Operator: Good morning, and welcome to State Street Corporation's second quarter 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 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 recorded for rebroadcast or distribution in part or in whole. Without the express written authorization from State Street Corporation. The only authorized broadcast of this call will be on the State Street website. Now I would like to hand the call over to Elizabeth Lynn.

Elizabeth Lynn: Good morning, and thank you all for joining us. On today's call, our CEO, Ronald O'Hanley and our CFO, John F. Woods. Will review our second quarter 2026 results and provide an update on our medium term financial outlook. Both are included in our earnings presentation, which is available in the Investor Relations section of our website at investors.statestreet.com. Following prepared remarks, we will be happy to take your questions. Before we get started, I would like to remind you that today's presentation will include results presented on a basis that excludes or adjusts 1 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. 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. Forward looking statements speak only as of today, and we disclaim any obligation to update them even if our views should change. With that, let me turn it over to Ronald.

Ronald Philip O'Hanley: Thank you, Liz. Good morning, everyone, and thank you for joining us. Today, we will focus on 2 key topics. First, we will review our strong second quarter performance momentum we continue to build across the franchise and our improving outlook for 2026. We will then discuss our new medium term financial targets, which we released this morning. We are excited to outline the strategic pillars that will drive this next phase of State Street's growth, the significant opportunities we see to further strengthen our compelling value proposition and competitive position and the actions we are taking to further transform our operating model. Together, these initiatives reinforce our confidence in our ability to deliver sustained growth expand margins and returns and create long term value for our clients and shareholders. But first, let me begin with our second quarter highlights on Slide 3. We delivered a strong set of financial results in the second quarter. Driven by disciplined execution deep client engagement and continued momentum across our businesses. These results reflect the strength of our platform and position us well for continued progress as we look ahead. Second quarter EPS was 3.65 up from $2.17 in 2Q 2025. Excluding prior year notable items, we delivered significant earnings growth of 44% year over year driven by record quarterly fee revenue. Including record servicing, management, and FX trading revenues, together with record NII. Driving total quarterly revenue up 17% year over year to an all time high. This performance drove continued margin expansion and stronger returns. Taking a step back, this quarter's results reinforced the durability of our franchise, and the sustained progress in our financial performance. 2Q marks our 10th consecutive quarter of positive operating leverage, excluding notable items, reflecting disciplined execution and the momentum we are building across the business. In addition to our strong 2Q financial results, we also meaningfully advanced our strategic agenda in the second quarter. Further strengthening our franchises and positioning us for continued growth. Within investment services, innovation continues to be a key driver of future growth. For example, our digital asset platform is always on financial infrastructure that will enable clients to rapidly bridge from traditional to digital finance. And we continue to make strong progress in advancing this strategy. In 2Q, we announced our intention to deliver a tokenized fund servicing capability by year end subject to regulatory approval. Following a competitive process, a leading European asset manager selected State Street to serve to serve as tokenized money market funds expected to launch later this year. Importantly, State Street Investment Management is also expected to be an early adopter of this offering, underscoring the strength of our 1 State Street approach. Our investment management business continued its focus on innovation and product capability to position the franchise for sustained growth, and it demonstrated further evidence of the power of our franchises working together as an integrated 1 State Street. In 2Q, a State Street alpha client, entered into a strategic partnership with State Street Investment Management. Paving the way for a suite of active cobranded ETFs. This is a clear example of how we bring the value of our combined firm to clients through a 1 State Street approach. As well as how we drive innovation within the industry. Deploying our extensive expertise and capabilities to identify and create solutions for the world's investors. We also recently announced that SPYM, our low cost S&P 500 ETF, has been selected by the US Department of the Treasury as the exclusive default ETF for Trump accounts. These accounts are designed to make investing simple and accessible, giving children a straightforward opportunity to begin early in life as asset owners, benefit from the power of compounding, and stay invested over time to build wealth. We are proud to help Americans through that journey with SPYM. Turning to State Street Markets. We continue to demonstrate the strength of our integrated liquidity and financing capabilities. Driving strong client activity. We experienced record FX trading volumes and revenues in the second quarter. With securities lending also up significantly year over year. Our markets franchise provides industry leading capabilities to our investment services clients. Deepening client relationships while driving revenue diversification and earnings growth. Before I turn the call over to John, let me briefly touch on the strength of our capital position. Which was reflected in the Federal Reserve's recent stress test. Following the release of those results, we announced an increase to our quarterly common stock dividend of 10%. To $0.92 per share beginning in the third quarter. Dividend growth remains an important component of our capital return as demonstrated by the double digit average dividend growth per share growth we have delivered over the last 4 years. In closing, we delivered a strong second quarter driven by disciplined execution, deep client engagement and broad based momentum across the franchise. Our results highlight the strength of our businesses, both individually and as 1 State Street, and the role innovation plays in driving performance today and growth ahead. We are encouraged by our progress and confident in our ability to continue delivering improved performance through the balance of the year and over the medium term. Supported by solid financial and strategic momentum. With that, I will turn it over to John to walk through the quarter in more detail.

John F. Woods: Thank you, Ronald, and good morning, everyone. Starting on Slide 4, our second quarter results excluding the impact of notable items in the prior year period, reflect continued momentum across the franchise with broad based revenue growth driving 645 basis points of positive operating leverage. Total revenue increased 17% year over year to a record $4 billion Fee revenue of $3.2 billion increased 16% year over year, reflecting strong performance across investment services investment management, and markets while net interest income of $860 million increased 18% driven by a 17 basis point increase in net interest margin to 113 basis points. Against the backdrop of strong revenue performance, expenses of $2.7 billion increased 10% year over year primarily reflecting higher revenue related costs as well as continued strategic investment in the franchise. These results drove another quarter of improved profitability, with pretax margin expanding 470 basis points year over year to 34% and ROTCE increasing over 6 percentage points to approximately 26%. Turning to slide 5. Servicing fees were $1.5 billion in the second quarter, up 13% year over year primarily reflecting organic growth of approximately 7% driven by client activity, flows and net new business, with the remainder from higher average market levels and currency translation. AUCA ended the quarter at a record $57.9 trillion. Up 18% year over year reflecting higher period end market levels client flows, and net new business. Servicing fee sales totaled $87 million in the second quarter, reflecting continued client demand across regions and strength in strategic growth areas, including alternatives. Turning to slide 6. Management fees were $772 million in the second quarter. Up 29% year over year reflecting approximately 9% organic growth and strong support from higher average market levels. Assets under management ended the quarter at a record $6.3 trillion up 23% year over year. Supported by higher period end market levels and positive net flows. Net inflows totaled $114 billion in the quarter, marking our fifth consecutive quarter of positive organic growth. This performance was primarily driven by strong index ETF and cash net inflows of $66 billion and $35 billion, respectively. Net inflows were broad based across geographies, led by The Americas and complemented by solid contributions from Asia Pacific and EMEA. We launched 38 new products and solutions during the quarter, including a tokenized money market solution and a stablecoin reserves fund further advancing our digital assets strategy. As Ron mentioned, SPYM was selected as the exclusive default ETF for Trump accounts, expanding access to investing for US children. Beyond the near term asset gathering opportunity, the program introduces a new generation of investors to State Street Investment Management and reinforces our position in the growing US wealth market. Turning to slide 7. Our global client franchise continued to support healthy activity across our markets business in the second quarter. FX trading services revenue increased 27% year over year, excluding a notable item in the prior year period, to $494 million driven by record high client volumes. These volumes reflect both our distinctive capabilities and the continued deepening of relationships with clients. Asia Pacific was a particular area of strength with robust equity marketing activity in a number of markets across the region supporting client volumes. Securities finance revenue increased 19% year over year, reflecting higher client lending balances. Turning to slide 8. Software services revenue declined 14% year over year in the second quarter, excluding a notable item in the prior year period, reflecting elevated on premises renewal activity last year. That said, underlying trends were strong. With software and data revenue up 10% year over year driven by client onboarding and conversions. In addition, annual recurring revenue increased approximately 14%, and revenue backlog grew 6% year over year reflecting continued SaaS implementations and conversions as well as ongoing sales momentum across the software platform. Turning now to slide 9. Net interest income of $860 million increased 18% year over year driven by a 17 basis point expansion in net interest margin to 113 basis points. The improvement in NIM reflected a more favorable funding mix continued benefits from investment portfolio repricing and the runoff of terminated hedges partially offset by lower average market rates. Average interest earning assets of $305 billion were largely stable from the prior year quarter as growth in deposit balances was partially offset by lower short term borrowings Moving to expenses on slide 10. Expenses increased 10% year over year in the second quarter excluding notable items, primarily reflecting strong revenue performance. The majority of expense growth in the quarter was tied to higher business activity, with revenue related costs contributing approximately 6 percentage points. Additionally, we continue to invest in our business, including capabilities, products, AI, and technology. These strategic investments contributed an additional 2.5 percentage points. While underlying run the bank costs net of productivity savings accounted for the remaining 1.5 percentage points. Headcount was down approximately 3% from a year ago, consistent with our focus on productivity and disciplined resource allocation across the enterprise. Turning to slide 11. Our capital position remained robust at quarter end, providing flexibility to support client activity invest in the business and return capital to shareholders. Our standardized CET1 and tier 1 leverage ratios were 10.8%, 5.3% respectively. Broadly stable relative to the first quarter. We returned $631 million to shareholders during the quarter. Consisting of $400 million of common share repurchases and $231 million in declared common stock dividends. For a total payout ratio of 62% bringing our year to date payout ratio to approximately 73%. As Ron noted, we announced a 10% increase in our quarterly common dividend per share beginning in the third quarter, reflecting the strength and resiliency of our business. Let's turn to our full year outlook on Slide 12. Which, as a reminder, excludes notable items. Our outlook assumes global equity markets remain flat on a point to point basis from the end of 2Q through year end. Our rate outlook is broadly aligned with forward curves. And assumes the Fed and BOE remain on hold, while the ECB delivers 1 additional rate hike this year. We now expect fee revenue growth of 12% to 13% up from our prior outlook of 7% to 9%, reflecting continued organic growth across servicing and management fees as well as healthy client activity in markets. We expect NII growth of 14% to 15% up from our prior outlook of 8% to 10%, primarily reflecting stronger average deposit balances. Consistent with our stronger revenue outlook, expenses are expected to increase by roughly 8% up from our prior outlook of 5% to 6% reflecting higher revenue related costs and continued investment. Based on our current outlook, we expect to deliver roughly 500 basis points of positive operating leverage in 2026 implying a pretax margin of approximately 32%. Finally, we continue to expect an effective tax rate approximately 22% for the full year and a total payout ratio of roughly 80% subject to board approval and other factors. Our strong first half results and improved outlook for 2026 reflect the strength of our franchise and continued execution against our strategic priorities. With that, I will turn it back over to Ronald to discuss our medium term financial targets.

Ronald Philip O'Hanley: Thank you, John. Let me turn to the second part of our discussion on Slide 14. Our strong execution in the second quarter combined with our improved outlook for 2026, provides meaningful momentum as we begin the next phase of our journey towards achieving new medium term targets. State Street is well positioned for its next phase of growth and value creation. That begins with the scale and strength of our franchises. The breadth of our platform is substantial, enabling us to compete and serve clients from a position of strength. Globally, we are the second largest custodian, the largest ETF servicer, and a partner to the world's largest asset managers and asset owners. Entrusted with more than 10% of the world's financial assets. And we operate in more than 100 markets worldwide. We are the fourth largest asset manager and the third largest ETF manager globally. And in our markets franchise, we are the number 1 provider of asset FX to asset managers as well as a top 3 securities lender. With capabilities that are deeply integrated with our investment services business and client relationships. Not only do these businesses hold leading market positions, they come together as a powerful 1 State Street. An integrated firm creating meaningful synergies and delivering greater value, for both our clients and our shareholders. Importantly, our businesses are integrated not just in how they go to market but also in how they serve a shared client base across asset managers, asset owners, and wealth managers. As illustrated on the right side of the page, we serve as an essential and trusted services and investment partner to the world's leading investors. As a result, we are strategically aligned with firms positioned to grow enabling us to drive further value as we broaden and deepen our relationships and participate in their growth in the years ahead. This 1 State Street is the foundation for everything you will hear from us today. It is and it is the platform from which we will deliver the medium term financial targets. Without understanding of who we are, how we go to market as 1 State Street, let me turn to what all of this translates into strategically and financially. Starting with our track record, where we are committing to take the franchise from here. Turning to Slide 15. In recent years, State Street has delivered structural improvement across the metrics that matter most. Excluding notable items, and over the past 2 years, through the end of 25, pretax margin expanded by approximately 300 basis points and return on tangible common equity increased to approximately 20%. Supported by revenue growth of more than 14%. That strong performance continued into the 32%, and ROTCE increased to roughly 23% excluding notable items. This reflects the deliberate choices we have made in recent years to strengthen the franchise, improve operating efficiency, and invest in areas that positioned us for durable growth. As we look ahead, our continued momentum and next phase of growth will be driven by 3 key strategic pillars. Which are outlined in the center of the slide. First, our core businesses. Many of our most compelling growth opportunities lie within the franchises we already lead. These are businesses where we have built deep capabilities operate at scale, and enjoy strong competitive positions. We remain focused on strategically investing to accelerate these opportunities and executing with discipline to deepen client engagement and deliver durable growth over the medium term. Second, to complement the growth of our core franchises, we are prioritizing 3 strategic growth initiatives. Alternatives, digital assets, and wealth services. That span and connect our investment services investment management, and markets franchises creating opportunities across the breadth of the firm. These 3 initiatives are adjacencies that align us with evolving client demand, and some of the fastest growing and most attractive revenue pools while also deepening our essential role to our clients as the industry evolves. Importantly, these initiatives are diversified across the maturity curve. Driving growth from our already strong position today in alternatives, positioning us for the next phase of market structure and digital assets. And enabling access to the largest and fastest growing pools of client demand through wealth services and investment solutions. And third, our next phase of technology and an AI-enabled transformation will be a critical enabler simplifying how we operate, accelerating time to market, and fundamentally improving productivity through a more integrated product platform model which John will speak to shortly. Finally, as we execute against these 3 strategic pillars, we believe the firm is advantaged by the interconnected capabilities across investment services, investment management and markets. Enabling us to deliver through a 1 State Street model that provides whole portfolio solutions at scale rather than just stand alone products. Taken together, our consistent track record of stronger financial performance positions us well for the next phase of growth. We enter that phase with positive momentum, supported by the continued strength of our global franchises, differentiated portfolio of strategic investments spanning multiple stages of maturity, and the evolution of our operating model through technology and AI driven transformation. These efforts underpin the new medium term targets we are announcing today. Which include the milestones of expanding our pretax margin to 35% and increasing return on tangible common equity to the mid-20s over the cycle. We are confident in our ability to achieve these ambitious targets as we build on our strong momentum and continued improvement in financial performance. With a clear path to sustained organic revenue growth, and positive operating leverage, we believe we are well positioned to unlock long term value for our shareholders. With that, let me turn it over to John. Who will walk through our path to achieving these objectives in greater detail.

John F. Woods: Thanks, Ronald. Turning to slide 16. The pretax margin expansion we expect to achieve over the medium term is broad based. With contributions across investment services, investment management, and markets. In investment services, the approximately 300 basis point contribution to enterprise margin expansion is expected to be driven by a combination of organic revenue growth, and productivity initiatives. On the revenue side, we see opportunities to deepen our existing client partnerships. Our key growth priorities include extending our ETF servicing leadership broadening our reach across key international markets, expanding adoption of our differentiated alpha front to back capabilities, and capturing growth across alternatives digital assets, and wealth servicing. We also expect continued support from net interest income, which remains closely tied to the client deposit growth and underlying strength of our servicing business. On the productivity side, given the scale of our global operations, investment services is expected to be the largest contributor to the expense saves in our technology and AI and digital transformation program. By simplifying our operating model, scaling common platforms, modernizing our technology stack, and increasingly leveraging data and AI capabilities, we expect to deliver an upgraded client experience and improve service quality while lowering unit costs over time. In investment management, we see significant opportunities to drive growth through scale and expanded client access. ETFs, index investing, fixed income, and other solutions remain core growth engines for the business. In addition, wealth is a key strategic focus as we expand our presence across advisory, intermediary, and retirement channels while partnerships with next generation wealth platforms extend our distribution to new investors and bring differentiated investment solutions to market. We also see substantial opportunities in alternatives and tokenization where we are broadening access and developing new ways for clients to incorporate private market and digital asset exposures into their portfolios. Taken together, these opportunities support our confidence in delivering sustained organic growth, operating leverage, and approximately 200 basis points of enterprise margin expansion from investment management over the medium term. In markets, we see continued opportunities from geographic expansion and product innovation. This includes scaling our financing, trading capabilities in our faster growing international markets, expanding our product offerings, and deepening engagement with our core investment services clients. Beyond this, growing demand across alternatives, digital assets, and wealth is creating new opportunities to expand our solution set. Supporting these growth drivers enhanced data capabilities, automation, and operating efficiency initiatives are expected to enhance execution and help to deliver approximately 100 basis points of enterprise margin expansion over the medium term. Underlying all of these opportunities is our 1 State Street approach, which enables us to connect capabilities across investment services, investment management, and markets to deliver more integrated solutions deepen client relationships, and increase wallet share. Turning now to slide 17, let me expand on the transformation initiatives that will accelerate execution enhance service quality, and create capacity for future growth. First is the migration of our operating model to a technology and AI enabled product platform structure. Rather than just reengineering legacy processes, we are taking an end to end view of the enterprise and are planning to rewire how we operate, embedding AI and modern technology into our core business processes. Under this model, business operations and technology resources are reorganized into integrated agile delivery teams with business leaders holding end to end ownership of the client delivery process and experience. The result is meaningful efficiency gains from simplification automation, and AI enablement. Beyond these efficiency benefits, faster time to market for new products, enhanced service quality, and improved client experience are expected to drive incremental revenue opportunities across the franchise. Supporting this operating model is our technology simplification and modernization agenda. By reducing legacy applications, expanding the use of modern cloud platforms, and further strengthening our enterprise data foundation we are lowering unit costs improving resiliency, and reducing operational risk. At the same time, a modernized data foundation unlocks new revenue potential by creating capacity for investment in growth and innovation. Finally, we are scaling AI adoption across the enterprise to improve execution, enhance productivity, accelerate software development. AI will drive meaningful gains in developer efficiency and code modernization freeing up freeing up capacity for higher value work. Beyond these productivity benefits, AI is enabling new client based capabilities and better data insights that will increase the earnings of our franchises over time. Together, these efforts are expected to deliver approximately $1 billion of run rate transformation benefits by 2029. With approximately 75% of this driven by expense productivity and 25% from revenue. Turning to slide 18. We outline our capital allocation framework and how we intend to deploy capital over the medium term to support our strategic objectives, generate attractive returns for shareholders, and maintain the resilient balance sheet our clients expect. Our capital priorities remain unchanged. Supporting a strong and growing common dividend, investing in the franchise to drive organic growth, and returning excess capital to shareholders through share repurchases. Consistent with these priorities, we continue to target a total payout ratio of approximately 80% To support these objectives, our current medium term outlook includes a CET1 ratio of approximately 11% and a Tier 1 leverage ratio of approximately 5.25% to 5.75%. Turning to our final slide, State Street is entering its next phase of growth from a position of strength. The momentum we have built in recent years has fundamentally repositioned State Street to deliver sustained growth continued margin expansion, and stronger returns over the medium term. The scale and strength of our franchises, our distinctive portfolio of strategic growth initiatives, and the accelerating impact of our transformation agenda give us real conviction in the path ahead and in our ability to execute against it. Collectively, these drivers support our new medium term targets of 35% pretax margin and a return on tangible common equity in the mid-20s. With that, operator, please open the line for questions.

Operator: At this time, we will open the floor for questions. You may remove yourself at any time by pressing star 5 again. Please note, you will be allowed 1 question and 1 related question. Again, it is star 5 to ask a question. And we will pause just a moment for the queue to form. Our first question will come from Alexander Blostein with Goldman Sachs. Your line is open. Please go ahead.

Alex Blostein: Hi. Good morning. Thank you for taking the question. I was hoping to start with the medium term targets, maybe starting with the revenue question first. So helpful in the way you framed it in terms of sort of qualitatively where you are looking to lean into. I was hoping you can give perhaps just a little more granularity on the $250 million and kind of which businesses that is likely to come from. And I guess more importantly, you guys have been improving organic growth to begin with over the last couple of years. So as you think about the firm wide organic fee growth today, where does that stand And I guess when you layer in these incremental efficiencies or incremental initiatives, where do you see organic growth firm wide going on the fee side?

John F. Woods: Yeah. I mean, Bill, thanks for the question, Alexander. This is John. I will go ahead and give you some context with respect to overall how we are thinking about it. Over the medium term, the way I would I would you know, just think through it would be positive operating leverage is the main sort of north star that we are we are committing to. So, you know, what you are what we are saying here is and as I mentioned in my remarks, you know, look at the baseline from which we are launching this in 2026. Whether it is 1H or even our outlook for 2026 overall, we are around 32%. that is growing over the medium term to that 35% and I would say that would be consistent with positive operating leverage of 100 to 150 basis points. Which is driven by organic growth across all 3 of those businesses that we are talking about. I would pair that with some commentary with respect to NII over the medium term. So we do see net interest income rising in that to mid single digits area. Driven by balance sheet growth in the low single digit range. And our net interest margin getting to the upper end of our 110 to 115 range. Know, as you get out over the medium term. And so those are the those are the underlying engine that drives this progression. And when then when you flip over to transformation program, and that $75/25 split, that billion dollars that we expect to deliver by 2029, as you as you asked, 25% of that is decked against revenue opportunities. And I think that is a starting point. and what we are trying to accomplish here is so broad based. And has huge impacts on client experience and time to market and cycle times. But the $250 million that we have in there is primarily related to the targeted strategic initiatives that you will see that we are mentioning here that are 1 State Street driven that would be in the alternative space. And in digital and in wealth and among those 3 probably alternatives is the biggest contributor just given its maturity profile where we have gotten that initiative has been ongoing for a number of years and we are accelerating into it. So that is how I would think about overall the context for the medium-term outlook and putting revenue into the mix there.

Alex Blostein: Got it. that is helpful. Thanks. And just for a follow-up, maybe double clicking on the 750 of, I guess, cost savings you expect to see here. Again, it feels like there is inherent operating leverage in the business. Regular way as you described it initially, and then this sort of comes on top. If you round that through, obviously, that leaves you with much higher pretax margin than the 35%. So if I think about the 750 being a gross number, maybe help us frame how much of that will ultimately get reinvested back in the business. To think about what the net, kind of efficiency on the net cost savings could be on the back of the program.

John F. Woods: Yeah. I mean, it is it is fungible. Right? But I would say that the transformation program has 2 overall objectives that, you know, maybe more than 2, but 2 overall financial objectives. It has the broader objective in the revenue space, which we have already covered. But when it comes to just the $750 million, it is it is doing double duty. First, it is allowing us to grow our strategic investment capacity over this medium term. In order to drive the outcomes that we are talking about with respect to these 1 State Street initiatives as well as the broader you know, powering our leading franchises. So that is the first part of it. And then the second part of it is helping us stay on track for the margin expansion. So, you know, I think it I would I would without giving you a specific percentage, I think it is relatively equal parts allocated to reinvestment. And margin expansion is, I think, the best way to think about it. And we also mentioned that when you look at our businesses, just given the footprint of our investment services business, that is that is the majority of that of the of the productivity saves get generated by that where all that headcount is over in the servicing side of the business. So a way to think about it across the businesses as well. Yep. Understood. Thanks very much.

Operator: Your next will come from Glenn Schorr with Evercore ISI. Your line is open. Please go ahead.

Glenn Schorr: Hi. Thanks very much. So I definitely wanna ask a question on all things digital assets, stable coin, and tokenized deposits. But the lead into that, just wanna make sure I get the right perspective. And I think this for you guys and for the industry is the initiatives, and you have many, in that space, are included in that incremental 250 million and it is not even the biggest piece. So the message I am hearing is for you guys and the industry is we are investing a lot in the future infrastructure of the financial markets. But it is a long term commitment because even if the all $250 million was from digital assets, that would be less than 2% of State Street's revenue. So focus on the big picture, first. And either way, my next question is, you know, I noticed there was an 2 announcements during the quarter. 1 on the Visa Master Stablecoin network with over 100 businesses and you were not 1 of them. And also, tokenized deposit network with a bunch of banks, and that is more of a bank thing. My question is what is taking place in terms of as we are modernizing all the payments and clearing and settlement systems? And are we paying too much attention? Because right now, it is not adding up too much money. So I apologize. I smushed those 2 together, but I wanna get the right perspective on all things digital.

Ronald Philip O'Hanley: Let me maybe I will start, and John will pick up on the specifics as it relates to numbers. And as you think about the $750 million and the $250 million again, that was in the context of the go forward next phase of transformation that we just described. We have got initiatives underway And if you think about just the on the cost side, if you think about the margin expansion, that we have enjoyed over the past several years. I mean, that is been the result of our ongoing transformation program. What we are talking about here in the July and the February is the next phase, which is incremental But we have got existing initiatives that also will be contributing. So I just wanna make sure people understand the mathematics here, number 1. Number 2, in terms of your specific question, on digital, the way we think about this is we are primarily an infrastructure provider to our clients, enabling them to do to, execute their digital strategies. So who are clients? Our clients are global investors. Right? So that is why we are focusing on the you know, if you think about it, the traditional to digital back to traditional kind of rails because it will be a long time before the whole infrastructure stack is digital. And then secondly, we are focused on things that relate to those investors. Asset managers or asset owners. Hence, for example, the focus on the focus on tokenized money market funds. That who are our client base. Well, a large segment of them are large asset managers. So we are picking our spots and going to where we know our clients wanna go. Is the way to think about it. John?

John F. Woods: Just a few comments to add to that. I mean, I would say that, as you know, we launched our digital asset platform recently it is a secure, scalable platform. I think we are we are we are trying to create the capabilities to manage wallets and really manage the on ramp and off ramp between traditional finance. And into the digital on chain world A few a few comments about some things that we have also been able to do is, you know, we are we are we are in the investment services side of the business, we are we are focused on enabling client launches of tokenized money markets. And so that is early in the road map and we are excited about that. And I think on the other side of the house with respect to investment management, we also announced a couple of digital asset ecosystem product launches as well. So think about this across the 1 State Street lens. We, you know, State Street Investment Management did launch a tokenized money market fund. On chain basically cash equivalent for the digital ecosystem. Creating new distribution, etcetera. And broadly, asset managers love this with respect to the distribution aspects, as well as collateral mobility. And investment management also launched a stablecoin reserves money market fund as well. You know, targeted to stablecoin issuers. I think it is gonna be table stakes for us in the space that we are in to have these capabilities. As we mentioned, you know, alternatives is probably the most mature of the 3 that we are spotlighting. Here today. Digital is gaining momentum, but lots of activity as IR articulated here in the here and now as well. That we are that we are making progress on.

Glenn Schorr: I appreciate that. I mean, it sounds like you make a lot of progress It does not add up to huge numbers right now, but that actually I take as a good thing because it means the other $1.52 trillion of your revenues is that much safer from the digital invasion. But if you agree with that, I am I am good and done. Thanks.

Ronald Philip O'Hanley: Thank you. Thanks, Glenn.

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

Michael Mayo: Hi. Could you guys give us more confidence on or why you are confident that this new phase at State Street over the next 3 to 5 years is going to succeed? I guess I have in my plus column, I recognize that you have 10 quarters in a row of positive operating leverage better returns, better pretax margin. And the organic growth seems to pick up. I would love it if you could verify that. Looks like the servicing fees have picked up organic 2% last year to 5% this year. Asset management 6% to double digits this year. So that would be in the plus column. But I see the negative column is I have I have heard this before. it is phase 3 for the last 15 years, and this certainly predates you, John, and it predates you, Ronald. But, yeah, the whole cloud, the tech, the rewiring, as you said, John, was the story last decade, and it failed. To produce the results that were desired. So really, why is this time different? Why should investors think that this major kind of demarcation, a new phase of State Street should succeed? Thank you.

Ronald Philip O'Hanley: Mike. it is Ronald. I will start with that. We begin with a very strong foundation. If you look at our track record of execution, we have got, as you point out, the 10 quarters of positive operating leverage, I mean, did not come out of nowhere. That came out of investment in the platform. But also investment in the in products and the revenue growth capabilities that we have now demonstrated over those 10 quarters. So what you are seeing in this foundation is consistent organic revenue growth and a very productivity focused culture. Right? John noted in the results that yes, our expenses have gone up revenue related and reflecting the revenue related cost plus investments in these capabilities. But our headcount's actually gone down. We did not have that kind of foundation in the history that you are referring to. Secondly, I put a lot of we put a lot of credence in this team. The current management team is a strong 1. Over 50% of that team is either new or new to its role. In the last 3 years. They work very well together, and you are seeing it in terms of this strengthening each of the franchises, but also the real results coming out of the integrated 1 State Street approach. You are seeing out of this team improved operating efficiency literally across the board quarter after quarter, year after year. And, our first half 2026 results kind of reinforces this trajectory. Right? We had the prior 3 years that we pointed to, and you are seeing that now play out again in the first half here So taking it all together, we look at these targets, and these are targets over a cycle. I mean, we are in a very constructive environment now. We are not assuming that is going to last forever, but when we look over the cycle, these are the targets that we are aiming for. They are ambitious, but we are going to hit them. We selected margin and ROTCE. Because they are they are within our control, and there are things that are important to you as investors. So we bring it all together. We have got a lot of conviction. We have got a lot of confidence. And we intend to execute what we laid out there.

Michael Mayo: I guess in terms of the rewiring part, I mean, it all sounds good on paper, and it may or may not play out the way you expect it. Is there any metric that you or we on the outside can monitor to see that success, like revenues per employee, or I got a number of employees. You know, the just the idea of going to a more agile infrastructure, kinda what that means in financial terms.

John F. Woods: Yeah. Mike, it is John. I guess a couple of things. 1 is the starting with the overall number of the $750 million. It is disproportionately being driven by this operating model transformation, which is pretty tangible. I mean, what we are talking about is basically migrating to a product platform approach where our business technology and ops teams are reorganized into cross functional, into teams that deliver specific business outcomes for clients. that is that is a physical organizational migration that is very tangible to see. And what we are gonna be doing is taking out the unneeded interfaces that currently exist that slow down and create some inefficiencies between those groups today. that is pretty tangible and that will that will flow through to headcount. I think what you saw over the last couple of years is that our headcount is down. The gross headcount is down. By more than what the net is, and the reason for that is that we have been investing in driving strategic initiatives along the way, and that theme will continue I think you should keep an eye on headcount and watch that area. We will also, over time, you know, look for a short list of metrics that will help support what we are talking about here in terms of product development, life cycle times. In client experience and service quality metrics, etcetera, which we expect to improve And in the platform space, you know, having migrating to know, more applications in the cloud and reducing the footprint of our data centers are also lend themselves to metrics that I think we can share. And also, you know, migrating our overall investment spend because of the efficiency that we should get in software development life cycle and in the product life cycle overall you should see the percentage of our grow percent, you know, of our investment spend rise over time as well. So I think there is a handful of metrics that we can share in combination with the fact that we are actually going to reorganize the company along these lines. And that is that will be that will be very tangible. It will not be yeah. And that will that will that will be something that we can demonstrate over this medium term.

Michael Mayo: Alright. Thank you.

Operator: Your next question will come from Kenneth Usdin with Autonomous Research. Your line is open. Please Thanks.

Kenneth Usdin: Good morning. I actually just, if you do not mind, to focus on the current outlook. John, just maybe give a little color just looking at kind of what you are expecting for the full year now I guess you would assume that NII kind of flattens out from here and fees probably revert a little bit. Vivek how strong FX was, the second quarter, I could imagine some of that would be there. But can you kind of just distill how you expect some of those to progress from here? And anything we should just be thinking about regards to either seasonality or things that revert from the recent results?

John F. Woods: Yeah. Sure. I mean, I think maybe starting with b revenue, I mean, I think we can we expect continued organic growth in the servicing fee and management fee space, and I think that is an important anchor point of continuing the momentum that you are seeing in the first half. That continues into the second half. We are not assuming however, as much of a tailwind from markets market levels I mean, and as well as markets. I will get back to markets in a second. But market levels we are keeping it flat to the end of the second quarter. So we will see how that plays out. But most importantly, organic growth continues into 2H But to your point, we are setting records in FX trading services here quarter after quarter, it seems. And we do have built in some moderation into the second half. And, well, you know, that you can be of 2 minds there. I mean, I think we have we have been we have seen client volumes be extremely resilient. We have seen opportunities internationally where, where spreads are wider. And growth is a little stronger. Continue to support our markets business. And so we are excited about that, but we are not counting on that in this in the continuing in this outlook for the revenue side of things in the markets business. I think it is gonna be a strong second half for markets, but moderating a bit from the record in February is what we are assuming in this outlook. It comes to NII, that is about right. I mean, I think you are you are seeing some flattening out there. I mean, I would say you know, you know, earlier, we had a we had a sense that deposits would be in the 250 to $260 billion range. We came in above that in the second quarter. Average was around $2.70, and I think we are we are gonna assume that is gonna be the outlook for the whole year. So we are raising that in terms of balance sheet contribution coming from NII, and that is underpinning this increase in the outlook from 8 to 10% to up 14 to 15% year over year. And with a net interest margin you know, kinda staying in that range of 110 to 115. That we mentioned last quarter. So those are the thoughts from my standpoint on those on the revenue side, And on expenses, I think the point there is that, you know, we are gonna see some moderation in the growth in part due to some lower costs on the third party spend side in the numerator. And then the you know, when you there is also a year over year denominator impact from 02/25 that takes our expenses up to 8% from the prior 05/06, including revenue related. So a few comments across each 1 of those line items.

Kenneth Usdin: Okay. Thanks, John. And just 1 clarification and apologize if I missed it in the deck somewhere. But can you just make sure we understand the 3 to 5 years just what years we are talking about there? And people were just asking about, like, possibility of achieving it inside, you know, when you can get to these targets inside that range. Thanks.

John F. Woods: Yeah, sure. 2 points there. 1 is, we on this on the billion dollar transformation program, that is explicitly tied to achieving that by 2029. So that is that is sort of earlier than the 3 to 5, I would say. So that is by 2029. So it is more in 3 year range, early, early end of it. When it is with respect to the targets overall, so I think we like to talk about the medium term meeting 3 to 5. But that 100 to a 150 basis point you know, positive operating leverage expectation would imply that we would get there in the early end of that medium term time frame.

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

David Smith: Hi. Good morning. The billion dollars of transformation is a nice goal. Are you anticipating any major upfront spend required to get there by the 2029 target? Or is it just embedded between your normal investment spend each year net of efficiencies?

John F. Woods: Yeah. I think on the recurring side of things, that is all embedded in the numbers that you heard. I think the there will be some 1 time costs that are predominantly severance related with respect to the headcount implications and so I you know, I would probably frame that in the neighborhood of around $500 million or so would give you a sense for how that would equate to headcount reductions gross, and then on a net basis, maybe similar to what you saw over the over the recent past, we would expect headcount to be down in the low single digits range on a net basis after reinvestment of that capacity. Into strategic initiatives and growing our franchises, So that is the way to think about it and we think that is a highly attractive ROI. On that severance, you know, cost a there is a little contract termination in there too. But almost the substantial majority of that 500 I would say is severance related. Which typically ends up with very solid ROIs and solid earn backs as well.

David Smith: Okay. And then in terms of the lines of business targets, just focusing on investment management, you are saying you are going get about 200 basis points of enterprise wide margin expansion from there. But it was less than 20% of revenues last year. So this thinking about the weighted contribution, it would it would take a pretty big improvement in margins specifically investment management to get 200 for the overall company. It just talk a little bit more about the key drivers there and your confidence in achieving them?

John F. Woods: Yeah. And I would say they think the answer is I think that is right. I mean, the math there is that if you if you go back to 2029, investment management was around 33% margin. You know, in second quarter, investment management has already improved that to 38. So and I think that is probably about halfway home from the mathematical standpoint in order to deliver that 200 basis points top of the house. So it seems large from 2025 but about 50% of that is already delivered here in the second quarter. Now you know, nothing's linear and, you know, the market levels have an impact on that over time, but we are just seeing incredible momentum in the investment management space. And just flexing the scale advantage that they have and the innovation in terms of the products that is being delivered, we have got a lot of confidence in this 200 basis point top of house contribution coming from investment management and I think the specific areas that we are talking about is continuing to drive our leading franchise as it stands. With ETFs, index, and fixed income. And just our global distribution expanding that is a big driver And then their own transformation delivery as part of the overall transformation program is also a large contributor. Where cycle times and product release you know, cycle times all shorten and there is revenue uplift that is embedded in that 200 as well. So those are some of the ways I think about the credibility of that 2 Alright.

David Smith: Thank you.

Operator: Your next question will come from Jim Mitchell with Seaport Global Securities. Your line is open. Please go ahead.

James Mitchell: Just maybe, you know, on the margins and expenses again, I guess, we think about the tech and ops transformation, do you expect any drag, I guess, in the very short term on pretax margins as you invest? Or is a lot of that stepped up investment spending kind of in the run rate? Just trying to think through 100 basis 150 basis points of pretax margin improvement per year. Would you view that as somewhat linear or back ended?

John F. Woods: Yeah. I it is not back ended. I would say that the base case is that we would expect to prove expect to generate positive operating leverage in each year of the medium term outlook. that is our that is our goal, and that is what we are trying to accomplish to make progress along the way. So it is not back end loaded, but the what I am giving you is an average. And, you know, there will be, you know, some variation in that inevitably based on based on both the pace of internal activity and execution as well as external macro factors. But I think 100 to 51 is a good planning range that takes us takes it to the earlier end of that 3 to 5 year outlook. And there is not a early years large investment cycle that is then back-end unveiled over the medium term. The tech you know, investments are planned and consistent with the billion dollar program along the way across the medium term without it being back end loaded.

James Mitchell: Right. Okay. that is helpful. And then on the numerator side, obviously, this year has been a great year, and you have gotten 500 basis points of operating leverage. But what you talked about expectations for the rest of the year from assumptions. But how are you thinking about the assumptions over the medium term for the revenue backdrop, And if we have more years like this, can you get there even quicker? You know, does that flow to the bottom line? The upside?

John F. Woods: Yeah. I mean, I think, as I mentioned, the 100 to 150 basis points assumes and we expect to deliver organic fee growth over this time frame. I also mentioned that NII would come in low to mid single digits. We you know, when we think about that will contribute over the time over the time frame. And so you know, to the extent that positive operating leverage exceeds the 100 to 150, we would we would we would achieve the 35% earlier. that is for sure. I would I would hasten to add that we are going to be looking for a sustainable level at the 35. And at these targets where we are delivering it not only in real time for efficiently long multiple quarter period, but also have an expectation that it will continue to stabilize and grow from there. And then, you know, that is that is the timing for when we would you know, we would, you know, reassess whether those targets have been achieved and then and then and then consider whether they should be adjusted higher. Okay.

James Mitchell: No. that is helpful. Appreciate it.

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

Ebrahim Poonawala: Thank you. First of all, John, thanks for all the detail in the slide deck on the target. Nicely laid out. Had a question. I think it is an interesting point in time where you are going through when you talked about rewiring the business and kind of when we think about AI adoption, within financial services, Just talk to us as you have approached the targets as you are thinking about adopting AI, how difficult is it to sort of implement that through workflows and revise that? Is it like, do you think over the next 12 to 24 months, you would have a franchise or an enterprise that is fully I guess, I do not know, AI native or yeah. If you if you do not mind talking through that, and I guess tied to that, how much of AI driven gains are in these targets as opposed to you could be an even more profitable bank if kind of AI delivers to its promise on productivity? Thanks.

John F. Woods: Yeah. Sure. I mean, I will make a few comments about this. So I would say I would put the AI you know, you know, benefits in maybe 3 categories. The first 1 would be within our operating model, which is the lion's share of what we are what we are really delivering here in terms of the $750 million. You know, and which depends upon the tech you know, simplification and AI adoption. We are gonna be embedding Agenta capabilities within our operating model redesign. So we are we are we are migrating to agile ways of working and within any given you know, cross functional team, the and, you know, with if we would have done this you know, call it you know, 5 years ago, that would have been that would have been composed of all humans. Of course. Now it is going to be a hybrid of human agentic team that actually staffs these integrated teams. So I would describe the savings that will be coming from the operating model transformation as embedded with AgenTA capabilities And, you know, I am not sure you can fully unpack how much is separately driven by the agentic aspects versus there are a lot of other things going on where we are reengineering, taking out interfaces from business processes at the same time they are rewiring is basically creating these human agentic hybrid teams. And so it all happened together and I would put that 1 category which is agentic is helping to power the operating model efficiencies that we are talking about. So I would say that is the first 1. The second 1 is within the technology organization itself. Where it is it is much more able to be ring fenced, if you will, when we look at software developer productivity and it is very explicit and we are we are indicating that it is our expectation that you will see, you know, equipping software developers with these tools that we would expect to see a 30% to 40% increase in productivity. And that likely gets deployed in faster cycle times and more product launch and higher innovation, which drives revenue. So we are we are excited about that, and that is the second overall category. I think the third 1 is really a kind of a rising tide lifts all boats story where we are going to be and have, you know, delivered agenda capabilities from a standardized standpoint on the on the on a on a Copilot platform to all eligible employees. And it is basically allowing them to actively use these AI tools and create higher value work. So knowledge retrieval data document extraction, content creation, all of those things, analytics and decision support, all of that is improving the productivity of our colleagues across the platform. And those are the 3 ways that I think about it, and, you know, you are gonna see the savings expressed and embedded in that 750 with respect to expense saves. Definitely, but you will also see it driving the expectation of the $250 million on revenue and beyond over time.

Ebrahim Poonawala: Got it. Thanks for walking through. That was helpful. And just a separate question following up on Glenn's on digital assets. I mean, there seems to be a lot of hype around that. Not that the technology is not real, but just talk to us when you think about blockchain and digital assets kind of playing a critical role in the plumbing of the markets. Mike, do you think of that as a 5- to 10-year build out? Or do you think over the next year or 2, this is gonna have meaningful impact on how you think about revenue growth and including disruption risks to certain line items? Just yeah, your thought process around that. Thank you.

Ronald Philip O'Hanley: Yep. Ebrahim, it is Ronald. it is a it is a it is a really good question. And I think what is playing out is, like, a lot of technologies. there is an awful lot of promise and early delivery, I think, underwhelms and is disappointing. And then the later delivery actually is greater than what anybody anticipated. And I suspect that is how this will play out. Mean, if you think about some of this blockchain technology, it is it is not new at all. I mean, it is been around for a while. Part of it is you are you are taking new technology and putting it into an ecosystem. And I am not talking about just State Street's ecosystem. You are talking about a financial ecosystem. But the there is a lot of enablement that is occurred over the past couple of years you know, things like the Genius and what is going to come out of the Clarity Act. there is a regulatory movement that is starting to align around this. Again, given some of these things, the regulatory movement has to align across borders. But if you think about what it enables, know, just think about collateral and the ability to create a to transform money market funds into collateral eligible. There will be so much pressure to do that. If you think about in real assets, the growth in real assets and the ability to use blockchain, to actually tokenize some of these things to enable it to be broken up and put into smaller portfolios, wealth and retail portfolios, I think market pressures will accelerate this. So I believe that it is not surprisingly slower than what the hype might have suggested. But if you look at what is going on under the covers, there is real adoption going on. there is real stuff being built out. And I think you will see this promise over the medium to long term. Extremely helpful. Thank you.

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

Analyst: Hey, Good afternoon. John, you have spoken about the balance sheet optimization and the NII, and your ability as being central pillars of the medium-term outlook. Can you just remind us on what the near term and medium term impacts of the balance sheet optimization efforts are and what the impact is to NII?

John F. Woods: Yeah. I mean, I would say it is it is all embedded in that outlook. With respect to I think, in mid 25, our net interest margin was around 96 basis points. I think And we have been able to raise that predominantly through optimization activities, not exclusively, but a big part of it was optimization activities to remix the funding side of our balance sheet into higher deposits. As a percentage of overall funding. And lower short term wholesale funding. And so that net interest margin has risen from around that 96 level to 110 to 115 range that we are talking about today. So know, do the math on that. that is around 15 to 20. Basis points overall of net interest margin left. I think there is some environmental factors and, you know, business execution. That has been driving that, which is great. And then there is a reasonably large piece of that was restructuring the balance sheet over the last several quarters. To stabilize it at this 110 to 115 level. Then as I mentioned earlier, we are expecting to try to see continued tailwinds there. On net interest margin. And so I would I would know, what is assumed in the medium-term outlook is that is that we will migrate to the high end of that 110 to 115 and be around the 115 range as you as you as the medium term plays out. Got it. And then maybe on the capital side, it feels like you raised the CET 1 target a little bit from 10% to 11% to 11%. Can you speak to what is driving that? Is it just conservatism or is it a desire to keep some sort of capital buffer right now while the environment is good? And is there any upside to that 80% payout ratio? Yeah. I mean, I think I think 80% is a good planning level. that is what we have got included and assumed in our medium term outlook, and I will start with that and come back to the back to the to the ratio itself. You know, we do have very attractive opportunities to put capital to work in support of our strategic clients, whether it is in our global credit finance business, supporting our investment services clients, or in the markets business. Who are supporting investment services clients as well as asset owners and increasingly thinking about wealth managers over time. So there is RWA there. That we think about you know, aligning with our strategic goals over the medium term and, being attractive marginal deployment, just a growth mindset there. I think it balances reasonably well our opportunities in terms of putting balance sheet to work with our desire to continue to have an attractive return of capital for shareholders. So that is what is going on there. I mean, think what you are seeing with respect to the CET1 ratio, is a couple things. 1 is you know, we are we are leverage constrained, you know, if we are increasingly able to continue to grow deposits, which is our expectation, you know, not only here in 2020 we demonstrated that in the first half. We are committing to that and maintaining those levels and, you know, on an average basis in 2026, that creates more of a leverage constraint And so, you know, we will have to be managing the interplay between leverage capital and set 1. And so that is that is probably the thing to think about when you when you see that 11%. Got it.

Analyst: Thank you.

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

Brennan Hawken: Hi, Ronald. Hi, John. Thanks for taking my questions. I had a couple on the ETF business. So recently, you launched a new product, QNDX, which is a rather interesting market. Had been dominated by the queues and recently opened up for new competition. But what was particularly interesting to me was the pricing of the product. You priced it at 10 basis points, which was a pretty narrow spread above Nasdaq's. 8 basis point licensing charge. And suggested to me that maybe this might be a new pricing strategy for spiders given your inherent advantage of having your own servicer and effectively being able to price more attractively than a lot of your competition. Is this what we are starting to see here And does it lead to any concerns around potential pricing pressure on ETF servicing? Thanks.

Ronald Philip O'Hanley: Yep. Brennan, I mean, we unlike if you think about the history of us in ETFs, if you think about SPY in the SPDR franchise, which started out as an institutional franchise, And later on, we thought about okay. What are we gonna do? For the wealth and you know, the asset holder world, if you will. that is what led to the launch of SPYM to sit alongside SPY. We did not have that equivalent institutional product So our view was when we went into this that we needed to round out our product line just did not have it. it is a it is a good strategy for the wealth and buy and hold investors. So we thought about it positioning that way is really how we thought about it and really nothing more than that. Know, obviously, because we are the leading ETF servicer when we are both the servicer and the sponsor, We are you know, in effect, deriving revenues from 2 different places. So, sure, that is that is a factor. But in terms of how we position the product, it really has to do with our starting point, which was not being in that market at all. And when Nasdaq, in effect, opened it up to others, how we thought about the positioning.

Brennan Hawken: Got it. That makes sense. Thanks, Ronald. And, also, we have heard a noise from both management firms talking about rolling out revenue share programs for ETFs. Do you have any sense for that potential impact? Have you been in dialogue with any of those wealth management firms? And what would you expect on that front going forward? I know the ETF business is a little more institutionally oriented, but the wealth side is still relevant.

Ronald Philip O'Hanley: Yep. So, I mean, we are it is I think you know the our ETF franchise is growing, and the fastest growing part of that is the wealth side of it. So we clearly are in dialogue with all these distributors. We work with all of them. Long term partnerships here. With them. In many cases, not only are they our distributor, but we serve them in other ways and they serve us in other ways. So these are virtually all these distributors are also important partners. So know, we talk to them. We will do things that make sense, and we will not do things that will not make sense.

Brennan Hawken: Super clear. Thanks.

Operator: Your next question will come from Steven Chubak with Wolfe Research. Your line is open. Please go ahead.

Analyst: Good afternoon, Ronald and John, and thanks for taking my questions. So wanted to ask on the pricing outlook. Pricing pressures have been less acute in recent years. At the same time, there are more investors that are questioning pricing resiliency going forward just given the significant windfall you and your peers are expecting to realize from AI deployment and just the structural lower cost to serve. Was hoping you could speak to what you are hearing from customers as you engage in more recent discussions on pricing. And what are some of the assumptions on pricing that are underpinning that 35% medium term target How much of that benefit do you expect will be shared with customers over time?

Ronald Philip O'Hanley: Yeah. I will I will I will start on that. I mean, I am just reflecting on your question, and mean, I spend a lot of time with clients, and I cannot think of 1 We always talk about AI, and I cannot think of 1 that is talked about, and we are really looking forward to you lowering prices. Right? They think of it more in a the discussions are more around you know, first, State Street, how is it gonna help you serve us? And we talked there about speed. So it is kind of cycle times and those kinds of things. We then talk about how we can actually think about AI across our firms. Particularly in those cases where not just the back office, but we are providing middle office services. So it is most of the dialogue is around what does this enable us to do in terms of either getting things faster to them or how we might work more intensively and in an automated way together. Yeah.

John F. Woods: I might just add on to that. I mean, I think what we have got we have got planned over the medium term is organic growth in the servicing business. And within that, there are multiple drivers and that incorporates conversations with clients with respect to pricing and all of that. And they all they all end up being positive. I mean, we are gonna lower cost to serve over the over the medium term There is net new business. There is there is, you know, client activity and turnover that we benefit from. And I think all of that would be included in and inclusive of our organic growth on the top line. And then when you look at the contribution we expect from the servicing business of 300 basis points, to the overall enterprise. You know, that drops to the bottom line as well from a pretax margin standpoint.

Analyst: that is great color. And for my follow-up, wanted to ask on the medium term target, but maybe looking at it from a sum-of-the-parts lens, if you will. You noted the 35% margin target is ambitious. If I look across each of the core segments, best in class peers are running with stand alone margins, somewhere around 40% plus. And just wanted to better understand how you and the board settled on 35% just given some of the higher margin upside that might be implied when benchmarking could best in class peers? And is there anything structural that is precluding you from getting somewhere closer to high thirties to maybe 40% type margin over time? Even beyond the medium term.

Ronald Philip O'Hanley: Yep. Firstly, I think it is important to put these targets into context. They are a it is it is it is not a destination. it is a milestone. Right? And if you think about the progress that we have made to date and the fact that we have we are talking about what we are going to do through a cycle we feel like over the time frame that we have talked about, 3 to 4 to 5 years, that this is a reasonable number and we will reset them again. So number 1. Number 2, that margin is composed of, and I am not sure what number you are citing, kind of which segment that you are alluding to there. But if you if you think about it obviously, in this are the 3 businesses. You have got a services kind of service intensive business like the investment service. Services. Which will have a lower margin but a higher opportunity for improvement. Just given this next generation of transformation that we are putting in. You have then got the investment management and the markets business, which starts with high margins and will continue to improve. So there is a portfolio of businesses here.

John F. Woods: And I think I would just add on to that, just to that we have we are looking at in 2029, we were at 29% pretax margin. And, you know, we are delivering 32% in the first half of 26. that is 300 basis points And what you are seeing here today at given the outlook for 32% also implied by 2026, another 300 basis points of sustainable pretax margin you know, where we wanna have ambitious and achievable targets. And that is that is some of the thinking that went into this and you heard from Ronald that all of these are milestones. And when and if we have been able to demonstrate sustainability. Not only from a demonstrated delivery of that level, but an expectation that would continue and rise over time, we would reconsider And I think that is a pretty natural cadence that you would expect from us as we are you know, delivering these targets.

Analyst: that is great color. Really appreciate all the detail. In the remarks as well as your slides.

Operator: Your next question will come from Vivek Juneja with JPMorgan. Your line is Please go ahead. Thanks.

Vivek Juneja: John, I wonder clarify a couple of things. 1 from the last your last answer, you said pricing discussions have been positive. Does that mean you are actually having discussions for being able to raise pricing Or what does that positive mean?

John F. Woods: Yeah. I am not sure we I am not sure we said that. We will have to go and re reflect on that 1, Vivek. But I what I was what I said was that we have expectation of organic revenue growth in the servicing fee business over the medium term that incorporates all impacts. With respect to client activity, net new business, and all pricing expectations are all built into that and that incorporates organic growth and that drops to the bottom line because servicing contributes 300 basis points over the medium term. I think that is what you should take away from that.

Vivek Juneja: So what do you mean by pricing expectation that you expecting pricing to go up, stay static? And given that you have never had this kind of operating margin of this anywhere, this level of return on tangible common equity Is not it I understand that AI is in the early stages. We are trying to figure out how to use it. But once it gets set in, and the returns are much higher, your client come back to you? And this is something that you all have talked about over the years, when the ROE came down that you went back to clients saying you were not earning an adequate return. When the flip side happened, when the return goes up? A lot and your clients look at you and say, you know, hey. Why are you sharing that with us?

Ronald Philip O'Hanley: Vivek, I just think we are in a very different environment than we saw. You know, if you go back 5 plus years ago, where there was a lot more price compression in the market. Think about the environment we were in. It was largely a mutual fund driven environment. That was at some level, particularly in the retail space, it was a time when mutual funds were being rapidly consolidated platforms were basically kicking mutual funds off the platform trying to get down from, you know, the old supermarkets to a curated selection. that is not what we are in now. Right? You have got this rapid adoption and proliferation of ETFs and applications in areas that nobody would have even contemplated 5 years ago, number 1. Number 2, if you think about the firms themselves, particularly our segment that we operate in, which tends to be the larger multidisciplinary kind of asset managers and the most sophisticated asset owners. Right? The they have the kinds of asset classes that they are competing in, the needs that they have are driving a couple of things. 1, more traditional servicing. But now it is alternatives and things like that. But 2, it is working with them on their own on their own operations and how do we deliver technology and service to them so they can actually adapt to not only these multiple kinds of assets, but the movement from institutional to wealth So obviously, these clients are sophisticated. And they wanna get value for what they are spending. But it is just a very different environment than the 1 you are referencing.

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

Gerard Cassidy: Hi, Ronald. Hi, John. Throughout your conversation, on the call today, you keep on referring to through the cycle or, you know, these milestones. That you are planning and reaching I am assuming that is an economic market cycle And if it is, is this an average that you think you can get to during through the cycle? Or can you frame out, you know, the highs and lows at all?

John F. Woods: Yeah. I mean, I think maybe a couple of thoughts there, Gerard. I mean, I would say that just going back to the 100 to 150 basis points of positive operating leverage is an average. Over the medium term. It does you know, imply the earlier end of the medium term. Yeah. But, you know, we are just saying that often these things do not happen on a on a linear straight line. And so they are just based on what may occur in terms of business opportunities as well as the macro environment. Could have an impact on exactly how this gets achieved over the medium term. But the average we are we are talking about is that 100 to 150 basis points. I think 1 of the 1 of the 1 of the larger contributors not just with respect to the business delivery from an organic growth standpoint, 1 of the maybe the way to frame it could be in the NII space where that is a reasonably important contributor to this over time. You know, you could you could think about the rate environment having an impact on net interest margin. And so framing that for you, may be helpful and responsive to the to your inquiry. If we think about rates you know, we have we have got the base case here. With respect to forward rates. If we end up we do a little better if rates are higher and given that we are asset sensitive and maybe a little lower before management optimization or actions, you know, you wanna a static basis, plus or minus 50 basis points on rates would have along the lines of a 3 to 5 basis point impact up or down with respect to net interest margin, and that can give you a sense for some of the variability from 1 factor, which is where rates would play out. But other factors as I already mentioned, in terms of the operating environment, etcetera, you know, would also play into that in terms of the impact on fee revenues but, nevertheless, we are feeling very good about the organic growth profile over the medium term.

Operator: This concludes our Q and A session. 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.