Q1 2026 State Street Corp Earnings Call

April 17, 2026

John Woods: The conference is now in presentation mode. Your line is muted.

Operator: Welcome to State Street Corporation's Q1 2026 earnings conference call and webcast. Today's call will be hosted by Elizabeth Lynn, Head of Investor Relations at State Street. We ask that you please hold all questions until the completion of the formal remarks, at which time you'll be given instructions for the question and answer session. Today's discussion is being broadcast live on State Street's website at investors.statestreet.com. This conference call is also being recorded for replay. State Street's conference call is copyrighted and all rights are reserved. This call may not be recorded for rebroadcast or distribution in whole or in part without the expressed written authorization from State Street Corporation. The only authorized broadcast of this call will be housed on the State Street website. Now, I'd like to hand the call over to Elizabeth Lynn.

Operator: Welcome to State Street Corporation's Q1 2026 Earnings Conference Call and Webcast. Today's call will be hosted by Elizabeth Lynn, Head of Investor Relations at State Street. We ask that you please hold all questions until the completion of the formal remarks, at which time you'll be given instructions for the question and answer session. Today's discussion is being broadcast live on State Street's website at investors.statestreet.com. This conference call is also being recorded for replay. State Street's conference call is copyrighted and all rights are reserved. This call may not be recorded for rebroadcast or distribution in whole or in part without the expressed written authorization from State Street Corporation. The only authorized broadcast of this call will be housed on the State Street website. Now, I'd like to hand the call over to Elizabeth Lynn.

Elizabeth Lynn: Good morning, and thank you all for joining us. On our call today, our CEO, Ron O'Hanley, will speak first, then John Woods, our CFO, will take you through our Q1 2026 earnings presentation, which is available for download in the investor relations section of our website, investors.statestreet.com. Afterward, we'll be happy to take questions. Before we get started, I'd like to remind you that today's presentation will include results presented on a basis that excludes or adjusts one or more items from GAAP. Reconciliations of these non-GAAP measures to the most directly comparable GAAP or regulatory measure are available in the earnings release addendum. In addition, today's call will contain forward-looking statements.

Elizabeth Lynn: Actual results may differ materially from those statements due to a variety of important factors, such as those referenced in our discussion today and in our SEC filings, including the risk factor section in our Form 10-K. Our forward-looking statements speak only as of today, and we disclaim any obligation to update them, even if our views change. With that, let me turn it over to Ron.

In addition, today's call will contain forward-looking statements. Actual results may differ materially from those statements due to a variety of important factors, such as those referenced in our discussion today and in our SEC filings, including the risk factor section in our Form 10-K.

Ronald P. O'Hanley: Thank you, Liz. Good morning, everyone, and thank you for joining us. I'll begin with a few broader observations before John walks you through our financial results in more detail. Reflecting on the Q1 operating environment for a moment, several factors shaped investor sentiment in Q1, including the Iran war, divided views on the long-term impacts of artificial intelligence, and rising concerns on credit quality in certain parts of the financial system. Against this geopolitical and macroeconomic backdrop, we remain firmly focused on serving as an essential long-term partner to our clients and helping to deliver better outcomes for the world's investors and the people they serve. We continue to execute effectively on our strategy, supported by our distinctive capabilities, deep operational strengths, and a conservatively positioned balance sheet. That strategic positioning allowed us to deliver strong growth underpinned by continued financial and strategic progress during Q1.

Ron O'Hanley: Thank you, Liz. Good morning, everyone, and thank you for joining us. I'll begin with a few broader observations before John walks you through our financial results in more detail. Reflecting on the Q1 operating environment for a moment, several factors shaped investor sentiment in Q1, including the Iran war, divided views on the long-term impacts of artificial intelligence, and rising concerns on credit quality in certain parts of the financial system. Against this geopolitical and macroeconomic backdrop, we remain firmly focused on serving as an essential long-term partner to our clients and helping to deliver better outcomes for the world's investors and the people they serve. We continue to execute effectively on our strategy, supported by our distinctive capabilities, deep operational strengths, and a conservatively positioned balance sheet. That strategic positioning allowed us to deliver strong growth underpinned by continued financial and strategic progress during Q1.

Our forward-looking statements speak only as of today, and we disclaim any obligation to update them. Even if our views change with that, let me turn it over to Ron.

Thank you, Liz. Good morning, everyone, and thank you for joining us.

I'll begin with a few broader observations before John walks you through our financial results in more detail.

Reflecting on the first quarter operating environment for a moment, several factors shaped investor sentiment in Q1, including the Iran war, divided views on the long-term impacts of artificial intelligence, and rising concerns on credit quality in certain parts of the financial system.

Against this geopolitical and macroeconomic backdrop, we remained firmly focused on serving as an essential long-term partner to our clients and helping to deliver better outcomes for the world's investors and the people they serve.

We continue to execute effectively on our strategy, supported by our distinctive capabilities, deep operational strengths, and a conservatively positioned balance sheet.

That strategic positioning allowed us to deliver strong growth, underpinned by continued financial and strategic progress during the first quarter.

Ronald P. O'Hanley: Our results in Q1 also underscore the inherent strength and diversification of our business model, which allows us to successfully navigate times of uncertainty and heightened market volatility, as we saw in Q1, with both FX trading and NII contributing meaningfully to our year-over-year financial performance. The scale, capabilities, and leading market positions of our core businesses working together as One State Street provide balance across varying market environments, reinforce the value of our platform for clients, and accrete value for our shareholders. Slide 2 of our investor presentation outlines our Q1 highlights, excluding notable items, which John will address shortly. We had a strong start to 2026 with broad-based positive year-over-year revenue performance across the franchise. Reported earnings per share increased 22%, while excluding notable items, EPS grew a very strong 39% year-over-year, supported by record quarterly fee revenue, NII, and total revenue.

Ron O'Hanley: Our results in Q1 also underscore the inherent strength and diversification of our business model, which allows us to successfully navigate times of uncertainty and heightened market volatility, as we saw in Q1, with both FX trading and NII contributing meaningfully to our year-over-year financial performance. The scale, capabilities, and leading market positions of our core businesses working together as One State Street provide balance across varying market environments, reinforce the value of our platform for clients, and accrete value for our shareholders. Slide 2 of our investor presentation outlines our Q1 highlights, excluding notable items, which John will address shortly. We had a strong start to 2026 with broad-based positive year-over-year revenue performance across the franchise. Reported earnings per share increased 22%, while excluding notable items, EPS grew a very strong 39% year-over-year, supported by record quarterly fee revenue, NII, and total revenue.

Our results in the first quarter also underscore the inherent strengths and diversification of our business model.

Which allows us to successfully navigate times of uncertainty and heightened market volatility. As we saw in Q1, with both FX trading and NII contributing meaningfully to our year-over-year financial performance.

The scale, capabilities, and leading market positions of our core businesses, working together as one State Street, provide balance across varying market environments, reinforce the value of our platform for clients, and accrue value for our shareholders.

Why page 2 of our investor presentation? It outlines our first quarter highlights, excluding notable items, which John will address shortly.

We had a strong start to 2026, with broad-based, positive year-over-year revenue performance across the franchise.

Ronald P. O'Hanley: Importantly, substantial positive operating leverage in Q1 drove another quarter of year-over-year pre-tax margin expansion. Quarter after quarter, the proof points continue to demonstrate that our strategy is delivering consistent, durable improvements in financial performance, with Q1 marking our ninth consecutive quarter of year-over-year positive operating leverage, excluding notable items. Stepping back from the quarter for a moment, I want to highlight some of the many growth opportunities we are realizing and see ahead at State Street. Through disciplined business investments and focused execution against a clear set of strategic priorities, we believe we are well-positioned to continue to accelerate growth and deliver substantial and sustainable returns for our shareholders. We are drawing on deep, broad-based technology-driven innovation and delivering digital platforms, compelling AI tools, agentic, and client solutions.

Ron O'Hanley: Importantly, substantial positive operating leverage in Q1 drove another quarter of year-over-year pre-tax margin expansion. Quarter after quarter, the proof points continue to demonstrate that our strategy is delivering consistent, durable improvements in financial performance, with Q1 marking our ninth consecutive quarter of year-over-year positive operating leverage, excluding notable items. Stepping back from the quarter for a moment, I want to highlight some of the many growth opportunities we are realizing and see ahead at State Street. Through disciplined business investments and focused execution against a clear set of strategic priorities, we believe we are well-positioned to continue to accelerate growth and deliver substantial and sustainable returns for our shareholders. We are drawing on deep, broad-based technology-driven innovation and delivering digital platforms, compelling AI tools, agentic, and client solutions.

Reported earnings per share increased 22%, while excluding notable items, EPS grew a very strong 39% year-over-year, supported by record quarterly fee revenue, II, and total revenue.

Importantly, substantial positive operating leverage in the first quarter drove another quarter of year-over-year pre-tax margin expansion.

Quarter after quarter, the proof points continue to demonstrate that our strategy is delivering consistent, durable improvements in financial performance.

With Q1 marking our ninth consecutive quarter of year-over-year positive operating leverage, excluding notable items.

Accepting being back from the quarter for a moment, I want to highlight some of the many growth opportunities we are realizing and see ahead at State Street.

For discipline, business investments, and focused execution against a clear set of strategic priorities, we believe we are well positioned to continue to accelerate growth and deliver substantial and sustainable returns for our shareholders.

Ronald P. O'Hanley: Together, these capabilities help our clients succeed in a constantly evolving market, while strategically pivoting State Street to faster-growing segments of the industry. In digital, we are focused on building the market infrastructure clients need to bridge seamlessly between traditional and digital finance. Following the recent launch of our digital asset platform, we are executing against a clear and comprehensive product roadmap that includes tokenization of assets, funds, and cash for institutional investors. These capabilities are designed to drive greater efficiency, enhance liquidity, and support new avenues of growth for markets, our clients, and for State Street. We are well advanced with clients to support their launch of tokenized fund strategies this year. Furthermore, State Street is deeply engaged in a number of digital asset-related industry initiatives, including DTCC's tokenization efforts, as well as Finality's work to create an ecosystem of central bank-connected blockchain-based payment systems.

Ron O'Hanley: Together, these capabilities help our clients succeed in a constantly evolving market, while strategically pivoting State Street to faster-growing segments of the industry. In digital, we are focused on building the market infrastructure clients need to bridge seamlessly between traditional and digital finance. Following the recent launch of our digital asset platform, we are executing against a clear and comprehensive product roadmap that includes tokenization of assets, funds, and cash for institutional investors. These capabilities are designed to drive greater efficiency, enhance liquidity, and support new avenues of growth for markets, our clients, and for State Street. We are well advanced with clients to support their launch of tokenized fund strategies this year. Furthermore, State Street is deeply engaged in a number of digital asset-related industry initiatives, including DTCC's tokenization efforts, as well as Finality's work to create an ecosystem of central bank-connected blockchain-based payment systems.

We are drawing on deep, broad-based, technology-driven innovation and delivering digital platforms and compelling AI tools at a genetics and Client Solutions.

Together, these capabilities help our clients succeed in a constantly evolving market while strategically pivoting State Street to faster-growing segments of the industry.

In digital, we are focused on building the market infrastructure. Clients need to bridge seamlessly between traditional and digital finance.

Following the recent launch of our digital asset platform, we are executing against a clear and comprehensive product roadmap. That includes tokenization of assets, funds, and cash for institutional investors.

These capabilities are designed to drive greater efficiency, enhance liquidity, and support new avenues of growth for markets, our clients, and for State Street.

We are well advanced with clients to support their launch of tokenized fund strategies this year.

Ronald P. O'Hanley: These initiatives are key to the development of digital markets and consistent with our track record as a critical market infrastructure provider and standard setter. Across alternatives, including private markets and hedge funds, we continue to see compelling long-term growth potential as the segment matures, with clients leveraging State Street to bring innovative solutions to markets. Our leadership positions across both investment servicing and investment management position us well to capture opportunities as we broaden access and simplify operations for clients and our clients' clients. In wealth services, we are investing in leveraging Charles River's capabilities alongside our strategic partnership with Apex Fintech Solutions to build a differentiated, fully digital, and globally scalable wealth custody and clearing solution. This positions us to serve wealth advisors and self-directed wealth platforms and unlock a new avenue for growth that leverages our strength across investment servicing and investment management.

Ron O'Hanley: These initiatives are key to the development of digital markets and consistent with our track record as a critical market infrastructure provider and standard setter. Across alternatives, including private markets and hedge funds, we continue to see compelling long-term growth potential as the segment matures, with clients leveraging State Street to bring innovative solutions to markets. Our leadership positions across both investment servicing and investment management position us well to capture opportunities as we broaden access and simplify operations for clients and our clients' clients. In wealth services, we are investing in leveraging Charles River's capabilities alongside our strategic partnership with Apex Fintech Solutions to build a differentiated, fully digital, and globally scalable wealth custody and clearing solution. This positions us to serve wealth advisors and self-directed wealth platforms and unlock a new avenue for growth that leverages our strength across investment servicing and investment management.

Furthermore, State Street is deeply engaged in a number of digital asset-related industry initiatives, including DTCC tokenization efforts, as well as Finality work to create an ecosystem of central bank-connected, blockchain-based payment systems.

These initiatives are key to the development of digital markets and consistent with our track record as a critical market infrastructure provider and standard setter.

Across Alternatives, including private markets and hedge funds, we continue to see compelling long-term growth potential as the segment matures, with clients leveraging State Street to bring innovative solutions to markets.

Our leadership positions across both investment servicing and investment management position us well to capture opportunities as we broaden access and simplify operations for clients and our clients.

And Wealth Services. We are investing in leveraging Charles River's capabilities alongside our strategic partnership with Apex Financial Solutions to build a differentiated, fully digital, and globally scalable wealth custody and clearing solution.

Ronald P. O'Hanley: Finally, at State Street Investment Management, our strong track record of innovation, differentiated solutions, and scaled franchises in areas such as ETFs, cash, and retirement, to name just a few, create multiple avenues for growth. An illustration of our progress is the way we provide barbelled investment exposure at scale to serve distinct client needs. At one end, SPLG, our low-cost US S&P 500 ETF, is gaining strong traction in retail and wealth channels. It ranked as the number one asset-gathering ETF globally in Q1, with $27 billion of inflows in that fund alone. At the other end, SPY continues to anchor institutional usage as the market's liquidity benchmark, with nearly $4 trillion of notional value traded in the quarter, representing roughly 17% of total US-listed ETF volume.

This positions us to serve wealth advisors and self-directed wealth platforms, and unlock a new avenue for growth that leverages our strengths across investment servicing and investment management.

Ron O'Hanley: Finally, at State Street Investment Management, our strong track record of innovation, differentiated solutions, and scaled franchises in areas such as ETFs, cash, and retirement, to name just a few, create multiple avenues for growth. An illustration of our progress is the way we provide barbelled investment exposure at scale to serve distinct client needs. At one end, SPLG, our low-cost US S&P 500 ETF, is gaining strong traction in retail and wealth channels. It ranked as the number one asset-gathering ETF globally in Q1, with $27 billion of inflows in that fund alone. At the other end, SPY continues to anchor institutional usage as the market's liquidity benchmark, with nearly $4 trillion of notional value traded in the quarter, representing roughly 17% of total US-listed ETF volume.

And finally, at State Street Investment Management, our strong track record of innovation, differentiated solutions, and scaled franchises in areas such as ETFs, cash, and retirement, to name just a few, create multiple avenues for growth.

An illustration of our progress is the way we provide barbelled investment exposure at scale to serve distinct client needs.

At one end, SPYM, our low-cost U.S. S&P 500 ETF, is gaining strong traction in retail and wealth channels. It ranked as the number one asset-gathering ETF globally in the first quarter, with $27 billion of inflows in that fund alone.

At the other end, SPY continues to anchor institutional usage as the market’s liquidity benchmark.

Ronald P. O'Hanley: Together, this underscores the strength, breadth, and flexibility of our platform across client segments and our abilities to successfully extend from our leading position in SPY to other high-growth ETF segments. Our scaled franchises within investment management also create a competitive advantage and will enable us to capitalize on several important global trends, including the shift from savings to investment, the move globally towards funded retirement systems, the expansion of digital assets, and the continued democratization of investing. For example, in digital, we are preparing to launch the State Street Galaxy Onchain Liquidity Sweep Fund, a tokenized private liquidity fund designed to support 24/7 on-chain liquidity for institutional investors. Together, these strategic initiatives underscore the broad range of opportunities ahead as we focus on driving near and long-term growth, enhancing client capabilities, and strengthening our platform.

Ron O'Hanley: Together, this underscores the strength, breadth, and flexibility of our platform across client segments and our abilities to successfully extend from our leading position in SPY to other high-growth ETF segments. Our scaled franchises within investment management also create a competitive advantage and will enable us to capitalize on several important global trends, including the shift from savings to investment, the move globally towards funded retirement systems, the expansion of digital assets, and the continued democratization of investing. For example, in digital, we are preparing to launch the State Street Galaxy Onchain Liquidity Sweep Fund, a tokenized private liquidity fund designed to support 24/7 on-chain liquidity for institutional investors. Together, these strategic initiatives underscore the broad range of opportunities ahead as we focus on driving near and long-term growth, enhancing client capabilities, and strengthening our platform.

With nearly $4 trillion of notional value traded in a quarter, representing roughly 17% of total US-listed ETF volume.

Together, this underscores the strength, breadth, and flexibility of our platform across client segments and our abilities to successfully extend from our leading position in SPY to other high-growth ETFs.

Our scaled franchises within Investment Management also create a competitive advantage.

And will enable us to capitalize on several important global trends, including the shift from savings to investment, the move globally towards funded retirement systems, the expansion of digital assets, and the continued democratization of investing.

For example, in Digital, we are preparing to launch the State Street Galaxy On Chain Liquidity Sweep Fund, a tokenized private liquidity fund designed to support 24/7 on-chain liquidity for institutional investors.

Ronald P. O'Hanley: At the same time, the next phase of our operating model transformation will strengthen our ability to deliver sustainable growth and long-term shareholder value. We are scaling AI-enabled capabilities, embedding more agile ways of working across the organization, and continuing to modernize our technology with a continued emphasis on operational excellence, consistent execution of our strategy, and delivering for our clients. We are strengthening and improving our core end-to-end capabilities and technology through the deployment of our agentic platform and AI foundry to scale and accelerate AI in high-leverage areas, while also advancing capabilities in areas such as State Street Alpha and Charles River Development. These actions position us to operate more effectively, partner more deeply with clients, and help drive the next phase of industry evolution. To conclude, we are pleased with our strong start to 2026, while recognizing that our potential is even greater.

Ron O'Hanley: At the same time, the next phase of our operating model transformation will strengthen our ability to deliver sustainable growth and long-term shareholder value. We are scaling AI-enabled capabilities, embedding more agile ways of working across the organization, and continuing to modernize our technology with a continued emphasis on operational excellence, consistent execution of our strategy, and delivering for our clients. We are strengthening and improving our core end-to-end capabilities and technology through the deployment of our agentic platform and AI foundry to scale and accelerate AI in high-leverage areas, while also advancing capabilities in areas such as State Street Alpha and Charles River Development. These actions position us to operate more effectively, partner more deeply with clients, and help drive the next phase of industry evolution. To conclude, we are pleased with our strong start to 2026, while recognizing that our potential is even greater.

Together, these strategic initiatives underscore the broad range of opportunities ahead as we focus on driving near- and long-term growth, enhancing client capabilities, and strengthening our platform.

At the same time, the next phase of our operating model transformation will strengthen our ability to deliver sustainable growth and long-term shareholder value.

We are scaling AI-enabled capabilities and betting on more agile ways of working across the organization and continuing to modernize our technology, with a continued emphasis on operational excellence, consistent execution of our strategy, and delivering for our clients.

We are strengthening and improving our core end-to-end capabilities and technology through the deployment of our agentic platform and AI Foundry to scale and accelerate AI in high-leverage areas, while also advancing capabilities in areas such as State Street Alpha and Charles River Development.

Ronald P. O'Hanley: We see broad-based strength across the franchise, and our Q1 results reinforce that our strategy is translating into consistent and durable improvements in financial performance. At the same time, we continue to transform across the platform and accelerate the deployment of AI agents, which holds significant opportunity for State Street and our clients, given the investment, operational, and technology intensity of what we do. In July, we will provide a detailed update on our strategic growth and transformation initiatives and how these position us to drive stronger performance over the medium term. We are encouraged by our progress, mindful of the environment, and confident in our ability to continue delivering as we move through the year. With that, I'll turn it over to John to walk you through the Q1 in more detail.

Ron O'Hanley: We see broad-based strength across the franchise, and our Q1 results reinforce that our strategy is translating into consistent and durable improvements in financial performance. At the same time, we continue to transform across the platform and accelerate the deployment of AI agents, which holds significant opportunity for State Street and our clients, given the investment, operational, and technology intensity of what we do. In July, we will provide a detailed update on our strategic growth and transformation initiatives and how these position us to drive stronger performance over the medium term. We are encouraged by our progress, mindful of the environment, and confident in our ability to continue delivering as we move through the year. With that, I'll turn it over to John to walk you through the Q1 in more detail.

To conclude, we are pleased with our strong start to 2026, while recognizing that our potential is even greater.

We see broad-based strength across the franchise, and our first quarter results reinforce that our strategy is translating into consistent and durable improvements in financial performance.

At the same time, we continue to transform across the platform and accelerate the deployment of AI agents.

which holds significant opportunity for State Street and our clients, given the investment, operational, and technology intensity of what we do.

In July, we will provide a detailed update on our strategic growth and transformation initiatives, and how these position us to drive stronger performance over the medium term.

We are encouraged by our progress, mindful of the environment, and confident in our ability to continue delivering as we move through the year.

John Woods: Thank you, Ron, and good morning, everyone. We had an excellent start to 2026 with broad-based year-over-year growth across the franchise, driving record quarterly revenues and over 600 basis points of positive operating leverage in Q1, excluding notable items. These results reflect disciplined execution alongside ongoing investment across our portfolio of strategic growth areas. Now, let me dive into the details of Q1, excluding notable items, starting on slide 3. In Q1, total revenue increased 16% year-over-year to a record $3.8 billion. Fee revenue of $3 billion increased 15% year-over-year, driven by strong performance across investment management, investment services, and markets. Net interest income of $835 million increased 17% year-over-year, primarily reflecting continued net interest margin expansion.

With that, I'll turn it over to John Woods to walk you through the first quarter in more detail.

Thank you, Ron. And good morning, everyone.

We had an excellent start to 2026 with broad-based year-over-year growth, the franchise driving record quarterly revenues, and over 600 basis points of positive operating leverage in the quarter, excluding notable items.

These results reflect disciplined execution, alongside ongoing investment across our portfolio of strategic growth areas.

Now, let me dive into the details of the quarter, excluding notable items, starting on flag 3.

In the first quarter, total revenue increased 16% year-over-year to a record $3.8 billion.

Revenue of $3 billion increased 15% year-over-year, driven by strong performance across Investment Management, Investment Services, and Markets.

Net interest income of $835 million increased 17% year-over-year, primarily reflecting continued net interest margin expansion.

John Woods: Expenses of $2.7 billion increased 9% year-over-year, driven by higher revenue, strategic investments, and the impact of currency translation, which was a headwind to expenses, but a benefit to revenues. Taken together, this performance drove a significant improvement in profitability, with 400 basis points of pre-tax margin expansion and a roughly 4 percentage point increase in ROTCE to 20%. Before moving on, let me briefly touch on notable items recognized in the quarter. Notable items totaled $130 million pre-tax in Q1, or $0.35 per share after tax, reflecting repositioning charges and the re-scoping of a middle office client contract. Turning to slide 4. Servicing fees in the quarter increased 11% year-over-year to $1.4 billion, reflecting higher average market levels, the benefit of currency translation, and continued organic growth supported by net client asset activity, flows, and new business.

Expenses of $2.7 billion increased 9% year-over-year, driven by higher revenue, strategic investments, and the impact of currency translation, which was a headwind to expenses but a benefit to revenues.

Taken together, this performance drove a significant improvement in profitability, with 400 basis points of pre-tax margin expansion and a roughly 4 percentage point increase in ROE to 20%.

Before moving on, let me briefly touch on notable items recognized in the quarter.

Notable items totaled $130 million pre-tax in the first quarter, or $0.35 per share after tax, reflecting repositioning charges and the rescue of a middle office client contract.

John Woods: AUCA ended the quarter at a record $54.5 trillion, up 17% year-over-year, primarily reflecting higher period-end market levels, positive client flows, and net new business. Q1 servicing fee sales were $56 million. These were well distributed across regions and aligned with our strategic focus areas, particularly back-office services and alternatives clients. Looking ahead, we continue to target $350 to $400 million of sales in 2026. The pipeline remains healthy, with broad geographic and customer segment representation, including Asia Pacific, EMEA, emerging markets, and alternatives. Additionally, we reported one new Alpha mandate win during the quarter, highlighting continued client engagement with our integrated front-to-back platform. Moving now to slide five. Management fees increased 23% year-over-year to $724 million in Q1, driven by higher average market levels and net inflows. Assets under management increased 20% year-over-year to $5.6 trillion, reflecting higher period-end market levels and continued client inflows.

Turning to slide 4, servicing fees in the quarter increased 11% year-over-year to $1.4 billion, reflecting higher average market levels. The benefit of currency translation and continued organic growth, supported by net client asset activity, flows, and new business.

AUA entered the quarter at a record $54.5 trillion.

17% year-over-year, primarily reflecting higher period-end market levels, positive client flows, and net new business.

First-quarter servicing fees sales were $56 million.

These were well distributed across regions and aligned with our strategic focus areas, particularly back office services and Alternatives clients.

Looking ahead, we continue to target $350 to $400 million of sales in 2026.

The pipeline remains healthy, with broad geographic and customer segment representation, including APAC, EMEA, emerging markets, and alternatives.

Additionally, we reported one new Alpha mandate win during the quarter, highlighting continued climate engagement with our integrated front-to-back platform.

Moving on to slide 5, management fees increased 23% year-over-year to $724 million in the first quarter, driven by higher average market levels and net inflows.

John Woods: Net inflows totaled $49 billion for the quarter, led by strength across index strategies and solutions, including ETFs in fixed income, as well as our cash franchise. Within ETFs, net inflows were $25 billion, driven by strong flows and market share gains in our US low-cost suite. As Ron noted, SPY, our low-cost S&P 500 ETF, was the largest asset-gathering ETF globally during the quarter. We also continued to advance product innovation and strategic partnerships, launching 57 new products and solutions during the quarter that are creating new avenues for growth. As a signpost of that progress, our State Street Bridgewater All Weather ETF surpassed $1 billion in assets under management during the quarter. We were also pleased to see our investment-grade public and private credit ETF, developed in partnership with Apollo Global Management, reached a new high watermark during Q1, with AUM of over $800 million.

Assets under management increased 20% year-over-year to $5.6 trillion, reflecting higher period-end market levels and continued client inflows.

Net inflows totaled $49 billion for the quarter, led by strength across index strategies and solutions, including ETFs and fixed income, as well as our cash franchise.

Within ETFs, net inflows were $25 billion, driven by strong flows and market share gains in our U.S., low-cost suite.

As Ron noted, SPY, our low-cost S&P 500 ETF, was the largest asset-gathering ETF globally during the quarter.

Launching 57 new products and solutions during the quarter that are creating new avenues for growth.

As a signpost of that progress, our State Street Bridgewater All Weather ETF surpassed $1 billion in assets under management during the quarter,

We were also pleased to see our investment grade public and private credit ETF, developed in partnership with Apollo Global Management, reach a new high water mark during Q1, with AUM of over $800 million.

John Woods: Turning to slide 6. Markets remains one of the key pillars of our One State Street strategy. It plays a key role in linking our investment services and investment management platforms, strengthening the connectivity across the firm, and enabling more cohesive client-led solutions. FX trading revenue increased 29% year-over-year to $435 million in Q1, reflecting a strong 25% increase in client trading volumes, which reached a new record level as we supported clients amid a dynamic market environment. Securities finance revenue increased 2% year-over-year, supported by growth in client lending balances. Moving on to slide 7. Software services revenue increased 7% year-over-year in Q1, driven primarily by higher professional services and software and data revenues, reflecting continued SaaS go lives and platform adoption across our client base.

Turning to slide 6.

Markets remains one of the key pillars of our One State Street strategy. It plays a key role in linking our Investment Services and Investment Management platforms, strengthening the connectivity across the firm and enabling more cohesive, client-led solutions.

FX trading revenue increased 29% year-over-year to $435 million in the first quarter, reflecting a strong 25% increase in client trading volumes, which reached a new record level, as we supported clients amid a dynamic market environment.

Security Finance revenue increased 2% year-over-year, supported by growth in client lending balances.

John Woods: Software business momentum is also reflected in our annually recurring revenue, which increased 12% year over year, and our revenue backlog, which increased 11%. Turning now to Slide 8. Q1 net interest income of $835 million increased 17% year over year, primarily reflecting a 16-basis-point expansion in net interest margin to 116 basis points and average interest earning asset growth of 1%. The year over year increase in NIM reflected improvements in funding mix, continued benefits from investment portfolio repricing, and run-off from terminated hedges, partially offset by lower average market rates. Growth in interest earning assets was driven primarily by higher client deposits, partially offset by a reduction in short-term wholesale funding. Turning to Slide 9. Expenses were up 9% year over year in Q1, excluding notable items. Currency translation accounted for approximately two percentage points of the increase.

Moving on to slide 7, Software Services revenue increased 7% year-over-year in the first quarter, driven primarily by higher Professional Services, and software and data revenues, reflecting continued SaaS go-lives and platform adoption across our client base.

Software business momentum is also reflected in our annual recurring revenue, which increased 12% year-over-year, and our revenue backlog, which increased 11%.

Turning now to slide 8.

First quarter net interest income of $835 million increased 17% year-over-year, primarily reflecting a 16 basis point expansion in net interest margin to 1.16%, and average interest-earning asset growth of 1%.

The year-over-year increase in NIM reflected improvements in funding mix, continued benefits from the Investment Portfolio, and repricing and runoff from terminated hedges, partially offset by lower average market rates.

Growth in interest-earning assets was driven primarily by higher client deposits, partially offset by a reduction in short-term wholesale funding.

Turning to slide 9, expenses were up 9% year-over-year in the first quarter, excluding notable items.

John Woods: Of the remaining 7 percentage points, approximately 5 percentage points reflected higher revenue-related costs, with the remaining balance of 2 percentage points driven by continued strategic investments and run the bank expenses net of productivity savings. Moving now to capital and liquidity on slide 10. Our capital levels remain strong, enabling disciplined capital deployment aligned with our strategic priorities. At quarter end, our standardized CET1 ratio was 10.6%, down approximately 100 basis points from the prior quarter. The decrease primarily reflects higher risk-weighted assets associated with a normalization of RWA in our markets business from episodically low levels in the prior quarter, along with the impact of US dollar appreciation in March, and to a lesser extent, equity market appreciation on the final day of the quarter. Turning to capital return.

Currency translation accounted for approximately 2 percentage points of the increase.

Of the remaining 7 percentage points, approximately 5 percentage points reflected higher revenue-related costs.

With the remaining balance of 2 percentage points, driven by continued strategic investments and run-the-bank expenses, net of productivity savings.

Moving on to Capital and liquidity on slide 10. Our capital levels remain strong, enabling disciplined capital deployment aligned with our strategic priorities.

At quarter end, our standardized CET1 ratio was 10.6%, down approximately 100 basis points from the prior quarter.

The decrease primarily reflects higher risk-weighted assets associated with a normalization of RWA and our Markets business from episodically low levels in the prior quarter, along with the impact of US dollar appreciation in March.

And, to a lesser extent, equity market appreciation on the final day of the quarter.

John Woods: In Q1, we repurchased $400 million in common shares and declared $233 million in common stock dividends, resulting in total capital return of $633 million, equivalent to a payout ratio of 90%. Before moving on, I call your attention to a new slide 13 in the appendix on our NDFI loan portfolio. This lending remains disciplined and client-focused, primarily supporting investment services clients. In addition, this is a highly collateralized and diversified portfolio that has performed resiliently across cycles and continues to support durable client relationships. Let's turn to our full-year outlook, which as a reminder, excludes notable items. We continue to assume that global equity markets are flat this year on a point-to-point basis from the end of 2025, while remaining mindful of the potential for variability in the operating environment.

Turning to capital return in the first quarter, we repurchased $400 million in common shares and declared $233 million in common stock dividends, resulting in a total capital return of $633 million, equivalent to a payout ratio of 90%.

Before moving on, I call your attention to news slide 13 in the appendix on our NDF loan portfolio.

This lending remains disciplined and client-focused, primarily supporting Investment Services clients. In addition, this is a highly collateralized and diversified portfolio that has performed resiliently across cycles and continues to support durable client relationships.

Let's turn to our full-year outlook, which has a reminder that excludes notable items.

John Woods: Against this backdrop, we now expect fee revenue growth in the 7% to 9% range, an increase from our previous outlook of 4% to 6%, reflecting a stronger than expected Q1, along with continued organic growth and solid momentum across the franchise. Turning to net interest income. Following our strong Q1 performance, we now expect NII growth in the 8% to 10% range, representing an improvement from our previous outlook for low single-digit growth. We currently expect expenses to increase by 5% to 6%, up from our prior 3% to 4% outlook, primarily reflecting higher revenue-related costs. Finally, we continue to expect an effective tax rate of approximately 22% for the full year and a total payout ratio of roughly 80%, subject to board approval and other factors. With that operator, we can now open the call for questions.

We can continue to assume that global equity markets are flat this year on a point-to-point basis from the end of 2025, while remaining mindful of the potential for variability in the operating environment.

Against this backdrop, we now expect fee revenue growth in the 7% to 9% range.

An increase from our previous outlook of 4% to 6%, reflecting a stronger-than-expected Q1 along with continued organic growth and solid momentum across the franchise.

Expect knee growth in the 8% to 10% range, representing an improvement from our previous outlook for low single-digit growth.

We currently expect expenses to increase by 5 to 6%, up from our prior 3 to 4% outlook, primarily reflecting higher revenue-related costs.

Finally, we continue to expect an effective tax rate of approximately 22% for the full year, and a total payout ratio of roughly 80%, subject to Board approval and other factors.

And with that, operator, we can now open the call for questions.

Operator: At this time, we will open the floor for questions. If you would like to ask a question, please press star five on your telephone keypad. You may remove yourself at any time by pressing star five again. Please note you'll be allowed one question and one related follow-up question. Again, that's star five to ask a question. We'll pause for just a moment. Our first question will come from Glenn Schorr with Evercore ISI. Your line is open. Please go ahead.

At this time, we will open the floor for questions. If you would like to ask a question, please press star 5 on your telephone keypad. You may remove yourself at any time by pressing star 5. Again, please note you'll be allowed one question and one related follow-up question. Again, that's star 5 to ask a question.

I'm a post for just a moment.

Our first question will come from Glenn Shaw with Evercore. Your line is open. Please go ahead.

Glenn Schorr: Hi. Thanks very much. First one is, I'm happy about the, obviously, the pickup in NII, and I think the NIM expansion during the quarter was great. I find it interesting that average interest earning assets were only up 1%, so I'm just interested if you could talk to the whole tug-of-war dynamic of better NIM but not a ton of earning asset growth. Does any of that change within your updated guidance? Thank you.

Hi, thanks very much. Um, first one is, is I find I'm happy about, obviously, the pickup in knee, and I think the NIM expansion during the quarter was great.

John Woods: Yeah. Thanks for the question, Glenn. I would say that we're very pleased to see our net interest margin progress, and, as mentioned, much of that is coming on the funding mix side of the balance sheet. As we see growth in the deposit levels, which surged in Q1, we are continuing the plans from the last couple of quarters of reducing our short-term wholesale funding. That's higher cost. We just find that to be an appropriate rotation to higher quality funding on the funding mix side. Interest earning assets will be less of the story. Q1 was driven almost entirely by net interest margin. I think that's a similar story for our guide for 2026. That range that you articulated or that we talked about earlier is almost entirely driven by net interest margin as well.

I find it interesting that uh average average interest earning assets are only up 1% so I'm just interested. If you could talk to the the the whole tug award Dynamic of better Nim but not a ton of earning asset growth and does any of that change within your updated guidance. Thank you.

Yeah. Um, so thanks for the question Glenn. I I would say that. Um, you know, we're we're very pleased to see, um, our net interest margin progress. And, um, as mentioned, uh, much of that is coming on the funding mix side of the balance sheet. And so as we see, uh, growth in the deposit levels uh, which, which surged in the first quarter. Um, we are, uh, continuing the, um, the the plans from the last couple of quarters of of reducing our short-term Health funding. And so that's higher cost. And uh we just find that to be an appropriate rotation uh to higher quality funding on the funding mix side and so interesting assets will be less of the story. It wasn't. It was you know 1 key was driven almost entirely by net interest margin. I think that's a similar story for our, our guide for 2026, um, that that range that you articulated. Um, uh, or that we we talked about earlier is almost entirely driven

John Woods: Interest earning assets are really going to be something we keep an eye on, but not really what's going to drive the net interest income in 2026.

By net interest margin as well. And so, um, interest earning assets, um, are really, um, going to be something we keep an eye on, but not really what's going to drive the net interest income, um, you know, in '26.

Ronald P. O'Hanley: Operator, we can take the next question.

Elizabeth Lynn: Operator, we can take the next question.

Operator, we can take the next question.

Operator: My apologies. Our next question will come from Alexander Blostein from Goldman Sachs. Your line is now open. Please go ahead.

I apologize. Our next question will come.

Please go ahead.

Alexander Blostein: Hi, good morning. Thank you for the question. I was hoping we could spend a minute on the goals you guys are trying to achieve from this next chapter of State Street's transformation. I know you alluded to the fact that you'll provide a lot more detail in July, but since you kind of cracked that door open, I was hoping you can give us the kind of overarching goals you're trying to achieve. Is that faster revenue growth? Is it better profitability or both? I believe your last kind of official medium-term pre-tax margin target is somewhere in the low thirties. Is the goal to effectively get that into a higher range over time or any other way you can give us some high-level framework would be helpful.

John Woods: Yeah, I'll start off here. I think as you may have heard me comment on this in prior sessions. I think that we had a goal to get to 30% pre-tax margin, which we've delivered on at the end of 2025. Again, here in early 2026, you're seeing us meet that threshold. The guide that we delivered today actually would, if you play that through, implies in the neighborhood of 31% pre-tax margin. We think we're moving the platform forward from a profitability standpoint. I think the second big driver will be growth, right? What you'll probably hear from us in July is an updated view about what we think this platform can deliver over the medium term from a profitability standpoint. We feel like there are extremely attractive opportunities to grow profitability metrics, pre-tax margin, and other metrics.

Hi, good morning. Uh, thank you for your question. Uh, I was hoping we could spend a minute on, uh, the goals you guys are trying to achieve from the next chapter of State Street transformation. Uh, I know you alluded to the fact that you'll provide a lot more detail in July, but since you kind of cracked that door open, I was hoping you can give us the kind of overarching goals you're trying to achieve. Is that faster revenue growth? Is it better profitability or both? I believe your last kind of official medium-term pre-tax margin target is somewhere in the low 30s, so is the goal to effectively get that into a higher range over time, or any other way you can give us some high-level framework would be helpful.

John Woods: We also believe that we have very unique opportunities to grow this platform overall from a revenue standpoint. I think you'll see some commentary on both of those things. I think the building blocks of all of that will be the increasing business execution discipline that is emblematic of what you're seeing in organic growth across our fee line items. We'll talk about that in terms of what that can deliver for us. I think the other two big categories I'd highlight is we also have a distinctive portfolio of strategic initiatives that would provide some unique outsized ability to derive benefits into the platform over the medium term. Then lastly, transformation. Within transformation, there are several pillars of that that we'll talk through.

Attractive opportunities to grow, profitability metrics, pre-tax, margin, and other metrics. And we also believe that we have very unique opportunities to grow this platform overall from a revenue standpoint. So I think you'll see some, um, some commentary on both of those things. I think the building blocks of all of that will be, you know, the increasing business execution discipline that, um, that is emblematic of what you're seeing in organic growth across, um, our fee line items. So we'll talk about that in terms of what that can deliver for us.

John Woods: We'll talk through our ongoing operating model transformation, kind of embedding agile ways of working across the entire enterprise and really solidifying a product platform approach to delivering our services to our clients. A second pillar will be the ongoing modernization of our technology infrastructure, which we're excited about. Lastly, all things AI, where we've continued to make investments and make progress. We'll wrap all of those building blocks together in what we believe they will contribute over the medium term in our commentary that you'll hear from us about in July.

Um, but I think the other 2 big categories I'd highlight is we also have a, a distinctive portfolio of strategic initiatives. That would provide some unique, outsized ability to drive, um, to drive, uh, benefits into the platform over the medium term and then, lastly transformation, uh, within transformation. Um, there are several pillars of that that we'll talk through, uh, we're we'll talk through our, uh, ongoing operating model transformation, uh, you know, kind of, uh, embedding, you know, uh, uh, you know, agile ways of working across the entire Enterprise and really, really solidifying. A product platform approach to delivering our services, to our our, our clients, um, a second pillar will be the ongoing modernization of our technology infrastructure, which, uh, we're excited about. And then lastly, all things. Um, AI, uh, where we've

Alexander Blostein: Great. That sounds great. Looking forward to that. For my follow-up, I wanted to ask you guys a question around ETFs, both in terms of the growth and expense perspective. Obviously, there's been an increased focus on distribution platform fees that may come online towards the end of the year. Schwab, obviously the one discussing that. Any early thoughts on the implications that might have on both sort of ETF growth for State Street and the incremental expenses that you might be willing to incur on the back of that if you were to stay on the Schwab platform?

Um, continue to make investments and make progress, uh, and we'll wrap all of those building blocks together in what we believe they will contribute over the medium term in our commentary that you'll hear from us about in July.

Ronald P. O'Hanley: Yeah. Alex, it's Ron. We're very familiar with what some of the platforms are doing. Most of these platforms are close partners. In terms of our long-term strategy and our long-term performance, we're not concerned about this. If you've been following what we've done in ETFs, we have continued to broaden that platform, moving from where we started as an institutional provider to not only maintaining that institutional leadership, but growing both in terms of client segments in the low-cost wealth channel, but also in channels outside the US. You'll see pockets of the kinds of things that you're talking about, but we don't see it as any kind of a substantial risk or headwind to our overall ETF business.

Ron O'Hanley: Yeah. Alex, it's Ron. We're very familiar with what some of the platforms are doing. Most of these platforms are close partners. In terms of our long-term strategy and our long-term performance, we're not concerned about this. If you've been following what we've done in ETFs, we have continued to broaden that platform, moving from where we started as an institutional provider to not only maintaining that institutional leadership, but growing both in terms of client segments in the low-cost wealth channel, but also in channels outside the US. You'll see pockets of the kinds of things that you're talking about, but we don't see it as any kind of a substantial risk or headwind to our overall ETF business.

That sounds, uh, sounds great, looking forward to that. Um, for my follow-up, I wanted to ask you guys a question around ETFs, uh, both in terms of the growth and expense perspective. Um, obviously there's been an increased focus on, uh, distribution platform fees that the Mets come online, uh, towards the end of the year—Schwab, obviously, the one discussing that. So, any early thoughts on the implications that might have on, uh, both sort of ETF growth for State Street and the incremental expenses that you might be willing, uh, to incur on the back of that if you were to stay, uh, on this Schwab platform?

Yeah. So, uh, Alex, it's Ron. I mean, we're we're very familiar with what, uh, what what, what some of the platforms are doing. Um, mostly these platforms are close Partners, um, uh, in in terms of our long-term strategy and our long-term performance. Uh, we're not concerned about this. I mean, if, if you've been following what we've done in ETFs, uh, we have continued to broaden that platform. Um, moving from where we started uh, as an Institutional provider to not only maintaining that institutional leadership but uh growing

Both in terms of client segments in the low-cost wealth channel, but also in channels outside the US. So, you'll see pockets of the kinds of things that you're talking about, but we don't see it as any kind of a substantial risk or headwind to our overall ETF business.

Alexander Blostein: Okay, thanks so much.

Thanks so much.

Operator: Thank you. Our next question will come from Ken Usdin with Autonomous Research. Your line is now open. Please go ahead.

Our next question will come from Ken, used in with Autonomous Research. Your line is now open. Please go ahead.

Ken Usdin: Hi, thanks. Good morning. This quarter, you obviously showed the ability to put up meaningful operating leverage and also have a higher cost growth rate to even deliver that. I'm just wondering, were you able to pull forward some spending or was it mostly revenue-related costs? And then as you look forward to the new 5% to 6% cost guidance, I'm just wondering how you're balancing the expected efficiencies that you're getting and then how much FX translation you're still including in the full year guide after the hurt that it was in Q1. Thanks a lot.

John Woods: Yeah. Maybe just a couple of comments about that. I think what you saw in Q1, there was about 2% or so impact from a currency perspective. When you take that 9%, you're really starting with 7% ex-currency. That 7% is predominantly revenue related. 5 percentage points of that would be revenue related, which leaves you a net 2%. Within that 2%, we've got run the bank costs and our strategic investments. Those are in the neighborhood of, if you break that out, call it 6% of spend, running the bank and really finding ways to invest in exciting initiatives that we're feeling good about. We fund a lot of that through productivity. That's the net 4% of productivity that we delivered in Q1. We're going to continue to monitor our productivity trajectory.

Bye. Thanks, good morning. Um, so this quarter you obviously showed the ability to uh, put up meaningful operating leverage and uh, and and also have, um, you know, a higher cost growth rate, uh, to even deliver that I'm just wondering, like, were you able to pull forward some spending or was it mostly Revenue related costs. And then, as you look forward to the new 5 to 6%, cost guidance, I'm just wondering. You know how, how you're balancing. Um, the, the the expected efficiencies that you're getting and then, you know, how much um FX translation, you're still including in the full year guide after the the the the hurt that it was in the first quarter. Thanks a lot.

John Woods: The same storyline holds with the 5% to 6%, the incremental growth that you're seeing. Majority of that is revenue related. Then there'll be other costs that we'll consider continuing to fund strategic investments and kind of partially offset by productivity. I think the storyline for Q1 holds for the full year as well when you apply it to the 5% to 6% range.

Um and really finding out finding ways to invest in exciting initiatives that were were feeling good about and that and that, and we fund a lot of that through productivity. So that's that's the net 4% of productivity that we delivered in the first quarter. We're going to continue to monitor um, our productivity trajectory and the same storyline. You know, holds with the 5 to 6%, the incremental growth that you're seeing majority of that is revenue related, and then they'll be, um, they'll be other costs that will will consider, um, continuing to fund strategic Investments and, uh, and uh, you know, kind of partially all set by productivity, I think, the, the story line for 1 key holds for the full year as well. When you apply it to the 5.6 to 5 to 6% range,

Ken Usdin: Okay. Thanks, John. As a follow up, just with the strong NII and then the strong FX trading, can you just help us understand, do you expect that to run rate or do you expect a natural just kind of coming off a little bit given the types of volatility and the environment that we saw in Q1? Thanks, John.

John Woods: Yeah, sure thing. I'll start with FX. We've had a strong quarter in FX trading. I think two things have to come together to basically deliver on something like that. First, you have to have the franchise in place to be able to take advantage of these opportunities when they arise and be there for your clients. First quarter was one of those times. I'd say that the investments in client acquisition, product extensions, and geographic expansion in the markets business has served us well in Q1. You put that and you combine that with some elevated volatility, I would call it good volatility, where liquidity is still good, but there's a lot of turnover given volatility. Those combine together to deliver our Q1. Very strategic and opportunistic and feel good about that.

Thanks. Thanks Sean. And and as a follow-up just you know with a strong knee and then the strong FX trading, can you just help us, you know, understand do you expect that to run rate or do you expect a n, a natural just kind of come off? You know, coming off a little bit given the types of volatility and the environment that we saw in in the first quarter. Thanks Sean.

Yeah, sure thing. I mean, I think—I mean, you know, I'd say, let me, let me, I'll start with FX. I mean, so we've had a strong quarter in FX trading. Um, and I think two things have to come together to basically deliver on something like that. First, you have to have the franchise in place to be able to take advantage of...

John Woods: I would say that those conditions for the rest of the year, when you think about our fee guide of 7% to 9%, those conditions we think moderate gradually throughout the year, and that's built into the 7% to 9%. We're not depending upon those highly favorable conditions in the first quarter being maintained for the rest of the year in order to deliver the 7% to 9%. That's how I would just kind of articulate the FX trading side of things. When it comes to net interest income, the original guide was up low single digits. Now it's in an 8% to 10% range. We're seeing some very solid tailwinds there. We originally had a view that maybe our net interest margin would be somewhere in the 100 to 110 basis point range.

These opportunities when they arise and be there for your clients. So first quarter was 1 of those 1 of those times. And I, I'd say that um, you know, the the the investments in client acquisition product extensions and Geographic expansion, in the markets business has served us well in 1 E. Uh, and you know you put that and you combine that with some elevated volatility, I would call it. Good volatility where liquidity is still good but uh, but there's a lot of turnover given volatility those those combined together to, you know, uh to deliver our our, our first quarter. So very strategic and opportunistic and feel good about that. I, I would say that those conditions, you know, you know, for the rest of the year, when you think about our, our, our fee guide of 7 to 9%, those conditions, we we think moderate, uh, gradually throughout the year and that's built into the 7 to 9%, so we're not depending upon those highly favourable condition.

Conditions in the first quarter—um, you know, being maintained for the rest of the year in order to deliver the 7 to 9 percent. So, uh, that's how I would just kind of articulate the FX trading side of things. Um, when it comes to net interest income,

John Woods: I think you could look for 2026, you could see a net interest margin in the 110 to 115 basis point range, which comes off slightly from Q1 where we're at 116. That'll give you a sense of the trajectory. I think net interest margin is the main driver in the story of this with funding mix being one of the larger tailwinds, as I mentioned a little earlier. Overall deposits will be up basically helping that funding mix. I think we said before, maybe $250 billion of deposits. Probably going to be in the range of $250 to 260 billion as we play out the rest of the year. We'll look to maybe pay down some higher cost debt with that and continue to optimize the funding mix to drive that net interest margin.

You know, we had an original, you know, the original guide was upload a single digits. So now it's in an 8 to 10% range. So, uh, we're seeing some very solid, uh, Tailwind there. We originally had a had a view that maybe our our, our net interest margin would be somewhere in the 100, to 110 basis, point range. I think you could look for 2020, uh, 6. You know, you could see in that interest margin in the 110 to 115 basis, point range, which comes off slightly from. Um, from the, the the first quarter, uh, where we're at 116. So that'll give you a sense of the trajectory and I think net interest margin is the main driver and the story of this. Um, you know with um, with funding mix, being 1 of the larger, uh, Tailwind as I mentioned a little earlier. Um, but overall deposits will be up, you know, basically, helping helping that, that, that funding mix. So I think we said before maybe 250 billion dollars of deposits, probably going,

John Woods: All of those building blocks are incorporated into the NII guide of 8% to 10%.

Ronald P. O'Hanley: Ken, it's Ron. I just wanted to underscore a point that John made on FX, which is that we've been talking to you for years now about the investments we've made in terms of expanding client volumes, to really make sure that we were serving as much of our investment servicing clients as possible. We've done that through a variety of ways. Some of it has been expanding geographic capabilities. Most of it has actually been expanding the ways in which we can meet our clients technologically and how they can trade with us.

Ron O'Hanley: Ken, it's Ron. I just wanted to underscore a point that John made on FX, which is that we've been talking to you for years now about the investments we've made in terms of expanding client volumes, to really make sure that we were serving as much of our investment servicing clients as possible. We've done that through a variety of ways. Some of it has been expanding geographic capabilities. Most of it has actually been expanding the ways in which we can meet our clients technologically and how they can trade with us.

To be in the range of 250 to 260, you know, as we as we play out the rest of the year and um, so um but we we will Pro we'll look to maybe pay down some higher cost debt with that, um, you know, um, and continue to optimize the funding mix to drive that net interest margin, so that all of those, um, you know, um, you know, building blocks are incorporated into the, uh, knee guide of 8 to 10%.

Ronald P. O'Hanley: We did that at a time when there wasn't a lot of volatility in the market, preparing for the moment when volatility, normal volatility, would return. For us, what we're seeing the benefits of are those past and ongoing investments into really meeting our clients where they are in as many ways as they want to trade with us.

Ron O'Hanley: We did that at a time when there wasn't a lot of volatility in the market, preparing for the moment when volatility, normal volatility, would return. For us, what we're seeing the benefits of are those past and ongoing investments into really meeting our clients where they are in as many ways as they want to trade with us.

And we did that in a time. When there wasn't a lot of volatility in the market, um, uh, preparing for the moment when volatility and normal volatility would return. So, for us, uh, what's uh, what we're, what we're seeing the benefits of are those past and ongoing investments into really meeting our clients, where they are in as many ways as they want to trade with us.

Operator: Thank you. Our next question will come from James Mitchell with Seaport Global Securities. Your line is now open. Please go ahead.

Thank you. Our next question will come from Jim Mitchell with SEO Global Securities. Your line is now open. Please go ahead.

James Mitchell: Hey, good morning. Maybe just a follow-up on the deposits, up nicely with a big mix shift to NIBs, which I think was a particular benefit quarter over quarter. On the NII side. Can you kind of talk through what deposits maybe have looked like since 1 April? How any further optimization around pricing can affect deposit growth from here, and how you're thinking about the mix in your guide? Thanks.

Jim Mitchell: Hey, good morning. Maybe just a follow-up on the deposits, up nicely with a big mix shift to NIBs, which I think was a particular benefit quarter over quarter. On the NII side. Can you kind of talk through what deposits maybe have looked like since 1 April? How any further optimization around pricing can affect deposit growth from here, and how you're thinking about the mix in your guide? Thanks.

John Woods: Sure. Yeah, I think I mentioned the level of deposits I'd anchor to that $250 to 260 range.

Hey, good morning. Um maybe just a follow-up on the deposits. Um you know up nicely with a big mix shift today and IBS which I think was a a particular benefit quarter of a quarter so on the knee side. So can you kind of talk through what deposits maybe have looked like, since April 1? How how any further optimization around pricing can affect deposit growth from here and and how you're thinking about the mix in your guide? Thanks.

James Mitchell: Right.

Jim Mitchell: Right.

John Woods: When it comes to mix, we originally talked about around 10% of non-interest-bearing. I think that's still a good anchor, maybe over time. I think in 2026 it appears that we've got a higher non-interest-bearing opportunity. Maybe it's just a little bit higher than that 10%, slightly. Those are the two points I'd make with respect to that. When it comes to deposit drivers, there are external drivers, internal drivers. The internal drivers that we control are continuing to grow our platform, just serving our clients, and growing AUCA, which was another record this quarter. That's really where we're sourcing those deposits, number one. Number two, just given certain client segment growth.

Sure. Yeah, I think I, I mentioned, you know, the level of deposits. I I I'd anchor to that 250 to 260 range, right? Um, when it comes to mix, um, you know, we we we originally talked about around 10% uh, of non-interest bearing. Uh, I think that's that's still a good anchor, uh, you know, maybe over over time. But I mean, I think in 26, it appears

That, you know, we've we've got a, we've got a higher net interest, uh, I'm sorry, uh, non-interest bearing opportunity, so maybe it's just a little bit higher than that, 10% slightly? Um, so that's those are the 2 points. I'd make with respect to, with respect to that when it comes to deposit.

John Woods: The alternatives segment growth, which is a segment which is growing faster than maybe the non-alternative segment is, also happens to be pound for pound, brings more deposits with a more attractive mix generally to the platform. We're seeing some of that as the tailwind, as the alternatives strategic initiative continues to pay dividends. The external things to keep an eye on, deposits tend to rise when money supply is growing, GDP is growing, when rates are kind of stable on hold to falling. Given our business, if volatility levels and risk off tends to rise, we tend to grow deposits. Broadly, our NII line ends up being a little bit of an offset to other line items, similar to what happens in the markets business when and if you see periods of higher volatility like you saw in Q1.

Drivers, I mean we there are external drivers internal drivers, the internal drivers that we control are continuing to grow our platform and just, you know, serving our clients and and growing auca which was another record this quarter. And that's that's really where where where we're sourcing those deposits number 1. Number 2, just giving certain clients segment growth. So the Alternatives segment growth with the zoo segment which is growing faster than maybe the non alternative segment is also happens. To be pound-for-pound brings more deposits with a more attractive mix generally to the platform. So we're seeing some of that as the Tailwind as the alternative, uh, strategic initiative continues to to pay dividends. Um, the external things to keep an eye on, you know, deposits tend to rise when money supplies. You know, growing GDP is growing. Uh, when rates are kind of stable on hold to falling and and also given our business, uh, if volatility,

Levels and risk off tends to rise, we tend to grow deposits. So broadly, our knee line ends up being a, um, a little bit of an offset, um, you know, to other line items, um, similar to what happens in the markets business when, and if you see periods of higher volatility, volatility like you saw in the first quarter,

James Mitchell: Any thoughts on the April 1 from here, what you've seen so far?

Jim Mitchell: Any thoughts on the April 1 from here, what you've seen so far?

John Woods: Yeah. I would say, I'd probably put it in moderating from here. We had extremely positive conditions in the Q1. Still very solid trends. I'd stick with the 250 to 260, maybe slightly better than our 10% non-interest-bearing guide, as I mentioned earlier. April trends are good in the NII space and in the deposit space.

James Mitchell: Okay, great. Maybe just a follow-up on the wealth management business. Across regions, EMEA was the largest contributor to net flows in Q1, I think $29 billion. That's obviously quite good progress. What vehicles and asset classes? Was it lumpy? And do you think that momentum in Europe can continue?

Jim Mitchell: Okay, great. Maybe just a follow-up on the wealth management business. Across regions, EMEA was the largest contributor to net flows in Q1, I think $29 billion. That's obviously quite good progress. What vehicles and asset classes? Was it lumpy? And do you think that momentum in Europe can continue?

Any thoughts on the 1? The April 1 from here, what you've seen so far? Yeah. I mean, I, I would say, you know, I, I probably put it in moderating from here. Uh, we had extremely positive conditions in the first quarter, um, still very solid Trends. I'd stick with the 250 to 260, maybe slightly better than our 10%, you know, non-interest bearing guide. As I mentioned earlier, April Trends are are good, um, in the knee space, and in the deposit space,

John Woods: Yeah. I think if you want to talk about net asset flows in general, as we mentioned earlier, from an asset class standpoint, it's fixed income, was a very strong quarter, and led the way, followed by multi-asset. Then you did hear how well our low-cost suite did this quarter as well, more broadly and ETFs in general. Those would be the ones, but possibly fixed income, one of the bigger drivers.

Okay, great. And maybe just as a follow-up on the wealth management business—across regions, AMEA was the largest contributor to net flows in the first quarter, I think $29 billion. That's obviously quite good progress. So, what vehicles and asset classes was it in? Was it lumpy? And do you think that momentum in Europe can continue?

Yeah, I mean I think if you want to talk about net asset Flows In general, as we mentioned earlier um our our uh from an asset class standpoint. Uh you know it's fixed income was a was very strong quarter um and led the way um you know, followed by multi-asset. Um and then um you you did hear how well our low cost. We did this quarter as well. Um, more you know, more broadly and um and and ETFs in general. So those would be the uh the ones but but possibly fixed income 1 of the 1 of the bigger drivers.

James Mitchell: Okay, thanks.

Jim Mitchell: Okay, thanks.

Operator: Our next question will come from Mike Mayo with Wells Fargo. Your line is open. Please go ahead.

Okay, thanks.

Mike Mayo: Hi. One short-term question, one long-term question. The short-term question, I think you said revenue backlogs are up 11%. If that's correct, can you size that a little bit more, in terms of the level of backlogs versus history and where that's coming from? The long-term question, Ron, just back to AI. You guys seem clearly engaged in AI. You're looking to scale AI, but some people out there are saying they're going to remodel their entire business model around AI. You have a few banks saying that. You have some others actually giving. Only one bank quantifies expected AI benefits. You have some saying the business models will be destroyed due to the AI scare trade, and then some other banks will say, "Hey, it's really kind of overrated, but we'll go along with it." That's the long-term question.

Our next question will come from Mike Mayo with Wells Fargo. Your line is open, please go ahead.

Revenue backlogs are up 11%, if that's correct. Um, can you size that a little bit more?

Mike Mayo: First, the short-term question about the revenue backlogs. Thank you.

John Woods: Yeah. Thanks for the questions, Mike. That 11% was with respect to the software services line alone. That is correct. Uninstalled revenue up 11%. Multi-year revenue growth in this space has been around that level. That continues that expectation of around 10%, low double-digit growth that we expect over the medium term. As we continue to invest in the business, we may have opportunities to do better than that, but the ARR grew 12% as well. That's the background on that question. Then I'll turn it over to you. You had a follow-up, Ron, related to AI.

Uh, in terms of the level of the backlog versus history and where that's coming from. And then the long-term question, Ron, just back to AI. Um, you guys seem clearly engaged in AI, uh, you're looking to scale AI but you know, some people out there like saying this is they're going to remodel their entire business model around AI. You have a few Banks saying that, um, you have some others actually, giving only 1 Bank is quantifies, expected, AI benefits. Uh, you have some say in the business models will be destroyed, do the, uh, AI scare trade. And then some other banks will say, hey, it's really kind of overrated, but we'll go along with it. So that's the, the long-term question. But first, the short-term crap that the revenue backlogs. Thank you.

Yeah, uh, thanks for the question with Mike, uh, the, the that 11%, uh, was with respect to the software Services line, um, alone, and it that is correct. Uninstalled Revenue up 11%, you know, multi-year Revenue growth in this space, has been around that level. Uh, so so that continues, that, that expectation of around 10% low, double digit, uh, growth that we expect over the medium term. Uh, as and as we continue the investment in the business, we may have opportunities to do better than that, but the ARR grew 12% as well. So that's that's that's the uh, the background on that question. Um,

Ronald P. O'Hanley: Yeah, Mike. We're very positive on AI, and a lot of that has to do with the nature of our business, which you understand well. It's investment, operational, and technology intensive. Where are we on this? I would say it certainly is comprehensively embedded across the enterprise. We've got broad access and accelerating adoption. Virtually every employee, where it makes sense, has access to the tools, and usage is continuing to scale rapidly. A lot of repeat behavior indicating that the tools are becoming part of the distributed daily workflows. Secondly, in terms of development and technology development, systems development, we're fully enabled there, and there we're already realizing productivity gains. It's giving us the ability to actually do more faster and get to those projects that we would have liked to have gotten to but wouldn't have made the cut before this kind of productivity gain.

Ron O'Hanley: Yeah, Mike. We're very positive on AI, and a lot of that has to do with the nature of our business, which you understand well. It's investment, operational, and technology intensive. Where are we on this? I would say it certainly is comprehensively embedded across the enterprise. We've got broad access and accelerating adoption. Virtually every employee, where it makes sense, has access to the tools, and usage is continuing to scale rapidly. A lot of repeat behavior indicating that the tools are becoming part of the distributed daily workflows. Secondly, in terms of development and technology development, systems development, we're fully enabled there, and there we're already realizing productivity gains. It's giving us the ability to actually do more faster and get to those projects that we would have liked to have gotten to but wouldn't have made the cut before this kind of productivity gain.

And then I'll, I'll turn it over to—um, you had a, you had a, a, a follow-up around, related to AI? Yeah. Mike, um,

I mean, we're very positive on AI, and a lot of that has to do with the nature of our business, which you understand. Well, it's investment, operational, and technology intensive.

Ronald P. O'Hanley: Again, all of our developers have access to these AI-assisted development tools, and we really are seeing an acceleration both of new technology development, but also technology modernization. Thirdly, it's what you do with it after that. We have built a centralized AI hub, which has a very deep use case pipeline that's beginning to scale and will scale over the back half of 2026. This platform supports over 200 AI use cases now, with 70 of those already live. As they mature, we expect tangible business impact to begin emerging in the back half of 2026 and then accelerating going forward. Which then leads to the kind of fourth piece of all this, which is agentic service delivery. I talked a little bit about that in my prepared remarks. Again, given the operational intensity of what we do, the opportunities are just manifest for us.

Ron O'Hanley: Again, all of our developers have access to these AI-assisted development tools, and we really are seeing an acceleration both of new technology development, but also technology modernization. Thirdly, it's what you do with it after that. We have built a centralized AI hub, which has a very deep use case pipeline that's beginning to scale and will scale over the back half of 2026. This platform supports over 200 AI use cases now, with 70 of those already live. As they mature, we expect tangible business impact to begin emerging in the back half of 2026 and then accelerating going forward. Which then leads to the kind of fourth piece of all this, which is agentic service delivery. I talked a little bit about that in my prepared remarks. Again, given the operational intensity of what we do, the opportunities are just manifest for us.

So, uh, where are we on this? Um, uh, I, I, I would say it certainly is comprehensively embedded across the Enterprise. Uh, we've got broad access and accelerating adoption virtually every, uh, employee where it makes sense, has access to the tools and usage is continuing to scale rapidly. Um, and a lot of repeat Behavior indicating that the tools are becoming part of the distributed daily workflows. Uh, secondly in terms of uh development uh and Technology development systems development, uh we're fully enabled there and there were already realizing productivity gains um and it's giving us the ability to actually uh, do more faster uh, and get to those, uh, projects that we would have liked liked to have gotten to, um, but wouldn't have made the cut before this kind of productivity game.

so again all of our developers have access to these AI assisted development tools and they really are, we really are seeing an acceleration both of uh new technology development but also uh technology modernization

Uh thirdly uh it's it's what you do with it after that. Um, and we have built a centralized AI uh Hub which has a very deep use case pipeline, that's beginning to scale uh and will scale over the back half of 2026. Um this platform supports over 200 AI use cases. Now with 70 of those already live

Um, and as they mature, we expect tangible business impact to begin emerging in the back half of '26, and that accelerating going forward.

Ronald P. O'Hanley: We have agent-enabled service delivery that will become online in July. We'll at the same time put forth what we're calling the AI foundry to be able to do this and repeat this. The longer-term question that you're asking is, do you think it destroys the business model? We don't see that. Now, at the same time, we also see that these are widely available tools. There's nothing proprietary here. It is how you actually deploy them. John talked about in his remarks how you actually turn that not just into operational improvement, but create real agility in the way the organization operates. What does that mean, right? Many of these businesses have grown up kind of organized the way they are going back years and years. A lot of that won't make sense any longer.

Ron O'Hanley: We have agent-enabled service delivery that will become online in July. We'll at the same time put forth what we're calling the AI foundry to be able to do this and repeat this. The longer-term question that you're asking is, do you think it destroys the business model? We don't see that. Now, at the same time, we also see that these are widely available tools. There's nothing proprietary here. It is how you actually deploy them. John talked about in his remarks how you actually turn that not just into operational improvement, but create real agility in the way the organization operates. What does that mean, right? Many of these businesses have grown up kind of organized the way they are going back years and years. A lot of that won't make sense any longer.

Um, which then leads to the kind of fourth piece of all this, which is a gentic service delivery. Um, I talked a little bit about that in my prepared remarks. Um, uh again, uh, given the operational intensity of what we do. The opportunities are just manifest for us. Um, we have agent enabled, Service delivery that will become online in July, um, and uh, we're at the same time, put forth, what? We're calling the AI Foundry to be able to do this and repeat this

Um, the longer-term question that you're asking is, do you think it destroys the business model?

Ronald P. O'Hanley: We're already seeing that change in our organization in terms of how we think about those things. The real power of exploitation, first is deploying the technology, but second is recognizing what it means for how you square off against clients and how you actually organize the work internally. For us, we see this as an opportunity, more opportunities than risks.

Ron O'Hanley: We're already seeing that change in our organization in terms of how we think about those things. The real power of exploitation, first is deploying the technology, but second is recognizing what it means for how you square off against clients and how you actually organize the work internally. For us, we see this as an opportunity, more opportunities than risks.

Change in our organization in terms of how we think about those things. So, the real

Power of exploitation. Um, first is deploying the technology, but second is recognizing what it means for how you, uh, square off against clients and how you actually organize and, uh, organize the work internally. Uh, but for us, we see this as an opportunity—um, more opportunities than risk.

Mike Mayo: Just the three words. I'm sorry.

Mike Mayo: Go ahead. No, you go ahead, Mike.

John Woods: Go ahead. No, you go ahead, Mike.

I just can't get the three words.

John Woods: No, the three words, quote, "annual business impact," unquote. Is it bigger than a breadbox? You said starting late this year or next year. Again, only one bank has given any numbers, financial numbers around this. So maybe my expectations are low for the answer, but could you dimension this in any way? Yeah. I'll go ahead and articulate the framing around that, Mike. I think it's going to start scaling in H2 2026, and we're going to dimension what the impact's going to be over the medium term. It will be very meaningful, and it'll be a very important pillar of how we're going to drive value and financial bottom line impact as well as expanding resources to continue to invest in our strategic roadmap. It'll do double duty, and we'll be very transparent about that medium-term expectation.

Mike Mayo: No, the three words, quote, "annual business impact," unquote. Is it bigger than a breadbox? You said starting late this year or next year. Again, only one bank has given any numbers, financial numbers around this. So maybe my expectations are low for the answer, but could you dimension this in any way?

I'm sorry, go ahead. No, you go ahead. Mike knows the three words.

Uh, well, angel business impact, unquote.

Um, can you—is it bigger than a bread box? You said, starting late this year or next year. I got only one bank is giving any numbers, financial numbers around this, so—

John Woods: Yeah. I'll go ahead and articulate the framing around that, Mike. I think it's going to start scaling in H2 2026, and we're going to dimension what the impact's going to be over the medium term. It will be very meaningful, and it'll be a very important pillar of how we're going to drive value and financial bottom line impact as well as expanding resources to continue to invest in our strategic roadmap. It'll do double duty, and we'll be very transparent about that medium-term expectation.

Maybe my expectations are low for the the answer but could you mention this in any way?

Yeah, I mean I'll go ahead and articulate, um, you know, uh, the framing around that—my, uh,

You know, I I think it's going to start scaling in the second half of 26 and we're going to Dimension what the impact is going to be over the medium term. It will be. It will be very meaningful and it'll be a very important, uh, pillar of how we're going to drive value and financial. Uh, you know, a bottom line impact, um, as well as expanding resources, to continue to invest.

John Woods: As we get into later in the year when we start looking at run rate benefits as we're exiting 2026 into 2027, we'll come back around and articulate what that near-term benefit will be.

Mike Mayo: Okay. We'll get this on the Q2 earnings call or-

And our strategic roadmap. So it'll do double duty and we'll be very transparent about about that medium-term expectation. And uh, as we get into later in the year, when we we start looking at run rate benefits as we're exiting, 26 into 27, we'll we'll, we'll come back, come back around and articulate what that uh, near-term benefit will be.

Mike Mayo: Yes.

Mike Mayo: You'll have a conference in Boston with lobsters like you did a few decades ago or something in between that.

John Woods: Earnings call. I wasn't around for the lobsters, but sounds interesting. No, it'll be on the earnings call.

Mike Mayo: All right. Thank you.

Okay, so if you will, we'll get this on the second quarter earnings call, or you'll have, like, a conference in Boston with lobsters—like we did a few decades ago—or something in between that, uh, earnings call. Uh, I wasn't around for the lobsters, but sounds interesting. But no, it'll be on the earnings call.

All right. Thank you.

Operator: Our next question will come from Ebrahim Poonawala with Bank of America. Your line is now open. Please go ahead.

Our next question will come from Abraham Poonawalla with Bank of America. Your line is now open. Please go ahead.

Ebrahim Poonawala: I missed the locks too, John, so if you're feeling bad about it. Maybe, Ron, I wanted to follow up. You spent some time in your prepared remarks just around tokenization, your digital asset platform. If you don't mind, talk to us. Should we think about all of this as mostly retaining the customer activity that you already have, but it's just moving from analog to digital to take sort of a comp? Or are there new revenue opportunities that you think that will surface as a result of tokenization and moving on-chain?

I missed the losses too, John. So if you're feeling bad about it, but

Maybe you don't want to follow up, like you spent, um,

Uh, sometime in your prepared remarks, just around, um, tokenization—your digital asset platform.

If you don't mind, talk to us in—is it something we should be thinking about?

All of this is mostly retaining.

The customer activity that you already have, but it's just moving from analog to digital.

To take sort of a comp, or are there new revenue opportunities that you think will surface as a result of, uh,

Tokenization and moving on change.

Ronald P. O'Hanley: Yeah. Ebrahim, I would say it's both. Obviously, given the nature of our client base and our market share with the most sophisticated clients, they expect from us, and you'd expect us to be delivering the best that the market has to offer to them. If you think about some of the use cases, they're already very real, in terms of the tokenization of assets. That's, in the end, net new opportunity for us. We've talked to you before and in other venues about tokenized money market funds. That's a real use case. It's beneficial to the market, it's beneficial to liquidity, and will result in more revenues for us. The whole on-ramp, off-ramp bridge from, quote, "traditional finance to digital finance," is also a real opportunity. The way to think about what's going on here is there's lots of new railroads being manufactured and being laid.

Ron O'Hanley: Yeah. Ebrahim, I would say it's both. Obviously, given the nature of our client base and our market share with the most sophisticated clients, they expect from us, and you'd expect us to be delivering the best that the market has to offer to them. If you think about some of the use cases, they're already very real, in terms of the tokenization of assets. That's, in the end, net new opportunity for us. We've talked to you before and in other venues about tokenized money market funds. That's a real use case. It's beneficial to the market, it's beneficial to liquidity, and will result in more revenues for us. The whole on-ramp, off-ramp bridge from, quote, "traditional finance to digital finance," is also a real opportunity. The way to think about what's going on here is there's lots of new railroads being manufactured and being laid.

Yeah, uh, I I would say it's both. Um, I mean, I obviously, uh, given the nature of our client base and our market share with the most sophisticated clients. You'd expect, they expect from us and you'd expect us, uh, to be delivering, uh, the, the best that the market has to offer to them. But if you think about some of the use cases that are already very real, um, in terms of the tokenization of assets that's in the end that new opportunity for us, um, and we talked and we've talked to you before and in other

Uh, in other venues, about, uh, tokenized money market funds. I mean, that's a real use case, um, and it's beneficial to the market. Uh, it's beneficial to liquidity, um, and, uh, will result in more revenues for us. Uh, the, the whole, um, on-ramp/off-ramp, uh, bridge from, quote, traditional, uh, finance to digital finance is—

Ronald P. O'Hanley: There's not yet the interchange to those. That's a very real thing. When you think about everything that, whether it's the stablecoin providers are doing, or some of the other digital platforms, again, the volumes are growing fast, but off a very small base. Part of the reason for that is the on-ramps and off-ramps really are underdeveloped at this point. Being part of that on-ramp, off-ramp, and providing that infrastructure is a second source of new revenues. We see it as both going forward.

Ron O'Hanley: There's not yet the interchange to those. That's a very real thing. When you think about everything that, whether it's the stablecoin providers are doing, or some of the other digital platforms, again, the volumes are growing fast, but off a very small base. Part of the reason for that is the on-ramps and off-ramps really are underdeveloped at this point. Being part of that on-ramp, off-ramp, and providing that infrastructure is a second source of new revenues. We see it as both going forward.

Also, a real opportunity. I mean, what I'm—the way to think about what's going on here is there's, um, lots of new railroads being manufactured and being laid, um,

They?

But that is beyond ramps and off-ramps—um, really, uh, have—are underdeveloped at this point.

Being part of that on-ramp, off-ramp, uh, and providing that infrastructure is a second source of new revenues. So we see it as both going forward.

Ebrahim Poonawala: Got it. Maybe just sticking with that, Ron. Are there opportunities? Is this all built in-house in terms of when you think about tapping into this? Or are there very targeted digital asset platforms or capabilities as this infrastructure is built out that you would look at and where M&A would make sense? Or does it not quite exist given just how new all of this is?

Gotten and maybe.

Sticking with that on.

Ronald P. O'Hanley: Yeah. Ebrahim, as you know, we always think about that. We always think about the make versus buy decision, and even on the make decision, M&A is one, but partnerships are another. We've got this product that we've referred to that's with Galaxy. That's a partnership with Galaxy. We'll continue to explore that. We're very tied into the emerging fintech platforms, not only here in the US, but in other hotspots of fintech development. There's hotspots in Europe, there's hotspots in India. We're very tied into those. We'll continue to explore the M&A. We also have a lot of confidence in our own organic capabilities and our ability to build this out. It'll be all of the above.

Ron O'Hanley: Yeah. Ebrahim, as you know, we always think about that. We always think about the make versus buy decision, and even on the make decision, M&A is one, but partnerships are another. We've got this product that we've referred to that's with Galaxy. That's a partnership with Galaxy. We'll continue to explore that. We're very tied into the emerging fintech platforms, not only here in the US, but in other hotspots of fintech development. There's hotspots in Europe, there's hotspots in India. We're very tied into those. We'll continue to explore the M&A. We also have a lot of confidence in our own organic capabilities and our ability to build this out. It'll be all of the above.

Like, is this all built in-house in terms of anything about tapping into this, or are there very targeted digital asset platforms or capabilities, as this infrastructure is built out, that you would look at—and where M&A would make sense—or does it not quite exist, given just how new all of this is?

Yeah, and Abraham, as you know, we always think about that. Uh, we always think about the make versus buy decision and even on the make decision, uh, it's m&a is 1 but Partnerships or another. So, uh, we've got this product that we've referred to that's, um, with Galaxy. I mean, that's a partnership with Galaxy, we'll continue to explore that there are we're very tied in to the, um, to the emerging fintech platforms. Not only here on the US, but in other hot spots of in Tech development. Um, there's hotspots in Europe, there's hotspots and, and India were very tied into those. So we'll continue to explore the m&a, uh, but we also,

We have a lot of confidence in our own, um, organic capabilities and in our ability to build this out. So it'll be all of the above.

Ebrahim Poonawala: Got it. Thank you.

Got it. Thank you.

Operator: Our next question will come from Brennan Hawken with BMO Capital Markets. Your line is open. Please go ahead.

Our next question will come from Brennan Hawin with BMO Capital Markets. Your line is open. Please go ahead.

Brennan Hawken: Good morning. Thanks for taking my question. John, you gave some really clear color on deposit trends and how those feed into the NIIs, so thanks for that. I was curious about expectations around the euro and GBP deposits. Those betas, specifically the forward curve there has gone hawkish with two hikes in the outlook. Are those hikes included in your updated outlook? The betas on those currencies were low during the recent rate cuts, so therefore, can you tell us about your expectations for betas when those rates are moving up? Thanks.

Good morning. Thanks for taking my question. Um,

John you, you gave some uh, really clear color on deposit Trends and how those feed into the knee. So, thanks for that. Um, I was curious about, uh, expectations around, uh, the Euro and GBP, uh, deposits. Uh, those data specifically the forward curve. There has gone hawkish with 2 Heights in. The Outlook are, those hikes are included in your updated Outlook. And the betas on those currencies were low during the recent rate Cuts. So, therefore, should we expect, could you tell us about your expectations for bettas when those rates are moving up?

John Woods: Yeah, sure. A couple of thoughts related to that. In the guide, we have an assumption of one hike in, and we've got the Bank of England and the Fed on hold, but we've got the ECB in for one hike. We acknowledge that currently it appears that there could be more than one. Just from a sensitivity standpoint, it's not a huge driver on a quarterly basis. I think we've communicated previously around $5 million a quarter. You can basically build that in from a sensitivity standpoint. The other question that you wanted to talk about?

Yeah, sure. So couple of thoughts related to that. So in the guide we've we have a, um, a an assumption of 1 hike in, uh, and we've got the bank of England and the FED on hold, but we've got the UCP in for 1, hyche, uh, we acknowledge that that, that, that, um, you know, currently it appears that there could be more than 1 just

Brennan Hawken: Just whether you expect the betas to remain low as they were during the cut?

From a sensitivity standpoint. It's not a huge driver. Um, on a quarterly basis. I think we've communicated previously around 5 million a quarter so you can you can basically um, build that in from a sensitivity. Uh, a sensitivity standpoint. Um, and um, the uh, the other question that you that you wanted to talk about

John Woods: Yeah. I'd say that really it's US dollar and euro, but the betas for US dollar pretty much is in the range of symmetrically in terms of the tightening cycle and the easing cycle. They've been relatively symmetric. Then in terms of the betas for the euro, probably a similar expectation that they're lower than the US, maybe in the 50% range versus the 75% to 80% that you'd see in the US, but relatively symmetrical on the up and down.

I just wonder whether you expect the rate is to remain low as they were during the cut.

Yeah. I mean I think the you know I I'd say that the um the beta's in the and and really it's US dollar and Euro but um the betas for US dollar

Pretty much is in the range of, um, uh, you know, symmetrically in terms of the up in terms of the, the tightening cycle and the using cycle, they've been relatively symmetric, uh, you know, and then in terms of uh, the betas for the Euro, probably a similar, um, you know expectation, that they'll be lower than the US. Um maybe in the 50% range versus the 75 to 80 that you'd see in the US but relatively symmetrical uh on the upper up and down.

Brennan Hawken: Got it. That makes a lot of sense. Then for my follow-up, Ron, you spoke to not expecting much from ETF into your ETF business from some of these changes that the wealth management firms are working on, which makes a lot of sense. I know active ETFs aren't big for you, but there's a little confusion, I think, around the space, and given your strong position in the ETF oligopoly, I'm curious your perspective. It seems as though there's a higher rate being discussed on the active ETF side, which makes sense. There's better expense ratios or higher fee rates in those products versus the passive. Is that sense what I'm hearing from my channel checks and wealth, is that right? Does that speak to why you'd think that the impact would be pretty de minimis or manageable for your ETF business with SPDR? Thanks.

Got it. That makes a lot of sense. Uh, and then for my follow-up, um, Ron, you spoke to not expecting much from ETF, uh, to your ECAP business, from some of these changes that the wealth management firms are working on, which makes a lot of sense. Um, I know it's, uh,

Um, is that sense what I'm hearing from my channel checks and wealth, is that right? Uh, and does that speak to why you'd think that the impact would be pretty, uh, diminished or manageable, uh, for your ETF business? The SPDRs, thanks.

Ronald P. O'Hanley: There's a lot in that question, Brennan. The active ETFs are absolutely growing, and we're the beneficiary of that in our servicing business. I think one of the reasons why they're growing, in addition to the vehicle, in many cases, simply being a better vehicle, and also aligned with the way distribution has gone, either within the traditional wirehouses, where you want to have a control over how the portfolios are put together, or with the rise of the independents. The buyer's fee comparison is less about the active ETF versus the passive ETF and much more around the active mutual fund versus the active ETF. I think that's also helped with the value proposition there. We see, and because of our platform, we can realize opportunity and ETF growth literally around the world. Right?

Ron O'Hanley: There's a lot in that question, Brennan. The active ETFs are absolutely growing, and we're the beneficiary of that in our servicing business. I think one of the reasons why they're growing, in addition to the vehicle, in many cases, simply being a better vehicle, and also aligned with the way distribution has gone, either within the traditional wirehouses, where you want to have a control over how the portfolios are put together, or with the rise of the independents. The buyer's fee comparison is less about the active ETF versus the passive ETF and much more around the active mutual fund versus the active ETF. I think that's also helped with the value proposition there. We see, and because of our platform, we can realize opportunity and ETF growth literally around the world. Right?

Yeah, it's it's a lot in that question, Brandon. Uh, the uh, active ETFs are, um, are absolutely growing and we're seeing where the beneficiary of that in our servicing business. Um, and I think 1 of the reasons why they're growing in addition to the vehicle, in many cases, simply being a better vehicle. And also aligned with the way distribution has gone either within the traditional wire houses where you want to have, um, uh, control over how the portfolios are put together or with the rise of the independence.

Um, but the kind of the buyer's fee comparison is less about the active ETF versus the passive ETF, and much more around the active mutual fund versus the active ETF. So I think that's also helped with the value proposition there.

um,

The.

Ronald P. O'Hanley: John talked a little bit about the growth that we've seen in Europe. We were early on there, both as a sponsor and as a servicer. It was slow growth at the beginning, but you're seeing a much bigger take-up. We actually think that the real growth is yet to come in Europe. Why do I say that? Because the distribution in Europe is still largely bank-based. Yet there's a lot of platforms and alternatives to banks that are going after them. They will employ and deploy ETFs as the tool, and again, will help us both on the sponsorship side and the servicing side. You look even in places like the Middle East. The funds business in places like the UAE and Saudi. I just came back from Saudi earlier this week. It's my second trip to the Gulf this year.

Ron O'Hanley: John talked a little bit about the growth that we've seen in Europe. We were early on there, both as a sponsor and as a servicer. It was slow growth at the beginning, but you're seeing a much bigger take-up. We actually think that the real growth is yet to come in Europe. Why do I say that? Because the distribution in Europe is still largely bank-based. Yet there's a lot of platforms and alternatives to banks that are going after them. They will employ and deploy ETFs as the tool, and again, will help us both on the sponsorship side and the servicing side. You look even in places like the Middle East. The funds business in places like the UAE and Saudi. I just came back from Saudi earlier this week. It's my second trip to the Gulf this year.

The the we we see, and because of our platform, we can realize opportunity and ET grow ETF growth, literally around the world, right? So we talked a little bit about uh John talked a little bit about the growth that we've seen in Europe. That was we were early on there, both as a

Sponsor, and as a server, um, and uh, it was slow growth at the beginning, but you're seeing a much bigger take-up. We actually think that the, um, the real growth is yet to come in Europe. Why do I say that? Because, um, the, uh, distribution in Europe is still largely bank-based. Um, yet there's a lot of, uh, platforms and alternatives to banks that are going after them. They will employ and deploy ETFs as the tool. And again, that will help us both on the sponsorship side and the, uh, servicing side. You look even in places like the Middle East, um, and uh, there the

the funds business, uh, in places like the UAE and

Ronald P. O'Hanley: You're just seeing those countries skipping over the old mutual funds and UCITS and going right to ETFs and building modern platforms around ETFs. All of this we see is real tailwind there. If you're a distributor like a Schwab, obviously you want to get paid for this, and they're going to do what they need to do to be appropriately compensated. At the same time, every distribution platform is going to have to look at what are other distributors doing. There's emerging a lot of these tech-forward, tech-driven distribution platforms that are going to provide competition to them. It's a vibrant sector. There's a lot of growth in it. We think we're just very well positioned, both as a sponsor and servicer.

Ron O'Hanley: You're just seeing those countries skipping over the old mutual funds and UCITS and going right to ETFs and building modern platforms around ETFs. All of this we see is real tailwind there. If you're a distributor like a Schwab, obviously you want to get paid for this, and they're going to do what they need to do to be appropriately compensated. At the same time, every distribution platform is going to have to look at what are other distributors doing. There's emerging a lot of these tech-forward, tech-driven distribution platforms that are going to provide competition to them. It's a vibrant sector. There's a lot of growth in it. We think we're just very well positioned, both as a sponsor and servicer.

In Saudi, I just came back from Saudi earlier this week. My second trip to the gulf this year. Um, you're just seeing those, um, those countries skipping over, um, the old mutual funds and uses and going right to ETFs and building modern platforms around ETF. So all of this we see is real Tailwind there. Um, if you're a distributor, um, you know, like like a Schwab, uh, obviously you want to get paid for this and they're going to do what they need to do uh to be appropriately, compensated. Um, at the same time, every distribution platform is going to have to look at what are other Distributors doing. And there's, um, emerging a lot of these uh, Tech forward tech-driven, uh, distribution platforms, that, uh, are going to provide competition to them. So, um, it it's a vibrant, uh, sector. There's a lot of growth in it. Um, and we think we're just very well positioned, uh, both as a sponsor and

Serer.

Brennan Hawken: Great. Thanks for taking my question.

Right. Thanks for taking my question.

Operator: Our next question will come from David Smith with Truist Securities. Your line is now open. Please go ahead.

Our next question will come from David Smith with Truist Securities. Your line is now open. Please go ahead.

David Smith: Thanks. Good morning.

Ronald P. O'Hanley: Hi.

Ron O'Hanley: Hi.

Thanks, good morning.

David Smith: On the capital front, you've been running more at the high end of the 10% to 11% CET1 range for most of the last year, but you were in the middle of the range this quarter. Are you now more comfortable running into the range, or is this just a transitory move down given the elevated balance sheet at the end of March? If you could give any early impressions on potential impact of the new RWA and G-SIB surcharge rules proposed last month, and also clarify if the 80% payout ratio target, is that on a GAAP or adjusted earnings basis? Thank you.

I'm I'm the capital front. You've been running more at the high end of the 10 to 11% ct1 range for most of the last year. Um, but you were in the middle of the range, this quarter. Are you now more comfortable running into the range? Or is this just a transitory move down given the um, the elevated balance sheet at the end of March. Uh, then if you could give any early Impressions on potential impact of the new rwa and G sub search charge rules proposed last month.

John Woods: Sure. Yeah. I'll take those one at a time here. Our operating range is 10% to 11%, and we've articulated recently that we've been operating at the upper end of that range. That hasn't changed. You can see some variability on quarter ends where we report on any given day, just given what could happen. It just so happened that 31 March was an exceptionally active day, and there were some larger movements on that day that maybe drove this to the level of 10.6%. If you were to look at the averages for the Q4 and the Q1, average CET1 was in the upper end of 10% to 11%, and that's how we're continuing to operate. Nothing new to communicate there. I think the second one that you asked about was related to Basel III.

And also, to clarify, the 80% payout ratio target—is that on a GAAP or adjusted earnings basis? Thank you.

For the fourth quarter, and the first quarter average, average C1 was in the upper end of 10 to 11. And that's how we're continuing to operate. So, nothing new to communicate there. I think the second one that you asked about was related to Basel III.

Ronald P. O'Hanley: Yep.

David Smith: Yep.

John Woods: Yeah. We're pretty constructive on the proposed approach. I think it's delivering on the expectation that there would be a more targeted view of credit risk RWA, and I think that's played through, and it's our expectation that we'll see a benefit in the credit risk RWA side of things that is expected to exceed the additional RWA that we'll have to provide on the operational risk front. We'll have to frame this and think about magnitudes as we continue to study it and determine what the finalization of these rules will be, which will happen over time. Generally, reasonably constructive on the proposal, and it's going to be a net benefit, it appears, for us. Then lastly, as it relates to the 80%, that's on a GAAP basis in terms of the payout.

Um, yeah, and yeah, and I think, I mean, so when we're pretty constructive on the, on the proposed approach, um, I think, um, it's delivering on the expectation that there would be, you know, a more targeted view of credit risk, rwa. And I think that's that's played through, and it's our expectation that we'll see a benefit, um, in the credit risk, rwa side of things that, um, uh, that is expected to exceed the, um, the additional rwa that will have to provide on the operating risk. Operational risk front. So you know what? We'll, we'll, we'll have to frame this and think about magnitudes as we continue to study it. And determine, you know what, the, what the the finalization of these rules will be, which will happen over time but generally, um, reasonably constructive on the proposal and it's, it's going to be a net benefit. It appears, uh, for us. Um, and then, um, lastly as it relates

To, uh, the 80%—that's on a GAAP basis, uh, in terms of the payout,

David Smith: All right. Thank you.

All right. Thank you.

Operator: Our next question will come from Manan Gosalia with Morgan Stanley. Your line's open. Please go ahead.

Our next question will come.

Manon Goelia with Morgan Stanley, your line is open. Please go ahead.

Manan Gosalia: Hi. Good afternoon. Just on the private credit side, appreciate all the incremental disclosure on the NDFI loans. It looks like a majority of those loans are all non-BDC loans, and you also mentioned some of the safeguards that you have on the BDC loans themselves. Maybe the question is, how are you thinking about growth in that NDFI portfolio going forward, and how do you assess the safety around that portfolio?

John Woods: Yeah. When you think about all the other categories, this is, in essence, who we serve. These are our clients. Non-depository financial institutions broadly are an important part of how we support that customer segment. These are investment services clients, by and large. As part of the broad suite of services we provide them, we support them from a balance sheet standpoint. This is highly strategic lending for us when you see NDFIs. Each of these categories are extremely well-positioned from a risk return credit risk profile standpoint. We've never had losses in subscription finance or in the AAA CLO book. That's really the large majority of the NDFI book is in that space. We wanted to make it clear just how high quality these categories are. We're down to $1.6 billion in the actual BDC lending.

Hi, good afternoon. Um, so um, just on the private credit side, you know, appreciate all the incremental disclosure on the ndf file loans. Um, you know, it looks like a majority of those loans are all non BDC loans. And you also mentioned some of the safeguards that you have on the BDC loans themselves. So uh, maybe the question is, how are you thinking about growth in that NDA fee, portfolio, going forward and how do you assess the the, the safety around that portfolio?

Yeah, I mean, I, when you think of, when you think about all the other categories, this this is in essence who we serve. These are our clients, non-depository, financial institutions broadly are an important part of, of how we support, uh, that customer segments. Um, and um, these are Investment Services clients, uh, by and large. Uh, and um, you know, as part of the broad Suite of services, we provide them, we we, uh, we support them from a balance sheet standpoint. So This is highly strategic lending for us when you see mdfi. And and each of these categories, uh, are extremely, uh, well, positioned from a risk, return credit risk, profile standpoint.

John Woods: I would kind of highlight the points made on the slide with respect to that these are senior secured with substantial subordination on them. 80% subordination sitting behind the positions that we have in the BDC space that's diversified with ongoing structural protections. This will be a growth area for us. You could see low-to-mid single digit growth and commensurate with our continued penetration of this customer segment, which is really attractive for us. I think we're feeling very good about the profile here.

We've never had losses in subscription Finance or in the triple ACLU book. Um, and that's really the, the, the large majority of the ndf I book is in that space. Um, and we wanted to make it clear that, hey, you know, just how high quality, uh, you know, these, uh, these categories are, you know, we're down to 1.6 billion dollars in the actual BDC lending. Um, you know, I would, I would, you know, kind of highlight that that uh, the points made on the slide with respect to that. These are senior secured with substantial, subordination on them. You know, 80% subordination sitting behind the positions that we have in the BDC space, they have Diversified uh, with ongoing structural protections. Um, this is, uh, this will be a growth area for us. Um, and uh, you know, you could see, you know, Lotus load them in single digit growth, uh, and, you know, commensurate with our continued penetration of this customer segment, which is really attractive.

Attractive for us and, uh, you know, I think we're—we're feeling very good about the profile here.

Manan Gosalia: Great. On the private market, private credit servicing business, you've made several investments there over the past few years. Do any of the pressures that we're seeing here on the private credit side impact that business?

John Woods: Yeah, there's some impacts. I think that to the extent that you have elevated redemption requests that can have a marginal impact. It's pretty limited, however. Frankly, the round trip is a net positive for us. When you think about elevated redemption requests that may come in in the private space, that could have a small impact on servicing fees, but it actually results in higher deposits. There's a balancing force here with respect to, in the near term, net very stable in terms of revenues and fees, and just don't see a huge impact here in the Q1, which we think is more of a temporary flow-related issue rather than a broad systemic issue.

Great and um, you know, on the on the private Market private credit servicing business, uh, you made several Investments there with over the past few years. Um, does do any of the pressures that we're seeing here on the private credit side impact, uh, that business

Ronald P. O'Hanley: Yeah. I think it's also important to remember that all this attention on these products and redemptions is really around a very small piece of the private credit market. It's around those that are put into funds and available on a semi-liquid basis to investors. The vast majority of private credit is not in those kinds of structures, and there's no reason to believe that private credit won't continue to grow. It's unlikely that you're going to see significant expansion of bank balance sheets in Europe or Asia, so yet the appetite for credit will continue to grow. You even think about bank intensive kinds of markets, again, like the GCC. If you look at those banks, highly profitable banks, but they don't have a lot of places for bank balance sheets to grow.

Ron O'Hanley: Yeah. I think it's also important to remember that all this attention on these products and redemptions is really around a very small piece of the private credit market. It's around those that are put into funds and available on a semi-liquid basis to investors. The vast majority of private credit is not in those kinds of structures, and there's no reason to believe that private credit won't continue to grow. It's unlikely that you're going to see significant expansion of bank balance sheets in Europe or Asia, so yet the appetite for credit will continue to grow. You even think about bank intensive kinds of markets, again, like the GCC. If you look at those banks, highly profitable banks, but they don't have a lot of places for bank balance sheets to grow.

Impact here to to um you know here in the first quarter which we think is more of you know, a temporary flow related issue rather than a broad systemic issue.

It's also important to remember that uh, that all this attention on these um, on these products and redemptions uh is really around a very, very small piece of the private credit Market. Uh it's around the, you know, those that are put into funds and available on a semi-liquid basis to investors. The vast majority of private credit is not in those, uh, kinds of structures. And there's, uh, nothing no reason to believe that private credit won't continue to grow. Um, uh, it's unlikely that you're going to see, um, significant expansion of bank balance sheets, uh, in Europe, uh, or Asia. So, uh, yet the appetite for credit will continue to grow. Um, you even think about uh uh, Bank intensive, kinds of uh, of markets again like the GCC. Um, if you look at those Banks, highly profitable Bank,

Ronald P. O'Hanley: If you think about the capital needs of that region that were already there today or before 1 March, and what those capital needs are going to be going forward, that's just yet another pocket that will need to be fulfilled by private credit in some form. I do think what you will see is a careful examination of these vehicles, and what actually goes in them, how do you manage expectations of retail and affluent investors appropriately. Again, that's a relatively small segment of the marketplace.

Ron O'Hanley: If you think about the capital needs of that region that were already there today or before 1 March, and what those capital needs are going to be going forward, that's just yet another pocket that will need to be fulfilled by private credit in some form. I do think what you will see is a careful examination of these vehicles, and what actually goes in them, how do you manage expectations of retail and affluent investors appropriately. Again, that's a relatively small segment of the marketplace.

But those— they don't have a lot of places for, uh, bank balance sheets to grow. And if you think about the capital needs of that region, uh, that were already there.

today, uh, or before, uh, March 1st, and

John Woods: Maybe an extension to that too, just to tie it back to that $1.6 billion that you're seeing on our slide. Ron's point about those that are in that sort of non-public, semi-liquid space, it's less than half of that $1.6 billion. The overall BDCs are 4% of loans, so less than half of those. Around the 2% or less are in the space that's getting a lot of the headlines. It's well less than 1% of total assets, just to kind of wrap it all back together with the point you heard from Ron.

Uh what those Capital needs are going to be going forward. There's that's just yet another pocket of uh that will need to be fulfilled by private Credit in some form. Um, I do think what you will see is a careful examination of these vehicles. Um and uh, you know what actually goes in them, how do you manage expectations of retail and affluent investors appropriately? But again, that's a relatively small segment of the marketplace.

And may maybe an extension to that too, just to tie it back to that 1.6 billion dollars that you're seeing on our, on our slide, uh, Ron's point about about those that are in that, that sort of, non, you know, uh, uh, non-public. So any semi liquid, uh, space, it's less than half of that 1.6 billion. Um, and, you know, the overall bdcs are 4% of loans, so less than half of those. Uh, so in the around the 2% or less are in the the space that's getting a lot of the headlines. And then, it's well less than 1% of total assets. Just to kind of wrap it all back together. With the point. You heard from Ron?

Manan Gosalia: Got it. I appreciate all the detail. Thank you.

Operator: Our next question will come from Vivek Juneja with JP Morgan. Your line is now open. Please go ahead.

Got it. I appreciate all the details. Thank you.

Vivek Juneja: Thanks. A couple of questions. Firstly, you had a scoping charge of $41 million. This was the second one in the last 12 months. Can you give us some color? Is it the same client? Is it the same type of issue? It doesn't seem like it, but I just want to not make assumptions. What's driving these, and why have we seen it twice in the last 12 months?

Our next question will come from—Is it Janiyah with J.P. Morgan? Your line is now open. Please go ahead.

Thanks, a couple of questions. Firstly, um,

Ronald P. O'Hanley: Yeah. Vivek, it's Ron. These are idiosyncratic. It's not the same client, and it's not for the same reason. In this case, it's an existing Alpha client and it will remain an Alpha client. It was one part of their insourced to outsourced journey. We served them in our middle office business. They had intended, and we were working with them to help outsource more of that, and we mutually agreed that this was not the time for them to continue that outsourcing journey. It's within the middle office, and it's an insource versus outsource decision that the client has made.

Ron O'Hanley: Yeah. Vivek, it's Ron. These are idiosyncratic. It's not the same client, and it's not for the same reason. In this case, it's an existing Alpha client and it will remain an Alpha client. It was one part of their insourced to outsourced journey. We served them in our middle office business. They had intended, and we were working with them to help outsource more of that, and we mutually agreed that this was not the time for them to continue that outsourcing journey. It's within the middle office, and it's an insource versus outsource decision that the client has made.

There were you had a scoping charge, uh, of 41 million? This was the second 1 in the last 12 months. Is it, can you give us some color? Is it the same client, uh, what is it? The same type of issue. It doesn't seem like it. Uh, but I just want to, you know, not make assumptions uh what's driving these and why have we seen 2, you know, twice in the last 12 months.

Vivek Juneja: It's not the same kind of underlying drivers that drove the decisions in both of the client scoping changes?

Yeah, but that gets Ron. Um, it's, these are idiosyncratic. It's not the same client and it's, uh, it's not, uh, for the same reason. In this case it was a, uh, it's an existing Alpha client and it will remain an alpha client. Uh, it was 1 part of their, uh, insource to Outsource Journey. So we, we, we we serve them in our middle Office business. Uh, they had intended, uh, and we were working with them to help Outsource more of that. And we mutually agreed that, uh, this was not the time for them to continue that Outsourcing Journey. So it it's it's within the middle office and it's an insource versus Outsource decision that the client has made.

Ronald P. O'Hanley: No.

Ron O'Hanley: No.

And it's not the same kind of sort of underlying drivers that drove the decisions in both of the client scoping changes.

Vivek Juneja: Okay. Different topic. Ron, you made a comment about the Schwab charging a fee for their distribution platform. I want to clarify your response. Will you absorb it or will you pass it on? What's the plan with that?

No.

Okay.

Ronald P. O'Hanley: Yeah. We don't have a concrete plan yet because we haven't seen what the final is here. We'll figure out what we'll do once we see what it is. Once we know that, we'll come back to you.

Ron O'Hanley: Yeah. We don't have a concrete plan yet because we haven't seen what the final is here. We'll figure out what we'll do once we see what it is. Once we know that, we'll come back to you.

Different topic. Ron you made a comment about the Schwab, you know, charging a fee for the distribution platform. I want to clarify your response, will you absorb it? Or will you be able to will you pass it on? What's the plan with that?

Yeah, it's

We don't have a concrete plan yet because we haven't seen what the final is here. I mean, we'll figure out what we, uh, what we'll do once we see what it is. Um, and you know, once we know that, we'll come back to you.

Vivek Juneja: Okay. Lastly, if you'll indulge me for one. This is John Woods. Just a little detail. The charge-off jump you saw this quarter, what type of loan? Any color on that?

John Woods: Yeah. This would be a COVID commercial loan. Just kind of coming out of some high margining contracts that a name was able to execute back in, call it the 2021 period. When those rolled off, they had some pressure, and went into non-accrual. We took the opportunity to exit the name. We had it substantially reserved for, so it's not really a big P&L impact. We decided to crystallize it and move on from the name in Q1, and that's what drove the charge off. Nothing that really extends into the other portfolios, and it didn't have anything to do with NDFI or anything else.

Okay. Uh lastly if you'll indulge me for 1 this is John Woods, just a little detail, the the charge of jump you saw this quarter and you put what type of loan any any color on that?

Vivek Juneja: Okay, thanks.

Yeah, this was a, this would be a CO, um, commercial loan. Um, so, uh, just kind of, uh, coming out of, um, some high marketing contracts, that, uh, that a name was able to execute back in back and call it the 2021, uh, period. Um, when those rolled off, uh, they went into, they had some pressure, um, and, uh, went into non-accrual and we took the opportunity to exit the name. Uh, we had it. Um, you know, substantially reserved for us, it's not really a big p&l impact, um, but but we decided to crystallize it and move on from the name, uh, in the first quarter. And that's what that's what drove the charge off. So, um, you know, uh, nothing that really extends into the other portfolios and it didn't have anything to do with ndf or anything else.

Operator: Our next question comes from Steven Chubak with Wolfe Research. Your line is now open. Please go ahead.

Okay, thanks.

Karen Wong: Hi. Good morning. This is actually Karen Wong filling in for Steven today. Really appreciate the color on the drivers of the expense growth, including the 4% from net productivity saves. Just wanted to ask, given the headcount was down 2% year-on-year, how much did that contribute to the overall efficiency savings? Looking ahead, do you see the potential for further headcount optimizations in here?

[Analyst] (Wolfe Research): Hi. Good morning. This is actually Sharon Lang filling in for Steven today. Really appreciate the color on the drivers of the expense growth, including the 4% from net productivity saves. Just wanted to ask, given the headcount was down 2% year-on-year, how much did that contribute to the overall efficiency savings? Looking ahead, do you see the potential for further headcount optimizations in here?

Our next question comes from Stephen Tubac with Wolf Research. Your line is now open. Please go ahead.

Hi, good morning. This is actually a Sharon lung filling in for Steven today. Um, just wanted to ask uh really appreciate the color on the drivers of the expense growth um including the 4% from net productivity saves, just wanted to ask, um, given the headcount was down 2% year on year. Uh, how much did that contribute to the overall efficiency savings? And then, um, looking ahead, do you see the potential for further? Headcount optimization from here?

John Woods: Yeah, headcount will clearly be something that we'll think about. I would say there are puts and takes there. We're growing businesses and we're investing in businesses, and really what we're doing is thinking about how these gross productivity levers that we're engaging in by getting much more automation and by reengineering processes and by zero-basing those processes, we're finding ways to reduce reliance on as many kind of headcount as we've had before. We're using that net-net as the ability to go higher in other areas. Round trip, there will be kind of an expectation of continuing contributions from headcount, but there are puts and takes as we're continuing to invest in other places. It's a meaningful portion of the productivity of 4%.

Yeah, I mean I I you know headcount will will clearly be something that uh will think about but I would say there are puts and takes their, you know, we're growing businesses and we're investing in businesses and we may be and really what we're doing is thinking about how uh these gross productivity levers that we're engaging in by getting much more Automation and by re-engineering processes, and by zero basing, those processes. We're we're finding ways to reduce Reliance on on as many, you know, kind of uh you know headcount as we've had before but we're using that net net as ability to go higher in other areas. So uh round trip there will be, you know kind of an expectation of of continuing contributions from headcount. Uh but there are puts and takes uh as we're continuing to invest in other places. But so it's a meaningful portion of the productivity of 4%.

Karen Wong: Great. Thank you so much.

[Analyst] (Wolfe Research): Great. Thank you so much.

Great, thank you so much.

Operator: Our final question will come from Gerard Cassidy with RBC. Your line is now open. Please go ahead.

Gerard Cassidy: Good afternoon, gentlemen. John, can you talk to us? You've had obviously some real strong positive operating leverage. You identified the ninth consecutive quarter, excluding the notable items, of course. How much of the positive operating leverage, and I guess this plays into your pre-tax margin comments as well, how much of it is structural, meaning your scalable platform that you guys have built, the mix shift versus cyclical tailwinds like the FX volatility or rising market levels?

Our final question will come from Gerard Cassidy with RBC. The line is now open. Please go ahead.

Good afternoon, gentlemen.

John Woods: Yeah, I'd say, Gerard, it's a good question. I would tell you that across the board, we've had organic growth in the quarter, and that's been really something that will be durable, is multi-year investments in business execution and a sales culture that is starting to pay dividends. We're seeing organic growth across all of our line items. As I mentioned earlier, all the investments that we've made in geographic expansion and product capabilities in the Markets business, which from a distance you might say is purely environmental. It's really not. I mean, it's also environmental, but it's not only environmental. There are long-term client relationships and platforms that we've built that our clients find very attractive. The connectivity between Markets, our Investment Services clients, and Investment Management clients are very strong.

John, can you talk to us? Uh, you've had obviously some real strong positive operating and leverage you. You identified 9th consecutive quarter, excluding the notable items. Of course, you know, how much of the positive operating leverage and I guess this plays into your pre-tax margin comments as well. How much of it is structural? Meaning your scalable platform that you guys have built. The mix Shift versus cyclical Tailwind, like the FX volatility, or rising market levels.

Yeah, I, I'd say, uh, try. It's a good question. Um, I would tell you that across the board, uh, we've had organic growth, um, you know, in the quarter and that's been really something that you can, you will be durable, uh, is multi-year investments in in, um, business execution and uh, uh, sales culture, uh, that is starting to pay dividends. Uh, so, we're we're seeing organic growth across all of our line items as I mentioned earlier, um, all the Investments that we made in Geographic expansion and product capabilities in the markets business, which from a distance you might say, is, is purely environmental? It's, it's really not, I mean, it's also environmental, but it's not only environmental there are, uh, you know, long-term client relationships. Um, and Platt

John Woods: Therefore, I do think we have a durable opportunity to drive positive operating leverage that's attractive, that will reflect itself in pre-tax margin improvements over time. Certainly, environmental factors can help that, but even without environmental factors, we believe we have a very attractive opportunity to grow pre-tax margin through positive operating leverage, given all that organic commentary I just made.

Gerard Cassidy: Great. Thank you, John. Ron, obviously, you and I have been around for a fair bit, and the custody banks' scale has always been so important to success. With all the investing in AI today, can you share with us, do you think it's even a greater challenge for smaller players to compete against companies like your own and the money center banks in New York or your big competitor down there? Just, can you frame that out? It's always been the same, it's just maybe it's more of a dynamic because everybody talks about AI, but how important is it to really have scale to successfully compete in this business?

Forms that we've built that our clients find very attractive, and the connectivity between markets and our Investment Services clients and Investment Management clients are very strong. Therefore, I do think we have a durable opportunity to drive positive operating leverage that's attractive, that will reflect itself in pre-tax margin improvements over time. Certainly, environmental factors can help that, but even without environmental factors, we believe we have a very attractive opportunity to grow pre-tax margin through positive operating leverage, given all that organic, um, you know, commentary I just made.

Custody banks—you know, scale has always been so important to success, and with all the investing in AI today, um,

Can you share with us? Do you think it's even greater?

Challenge for smaller players to compete against companies like your own and the money center banks in New York or your big competitor down there. Just, can you frame that out, or is it—so it's always been the same? Maybe it's more of a dynamic, or everybody talks about AI. But how important is it to really have scale to successfully compete in this business?

Ronald P. O'Hanley: I think it's a really good question, Gerard. I think that the importance of scale certainly hasn't gone down. If you think just about the investments required around technology, cyber, and those kinds of things, just to stay where you are. Forget about growth, forget about new opportunities. The cost of doing that, which is either being imposed regulatorily on all the other players, or increasingly by clients themselves who are saying, "This is our expectation in terms of what we're going to expect and demand of you." You then layer onto that the real revolution that we're seeing both on the AI front and what it means, again, not just to bring the technology in, but to actually profit from it. The scale, both around people, know-how, et cetera, is just really hard, I think, for a smaller player to do.

Ron O'Hanley: I think it's a really good question, Gerard. I think that the importance of scale certainly hasn't gone down. If you think just about the investments required around technology, cyber, and those kinds of things, just to stay where you are. Forget about growth, forget about new opportunities. The cost of doing that, which is either being imposed regulatorily on all the other players, or increasingly by clients themselves who are saying, "This is our expectation in terms of what we're going to expect and demand of you." You then layer onto that the real revolution that we're seeing both on the AI front and what it means, again, not just to bring the technology in, but to actually profit from it. The scale, both around people, know-how, et cetera, is just really hard, I think, for a smaller player to do.

I I think it's a really good question Gerard, I think that um uh the importance of scale, uh certainly hasn't gone down. Um, if you think just about the Investments required around um uh technology and cyber, and those kinds of things just to stay where you are, right? Forget about growth forget about New Opportunities. Um, the the the cost of of doing that uh which is either being imposed regulatory on. All the other players or increasingly by clients themselves who are saying this is our expectation, in terms of what we're going to expect and and demand of you, you then layer on to that uh, the the real Revolution that we're seeing both on the AI front and

Ronald P. O'Hanley: Then if you believe that we're moving towards this true digitization of finance, that will take time. It's not just about showing up with the fancy new platform, but recognizing that there's this long-term transition between digital and digital, that there are these on-ramps and off-ramps that need to be built. If you want to make money, that's what you need to do. Again, puts more scale requirements. I don't dismiss the innovators, and we look at them and we follow them, and in some cases, we partner with them, and in an even smaller number of cases, we buy them. In terms of do we see one of those developing into a true scaled player to compete in this little pocket that we compete in, we're not seeing that.

Ron O'Hanley: Then if you believe that we're moving towards this true digitization of finance, that will take time. It's not just about showing up with the fancy new platform, but recognizing that there's this long-term transition between digital and digital, that there are these on-ramps and off-ramps that need to be built. If you want to make money, that's what you need to do. Again, puts more scale requirements. I don't dismiss the innovators, and we look at them and we follow them, and in some cases, we partner with them, and in an even smaller number of cases, we buy them. In terms of do we see one of those developing into a true scaled player to compete in this little pocket that we compete in, we're not seeing that.

What it means, again, not just to, uh, bring the technology in but to actually profit from it—the scale, both around people, know-how, etc.—is just really hard, I think, for a smaller player to do. And then if you believe that we're moving towards this true digitization of finance,

Uh, that will take time. So it's not just about showing up with the fancy new platform, but recognizing that there's this long-term transition between digital and, and digital. Um, that there are these on-ramps and off-ramps that need to be built and if that's—if you want to make money, that's what you need to do. Again, it puts more scale requirements. So, uh, I don't dismiss the innovators and we look at them and we follow them. And in some cases, we partner with them and in an even smaller number of cases, we buy them. Um, but in terms of, uh, of, you know, do we see one of those developing into a true scaled player, uh, to compete in this little pocket that we compete in, uh, we're not seeing that.

Gerard Cassidy: Very good. Thank you.

Very good. Thank you.

Operator: There are no further questions. I will now turn the call back over to Elizabeth Lynn for closing remarks.

There are no further questions. I will now turn the call back over to Elizabeth Lynn for closing remarks.

Elizabeth Lynn: Thank you all for joining us today. Please feel free to reach out to Investor Relations with any follow-up questions. Thank you again, and have a nice day.

You all for joining us.

Please feel free to reach out to Investor Relations with any follow-up questions. Thank you again, and have a nice day.

John Woods: The host has placed this conference on hold. The host has ended this call. Goodbye

The host has placed this conference on hold.

The host has ended this call. Goodbye.

Q1 2026 State Street Corp Earnings Call

Request DemoDemo

State Street

Earnings