Good morning, and welcome to the 2020 Second Quarter Earnings Conference Call hosted by BNY Mellon. At this time, all participants are in a listen-only mode. Later, we’ll conduct a question-and-answer session. Please note that this conference call webcast will be recorded and will consist of copyrighted material. You may not record or rebroadcast these materials without BNY Mellon’s consent. I’ll now turn the call over to Magda Palczynska, BNY Mellon’s Global Head of Investor Relations. Please go ahead.

Good morning. Today, BNY Mellon released its results for the second quarter of 2020. The earnings press release and the financial highlights presentation to accompany this call are both available on our website at bnymellon.com. Todd Gibbons, BNY Mellon’s CEO will lead the call. Then Mike Santomassimo, our CFO, will take you through our earnings presentation. Following Mike’s prepared remarks, there will be a Q&A session. As a reminder, please limit yourself to two questions. Before we begin, please note that our remarks today may include forward-looking statements. Actual results may differ materially from those indicated or implied by our forward-looking statements as a result of various factors, including those identified in the cautionary statement in the earnings press release, the financial highlights presentation and in our documents filed with the SEC, all available on our website. Forward-looking statements made on this call speak only as of today, July 15, 2020 and will not be updated. With that, I will hand over to Todd.

Thank you, Magda, and good morning, everyone. Before diving into the numbers, let me share a few thoughts on how our business has been performing as we’ve adapted to a new normal during the second quarter. Volumes and volatility normalized somewhat across our businesses from the extreme first quarter disruption. Conversations with clients have shifted from dealing with the crisis to how we can help support their business in this new environment. Much uncertainty remains over the timing and shape of the global economic recovery. In addition, the low interest rate policy is a significant headwind for us that is unlikely to change in the near term. Operationally, we continue to navigate the repercussions of the pandemic. Around 95% of our employees continue to work remotely, doing a phenomenal job delivering excellent service to our clients. Our operating platforms and infrastructures are supporting the current market working model well with record volumes in certain areas, all of which has put us in a good position as we discuss new business opportunities with our clients. Turning to our second quarter financial results. We reported solid pre-tax income of $1.2 billion and earnings per share of $1.01. As a reminder, we did not buy back shares in the second quarter in line with other big banks. We accreted capital and ended the quarter with a common equity Tier 1 ratio of 12.6%, up around 120 basis points from the last quarter. Our average balance sheet increased year-over-year to $415 billion, mainly driven by strong deposit inflows and associated growth in the securities portfolio. Revenue was up 2% despite the impact of lower interest rates and related money market fee waivers. All of our Investment Service businesses showed resilient performance. Asset Servicing, in particular, is showing nice pockets of growth, and our focus on service quality is paying off. The challenges that asset managers are dealing with are driving more of them to outsource, and our unique capabilities in fund accounting and transfer agencies, as well as investments we’ve made in building out our digital and data capabilities, position us well. Last month, more than 800 attendees, representing over 160 client firms and 25 consulting firms and vendors that we work closely with participated in our virtual ENGAGE20 event. ENGAGE, which has long been the premier data and technology conference for buy-side investment managers, highlights next-generation cloud-first business applications. During the event, we announced the launch of our new data and analytics offerings and expanded relationship with Microsoft to provide these solutions on the Microsoft Azure Public Cloud. We are pleased to have clients such as Charles Schwab and Nuveen share case studies on how the businesses will benefit from our newest offerings. Those include a new cloud-based data vault that supports the rapid onboarding of data, whether public markets data, private proprietary or unstructured data to offer greater flexibility and accelerate client innovation and discovery. We also released our new ESG application, which supports the creation of investment portfolios customized to individual clients’ environmental, social and governance preferences and provides crowdsourced guidance around the preferred ESG factors and priorities. And our distribution analytics application, which builds upon our intermediary analytics service, leverages data from broker dealers and RIAs to predict the drivers of demand for mutual funds and ETFs, so they can identify how to successfully gain market share. Across all our businesses, there are opportunities to capture greater market share within products, services, target client segments and markets. Much of this is the outcome of consistently investing in technology and talent. There has been an acceleration this year in the adoption of digital solutions by our clients who continue to review opportunities to automate. The progress we’re making in digitizing our business positions us well on this front, and we’re increasing our investment spend on technology-driven automation initiatives in 2020. From March through June alone, we migrated over 100 clients to digital solutions and are accelerating our plans to do the same across all of our asset servicing clients. We are now accepting digital signatures on many tax-related forms to support remote processing. Digitizing these processes will help thousands of clients and reduce the millions of physical documents we deal with each year. We also developed a new API enabled FX solution jointly with Deutsche Bank that can dramatically improve confirmation times for restricted emerging market currency trades to provide front office users with faster execution and enhanced workflow transparency. So we’ve accelerated our progress on the digital front, and there are dozens of other examples. I’m proud that we’ve been working with the regulators and the industry to bring our capabilities in supporting the markets. Since the last quarter, we’ve been administering the primary dealer credit facility which facilitates dealers’ inventory financing. Our Corporate Trust business has also been mandated as the term asset-backed securities loan facility administrator, and we’re also servicing CALF funds in Asset Servicing. Additionally, we’re playing an important role in the Fed support of liquidity in the municipal markets via the municipal liquidity facility. This one is a demonstration of the power of our uniquely broad range of solutions. We’re able to bring together the expertise from Asset Servicing, Corporate Trust, Investment Management and Capital Markets to create a complex solution to support the facility. Looking ahead to the second half of 2020, we are confident that our business model, expense control and conservative credit risk profile will serve us well. Our efforts with clients are yielding results with higher win ratios, better revenue retention and a good pipeline in Pershing and Asset Servicing, in particular. We are pleased with the momentum we are seeing across all of our businesses. The low interest rate environment will present a significant challenge, both through net interest revenue and money market fee waivers in Pershing and Investment Management and to a lesser extent, other Investment Services businesses. But at the same time, we will benefit from increases in transaction volumes, FX volatility, stronger market levels and activity in our clearance and collateral management business. The recent DFAST and CCAR results demonstrate the strength and resilience of our business model. We had the lowest peak-to-trough reduction in CET1 capital under the Fed’s model relative to other U.S.-based G-SIBs at just 20 basis points. Now that’s well below the minimum SCB requirement. Looking ahead at our capital returns, we expect to maintain our quarterly common stock dividend of $0.31 and we will not buy back shares during the third quarter. We have a very strong capital position and low-risk model that should allow us to reform well under a wide range of scenarios. We will commence buybacks as soon as possible, depending on the economic and regulatory environment, our outlook for the business and outcome of the resubmitted capital plans based on new scenarios we expect to receive later this year. In the second quarter, we opportunistically issued $1 billion in preferred stock, and we think this gives us opportunity to restack our capital down the road. Longer term, our growth is not dependent on increasing risk-weighted assets, which gives us the ability to return at least 100% of capital to shareholders and we’re confident in our ability to continue returning attractive levels of capital. While the outlook for the economy remains uncertain for the foreseeable future, I know that we will continue to navigate this environment well by deepening our client engagement as demand for our services grows, benefiting from improving quality and improving efficiency of our operations. Last week, we announced that with the upcoming retirement of Mitchell Harris, we’ve elevated Hanneke Smits to CEO of Investment Management effective October 1. Hanneke has been leading Newton Investment Management since 2016 and has spearheaded Newton’s business momentum and client-centric culture. Under Mitchell’s leadership, we made great progress in building a diversified Investment Management business, and we thank him for that. As we move forward, Hanneke is ideally suited to build on the strong foundation to continue to drive performance and innovation across our investment products. Catherine Keating will continue in her role as CEO of BNY Mellon Wealth Management, and both Catherine and Hanneke will report directly to me. Mitchell has cultivated a strong bench of leaders, including Hanneke and Catherine, who will continue to drive the execution of our strategic priorities to deliver leading investment solutions to our clients, underpinned by exceptional investment performance. Now before I hand it over to Mike, let me address how we’ve been responding to recent events that have drawn attention to the very real racial and societal issues in our communities. Our Board and our Executive Committee are passionate about using our voices and being positive change agents. As a company, we take great pride in all of our differences and our diversity of experiences and perspectives leads to better business outcomes. That starts with the diversity of our Board, which is 30% African American, 40% minorities and 30% female. We are challenging ourselves to do more. We’re supporting activities that create sustainable change, including philanthropy targeted at creating opportunity, matching employee donations to nonprofits that support and strengthen the well-being of underrepresented communities, encouraging community volunteerism, doing pro bono legal work to advance minority businesses, raising cultural awareness and strengthening our commitment to attract, develop and retain a diverse workforce. We are holding more open forums that foster meaningful dialog and that we hope will bring us closer together during these challenging times. We’re learning from each other, building empathy and strengthening inclusive leadership skills that will serve us well and continuing to drive a high-performance culture. We are expanding support for the well-being and emotional resilience of our people and their families with additional employer services, resources and coaches who have cultural confidence. We know these efforts, like all the other components of our corporate social responsibility strategy, are making us a stronger company. Last week, we released our 2019 CSR report, which introduces our new strategy pillars with associated goals and key performance indicators for the next five years. They include increasing senior leadership positions held by women and ethnically and racially diverse employees. While we’re proud that for the sixth consecutive year we’ve been named to the Dow Jones Sustainable World Index, we’re going to continue to challenge ourselves to do more. In the long run, we firmly believe that doing what’s right for the community, our employees and our clients is in the best interest of our shareholders. With that, I’ll turn it over to Mike.

Thanks, Todd, and good morning, everyone. Let me run through the details of our results for the quarter. All comparisons will be on a year-over-year basis, unless I specify otherwise. Beginning on Page 3 of the financial highlights document. In the second quarter of 2020, we reported earnings of $901 million, down 7%, while earnings per share was flat at $1.01. Total revenue was $4 billion, up 2% even as we felt the impact of lower interest rates through money market fee waivers and in our net interest income. Fee revenue increased 2%, primarily reflecting higher fees in Pershing and Asset Servicing, partially offset by money market fee waivers, lower Investment Management fees and the unfavorable impact of a stronger U.S. dollar. Fee waivers negatively impacted growth by approximately 3%. Net interest revenue declined 3% year-over-year to $780 million and was down 4% versus the prior quarter. Our provision for credit losses was $143 million in the quarter, and this was primarily driven by ratings downgrades, particularly across our commercial real estate book and the continuation of a challenging macroeconomic outlook. We had no actual charge-offs during the quarter. Expenses were up approximately 1%, as we continue to balance our ongoing expense discipline with our technology investments and we still expect full-year expenses to be flat to last year. We had a solid return on tangible equity of 19% and maintained a pre-tax margin of over 29%. Now moving to capital and liquidity on Page 4. Our capital and liquidity ratios remained strong and well above internal targets and regulatory minimums. In terms of shareholder capital returns, in the second quarter, we suspended share repurchases, along with other financial services firms, and we’ll do so again in the third quarter in line with Federal Reserve requirements. We continue to pay our quarterly cash dividend, which totaled $278 million in the second quarter and believe we have ample capacity to continue to pay the dividend in a variety of economic scenarios. Common equity Tier 1 capital totaled $20 billion at June 30 and our CET1 ratio was 12.6% under the advanced approach and 12.7% under the standardized approach. Under the new stress capital buffer rules that will become effective October 1, we will need to maintain a CET1 ratio of 8.5%, including a 2.5% stress capital buffer, which is the minimum and a 1.5% G-SIB surcharge. As we think about our binding capital ratio constraint going forward, Tier 1 leverage can be more binding than CET1 due to the buffers we need to hold for potential growth in deposits, which are more volatile than RWA during times of market volatility, very much like what we’ve seen over the last few quarters. As always, we will continue to optimize our capital ratios across all the constraints. Our average LCR in the second quarter was 112%. Now turning to Page 5. My comments on interest revenue will highlight the sequential changes. Net interest revenue was $780 million, down 4%. While client-driven deposit growth drove the increase in our average balance sheet, this benefit was more than offset by a full quarter impact of lower interest rates. Hedging activity added modestly to the linked-quarter comparison, as you can see in the bar chart, and is primarily offset in foreign exchange and other trading fees. Average deposit balances were up $25 billion versus the first quarter averages and are up $62 billion, or 28% versus last year. This growth is across all of our businesses, some increasing from the monetary reserves in the system, clients like to hold cash and some internal deposit initiatives that are linked to operational and fee-generating activities. As we’ve mentioned in the past, we generate and manage significant amounts of cash across our franchise. This is a key client differentiator for us, particularly in volatile markets. We provide cash management services that have led to good growth in deposits in our balance sheet, growth in money market funds in our open architecture money market investment platform and through our driven cash products. We’ve passed along the Fed rate cuts, as interest-bearing deposit rates declined to minus 3 basis points in the second quarter. This was the result of a combination of very low rates paid in the U.S., plus negative rates on euro-denominated deposits. As a reminder, approximately 25% of our deposits are non-U.S. dollar. On average, the securities portfolio increased approximately $19 billion versus the first quarter and around $32 billion from the last year, as we have deployed the growing deposit base. The net interest margin of 88 basis points was down 13 basis points versus the first quarter, driven by the increase in deposits and lower yielding, low-risk interest-earning assets. We continue to focus on optimizing net interest revenue rather than just net interest margin. Now moving to Page 6, which provides some color on our asset mix. Our average interest earning assets increased to $358 billion. Approximately 40% of these assets are held in cash or reverse repos, while 43% are in our securities portfolio and 16% in our loan portfolio. In addition to the funded loans shown on the page, we also have unfunded committed lines, the details of which can be found in the 10-Q. During the quarter, we saw about $1 billion of the $3 billion of borrowings drawn down from revolving credit facilities repaid, and we’re closely monitoring the portfolio, particularly the commercial real estate exposure and other sectors more acutely impacted by the current environment. The impact of credits, including commercial real estate, are performing well, but may see additional downgrades depending on the shape and speed of the recovery. Turning to the securities portfolio. We have a high-quality liquid portfolio, much of it is in U.S. government agency securities, U.S. treasuries and sovereign debt. The portfolio increased as we deployed more cash in the securities, including the commercial paper and CDs repurchased from our affiliated and third-party money market funds. The $4 billion of CLOs are highly rated with 99% AAA or AA; 100% of the non-agency CMBS are AAA and have solid subordination. The rest of the ratings breakdown can be found in the supplement. Page 7 provides an overview on expenses. On a consolidated basis, expenses of $2.7 billion were up around 1%, driven by higher technology expenses and pension costs, offset by lower business development expenses, namely travel and marketing, and the favorable impact of a stronger U.S. dollar. Distribution expenses were only slightly impacted by money market fee waivers in Investment Management, as the bulk of the impact from money market fee waivers was in Pershing and from third-party funds. Turning to Page 8. Total Investment Services revenue was up 3%. Assets under custody and administration increased 5% year-over-year to $37.3 trillion, primarily reflecting higher market values, partially offset by the unfavorable impact of stronger U.S. dollar. Foreign exchange and other trading revenue in the segment increased 16% year-over-year, driven primarily by higher volatility, as well as organic volume growth and foreign exchange even as industry volumes were down slightly. Within Asset Servicing, revenue was up 5% to $1.5 billion, primarily reflecting higher FX, higher client volumes across securities lending, liquidity services and transaction volumes, as well as a one-time fee. Securities lending revenues were higher on improved spreads and a strong demand for U.S. government bonds. In Pershing, revenue was up 1% to $578 million, despite the impact of money market fee waivers, reflecting much higher money market fund balances, which were up 40% and higher transaction volumes, but down from the exceptional volumes we experienced in the first quarter. The net impact of money market fee waivers, partially offset by higher money market fund balances negatively impacted Pershing’s revenue growth by 3%. Issuer Services revenue decreased 3% to $431 million, reflecting declines in both Corporate Trust and Depository Receipts revenue. Depository Receipts revenue was primarily impacted by lower corporate action volumes, while in Corporate Trust, new business and deposit growth was offset by lower volumes in some products and interest rates. Treasury Services revenue was up 7% to $340 million, driven by higher liquidity balances and related fees, offset by lower payment volumes correlated to lower economic activity. Deposit balances increased year-on-year by 40%, as investments in new capabilities and increased focus on deposit gathering were critical to retaining most of the growth from earlier in the year. Clearance and Collateral Management revenues were up 4% to $295 million from higher clearance volumes, mostly from non-U.S. clients, as well as fees and deposit balances. Average tri-party collateral management balances were up 4% in the U.S. and 9% outside the U.S. Page 9 summarizes the key drivers that affected the year-over-year revenue comparisons for each of our Investment Services businesses. Now turning to Investment and Wealth Management on Page 10. Total Investment and Wealth Management revenue was down 3%. Investment Management revenue was roughly flat to $621 million, reflecting the unfavorable change in the mix of assets under management since the second quarter of 2019 and the impact of money market fee waivers, partially offset by equity investment gains net of hedges, including seed capital. Please note the gains from seed capital include results from unconsolidated and consolidated investment management funds, both of which can be lumpy in any given quarter depending on market conditions. Details can be found in the supplement. On the consolidated income statement, the gains are either in investment and other income or income from consolidated investment management funds, while the negative impact from their hedging was approximately $30 million as recorded in other trading. We had inflows of $20 billion in the quarter, reflecting continued cash inflows, as well as long-term flows into index funds and fixed income. Overall, assets under management of just under $2 trillion are up 6% year-over-year, primarily due to higher markets and cash inflows. Wealth Management revenue was down 9% year-over-year to $265 million, primarily reflecting lower net interest revenue due to lower interest rates and client migration to lower fee fixed income and cash products. Now a few comments about the third quarter. First, I would caution you as we did last quarter that the environment remains fluid and variables are changing quickly. Looking ahead at net interest revenue, we will have a full quarter of lower rates in the third quarter, especially short-term LIBOR rates, which declined throughout the second quarter. We have also seen some pickup in prepayment fees in our mortgage-backed securities portfolio, given current and expected refinancing volumes. Significant excess liquidity in the system continues to drive elevated deposit levels versus 2019, but the exit rate from Q2 is just a little lower than the average for the quarter. As a result, we currently expect net interest revenue to decline 8% to 11% sequentially. However, based on current market conditions, we would expect net interest revenue to begin to stabilize in the third quarter. Now on money market fee waivers, the pre-tax impact in the second quarter was $18 million net of distribution expense, with the biggest impact in Pershing. It’s important to note that approximately $50 million of this impact has been offset by a substantial increase in money market fund balances, resulting in a net impact of approximately $30 million in the second quarter. We expect the impact from fee waivers to increase in the third quarter by about $30 million to $45 million net of lower distribution expenses. This additional impact in the third quarter would also be reduced if money market fund balances continue to grow. A little over half of that impact will be in Pershing, with the rest in Investment Management and Asset Servicing. We currently expect that we will incur an incremental $25 million in the fourth quarter and will be at a full run rate impact from fee waivers of about $135 million to $150 million, offset by the incremental money market fund balance growth that we’ve seen in the second quarter for a net impact of about $85 million to $100 million per quarter by year-end. This quarterly impact could be reduced if money market fund balances continue to grow further. Current equity market levels should be a modest positive if they hold. We saw transactional activity in FX continue to normalize over the course of the second quarter; assuming this continues it will be a modest headwind sequentially, although we expect the related fees will be higher than in the prior year. If we see some volatility in the equity markets, transactional activity could pick up. On expenses, we will expect them to be flat versus 2019, excluding notable items. This includes the 50 basis point full year-over-year impact from higher pension expenses. Credit costs will be highly dependent upon individual credits, the future path of the health crisis and how the economic forecasts change by the time we get to the end of the third quarter. In terms of our effective tax rate, while it was a little lower this quarter, we expect it to be approximately 20% for the full year versus prior guidance of 20% to 21%. With that, operator, can we please open the lines up for questions?

Thank you. To ask a question, please press the appropriate key on your telephone. Our first question comes from the line of Betsy Graseck with Morgan Stanley. Please go ahead.

Hi, good morning. Thanks for the time this morning. A couple of questions. One, Todd, you mentioned the virtual conference that you gave. I wanted to understand how important that is for generating new client activity? And if you think that virtual format and forum can deliver the same kind of client activity growth that you’ve seen in prior years once face-to-face?

Yes. First of all, in terms of engaging with our clients, it’s been pretty effective. Initially there was a little reticence as we moved into the crisis, but now we basically see this as our business-as-usual. Both clients and we have gotten quite a bit better at managing the technology to actually communicate, connect and share what we’re doing. This particular conference, where we had about 1,000 clients and vendors come into it, we also posted on our website a whole series of detailed analysis of some of the new capabilities that are out there and available to them. The hits against that have been very high. So I think it’s been pretty effective. We’ve actually seen the pipeline grow. We’ve also seen retention high and sales are up in the first half of the year over where we were last year.

Okay. That’s helpful. Thanks. And then, Mike, on the guidance, could we just dig in a little bit on the NII commentary that you gave? I think you said NII down 8% to 11%, maybe just give us some color on the drivers there? And why do you see it ameliorating as you go into 3Q and 4Q? And if you could give us a sense of the differences in the drivers between deposit growth and yield compression, that would be helpful?

Yes, sure. So when you look at the third quarter, it’s really all about low rates coming down and getting the full impact of that for the full quarter — that’s the primary driver. There’s a series of actions you can see we’re taking in the results, both in increasing the securities portfolio and optimizing how we’re investing there. As you look out past the third quarter and consider all the actions we’re taking, plus where the forward curves are, that gives us some confidence that it begins to stabilize in the third quarter. Obviously, the forward view on deposits will have some impact on that, but the marginal dollar gets a little less impactful with rates where they are.

Thank you. Our next question comes from the line of Glenn Schorr with Evercore ISI. Please go ahead.

Hi, thanks very much. Maybe a quick follow-up on the rate impact. We used to think an anchor might be the 2015 NIM low, but I appreciate the long end has come down more than it was then. You mentioned focusing on NII over net interest margin, so I guess there could be more down there. My quickie is, deposits sticking around despite the interest-bearing deposit rate being minus 3 basis points. I’m curious to hear any color on client conversations there. Is that now at its resting point, or is there more room on the negative side as clients park and have no other alternative?

Mike, why don’t I start that one and then you can give a little bit of color? The mix of deposits makes a big impact on that rate. There are a fair amount of foreign and European deposits that are actually carrying a negative rate, and we pass that through to clients. In the U.S., with the IOER around 10 basis points, that seems to be anchoring somewhat around that rate unless we see changes in the money markets. So I think most of the downside pass-through has already been made. Mike, do you have anything to add?

Yes. I think that’s right. The negative is really driven by euros, as Todd said. When you look at U.S. dollar deposits, it’s a low single-digit interest rate now on the book. There’s not a lot of room to continue to bring that down.

I appreciate that. One qualifier on the provision. Obviously, we’re riding to a worse economic backdrop, but you also mentioned the impact that downgrades have. If we move forward and the economic scenarios don’t change — in other words, we’re kind of where we’re at — will further downgrades continue to be the gift that keeps giving on the provision? We’re trying to dimensionalize how much to bake in if the economic scenario doesn’t change.

So that’s a tough question. If things don’t get worse from what is being projected now, then you would expect issuer downgrades to be somewhat limited from here, but there will be idiosyncratic issues that may change some of that. The downgrades and the scenarios are somewhat interrelated as we look at both of them.

Thank you. Our next question comes from the line of Ken Usdin with Jefferies. Please go ahead.

Thanks. Good morning. Mike, just a follow-up on the fee waiver commentary. I want to make sure we’re talking about it the right way in terms of the total number versus the growth. Are you saying that you’d expect that growth to continue when you gave us the two sets of numbers? Can you help us understand the net trajectory from here?

Yes. I know it’s a little complicated. As you look at the net impact of $80 million to $100 million by year-end, underpinning that assumes that balances hold about where they are. So it does not assume additional growth. If we do continue to see growth in balances, that will offset a bit as we look toward the end of the year.

Okay. So that net number assumes balances are flat from here. Geographically, could you help us understand the size of the one-time gain in Asset Servicing? And then talk through the income statement line Asset Servicing — what’s happening underneath the surface there in terms of core servicing, collateral and broker-dealer services?

The one-time fee Ken is actually in other income, not in the Asset Servicing fee line. We haven’t disclosed exactly what it is; it’s not super meaningful, but it does show up in other income. As you look under Asset Servicing and the fee line, you’re seeing growth in both the Clearance & Collateral Management business and the Asset Servicing business, driven by various factors Todd discussed that impact those lines.

Thank you. Our next question comes from the line of Brian Bedell with Deutsche Bank. Please go ahead.

Thanks. Good morning. Can you go through one more on the fee waivers? Can we track the level of money market fund balances? I know there are assets in the Investment Management business, but it’s also a number of third-party funds on the Pershing platform. Is that disclosed for the level of those balances, and is it something we can track?

There are a couple of drivers. In Pershing that’s not something we disclose. We’re also seeing growth in Asset Servicing where we sweep money into money market funds through our open architecture platforms; there are also a bunch of other complexes. Those two numbers are not something we disclose. We’ve seen growth across the platform and across all channels.

Right. So you could have an organic growth dynamic different than the industry that could keep the fee waivers closer to or even less than $85 million to $100 million. Is that feasible?

Potentially. Yes, potentially.

And then on new business in Asset Servicing — Todd, you mentioned a lot of initiatives, partly from tech investments on data and distribution analytics. Any way to frame what type or level of new business you expect from these initiatives in the next six months? Any revenue impact or growth impact to Asset Servicing you think as a result of these initiatives?

Some of these offerings are very new and a number of the applications we’ve just put out went live in the past month. We could see meaningful growth driven by the data, digital and analytics offerings — it’s now gathering momentum and there are many discussions. We have a couple of beta clients, including Charles Schwab and Nuveen, who participated in ENGAGE. If you look at our pipeline and growth rates, we are seeing a bit of organic growth for the first time in a while.

Our next question comes from the line of Alexander Blostein with Goldman Sachs. Please go ahead.

Thanks. Good morning. A couple of quick follow-ups. First on NII: you talked about optimizing NII off of 3Q trough levels. Can you walk us through the opportunities to invest excess cash that compiled in the balance sheet into the securities portfolio? Anything specific on how much could ultimately be moved to securities and the yields you expect? And anything on the liability side — opportunities to restack long-term debt? I saw you did some in the quarter.

On the liability side, we’re always looking to optimize. Deposit costs are probably near bottom in the U.S., though there may be small changes with particular clients. On long-term debt, you’ll see us try to optimize down a little over the next quarter, though we need to keep enough long-term debt for different constraints. On the security side, increases have gone into highly liquid assets. You’ll see us continue to put more into HQLA assets and look for opportunities where we can get the right risk profile and return for some less liquid assets. As we get more experience with the deposit base over time, we’ll better understand deposit behavior and optimize deployment month to month and quarter to quarter.

Thanks. Second question on the expense outlook. You guided toward flat expenses this year. What’s changed and could expenses still decline this year? And a quick reminder on how much incremental tech spend is running through P&L in 2020 and how much of that phases into 2021?

We’ve guided for a while that we’ll be flat or around flat for the rest of the year and I’m confident we’ll do that or better. Looking out to next year, we have significant opportunities around efficiency programs, especially in operations. The increased spend we’ve made over the past couple of years in tech will begin to abate as those infrastructure and resiliency investments are largely behind us. We think there’s more to do over the next year or two.

As we’ve talked about, we’ve been making investments in operating platforms and capabilities like data and analytics. While the growth rate of spend has been slowing over the last year, we have more flexibility as we exit the year. We’re seeing the benefit of efficiencies: we’re spending less in operations this year than last year and expect to spend less next year than this year. We’re confident we have line of sight to continue executing the efficiency agenda.

Our next question comes from the line of Brennan Hawken with UBS. Please go ahead.

Good morning. Thanks for taking my questions. First a request: the fee waiver dynamic has many moving parts — it might help if you provided enhanced disclosure so people can model components like balance movement. Stepping back, we’re clearly in a low-rate environment that seems likely to persist. Are you starting to think about different ways to engage with your customers or structure relationships and deposit dynamics so you can have more confidence in deposit duration? How are you adjusting how you engage with customers to monetize these relationships given low rates may be around for some time?

We’ll take the feedback on disclosure. To clarify, we believe the full impact of lower rates on our net interest income will begin to stabilize in the third quarter — we’ve reset around the low-rate environment given forward curves. The same impact will be fully reset through fee waivers by year-end, subject to money market fund balances. If balances grow, the impact will be less. We’re working with clients and pricing in a way that considers the interest rate environment. When putting together platform-based business like Asset Servicing, we take expected market conditions into account for pricing. We are doing that on a day-to-day basis.

We’re maintaining close dialogue with clients that have large balances. For products like Treasury Services, it’s ensuring we get our fair share of payments business and the fee revenue that comes with those balances. It’s as much about monetizing the fee relationship as it is about optimizing the reinvestment side of the balance sheet.

I appreciate that. On capital: the DFAST showed BNY Mellon’s low-risk model. As a G-SIB you’re constrained in ability to return capital even though you’re well above requirements. How is engagement with regulators going to reflect lower-risk G-SIBs? Will there be a staggered start where lower-risk G-SIBs can return capital sooner, or will all G-SIBs be lumped together?

The stress test is idiosyncratic for us and we performed well. We submitted capital action plans and will go through the process using new scenarios later in the year. We expect to perform well. Under the new stress capital buffer model, there is increased flexibility: you’re not limited on a quarterly basis but need to stay within your SCB, so timing differences could occur based on regulatory considerations. Accreting capital now puts us in a stronger position to buy back stock when appropriate. I like where we are and think we’ll be in a position to buy back a considerable amount of stock as soon as possible.

Our next question comes from the line of Mike Carrier with Bank of America. Please go ahead.

Good morning. First, I want to understand the activity that has been COVID-impacted and could normalize ahead. Any color on how much deposit growth has been driven by the policy response and might normalize versus core business operations? Second, you noted new business wins — I thought that would be more challenging in this environment. Have you seen much impact and do you see the pipeline normalizing sequentially?

Since mid-March, we saw a massive increase in deposits; the spot balance at the end of Q1 was $337 billion. That huge, volatile piece has already retreated. The quarterly average was in the $280s. While hindsight will give you a clarity on what drove the increase from February levels of around $230 billion to today, it’s clear the pandemic environment was a big driver. As we look forward, given monetary policy responses, it’s hard to see those balances retreating much from where they are while we remain in this environment.

On new business: clients are still making service decisions and, relative to last year, we’ve been winning and retaining more deals and higher-value deals. We’ve learned how to work from home, ramped up client management and are seeing increased activity with virtual reviews and presentations. We’ve had wins around ETFs, mid-office and TALF servicing-related wins. The pipeline remains strong and this seems to be the current normal.

Thanks. Quick cleanup: there were some positive items in the quarter like investment gains in funds and an asset servicing fee. Away from that, I assume most of it was market-related. Any other factors in these line items we should know about? Should we expect those to normalize lower ahead?

It’s straightforward on investment and other income; see the supplement for breakdown. The volatile pieces in other income will include seed capital and market-driven moves; the other trading line will also have impacts from those market moves.

Thank you. Our next question comes from the line of Mike Mayo with Wells Fargo Securities. Please go ahead.

Hi. I’m trying to reconcile a couple of thoughts. Todd, you had positive comments in your intro, including work with the government. Can you elaborate on your work with the government and what kind of fees you get and how sustainable those fees are? Mike, you commented on the impact of lower interest rates and didn’t sugarcoat that. Those seem like different thoughts — how do they connect? Also, you service more fixed income assets than peers — should you be benefiting more from that with increased fixed income activity?

We’re participating in several government programs. For example, the PDCF uses our tri-party repo system — that’s reflected in tri-party repo activity which increased in Q1 and sustained to an extent, though it’s starting to come off in Q2 and Q3. The amount of revenue depends on how long these programs run and how much activity they generate. We’re also seeing investment services growth beyond government-related programs. On fixed income activity, you are seeing increases in clearing and collateral management volumes and we are benefiting to a certain extent from that; that’s reflected in Investment Services performance. Overall, the interest rate headwind is a separate, material factor impacting net interest revenue.

When you add it all together, do you think you can get flat operating revenue this year, or are you not making a call on that due to uncertainty?

Given the uncertainty around some elements, I wouldn’t make a definitive call on full-year operating revenue right now.

Lastly, you are investing in technology at a higher rate this year. That should fall off next year — you’re not going to sacrifice those investments for the long term, correct?

Correct. The investments are strategic; the infrastructure and resiliency investments are largely being completed and we will continue to invest in technology that drives efficiency and client capability.

We’ll next go to Rob Wildhack with Autonomous Research. Please go ahead.

Good morning. Some peers have rolled out integrations similar to the partnership you struck with Aladdin and BlackRock. Can you talk about what you’re seeing and highlight what differentiates your integration versus other options?

BlackRock works with a range of providers and many providers use Aladdin in some form. The difference for us is that we are the only provider with our capabilities embedded inside Aladdin — the widgets and functionality we built are accessible through Aladdin. We have a strong relationship with BlackRock on the servicing and partnership side and we plan to continue to build new capabilities that differentiate what our common clients can do.

Our next question comes from the line of Gerard Cassidy with RBC. Please go ahead.

Thank you. Good morning, Todd and Mike. On credit quality: you’re not credit-centric like some universal banks. Can you give color on the provision that you put up? How was that allocated across the portfolio? Was it general allocations or were there specific reserves for particular exposures?

Generally, the build was related to the commercial real estate portion of the portfolio; that was the biggest piece. It’s not just a general allocation — it’s a name-by-name assessment and the modeling that goes with that, but the largest portion relates to commercial real estate.

Very good. On deposit rates, you saw an 11% or 12% increase in foreign office deposits and the average rate went from about 29 basis points to negative 12 basis points. Which interest rates overseas should we be watching for negative rates? You had growth even though you went to negative rates. Are deposits inelastic — is there a point where people would move money out if negative rates go too far?

The disclosure on domestic versus foreign offices doesn’t necessarily denote currency denomination. A good chunk of the deposits in foreign offices are actually U.S. dollar deposits. The biggest driver of the rate coming down in the foreign offices is us paying lower amounts on U.S. dollars, not increased negative rates outside the U.S. The biggest driver for us outside the U.S. will be euro deposits when you think about negative rates. There are spreads attached when we charge clients for negative rates and we haven’t seen much movement as a result of the pricing and spreads we’ve applied.

Thank you.

Our next question comes from the line of Brian Kleinhanzl with KBW. Please go ahead.

Thanks. Quick question on tax rate guidance: you gave it for the full year — is 20% also a good number to use on a go-forward basis?

I would think 20% to 21% as you look forward based on what we know today, but for this year it’s closer to 20%.

On expenses: you said flat for this year, but there are many one-offs given the situation. Is it right to think expenses should naturally trend down into 2021 as those one-offs go away, and then expense trajectory will be driven by revenue growth next year?

We think efficiencies will continue to show next year and over the next couple of years. We’re not slowing down on automation and efficiency. A lot of the tech expense has been infrastructure resiliency and product capabilities; a fair amount of that infrastructure component should be behind us, which gives a tailwind going forward.

We have a follow-up question from Brian Bedell with Deutsche Bank. Please go ahead.

Thanks. Just a bit more on the balance sheet. Deposit levels at period-end were about $305 billion versus a $283 billion average. Was that a typical quarter-end spike or are those levels sustainable into Q3? On the securities mix, what level could that mix go up to from 43% if you shift more into securities and could that yield some NIM expansion after the 3Q bottom?

You can’t read much into one day’s worth of deposit balances — consider that a typical quarter-end spot number. Sometimes it’s higher, sometimes lower. One deposit drove the period-end up a bit. The guidance around current levels being slightly below the average is probably a good way to think about where we are. On the securities mix, that’s dynamic and tied to how confident we feel about deposit durability. You’ll see us continue to optimize during the quarter, but we don’t give a specific percentage.

On money market fund balances versus deposits: are you agnostic between where client cash sits, or do you favor one area over the other in terms of revenue generation?

It depends. For short-term balances we know won’t be around long, we’re relatively agnostic with IOER at 10 basis points in the U.S. For operational deposits over time, we make more money with them being on the balance sheet.

We have a follow-up question from Alexander Blostein with Goldman Sachs. Please go ahead.

Thanks for the follow-up. On the money market fund dynamic: you previously said the pre-tax impact on a quarterly basis for fee waivers would be about $50 million to $75 million. Now you’re at $80 million to $100 million by year-end. Are those numbers comparable? Is this essentially an incremental $20 million pre-tax impact?

Good question. The $50 million to $75 million was the gross impact at that time, and it was unclear what would happen with money market balances. The $85 million to $100 million is the net impact now, accounting for expected balance growth. By the fourth quarter, the gross impact is expected to be $135 million to $150 million, which is in line with the prior gross estimate, but that will be offset by balances holding, giving the net $85 million to $100 million.

It appears we have no further questions at this time. I’ll turn the conference back over to Mr. Todd Gibbons for closing remarks.

Thank you, everybody, for your questions. Please reach out to Magda in Investor Relations for any further follow-up. Have a good day.

This concludes today’s conference call webcast. A replay of this conference call webcast will be available on the BNY Mellon Investor Relations website at 2:00 P.M. Eastern Time today. Have a good day.