail a little bit the pretax margin improvement to 5 points. What -- can you go through kind of each of the businesses and talk as to how your individual business line pretax margin thoughts are evolving within that too? Like where do we get the most juice?

Okay. Thanks for the question. So if you kind of go back to 2023, we delivered an actual performance pretax margin of 30% and ROTCE of 22%. And back then, when we initially established the medium-term targets, we went for 33% and 23%. And now we're going with new medium-term targets today of 38% and 28%. So you see real progression there over the last 3 years. And also today, as I mentioned on the first question from Ebrahim, you see us guiding for the first time, top line revenue growth. Previously, we guided by business. You will have seen us guide 4 years ago on security services and we've kind of surpassed that guide. And so that really speaks to the power of the One BNY transformation that we've been doing over the last 3 years. We have 3 segments: Security Services; we see upside in Corporate Trust; we see upside in Depository Receipts. We feel that asset servicing over the last 3 years has really transformed in terms of growing revenues, taking advantage of efficiencies and driving pretax margin. So that kind of disciplined focus on expenses is allowing us to better price for business to win in Asset Servicing. Market and Wealth Services is the most akin to platforms at scale that we have at the moment as the rest of the firm matures in the platform operating model.

The pretax margin there is roughly, give or take, around 50%. We would expect to grow that pie at that margin. And so the upside from there on that segment was probably a little bit muted. But in Investment and Wealth Management, where we've guided 25% and we finished last year at roughly 17%. That's where we see the most opportunity in '26 and beyond as we kind of begin to see the green shoots of recovery in that segment come back. So One BNY overall delivering for clients, as Robin said in his prepared remarks, 64% increase in clients buying from 3 or more lines of business in the last 3 years. 10% of new logos coming to the firm last year as a percentage of sales. So the clients are noticing what we're doing and want to do more with us.

And remember, there's a compositional thing here as well, Ken, because if you think about the combination of corporate trust, depository receipts, payments, trade CCM and Pershing, which are kind of the platform [ e-businesses ]that Dermot was talking about, that now represents about 2/3s of the PTI of the company, 3 years ago, that was just 55%. So there's a bit of an averaging here given the fact that that's -- those are the -- that's the segment, MWS and the businesses that are actually growing the fastest inside the company. So actually as a percentage of the whole, they're growing. And that's a factor here, too.

Yes. Got it. And just a follow-up, Dermot, on your point about how December was a strong month for NII. You guys have done a very good job kind of consistently being conservative about your NII outlook. What would you say about the fourth quarter? Was it deposit balances? Was it pricing? Like what are the elements that may not run rate forward relative to your exit?

So Q4 really was balances held in quite nicely, and we had -- we always say that we don't lead with deposits and really NII is an output as a result of franchise activity. And in Q4, we had very strong activity in our asset servicing business, which caused balances to outperform in the last few weeks of December, and that caused the outperformance.

Okay. I would just think that just as you're continuing to push, as you mentioned just before, like why wouldn't that just be a better organic hold on just activity and overall balances?

So if you kind of take balances overall, for 2026, we expect balances throughout the course to be roughly flat, Q4 is normally our strongest quarter on balances. Q3 is usually the seasonally slowest and you would expect over the next couple of quarters to moderate down slightly. When we give you the -- when we think about the 5% plus, it's really around the asset side of the balance sheet where we have securities kind of rolling off, and we're reinvesting as a kind of [ 100 to 150 ] basis point pickup. So we kind of -- we've narrowed the range of the cone of outcomes as it relates to interest rate volatility, balances we expect remain roughly in line or flat, and the pickup will come from assets rolling off into higher-yielding securities.

We'll take our next question from Steven Chubak with Wolfe Research.

So Robin, I wanted to start with a question on your newly launched tokenized deposit capabilities and I was really hoping you could speak to institutional demand for the offering what has been some of the early feedback? And as the effort scales over time, how might your monetization approach differ versus some more traditional deposit gathering activities.

Sure. So look, I just sort of step back from the whole thing because this really is part of the overall digital asset opportunity. We see global financial markets as transforming, moving towards more of an always-on operating model. And we're in the business of moving, storing and managing money. And so we think we're particularly well positioned to connect the traditional and the digital rails to really be able to enable clients. And so our road map has really been, right from the beginning, focus on the innovation, be able to bring the capabilities online with that first with digital asset custody, stablecoin enablement. You just mentioned the tokenized deposits. And so that allows us to be able to serve both the new digital native clients who, by the way, want the new digital services, but they also want some of the traditional services from us. So we're enabling both with them, and it also allows us with our existing clients to be able to help them to be able to move into this world. So for instance, as a client might want to open up a new share class in parallel to their traditional share classes, maybe they want to open up a tokenized share class, we can do that as well.

So it really is these 2 things working in concert that we think unlocks new possibilities. And we see the value of the improved efficiency, reducing friction that is real value here. And so then when you click in, stablecoins and tokenized deposits are just to become 2 examples of all of that, stablecoins providing the on-chain settlement currency, which is very necessary and it's frankly because it's their stable value, probably better some of the other alternatives. And there, of course, there are choices there in the stablecoins.

And then tokenized deposits really improving the internal utilization of cash. And so for a client making a deposit with us, we can actually improve the usability of that deposit, it becomes sort of programmable, if you will. And it allows that money to be able to work harder and faster for them to be able to facilitate other activities and ultimately might, in fact, create the opportunity for clients to be able to do more things with us anchored around some of those types of activities.

Robin. And for my follow-up, maybe for Dermot, just on the clearance and collateral management business. You've delivered 4 consecutive years of double-digit fee growth in that area, exited this year growing 15%. Just given expectations for a meaningful uptick in treasury issuance, how does that inform the outlook for the business? Is this double-digit growth rate sustainable? And what are some of the factors that could potentially derail some of the recent momentum?

Great question. So the way I would think about this is, as you rightly pointed out, the growth rate over the last couple of years has been quite nice to see. And so we would say the growth rate from here, probably a little bit more modest compared to previous years. We have the treasury clearing mandate coming in, which we expect to kind of influence some of the things that go on there. So in the U.S., I would say, more treasury issuance a little bit more stable than we've seen in the prior couple of years because we've kind of volumes, et cetera, et cetera, are beginning to moderate and where we see some of the growth opportunities outside the U.S., and we've said that on prior calls, where we're continuing to invest in new products and services around the world. So we expect to continue to grow internationally and moderate in the U.S.

We'll take our next question from Alexander Blostein with Goldman Sachs.

I was hoping to jot a little bit and talk about the fee revenue outlook as a whole. You guys updated the organic revenue growth for 2025, which looks like came in at 3%. Some businesses are doing better, some are doing a little worse. And the ones where you're seeing strength, particularly things like Security Services, it sounds like that momentum is continuing and then in things that are slower when I think about like Pershing or maybe your asset management, there are some idiosyncratic things that you pointed to that should improve. So as you think about organic fee growth into '26 and beyond, any way to frame what that could look like?

So thanks for the question, Alex. I really would look at and study Page 6 of our presentation. There are 2 graphs that I particularly like on that page. One is the deeper client relationships where you can see that over the last 3 years, we've grown clients who are buying for more than -- 3 or more lines of business has increased by 64% and then when you pivot over to the middle page, you can see that 2022 flat organic, '23 flat organic 24%, 2% and 2025, 3%, then that gives us the confidence to be able to guide 5% to the top line of $20.1 billion.

And as I said in an answer to an earlier question, 10% of our sales last year was with new logos. And when you listen to Robin and his answer to the previous question on digital assets, more clients are coming to us because they want thought leadership. And as a consequence of leadership in new spaces, frontier products, we're doing stuff in traditional services. So the short answer to your question is it's the portfolio effect of delivering One BNY to a broad range of clients. Robin said 3 years ago, we have a client list that's the envy of The Street. We pretty much service most of the S&P 500. And so clients are seeing the change that's happening at the company, and they want to do more with us.

So I would say no one business is doing better than the other. Everything has upside, everything is opportunity. As it relates to Pershing specifically, I'm pleased to say that the last couple of years, I would have said on most calls, [ were ] deconversion due to M&A activity, that's largely behind us, which reinforces why we feel confident that we continue to grow now at mid-single digits for net new assets. So we feel good about Pershing and the opportunity that's in front of us there. And also, as I said in the answer to a previous question, we feel we've turned the corner in IWM and '26 is the year that we're going to begin to see the transformation as we brought that business closer together with BNY.

And Alex, I'll just add one thing, which is -- and I understand because we've talked about this a bunch over the course of the past couple of years in terms of, okay, where is the growth going to come from? How are you really thinking about it? We talked before about the alpha and beta that we see in the overall business model. And so I just want to remind you of the beta point. Dermot touched on it related to digital assets. But just remember, there are quite a few megatrends that that we think can be quite interesting tailwinds for the company. And so the question is, have we positioned the company in the right way and all of our business platforms to really be able to serve clients as it relates to those various different trends. So just very briefly to tick through them, capital markets, the growth in capital markets issuance, trading, movement of assets. Think about it, corporate trust, our payments and trade business depository receipts, they line up very well with that particular trend, alternatives and our ability to support clients -- alternative clients end-to-end, private market assets, again, Corporate Trust, Asset Servicing, very much playing in that space, wealth very important segment, Pershing, wealth investments are all significant players in participating in the growth of that megatrend.

Digital assets, which we talked a bunch about already. And that, again, many of our businesses aligned to enabling that. The growth of fixed income, which Dermot touched on, that's relevant, not only in the obvious ways, but also in the financing private markets, data centers, U.S. treasury borrowing. And then the big one, outsourcing, clients wanting to focus on what they're really good at and asking us to step in because of the breadth of what we can do to do some of the one-stop shopping being a trusted provider and really giving us that opportunity to serve them more comprehensively.

So when you think about that backdrop we have not only the alpha of all of the individual work that we're doing internally, but we're also positioning to be able to take advantage of that. We think the combination of the two things is pretty interesting.

Yes. No, I agree that. And definitely like the direction where things going on that Chart 6 -- or Slide 6. For my follow-up, guys, real quick on the buyback. I don't think I heard you guys talk about the capital return plans for 2026 specifically? And then just broadly, when you think about the growth algorithm of the firm, your medium-term targets. Obviously, you gave us margins and the return of capital. But as you think about the share repurchases and the total return of capital, how does that play out over the next couple of years?

So big picture, Alex, the capital -- our capital philosophy remains unchanged as you both know, Robin and myself, we like to run to the upper end of our Tier 1 leverage ratio, lot of uncertainty in the markets the last couple of years. The outlook is going to be a little bit uncertain. So we like to kind of be in that kind of 6% ZIP code of Tier 1 leverage ratio. And when you step back from what is BNY, it's a capital-light balance sheet with a very clean balance sheet, very liquid balance sheet capital generator. And over time, we've consistently returned earnings to our shareholders. And so we expect that to continue and when you kind of solve for the model of what we've guided for 2026, it's going to be consistent.

So the buyback number as a percentage is really an output to all the things that we've talked about earlier. So it's going to be in that kind of [ 95, 105 ] range. And so don't really feel that it's necessary to guide on the buyback anymore given the overall algorithm and the model that we have for the future.

Our next question comes from Brennan Hawken with BMO Capital Markets.

I actually have a question on organic growth as well. And thanks for all the color you've given. So you generated 3% organic growth last year. Your assumptions in your outlook are that organic growth would accelerate, markets are flat, but yet the fee revenue outlook is sub-5%. So this is kind of 2 possible outputs, conservative outlook? Or was there some over-earning or onetime items that might have elevated the baseline that you're growing off of when we think about 2025 into 2026.

So look, organic growth in '26 versus '25. I think if you look -- go back to Page 6 and you see the impact that the commercial model is having, right, on the 2 graphs of organic fee growth and deepening client relationships. The story is quite compelling. And so we continue to hire new talent. The commercial model is not even 2 years old. So we continue to bring in new talent around the world and we continue to raise the ambition of what we want to do with clients across a wide range of services.

So I would expect higher organic growth this year, which reflects the flywheel of the new commercial model and also new product development and the culture that we've kind of changing over the last couple of years at the firm. We haven't really mentioned this, but we have hired a new Chief Product and Innovation Officer who's been with us a little bit over a year, and we would expect a similar impact on the product side of the house that we've had on the commercial side of the house. So we feel quite good about the outlook for organic growth to 2026.

No, no. I totally appreciate that. My question is if the organic growth is going to accelerate, markets are flat. How do we end up with sub-5% fee revenue growth? And correspondingly, if you've got organic growth -- I might as well also just throw my follow-up now. Why would balances be flat? Don't balances tend to move with organic growth as well. So shouldn't that move with organic growth? Or was there something in the baseline that might cause that -- those 2 metrics to diverge?

You framed the question at the beginning as we are we over-earning. We don't think we're over-earning. We think we are being thoughtful in the way that we're positioning the outlook for 2026. We see, of course, variability on each of the inputs to the total revenue actually overall line. But we recognize that it could come a little bit more or less with NII. It could come a little bit more or less with the organic fee growth. Of course, no one quite knows what going to happen with markets, which is why we're sort of making what we think is a reasonable baseline assumption there. So you're doing the math and we're kind of agreeing with you. We're not quite exactly sure how the composition is going to come, but we feel pretty good about the guide.

Excellent. Okay. Well, I look forward to seeing that organic growth continue to grind higher. So it's a great outcome.

Our next question comes from Betsy Graseck with Morgan Stanley.

All set. All my questions have been asked and answered. Thanks so much for the time today.

We'll take our next question from Glenn Schorr with Evercore.

Thanks. I'll just do one small one. We're getting long in the tooth here. So I heard your comments about the deconsolidation in Pershing running its course, and I agree. I just -- taking a step back, there's been a ton of consolidation in the space, except there's also a lot of PE ownership. There's a lot of more consolidation to come. And so I'm curious if you've looked underneath the covers to see your book of business and how high up in the table, it is, meaning do you service a lot of the consolidators or the consolidates in the future because there's going to be more. And then I worry a little bit about -- not that I agree with it, but in the past, sometimes when they get big enough, they think they can in-source and do it themselves. I'm just curious if you could talk a little bit about any part of that.

Okay. Thanks for the question, Glenn. I see us playing a very significant role in what is a very big market. We are a $3 trillion player in this space. And we believe we have the products, we have the talent, and we have a right to play in this space. And we've seen that over the last 12 months, where we -- and I've said it in our prepared remarks, we've had contract renewals with big players. We've had a couple of breakaway clients in the fourth quarter that we've onboarded, which I said in my script. And so we feel like we're going to do as well as anybody else in this space, and we have the tools and the solutions and clients are happy with Wove. They like Wove. We've invested -- we have more than 50 clients on that platform now.

We continue to grow revenue, and we continue to bring in talent to be able to drive the business forward. And so we kind of think maybe for the next couple of quarters, you won't see necessarily the M&A that's been seen in the last few quarters as people are digesting those transactions. And so there has to be a kind of a a pause for digesting and our pipeline is robust and healthy.

We'll move to our next question from David Smith with Truist Securities.

Your new medium -- your new medium-term targets aren't too far ahead of the adjusted performance of the past quarter. Can you just go into some more details about why you feel like these are sufficiently ambitious given the opportunity set in front of BNY over the next 3 to 5 years? You pretty much hit your targets that you set in January 2024, for your full year 2024 adjusted results. So now I hear you about conservatism and the importance for unity across a range of market backdrops. But what -- can you share to show us why the bar has been set high enough for the next few years?

Okay. So I was expecting this question. So as you -- who gets to ask it. The way I would answer it, if you go to Page 22 of our highlights presentation. When we were at [ finish '23 ], pretax margin was at 30% and we went with medium-term targets of 33% and 22% on ROTCE, 23% was the medium-term target. I think you appreciated that ambition and liked the targets, and it was doing it for the first time and said, okay, BNY is kind of raising the bar in itself. So now we closed the year quite strong and we're going with 38% and 28% for 3 to 5 years out. So again, we're going to stay -- we're going to do that over time through the cycle.

And so a lot of things can go in a different direction. It's going to be nonlinear and we're raising the bar. Every day, we're trying to outperform that, but we're setting -- maybe think of that as a floor to our ambition and we'd look to outperform it. So we feel like it is stretchy for the firm given where it is in its transformation, and we're always going to look to outperform those targets.

Just as a follow-up, it's great to see the improvement in client relationship depth with clients who work with 3-plus businesses up 64% versus 2 years ago. Can you give us any sense of the number in absolute figures? Is it a single-digit percent of use 3 or more businesses at BNY right now? Is it the majority? Is it somewhere in between? Where do you want us to get to over the medium term?

So one of the things that I haven't said is last year, we had 2 individual record sales quarters. So I would say it's all across the firm. And we've had 3 consecutive years of year-on-year growth in core fee sales. And so when you look about that in the context of a commercial model that's not even 2 years old, then you have to feel optimistic about the future. 60% of new clients buying from 3 or more lines of business and 10% of sales in 2025 were clients that are new to BNY. And that is some of the points that Robin made about the new products where clients are coming to us for thought leadership.

And while they're with us and talking to us, they're doing traditional services. And we've seen an increase -- a 20% increase in annual sales productivity. So I think the hustle and energy within our commercial organization is possible and clients really want to talk to us about doing more with us. And also, the last point I'd make on this is -- over the last 3 years, we've roughly spent $0.5 billion each year investing in the firm and providing improved client service, improve solutions, improved product. And you can see that particularly showing up if I was to pick one business or one segment. You see it showing up in security services, which is really where we've really outperformed on the margin. And so we see a real flywheel of momentum there and we expect that to continue on the forward.

Our next question comes from Gerard Cassidy with RBC.

Robin, can you give us bigger picture, you guys have obviously put up very strong organic growth numbers, and that's the focus. But when you think about opportunities to grow through acquisitions or inorganic growth, is there any areas that have an interest to you? I know you've done a small deal a couple of years ago. And all the focus, again, has been on organic, which has been fabulous. But what about inorganic or acquisitions? How do you think about that?

Sure, Gerard. So look, let me just start with just bringing you back to our remarks because I do think this is a very important context for M&A because there are a lot of different reasons why folks can do M&A and one of them is obviously when they absolutely need to go do something because they've run out of runway themselves in some respect. And I think our headline is that our organic transformation is working and it started to show tangible results, and we think we've got strong momentum and the runway to create more value here for clients, and therefore, for shareholders over the near, medium and long term. We're certainly open-minded about inorganic opportunities if they can accelerate, derisk or enhance our value proposition. But we do feel -- so we have a lot of optionality here because we've got the momentum from what we're already doing. We feel good about that organic path. And so we don't have any pressure to do M&A. And that's very important because we think that when you look out and see the reasons why various different folks do M&A is not always for the best reasons.

So that optionality, we think, is a very a very real thing. Now in terms of the philosophy, there's no change to it. So M&A, if done well, can be a powerful tool in the toolkit. We're certainly open to things. We look -- Dermot said this before, ever since last summer when there were all these rumors in the market, we've had a lot of bankers calling us with inorganic opportunities. So we see the flow and we're in touch with it, which is good. But for us, it's going to be about good discipline, alignment with strategic priorities, strong cultural fit, attractive financial returns and the bar is definitely high. It would have to make a lot of sense because as I said, we don't feel like we need to do it, but that's sort of collectively how we think about it.

Very good. And just to tie into that, in the markets you operate what are the markets that are the most robust? Is it domestic U.S.? Or is it Europe? Asia? Because obviously, you're global, you've got a good feel for that. Where are you guys seeing the best growth and the best opportunities for growth?

It's interesting. It's going to sound like I'm not going to give you a satisfactory answer to the question because it really is all of the above. The U.S. is the biggest market that we operate in. If you want the split, it's approximately 40% outside of the U.S. So we feel like we've got a good global balance, but the U.S. obviously has got a lot of opportunity for us and a lot of our platform have seen the growth. But actually, last year, the fastest growing in percentage terms region was actually Asia. So clearly, there's opportunity there as well.

And I would say historically in Europe, we might have been a little bit under-penetrated so that there's real opportunity there as well. So I wouldn't really break the opportunity down on geographic lines. And as Dermot said, we don't really break it down on business lines either because we see opportunity and pathway in each one of the businesses, albeit for very different reasons, and that really ties back to this point about the different things going on in the market, these mega trends, whether it's capital markets, private markets, et cetera, that I talked about before.

So this is a critical part of how we're thinking about the company. We are deeply invested in making the company work more effectively, the agility, the platform's operating model in terms of how we run the place. We've deeply invested in the commercial model so that we can actually get more and more out of the businesses that we have, this great breadth of businesses to deliver to clients, including in more combinations and more solutions, which is exciting. Dermot mentioned product and innovation, that's exciting because that's about new products in the same way as he mentioned, new logos earlier on. And so all of those things come together for us think, to be able to drive opportunity, which is one of the reasons why when we sit and look at what we have, going back to the beginning of the answer to your question on M&A, we feel like we've just got a lot of opportunity with what we've got to make more of it.

Very good. And then Dermot, a quick question on Slide 6, as you referred to one of your favorite graphs, the deeper client relationship graph. I don't think you mentioned this, but if you did that, I apologize. What percentage of the customers are now taking more than 3 products or 3 businesses? Or are you is there still enormous room for this to continue to grow at this rate because you just haven't deeply penetrated all of the customer base at this level?

So I would say a lot more room for improvement. It's a momentum. It's a cultural transformation. It's a de-siloing of the firm in some ways, we're kind of turning a page here today on Phase I to Phase II but the work is never done. And so we think there is more upside, more training, deeper integration of the businesses. We kind of like -- if I just give you one specific example, asset management can do a lot more with Pershing than what it does today. Asset Management can do a lot more with asset servicing kind of it does today. And the leadership of those 3 businesses are beginning to see that opportunity. We have great manufacturing capability and asset management. We need to deliver that to the rest of the firm and their BNY clients.

We'll take our next question from Emily Ericksen with Citigroup.

I wanted to ask first on -- on the expense side of things, you're guiding to 3% to 4% for '26, so take the midpoint of that comes in somewhere near where you guys printed for '25. But we're talking about flat markets, right, from year-end. Is the way I kind of square, I guess, that difference is some of the market-related [ uplifted to expenses ] expected to kind of recede the balance between what you're able to harvest in efficiency savings relative to the incremental investments, the $500 million from '25, how should I think about that particular balance on the expense side of things in the '26?

So I'm looking at Page 21 of the financial presentation, Emily. And look, for the first time this year. Previously, we've guided some operating leverage and positive operating leverage. Today, we're coming out and saying it's going to be greater than or equal to 100 basis points. And over the last few years, I think we've managed to establish some credibility that we are very good stewards of our expense base, very good financial discipline. And we've harvested roughly $500 million a year for each of the last 3 years, and we've reinvested that in the business to grow. And so it's really about the 3% to 4% guide for 2026 is that continued investment in the business in a very agile and dynamic way, which gives us then the confidence to be able to guide to the top line growth of 5%. So it all starts with top-down where we kind of say we want to solve and deliver positive operating leverage to you.

And then as a consequence of that, in the budget season, then we're going to go through the bottoms-up planning analysis, and we arrive at this model that gives us this flex on the expense side.

Got it. Okay. And then just on the NII side of things, you've talked about breaking out that 5% on total revenue a little better if we look just at the NII piece. How much of that -- can you sort of walk through the drivers of where NIM goes from here? I know you have the reinvestment impact on the security side of things, but you also pointed to some deposit margin compression in 4Q. Is there room for significant NIM expansion to support that 5% plus on the NII side?

So I'm not too sure what your definition of significance is, but I would expect over the course of 2026 for NIM to grind higher from where it is today.

Our final question comes from the line of David Konrad with KBW.

My question on capital was asked and answered, so we can end it here.

And with that, that does conclude our question-and-answer session for today. I would now like to hand the call back over to Robin for any additional or closing remarks.

Thank you, operator, and thanks, everyone, for your interest in BNY. If you have any follow-up questions, please reach out to Marius and the IR team. Be well.

Thank you. This does conclude today's conference and webcast. A replay of this conference call and webcast will be available on the BNY Investor Relations website at 03:00 p.m. Eastern Time today. Have a great day.

Great. Well, good morning, everyone. It is -- we're going to get started with our next session here. It is my pleasure to welcome Dermot McDonogh, CFO of BNY.

Over the course of 2025, BNY continue to see solid momentum across the business, underscored by accelerating organic growth, delivering better-than-expected NII, driving positive operating leverage, and of course, return lots of capital to shareholders. So all good news, starting to be reflected in the stock to say the least, another really solid year for you guys in terms of shareholders rewarding this nice performance. Stock is up over 40-plus percent year-to-date. So all down there and looking forward to hopefully replicate something close to that next year, we'll see. But looking forward to our chat as always. So thank you, thank you so much for being here.

Thanks for having me back, Alex.

So why don't we start there? I would love to get your perspective on, first, just 2026 priorities. As I mentioned, really strong momentum really across the franchise in '25. What are some of the key areas of focus leading into next year for you guys?

So look, it's review season where we all get our performance review. So it's a good time to review the performance of the company. I would say from where I sit, the firm is performing really well at the moment. There's real strong momentum in the institution. If you reflect back on the last 3 years under Robin's tenure, we laid out strategic pillars. We laid out principles. I think we've earned credibility with the market in terms of telling everybody what we're going to do and then doing it. So I think we've earned some credibility points on our execution shops over the last 3 years. And in terms of medium-term goals, medium-term guidance, how we've guided over the medium term, how we've guided in a year, I think we've executed pretty well against those guidelines.

And as you said, our investors are pleased with that and have recognized it. So as we finish the year, we finished the year with very strong momentum. We're running -- we're selling hard into the tape in a way that we can start 2026 with strong momentum. I think financials are having a nice run at the moment more broadly, the market is quite bullish, and we're kind of leaning in heavily to that, and we feel like the sentiment with our clients and the activity that we see is quite positive.

And so if you kind of go down a layer below that, there are two things that have been really driving the firm over the last couple of years. One is the acceleration of our commercial model. We've talked about this a lot in the past under the leadership of Cathinka Wahlstrom. We've really kind of changed the way how we show up for clients. We had CMX 2 this year in the summer, where we'll bring together all the salespeople from around the world and really articulate the vision and the strategy of how we want to deliver ONE BNY for our clients and so that's kind of the operalization of ONE BNY, which is showing up in the numbers. And as we've said many times, doing more with our existing client base is our biggest opportunity.

So the commercial side of the house and how we show up for clients and sales and the retention of talent, the acquisition of new talent, I think, is going really, really well.

Yes, go ahead, sorry.

And then the next one is the platform operating model, which we're just in the throes of Wave 5 at the moment. So 75% of the firm is in the model. 25% of the firm has been in the model for a year. So we kind of -- the difference between Wave 4 and Wave 5 and Wave 1 is very, very different because of the maturity curve of how people show up in the model. So Wave one is really -- we're really beginning to see the benefits both in terms of growth, productivity, cultural transformation, et cetera, et cetera. And so when you add all those things together, in order to drive growth, which is what we're now really trying to do, you need transformation.

And the last 3 years of really kind of getting back to being a well-run company, which is pillar #2, and we feel that really positions us well going into 2026.

Great. Well, let's unpack some of this, starting maybe with your first point, really around creating this kind of ONE BNY commercial model, which is showing up ultimately in better top line growth. You guys started to break out and really kind of highlight organic revenue growth. I think it was running at around 4-ish percent in the first half of the year. Talk to us a little bit about aspirations there. I know you don't have an official target for sort of fee growth. But if you think about areas where some of these initiatives could become most needle moving and where you hope to kind of get that number to over time, that will be helpful.

So the first point I'd make is for BNY -- the business model of BNY is very diversified. We have lots of different businesses doing lots of different things. You add it together, we kind of feel it's a well-diversified business model. And this year has been a really good year. You have some businesses that are really running on all cylinders. Some areas that are investing for growth in the future. Some businesses are in a period of early stages of transformation. I'm sure you're going to ask me a question on IWM. So that will be one of those businesses. But when you take the aggregate of each business and bring it together, then you see the firm really in the total performing quite well.

So I think if you kind of look at IWM specifically, when that really comes back in the way we expect it to come back and then the investments that Jose is making, I think that's going to fuel the growth opportunity in that space, which will then feed the growth opportunity of the firm.

So I think you mentioned 4%. Some are higher, some are lower. So overall, we kind of feel like with the transformation of the last couple of years, that growth algorithm, we feel we can lean into. And also the other point that I would make -- I would make 2 further points on that one is, one is innovation around product. Earlier this year, we hired Carolyn Weinberg, who is really well known in this space in terms of product innovation, particularly in the digital asset space. And so we expect in the same way that we have the commercialization and the kind of the whole transformation of the sales side of the house, we expect to see the same kind of forward trajectory on the product side of the house.

So I'm very, very excited about that. And then when you put all that mix together and you layer on the opportunity for BNY with AI over the coming years, you kind of feel quite confident about our ability to generate good, meaningful organic growth.

Yes. We'll dig into some of the individual areas of organic growth in a second. But I did want to ask you about inorganic. You guys have not been particularly active, but there is no shortage of headlines this year surrounding some of the M&A speculation out there. Talk to us a little bit about where M&A ranks in your priority list as you look out and the growth of the business over the next few years, including maybe some of the larger scale deals.

So there's a lot happening in the space at the moment, particularly in your shop. So you've done 2 deals this year. So congratulations. And so a lot of rumors about us earlier on in the year, but we don't need inorganic growth to execute our ambitions. I remember when the rumors were around, some people were writing, "oh, has the transformation run its course and does BNY need inorganic to fuel growth from here?" And I would say the answer is most emphatically not. We kind of really feel we have a great strategy. We've taken a very long-term view of it. We're patient with it. And so we have more than enough to do in-house to drive growth from where we see today. But inorganic is that we did a small acquisition around this time last year, closed Archer. That's gone really, really well for us.

if I'm honest, it has outperformed our expectations albeit the numbers are quite small in the context of overall BNY, but I think it has demonstrated to us internally that we have the execution skill set to be able to do inorganic if we need to do it. So we evaluate a lot of opportunities. We screen as a consequence of the rumors, we've become very busy with bankers coming to us with ideas.

Showing up in the [ screens ] again.

Yes. And so it's exciting. So we screen a lot, but culturally, the bar is very high. It has to be attractive financially, and it has to fit within the overall strategy that we're trying to deliver for clients and shareholders.

Got it. Okay. Let's pivot back and talk about some of the organic growth opportunities you see in the business. Starting really with the Asset Servicing and kind of the "traditional" kind of the trust business. And acknowledging that you guys are obviously a lot more than that and you and I have talked plenty about that and I think the market gets that as well. But when I look at the servicing business for you guys, it's still the largest fee pool out of all the individual businesses and it's been growing really nicely.

I think you guys are on track to deliver the fastest growth there, and so they're almost the last 10 years. And while some of that is probably helped by some of the macro factors, right, like volatility in fixed income markets, has been probably pretty helpful. But talk to us a little bit more about where are you seeing the incremental share gains? How sustainable do you think the level of fee growth is in that business? And what are the opportunities to take market share even higher there?

So I have to start with leadership and culture for that particular question. We were chatting here before we came on stage, the Goldman conference of 3 years ago was Emily Portney's last conference as CFO, and she's gone on to run that business and really has done a first-class job getting back to basics, investing in core infrastructure, listening to clients, delivering what clients want, simplifying what we deliver for clients.

So we're trying to -- with the platform operating model, we're trying to move away from bespoke solutions and more product innovation at scale that can give clients what they want in a way that we can scale for everybody.

And so I think that's been quite an important change in how we think about that business. We've delivered the medium-term goal we outlined at this conference 4 years ago in terms of margin. And so I think we're executing really, really well in the business. I know it's a question that gets asked a lot about pricing pressure. It's not something that we've seen in a material way over the last 18 months. It's a competitive place. But by improving the margin, we've been able to reduce our cost to serve. So that has allowed us to be more competitive in pricing.

And I think we're just showing up in a much more differentiated way in terms of client service, and we deliver the whole firm to Asset Servicing clients, not just what it is for Asset Servicing. And so a lot of our Asset Servicing clients are looking to our other distribution platforms and the interplay between the Pershing and Asset Servicing is becoming increasingly more important. And so kind of stitching the firm together for those clients has become an important feature of that business.

So I feel very good about the leadership. I feel very good about the growth trajectory. I think we've won a good bit more than our share this year. And as I always say, we don't win market share from our competitors. We earn the trust of clients and so it's clients that give us the business, not the competitors. And so I think we're a client-first firm, and that's really showing up in a positive way in the Asset Servicing space and look, we've done really well with the private markets. We've really done well in the ETF space.

Our core custody is a great offering. And so we feel like there's a lot of opportunities to invest. And the partnership between Emily and Carolyn Weinberg and the whole digital asset space is a place that, as a firm, we're very excited about.

Yes. Well, let's talk about the Digital Asset part of the business for a couple of minutes here. BNY is kind of positioning itself to be sort of the bridge, I guess, between the traditional finance sort of the rapidly evolving digital ecosystems, the way you guys sort of described it. Obviously, you were early in the crypto-custody offering, and there are other things on the come, you guys are obviously doing the tokenized money market fund with Goldman. You rolled out Drive a Stablecoin Reserve Fund. So there's plenty to do there. But when you zoom out, what do you think the kind of tokenized asset ecosystem looks like, kind of 2 to 3 years from now, so not going 10 years out, but also not asking you to call the next quarter. And what will do you guys see yourself playing in that? And maybe ask a third question related to that. Commercial model around it. When does it actually start to move the needle in a more material way to the P&L?

So if I answer that, there are 2 ways to answer the question. One is through the narrow lens of a CFO. Are we making money or two is like a Digital Asset as a broader part of the total leadership of BNY and so I'll mix it up a bit because there are a couple of answers to the question. One is, as you said, we've been in the space for a while. We're doing Digital Asset custody now. We're the first to do on chain NAVs. I think we have a lot of technological expertise in distributed leisure technology. And I think clients want us and expect us and demand is to have thought leadership in this space as they evaluate their business models on the forward.

And the way I kind of think about it like BNY has been at the heart of the financial market infrastructure for the last 241 years. And now with Digital Assets and DLT and AI, I think we're about to write the chapters of the next decades. And so it's very critical for us to be at the forefront of the IQ intellectual thinking, thought leadership, product innovation and development on that space. And so as a consequence of that, we spend a lot of time with clients listening to their needs about how we can take some products and develop them like 24/7 trading would be one to pick a case in point.

And if you're a part of the BNY network, over time, you're just going to be able to move your assets around the network in a lot more seamless way. And so we see a lot of opportunity to serve clients' needs a little bit more seamlessly in the future through this technology.

From a revenue standpoint, right now, is it material to the firm? Not really. In the future, do I see it being material, a growing importance? Absolutely. And what the thought leadership is doing is bringing Digital Asset native to the firm to learn about how we do things. And as a consequence, we're doing a lot more traditional business with digital natives as we explore the product innovation about how we can do their products with them on the forward and then export that product ideation to more traditional clients. So in the space that we're investing in, we're committed to it, and we think it will feed the bottom line in the medium term.

Do you see that also driving some of the more traditional business another way, saying if you look at some of the larger asset managers and how they're planning to evolve their business models and perhaps tokenize some of their assets in terms of what they're offering to their clients, having those capabilities will be critical therefore, there's only a few places that can go to and kind of...

So I would agree with that. Also, I think there are opportunities and there are also disruptions. And so you have to be in it and be willing to self-disrupt yourself. So we're constantly sitting in room saying, okay, what does this mean for our business model? How can we disrupt, how can we innovate? How can we change. And then as a consequence of that, how do we serve clients and help clients change too so that they don't get disruptors.

Yes. Just maybe as a quick follow-up to that. One of the benefits of digital ecosystem is perhaps more efficiency, therefore, less kind of frictional cash, less collateral in the system, perhaps et cetera. You guys are at the end of the day, sort of big depository institutions. So you like deposits, you need deposits. So if the outcome of all of this is less sort of frictional cash, how do you think about that as a risk?

So I would say in the medium term, don't see us. We talk about it, we evaluate it. But for now, I don't see that as a headwind that we're overly concerned about.

Okay. Helpful. Okay. Let's talk about Pershing. You mentioned that in some of your earlier remarks as well. It's another large business for the firm. It's been facing several structural tailwinds, obviously, for quite some time, and that's been helpful. Recent growth has been a little slower for some of the attrition related issues. There's some consolidation space. Are we largely through that? How are you thinking about that business into '26?

So the last couple of years with -- there's been M&A. There has been the one large de-conversion that's, unfortunately, I had to talk about for several quarters. That's largely behind us. As best we can tell, there are no -- there is nothing kind of deconversion, we don't see anything in the -- all that stuff is largely behind us, I would say.

So in terms of mid-single-digit growth in the near to medium term is something that we've talked about a lot and so we continue to believe in that. It's a business that we invest quite heavily in from a technological standpoint. We believe in the Wove product.

We're investing in the Wove products. We're winning some nice mandates. We've retained some nice business on the back of Wove. Now people are -- as Wove is becoming a little bit more mature. It's been out in the market for a couple of years. Our clients that are on the traditional platform are kind of now looking at Wove. And so in many ways, the challenge for Wove is how to onboard clients that want to come on to the platform quickly enough.

So in some ways, we are a little bit of a victim of our own success in terms of people's appetite to want to be part of Wove. The other thing I would say is Jose and the IWM and Emily on the Asset Servicing, how those 3 different businesses talk to each other and use the storefront of Pershing as a distribution platform, I think, is something that historically wasn't really thought about and Pershing -- when Robin talks about the de-siloing of the firm, Pershing really was a siloed business.

And so over the last 3 years, Pershing has become much, much closer to the firm and so that we can provide the full banking capabilities that we have to the Pershing client base, which before and now we haven't really been that good at doing. And also, there are things like products that our Treasury Services business provide clients that we could also provide to Pershing clients. And so there are things that we do for our clients that we don't do ourselves internally, which is quite interesting. So that all kind of comes back to de-siloing the firm, doing it once, doing it well and doing it for everybody. And we're kind of excited about what that means on the forward as well.

Yes. So more than ONE BNY. You mentioned Investment and Wealth Management business a number of times. So it's probably worthwhile spending a couple of minutes on this. So out of all the businesses that you have, that's the one, obviously, that's faced some organic growth challenges and probably more so on the investment management side as opposed to the wealth side. When I think about some of the structural headwinds for a lot of the traditional asset managers, which is most of that business for you guys. They've been around for a while and it's not easy to fix. So when you think about opportunities to improve organic growth in that business, what does that look like what's kind of within your control that can turn that around?

So I place a lot on -- I hope he's not listening in, but Jose has been a terrific hire for the firm. And he has -- we're patient. So if you kind of break the businesses into 2 private world, we're a top 10, we like the business. If you saw our client list, you'd say, that's interesting. And we believe there's a lot more we can do, and we have made an important hire in that space in the last few weeks, which was announced. And he will start early in the new year. So I think we have a good strategy there. $2.1 trillion asset manager. We feel like we have a right to play there. We feel we have good manufacturing capability. We've got insight, which is market leading. We have drivers which is market-leading. We have Walter Scott, which is market-leading. So we kind of like that. But Jose has done a lot over the last year to bring those discrete businesses closer together to each other and closer to the firm and we've managed to take efficiency out as it generate efficiency so we can invest in strategic hires.

We've just hired a new Head of Global Distribution, starts in the new year. And so I think the short answer to the question is, do we feel confident that we can return that business or the segment to mid-20s in the medium term, I think, yes, and do we have a path to do that? I think the answer is yes. And then it comes down to execution and delivery, which I think in terms of what we've done for the rest of the firm, we've shown that we have the ability to execute on what we say we're going to do.

Great. All right. Let's pivot to expenses and margins for the firm as a whole. That's been another really great part of the story. As you're well aware, from the last couple of years. I think you guys are on track to deliver a 35% plus pretax margins this year, already well ahead of the kind of the 33-plus target that you've set out, frankly, not that long ago. Recognizing that incremental margin expansion is going to be a function of both revenue growth and expense discipline, right. Those 2 things obviously kind of have to go hand in hand.

Talk to us a little bit how you frame maybe the multiyear expense trajectory for the business? And where do you think the margins could ultimately settle out to be in a steady state?

So if you go -- so the North Star for us as a team is positive operating leverage. And we consistently say that over the cycle, we want to grow positive operating leverage. And so '23, '24, '25, we've executed as well on that. And so we, as a team, fundamentally believe that through the cycle, under a wide range of scenarios we can continue to deliver that. Over the last couple of years, we've roughly harvested $0.5 billion of efficiencies per year and invested, so we're investing. I get a lot of questions from investors, are you investing enough? Don't starve the business, invest to grow because everybody -- okay, Dermot, you're done with the expenses. '22, we had 8% growth rate in expenses; '23, 2.7%; '24, flat; this year, we're kind of -- we guide us in the middle of the year up to around 3%.

So as somebody said on the TV this morning, there are good expenses and bad expenses. So we're obsessed about the good expenses, and so we want to invest to grow. And I think the platform operating model really helps with that. And so our annual planning and budgeting has become a lot more dynamic and we recalibrate constantly depending on the opportunity that we see to -- and we've made a lot of incremental decisions this year around deploying expense into businesses where we see opportunity for growth. And so that allows us to grow the operating leverage.

So I'm still obsessed about expenses, but I'm obsessed in a positive way on kind of spending good expenses because I think we can continue to extract efficiency, but we do want to deploy more back into the business so we can fuel growth.

Got it. Okay. So more to go, I guess, on that front is the short answer.

Yes. But like the message I would leave everybody is we're very disciplined. We are molecular. We're constantly looking to improve you've seen over the course of this year, head count is on the downward trajectory. We're at pre-COVID levels for overall headcount. We've grown revenue. And so we're doing more with less and the productivity of the firm has increased.

Great. Okay. So maybe at this point, we'll pivot a bit and talk about some of the financial dynamics as we kind of get closer to quarter end here. Maybe first, give us a bit of an update for Q4. Your guidance previously implied that Q4 NII was going to be, I think, flattish versus to Q3. You also gave a little bit of color on expenses and fees. So anything else you're willing to share as far as Q4, that would be helpful.

So as it relates to net interest income, I think you said that we guided flat. I think we're -- quarter-on-quarter, we kind of expect to be up mid-single digits at this space. Deposits have performed well. We're -- as we've said on the last call, we're spending a lot of time thinking about '26 cutting the tails of the risk distribution, and so very focused on our ability to grow NII from here. And I think in terms of our risk management philosophy and our culture of the teamwork and the collaboration and the transparency between the GLS business, the Treasurer and the CIO is something that makes me feel very proud. We've really grown our risk management shops and really pleased with where all that stands. So on NII, I would say mid-single digits quarter-on-quarter.

Good news. Fees and expenses, anything on that front?

So expenses, I think, quarter-on-quarter, call it, 3.5%. Overall, revenue for year-on-year, I would say, mid-single digits. And look, as it's this time of year, just to kind of complete the picture, we usually book a severance number in Q4, and I would expect that to be around $100 million this quarter.

Is that in the 3.5% quarter-over-quarter increase in expenses? Or is that pulled out of that?

That's pulled out, yes.

That's pulled out. So that's on top of -- got it.

So 3.5% is more on the operating side, severance comes through [ a report ].

And just another follow-up. When you talk about mid-single-digit growth in total revenues, you talked about Q4 of this year versus Q4 of last year.

Yes.

Yes. Okay. Got you. Great. When you mentioned NII up sequentially mid-single digits. Obviously, good news there. It sounds like deposits are the driver. Can you just help delineate how much of that is some of the seasonality would tend to typically see in the business in the fourth quarter versus more of the kind of regular way organic growth and some of the benefits of the initiatives you put into place, where those deposits might actually end up being somewhat sticky.

So when the firm is -- so we don't need with deposits, it's part of the overall equation of the firm and the fabric and the client mix and so when the firm is performing well, which is doing at the moment, and there's a lot of trying to activity, which there is, deposits follow. And so every business is contributing to it, 2/3 of our deposits are operational. So therefore, we consider them sticky. If you kind of go back and reflect on Q3, over the last 2 years, what we expected in Q3 didn't happen in terms of the seasonal decline for different reasons.

And so we're becoming better at our ability to manage it, forecasters that gives the asset side more ability to invest in a more disciplined way. And so we kind of feel where we are now, although look, we're waiting for the news from the Fed, who knows what the tone will that be like if it's an easing policy or a restrictive policy, that will kind of change the direction of how we think about the overall level of deposits, but from where we sit today in terms of our outlook for 2026, we feel pretty good about our ability to grow from here. And I would take Q4 as a good jumping off point for how we think about '26.

Great. Super helpful. Maybe in the last minute or so, I touch on capital returns as well. That's been a really important part of the growth algorithm for the business. As you look further out, obviously, the capital ratios remain quite healthy. Should we be thinking about a similar pace of sort of about 100% payout for the firm into '26 as well? Or are there other uses of capital that you see on the forward?

So capital-light business model, as one of your peers said, I can't remember exactly which quarter it was this year. I didn't think bank capital returns could be this high. I think we generated 28% ROTCE for that particular quarter. So we feel very good about where we are in terms of ROTCE and recognizing it's a capital-light business model and where we don't see really kind of good ways to invest in the business, we'll return it to our shareholders. That's been our case for the last couple of years and like no reason to change that in the medium term. And so I think we guided this year at or around 100%. And then the year through the year, we kind of went 90% to 100%. So we're kind of in that 95% to 100% buyback for the year. And so I would expect that kind of model to continue.

Great. All right. More of the same. We like that. Appreciate your time. Always great to see you. Thank you for spending time with us today.

Thanks, Alex. Take care.

Good morning, and welcome to the 2025 Third Quarter Earnings Conference Call hosted by BNY. [Operator Instructions] Please note that this conference call and webcast will be recorded and will consist of copyrighted material. You may not record or rebroadcast these materials without BNY's consent.

I will now turn the call over to Marius Merz, BNY Head of Investor Relations. Please go ahead.

Thank you, operator. Good morning, everyone, and welcome to our third quarter earnings call. I'm here with Robin Vince, our Chief Executive Officer; and Dermot McDonogh, our Chief Financial Officer. As always, we will reference the quarterly update presentation, which can be found on the Investor Relations page of our website at bny.com. And I'll note that our remarks will contain forward-looking statements and non-GAAP measures. Actual results may differ materially from those projected in the forward-looking statements. Information about these statements and non-GAAP measures is available in the earnings press release, financial supplement and quarterly update presentation, all of which can be found on the Investor Relations page of our website. Forward-looking statements made on this call speak only as of today, October 16, 2025, and will not be updated.

With that, I will turn it over to Robin.

Thanks, Marius. Good morning, everyone, and thank you for joining us. Let me start with a few highlights before Dermot takes you through our financials for the quarter in greater detail. As summarized on Page 2 of our quarterly update presentation, BNY reported another quarter of strong results. Record revenue of $5.1 billion was up 9% year-over-year. We saw broad-based strength, including double-digit revenue growth across the platforms that make up our Security Services and Market and Wealth Services segments, and we drove approximately 500 basis points of positive operating leverage. Our pretax margin improved to 36% and we generated a return on tangible common equity of 26%. Taken together, we reported earnings per share of $1.88, up 25% year-over-year.

The third quarter presented a largely constructive operating environment. Despite a cooling labor market and inflation lingering above the Federal Reserve's 2% target, the U.S. economy remained resilient. Equity markets continued to climb, credit spreads remained tight, and the Fed ultimately resumed rate cuts. Across our platforms, we saw solid growth in client balances as well as robust trading, clearing and settlement activity. While the finalization of U.S. tax legislation and the prospect of deregulation are positives for the economic outlook, uncertainty and multiple tail risks remain, geopolitical conditions, trade policies, fiscal deficits around the world and the sustainability of enthusiastic markets to name a few.

Against this backdrop, we continue to execute on our mission of reimagining BNY. This includes our 2 core transformation programs, a new commercial model, and our platform's operating model. Both are continuing to show results, and both have a lot of runway ahead. We recently reached the 1-year anniversary of the new commercial model. Year 1 was about bringing the company together, aligning our teams and proving that when we show up as 1 BNY, we can win. Now we are raising the bar. The next phase of our commercial model is about embedding the habits of operating as 1 BNY into our daily rhythms and shifting from just connecting the dots to also delivering integrated solutions with patient scale.

We were pleased to announce several wins in the third quarter that demonstrate how BNY is powering growth for our clients, both long-standing and new. Franklin Templeton, a client for nearly 3 decades expanded its relationship with BNY to provide a full suite of asset servicing and FX capabilities for its U.S.-listed ETF products, tapping our market-leading platform to support one of its fastest growing businesses. And TIAA, who has had a 20-year relationship with BNY Pershing, yesterday announced that they have selected our Wove platform as the unified wealth solution across TIAA Wealth Management's broker-dealer, investment adviser and bank custody businesses.

Our early commitment to the digital asset space paired with the principles of safety, scalability and innovation that have defined BNY for centuries now positions us to support the growing institutional adoption of digital asset products. In just 1 example from this past quarter, OpenEden, a leading platform for the tokenization of real-world assets headquartered in Singapore, appointed BNY as investment manager and primary custodian for the underlying assets of its flagship tokenized U.S. treasury bills fund.

As global capital markets move toward an always-on operating model, blockchain technology and digital asset adoption are becoming important enablers. In a meaningful step toward enhancing the utility of money market fund shares, we announced a collaborative initiative with Goldman Sachs to maintain on blockchain technology, a mirror record of customers' ownership of select money market funds, live and available through our LiquidityDirect platform. This includes a new token enabled share class of our own BNY Investments, Dreyfus Treasury Securities Cash Management Fund. We are encouraged by developments in the U.S. regulatory landscape that will further enable tokenized products and allow us to support clients as they consider moving to a more unchained financial world. All of this product innovation, combined with our commercial model 2.0 is allowing us to be more for our clients and drive higher and more sustainable organic growth in the years to come.

Turning to another one of our transformation, the ongoing transition into our platform's operating model. More than 70% of employees are now working in the model, and we expect to complete the remaining transition over the course of the next year. It is still early days, but we continue to gather meaningful proof points of benefits. For example, faster client onboarding, more automated delivery of complex NAVs and more modern billing processes. Our progress in the model is creating real capacity to invest in growth, to innovate for clients and to power our culture. Our experience has been that it takes 12 to 18 months after the initial activation of a platform for teams to start realizing the full benefits of this new way of working. That means that while we will be entirely operational in the new model by the fall of next year, we don't expect to see the full benefits of these new operating rhythms until early 2028.

As we continue making steady progress on both of our 2 transformations as well as the broader reimagining of our company, we are always focused on what's next. A prime example of this is how we are embracing the power and benefits of AI. This past quarter, we announced a collaboration with Carnegie Mellon University in Pittsburgh to create the BNY AI lab at CMU. By bringing together CMU's academic leadership and BNY's market expertise, we will advance AI research, responsible governance and deployment. At BNY, AI is for everyone, everywhere and for everything. The investments we've made have been focused on creating the technology foundation to go faster, but adoption and success are ultimately driven by culture. By putting AI in the hands of everyone at BNY, we intend to develop fluency and create capacity for our people to focus on higher-value work. This translates to how we show up for our clients and innovate more broadly.

Last month, we launched the next version of BNY's AI platform, Eliza 2.0, smarter, faster and easier to use. Across the company, our people are working together to embed AI solutions into our workflows. By the end of the third quarter, we had 117 AI solutions in production. That is an increase of 75% compared to the prior quarter, and it includes agents that help identify new business leads, rate code, automate payment processing, accelerate client onboarding and increase automation of reconciliations. We are also leveraging Agentic AI to deploy digital employees. Over 100 of them are already working side by side with our people on tasks such as payment validations and code repairs. We believe our AI opportunity is significant, and we are pursuing it with urgency.

Before I hand it over to Dermot, I want to close by acknowledging the tremendous work of our people. As I visit our offices around the world and spend time with our teams, the excitement and drive within the company is palpable. It is our people and culture that propel us forward on our mission to unlock BNY's full potential for our clients and our shareholders. We are executing with purpose, powering our culture to run our company better so that we can be more for our clients. We have a lot of work ahead of us, but the clear signs of progress both in terms of our reported financials and the leading indicators for future success across the company give us confidence that the strategy is working.

With that, over to you, Dermot.

Thank you, Robin, and good morning, everyone. I'll start with our consolidated financial results for the third quarter on Page 3 of the presentation. Total revenue of $5.1 billion was up 9% year-over-year. Fee revenue was up 7%. That included 10% growth in Investment Services fees from our Security Services and Market & Wealth Services segment, driven by net new business, higher client activity and market values. Investment management and performance fees were down 2%, reflecting the mix of AUM flows, the adjustment for certain rebates we discussed in prior quarters and lower performance fees, partially offset by higher market values and the favorable impact of a weaker U.S. dollar.

While not on the page, I will note that firm-wide AUC/A of $57.8 trillion were up 11% year-over-year, reflecting client inflows and higher market values. Assets under management of $2.1 trillion were flat year-over-year, reflecting higher market values offset by cumulative net outflows. Foreign exchange revenue was down 5% year-over-year, reflecting the impact of corporate treasury activity, partially offset by growth in client activity. Investment and other revenue was $208 million in the quarter, including a $12 million disposal gain. Net interest income of $1.2 billion was up 18% year-over-year, driven by continued reinvestment of maturing investment securities at higher yields as well as balance sheet growth, partially offset by changes in deposit mix. Provision for credit losses was a benefit of $7 million in the quarter, primarily driven by changes in the macroeconomic forecast, partially offset by higher reserves related to commercial real estate exposure. Expenses of $3.2 billion were up 4% year-over-year, both on a reported and an adjusted basis. The variance, excluding notable items, reflects higher investments, employee merit increases, higher revenue-related expenses and the unfavorable impact of the weaker dollar, partially offset by efficiency savings.

Taken together, we reported earnings per share of $1.88, up 25% year-over-year. Excluding the impact of notable items, earnings per share were $1.91, up 26% year-over-year. Our reported pretax margin was 36%, and our return on tangible common equity was 26% in the quarter.

Turning to capital and liquidity on Page 4. Our Tier 1 leverage ratio for the third quarter was 6.1%, unchanged from the prior quarter. Our CET1 ratio was 11.7%, up from 11.5% in the prior quarter, reflecting capital generated through earnings and a net increase in accumulated other comprehensive income, partially offset by capital returns through common stock repurchases and dividends. Risk-weighted assets were up 1% sequentially. Over the course of the third quarter, we returned approximately $1.2 billion of capital to our common shareholders, resulting in a 92% total payout ratio year-to-date.

With regards to liquidity, the consolidated liquidity coverage ratio was 112%, flat sequentially. And the consolidated net stable funding ratio was 130% compared to 131% in the prior quarter.

Next, net interest income and balance sheet trends on Page 5. Net interest income of $1.2 billion was up 18% year-over-year and up 3% quarter-over-quarter. Sequentially, net interest income increased due to reinvestment of maturing securities at higher yields, partially offset by changes in deposit mix. Average deposit balances were flat sequentially, as the typical seasonal decline over the summer was offset by idiosyncratic client balances related to CLO activity and M&A escrows. Noninterest-bearing deposits grew by 3% and interest-bearing deposits were down by 1% quarter-over-quarter. Accordingly, average interest-earning assets were also flat sequentially. Cash and reverse repo balances decreased by 2%, loans increased by 2% and investment securities balances increased by 1% quarter-over-quarter.

Turning to our business segments, starting on Page 6. Security Services reported total revenue of $2.5 billion, up 11% year-over-year. Total Investment Services fees were also up 11% year-over-year. In Asset Servicing, Investment Services fees increased by 12%, representing strong year-over-year growth, driven by higher client activity and market values. As we support our clients in building their businesses on the strength of our platforms, we are also benefiting from secular growth in attractive markets. In the third quarter, our ETF AUC/A outperformed market growth and increased by 35% year-over-year, driven by higher market values, client inflows and net new business. And alternatives AUC/A grew by 12% year-over-year with particular strength in our Private Markets segment.

It is also worth highlighting that almost half of all Asset Servicing wins in the quarter represented multiline of business solutions, underscoring the growing effectiveness of our one BNY strategy and the enablement through our new commercial model. In Issuer Services, Investment Services fees were up 10%, primarily driven by strong client activity in depository receipts. Across the segment, foreign exchange revenue was up 4% year-over-year on the back of higher client volumes. Net interest income for the segment was up 10% year-over-year. Segment expenses of $1.7 billion were up 6% year-over-year, driven by higher investments, severance revenue-related expenses and employee merit increases, partially offset by efficiency savings. Security Services reported pretax income of $806 million, up 26% year-over-year and a pretax margin of 33%.

On to Market and Wealth Services on Page 7. In our Market and Wealth Services segment, we reported total revenue of $1.8 billion, up 14% year-over-year. Total Investment Services fees were up 9% year-over-year. In Pershing, investment services fees were up 7%, reflecting higher market values and client activity. Net new assets were $3 billion in the quarter, driven by inflows from existing and new clients, partially offset by the deconversion of business lost in the prior year. Going forward, we expect net new asset growth to reaccelerate as we completed this previously disclosed deconversion in the third quarter. In Clearance and Collateral Management, Investment Services fees were up 12%, driven by broad-based growth in collateral management balances and clearance volumes. Average collateral balances increased 14% year-over-year, with growth from both existing and new clients. And in Treasury Services, Investment Services fees were up 7%, primarily reflecting net new business. Net interest income for the segment was up 26% year-over-year. Segment expenses of $895 million were up 7% year-over-year, driven by higher investments, employee merit increases and higher revenue-related expenses, partially offset by efficiency savings. Taken together, our Market and Wealth Services segment reported pretax income of $875 million, up 24% year-over-year and a pretax margin of 50%.

Turning to Investment and Wealth Management on Page 8. Our Investments in Wealth Management segment reported total revenue of $824 million, down 3% year-over-year. Investment Management fees were down 1% year-over-year, driven by the mix of AUM flows and the adjustment for certain rebates, partially offset by the impact of higher market values and the weaker dollar. Segment expenses of $640 million were down 5% year-over-year, driven by lower revenue-related expenses and efficiency savings, partially offset by employee merit increases, higher investments and the unfavorable impact of the weaker dollar. Investment and Wealth Management reported pretax income of $184 million, up 5% year-over-year, and our pretax margin expanded to 22%.

As I mentioned earlier, assets under management of $2.1 trillion were flat year-over-year. In the third quarter, we saw $33 billion of net outflows from long-term strategies and $34 billion of net inflows into cash. Wealth Management client assets of $348 billion increased by 5% year-over-year, primarily driven by higher market values, partially offset by cumulative net outflows.

Reflecting on our Investment and Wealth Management segment for a moment. Under new leadership over the past year, we have begun taking important steps to reorganize, streamline operations and start enabling the business to leverage BNY's broader portfolio of platforms. Additionally, we have started bolstering the team with a number of strategic hires and internal moves to further strengthen product, distribution and client coverage expertise. Along the way, we are being mindful of protecting the unique investment processes of our individual investment firms. While we are still in the very early stages of unlocking the growth opportunities associated with Investment and Wealth Management, Security Services and Pershing truly pulling in the same direction, we are encouraged by the progress over the past few months.

Page 9 shows the results of the other segments. For this segment, I'll just note that the year-over-year decrease in revenue was primarily driven by higher net securities losses and the sequential increase primarily reflects gains realized on the sale of real estate.

I'll close with our financial outlook for the remainder of the year. On the back of a strong third quarter, we expect net interest income in the fourth quarter to be approximately flat sequentially, which would ultimately result in full year 2025 net interest income to be up 12% year-over-year. We continue to expect expenses, excluding notable items for the full year to be up approximately 3% year-over-year. We currently project our effective tax rate for the fourth quarter to be approximately 21%, which would bring our effective tax rate for the full year into a range of 21% to 22%. And finally, we expect to continue returning capital at a pace that is consistent with a total payout ratio of 90% to 100% for the full year 2025.

To conclude, our results reflect the disciplined execution and collective effort of our teams around the world. We are encouraged by our progress and remain focused on delivering consistent long-term value for our clients and shareholders.

With that, operator, can you please open the line?

[Operator Instructions] We'll take our first question from Mike Mayo with Wells Fargo Securities.

My question is how much of this growth year-over-year would you attribute to actions that you've taken versus just a generally good market backdrop? And I recognize that you have 1 BNY, which is now the new commercial model, recognize that your platform operating model, you said is 70% done and also recognize that you had Eliza 1.0. So you have a lot of initiatives taking place. So I'm sure you can claim some credit but probably not all credit and there's probably going to be a quarter at some point where markets tank and things don't look as good. So how much is due to what you're doing and how much is due to the market?

Mike, it's Dermot here. So if you -- let's reflect on the past several quarters and in both Rob and I's prepared remarks, the intersection of the commercial model and the platform operating model, I really kind of positioned the company in a much better way than previously to take advantage of the market opportunities when the markets are constructive, and they have been constructive for the last few quarters, and now we're in a position to be able to take advantage of that. So that's point -- I think that's important point number one. That hasn't always previously been the case when markets have been constructive and BNY have been able to take advantage of that.

And the second thing I would say, with the 1-year anniversary of the commercial model and a multiyear phased approach to the platform operating model, we're now being able to stitch together solutions for our clients and do that cross-selling thing that we've talked about in prior quarters but now you can see us in execution. And in the prepared remarks, we talked about the wins in asset servicing this quarter that nearly half of them, we were in a position to be able to sell multiline of business solutions to the existing clients of asset servicing. So when you take a step back and look at that 7% fee growth, it's a mixture of organic growth, higher market levels and then FX. So it's all of the above and the proportion of each one is pretty balanced, I would say. So we're very pleased about how we've been able to drive organic growth for the company, particularly this year.

Mike, I'm going to just add a couple of quick things on top of that because we talked about 9 months ago about this concept of beta and megatrends. And the fact that you're right, the backdrop of the market has been very constructive. But what we've done is we've gradually repositioned and evolved the company to be able to take more advantage of that backdrop. And Dermot mentioned that, but it really is worth a quick click into it because this diversified set of platforms and the way in which we've been emphasizing the growth in some of them is important.

Remember, we are -- our businesses collectively fire on different cylinders. So equity markets up, good for some businesses. Fixed income markets up, good for different businesses. Transaction volumes up, good for other businesses. Capital markets activity are up, good for other businesses. The execution and clearing and settlement volume type of activity under the hood GDP growth, which is more correlated to our Payments and Treasury Services business, and of course, increasingly software and services. And so this orientation of ourselves to be more diversified, more platforms oriented is a very definitive strategy in order to be able to make more money in more different types of markets over time. And the derisking of the balance sheet, you can see that in the consistency of NII is part of it.

And just to give you a couple of facts around it, your fund of our trust bank businesses. And if you define for a second Asset Servicing Investments in Wealth as that core of the Trust Bank businesses, which I think most people would think is the case, that now represents less than 40% of the company's pretax income. Now those businesses have been growing, and we love them. But the nontrust bank, more platform-like businesses, corporate trust, depository receipts, treasury services, clearing, collateral management, Pershing, pretty long list, they now represent about 2/3 of the pretax income of the company, and that's up from 3 years ago when it was only 55%. So everything is growing. The Trust businesses are growing. The nontrust businesses are growing faster. They have higher margin, and we're positioning ourselves for more different types of environments with a more diversified platform.

We'll move to our next question from Glenn Schorr with Evercore ISI.

So great question on NII and the repositioning you talked about. So 18% this quarter, you told us next quarter will be up 12% year-on-year. We've had a couple of rate cuts, a couple more coming forward. Can you expand a little bit more about derisking of the balance sheet and how you've changed your approach towards interest rate risk management that we head into this potentially lower back -- lower rate backdrop?

Glenn, thanks for the question. So I would say -- and look, I said this to Robin earlier in the week when we were preparing for this call when I was going through it with what we now kind of finally call the tripod within the firm, which is [ Lida ], who runs our deposit platform, Tiffany, who is our Treasurer; and Jason, who is our CIO. The sophistication and the investment that we've made over the last 3 years in our tools and our risk management and how we analyze run scenarios, talk to all the different businesses to predict where deposits will be just gives us a real confidence around the baseline and the strength. And look, our balance sheet is very clean. It's very liquid, and we talk a lot about the $1.7 trillion liquidity funnel that we have. And so every day, when we come in, we see this funnel, and we can see where we can help clients maximize the return on their cash and at the same time, kind of optimize our kind of deposit mix and where we are.

And I think the reason for the strength in NII this quarter was really around that. And in my prepared remarks, and if you reflect back and when I talked about it on the Q2 call, we kind of said Q3 was going to be a tough comp given last year in terms of there was a lot of activity. This year, we did see some seasonal decline in deposits, but that was more than offset by a pickup in, as Robin said in the answer to the last question, capital markets activity, strong activity in the CLO space, and we're able to serve clients in a very differentiated way.

And then there's a nice bit of M&A activity, and we have a nice M&A escrow business, and we were able to serve our clients in that space, too. And so that drives fees and then it also drives healthy deposits, which can attract NII for us. And so going forward from here, I kind of said some of that activity will moderate into Q4, which kind of give the prediction that our base case is that we expected the balances for the balance of the year to be kind of flat sequentially.

We'll move to our next question from Brennan Hawken with Bank of Montreal.

Dermot, you just touched on this a little bit with the point around M&A escrow business. But we've been in sort of capital markets for a while, and we're starting to see M&A announcements of activity, which generally goes well for securities listing. What early trends have you seen on the back of that? And how should we be thinking about modeling those revenue lines if the capital markets environment remains?

So you broke up a little bit, Brennan, on the question. So could you just repeat it again? So the capital markets activity as it relates to which aspects of the business, sorry.

Yes. Sorry about that, Dermot. Securities lending, the securities lending part, like we've seen hard to borrow start to pick up on the back of M&A merger or IPO activity and the like. So I was curious about how we would think about what that impact could be on securities lending going forward.

We haven't seen like on that specific one, we haven't seen anything a noticeable change in that or there is nothing that I would kind of bring to your attention that we kind of see as a step function change that I would highlight as it relates to kind of forward potential for us in that business. But as you'll know, we are the world's largest agency lenders. So we expect that's a very nice business for us. We're very focused on it. But there's nothing there for me to highlight to you on this call.

Yes. And I would just add to that, Brennan, that it's a good business. It's an important business, but its greatest value is actually is adjacency to our broader collateral management franchise because it's the lending, but it's also the reinvest. It's also our new product, collateral one, which adds in the broader collateral management globally to the whole mix. And so we become one-stop shopping for clients across all of these different components if they do securities lending with us, some of these other things become particularly attractive.

But I think the heart of your question, which is around capital markets activity and how it drives us is actually more to the corporate trust platforms, as you referred, is depository receipts. It's debt capital markets, its markets overall. And while the lending activity is part of it, I would say, in the grand scheme of our capital markets footprint, it's a smaller part of it.

Got it. I appreciate it. And Dermot, you spoke to the fact that the offboarding, I believe you said was finished. So within Wealth, a couple of questions. DARTS for Pershing was a little soft. Was that -- it looked a little bit more pronounced than typical summer slowdown. So maybe if there was any color around that. And then you also landed a nice Wove win recently with the TIAA Wealth Management business. I'm certainly familiar with TIAA Asset Management business, but could you help us understand the size of the Wealth business and what we could expect from that?

So look, on Wove, we've signed over 50 clients onto the platform now. We're very pleased and proud of the TIAA announcement. It's been a lot of discussion with that, very important client, as Robin said, they've been with us for a long time, and we're happy to be able to serve them in a new and differentiated way.

And I think when you take a step back and look at Pershing overall as a business, this -- over the last 12 months, we've had this deconversion over the prior 12 months. We had the First Republic conversion. So as a general matter, there's been kind of noise flowing through the results. And sometimes, we don't see the underlying performance of the business because of the deconversions. But I would say overall, this year, Pershing has performed well for us. Q2 had high levels of activity. And I would say the DARTS were high because of all the activity that we saw in terms of client behavior around Liberation Day and then Q3 kind of being a seasonally quieter business.

And look, when we take a step back and we think about Pershing, it's a $3 trillion AUM business within the wealth tech sector space, and you see new entrants into it, and we like competition. And the fact that new entrants are coming in kind of allows us to show what we have to offer clients. So, a, we're excited about the business. We're excited about the growth potential. And we're now with the deconversion behind us, we expect growth in net new assets to reaccelerate for the balance of the year.

We'll take our next question from David Smith with Truist Securities.

Good morning. You mentioned some potential turbulence and headwinds to the money market ecosystem coming up right now with the rise of stable coins on the one hand, coming amidst the backdrop of falling rates, do you think either of these could put pressure on fee rates because this is an area of the fund space that's seeing less pressure than equities and fixed income over the last decade or 2?

David, I would not describe what's been happening as turbulence. I would regard it as, frankly, as opportunity. You're right, the money market funds have reached record levels, essentially rounding to $8 trillion, making new highs pretty much each quarter. And we're in that business, but we're in that business from lots of different angles. And I think it's worth reflecting on it for a second because we're there, with our dry first money market fund, it's a large fund, again, rounding, call it, $450 billion. That's a significant participation, but then we're also participating with our Liquidity Direct business. We're participating with our Collateral businesses. We're participating with our Custody businesses. We're participating with our Trustee businesses. And so this is another example of an industry, which we touch very broadly across all of our different platforms.

Now there's an evolution, and we're talking about on chain capabilities for money market funds. I don't view that as a turbulence for them, I view that as a technological evolution. And the question is, do we have platforms that can serve that technological evolution? The answer is yes because of our investment in digital assets. And so our ability to help manage that transition from traditional money market funds to a more digital asset money market fund is something that we've clearly set out that we can do. And that's not dissimilar to the mutual funds to ETF to separate accounts evolution of market structure. It's not threatening when market structures evolve, unless you can't catch the next evolution. And so we've invested to be able to catch it.

Now on top of that, we now have stable coins and you're right, they can be a competitor to a money market fund, but they are very similar to a money market fund essentially is a collection of high-quality assets, but they have the additional feature of mobility. And we are in the mobility business because we have our Treasury Services businesses. We have our clearing businesses. We have our Collateral Management businesses. And so being in the transaction mobility business, actually gives us a new feature that doesn't exist for money market funds because they aren't mobile assets. So we're quite excited about this evolution. And again, this is the philosophy of our strategy is to say, where are the megatrends and are we set up with our platforms to be able to capitalize on that evolution, have we invested properly and critically, do we have the breadth of range of services that allow us to touch those evolutions from multiple perspectives.

And then, Dermot, I think you said that almost half of the servicing wins in the quarter were multiline business solutions. Can you help us frame how that compares to 2024 to the first half of this year?

So I don't have a crisp number for it because over time, we're kind of -- as with the commercial model being a year old, we're building out the telemetry to be able to track that more and more. So going forward, we'll be more sophisticated in how we communicate these metrics to you. But -- so we started to track it this year, and we didn't go back last year or the year before and track it back then because it's a lot of manual work to do going back in time. But the trend is there, and we just see the cross-selling. And as we've both talked about a number of times, the bringing together of the firm under the commercial leadership of Cathinka is really driving a very powerful transformation. And so it's just we're more connected and so that's what I would say.

Just directionally, would you say it's somewhat higher or a lot higher? It's hard to really put a frame on it.

I would say it's higher, yes, much higher is probably too strong, but I would say it's meaningfully higher in terms of when we talked about last year, we had WisdomTree, which we sold 4 lines of business to 1 client. And this year, we're kind of seeing more and more of the WisdomTree type solutions being delivered to existing clients, whereas last year, WisdomTree was a new, new client. So we're delivering more to existing clients, which is a core part of the strategy.

Our next question comes from Alex Blostein with Goldman Sachs.

I wanted to ask you guys about operating leverage over time. Obviously, really strong progress this year, continued in the third quarter, and obviously acknowledge the fact that margin expansion is both a function of revenues and expense controls and efficiencies. But as you look out and you sort of point into a lot of the efficiency gains from the platforms will come through towards maybe the end of '27 and 2028 plus you've got the variety of AI efficiencies underway as well. So as you think about firmwide margin in this kind of mid-30s year-to-date and as you think about the forward opportunity set, what do you guys think this could land understanding that you might not want to set a firm target on this call, but helpful just to kind of hear your thoughts on how you would frame that.

Okay. So there were a few questions rolled up into that one. So when we kind of take a reflection and if [ you go on to go back ], actually, and you kind of time stamp it from the Goldman conference of fall conference of 2022 to now over the last nearly 3 years, we've consistently delivered positive operating leverage and in some cases, have outperformed. And so I think this is our fifth or sixth quarter of consistent positive operating leverage that we've delivered.

And so this really is kind of -- I kind of go back to this whole notion of the flywheel of the 3 pillars that Robin has laid out in terms of be more for clients, run our company better and power our culture. When you get 50,000 people kind of working in harmony and pulling together to deliver on that, that is what is really creating the outperformance, and so we're very pleased. And each quarter is just another sign of steady execution. And so it is a flywheel of momentum that's powered by culture. And so if you kind of take -- we started all the peer group over the last 15 years, and we kind of said what's been the average positive operating leverage of the firm -- of the firms. And so that best-in-class was 150 basis points of positive operating leverage. So over the last 3 years, we've kind of consistently beaten that. But internally, we feel like in somewhat, we're still in early innings, and when Robin wrote his first shareholder letter, he was taking the decade-long view of what our strategy was going to be. So if you take the decade view, we're 3 years into that. So you would say relatively early innings and all the things that we're doing.

And when you take the 2 transformation projects that we both double-clicked on, commercial model and platform operating model, we really haven't talked about what we want to do in the product and innovation space, and we've recently hired Carolyn Weinberg to kind of stand up and lead that business. So we expect Carolyn to have the same success as Cathinka has had over the last couple of years. And we really haven't factored in the opportunities both in growth and in efficiency that AI is going to bring to the firm over time. So we will be quite optimistic about our ability to deliver these kinds of returns into the future.

Great. That's very helpful. My second or the follow-up question rather just a cleanup around NII. I believe in the past, you guys sort of talked about that the -- internally, you're sort of trying to focus on '26 and trying to neutralize the balance sheet to sort of headwinds from lower interest rates. Just curious if that's still the case. And if you think about Q4 guide, is that a reasonable jumping off point for NII for all of 2026, again, assuming you guys can succeed at keeping them roughly flat?

So I think we're quite pleased last year in terms of how we set up the balance sheet for this year in terms of what we call the Jackson Hole pivot, and so we did a lot of work over the summer months of 2024 to kind of deliver the results that you're now seeing in 2025. And so we've replicated that thinking in that model and that kind of proactive repositioning of the balance sheet for 2026. And so we've done a lot of work and we've done a lot of positioning. And so to your specific the latter part of your question, I would say Q4 is a good jumping off point as a base case for 2026.

We'll take our next question from Ken Usdin with Autonomous.

I just wanted to ask, it's more of a longer-term question. But obviously, so many announcements out of the crypto and the stable coin space in terms of new products and new offerings from both BNY and the industry. And just wondering how you're starting to think about what's the TAM there from a revenue perspective for BNY? Like what is the opportunity set? We see it in terms of the notionals out there in the marketplace. But how does that convert into revenue for BK, where would you expect it to come through? And is there any perspective on like how quickly -- when that starts to show?

Sure, Ken. Look, we're playing the long game on digital assets. We started this journey really about 3 years ago, seeing it as a potentially interesting technology. Clearly, it had some very excited fans right at that stage, but it's built and become, I think, a bit more mainstream accepted as a technology. We saw the promise of the technology.

Look, we've been in the technology evolution business for a long time. We still have some of our ledgers, which were quill and ink back in the day, then it was printing and then it was computers. And now we see this as a promise for certain types of assets and certain types of transactions as being a new way of being able to record improving the mobility of assets, improving the efficiency of recording transactions, et cetera, et cetera. So we see that promise of that technology, and we've invested accordingly. And it's quite broad because yes, it's stable coins, but yes, it's digital asset custody. We can custody with the first U.S. G-SIB to be able to natively custody bitcoin and other digital assets. And then it's also this whole mobility conversation that we've talked about, which we think is quite exciting.

And so it is more than stablecoins, but we are a big supporter of the stablecoin ecosystem. And interestingly, having really lent into this ecosystem earlier on, we became a real go-to partner for many of these firms for our traditional services because they were like, hey, BNY, you get it. And let's do -- we need all of these traditional services. We need capabilities around transfer agency and custody and on-ramps and off-ramps asset management in order to be able to provide those services. So we've really attached ourselves to those clients. And now we're participating in the next evolution. We're in the rails business, we're in the financial markets, enablement business, global capital markets, and there are a variety of different things you combine our clearing capabilities, our collateral capabilities, our mobility capabilities in money movements together, that is able to help stablecoin prospects be able to go faster. And so it's a very interesting space. It's very early days. This is a multiyear thing, but we're positioned for optionality is the way that I would describe it.

Okay. Got it. All right. And then a follow-up on the expense side, Alex asked earlier about operating leverage. I just want to confirm, so like 3% full year expense growth implies more of like a 2% year-over-year in the fourth quarter. And I'm not suggesting that, that means that you're -- there's a lot of variability quarter-to-quarter in terms of how you grow expenses. But just -- is the platforming starting to help at all in terms of either allowing you to have more gross saves underneath that you can even better control the overall growth rate of expenses as you contemplate leverage? And I know you've said earlier in the year that if revenues are better, it's always a good time to spend. So just directional thoughts on how to think about underlying expense growth.

So I wouldn't say I said exactly what you just said there. I think given the markets are more constructive, we don't -- I wouldn't be an advocate of spending for the sake of spending because revenues are up like hopefully that we've earned the credibility of all of you that over the last few years, we're very good stewards of both our capital and our expense base, and we're disciplined in how we allocate our expense budget. And so I think with the backdrop being more constructive this year, we've accelerated some investments. And with the change in administration and everything going on in the digital asset space like we've brought forward some of our investments that previously might have fallen below the line. So we've scaled and gone faster in some of those areas.

But importantly, what I would say is this year, we went into the year thinking that we were going to generate about $0.5 billion of efficiency throughout the firm in terms of running the company better, and we've redeployed that $0.5 billion into growth investments. And we just had our Board here this year, this week, and they were kind of always asking the question, are we investing enough with the market where it is today, should we be doing more? So as we go into the kind of planning season for '26 and beyond, we're taking a very broad-based look on how we can drive positive operating leverage into the future, which is a North Star and generate savings while at the same time deploying.

But specifically on your question of we feel good about the guide of 3%, which in the context of the last 3 years, just kind of start of '22 was up 8%, '23 was 2.7%. Last year was roughly flat. And this year, we guided at the start, 1% to 2%. And now with the backdrop of revenue-related expenses and a couple of other initiatives that we've embarked upon, we revised our guide up middle of the year to around 3%, and we feel very good about where that is. And overall, I think given where we are in inflation, et cetera, et cetera, and the CapEx associated with AI, we feel very good about what we've managed to accomplish this year.

We'll move to our next question from Ebrahim Poonawala with Bank of America.

Good morning. I just had a couple of follow-up questions, Robin. I think going back to the digital assets piece appreciating still early days. But would you say if the move towards on chain tokenization picks up, is it disruptive from revenue margins for BK accretive or just a client retention tool where you are more likely to retain the clients who want to move? I'm just wondering in that spectrum, is it a bigger risk factor? Or is there a tangible revenue opportunity tied to this?

There's certainly tangible revenue opportunity. And of course, like any market structure change or new technology that comes along, there's disruption risk, if you stick your head in the sand and do nothing about it and sort of wish it to be away or ignore it. And I think that's true and has been true over generations of changes in financial markets. And so we view this as a change in circumstance for certain types of assets and for certain types of activity, probably more suited for some things than others.

Remember, take something like loans as an example. Loans are pretty clunky. We're a big loan administrator. We provide huge solutions to CLOs and to other market participants for the loans business. If you just look at it as part of our $15 trillion worth of corporate trustee, but they're a pretty clunky instrument to actually manage in the post-trade space. They're quite bespoke, customized. There's a lot of servicing associated with them. And so to be able to see digital assets, tokenization come along, we actually see opportunities for greater efficiency in markets like that. Now it's going to be hard, not impossible, but it's going to be hard in a traditional equity, traditional clean government bond to be able to create a whole lot more efficiency. That's probably where digital assets create more mobility, 24/7 types of liquidity. So either going to make markets more efficient, which we kind of like because we're such a scale player or it can open up new opportunities to be able to trade certain assets 24/7, to be able to convert from collateral into individual securities into individual cash all over the course of seconds in the middle of the night, that's pretty exciting. And that mobility increased mobilization because we are in the transaction business as well, not just in the storage business, we see opportunities to benefit from that.

So look, we're eyes wide open on this. There could be places in our business where margins can be pressured on the revenue side by certain things, but then there are also opportunities on the revenue side. And we think on the efficiency side, there is plenty to participate. But this is about culture. It's about attitude. It's about investing. We've hired our first product and innovation, our Chief Product and Innovation Officer in the form of Carolyn Weinberg. She's a deep expert in the space in digital assets. She's done significant things in the space for other companies in her past. And so now she's here and she's innovating for us. So I would say, net-net, pretty excited about it, but also eyes wide open about the fact that we've change, you've got to get it right.

Got it. That's helpful. And I guess just a separate question. Very narrowly on how you're thinking about share buybacks, I mean, it's an asset-light [indiscernible] do you care about the dilution buybacks have on book value at these levels? Or is any of -- sort of when you think about just from a valuation perspective, is that influencing your appetite for buying back stock? Or is it still relatively unchanged today versus a year ago?

So I would say, broadly, the latter relatively unchanged compared to a year ago. We started out the year guiding plus or minus 100%. Look, this is -- this hasn't been the year I think that most market participants thought it would be in January, and we tend to run on the conservative side of things. So you see it at 92%. And that's really borne out of more of a conservative bias to running at the higher end of our Tier 1 leverage ratio given the market turbulence, the geopolitics, et cetera, et cetera. But we kind of -- and I think I said in my prepared remarks that we will be in the 90% to 100% for the full year.

And just as a broader matter, you pointed it out, Ebrahim, we're a capital-light business model. And if we don't see opportunities to deploy in excess of our cost of capital, we will return it to shareholders as they would expect .

And look, Ebrahim, when we look at our business, and we talked about this all across the call in our prepared remarks and the Q&A, we're excited about the journey that we're on. We have -- yes, we're a year into the commercial model. Yes, we're a year away from finishing the -- just the implementation platforms operating model. But 12 to 18 months after that is when we'd expect to be having the run rate benefits of that. We're right at the beginning of the AI journey, but we see a lot of runway. So for us, we sit here internally and we're pleased, of course, with the progress of the company. We're pleased with the stock price. But when we look at the runway, it doesn't feel to us like it's the type of environment where you'd say, oh, my goodness, it's [indiscernible] stop buying back and it's overpriced. It doesn't feel like that to us. And so this feels like an opportunity for runway. So we certainly don't feel like we've reached the end of the road.

We'll take our next question from Betsy Graseck with Morgan Stanley.

Hello, can you hear me? Okay. So Robin, is that because like how many more years of positive operating leverage do you anticipate you're going to be able to deliver here? Maybe that's part of what you're seeing in outlook for the stock price versus what the market is seeing. And so that would be helpful to understand, especially given the fact that part of your operating leverage has been delivered by headcount reduction. And clearly, at this pace can't go on forever, obviously. So a little bit of color would be helpful.

Well, the good news is there's a big difference between forever and for a long time. So we see -- look, the short answer is when we look at the inputs, and we used to talk about this a year or 2 ago, when we didn't have any output so that time to be able to talk to you all about. So we only talk to you about the inputs, but we try to be very transparent with what those inputs were. Now we can talk about the outputs because we've got delivery and value that's coming out of all of the work that our teams have been doing over the past 3 years, but we still talk about the inputs for exactly this reason because we want to try to give you all the transparency on the fact that we're still putting a lot of new things in and there's still a lot of runway associated with the value that's going to come out of those.

The commercial model is a great example, which is why we keep reiterating it. It's only 1 year of maturity. And when you look at the combination of how you bring all of our sales folks together, new rhythms, embedding them in the company plus the fact that we've got this full breadth that I answered to Mike's first question, all of these different platforms and the nature of them, we feel that as that matures, there's a lot of runway on sales. Platform's operating model is not just an efficiency play, as we've told you before, it is very much a creating an increased speed and agility to be able to deliver for clients as well. And if you add 12 to 18 months to something that we won't have finished implementing until towards the end of next year, you get into 2028 before you actually would expect to have the full run rate agility benefits operating-type rhythms, which then allows us to go be going full speed in terms of the technology, the processes and the reimagining of things because platforms is very much a means to an end.

So we look at all of that. We look at the broadening out. We look at the fact that we've improved by about 10%, the contribution of pretax income from platform businesses, which are naturally higher in margin than the rest of the company, that's accretive. Investments in wealth hasn't really kicked in yet to the margin party. So there's opportunity there, and Dermot talked about that in his prepared remarks. So we look around and as Dermot said earlier on, we've taken a decade view of this right from the beginning. We're only at year 3, and we've got all of these inputs. And so for us, we sit here, and I think our teams sit here kind of excited about the fact that we feel like we're still early innings, and we're just getting going. So we're -- that's sort of where we sit right now, and that's how it feels in the company. Again, just talking about the inputs that, in theory, are meant to create and so far, a track record is that we've been able to do this, create the outputs of the future.

And then just a follow-up question here is on stablecoin. Do you plan on issuing a BNY stablecoin?

So we're not going to get into very specific situations about future products, but I would just pull you back to the broader comment, Betsy, which is we are in the infrastructure capital markets enablement business. We're in the rails business. We partner with stablecoins. We enable other people's stablecoins. And that's really the heart of our strategy to enable our clients with their transition into these ecosystems. We support the biggest stablecoin issuers today. There are many people who are interested in launching stablecoins. We really have the [ complete ] set of services to be able to power them. And what I would expect to see over time is participants who are wanting to do their own versions of using stablecoins internally to be able to operate their companies, but they won't have the scale or the interest in creating all the infrastructure. And so they're going to turn to other stablecoin providers and they're going to turn to partners to be able to power their own use of those things. And I think that's the sweet spot of how we think about the business opportunity.

Okay. So if there is an opportunity for a BNY specific stablecoin, you execute on it, but if not, no?

It is -- for us, it's about enabling the stablecoin ecosystem and the way in which I think we're going to be able to best do that is provide the capabilities for stablecoins to be able to thrive and help other people be able to make their stablecoins drive. Now there may be a lot of things that we have to build right up to the point of is it a BK stablecoin. So you could imagine a world where other people stablecoins might be running on rails and capabilities that we provide or we might be helping existing stablecoin issuers to be able to insert their products into other people's ecosystems is this connector across cash collateral, the mobility of money and then the infrastructure and capital markets. That's how I would think about it. But I'm not definitively answering your question because we'll remain agile to these questions over time.

And our final question comes from the line of Gerard Cassidy with RBC .

Robin, you talked about the business wins on TIAA [indiscernible] and then Franklin Templeton. Can you share with us since there was such long-term relationships, was it more cross-selling because of the new policy or the new structure you have is showing success and that's why you made those wins? Or was it new products that they had to -- they've created and they came to you to help offer those products to their customers with you as a partner?

I think one of the things -- I don't view this as cross-selling, Gerard. What I view it as is for a long time, BNY has had a series of perfectly good products and they've operated in a very separate and we would say, siloed way, where they were delivering in a very vertical way, single product to a client, and that was how the client knew us. But we recognized very early on in our journey that delivering more of the things that we already do to the clients that we already have was going to be a huge opportunity. Now that's a big lift because it required the clients to better understand who we were and to understand what we had. Many of our own sales people did not understand what we had.

And so the whole retooling that's come along with the commercial model to be able to equip our sales teams and therefore, our clients with knowledge about our company so that they can actually dip in to our businesses and be able to use more of the things that we have, that's a big opportunity.

Now the second opportunity, which is very related to that, is that it so happens that the many things that we have are quite related to each other. So if you're a clearing client, you might well be interested in collateral. If you're a U.S. clearing client, you might well be interested in international clearing. If you do those things with us, you might be interested in some of our other transaction services. You might be interested in treasury services. And so there's a natural adjacency where all of our products and services really are pretty adjacent to each other. So they fit well together. So that's created a depth for those clients who now understand us because the salespeople have been able to equip them with that knowledge. And then they see all these things we're doing, they look at it and they say, gosh, I should do that with you and that with you because if I do both of them together, it's going to be good for me. And I'm going to get more value.

Then you layer on top the product innovation, which is we're making the products better and more capable. The examples that we just talked about were digital assets, but AI is very powerful in this regard as well. And then the constant innovation, launching new products, launching new features and making the products individually better. And then the secret further source is we bond them together. So there are some of our products and services that if you actually do them together, 1 plus 1 equals 3 in terms of a capability for the client. Then you add on to that, the bigger new innovations, things like Wove but also things like digital assets, then you recognize that there are more clients in the world. And so we're covering clients, and we've talked about this in the context of private markets, new growing client ecosystems, new clients, and there were no stablecoin clients a few years ago, digital asset clients, but now we're earning money from those new industries. And so these are the megatrends tuning into them, helping to be part of that journey.

So collectively, this is the generating the growth. And it's why, in answer to earlier questions, there's a linkage between our organic growth and our capturing of these mega trends that are going on in the market that make it so much more interesting than just is the market up, is the market down. That used to be the way that you used to dictate the way that BNY would go. We don't believe that's the case anymore.

On what you just said, have you guys created a scorecard with your top 100 or top 200 clients and where you are in that journey of giving them those -- all those different options. And as part of that answer, when -- what percentage of those clients are at an optimal mix where you -- where they really are firing on all 8 cylinders?

Okay. So you would expect to hear this from the CEO. None of them are at the optimal mix because all of them can do more with us. But we have quite a few clients who do several of these different businesses. You mentioned 8. In fact, we were having a conversation at our Board with a client. We regularly bring in our external perspectives, including client perspectives to our Board. And we had a client who I was sitting next to talking about our businesses and their perception of us and they actually do 8 products with us coincidentally.

But I'll give you 1 step because I think this is a good one, and it kind of goes to the heart of your question. We have a lot more dashboards. We didn't really use to have them. We didn't use to have sales plans and targets and all of that stuff, and that's what I talked about in my prepared remarks about embedding the rhythms of our commercial model into the daily activities of the company because that's the discipline and the relentless execution to make it all happen as opposed to just wishing it be so. But the number of clients who buy 3 or more of our services is up 40% over the past 2 years. That's probably a pretty good indication of our direction of travel.

No, it is. And then just last question. Obviously, you guys have plenty of excess capital. Dermot, you talked about the returning 90% to 100% of earnings in buybacks and dividends. I think in 2024, you announced the Archer deal. What about inorganic opportunities? Is there any area within your organization that you'd like to enhance with possibly an acquisition?

Thanks, Gerard. Look, so it's interesting. We're very open to M&A. We've said it before. We're open-minded to inorganic things if they can accelerate what we're doing, derisk us in some way. And we recognize it can be a powerful tool in the toolkit for sure. And so we look at opportunities. We've got a team that assesses things constantly. It's a new rhythm for us versus the past. As you know, we did the Archer transaction. That was a good stretching of an exercising of that muscle so that we know we can do it. But we are focused on the discipline here. We have to have great alignment with our strategic priorities, would have to have a good cultural fit and of course, great financial returns, which will make it the bar for it pretty high.

But as you've heard really throughout this call, our organic transformation is working. And we're really seeing the results from it and we still feel that we're in the early innings of that opportunity. And therefore, with that runway, we just feel no pressure whatsoever around M&A. We're open to it. We can be opportunistic, but the momentum we have and the runway that we have to create value near, medium and long term means that we're in this wonderful position where we are focused with that as the -- as our real strategic focus right now.

And with that, that does conclude our question-and-answer session for today. I would now like to hand the call back over to Robin for any additional or closing remarks.

Thank you, operator, and thanks, everyone, for your time today. We appreciate your interest in BNY. If you have any follow-up questions, please reach out to Marius and the IR team. Be well.

Thank you. This does conclude today's conference and webcast. A replay of this conference call and webcast will be available on the BNY Investor Relations website at 12:00 p.m. Eastern Time today. Have a great day.

Moving right along, very pleased to have BNY Mellon with us like we've done with the other companies, you've kind of just put up the first ARS question. From the company, we have Dermot McDonogh, Chief Financial Officer. So welcome back. I appreciate you participating.

Maybe the best place to start is going to get this asked a lot is since Robin came over, it's the second best-performing large-cap bank stocks since you joined, it's like the third or fourth best performing large cap bank stock. Just what do you think the market finally caught on to and just what do you attribute the success to?

Okay. So I guess, this time 3 years ago, I was in New York on a house hunting trip, so I'm there nearly 3 years now. And so I would say our first point is, I think Robin had a really good running. He worked at the firm about 18 months before he became the CEO. So I knew BNY really, really well before he joined. So Cathinka is the perfect leader, the perfect skill set to be the CEO of BNY. And when he started pretty much 3 years ago, first of September, I came along a few weeks after that. And we said about doing a number of strategic business reviews. Some people say inside the firm that the firm has good bones or another person says, the great assets of the firm never really left the building, but they just weren't managed that well for a long period of time.

And so I would say, first and foremost, Robin has given the firm back belief in itself. And is really evolving the culture to be what we described high-performing and human. And I think at the beginning, we wouldn't have the best credibility with the market we didn't have control of our expenses. We didn't really have a coherent strategy where we've been run as a series of siloed businesses. And so over the last couple of years, I think we've really kind of try to do a good job of telling the one BNY story, dismantling the silos within the firm, getting credibility with the markets and folks like you for control over our expenses, saying what we're going to do and doing what we said.

And so I think that consistency of execution and delivery over the last 12 quarters has got us to the place where we are today.

And I guess, kind of reading up on what you've done over the last few years, you keep on seeing in terms like new commercial model, platform operating model. I guess for maybe those not as familiar with the storage, expanded what that means and just how that differs from the prior structure and your peers and just kind of where are you in this process?

Okay. So let's start with the commercial model first. It's probably the one that's a little bit easier to explain. Well, commercial model is, we have 3 segments, several businesses. Five years ago, each of those businesses would have had their own sales force. So as a sales organization representing BNY to the client place writ large, I think we weren't unified, we weren't consistent. We didn't have a consistent way of going to market. We didn't have a joined-up strategy. Robin brought in [indiscernible] a little over 2 years ago, as the firm's first Chief Commercial Officer in its history to kind of bring that unified approach to how we deliver BNY to the marketplace.

I think I would say, again, it's still early days. But this year, our first 2 quarters were our first were 2 record quarters in sales in the firm's history. And so that is kind of a testament to the work that the sales organization under, I think, his leadership has done. A little over a year ago, we launched -- the commercial model is kind of -- a lot of it is just kind of general hygiene about how you show up in a more professional way with clients, cross-selling new products, delivering existing products that we have at the firm to existing clients that didn't know we had those products, so easy stuff.

And we had our first commercial lift off in July of '24. And there are people who have been at the firm a little over 20 years who said we've never had anything like that at BNY before. And this year was version 2 of that. And we thought version 1 was brilliant and version 2 was 2x brilliant like it really was a very special day for the firm. And I think that has really kind of continues to evolve the culture and show up. And I think people walk into BNY every day feeling pride in the brand and what we're doing. And that really helps clients notice it. And as a consequence of success and the fact that we're doing well, clients want to know our story.

So we have really good client interactions now that then feed further business. So it's a little bit of a flywheel of momentum that's feeding on itself. So that's the commercial side. I think things are going very well there. On the platform operating model, some people think it's a technology, it's an app, it's not really -- it's -- we're just working in a different way. And at the core, we're a financial markets platform infrastructure company. And we provide a lot of goods and services to the ecosystem. We settled the U.S. treasury market every day. So every time you think treasury, think BNY, we're a top 5 dollar clearer in the world. So like 20% of the world's investable assets go through our pipes every day. And so volume is our friend.

And -- so we kind of go, we're a platform company. We should run ourselves like a platform company. For a lot of tech companies, this is 101 stuff. So a couple -- we've been working at this for about 3 years. We did pilots, we did lighthouses, and we went live a little over a year ago, and we've organized ourselves into platforms and sell loans, banks make loans. That's a platform. And we service the loans on our balance sheet. We service loans and corporate trust. We service loans in asset servicing. 3 years ago, that would have been 3 different siloed platforms with its own tech stack. And all the inefficiencies that go in with silos. So we've rationalized all of that. And so as a consequence, we've been able to do things in a more strategic way, while at the same time, reducing our cost to serve.

KYC, onboarding, not a very glitzy thing. But 3 years ago, we had several different ways of doing that. Now we have won. And so better tech, better use of AI, showing up to clients in a consistent way. If you want to do business with 3 different products at the firm, we only have to take your passport once. 3 years ago, we were just taking your passport 3 times. And so all of those little things add up to good financial discipline, showing up in a better way for clients and that kind of gives a better client experience, better client service. And as a consequence, they want to do more business with us.

Makes sense. I guess in early 2024, you and Robin laid out your kind of strategy and action plan for BNY including kind of financial targets for the medium term. In the near term, maybe what are 2 or 3 of your top priorities and kind of where you're focusing your attention on currently?

So I would say consistency of execution is really, really important. And so I would say, showing up every day, just executing the hell out of the opportunity that we have and doing more with existing clients is priority #1. Number two, I think absolutely, AI is an important strategic objective for us. I think we, under the leadership of Robin, decided strategically we were going to embrace it wholeheartedly as a firm. And so I've -- Robin is the evangelist on AI and I'm the skeptic. So we kind of play off each other. And so I want value for money.

We don't spend a lot of money on it, but I think our return on investment over the last couple of years has been phenomenal. And so internally, we're demystifying AI for everybody. We want everybody to have it as a skill, 97% of our employees globally have been trained on AI. They know how to use it. We have AI boot camps, you get badges, you get certified, you get trained. It's a real skill. And so as a consequence, our people internally want to embrace it, want to use it, and it's not -- people aren't worried about it in the same way, am I going to lose my job. That's not really how we talk about it internally. It's how can we use AI to create capacity so we can do more projects with the same resources as opposed to reduce the number of resources that we have.

So we're taking a different approach to AI than what's been typically talked about externally. And I think over the next couple of years, I think we have the right strategy in place. We have the right tech infrastructure in place. And I think as a platform company as we de-silo the firm and build scale in our platforms for large repetitive tasks, I think we're going to -- BNY will see a lot of benefit from the use of AI.

Interesting. And just maybe putting aside external factors like the interest rate environment and market performance, what opportunities are there to drive sustainable underlying growth at BNY over time? Maybe just kind of what are some of the areas with the greatest potential.

So I would say every business that we have has potential, yes. If you kind of take -- let's quickly run through the segments, security services, 3 businesses, depository receipts, corporate trust, asset servicing. Depository receipt, very pleased with this phenomenal second quarter, having a great year, high margin, great market share. Chris Kearns is our leader, hats off to him and the team have done a spectacular job, keep at it.

Corporate Trust. When I came on board, Corporate Trust was a high-margin business, underinvested in full of legacy architecture, and we're just sweating the assets. We've invested in the business. We're deploying it. We're building our strategic architecture. We've got 12,000 clients. We're growing our share in CLOs. We're #1 in a lot of different spaces, but we kind of feel like we have a lot more upside in Corporate Trust, and we have 12,000 clients there. And so for me, it's free marketing. You keep your Corporate Trust clients happy. They're going to want to do more with you in other parts of the firm. And we see that in a lot of cases with private markets clients using Corporate Trust as an entry point to do more with them.

And then asset servicing, I think, Emily Portney and the team over the last couple of years have really turned the ship around there, reduce the cost to serve, brought on better talent, winning our share. You never hear me talk about loss in business, negative repricing, what was me the world's worst oligopoly, you just don't -- we're not talking about that. It's a different -- we've hit our medium-term targets, and we feel like there's more upside. So overall, feel very good about that segment.

Market and Wealth Services, mid-40s margin pretty good, very happy with that, keep at it guys at home. And it's probably the segment that's most analogous to a platform at scale, 3 different businesses, Clearance and Collateral Management, Treasury Services and Pershing. All with opportunities for growth. All have done well this year, volume markets, the trend has been our friend. And so we kind of -- globally, we've kind of -- we've executed like what we've said we're going to do on earnings calls over the last couple of years and continue to see opportunity there.

And then the one that folks like you always continue to challenge on and it's fair that you do is it's like -- what are we doing with IWM. It's not really where it needs to be in terms of margin. We've guided over the next couple of years, we will get to the mid-20s. We feel like we've got good conviction around that. Jose has just celebrated a year in seat. I would say the first couple of quarters as being like rightsizing kind of doing his own analysis, creating his own vision, taking costs where he could out of the business in order to kind of generate capacity to make some hires. And now we started to make some strategic hires, and were beginning to see some green shoots. And so we feel pretty good about the forward for that business as well.

So when you take it all together, you kind of get back to a mid-30s margin for the firm, mid-20s -- ROTCE as one of the bank analyst said on the last call -- last earnings call, I didn't think bank OTC could be that high. So we're kind of happy with where we're at, and we can continue to execute with tremendous ambition.

I guess, so good returns, good margins. But I kind of look at the first half result, I think organic growth was like close to 3%. Is that the right number? Or is there organic growth target that you'd want to achieve to kind of match those returns.

So I would say, for some reason, you guys really love that organic growth. You want us to guide [indiscernible] last 3 years, I think we've done a reasonably good job of growing. So we kind of go back like I'm not dodging the question, but I do -- I will go back to positive operating leverage being the North Star. And that's what we've said consistently over the last couple of years. And I think for the first half of the year, positive operating leverage has been north of kind of 400 basis points. Last year, it was pretty healthy. The year before is pretty healthy.

The 2 best financial stocks in the mid part of the deck, the 2010 to [ 20 ] were JP and Morgan Stanley is 150. So that's kind of how I as CFO think about us and organic growth is a contributor to that. 3% has been the trend for that -- for us. That's kind of roughly where we are. We're looking to outperform it, but that's the ZIP code of where we're in.

But if you kind of look at it and we show it like a picture, a little like graph with light blue, dark blue at the earnings call, the second quarter to kind of show the components without actually disclosing the number. Like if you kind of look at the firm, ex IWM, it's probably north of 3%. And knowing that IWM, Investment Wealth Management has room to improve. So that's a little subperforming. So I kind of see for the next few years, if IWM returns to where we think it should be, there's room for upside from 3% in terms of organic growth.

Helpful. If we could put up the next ARS question, but I'll ask you. In terms of -- we spent some time on organic growth and maybe shift gears to inorganic growth, -- what should we expect from BNY with respect to M&A, there was an interesting Wall Street journal article on June 22 or 23, that some of us in the room may read. And just kind of your thoughts on consolidation within the space or kind of what may or may not you be interested in?

Okay. So I think when we started as a team, and another important thing I would bring out, the team has changed quite a lot under Robin's leadership. If you look at the Executive Committee today versus 3 years ago, it's a very different lineup. And so this is our kind of first real year as a team working together, and that's beginning to yield results as well. When we started 3 years ago, we kind of said, wow, we have a lot of work to do. So let's focus on the home first. The bar is very high. Culture is very important. We worked away for a couple of years.

We screened some stuff -- and it came more we were looking for capabilities. And so that resulted in the acquisition of Archer towards the end of last year, which really was capability in the managed account base that we were lacking. Very happy with that. It's contributing. [ Brian Dorey, ] who is the CEO, who came along with that, has really joined, first-class guy, really contributing to the culture. And so we continue to screen. And so the bar is high.

Again, we continue to look for capabilities. Marius who's here today with me, who runs our corporate development, the worst thing that's happened to him as a result of that article, it's become a lot busier because he's getting a lot more inbounds with opportunities for us to look at. So it's always good to look at opportunities because you learn from the market. And so we don't really have anything on the horizon at the moment that we're really looking out for, but we're always trying to learn and look for opportunity and see where our gaps are and how we can grow organically or inorganically.

The audience seems pretty split on whether it's an Archer-like deal, an Asset Manager or a Trust Bank. I'm not sure if anything you're leading towards.

I think I want to keep you guessing.

Fair enough. We're kind of halfway through, so maybe kind of maybe switch to the financial part of the story. But we've certainly seen a lot of market activity year-to-date, whether it's volumes, volatility, macro events. Maybe just kind of share your thoughts on the kind of operating environment in general.

So look, I've been in the industry in my whole career, financial services. It's a fascinating place to be. It's a fascinating place to work, love what I do, love the operating environment, no 2 days are the same. I think when I was preparing for second quarter results, we were kind of tracking all the different events that it happened that were impacting the market. We kind of counted north of different events that each 1 in themselves was like, wow, did that happen this quarter? And 20 years ago, that would have been the event of the quarter.

So I think we've -- as an industry, we've become attuned to just dealing with a lot of -- we're managing a state of constant change and churn, which I think, as a leader in the company is fascinating. So I like the operating environment. I think the firm really performed well in Q2, which is typically our strongest quarter. After April 2, volumes, balances, client engagements, people wanting to know in a non-biased way what we were seeing in the market. I think we showed up in a first-class way.

Q3 is typically a quieter quarter for us because of the typical seasonal slowdown. And then we kind of ramp back up again in Q4. So overall, I feel very pleased with the environment. It wasn't what we necessarily thought the year was going to be like, January was very different to today. And so there have been different kind of ebbs and flows to the year. So overall, I think as a firm, we feel very satisfied with how we've managed to deliver for clients.

Got it. You open up the next ARS question and one of the audience votes on this. I guess maybe you could kind of talk to just net interest income outlook. First half of the year was up 14%. You kind of raised the guide in the second quarter call to kind of up high single digits for the year. But even if it's a, call it, 9%, that's kind of a lower 5% growth in the back half of the year, so I mean maybe that's still kind of your expectations. What's driving the slowdown? Maybe kind of update us on how the third quarter is playing out? And then presumably the Fed's going to cut next week, how does that impact the overall thinking?

Okay. So 3 questions there. So I think we're neutral on the Fed next week cutting. I think we've managed to cut the tails. Of NII outcomes for this year pretty well. A lot of hard work towards the back end of last year, and we're kind of doing the same for '26 right now. So balanced for next week. I think I said on the Q2 earnings call, we updated our guidance to be high single digits. We expect to Q3 to be -- deposits usually dip a little bit in Q3. But they didn't dip as much as we thought, the worse.

So that's been a little bit shallower, but higher levels of volatility coming into September on deposit balances generally as the TGA is getting rebuilt. So we're seeing a little bit more volatility than expected. So I would say, NII feel pretty good about the high single-digit forecast. And look, activity levels have been quite high for us. So the expense is probably smudging higher due to revenue related. So yes.

Right. And then I guess, how does -- I guess, everything you see now kind of inform your view for kind of next year's NII trajectory? I don't know if you want to put up the audience's response to that, the audience seems to think that mid-single digit, maybe plus.

So what's this one saying for this next year or this year?

Next year?

So it's a bit early for me for next year. Is it? That's a January one.

We'll, let it slide.

I'd like #8 or I'll take that one.

I guess on the fee side, I guess your guidance has been higher, but kind of that's it. I think we saw 5% growth in the first half of the year. I don't know if you want to give us a number, maybe talk to the second half of the year. You alluded to maybe expenses being a bit higher. I assume there's revenues associated with that. Anything you want to highlight on the fee side?

So look, overall, I think feel good about fees for the year. It really comes back to -- your first question, second question around the commercial model and what we're doing on sales and all the leadership that Cathinka is bringing to the firm. So generally speaking, I think our biggest opportunity is doing more with our existing clients. And we have some of the world's like best clients, lots of them and we're spending a lot of time with them. So generally speaking, I feel over the next period of time, notwithstanding kind of weird market stuff that we'll be in good shape on fees.

Diversified business model, 3 segments, lots of volume, lots of ways to generate fees not just off balances, it's off transactions, a lot of different ways to do it. And so I think the 1 thing that I would leave the audience with is -- it's a diversified business model that is kind of a nice way to express an interest in financials with kind of a low-risk approach given where we are in the ecosystem.

Okay. Let me go up the next ARS question. But I guess coming back to expenses on the second quarter call, you kind of tweaked the expense guide from up 1% to 2% to up 3% for full year 2025 as revenues show through. Do you kind of want to update that figure? And just maybe just talk to the cost outlook for the back half.

So I think no real need to update the outlook like in individual meetings with investors, it's kind of some of the questions, I guess, is, are you investing enough? And are you missing opportunities. And so we've spent -- like I've spent the last 2 days, if I just switch back to the [ QPOs ] for a platform operating model. Every quarter, we have something quarterly planning reviews. So there over the course of Monday, Tuesday, Wednesday, this week, a little bit like your conference, 5 hours each day where each platform comes in and talks about the opportunities, the stresses where they need more funding.

And so we're kind of moving towards more of a dynamic budget. And so I think on balance, I think we're in good shape. We're entering into the fall and the busy part of the year in terms of planning for next year. I would say when I spoke with the Executive Committee this morning, I kind of laid out the kind of the principles in terms of positive operational leverage, how we need to set up first based on what I see, what the targets are and the guidance are. So I think we're going to continue to look for efficiency in the firm. I think we're going to be kind of -- if you kind of go back to our 3 strategic pillars of power our culture, run our company better and be more for clients.

I think we're really beginning to learn a lot about ourselves as running our company better and demanding more for our dollar in terms of how we spend this our expectations of vendors, et cetera, et cetera. So I'm pretty proud of how the team has shown up and responded to the financial discipline I've put on the firm. And so I continue to believe that we've delivered positive operating leverage next year and expenses and how we manage that will pay an important part. So medium-term target is 33%. I think we outperformed that in Q2. I think we'll be there or thereabouts for the full year. And so I think we can continue to improve that margin.

So it looks like the room seems to upside into next year.

Yes.

And I guess if you look at the first half of the year, you did like 400 basis points plus of operating leverage. You've made a comment historically, it's been kind of closer to 150 million.

Well, the external guys have been close to 150. Yes.

Yes. I guess when you kind of think about the 2026 budgeting process or looking out like -- how do you think about what that number should or should be?

So it's team sport. It's full contact. I kind of set the guide and then everybody else pushes back on me. And then we agree on what the right balance is. And Robin kind of -- we discussed it with the board and -- this is where we want to invest. And these are the priorities that we're not going to invest in because of we feel we need to deliver this to the market. And so it's a balanced discussion. There is no right or wrong answer. And so I think it's a good discipline because it's something that everybody can understand and focus on, yes, revenue minus expenses as 1 investor said to me, pretax income [indiscernible], keep growing pretax income, and I will be forever your investors.

And so he was with us 3 years ago. He had a very big position. And 3 years later, he's still with -- and he's our biggest critic and he is our biggest friend. And so we keep it simple. We focus on that. And if we can continue to grow investors who would still want to be in the stock.

Sounds fair. There also strategy generates a lot of capital as you grow pretax earnings. Can you maybe just talk to how you think about maybe returning that capital effective buyback. I think you've talked about 100% payout ratio, give or take, I think you're kind of 92% year-to-date. I'm not sure if that's within that plus or minus, but just what are your kind of capital priorities around that?

So I think at the beginning of the year, we went plus or minus 100%. We slowed it down at the start, given the environment. Robin and I are both conservative risk managers by nature. We like to sleep well at night. And so we're always going to have a conservative tilt to us. We always run a little bit above the -- we're kind of -- we're always in that 590 to 6% of Tier 1 leverage ratio. So we're always in that ZIP code. So I would say full year, we're probably kind of -- we're probably 95% to 100% -- we're going to be -- we'll hit the guide.

Got it. And then you talked about the mid-30s, or that, I guess, pretax margin target of 33% -- greater than equal to 33% ROTC mid-20s. Is that -- I guess, how do we think -- those are kind of medium-term targets? I mean we're I guess, is that something you kind of revisit beginning of next year, beginning of the year after that? How do you just think about that? Or is that just kind of where the company should be?

So I think it's a great question, and I think it's something that we're going to spend a lot of time discussing internally over the next 3 months. When we announced like January of '26, it will be 3 years since we gave the targets. When we gave the targets, the market liked is stock was up 4% on the day. And so I think we will reflect on that over the next 3 months. And in January, we tend to do an extended earnings update in January. And we're kind of, Hey look, we reflect on Robin's shareholder letter that we put out at the beginning of the year, how he has performed for the year and whether we should change our view.

And if we're going to change our view and give you guidance, we will probably more likely than not do it in January. And if we decide to stick with the current targets, we'd say why and give an explanation first. And I think that's only fair. And I think I think the market has given us as a firm, a lot of credit for transparency and executing to what we say. So I think we're going to continue to do that.

Got it. We have about 5 minutes remaining. There's some kind of topical stuff I'd love to run through. But maybe just start with digital assets [indiscernible] coins have gotten a lot of discussion. You probably have a unique role given where you are in the ecosystem. Just kind of where do you see BNY filling in? And kind of what areas of banking do you think it could disrupt?

So it's a great question. So, one thing I didn't mention is that we also -- in the way that we -- Cathinka Wahlstrom joined as Chief Commercial Officer; Carolyn Weinberg has -- beginning of this year, joined us Chief Product and Innovation Officer. And really, really high-quality individual who has a lot of capital markets, financial services experience. And very excited to have her on the team. And so as part of our portfolio of responsibilities, she's also responsible for digital assets. And so one of the things that attracted her to BNY was the fact that she can see opportunities to stitch different things together and create new solutions for clients.

And so we kind of -- the way she talked about if she was sitting here, she said we have products, we have services and we have capabilities. And when you stitch them all together, we can have unique solutions for clients because there isn't any other firm really that has the same set of product offerings that we have. And so when you can put them together in a customized way for clients at scale, you can generate some nice alpha in that space. And so I would say with the change in administration, there's a lot more kind of chatter in the space. And so as it relates to stable coins, et cetera, et cetera, we're doing stuff with Circle. We're doing some with SocGen. We're doing stuff with Ripple.

Now is it moving the needle for us on revenues at the moment? No. But are we getting a lot of credit from clients and the market generally on thought leadership? Absolutely. Do we have the technology? Yes. Do we have the thought leadership? Yes. And will we be able to take advantage of it when the market ultimately moves there and begins to deploy that? Yes. So I would say it's not a needle mover currently, in terms of revenue for the firm, but with opportunity for the upside as the market moves and begins to do more stuff in that space.

Interestingly. Another, I guess, [indiscernible] comes up and you touched on it earlier, just kind of what's going on in private credit or private markets. You've seen, I guess, tremendous amount of growth in that space, particularly private credit over the last several years. Maybe just discuss BN's rivals roles in that, how you serve that market and just that's probably contributing to growth now.

So again, we hired somebody this year to just kind of be the private markets kind of segment head for the want of a better and deliver BNY to that kind of private market client segment. Each business whether it's Corporate Trust, Asset servicing doing custody, whether it's classic stuff, ETF stuff, liquidity direct, liquidity solutions. So each business has clients who are private market clients, but we haven't historically done a very good job of bringing it all together and being able to show the firm 2 private market clients holistically.

And I would say that is something that Robin has spent a lot of personal time in meeting with the CEOs of the major private market clients are saying, this is how BNY can service you in a different way because at the end of the day, those guys just want to invest and want funds, they don't want to have the infrastructure behind that on their own books. And so I think going forward, we're going to be much better partnerships with those firms so that we can service them in a much more differentiated way than we have done historically. So more opportunity. And that was one of the kind of big teams of Robin's shareholder letter this year. You'd see that.

And just maybe lastly, you kind of talked on AI. I read somewhere that you now have digital employees working at BNY with like e-mail addresses and like how big of an opportunity is that it sounds a little scary to me, but maybe just talk to that.

No, I think -- yes, I would say plus or minus, we have about 100 different AI activities in production at the moment. So I'll just kind of give you 2 minor examples but will scale up over time. We process a huge amount of payments every day. Some of them, let's say, kind of 95%, 96% of that will be STP, but 2% that maybe falls through the cracks for whatever reason, that's a lot. And so that's manual stuff that humans have to go into fix. Digital employees are now starting to do that work. So that's work that humans don't want to have to do because it's quite messy, it's quite manual, looking up ZIP codes for Jason. So we can -- you've got to put it in and payment didn't go through. That's all can be done by AI now and digital employees.

So the KYC onboarding. You have to go out and search for documents in the public domain. Humans have to spend a few hours searching to Internet looking for facts and figures and stuff about you. AI can do that in a couple of minutes. And so more and more stuff can do that. And you -- in the platform operating model, we use an application called Jira to kind of manage projects and do things, and you can put in a spec in Jira now and say, okay, give me the requirements. AI will give you the requirements and then you take another button and AI would write the code for you. So you don't have to be a software engineer now to be able to write code. And so I can just see like vibe coding in the future, becoming more of a thing. And so people are excited about that.

So as Robin said in a different setting, it's like 150 years ago, you were doing -- you're going from A to B on a horse and carriage and then all of a sudden, the plan came and the car came, you embraced it. So AI is just another thing to embrace on the journey, and it will I think 5 years from now, we won't really be talking about it the way we are we just sold BAU.

We'll write the questions for next year.

There you go.

On that note, please join me in thanking Dermot for his time today.