Good morning, and welcome to the 2024 Third 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 welcome to our third quarter earnings call. I'm joined by Robin Vince, our President and Chief Executive Officer, and Dermot McDonogh, our Chief Financial Officer. As usual, we will reference our financial highlights presentation, which can be found on the Investor Relations page of our website at bny.com. I'll also 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, October 11, 2024, and will not be updated. With that, I will turn it over to Robin.

Thanks, Marius. Good morning, everyone. Thank you for joining us. I'll start with a few remarks on the quarter, and then Dermot will take you through the financials in greater detail. In short, BNY reported strong third quarter results, reflecting growth across our three business segments and consistent execution on our strategic priorities. Stepping back, on the macro side for a moment. At the beginning of the year, markets had priced in significant monetary policy easing in anticipation of economic slowdowns. Despite numerous shifts in the macroeconomic outlook since then, we've now seen the start of the easing cycle in several markets around the world, including a 50-basis-point reduction in policy rates in the U.S. as the Federal Reserve recalibrates its policy stance to balance employment, inflation and growth. Following increased market volatility and a sell-off in equities in early August, markets recovered, and both equity and fixed income values ended the quarter higher. A little more micro, but relevant for markets. Around the most recent quarter-end, the market saw simultaneous flows into the Fed's reverse repo facility alongside the first meaningful usage of the standing repo facility, both of which we administer. At the same time, sponsored cleared repo volumes increased on the back of higher repo rates, possibly signaling a transition from abundant to ample reserves in the system, with potential implications for the pace of QT going forward. More broadly, while markets have been constructive, there are clearly risks and uncertainties ahead. And so, we constantly prepare and position for the many tail risks that exist from geopolitical tensions and conflicts to fiscal deficits and the impact of impending regulations and elections. Now, referring to Page 2 of the Financial Highlights presentation. As I said earlier, BNY delivered a strong financial performance in the third quarter, with strong EPS growth on the back of broad-based revenue growth and positive operating leverage. Reported earnings per share of $1.50 were up 22% year-over-year. And excluding notable items, earnings per share of $1.52 were up 20%. Total revenue of $4.6 billion increased by 5% year-over-year, and reported expenses of $3.1 billion were flat. Excluding the impact of notable items, expenses were up 1% year-over-year, as we continue to invest in our people and technology, while we also generate greater efficiencies from running our company in new and better ways. Pre-tax margin and return on tangible common equity improved year-over-year to 33% and 23%, respectively. For the first time in our history, we reported over $50 trillion of assets under custody and/or administration at the end of the quarter. Now, custody is not something we are, but it is something important that we do. This number one market position improves our unique vantage point as a global financial services company, and it provides opportunity to drive value across our portfolio of adjacent businesses to deliver more of BNY to our clients. We increasingly see that the true power of BNY's client franchise exists in the combination of capabilities across our leading Security Services, Market and Wealth Services, and Investments and Wealth businesses. We have the ability to enhance this and to deliver more to our clients by bringing new innovative solutions to the market from across the seams of these businesses. As an example, we recently announced the planned acquisition of Archer, a leading technology-enabled service provider of managed account solutions to the asset and wealth management industry. Archer provides comprehensive technology and operational solutions that allow asset and wealth managers to access one of the fastest-growing investment vehicles in the industry, managed accounts, at scale, expanding distribution, streamlining operations, launching new investment products and delivering personalized outcomes for their clients. The integration of Archer should produce a positive impact across several of our lines of business. In addition to augmenting our asset servicing capabilities for managed accounts, Archer will provide our investments business as well as our Wove wealth advisor platform in Pershing with expanded distribution of model portfolios and access to Archer's multi-custodial network. Buy it once, use it many, if you will. The transaction is expected to close before the end of the year, and we look forward to welcoming the Archer team to BNY. Another one of the fastest-growing areas in financial services, alternatives, also presents a promising opportunity for us to deliver new client solutions across One BNY. We already have relationships with hundreds of alternatives managers as well as roughly $3 trillion of wealth assets on our platforms. We believe there is more for us to do to mine the opportunity and build the technology to reach across our franchise and unlock the fast-growing alternatives market for wealth intermediaries, advisers and the investors they serve. Last month, we introduced Alts Bridge, a comprehensive data, software and services solution built for wealth advisers. Alts Bridge aims to make investing in alternatives easier for advisers through a streamlined end-to-end experience and direct integration into advisers' existing desktops, starting with our Pershing NetX360+ and Wove platforms. As we continue to deliver new innovative products, we are also addressing the significant opportunity from enhancing our commercial model, making it easier for clients to navigate BNY. In order to accomplish this, we are promoting an enterprise approach to client coverage, and we are operationalizing our new commercial model. For example, over the summer and for the first time in recent memory, we brought together several hundred of BNY's client-facing commercial leaders from around the world as well as members of our executive committee for a two-day event we called Commercial Lift Off. This program enabled our top client coverage people and their business partners to take a One BNY view to account planning, creating a shared vision for serving each of our clients holistically across the entire relationship, generating new ideas to meet the clients' objectives and developing action-oriented plans to deliver on those goals. During the quarter, we also made progress toward running our company better, including the ongoing transition to a platform's operating model, enhancing the connectivity across our teams and empowering our people to drive change across the company. In September, we went live with the next step on our multiyear plan to unite related capabilities around BNY and elevate our execution by doing things in one place and doing them well. We now have about 13,000 or about one-quarter of our people working in our new operating model. As we've said before, powering our One BNY culture in order to be more for our clients and run our company better requires not just words, but action. I want to thank our people around the world for their hard work and for collectively pulling together as a team to create the change for our clients, for our shareholders and for one another. To wrap up, the combination of our talented team, our portfolio of leading businesses working together and the strength of our balance sheet gives us a great foundation to deliver more to our clients and drive sustainable long-term shareholder value. While our results in the third quarter demonstrate continued execution against our strategic priorities as well as progress toward our medium-term financial targets, our team remains focused on the work ahead. With that, over to you, Dermot.

Thank you, Robin, and good morning, everyone. Starting on Page 3 of the presentation, I'll begin with our consolidated financial results for the quarter. Total revenue of $4.6 billion was up 5% year-over-year. Fee revenue was up 5%. This includes 5% growth in investment services fees, reflecting higher market values and net new business across our Security Services and Market and Wealth Services segments. Investment management and performance fees from our Investment and Wealth Management segment were up 2%, driven by higher market values, partially offset by the mix of AUM flows and lower performance fees. Firm-wide AUC/A of $52.1 trillion were up 14% year-over-year, reflecting higher market values, net new business and client inflows. Assets under management of $2.1 trillion were up 18% year-over-year, primarily reflecting higher market values and the favorable impact of a weaker dollar. Foreign exchange revenue increased by 14%, driven by higher volumes. Investment and other revenue was $196 million in the quarter, reflecting continued strength in fixed income and equity trading. The year-over-year increase primarily reflects a strategic equity investment loss recorded in the third quarter of last year and improved results from our seed capital investments. Net interest income increased by 3% year-over-year, primarily reflecting improved investment securities portfolio yields and balance sheet growth, partially offset by changes in deposit mix. Expenses of $3.1 billion were flat year-over-year on a reported basis and up 1% excluding notable items. This reflects higher investment and employee merit increases, partially offset by efficiency savings. Provision for credit losses was $23 million in the quarter, primarily reflecting reserve bills related to commercial real estate exposure. As Robin mentioned earlier, we reported earnings per share of $1.50, up 22% year-over-year. And excluding notable items, earnings per share were $1.52, up 20% year-over-year. Pre-tax margin was 33%, and return on tangible common equity was 23%. Turning to capital and liquidity on Page 4. Our Tier 1 leverage ratio for the quarter was 6%. Tier 1 capital increased by 4% sequentially, primarily reflecting capital generated through earnings and improvement in accumulated other comprehensive income, partially offset by capital returned to our shareholders through common stock repurchases and through dividends. Average assets increased by 1%. Our CEQ1 ratio at the end of the quarter was 11.9%. CEQ1 capital increased by 5% and risk-weighted assets increased by 1%. We returned $1.1 billion of capital to our shareholders over the course of the third quarter. Year-to-date, we returned 103% of our earnings through dividends and buybacks. Moving to liquidity. The consolidated liquidity coverage ratio was 116%, a 1 percentage point increase sequentially due to a favorable change in our deposit composition. And the consolidated net stable funding ratio was 132%, unchanged sequentially. Next, net interest income and the underlying balance sheet trends on Page 5. Net interest income of over $1 billion was up 3% year-over-year and up 2% quarter-over-quarter. The sequential increase was helped by higher sponsored cleared repo activity following market volatility and increased client demand. Average deposit balances remained flat sequentially. Noninterest-bearing deposits decreased by 2% in the quarter and interest-bearing deposits were flat. Average interest-earning assets were up 4% quarter-over-quarter. Our investment securities portfolio balances as well as loan balances increased by 1%, and cash and reverse repo balances remained flat. Our broader liquidity ecosystem reached an all-time high at the end of the quarter of over $1.5 trillion worth of client cash across deposits, money market funds, securities lending, sponsor-cleared repo and other short-term investment alternatives. Turning to our business segments, starting on Page 6. Security Services reported total revenue of $2.2 billion, up 6% year-over-year. Total investment services fees were up 4% year-over-year. In Asset Servicing, investment services fees grew by 5%, primarily reflecting higher market values. For the third quarter in a row, the impact of repricing was minimal. ETF AUC/A of $2.7 trillion was up more than 70% year-on-year, and the number of funds serviced was up 20% year-on-year. Inflows into ETFs on our platform remained strong this quarter with growth across all asset classes. As the ETF industry continues to grow, we are dedicated to scaling our best-in-class ETF service offering. For example, we have successfully onboarded several new liquidity providers to our electronic order execution platform to advance digital adoption. In Issuer Services, investment services fees were up 1%. Net new business and higher client activity in Corporate Trust partially offset by lower deposit receipt fees, reflecting corporate actions in the prior year. Against the backdrop of increased issuance activity, we continue to see strength in Corporate Trust, capitalizing on our investments in people and technology to enhance client service and scalability. In this segment, foreign exchange revenue was up 28% year-over-year, reflecting growth from newly onboarded clients as well as a higher level of client activity. Net interest income for the segment was up 2% year-over-year. Segment expenses of $1.6 billion were down 3% year-over-year, reflecting efficiency savings and lower severance expenses, partially offset by higher investments and employee merit increases. Pre-tax income was $642 million, a 38% increase year-over-year, and pre-tax margin was 29%. Next, Market and Wealth Services on Page 7. Market and Wealth Services reported total revenue of $1.5 billion, up 7% year-over-year. Total investment services fees were up 7% year-over-year. In Pershing, investment services fees were down 1%, reflecting the impact of lost business in the prior year, partially offset by higher market values. Net new assets were negative $22 billion for the quarter, reflecting the ongoing deconversion of lost business in the prior year, which is now largely behind us. Excluding the deconversion, we saw approximately 4% annualized net new asset growth in the third quarter. Wove continues to see strong client demand. We signed up 14 additional clients in the third quarter and we remain on track for the $30 million to $40 million of revenue in 2024 as we guided in January. Wove is helping us attract new clients and deepen relationships with existing ones. For example, Pershing provides custody and clearing solutions for Sanctuary, a large and fast-growing wealth manager servicing the high net worth and ultra-high net worth segments. Sanctuary will also leverage Wove portfolio solutions, trading and rebalancing and reporting for teams that custody with Pershing as well as those that use another custodian. In Clearance and Collateral Management, investment services fees increased by 16%, primarily reflecting higher collateral management fees and higher clearance volumes. Against the backdrop of a growing market and active trading, U.S. securities clearance and settlement volumes have remained strong. As you may remember, we created our global clearing platform earlier this year through the realignment of Pershing Institutional Solutions. We're pleased to see the pipeline of this platform continue to build for our full suite of institutional clearing, settlement, execution and financing solutions in over 100 markets around the world. In Treasury Services, investment services fees were up 11%, primarily reflecting net new business. The business continues to execute well against the growth agenda we presented in January. And we are seeing our investments in modernizing and digitizing our payments platform pay off in the form of growth in our strategic target markets. Net interest income for the segment overall was up 3% year-over-year. Segment expenses of $834 million were up 5% year-over-year, reflecting higher investments and employee merit increases, partially offset by efficiency savings. Pre-tax income was up 8% year-over-year at $704 million, representing a 46% pre-tax margin. Turning to Investment and Wealth Management on Page 8. Investment and Wealth Management reported total revenue of $849 million, up 2% year-over-year. In our Investment Management business, revenue was up 1%, reflecting higher market values and improved seed capital results, partially offset by lower performance fees and the mix of AUM flows. And in Wealth Management, revenue increased by 6%, reflecting higher market values and net interest income, partially offset by changes in product mix. Segment expenses of $672 million were flat year-over-year as efficiency savings offset employee merit increases and higher investments. Pre-tax income was $176 million, up 7% year-over-year, and pre-tax margin was 21%. As I mentioned earlier, assets under management of $2.1 trillion increased by 18% year-over-year, primarily reflecting higher market values and the favorable impact of the weaker dollar. In the third quarter, we saw strength in our short-term strategies with $24 billion of net inflows into cash, reflecting our leading position and strong investment performance in our Dreyfus money market funds. Long-term active strategies saw $8 billion of net outflows, spread across multi asset, LDI and active equity, partially offset by net inflows into fixed income. And we saw $16 billion of net outflows from index strategies. Wealth Management client assets of $333 billion increased by 14% year-over-year, reflecting higher market values and cumulative net inflows. Page 9 shows the results of the other segment. Before I wrap up, a couple of comments on the outlook for the year. Starting with net interest income. Remember, we began the year setting up for positive operating leverage despite an expectation for full year net interest income to be down 10% in 2024. While we're currently forecasting for fourth quarter net interest income to be slightly below what we saw in our strong third quarter results, the resilience of our net interest income over the first nine months of the year has positioned us to outperform our outlook for the full year net interest income growth rate from January by approximately 5 percentage points. Regarding expenses, we continue to work hard to keep core expenses, excluding notable items, for the full year 2024 roughly flat. We now expect our effective tax rate for the full year 2024 to be at the lower end of the 23% to 24% range we estimated in January. And lastly, as we said at the beginning of the year, we expect to return 100% or more of 2024 earnings to our shareholders through dividends and buybacks. And we remain on track having returned 103% of earnings year-to-date. In conclusion, our results this past quarter reflect broad-based growth across our three business segments and continued progress on our strategic priorities. We're pleased with the company's performance year-to-date and we're proud of our people who continue to execute well toward our medium-term financial targets, while we all remain focused on the work and the tremendous opportunity ahead of us. With that, operator, can you please open the line for Q&A?

Yes. We'll take our first question from Brennan Hawken with UBS.

Good morning. Thank you for taking my questions. You mentioned some of the ETF successes in your servicing area, and I'm curious about that. Firstly, how much of that business came from BlackRock? Has the revenue from that significant win fully materialized? Additionally, do these dynamics suggest that the fee rate might be lower? Asset servicing fees increased by about 5%, while AUC grew by 16%, and I know ETF fee rates can sometimes be lower, so I’d like to clarify that a bit. Thank you.

So, thanks for the question. I don't really want to get into the specifics on one client or transaction, but just to take a step back on ETFs generally, it is a growing market. You may have watched Larry from BlackRock on CNBC this morning. It is a secular trend. It is a very big and growing market, and we are a key player on that. As I said in my prepared remarks, we have $2.7 trillion on the platform, that's up 70% year-on-year, and the number of funds serviced is up 20%. That's on the back of strong leadership and a real investment in technology, so we can be best in class. So, without going into specifics, we're there to take advantage of the secular trend and we'll continue to innovate and solve for our clients' needs.

Okay. Thanks for that. Maybe if I could word it a little differently, the strong ETF growth that you have seen this quarter, is the revenue fully reflected this quarter or is some of those wins still have some revenue ramp to come?

I would say it's the latter. Generally speaking, we have a strong pipeline. We're consistently adding new clients to the platform, and due to the size of what's being onboarded, they typically implement it in a phased manner. Therefore, some revenue is already on the platform, while more revenue is expected to follow.

Excellent. Thanks for that, Dermot. Thank you also for the update on NII, encouraging to see things working better. Could you speak to the deposit beta that you experienced with the first rate cut? And given that we're seeing rates coming down now, is it reasonable to think that deposits could begin to grow from here?

We believe the betas are symmetrical, and the first rate cut was fully passed on. We feel confident about that. It may be a bit early to understand how the current Fed easing cycle will influence our deposit balances. Overall, we've managed well and had a strong third quarter for various reasons. I expect that our deposit balances may slightly decrease in the fourth quarter, and we'll see what happens with the next Fed meeting, but we don't anticipate any significant changes at the moment.

We'll move to our next question from Mike Mayo with Wells Fargo.

Hey, how are you doing?

Hey, Mike. How are you?

Good. That's a significant figure, the $50 trillion in assets under custody, a nice round number. It's true that you exceeded expectations for both the quarter and the year so far, as you've pointed out. I'm trying to understand how much of this is due to luck versus smart strategy. I think it's likely a combination of both, but the luck element seems to stem from record stock market volatility, trading, and other favorable market conditions. However, I don't believe we have sufficient information about your client growth, which is a key and consistent aspect of the business. Could you provide some insight into whether this growth comes from an increase in clients, revenue per client, or products per client, or perhaps from the adjacent businesses you mention, and how you are managing the company compared to merely benefiting from a better operating environment?

Sure, Mike. It's Robin. I appreciate your question, and it's certainly a valid one. We surpassed $50 trillion, finishing at $52 trillion, which is great because we didn’t just land at a round number. I would say that our approach isn't just trendy; it's rooted in traditional methods focused on deliberate growth. We’ve aimed to provide as much insight as possible into what drives our progress, recognizing that we've had a strong market environment that has benefitted us. Part of our strategy is to be well-positioned to leverage that environment. We have different aspects of our business that react to asset values, account numbers, software sales, and transaction volumes. This diverse approach is intentional, allowing us to engage with various market growth areas. If you think global debt, equity valuations, and financial market activities will continue to increase, we're aligning ourselves with those trends, which we see as positive. Addressing your core question, since this management team took over, we’ve really focused on understanding our components and how they can interconnect to unlock potential. We rallied around three strategic pillars, emphasizing being more for our clients. This isn’t just a phrase; it means advancing our One BNY philosophy we've discussed before. It involves fostering different conversations, evolving towards solutions rather than simply offering products. The examples Dermot and I shared in our prepared remarks illustrate how clients are seeking multiple services from us, desiring comprehensive solutions that better serve their business needs. Our second pillar, improving company operations, has concentrated on refining sales rhythms and targets, fostering collaboration among our teams, and ensuring they grasp our objectives. Lastly, we’re cultivating a winning company culture focused on progress, aiming to transform BNY into a forward-looking entity beyond what BNY Mellon was in the past. All these initiatives are intentional, and while it's still early to gauge our progress, we believe we’re beginning to see positive outcomes. Dermot can share additional insights that may be beneficial.

So Mike, from a numbers perspective, we are experiencing a 5% year-on-year increase in fee growth, and we have been able to capitalize on favorable market conditions. A few key points to highlight are that all three of our business segments are demonstrating solid underlying growth. In Robin's prepared remarks, he mentioned our evolution into a platform company. With substantial investments in platforms, high volume, and favorable markets, we have the infrastructure in place to take advantage of these conditions. In Asset Servicing, we are winning and onboarding new business. We started the year with a backlog and have continued to onboard clients throughout the year, entering Q4 with a larger backlog than we initially had. I am very proud of our progress in Asset Servicing. In Corporate Trust, especially in Depository Receipts, while it's a good margin business, it has not received much investment over the years. We have now allocated resources to enhance leadership and scale our technology, which will be crucial for this business going forward. Treasury and Services, along with Clearance and Collateral Management, have demonstrated that a scalable platform with high volumes, strong markets, and increased issuance and payments can significantly benefit our business. Additionally, on the client front, although it's a small base, we've seen noteworthy transactions this year where we can engage in more sophisticated discussions with clients. They are now purchasing from us across multiple lines of business, in some instances, four. This capability was not possible a few years ago, and Robin's emphasis on leveraging the One BNY approach for clients is starting to yield positive results.

All right. That was very comprehensive. Just last follow-up, are you implying, and by the way, on all the metrics, again, the client growth numbers, and thanks for peeling back the layers of the onion there, but always like even more layers, never enough for us, but in terms of growth in clients and more specifics going down the line. But the expense is clearly, Dermot, the flat expenses, that's very clear, that part of it. Are you implying even lower expenses in the fourth quarter based on your new guide today?

So, look, the thing I would like to convey to you and to our shareholders is that we worked really hard over the last couple of years to build credibility that we are good stewards of our expense base, and we guided flat at the beginning of the year. And broadly speaking, there's been some pressure, I would say, on expenses that, for the most part, are revenue related. And so, if revenues are higher, there's some aspects that you just have to pay more expenses. So, while I've guided roughly flat for the full year, there may be a little bit of pressure over the course of that because of higher revenues. And also, as Robin said in his remarks, we've announced the acquisition of Archer and there'll be some integration costs associated with that. But I feel very good the fact that now we have 53,000 people who understand the importance of financial discipline and that goes to pillar number two of being a really well-run company.

We'll move to our next question from Brian Bedell with Deutsche Bank.

Great. Thanks. Good morning, everyone. I appreciate you taking my questions. I wanted to focus on the revenue dynamics, particularly regarding the commercial lift-off and your enterprise strategy. You mentioned that some clients are now utilizing multiple services. Could you elaborate on how this may influence your revenue growth trajectory? Additionally, could you please confirm the general relationship between revenue and equity markets? I believe it's around 10% equity market changes impacting roughly 1% of revenue. I’d like to clarify these two aspects, highlighting that your revenue growth is occurring independently of market fluctuations.

Taking the last question first, a 5% gradual change in equity markets results in approximately $60 million in annual fees, while a 5% gradual change in fixed income markets leads to around $40 million in annual fees. This provides some insights into our sensitivity analysis. Regarding the commercial lift that Robin mentioned, Cathinka Wahlstrom, who has been with us for over a year, spent her first year listening and organizing our leading client coverage team of about 1,200 to 1,500 people worldwide. We focused on our ambitions, the products we offer, and how we can educate our team to deliver comprehensive services to our clients. On the topic of Archer, a couple of years ago, if we had pursued that acquisition, one part of the firm would have bought it for its own business purposes. Robin emphasized the importance of acquiring it once and utilizing it multiple times for the entire organization, benefiting various business lines. This reflects our strategic approach to client coverage moving forward. We aim to provide holistic solutions, and our clients are increasingly recognizing the diverse nature of our offerings, leading them to purchase more from us. This trend is expected to positively impact our revenue, and we are optimistic about our preparations for the upcoming budget season for Q4 and the opportunities ahead in 2025.

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

Thanks. Good morning, guys. So, maybe just wrapping some of the comments you made around fee in a bigger picture question, when you guys think about a number of different growth areas you outlined some of the specifics, and obviously, the approach to cross-selling has taken a whole different turn here. So, when you use them out and you look at the business holistically, how do you think about the organic fee growth that the enterprise can generate over time?

We don't provide guidance on fees and don't plan to do so. However, I want to emphasize that we are experiencing growth across all three of our business segments. Our organic growth this year has been strong, reflecting a positive performance over the past nine months. We believe this momentum will continue. The way we have positioned ourselves for the latter half of this year and into next year creates a cycle of innovation, and we have numerous growth initiatives. Our team is focused on developing what we refer to as integrated solutions, with several exciting projects in progress. For instance, Robin mentioned Alts Bridge and Archer in his comments. We are also realigning specific areas of our business, like Pershing into Clearance and Collateral Management, which is contributing to our growth. The strategic decisions made over the last few years to realign activities within the firm are now positively impacting our revenues, and we intend to build on this into next year.

And Alex, I'd just add, Dermot really alluded to this in what he just said, but right from the beginning, we've had two approaches. One is to think about this endeavor of fully realizing BNY's potential as a multiyear endeavor, and we recognize that there are going to be different ways in which that will come together in different years. And North Star, as you know, for us, is operating leverage, and that came about in a slightly different way in 2023 than it did in '24, and it could be different again in '25 as we really get into that conversation ultimately when we talk to you in January. But we've simultaneously invested in things that we knew would be important for the shorter term and for the medium term and for the longer term. And so, both Dermot and I have talked about this platform's operating model. That's a great example. There have been some benefits that come early on in that process. We brought like things together across the company. There have been benefits on the revenue side, there have been benefits on the expense side from doing it. But then, the value of having done it creates medium-term momentum because now we're able to be more dynamic for clients. We're able to solve problems more quickly for clients. And so, there's a payoff there. And then, over the longer term, it actually makes it easier to be able to assemble these new solutions that Dermot was just talking about. And again, there's a revenue story there, but there's also an expense story. And that's how we're thinking about it. Notwithstanding, we haven't given you a specific growth target number. Make no mistake, we're invested in creating that growth.

Yeah, no, fair enough. I appreciate all of that. Smaller kind of tactical question for you guys. So, the repo activity continues to be quite elevated. You mentioned that in your prepared remarks as well. Is it possible to help size how much repo contributed sort of across the enterprise? It hits you in a couple of different ways. Obviously, there's the NII benefit and there's some fee benefits. So, as you think about the more normalized level of repo activity versus what you saw in the quarter, how big of a contributor was that in kind of totality? And as you look forward, given changes in monetary policy expectations, but also some of the client behavior that you mentioned earlier, how sustainable do you ultimately think this more elevated pace of activity in this market?

So, on the repo question, so at cleared repo, for sure, we saw elevated activity, particularly going into the back end of the quarter and in the early part of this quarter. And that, in large part, contributed to the outperformance for the Q3 NII. That has now moderated somewhat. And so, in my prepared remarks, and in terms of the guidance, that's why I kind of feel like roughly for NII, we're about $1 billion for the fourth quarter. In terms of cleared repo, overall, as a kind of contributor to the NII over the course of the year, it's roughly about 5% of the number. As it relates to elevated activity in terms of volume and activity, I think from what we see on our platforms, we kind of see that continuing to be the case in the medium term. There's no reason for the slowdown. It's been a very strong year, very, very active client engagement, product innovation. And particularly on the international side, we said at the beginning of the year in our kind of strategic call in January that international was going to be a key area of focus on the platform, and that's been the case, and that's shown up in the results. So, I think, overall, and I said in my prepared remarks as well, in terms of the liquidity ecosystem in total hit a high for us at $1.5 trillion. That's up from $1.2 trillion a couple of years ago, and that's in the backdrop of liquidity coming out of the system. So, we've grown quite substantially. And that, again, is coming back to connecting the dots across the firm, getting teams collaborating more, being more digital, providing innovative solutions to clients, and that is really powering the growth.

If I could just relate that back to a question that Mike had asked earlier on because I think these things are relevant, you got to remember that the strategy of us having roughly the right ores in roughly the right waters to be able to participate in things that are happening in the world, that's very important. So, if I just supplement what Dermot said, with the additional observation that we're the world's largest security lender that generates repo activity. We're the world's largest collateral manager, so we get to capture fees associated with people doing repo. We, obviously, play this role in the US Treasury market, which participates in the growth of US Treasury repo. We have all of these different touch points. And so, there are different ways in which we can collect across software, in some cases, services that we administer in others, and participation in different, both global markets and also product types, which align in indirect ways to that. So that's an important part of how we look at the overall system and understand how our products and services can help clients navigate those, and we can participate in the benefit of that growth.

Yeah, that's a helpful framework to discuss it this way, yeah. Thank you, guys, both.

We'll move to our next question from Gerard Cassidy with RBC.

Hi, Dermot. Hi, Robin. Robin, could you share your thoughts on the acquisition you completed this quarter? What is your outlook, considering you have strong capital levels, your stock has performed well this year, and you're operating with a favorable currency? Are there other types of acquisitions you are considering that could complement your current endeavors?

Sure, Gerard. First, I want to mention that we are looking forward to finalizing the acquisition of Archer in the fourth quarter and welcoming their team. This ties into previous discussions about our market participation and ETFs. Historically, our focus was on mutual funds, but over the last decade, we've seen a significant rise in ETFs and the parallel growth of separately managed accounts. The acquisition of Archer positions us well to take advantage of this shift towards separately managed accounts, aligning with our strategic goals of growth and market engagement. Regarding your question on M&A, our main priority is to enhance what we already have. Both Dermot and I have emphasized our strong belief in our current businesses, which are well-aligned and offer extensive services to our clients. Our approach to M&A is opportunistic rather than reactive; we are not driven by a necessity to acquire, but rather look for valuable opportunities. Archer came to us following a strategic review focused on long-term trends and our adaptability to those trends. We specifically sought capabilities that could accelerate our initiatives or reduce risks, prioritizing technology that offers efficiency without the distractions of building it in-house. If we can acquire technology that adds value, fits culturally, and provides favorable returns, we are very interested. In the context of capital management, we maintain a prudent approach, especially in an uncertain environment. We like having excess capital, which allows us to invest wisely, as we generate capital efficiently without requiring significant reinvestment to sustain growth. Our strategy includes considering acquisitions like Archer when they're necessary, but we also aim to return excess capital to shareholders. This year has demonstrated our ability to navigate these considerations effectively, as we've maintained strong capital levels, returned over 100% of net earnings to shareholders, and successfully completed an acquisition. Overall, this reflects a robust model for how we view our business moving forward.

Very good. Thank you for the answer. And then, just as a quick follow-up, Dermot. You gave us that sensitivity analysis about a gradual 5% change in the equity markets and fixed income and the impact it would have on revenue, was that for up markets, meaning if the gradual increase was 5% up, does that also reflect a down market, if markets were down 5%, that's the kind of impact we would expect to see?

That's correct, Gerard, that's correct.

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

Hey, good morning.

Good morning, Ebrahim.

I would like to follow up on some of your answers. Starting with capital allocation, I heard your response to Gerard's question about mergers and acquisitions. Can you share your thoughts on evaluating the stock in terms of price to earnings and price to tangible book? This year has presented a favorable market backdrop, and as an investor, I am interested in the resilience of return on equity for these firms. Robin or Dermot, could you discuss your confidence in ROE resilience? If the market conditions become challenging, how flexible is your system? Considering the current situation, how do you view stock valuation in relation to your commitment to return over 100% through buybacks and dividends? Thank you.

I'll take the second bit first, and then Dermot will reflect on the first part of your question. So, the good news is that we can also pay attention to the way that you all think about the stock and your views of our stock. And we appreciate the fact that many of you have expressed confidence in our forward direction. We believe in ourselves as well. And so, what we do, of course, consider price as one of the many inputs into our capital return framework. We don't view current prices as being problematic in terms of continuing our stock buybacks.

Ebrahim, when I took on the role a couple of years ago, I guess, I got a lot of questions about, is this just going to be more of the same or what's different? And now we're several quarters into the new team, and Robin has really kind of bolstered that team and through the strategic pillars, communication, the principles, the medium-term financial targets has really started to evolve the culture of BNY. And so, it is our commitment to deliver to our shareholders' positive operating leverage through the cycle. And so, if you just take a step back and look at this quarter's financials, 5% revenue growth, flat expense growth, 33% pre-tax margin, upper end of Tier 1 leverage, 6%, 23% return on tangible common equity, and a 22% EPS growth, and what I would say is a solid beast. So, I don't really think about the valuation of the firm on any given day. We just care about delivering for our clients and our shareholders. And if we do that in a first-class way, the valuation will take care of itself.

And you asked about the returns and our sort of comfort with them, look, we've given medium-term targets, as Dermot just said, that's sort of greater than or equal to 23% for ROTCE. And so, we, obviously, appreciate touching that, but doing it consistently over time is how we really view achieving targets. And in terms of the resiliency, remember the very nature of our business is actually got this diversification. We talked about the equity markets and the fixed income markets. I talked about the fact that it is software, its services, platforms and market valuations and transaction volumes. These are all things that we participate in. Capital markets activities has been important to us in 2024. The fact that we participate through our Corporate Trust business through our debt capital markets business, those are things that are participating in the growth of capital markets generally. We participate in scale of markets, and things like the treasury market is a good example. And so, this diversification of our mix helps us to be resilient in terms of the vagaries of any one particular market or cycle. Now, of course, things will move around, and that's why Dermot mentioned the point about our commitment to positive operating leverage in almost all reasonable scenarios that we can imagine because we recognize that NII, which is part of our mix, but so too are the fees and then our ability to control expenses. We could make expenses less than they are now. We've chosen to manage them at the level that they are because we believe that investing in that business for future growth is exactly what we should be doing right now given the environment, but it wouldn't always have to be so.

Appreciate that. And if I can sneak one quick follow-up, Dermot, I think you mentioned fourth quarter NII slightly lower than 3Q. We've seen a few rate cuts in Europe, in the US now in September. Is it fair to assume that absent a dramatic change in rates, this $1 billion in quarterly NII is kind of where we are bouncing around at the bottom? And then, if deposit growth picks up, QT stops, that it should go off that base? Or am I missing something?

So, if you look back at our last five quarters, we've kind of toggled between $1 billion and $1.1 billion. Q3 was a stronger quarter for us for a number of reasons, principally volatility in the market at the beginning of August and clients held more cash. And then, towards the back end of the quarter, once there was a clear view on where the Fed was going to go at rates, clients started to put money into money market funds, which ended up with us. And so, we kind of benefited from those two principal things. And so, our deposit balances have kind of leveled off here. We expect maybe NIBs grind down a little bit from here. And so, as I kind of said maybe 10 minutes ago, $1 billion for Q4 is the best guidance I can give you today. And for '25, I don't see NII being a kind of a headwind for us. And we've taken extensive action over the last several weeks in terms of repositioning our CIO book to insulate '25.

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

Hi. Good afternoon.

Hey, Betsy.

Okay. I have two quick questions. First, regarding the buyback, I understand you're showing strong earnings accretion and have a low capital requirement for your business model. You're exceeding your CET1 target of 11% and your Tier 1 leverage target, which ranges from 5.5% to 6%, and you're at the upper end of that range. When we consider the over 100%, how should we interpret the "plus" in that figure? It seems like 100% makes sense, but there’s potential to further optimize your capital structure. I’m curious about the timeframe you have in mind to achieve that optimization.

So, thanks for the question, Betsy. Last year, we returned a little north of 120%. This year, in January, we guided a 100% or more. Given the uncertainty in the markets, geopolitical, the U.S. Presidential elections, a wide range of uncertainty with Fed. In January, we thought the year was going to be very different to where it's ended up. And I think, on previous calls, we said we wanted for now stick towards the upper end of our Tier 1 leverage ratio, which is the 6% range. And so, when you take that and the Archer transaction, we kind of think we're still on track to do the 100% or more through three quarters, we're at 103%. So, I wouldn't expect that to materially change from here.

Okay. Got it. And then, the other question is you mentioned one-third of BNY is now on the platform model. And are you taking 100% of the firm there? And just wondering about implications for the runway for efficiency improvements as you execute on that? Thanks.

A quarter of the firm, approximately 13,000 employees, are currently on the platform. This transition occurred in two phases, in March and September, with another phase set to launch in the first quarter of next year. I don't view the platform operating model solely as a tool for efficiency. It will also drive top-line growth, enhance company operations, and foster a culture of more integrated thinking. Essentially, it serves as the means through which we achieve our three strategic pillars. To answer the question about going to full capacity, yes. It will likely take another 18 months for the entire firm to be fully transitioned. By the end of the first quarter of next year, we anticipate that about half of the firm will be operating on the model. The feedback we have received from our global team has been extremely positive, indicating that the platform has been effective for us as a company.

And Betsy, you remember the tail of benefit extends way past the 18-month point because sometimes it's not until folks are in the model and operating in that new approach that they're really able to examine some of the core questions that, that platform is confronted with in terms of how to optimize. So, we expect the benefit that Dermot was describing to be a multiyear endeavor past that 18-month point.

Got it. All right. Thanks so much. Appreciate it.

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

Hello. Just one wrap up from me. Dermot, I appreciate you highlighting the 5% revenue growth and flat expenses that contributed to a 20% earnings growth. That demonstrates the strength of the BK model. If we consider just one quarter, the sequential numbers reveal a slight shift, showing flat performance and a minor decline in earnings. I am curious if this provides any insights into our outlook as we approach 2025. Many of your business metrics and client wins are improving, so my instinct is to say it doesn't change much, but I would like to understand your perspective on this.

So, I think your gut is correct. It is no, Glenn. And it's all just about timing and when we onboard clients and put people on the platform and when the revenue starts to get recognized. So, it's just in terms of the backlog across all our businesses, strong pipeline continues to grow. And, yeah, so your intuition is correct.

We'll move to our next question from Rajiv Bhatia with Morningstar.

Yeah. Just a quick one for me. I guess, on the depository receipts business, and I appreciate it's a small business, but the number of sponsored programs continues to decline. Is that something we should continue to expect to decline? And is it competitive takeaways or something else that's driving that? Thanks.

I wouldn't place too much emphasis on that. We have discussed for several years the possibility of the sponsored program ending, and yet it remains in place. While deposit receipts is a relatively small part of our overall business, it holds significant importance for us as it allows us to connect with clients and has strong profit margins. We also possess a substantial market share in this area. Therefore, we will keep investing in it, as we view it as crucial for our overall strategy, and we do not anticipate a long-term decline in this business from our current perspective.

We also off-boarded some of the smaller clients in that particular business. So, the overall number may seem misleading because if you looked closely at the clients that contributed to that decline, you would find that it was largely due to the smaller clients.

Got it. Thank you. We'll move to our next question from Jim Mitchell with Seaport Global Securities.

My questions have all been asked and answered. Thanks.

We'll move to our next question from Brian Bedell with Deutsche Bank.

Thank you for my follow-up question. I have one more regarding the margins. You are mostly at your 33% target in most areas. As you generate more sales from transitioning to the platform model, and looking ahead to next year and beyond, what is your perspective on allocating some of that towards business investments versus potentially achieving margins exceeding 33%?

So, my response to that would be, we want to show you that we can achieve 33% margins consistently. We provided guidance for the first time in January and reached that goal pretty quickly. Our aim is to maintain that level over time. We're entering an interesting budget season because we accomplished a lot this year, and our teams are eager to achieve more next year. To balance that, we want to ensure we deliver positive operating leverage. How we set up the firm in the next eight weeks will shape our communication with you in January. We set those targets because we believe we can meet them. The positive aspect is that we reached our goal sooner than we anticipated, and now we want to demonstrate that we can sustain and improve those margins we've previously guided.

Brian, to give you a clearer picture of our approach, if you examine our performance by segment, you'll notice that we are pursuing operating leverage differently across our three segments, as we mentioned a year ago. To address your concerns regarding growth and investment, in Market and Wealth Services, we are content with our current margin and focused on increasing the overall size of the business, which we've successfully done. In the other segments, where we aim to enhance margins to meet our medium-term goals, we are actively pursuing margin growth. Therefore, your question is evident in how we're managing our segments.

Yeah. That's great color. Thank you very much.

And for our final question, we'll return to the line of Mike Mayo with Wells Fargo.

Hi. With all the discussion about transitioning employees to the new platform over the next one to two years, how significant do you think AI will be? Can you provide any metrics? I mean, while keeping expenses flat, I'm curious about your ongoing investment in AI. When Emily presented at the Boston Bank Conference last November, it appeared that BNY was fully committed to AI. The presentation seemed optimistic, but in the wider world, there are both successes and failures. So, how does AI fit into the overall platform strategy? How dedicated are you to AI, and can you share any concrete metrics with us? Thank you.

Sure. To reiterate, we have a quarter of our employees engaged in the platform's operating model. As Dermot mentioned, we’re on an 18-month trajectory from this point. The way I envision the platform's operating model is as we increasingly become a platforms company, focusing on large-scale software and service capabilities where we are typically market leaders in various industries. I won't repeat all the business examples we've discussed previously. It's clear to me that it makes sense for us to operate within this model, similar to how many successful platform companies worldwide are structured. This aligns with our broader strategy. Regarding AI, we have established an AI hub with a few hundred staff dedicated to this area. We firmly believe in the potential of AI to create revenue opportunities for our clients and enhance the effectiveness and efficiency of our team. While we haven't been very vocal about it, that shouldn't be interpreted as a lack of focus or investment — in fact, we have increased our investments in AI. At the same time, we are managing our expenses effectively and not allowing our enthusiasm for AI to distract us from important financial management. It’s a crucial lesson for us; we can pursue significant investments while still managing the company effectively. AI is a key area we are investing in, and we consider it vital for our future.

Thank you.

Thank you.

Thank you, operator. 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 2 o'clock pm Eastern Standard Time today. Have a great day.