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Elizabeth Lynn: Good morning, and welcome to State Street Corporation Third Quarter 2025 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 will 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 rerecorded 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 would like to hand the call over to Elizabeth Lynn.
Elizabeth Lynn: Thank you, operator. Good morning, and thank you all for joining us. On our call today are CEO, Ron O'Hanley, will speak first, then John Woods, our CFO will take you through our third quarter 2025 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 appendix to our presentation. 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. Our forward-looking statements speak only as of today, and we disclaim any obligation to update them even if our view should change. With that, let me turn it over to Ron.
Ron O'Hanley: Thank you, Liz. Good morning, everyone, and thank you for joining us. I'm pleased to welcome John Woods to his first earnings call with State Street. John brings deep and additive expertise to our leadership team and we're excited about the perspective he adds. Turning to our results, I'll begin with our third quarter highlights before turning it over to John. Who'll walk you through our financial results in greater detail. Slide two of our investor presentation highlights the strength of our third quarter results. With quarterly earnings per share of $2.78 increasing 23% year over year. Our strong financial performance reflects disciplined execution, against our strategic priorities and our ability to effectively capitalize on the constructive market environment in the quarter. We continue to demonstrate good business momentum and consistent delivery of improved financial performance. For example, 3Q marked our seventh consecutive quarter of positive total operating leverage, excluding notable items. As we delivered total revenue growth of 9%, a pretax margin of 31%, and return on tangible common equity of 21%. These metrics highlight our ability to drive profitable growth by executing our growth strategy and continuing the transformation of our operating model. Investor demand, new technology, and a changing regulatory environment are creating new opportunities for us and our clients. Alongside our robust third quarter financial performance, we remain focused on advancing product innovation enhancing our capabilities to better serve our clients and accelerate growth in key strategic areas. For example, as I'll outline shortly, we launched a series of strategic initiatives and new product capabilities in the third quarter, all designed to position State Street for sustained long-term growth. In investment services, we delivered strong year-over-year servicing fee growth and ended the quarter with a record $51.7 trillion in AUCA. We recorded one new alpha mandate and another alpha client went live in 3Q. State Street has long been a leader in technology-driven innovation. Today, our investment services team is building on that legacy by developing the tools and client capabilities that will empower our clients to succeed in an evolving market. For example, in the digital assets ecosystem, State Street already provides fund administration and accounting services for digital assets today. As we look ahead, we are strategically positioning State Street to be the bridge between traditional and digital finance as well as the connection point between digital asset platforms. To that end, we are excited about the forthcoming launch of our digital asset platform, which will enable tokenization of assets, funds, and cash for institutional investors. As the wealth market expands globally, we have noted the importance of building upon our front office wealth trading and portfolio construction capabilities at Charles River to further access this growing revenue pool. We achieved a key milestone of our wealth services strategy in 3Q with the announcement of a strategic partnership and minority investments in Apex Fintech Solutions. Through this partnership, State Street will leverage Apex's digital custody and clearing platform to expand our wealth services offerings in support of the high-growth wealth management industry. The partnership will deliver a differentiated fully digital, low globally scalable custody and clearing solution and experience for wealth advisers and self-directed wealth platforms, as well as their clients around the world. As a result, this partnership will significantly strengthen State Street's investment servicing capabilities and build on our existing foundation to deliver the industry's first truly global digital wealth custody solution. The third quarter also marked an important milestone for State Street Investment Management. Which reported record quarterly management fee revenue as period-end AUM climbed to a record $5.4 trillion just one quarter after surpassing the $5 trillion mark for the first time. We continue to innovate at pace, further strengthening our investment management capabilities to drive growth across several strategic focus areas. For example, we launched 11 select fighter premium income ETFs enabling investors to tap into sector-specific opportunities with enhanced income potential. Elsewhere, by broadening our suite of actively managed target maturity ETFs, we further strengthen our capabilities in fixed income solutions. Which remains a key strategic priority. Importantly, the third quarter provided several compelling examples of how our partnerships with some of the world's leading investment firms are expanding and strengthening our client capabilities positioning us for future growth. For example, continued partnership with Apollo, we made further progress in expanding access to private markets with the launch of PRSD, an actively managed short-term bond ETF. Which combines exposure to investment-grade public and private credit. We also launched a euro-denominated AAA CLO use of ETF in partnership with Blackstone. Building on our successful track record together. Which includes actively managed high-income and senior loan ETFs. Finally, in Europe, we entered a strategic partnership with Van Lanschot Kempen Investment Management that will drive further innovation across our respective investment offerings in this key strategic region. State Street markets continue to see the results of its efforts to deepen client relationships delivering strong year-over-year revenue growth in both Securities Finance and FX Trading Services. As a testament to the strength of our markets franchise and the value we deliver to clients, we're proud that State Street was recognized with eight category wins in Euromoney Magazine's 2025 FX Awards, doubling our achievements from 2024. These industry recognitions are strong endorsements of our continuous effort to deliver best-in-class trading and financing solutions technology platforms, and research to our clients globally. Turning to our balance sheet. Our solid financial position has enabled us to return nearly $1.5 billion in capital shareholders year to date through common share repurchases and dividends. Including $637 million in the third quarter. As previously announced, we were pleased to increase State Street's quarterly per share common stock dividend by 11% to $0.84 in 3Q. We remain committed to returning capital to our shareholders. Before I conclude my prepared remarks, I'd like to take a moment to extend my gratitude to Mark Keating, for his outstanding leadership during his tenure as interim chief financial officer. Mark stepped into the role during a pivotal time and provided invaluable stability and leadership as we navigated the transition period. Mark will continue to play an important role in shaping our long-term financial strategy and driving enterprise-wide initiatives, working closely with John. To conclude, the third quarter marked several strategic and performance milestones for State Street. Reinforcing the effectiveness of our strategy. We delivered our seventh consecutive quarter of positive total operating leverage excluding notable items. A clear indicator of sustained momentum. Our continued improving financial performance is supported by a range of tangible proof points that highlight how we are expanding product capabilities and driving innovation across the firm. These efforts continue to position us for future growth and long-term value creation for our shareholders. With that, let me hand the call over to John. Who will take you through the quarter in more detail.
John Woods: Thank you, Ron, and good morning, everyone. Turning to slide three. As Ron mentioned, we delivered strong third quarter financial results that reflect healthy business momentum and consistent execution driving EPS growth of 23% year over year to $2.78. Total revenue increased 9% year over year to approximately $3.5 billion and included fee revenue growth of nearly 12%, excluding notable items. Fee revenue growth was broad-based, supported by active client engagement amid a constructive market environment. Servicing fees were up 7%, Management fees increased 16%, and FX trading services and securities finance revenues were collectively up 17% excluding notable items year over year. Expenses increased approximately 5% year over year to $2.4 billion as we continue to prudently manage our expense base while also funding key strategic initiatives and technology investments to support future growth. Taken together, our strong third quarter performance delivered substantial fee and total operating leverage of over 600 basis points and over 300 basis points respectively year over year and excluding notable items. Our pretax margin expanded approximately 270 basis points to 31% while our return on tangible common equity was approximately 160 basis points higher at 21% compared to the year-ago period. Turning now to slide four, Servicing fees increased 7% year over year, primarily driven by higher average market levels net new business, and the impact of currency translation. AUCA reached a new record of $51.7 trillion increasing 10% year over year driven by higher period-end market levels and strong client flows. We achieved nearly $50 million in servicing fee revenue wins in the quarter, bringing our year-to-date total to approximately $250 million. We remain intensely focused on driving servicing fee revenue growth particularly in core back office solutions and private markets, which together account for the vast majority of both our third quarter and year-to-date wins. Our pipeline remains healthy and well-diversified, and we are on track to meet our full-year target 350 to $400 million. This momentum is reflected in our third quarter servicing fee revenue backlog of approximately $400 million up roughly 40% from the prior year. Installing our backlog remains a top priority as we focus on delivering consistent organic servicing fee growth in the quarters ahead. Additionally, we reported one new alpha mandate win with another client going live in the quarter. As Ron noted, we recently finalized a strategic partnership and minority investment in Apex Fintech Solutions, This partnership will expand our wealth services offering through Apex's digital and clearing platform and supports the long-term growth of our investment servicing business. Turning to slide five. Management fees increased 16% year over year to a quarterly record of $612 million primarily driven by higher average market levels and net inflows. Assets under management increased 15% year over year, to a record $5.4 trillion supported by higher period-end market levels in client inflows. Net inflows totaled $26 billion for the quarter, reflecting solid momentum across ETFs, cash, and institutional index fixed income. In ETFs, our US low-cost suite continued to gain market share, achieving record flows in the quarter. Our gold ETF suite further strengthened its market leadership, reaching a record AUM of approximately $145 billion, This strong performance reflects both robust inflows supported by our expanded distribution globally as well as elevated spot prices. As Ron mentioned, innovation remains a cornerstone of our investment growth strategy. In the third quarter, we launched 39 new products, including an expansion of our select sector suite and new alternatives exposures. These initiatives broaden the capabilities available to clients and support organic net new asset growth. We are encouraged by the robust performance of our investment management business in the third quarter which delivered a pretax margin of approximately 36% up nearly 600 basis points from the prior year quarter. Turning to slide six. State Street markets delivered strong third quarter results. With solid year-over-year growth in both FX trading services and securities finance. Our markets franchise is strategically positioned to support both our investment services and investment management businesses delivering integrated value across the entire franchise. FX trading revenue increased 16% year over year, excluding prior period notable items. While FX volatility was relatively muted, client volumes increased 11% year over year with strong growth across all of our trading venues. Securities finance revenues increased 19% year over year, driven by robust balance growth across both agency lending and prime services. In agency lending, third quarter performance benefited from increased assets on loan and specials activity, While in prime services, our targeted client engagement supported solid revenue growth for the quarter. Moving to slide seven. Software and processing fees increased 9% year over year. Front office software and data revenue increased 14% year over year, driven by higher on-premises renewals, growth in professional services, and continued expansion of software-enabled revenue as we converted and implemented more clients onto our cloud-based SaaS platform. In turn, annual recurring revenue increased by approximately 13% year over year to approximately $400 million in the third quarter. Our front office revenue backlog remains healthy increasing 45% year over year and reinforcing our confidence in the future growth of this business. Moving to slide eight, Net interest income of $715 million was down 1% year over year. This performance reflects an 11 basis point decline in the net interest margin to 96 basis points primarily driven by lower average short-end rates and deposit mix shift, partially offset by the reinvestment of securities portfolio cash flows at higher yields and higher interest-earning assets supported by higher deposit balances. On a sequential basis, net interest income declined 2%, primarily due to a reduction in the interest-earning assets resulting from lower deposit balances compared to elevated second quarter levels as well as lower average short-end rates. These factors were partially mitigated by the reinvestment of securities portfolio cash flows at higher yields, along with continued client-driven loan growth, which contributed to an improvement in interest-earning asset mix supporting a stable net interest margin on a linked quarter basis. Turning to slide nine. Expenses increased approximately 5% year over year. Primarily driven by continued investments in technology and strategic initiatives, higher revenue-related costs, and the impact of currency translation, partially offset by continued productivity savings. Compensation-related costs were well contained, increasing 2% year over year in the third quarter. This increase was primarily driven by higher salaries and benefits the impact of currency translation partially mitigated by a reduction in headcount including from ongoing operating model transformation and process improvements. Information systems and communications expense increased 12% year over year, primarily due to ongoing investments in platform modernization and resiliency AI tools, enhanced data delivery, and improved user experience, as well as higher client implementation activity and volumes. In parallel, we continue to advance our productivity and optimization initiatives generating approximately $125 million in year-over-year savings during the quarter. These efforts have delivered approximately $370 million of savings year to date, keeping us firmly on track to achieve our full-year savings target of $500 million. Our ongoing productivity and other savings initiatives have enabled us to deliver both fee and total operating leverage while also creating capacity to invest strategically in growth areas such as wealth services, alpha, private markets, AI, and process automation. Moving to slide 10. Our standardized CET1 ratio was 11.3% at quarter end, up approximately 60 basis points quarter over quarter reflecting capital generated from earnings and a decline in risk-weighted assets coming off of the elevated FX volatility of the quarter. We returned $637 million capital to common shareholders during the third quarter. Consisting of $400 million in common share repurchases and $237 million in declared common stock dividends, for a total payout ratio of 79%. As Ron noted, in the third quarter, we were pleased to increase our per share quarterly common dividend by 11% to 84¢. To wrap up, let's turn to our outlook. Which, as a reminder, excludes notable items. Building on our strong year-to-date performance, and a constructive market environment, we now expect 2025 total fee revenue growth in the 8.5 to 9% range. An improvement to our prior outlook of at or slightly above the five to 7% range. We expect full-year NII to be down slightly relative to last year's record performance. Turning to expenses, with our improved outlook for fee revenue, full-year expense growth is now expected to be roughly 4.5%, up from our prior outlook of the upper end of the three to 4% range, reflecting ongoing investment in technology and strategic initiatives along with higher revenue-related costs. Importantly, we continue to generate significant positive fee in total operating leverage this year. And given where we are in the year, our full-year outlook implies that for the fourth quarter, fee revenue will be flat to down slightly quarter over quarter reflecting a normalization in other fee revenue from an elevated 3Q, while suggesting a sequential increase in NII. And on expenses, our updated full-year outlook suggests that expenses will be up slightly in 4Q compared to the prior quarter. Finally, we continue to target a total payout ratio approximately 80% for 2025 subject to market conditions and other factors, while also deploying capital to support our clients drive organic growth, and fund strategic investments. In conclusion, our third quarter results reflect the strength of our execution and the resilience of our strategy, driving consistent business momentum, and delivering meaningful fee and total operating leverage. On a personal note, I'm excited to be partnering with Ron and the rest of the State Street management team and I'm very optimistic about the opportunity ahead of us at State Street. As we aim to build upon the strong results we've achieved year to date. And with that, operator, we can now open the call for questions.
Operator: At this time, we will open the floor for questions.
Elizabeth Lynn: If you would like to ask a question, please press 5 on your telephone keypad. You may remove yourself by any time by pressing 5 again. Please note, you'll be allowed one question and one related follow-up question. Again, that is 5 to ask a question. Our first question will come from Alex Blostein with Goldman Sachs. Your line is open. Please go ahead.
Alex Blostein: Hey, good morning, everybody. Thank you for the question, John. Welcome to the call. I wanted to maybe, get your thoughts as you're kinda, you know, get your feet wet, with, with the new business here, if we State Street. How are you thinking about, both the balance sheet management and sort of operating dynamics in the company? Any any additional steps you're looking to pursue as far as just kinda your early observations, across the business go either on the again, capital management, expense management, NII, any any of the thoughts would be would be helpful just to get your first impressions.
John Woods: Yeah. Thanks for the question, and good to be on the call. I mean, I think maybe I mentioned this previously at a conference that I think about the priorities broadly. It starts with just partnering with the management team to drive execution and profitability. And, you know, and and in my I guess, I'm completing my month two here I'm exceptionally impressed with the level of innovation and momentum that we have here at State Street. And so that's that's the foundation. That I thought I was joining, and, you know, all systems go on that front. So excited there. I will say that, you know, we're some of the areas that know, I'll be partnering with Ron and the management team on. I will you know, spend time in the balance sheet space I think there are optimization opportunities. On the balance sheet that I've been digging into in my early days here. So that's that that'll that'll be nice to see as as that plays out in the coming quarters. The other couple of items I'd I'd also hasten to add is an exceptional opportunity in the productivity space. That this management team has been hard at. For quite some time. But there is a lot ahead of us that we can accomplish together that's that's got a lot of tailwinds associated with it heading into 2026. And that that gives us opportunity to continue to invest and drive, you know, tech-related innovation over time. And I'll be I'll be plugging in on that front And and then lastly, all of the strategic initiatives that we have in front of both within The United States and around the world, with respect to geographic expansion and product development. You know, those are broadly the areas of optimization and and and focus that I think I'm gonna be looking at. And then just bringing it back to the maybe the specific point you raised with respect to balance sheet. Based upon all of that, maybe just to add look at some of the balance sheet trends more in the micro, here at the end of the third quarter heading into the fourth quarter, there really solid trends coming out of all of that. Some strong deposit flows, You saw our net interest margin was flat quarter over quarter. As you may have seen in the overall guide for the year, sort of seeing net interest income and net interest margin both headed headed up. As we head into the fourth quarter with some solid tailwinds there. So that's encouraging, and I think there's more, you know, more opportunity on the balance sheet to keep that momentum heading into '26.
Alex Blostein: Great. That's helpful. Thank you. And then just as a follow-up related to NII, your your point just now around NII improving in the fourth quarter relative to the third quarter, is it a function of the balances being higher? I know that tend to pick up seasonally. Or is there something more more specific that you guys are already starting to work through? To drive an AI hire from here?
John Woods: Yeah. It's a good question. We did see the balance sheet come down in the third quarter. I think the outlook into the fourth quarter is for the balance sheet size to be about stable. So I wouldn't call that you know, the reason why we we see NII and net interest margin rising. Into the fourth quarter, but it is important to stabilize that. And and, you know, it's import the all-important deposit levels were down this quarter overall, but frankly, mix was improved into the third quarter. Non-interest bearing deposits held in, and we expect that to continue into April. And we see deposits stabilizing with a number of tailwinds there that that that will ensure that that that stable deposits something that we can count on in April. I'd say the real drivers are more about some other nonrate related tailwinds. So I would you know, we've got the recurring turnover of the investment portfolio where you see cash flows maturing at lower rates being reinvested at higher rates. That was a tailwind in the third quarter. It will continue to be one in the fourth quarter and beyond. I'd also highlight the fact that in the past, we had terminated some interest rate risk management hedges. And the negative drag related to that is already in our third quarter run rate. That's gonna start to run down in the fourth quarter, which will become a recurring tailwind in 4Q and in 2026. Those two sort of mostly non-rate related tailwinds are are giving us some good confidence about not only net interest margin growth in the fourth quarter, but those tailwinds will continue in 2026. And I see some positive mix opportunities. On an ongoing basis. So when you see how we're servicing servicing I mean, serving our customers in the loan space, Loan mix was was an improvement in in 3Q, and that and I could see that being a potential supporter over time as well. So, yeah, feeling pretty constructive about four q and NIM and NII. Great. Awesome. Thank you very much.
Operator: Our next question will come from Glenn Schorr with Evercore. Your line is open. Please ask your question.
Glenn Schorr: Thanks very much. You know, maybe just a quick follow-up on that conversation. You know, we've I think a couple of us have asked this in the past but, John, you being new to the party and and getting a fresh look, I wonder how you think about or how we should think about this year's State Street you know, struggling around flat, on on net interest income. Last year, as you mentioned, record net interest income at your peers, this year is a good year. So I'm just trying to think of from your fresh eyes, is there something different about the client mix? Is there something different about how you interact with the client base? And ways you can talk through what operating deposits clients can park with you because your your business overall rose plenty. And asset and deposits usually come along with that. So I I don't have to rehash all the the deposit beta stuff. But should we expect I'm curious to get your thoughts on that. And then should we expect similar enough performance going forward in '26 and beyond or is there something about the client mix that that just deposits are different? And you gotta look at the the totality of of the earnings.
John Woods: Yeah. I mean, a couple of comments, and we'll spend some more time on this as we get to the 2026 outlook, and we'll we'll cover this in a in a fair bit of additional detail. But I do I do observe, you know, what drives the bus here on the is gonna be deposit levels. Both the level and quality of the mix of deposits and pretty true for most for almost all banks. Right? And so I think about the the trends in the deposit base, you know, I think the macro is coming together relatively with a net tailwind. Certainly, heading into April, We'll update in January again, but in all likelihood, into 2026. And the few tailwinds I'd highlight are when you have the rate environment, we're adding it you know, started the easing cycle that likely continues in the fourth quarter. Maybe a bit into '26 as well as we see where rates are headed. That's typically a tailwind for deposit levels and and often good for mix. Heard chairman Powell talk about possibly QT ending That also is a solid tailwind for system level deposits. And, you know, just bringing it back to really the core franchise in terms of our fee-based drivers, AUCA drivers, are all coming together quite nicely, and we'll talk about that being a really solid tailwind for for levels, which is where we where we generate our deposits. So when I look at when I put all that together, I I feel pretty good about the fact that the balance sheet being stable to rising over time is coming together nicely. And then you and then you flip over to the other drivers which would be impact of rates where we're somewhat diversified across. We've got we've got a balance sheet Majority of the balance sheet's in The US. But the asset sensitivity on the on the short end is close to neutral there. And then we have exposures to the euro area as well as sterling. That, where there's a different rates that were asset sensitive outside The US. It seems like rate stability there tells me that that rates won't be nearly the headwind that it was year over year. And then finally, the the mix and the optimization work that we're going to continue to do. I think along with the eight zero idiosyncratic factors I mentioned about four q, with terminated hedges running off, as well as the turnover of the balance sheet and investment portfolio in particular where where cash flows are getting reinvested at higher levels, which which are less rate dependent. All of that comes together with some pretty solid forces that, you know, we'll talk to you more about in January to to put it all together. But, feeling pretty, optimistic about some of the some of the tailwinds there going going forward.
Glenn Schorr: I appreciate all that. Maybe a quickie on the investment management side. You you lot of lot of product innovation. Lot of good flows, and and more to come. Like it. I don't know if you mentioned, I apologize if I missed it, what the outflows were on the instant institutional side and then the bigger picture is maybe talk a little bit towards your aspirations outside of your core footprint meaning it it would be blasphemy in the past if I asked if if station was gonna broaden their active actively managed footprint, but it actually, the world's a little different. There's more growth avenues. So outside of your core ETF, and passive business, maybe longer term aspirations, and thank you for all that.
Ron O'Hanley: Glenn, it's Ron. Why don't I take that and John can add in? On flows were positive as you saw, but that that was net of some outflows in institutional, really a one around mostly around one particular client. And know, these things happen. To your broader question, the you know, we know what our strengths are, and our strengths are in the passive and systematic exposures. From an asset management perspective. We're also a leader in product structures such as ETFs and target date funds. And we've been able to turn the the spider franchise into a platform that's recognized and operating around the world and operates really as a distributor for us and others. So what we have actually broadened quite significantly beyond that core passive, but typically have been doing it on the fixed income space doing it ourselves. But then outside of that with key partnerships I talked about some of them. Some of them are recent, such as Apollo. Some of them go back years, really strong partnerships with the likes of of Blackstone. And we will continue to do that. More and more, you see firms coming together. Recognizing that that that a platform like the Spider platform is hard to replicate. There really is a limited number of platforms like that. And the fact that ours is is open architecture in the sense that we will work with with high quality partners. So you'll see us expand that way. And then to to the extent to which there's select opportunities for us to move into active, but we're only going to do that in places where one, we think we can actually add value to clients. And two, that it, can generate scalable, repeatable revenues. Is the way to think about it.
Glenn Schorr: Ron, thanks for all that. I appreciate it.
Operator: Our next question will come from Mike Mayo with Wells Fargo. Your line is open. Please go ahead.
Mike Mayo: Hi, can you hear me? We can, Mike.
John Woods: Hey. So, John, back to that press set of eyes, you know, State Street stock for the last five years is underperformed the bank index by about 10 percentage points. And one of your big competitors by over a 100 percentage points. So recently, State Street showed you know, better fee growth, better operating leverage, innovation. And clearly, you have the State Street if you didn't see some potential to provide you know, greater shareholder value than has been delivered for the last five years. So with that and especially with less credit risk compared to your old firm too. So what do you think is you know, not understood about the State Street story, and what would you do to help change that? And then kind of separate but related, you know, Ron, I was just wondering you know, how many more years you're thinking about staying on as CEO? Thank you.
John Woods: Thanks, Mike. Happy to take that first part. And know, I think here's what what I find exceptionally interesting. When you look at the the fee-based tailwinds here, and and in the third quarter in particular, the core growth even when you strip out market and FX, on the investment management side since we just spoke about that, is 5% year over year. Just core net growth excluding the other tailwinds. And same on the servicing fee side of things where, you you know, there's 2% net growth year over year. And and the tailwinds there continue to grow when you look at the composition of our backlog, and the pace of installations and in servicing, And what you see from an innovation standpoint on the management side of things I think that story is underappreciated. I think the the opportunities over the medium term on the fee revenue side of things is underappreciated. I also think that the strategic overlap of our markets business with investment management and investment services is also underappreciated. And and and just how integrated that service offering is. And I think we'll we'll try to, you know, do a a better job of shining a high know, in highlighting all of those things across those three large businesses. The second thing that comes to mind is the stability and visibility to net interest margin and NII over time. I think we have opportunity there. And it's right in front of us. We have an exceptionally attractive deposit growth opportunity driven by our custody growth over time. And a number of optimization opportunities that will allow us to, I believe, manage that in a way that creates more shareholder value in the future And then maybe I'll just close out with on the expense front. Management team has done a heck of a lot from what I can see in my I'm in month two here, but from what I can see, there's been just massive movement in productivity but there's a huge amount in front of us, which I find very exciting. All of that is is our resources to continue to reallocate to customer-centric investments. As well as potentially share that you know, to the bottom line on productivity. So I'm I'm sorry, on profitability. So that's what I was hoping to see. Check the box across the board with with some upside and even more excitement, you know, being inside the place than even when I was outside State Street. So that's how I would talk about it.
Ron O'Hanley: And, Mike, on your question, I will remain as CEO as long as the board and myself are confident in my leadership and ability to add value, that translates into continuing improving shareholder value creation.
Operator: Our next question will come from Ken Houston with Autonomous. Your line is open. Please go ahead. Ken Houston, your line is open. Please go ahead.
Ken Usdin: Hey. It's Martin. Good morning, Bin. So oh, we're both here. Sorry about that. I was fighting. The mute button. On on on the fee side, guys, I just wanted to ask, know, we saw the another 350 plus of wins this quarter. Good underlying strength on the services side. Can you just talk about any update to your expected trajectory of how that comes on, especially now that, you know, we're crowded towards the year with 40 fish percent this year, And and just more importantly, how are those installations going? You know, just still some talk in the market about whether, you know, are going as smoothly as we wanted to see on alpha or not. So we just kinda wanna talk ask you to to kinda talk through the installation cycle and and and and the timing. Of those so that win that win base. Thank you.
John Woods: Yeah. Great. I'll start off there, and others may add. But so $400 million in backlog at $9.30 significant increase year over year that, you know, we we we see the installation outlook there to be quite attractive as much as half of that being installed by the end of the year. And a significant portion of the remainder being done by the 2026. So the the that backlog level probably comes down a bit, which which is reflective of of of installation pace But, you know, we're gonna want a healthy backlog balanced by sales and installations over time, but we're feeling pretty good about about the installation cycle on on the backlog from, from 09:30.
Ron O'Hanley: Yeah. And in terms of how is it going, I mean, we're largely on track to what we said we would do at the beginning of the year. We said that there was a real focus on installations that was combination of one, some of the early development kinds of things that we were doing with, some of the earlier on alpha partners or or coming to a close and being installed, and there's been a lot of progress on that this year. And then secondly, just getting better and more repeatable at it. We've really focused on turning this into a one at a time kind of thing to a repeatable process and and building installation into the early sales and engineering phases of the, of the alpha discussions, which is us immensely. And as John noted, it's some of the later businesses come on, it's actually on a faster implementation pace than some of the earlier businesses, which which is what you'd wanna see from us.
John Woods: Yeah. And just adding to that, I would like to say that that the mix of the back is actually quite attractive, much more back office with all that ancillary you know, opportunity to drive other products into a back office installation as well as privates, which which has attractive profitability associated. With it. So we're we're we're pleased about where the backlog is and where it'll get in but also the mix of that business is is quite attractive as well.
Ken Usdin: Okay. Got it. And second question, just completely understanding the the the leak up in the expenses. FX translation, and also better revenues And it's obviously been a really good still being able to put up good operating leverage Kind of wanna triangulate what you're saying about NII back up in the fourth, and we'll see what happens here with the curves and all next year. How do you think about the magnitude of operating leverage that the company is capable of? And how and maybe, John, a question for you, how are you starting to triangulate you know, kind of the the save and spend balance as you think about what the right expense growth rate is for shape three?
John Woods: Yeah. A couple of different thoughts on that. I mean, I'd first try to you're remind that that in the year over year although expenses are up 5%, 1% of that is FX. So and of the remaining 4%, about half of that is revenue related. And the rest of it is net investment. So which is really contains all of our productivity initiatives, which will continue and allows us to keep investing over time. There's there's there's real operating leverage year over year. As we have articulated. And feeling very good about about the ongoing productivity as you head into 2026. As well to allow us to keep investing and to keep, know, kind of the ability to maintain profitability. Other thing I'd highlight is that even without if I go back to top of the house, even without if you say you know, fees up 12% ex notables, year over year, and if you take out the markets and FX tailwinds, you nevertheless have significant operating leverage you know, know, against the 4% growth in expenses ex FX. Year over year as well. A lot of our marginal business that we brought on is all fee and operating leverage accretive And so, you know, the the the the foundation incremental activity all seems to be heading in the right direction for fee operating leverage as well as total operating leverage.
Ron O'Hanley: And what I would add to that, it's Ron here. As we if you know, we we've we've got an ongoing kind of transformation and productivity effort. And we are on pack on pace to deliver what we said we would deliver for this year, which is about 500,000,000 At the same time, we, like certain certain many others are doing, have leaned heavily into AI. And we're all early in that in that journey. But we're seeing lots of opportunity to create improvement in the in client experiences the employee experience, in productivity, in unit cost, and speed. And what's incumbent upon that where the team is really leaning, know, we'll talk more about this next year is how do we capture all that? And deliver that back to to shareholders?
Operator: Our next question will come from Jim Mitchell with Seaport Global. Your line is open. Please go ahead.
Jim Mitchell: Hey, You've talked about strength in the on the market side. I think relative to some of peers, was stood out particularly on the FX side. So can you just talk about the environment versus what you're doing to grab share? And how you're thinking about the growth outlook in those businesses from kind of elevated levels here?
John Woods: Yeah. Sure. I mean, think as you head into the fourth quarter, you know, we had we had had a a sense volatility is typically good for these businesses. We had a sense that volatility would rise from the third quarter which was a little bit on the muted end of things. We didn't expect that it would be this high in October, but nevertheless, it's the from where where you see volatility both in terms of equities as well as in the FX space, those are tailwinds to the market's business heading into the fourth quarter. And so we see some opportunity there. But I would I would hasten to add as I'm as I hinted at earlier, the the overlap of the of the markets business with our core investment services clients in in what we call an integrated FX offering. That's just flow business that continues to grow as our custody business continues to grow as a global custodian. And so that's something that would be a core as core growth continues in servicing fee fees, which we had in the third quarter, will we will have again in the fourth quarter. And as growth continues in investment management, where on the other side of the house, securities lending business overlaps significantly with our investment management customers. And clients. As investment management continues to grow, we'll see securities finance continue to grow. So there really is an integrated offering across each of those three businesses. And and that's the underpinning of why we feel good about Marcus heading into the the fourth quarter And then, of course, there are market dependent factors that you have to keep track of. Early early on that, frankly, actually are are constructive. For the markets business. But that's how I think about it. We have the core strategic business, and then you have the toggle and market dependent based upon the environment. But but that's that's how I think about how we did so well in the in the third quarter. And what what the trends might be going forward.
Ron O'Hanley: Jim, what I would add to that is we've we've talked for a long time now about, building up our channel capability within FX and, meeting our clients. Where they want to be and how they want to trade. So we've built multiple venues and access points for our clients Some of those are quite active in these decisions. Some of them are actually not. Since they set it on a sort of auto. And we've got all those offerings in place. And what I would point to is in addition to revenues being up, FX revenues, which is a combination of volume and volatility. Volumes were up. Volumes were up on a double-digit basis year over year, and that just reflects the efforts we've taken to one, build share and continue to grow share. And secondly, to deliver a a really strong client experience that then gets translated into repeated business.
Jim Mitchell: Okay. Yeah. That that's that's helpful. And and just maybe a follow-up on the expenses. For next year on operating leverage. It seems like you John, you feel like there's an opportunity to even maybe accelerate expense saves and then you have to balance that with investment. So is the message that you have a good amount of flex if rev the revenue environment doesn't come out as good as you might think? Can you flex downward to to maintain positive operating leverage? Just how should we think about your flexibility next year and beyond?
John Woods: Yeah. I'd I'd so you we'll stay tuned in January. We'll we'll we'll give you the contours of this. But there's no question there's there's discretionary levers that we can pull as management. We do wanna continue to invest through downturns should one occur. And there are crown jewels that we're gonna protect. And we have that that that financial strength to be able to do that. However, if in fact there are know, drawdowns that put some pressure on on servicing fees or management fees. Couple of things. I would I would hasten to add that the markets business and frankly, NII can be shock absorbers in that of environment. So first and foremost, we need to think about that. And those those are significant revenue revenue categories that that that would would mute the impact. And then and then, of course, there's this this the discretionary aspect of the pace of investment that we would, you know, recalibrate as we do on a continuous basis based upon what our revenue picture is and is expected to be. So I I'd say there are a number of levers that would, would allow us to continue to drive strong profitability even if we ended up with some kind of downturn that that, hypothetically could occur.
Operator: Our next question will come from Ebrahim Poonawala with Bank of America. Your line is open. Please go ahead.
Ebrahim Poonawala: Hey, good morning.
John Woods: Morning.
Ebrahim Poonawala: I guess hey, John. Hi. Maybe just following up on the capital piece. So it sounds like everything you said we should we are setting up for some version of a franchise efficiency plan on the expense side, as well as how you can tap into growth even in a much more better way than you've done so far. Similarly, from a capital standpoint, are there opportunities to do things differently when we think about just the balance sheet management, I I think the capital return, between about 80% payout Would love to hear how to do this, John. Thanks.
John Woods: Yeah. I mean, I I I I don't you know, in the capital side of things, I think we have an exceptionally strong capital capital profile as you saw at $9.30. I I think the when we think about how to manage capital, we think about supporting a very strong dividend. You saw an excellent growth in the dividend in the second quarter that was announced. We think about the fact that making capital available to deploy that into growth in RWA as well as investing in strategic initiatives And you also would have seen the use of cat use of our strong capital base to make a few bolt-on acquisitions that accelerate our strategy. A number of our businesses in the wealth space in particular, and there were others. Those those are all exciting uses of capital, and that will continue But given our strong profitability, it does allow us to also be able to make the the the the statement that we're also gonna have a very strong return of capital. Capital to shareholders of roughly 80% for 2025. We'll continue to work through that waterfall as you you know, on an ongoing basis, balancing return of capital with the ability to to deploy capital over time. So nothing nothing real huge pivots expected on the capital front. Other than continuing to evaluate the opportunities put capital to work to serve our clients.
Ebrahim Poonawala: Thanks. And just maybe sticking with that, you mentioned strategic investments as the third sort of capital priority. Given the regulatory backdrop that we are seeing, does that allow for something more larger as opposed to bolt-on acquisitions that could strategically put the firm on a much better growth trajectory or just tap into businesses I mean, obviously, we had the acquisition from a few years ago with BBH, but would love to hear in terms of just from appetite for larger deal making. Is there an opportunity? And if so, where would that make more sense? Thanks.
Ron O'Hanley: Ebrahim, as as you know, we've been quite clear and disciplined about how we think about m and a. M and a is not a strategy, but it's a way to implement and accelerate a strategy. And so it's it's a very high bar for us because shareholders have alternatives and alternative use of that capital. So we would agree with your assessment that the that the environment, particularly in The US, is is probably a little bit more benign than it's been in the past, but that doesn't change our So we will continue to we're we're confident in our organic growth capabilities, but we will continue to look at opportunities to accelerate our strategy. And and what we did with Apex is actually a great example of that. We've been talking about wealth service now for a little over a year with you. And we like the trajectory we're on. A, the opportunity to to make this investment in Apex and more importantly, to have some significant influence and control over commercial direction of it as it relates to wealth custody was a way that we felt could absolutely accelerate our revenue gathering capability. So that's that's an example. And whether it's a large acquisition or a small acquisition, it'll go through that same kind of discipline bar.
Operator: Our next question will come from David Smith with Truist. Your line is open. Please go ahead.
David Smith: Thank you. On the topic about you know, investment and overall your integrated model, You spoke some about the investment services opportunities with wealth providers that you know, this investment creates for State Street. Does that also create potential opportunities in the investment management side of the house?
Ron O'Hanley: Yeah. It's it's it's a great question, David, because the rise of of wealth management as creates real opportunities and has created real opportunities for investment managers. We we are already actively participating in that space. And so a significant portion of State Street's State Street Investment Management assets under management, well over 20% of it, is associated with wealth And you know, they you you can see the growth there. For example, in the low-cost S and P funds, which are growing at a much higher rate than the industry than the than the overall, and we continue to build share there. And so that is very much a part of our strategy as we think about wealth services. Which is providing the infrastructure and the servicing capabilities to our clients, but also in a very user-friendly and convenient way. Providing them with with these asset management exposures that we can provide at very low cost.
Operator: Thank you. Our next question will come from Vivek Juneja with JPMorgan. Your line is open. Please ask your question.
Vivek Juneja: Thanks. John, just a quick question on your loans that are very much in spotlight right now, NB NDFI or NDFI, whatever you wanna call them. You've got what is your exposure there from what we can see? Seems like over 60% of it is to BDCs. Any thoughts on that? Any color on sort of what's strategic rationale for that higher percentage going to be received?
John Woods: Yeah. Thanks for the question, Vivek. I'd say the 60% is broadly NDFIs, not all BDCs, but the the way I would talk about this, first, we we have a much smaller loan portfolio. Than most of the banks, you know, that you would be in the peer set in the peer set first. Just so from a quantum standpoint. When you look at the mix and where we're playing, our growth and and the loan portfolio itself is really concentrated the private credit and private market space. So subscription finance, which is exceptionally low credit you know, risk over time, is a huge, portion of our loan book, not only outstanding, but also the marginal growth. As well as we do a fair bit of triple a CLOs, second big category for us. And then there is a there is a category of supporting private credit and BDCs, but those are integrated clients that we're serving, you know, from a custody standpoint. And and from a servicing standpoint. And so these are these are really deep customer relationships. So the substantial portion of our loan book is exceptionally high quality. It's relatively diversified. There is a CRE book, but it's it's relatively small. And it's been shrinking over time. And you know, broadly, no real signs of of deterioration in credit. That that we've seen to date. We're keeping an eye on it, but feeling reasonably comfortable with what I've seen so far in the loan book.
Vivek Juneja: Okay. When I said BDCs, meant BDC is from the data we could follow, looks like, or 60% off your NDFIs exposure. It's not yeah. It's it's broadly NDFIs, you know, but but rather than just BDCs. Ron, a question for you maybe. What are you seeing as regards Charles River with the fixed income clients? Obviously, there's been the issue with Invesco, but beyond that, are you seeing more outflows in the fixed income order management systems? Or any color, any update you can give us there because there's been some questions on that. No. I mean, the
Ron O'Hanley: it's as you know, that was an area that we have put a lot of development effort into. To not only bring it to par, but to bring it to be a distinctive platform A lot of that development was delivered last year. Even more is being delivered this year. So not only we're not seeing outflows, but we've got much of the backlog that you see of the alpha backlog that you see includes clients that will be coming on to the fixed income side of it. So it's both equities and fixed income are equally important to us.
Vivek Juneja: Okay. Thank you.
Operator: Our next question will come from Brennan Hawken Bank of Montreal. Your line is open. Please ask your question.
Brennan Hawken: Hi there. So I'd like to follow-up on Vivek's last question, actually. I know that you spoke to sustained on the software and processing side. But but you know, within the marketplace, it does, at least in the minds of a lot of investors, seem to suggest that Aladdin picking up some momentum you know, And so and and it from what we hear, it's not purely the fixed income side. You know, there some equity decent sized equity managers who are who are considering the shift as well. When you think about how the progress position in the marketplace, what adjustments are you looking to make? In order to better position competitively and and maybe, you know, recapture some of the solid momentum you've had previously? Thanks.
Ron O'Hanley: Brennan, the we remain we remain pleased with the momentum that we have. And we think about Charles River, there's there's two important elements of it. There's Charles River standalone as a front office software provider. And and then there's the Charles River as part of a integrated alpha offering. And sometimes Charles River is completely integrated. Into alpha. Where it is the front, and then we're doing the middle and the back and other elements of health. And sometimes as as we said from the outset on alpha, we were going to build this as a open architecture interoperable platform. So we are also the largest operator of the competing platforms where it'll be another front office platform, but we are there as the middle office provider and as the and as the back office provider. And and the growth there in in all those segments continues to be strong. It's a it's a competitive marketplace, but when you look at where the business is going, and who's gaining share, mean, the first of all, it's one of these very interesting markets where there's some third party players but you're also competing with the in sourced option. And there's still a fair amount that's insourced that's probably not viable. Over over time, which will remain a source of growth. So competition is good. And we view ourselves as a very formidable competitor, and we'll continue to put investment into it. Last thing I would point out is going back to the point on wealth. We're a significant player on on the wealth front end. And we're building that out. And now being able to to partner that with what we've done on the wealth custody side. We think creates some significant opportunities in some of the out years in terms of having a a additional source of revenue from the Wells side where Charles River is the front end in the portfolio construction. Of these adviser and adviser platforms. And the custody being provided by our wealth custody offering.
Brennan Hawken: Great. Thanks for that color, Ron. John, love to drill down on reinvestment rates So could you speak to where reinvestment rates versus roll off rates are? How much you're picking up? And doing the math on the deposit beta, you know, in the US dollar, which is clearly your your largest base of of deposits, running around maybe you know, low to mid seventies depending year over year versus quarter over quarter. Is that what gets to is the roll off rates what gets to the US rate neutrality. Or do you think you're rate neutral even before we account for the roll off benefit? Thanks.
John Woods: So, you know, I think I think you put it all in when you basically say in The US, you know, we're we're in the neighborhood of, call it, you know, I think we've said this previously, but in the neighborhood of around $2,000,000 per cut. Per quarter so near neutral. Respect to the Fed. That's that's encompassing all factors. In terms of the the the reinvestment, role off, and reinvestment, you we you can kinda see that in the neighborhood of approximately you know, and this jumps around quarter to quarter. And but but a a rule of thumb know, and, again, to be clear, it can be a little higher or a little lower in any given quarter. But rule of thumb is we tend to get about $5,000,000,000 of cash flows that get reinvested round numbers at about about a call it, 75 to a 100 basis point, you know, round trip. Where, you know, you're kind of maturing in the low threes and being able to reinvest somewhere near high threes or in the low fours. Over the last couple of quarters. And so that's a pretty good rule of thumb in terms of that. That'll continue for into the future and certainly through 2026. More broadly, the the the terminated hedge item that I mentioned earlier, that's not been in our run rates in terms of the benefit. That benefit will will newly present itself in the fourth quarter. And will also be a tailwind into 2026 And so it's it's those two items which are mostly not rate dependent. That add to the other forces I mentioned, which is some strong spot deposit levels at the end of the third quarter, that that directionally continue to be above the averages for 3Q into 4Q quarter to date. That really underpin a lot of the support for rising net interest margin and NII in 4Q. And we'll come back to you in January with an update about where all that comes together and shakes out for '26. But those are those are my thoughts on that question.
Operator: There are no further questions. I will turn the call over to management for closing remarks.
Ron O'Hanley: Thank you all for joining us.
Elizabeth Lynn: Have a good day, and feel free to reach out to investor relations with any questions. Thank you. Bye.