Good morning and welcome to the 2024 Second Quarter Earnings Conference Call hosted by BNY. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. 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 thank you for joining us. I'm here with Robin Vince, President and Chief Executive Officer, and Dermot McDonogh, our Chief Financial Officer. As always, we will reference our financial highlights 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 are available in the earnings press release, financial supplement, and financial highlights presentation, all available on the Investor Relations page of our website. Forward-looking statements made on this call speak only as of today, July 12, 2024, 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. Before Dermot reviews the financials in greater detail, I'd like to start with a few remarks about our progress in the quarter. In short, we delivered another quarter of improved financial performance with positive operating leverage, supported by solid fee growth and continued expense discipline. We continued to make tangible progress on our path to be more for our clients, run our company better, and strengthen our culture. Last month, we celebrated our company's 240th anniversary with our people and many of our clients. Even with this rich history spanning four centuries, I believe that our best days remain ahead of us. The bank, which started in 1784 with around $0.5 million of capital, today oversees roughly $50 trillion in assets, powering platforms across payments, security, settlement, wealth, investments, collateral, trading, and more for clients in over 100 markets worldwide. As the world changes and global financial markets evolve, so do we. Earlier this year, in January, you heard us lay out our strategy, detailing what we need to achieve and how to do it. Last month, we introduced changes to our logo, simplifying and modernizing our company brand to BNY to enhance market familiarity with who we are and what we do. This rebranding aligns the perception of our company with the substance of our efforts to unlock our full potential as one BNY. Referring to Page 2 of the financial highlights presentation, BNY delivered solid EPS growth alongside pre-tax margin and ROTCE expansion on the back of positive operating leverage in the second quarter. Reported earnings per share of $1.52 were up 16% year-over-year. Excluding notable items, earnings per share of $1.51 increased by 9%. Total revenue of $4.6 billion was up 2% year-over-year, reflecting 5% growth in investment services fees, bolstered by continuing strengths in Clearance and Collateral Management, Asset Servicing, and Treasury Services, augmented by a 16% growth in foreign exchange revenue. Net interest income decreased by 6%. Expenses of $3.1 billion were down 1% year-over-year. Excluding notable items, expenses were up 1%, aligned with further investments in our people and technology while we continued to realize greater efficiencies. The margin stood at 33%. In what is seasonally our strongest quarter, we reported a return on tangible common equity of 25%, 24% excluding notable items. These financial results came against a relatively favorable operational backdrop, with the market calling for gradual and shallow easing of policy rates, easing inflation pressures, and growing investor confidence. On average, equity market values increased, while fixed income markets finished slightly lower than in the first quarter. Recently, the Federal Reserve released the results of its annual bank stress test, which once again showcased our resilient business model and our strength to support clients through extreme stress scenarios. This test confirmed that our preliminary stress capital buffer requirement remains at the regulatory floor of 2.5%. We also increased our quarterly common dividend by 12% to $0.47 per share starting this quarter. In May, the transition to T+1 settlement in the US, Canadian, and Mexican markets represented one of the more significant market structure changes our industry has seen in decades. BNY's critical role in the financial system provides us the opportunity to guide clients through major shifts like this, further strengthening their trust in us and deepening our relationships with them. By running the company better, we are capitalizing on BNY's powerful combination of security services, market and wealth services, and our wealth investments to serve our clients more effectively across the financial lifecycle. For example, this past quarter, BNY was awarded a significant mandate by a premier global asset manager with over $100 billion in assets under management. We were selected based on our ability to deliver custody, fund servicing, ETF and digital fund services, Treasury Services, and Pershing. Our holistic offering will power their future growth strategy. Additionally, AIA, the pan-Asian life insurance group, announced a new collaboration with BNY and BlackRock as AIA transforms its investment platform. AIA plans to implement BNY's specialized investment operations, data management services, and technology with BlackRock's Aladdin to create a connected and scalable ecosystem supporting its investment activities. We continue to see growing interest in our wealth advisory platform, Wove. Global Finance recently named Wove as one of the top three global financial innovations as part of its annual Innovators Awards for 2024. At INSITE, Pershing's annual flagship wealth services conference in June, we announced a suite of new solutions on the platform. Wove Investor, a one-stop client portal; Wove Data, a cloud-based data platform for financial professionals at wealth management firms; and Portfolio Solutions, enhancements that assist advisors in moving efficiently from researching investment products to aligning them with clients' risk objectives and adding them to portfolios. We also introduced a new ONE BNY offering that enables clients to easily access multiple BNY capabilities, including our managed accounts platform, asset allocation and manager selection, investment management products, customized tax solutions, the interoperable Wove platform for advisors, and custody and clearing services from Pershing. We provide a comprehensive unified package leveraging the breadth of BNY to ease our clients' wealth advisors' workloads. For example, a fast-growing full-service regional bank recently selected Pershing to provide custody and clearing services for their private wealth business while also adopting Direct Indexing and private banking. As we've stated previously, our culture and our people are critical in enhancing our service to clients and running our company better. We're pleased to see our actions enabling us to be a top talent destination for both recent graduates and experienced leaders. This summer, we're welcoming our largest intern and analyst classes, totaling over 3,500 individuals chosen from over 150,000 applications. We've also announced several new appointments to our leadership team. Shannon Hobbs, our new Chief People Officer, joined us in June. Leigh-Ann Russell will join us in September as Chief Information Officer and Global Head of Engineering. Jose Minaya will also join us in September to lead BNY's Investments and Wealth segment. To wrap up, halfway through the year, we are pleased with the progress we've made, reflected in both our improved financial performance to date and the momentum we've built. One of my favorite quotes comes from Alexander Hamilton, our founder, who stated that he attributed his success not to genius, but to hard work. We have been hard at work, establishing a solid foundation. Our team is in full execution mode, demonstrating the power of our franchise and our unity as one BNY for our clients and shareholders. With that, I will pass it to Dermot.

Thank you, Robin, and good morning, everyone. Picking up on Page 3 of the presentation, I'll start with our consolidated financial results for the quarter. Total revenue of $4.6 billion was up 2% year-over-year. Fee revenue increased by 4%, driven by a 5% growth in investment services fees due to higher market values, new business, and increased client activity. Investment management and performance fees were flat. Firm-wide AUC/A of $49.5 trillion rose by 6% year-over-year, while assets under management amounted to $2 trillion, up 7% year-over-year, primarily due to higher market values. Foreign exchange revenue increased by 16%, supported by higher volumes. Investment and other revenue for the quarter stood at $169 million, driven by robust client activity in our fixed income and equity trading business. Net interest income decreased by 6% year-over-year, mainly reflecting changes in balance sheet mix, partially offset by higher interest rates. Overall expenses decreased by 1% year-over-year on a reported basis and rose by 1%, excluding notable items, primarily in the previous year. The increase in expenses stems from higher investments, employee merit increases, and higher revenue-related expenses, somewhat offset by efficiency savings from our operational improvements. Notable items in the second quarter included an expense benefit from the reduction in the FDIC's special assessment, which was mostly counterbalanced by severance expenses. No provision for credit losses was recorded in the quarter. As Robin mentioned earlier, we reported earnings per share of $1.52, a 16% increase year-over-year, alongside a pre-tax margin of 33% and a return on tangible common equity of 25%. Excluding notable items, earnings per share were $1.51, a 9% increase year-over-year, with a pre-tax margin of 33% and a return on tangible common equity of 24%. Turning to capital and liquidity on Page 4, our Tier 1 leverage ratio for the quarter was 5.8%. Average assets increased by 2% sequentially, reflecting deposit growth. Tier 1 capital rose by 1% sequentially, primarily driven by capital generated through earnings, slightly offset by capital returns to common shareholders. Our CET1 ratio at the end of the quarter stood at 11.4%. The quarter-over-quarter improvement was due to lower risk-weighted assets following a temporary increase at the end of the prior quarter, while CET1 capital increased by 2% sequentially. Over the course of the second quarter, we returned over $900 million of capital to our common shareholders, representing a total payout ratio of 81%. Year-to-date, we returned 107% of earnings to our common shareholders through dividends and buybacks. Regarding liquidity, our consolidated liquidity coverage ratio was 115%, and our consolidated net stable funding ratio was 132%. Next, I'll discuss net interest income and underlying balance sheet trends on Page 5. Net interest income of over $1 billion decreased by 6% year-over-year and 1% quarter-over-quarter. This sequential decrease was primarily due to changes in balance sheet mix, slightly offset by the benefits of reinvesting maturing fixed-rate securities into higher-yielding alternatives. Average deposit balances increased by 2% sequentially. Interest-bearing deposits grew by 3%, while non-interest-bearing deposits declined by 2% in the quarter. Average interest-earning assets increased by 2% quarter-over-quarter. Average investment securities portfolio balances increased by 3%, while our cash and reverse repo balances rose by 1%. Average loan balances increased by 4%. Moving on to our business segments, starting on Page 6, Security Services reported total revenue of $2.2 billion, unchanged year-over-year. Total investment services fees increased by 3% year-over-year. In Asset Servicing, investment services fees grew by 4%, primarily reflecting higher market values and new business. We observed strong momentum in ETF servicing, with AUC/A exceeding $2 trillion, an increase of over 50% year-on-year, and the number of funds serviced growing by over 20% year-on-year. This growth resulted from higher market values and client inflows, which included a significant ETF mandate in Ireland from a leading global asset manager. In alternatives, private market fund launches during the quarter continued their recent activity. Investment services fees for alternatives increased in the mid-single digits, reflecting growth from both new and existing clients. In Issuer Services, investment services fees rose by 1%, reflecting net new business across both Corporate Trust and Depositary Receipts, partially offset by the normalization of elevated fees associated with corporate actions in Depositary Receipts during the second quarter of last year. We are particularly pleased to witness the investments and new leadership in our Corporate Trust platform begin to yield results. With a significant uptick in CLO issuance in recent months, we've improved our market share as trustee for CLOs by about 4 percentage points over the past 12 months, reaching 20% in the second quarter. In the segment, foreign exchange revenue increased by 16% year-over-year, while net interest income decreased by 11%. Expenses of $1.6 billion were down 1% year-over-year, reflecting efficiency savings, partially offset by higher investments, employee merit increases, and higher revenue-related expenses. Pre-tax income rose by 7% year-over-year to $688 million, leading to an expanded pre-tax margin of 31%. Next, we move to Market and Wealth Services on Page 7, which reported total revenue of $1.5 billion, a 6% increase year-over-year. Total investment services fees increased by 7% year-over-year. In Pershing, investment services fees rose by 2%, reflecting higher market values and client activity, albeit partially offset by the impact of lost business from the prior year. Net new assets were negative $23 billion for the quarter, reflecting the ongoing deconversion of previously lost business. Excluding this deconversion, we observed approximately 2% annualized net new asset growth in the second quarter, and we renewed a multi-year agreement with Osaic, one of the nation's largest providers of wealth management solutions. Client demand for Wove remains strong, with 12 additional client agreements secured during the quarter. The pipeline continues to expand, and we remain on track to meet our goal of realizing $30 million to $40 million in revenue in 2024. In Clearance and Collateral Management, investment services fees rose by 15%, primarily due to higher collateral management fees and increased clearance volumes. US securities clearance and settlement volumes have remained strong throughout the quarter, supported by a growing market and active trading. We're excited about the opportunity to provide even more support for our clients. Following the realignment of Pershing's institutional solutions business to Clearance and Collateral Management, we can offer clients various choice options across a continuum of clearance, settlement, and financing solutions for those that clear, as well as those seeking capital and operational efficiency through outsourcing. This approach deepens our relationships with clients and drives continued revenue growth. In Treasury Services, investment services fees rose by 10%, primarily due to net new business and increased client activity. Net interest income for the segment overall declined by 1% year-over-year. Expenses of $833 million increased by 5% year-over-year, reflecting higher investments, employee merit increases, and elevated revenue-related expenses, partially offset by efficiency savings. Pre-tax income rose 8% year-over-year to $704 million, representing a pre-tax margin of 46%. Moving on to Investment and Wealth Management on Page 8, total revenue reported was $821 million, a 1% year-over-year increase. In our investment management business, revenue declined by 1%, reflecting the mix of AUM flows, lower equity investment income, and seed capital gains, partially offset by higher market values. Revenue in wealth management rose by 3%, driven by market value increases, somewhat offset by changes in product mix. Expenses of $668 million decreased by 2% year-over-year, primarily as a result of our efforts to drive efficiency savings and lower revenue-related expenses, partially counterbalanced by employee merit increases and higher investments. Pre-tax income reached $149 million, an increase of 15% year-over-year, resulting in an 18% pre-tax margin. Total assets under management reached $2 trillion, a year-over-year increase of 7%. During the quarter, we experienced $2 billion in net inflows into long-term active strategies, with continued strength in fixed income and LDI, although partially offset by net outflows in active equity and multi-asset strategies. We recorded $4 billion in net outflows from index strategies and $7 billion in net outflows from short-term strategies. Wealth management client assets of $308 billion increased by 8% year-over-year, reflecting higher market values and cumulative net inflows. On Page 9, we present the results of the Other Segment. I will now provide a brief comment on our outlook for the full year 2024. Starting with net interest income, I am pleased to report that the first half of the year has slightly exceeded our expectations, as we noted a deceleration in the decline of non-interest-bearing deposits alongside continued growth in interest-bearing deposits. While we remain cautiously optimistic, we maintain a humble approach as we enter the seasonally low summer months and will keep our NII outlook for the full year 2024 unchanged, expecting a 10% decline year-over-year. Regarding expenses, our goal remains to keep expenses, excluding notable items, roughly flat for the full year 2024. As Robin indicated earlier, BNY is in execution mode, embracing the hard work ahead. We continue to anticipate our effective tax rate for the full year 2024 to remain between 23% and 24%. Lastly, we expect to return 100% or more of our 2024 earnings to shareholders through dividends and buybacks. Our Board of Directors has declared a 12% increased common dividend for the third quarter, and we plan to continue repurchasing common shares under our existing share repurchase program. As always, we are adjusting the pace of our buybacks, considering various factors, including our capital management targets, the macroeconomic environment, and our balance sheet size. In summary, we enter the second half of the year with solid fee growth, better-than-expected NII performance to date, and continued expense discipline, leading to greater confidence in our ability to maintain positive operating leverage in 2024. With that, Operator, can you open the line for questions?

Our first question is from Ken Usdin with Jefferies. Please proceed.

Thank you. Good morning.

Good morning, Ken.

Good morning. I just want to ask Dermot about that NII guidance you provided for the second half. Can you walk us through what the moving pieces are, including the seasonality you mentioned and any other factors that might have contributed to what seems to be a significant ramp down in NII, which doesn’t appear to align with your earlier expectations given the strength of the balance sheet so far?

Thanks for the question, Ken. The best way to approach this is to reflect a bit on last year, where Q1 and Q2 are typically strong quarters for us. Q3 usually sees a seasonal decline as clients reduce activity during the summer months, and we tend to recover in Q4. As you’ve noted, we’ve outperformed expectations in the first half, mainly due to robust activity within our core businesses, particularly corporate trust, which saw elevated activity in the CLO space, impacting deposits. Although our core businesses have performed well, projecting the remainder of the year and maintaining guidance of down 10% is contingent on the prevailing market dynamics. In January, the market anticipated six rate cuts for the year. Now, in mid-summer, with a recent slowdown in inflation, we need to assess how forthcoming communications from the Fed play out. For now, I believe it’s prudent not to alter our guidance and maintain a cautious optimism.

Understood. Can you clarify your expectations regarding the size of the deposit base? Are you anticipating a decline in the overall deposits, or is it more about the mix? I’m trying to understand what aspects would revert in light of seasonality.

When considering deposits, I see three components at play. First are interest-bearing deposits, where we’ve outperformed expectations. Next, we have non-interest-bearing deposits, which also exceeded plans. Both these components reflect improved client engagements. Finally, we have our global liquidity solutions platform, which, functioning as a $1.4 trillion ecosystem, significantly drove liquidity-friendly deposits, fueling balance sheet growth. Therefore, I expect both the overall balance to decrease, coupled with a gradual decline in non-interest-bearing deposits, contributing to changes in NII.

Thank you.

Our next question is coming from Glenn Schorr with Evercore ISI. Please go ahead.

Hi, thanks.

Hey, Glenn.

Hi. You referred to higher volumes in Clearance and Collateral Management. Can you specify how much of this is driven by clients’ increased activity during a more active second quarter versus new business and organic growth opportunities? This clarification could enhance forecasts and models moving forward.

Thanks, Glenn. It’s a combination of both. Clients have certainly been more active, spurred by the well-publicized rate volatility in Q2, leading to increased activity in the treasury market and more treasury issuance. Overall, our volumes were very healthy, benefiting from scalable operations that allow us to capture increased activity. Furthermore, we continue to see innovation for clients, particularly in the domestic market. Our international business remains a key growth element, with teams developing new products and solutions for our clients. It’s a confluence of factors that have worked favorably for us this quarter, and I expect the trend in Clearance and Collateral Management to persist in the near term.

Thanks, Dermot. You sparked my interest. About T+1 and now that it’s in the routine, can you provide insight into its cost implications? Is there a reduction in spread, but does it free up capital through more frequent settlements? I’m curious about the overall net impact.

Hey, Glenn. Regarding the raw P&L impact, it’s quite minimal. We prepared for T+1 over the past few years, avoiding sudden cost spikes. The key opportunity here lies in market inflections like this, which allow us to get closer to our clients. With significant shifts like these, clients experience uncertainty and require guidance, presenting us with opportunities to provide support. Additionally, these changes foster market efficiency and risk reduction, which will benefit our operations and clients alike in the long run.

Thank you.

Our next question is coming from Ebrahim Poonawala with Bank of America. Please go ahead.

In market inflections like this, we get closer to our clients. When significant shifts occur, clients face uncertainty and need guidance, which presents us with opportunities to offer support. Moreover, these changes enhance market efficiency and reduce risk, benefiting both our operations and clients in the long run. Thank you. Our next question is coming from Ebrahim Poonawala with Bank of America. Please go ahead.

Good morning, Ebrahim.

Dermot, could you elaborate on NII in light of Fed policy? How will balance sheet positioning respond to potential cuts, say, 100-150 basis points? What should we expect from NII?

Thank you for the question. Cumulative betas remain relatively unchanged quarter-over-quarter, indicating our portfolio is fairly priced. Our book is largely institutional, allowing us to pass on rates effectively. For our dollar portfolio, we’re positioned in the low 80s range; for euros and sterling, we’re in the high 50s to low 60s. We run several scenarios, and if Chairman Powell proceeds with cuts, our NII position will remain stable with minor fluctuations.

Got it. And Robin, regarding fee revenue momentum you discussed at Pershing and elsewhere, what drivers are we watching for medium-term fee revenue growth beyond market activity?

Certainly. Revenue growth can fluctuate annually based on market conditions, particularly interest rates and volatility. Our strategy aims to enhance organic growth while positioning our businesses to capitalize on market tailwinds. For instance, we've prepared our treasury market business for expected growth. For future fee growth, we’ve operationalized the ONE BNY initiative, targeting integrated solutions for clients, allowing us to bundle various products into comprehensive offerings.

Thank you.

Thank you.

Our next question is coming from Steven Chubak with Wolfe Research. Please go ahead.

Hi. Good morning, Robin and Dermot.

Good morning, Steven.

I wanted to focus on repo activity. You've certainly benefited from recent growth in this area. Could you quantify the year-on-year benefit from elevated repo activity and how do you view the sustainability of this trend?

In terms of year-on-year activity, cleared repo isn’t a game changer for us regarding the overall NII story, representing about 5% of our NII today. However, as clients seek products and services, our position as a top three provider in this area helps us meet their needs. We continue to invest and scale our cleared repo offerings, expecting growth going forward, but it remains a minor contributor to the overall financial picture.

Additionally, in our business context, we’re a unique global solution provider, scaled across Asia, Europe, and the US. In an environment where repo is being viewed as a collateral tool, clients value our ability to provide seamless connectivity between repo, margin, and collateral management.

Thanks for your insights. Regarding Pershing, the core strength has faced challenges from large client departures. Can you provide insight into the organic growth trends and pipeline? Have we fully lapped those headwinds?

We are pleased to see the end of the ongoing deconversions, expected to wrap up by Q3. The team has demonstrated resilience, managing to grow amidst this situation. Notably, we resumed a multi-year contract with Osaic recently. Reflecting on our progress, we have signed 21 clients for Wove this year, showcasing momentum as we aim for $30 million to $40 million in revenue for this initiative. Our position in the wealth tech space remains robust, ranking at the top for broker-dealers.

Thank you for the valuable insights.

Thanks, Steve.

Our next question is coming from Brennan Hawken with UBS. Your line is open. Please go ahead.

Good morning Robin and Dermot.

Thanks for taking my questions.

With the ECB cutting rates this quarter, can you shed light on any impact that has had on your deposit costs, particularly in euros, and how does this experience influence your expectations for customer behavior around rate cuts in different currencies?

Overall, euros account for roughly 10% of our portfolio. In response to the earlier inquiry, we did observe that the beta between 50% to 60% held steady throughout the recent cut. The betas have remained consistent as per our balance sheet positioning and how it’s set up to respond across different currencies.

Thank you for that clarification. Additionally, regarding Issuer Services, you mentioned strong recent performances attributed to CLOs. Can you elaborate on what proportion of growth stems from this segment and how to view Depositary Receipt fees for proper future modeling?

Corporate Trust presents us with a prime opportunity, particularly following years of underinvestment in technology and leadership. We've made crucial hires in Corporate Trust in the past year, enhancing our services. Our CLO activity has doubled over the last year, aided by previous leadership changes. Market share growth in CLOs demonstrates our current and future potential as we offer increased scale benefits. We expect to maintain our strong market share in Depositary Receipts.

Thank you.

Thanks, Brennan.

Our next question is coming from Betsy Graseck with Morgan Stanley. Please go ahead.

Good morning.

Good morning, Betsy.

Could you share how T+1 impacted sequential revenue this quarter and if it contributes to the expense ratio, considering previous investments?

The emphasis on T+1 extends beyond revenue or expense contributions. It signifies our strength as a key player in the financial marketplace, enabling us to handle significant operational changes effectively. Our execution represents our commitment to supporting clients through this pivotal transition.

I understand. Regarding Wove, are you onboarding new clients or transitioning existing clients to the platform?

Both—some are new clients, while others are existing clients migrating to Wove. Clients appreciate our commitment to enhancing their solutions, resulting in positive momentum. Feedback has been encouraging as more clients engage with Wove and recognize our innovative options.

Wove’s journey started with improving advisors' lives, but we’re now embedding our various capabilities. Clients can manage data across custodians and leverage various investment tools, enhancing the depth of engagement we’re providing.

Thanks, Robin.

Thank you.

Our next question is coming from Mike Mayo with Wells Fargo Securities. Please go ahead.

Could you provide more insight into the ONE BNY initiative and its product offerings for customers? How do you connect the dots in terms of higher core servicing fees?

Certainly, Mike. As we’ve discussed, the successful implementation of ONE BNY requires operationalization beyond just strategy. Our leadership is dedicated to breaking down silos, fostering collaboration around three strategic pillars, centering on service to our clients. Everyone is now aligned towards a shared goal, driving tangible results fostering client engagement through innovative offerings. With our organic service integration approach, we've seen an increase in our service portfolio.

What is your current wallet share per customer, and where do you see it going?

We’re in the process of developing strong metrics to track our progress, with a focus on key inputs that signal future growth potential. As we progress, we’ll share growth targets, but it’s essential to note that organic growth across sectors will yield varying results.

Over the past year, we’ve seen a 33% increase in cross-business engagements—this is a promising development regarding our focus on integrated solutions.

Thank you for your responses.

Thank you.

Our next question is coming from Alex Blostein with Goldman Sachs. Please go ahead.

Good morning, and thanks for fitting me in. I'm interested in your thoughts on overall expenses and operating leverage as expenses have increased year-to-date. You’re projecting flat expenses yet it appears revenues are outpacing expectations. How will you scale expenses moving forward in line with revenue?

Our current focus is on sustaining operational efficiency and managing margins. One positive result is our 33% pre-tax margin—though we recognize that one solid quarter doesn’t set the stage for future expectations. Execution is crucial to maintaining this performance consistently. Our cultural shift within the firm emphasizes value-driven spending. While expenses may rise with revenue growth, it shouldn't become the default approach. We’re committed to continuously optimizing the balance between investment and expense across the firm.

Thank you for the clarity. Lastly, could we briefly discuss the asset side of the balance sheet? You've seen solid growth in both securities and loans. What direction are you heading with this liquidity, especially toward loans and securities?

I’m proud of our CIO team, which has successfully repositioned our balance sheet since Q3 2022. Right now, we’re shifting into high-yield opportunities in line with the market trend, and we’re keenly focused on using our liquidity to extend support for clients. As we navigate these developments, we’re committed to ensuring our balance sheet continues to fuel our growth initiatives.

Thank you.

Our next question is coming from Gerard Cassidy with RBC. Please go ahead.

Morning, Dermot and Robin. Given the recent changes in monetary policy and your background experience with QE and QT, what considerations do you have regarding balance sheet adjustments over the next 12-18 months?

We consistently evaluate our balance sheet in the context of varying scenarios as required by CCAR regulations. We consider multiple outcomes revolving around rate changes and market shifts. Importantly, our balance sheet is an asset; it has consistently demonstrated resilience, thus we maintain a conservative stance on capital and liquidity, equipping us to support our clients through uncertainties.

It’s essential to remember that while consensus is emerging around the Fed's potential actions, uncertainties remain in the global landscape—geopolitical risks and other challenges could impact our approach as we navigate the changing dynamics.

Thank you, and as a follow-up, you've mentioned breaking down silos effectively with the ONE BNY initiative. Can you detail some tools used in this approach and the progress made thus far?

Certainly, Gerard. Culture is fundamental to our success. Connecting culture with strategy is essential. Building a collaborative environment across the organization fosters a sense of shared goals, enhancing decision-making. Strategic investments in our people and resources are also vital in achieving these objectives and allow us to deliver cohesive solutions to our clients.

Thank you for your insights.

Thank you.

Our final question is coming from Brian Bedell with Deutsche Bank. Please go ahead.

Thank you. I'll circle back to the NII guidance; I’m having trouble reconciling it. Would you say it’s primarily deposit-driven? Additionally, can you clarify how seasonal dynamics affect NIB?

Yes, the seasonal dynamic is a significant factor in projecting NII. As we noted earlier regarding seasonal reductions in summer client activity, the impacts on NIB are crucial in forming our expectations moving forward.

Appreciate that. On operating leverage, while revenue-related expenses have increased, you mentioned your expense strategy remains flat. How do you plan to maintain that in light of growing revenues?

Our focus is to prioritize running the company better while maintaining our expense discipline. Expense management remains critical, and while revenues adapt, we’ll avoid overriding the expense base unnecessarily as we remain diligent in ensuring effective use of our resources and investments.

The key is in valuing outcomes over mere metrics. By maintaining our focus on serving clients efficiently and continuing our cultural transformation, we are confident that our initiatives will yield positive results.

This concludes today's question-and-answer session. I will now turn the conference back to Robin for additional or closing remarks.

Thank you, operator, and thank you all for your time today. We appreciate your interest in BNY. For any follow-up questions, feel free to reach out to Marius and the IR team. Enjoy the remainder of your summer.

Thank you. This concludes today's conference call and webcast. A replay will be available on the BNY Investor Relations website at 2:00 p.m. Eastern Standard Time today. Have a great day.