Good morning and welcome to the 2024 First Quarter Earnings Conference Call hosted by BNY Mellon. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session. Please note that this conference call and webcast will be recorded and will consist of copyrighted material. You may not record or re-broadcast these materials without BNY Mellon's consent. I will now turn the call over to Marius Merz, BNY Mellon’s, Head of Investor Relations. Please go ahead.

Thank you, operator. Good morning everyone, and thanks for joining us. I'm here with Robin Vince, President and Chief Executive Officer, and Dermot McDonogh, our Chief Financial Officer. As always, we will reference our financial highlights presentation, which can be found on the Investor Relations page of our website at bnymellon.com. And I'll note that our remarks will contain forward-looking statements and non-GAAP measures. Actual results may differ materially from those projected in the forward-looking statements. Information about these statements and non-GAAP measures are available in the earnings press release, financial supplement and financial highlights presentation, all available on the investor relations page of our website. Forward-looking statements made on this call speak only as of today, April 16, 2024, and will not be updated. With that, I will turn it over to Robin.

Thanks Marius, and thank you everyone for joining us this morning. Dermot will talk you through the financials in a moment, but in summary, BNY Mellon is off to an encouraging start for the year. The firm delivered solid financial performance, while we continued to take important steps in the deliberate transformation of our company. And we're seeing early signs of progress that give us confidence, as we work toward the opportunity ahead. Looking beyond BNY Mellon, the first three months of the year provided a mostly constructive operating environment with global markets signaling expectations for continued growth. Equity and credit markets rallied, even as rate cut expectations partially unwound and bond yields rose. Foreign exchange markets, on the other hand, saw a continuation of the relatively low volumes and muted volatility that we've now seen for the past several quarters. And of course, there are many tail risks, including a variety of different market scenarios, the possibility of escalation in one of the ongoing geopolitical conflicts or an unexpected result in the many elections taking place worldwide this year. As I've said many times before, being resilient matters and this represents a commercial strength for our business. We are constantly preparing and positioning for a wide range of potential scenarios to support our clients and deliver compelling outcomes for our shareholders. Now referring to page two of the financial highlights’ presentation. BNY Mellon delivered double-digit EPS growth as well as pre-tax margin and ROTCE expansion on the back of positive operating leverage in the first quarter. We reported earnings per share of $1.25 up 11% year-over-year, and excluding notable items, earnings per share of $1.29 were up 14%. Total revenue of $4.5 billion was up 3% year-over-year. That included 8% growth in investment services fees, led by strength in…

Thank you, Robin, and good morning everyone. Referring to Page 3 of the presentation, I'll start with our consolidated financial results for the quarter. Total revenue of $4.5 billion was up 3% year-over-year. Fee revenue was up 5%. This reflects 8% growth in investment services fees on the back of higher market values, increased client activity and net new business, partially offset by a 14% decline in foreign exchange revenue, as a result of lower market volatility. Firm-wide assets under custody and our administration of $48.8 trillion were up 5% year-over-year, and assets under management of $2 trillion were up 6% year-over-year, both largely reflecting higher market values. Investment and other revenue was $182 million in the quarter. Effective January 1, we adopted new accounting guidance for our investments in renewable energy projects resulting in an approximately $50 million increase to investment and other revenue. We have restated prior periods in our earnings materials to provide you with like-for-like, year-over-year and sequential comparisons. The adoption of this new accounting guidance is largely neutral to net income and earnings per share, as the increase in provision for income taxes roughly equals the increase in investment and other revenue. Net interest income decreased by 8% year-over-year, primarily reflecting changes in the composition of deposits, partially offset by the impact of higher interest rates. Expenses were up 2% year-over-year on a reported basis and up 1% excluding notable items, primarily severance expense. Growth was from incremental investments and employee merit increases offset by efficiency savings. Provision for credit losses was $27 million in the quarter, primarily driven by reserve increases related to commercial real estate exposure. As Robin mentioned earlier, we reported earnings per share of a $1.25 up 11% year-over-year, a pre-tax margin of 29% and a return on tangible common equity…

[Operator Instructions] Our first question comes from the line of Alex Blostein with Goldman Sachs. Please go ahead.

Hi, good morning. Thanks for the question. So Robin, really nice progress I guess on organic growth initiatives across a handful of businesses underneath BNY Mellon, as some of the things you talked about are starting to kind of take hold. Can you maybe frame what the firm's organic growth rate aspirations are for the next couple of years? How are you thinking about that for 2024 as well? And then as a side question I guess to that, we've seen quite significant amount of activity in sort of Clearance and Collateral Management. Can -- you maybe help size what is sort of transitory versus more of a recurrent baseline to think about from here. Thanks.

Sure, Alex. Good morning. So, let me start with the growth question. As you point out, we are quite -- feeling quite good about the early momentum that we have in growth. As you know, we set it out last year to really get our house in order, generate positive operating leverage and really think about the various different investments to drive sort of shorter, medium and longer-term growth. And that's really what we've been focused on and we're pleased that we've got a good start to the year on it. Clearly, we're trying to control the things that we can control. As I mentioned in my prepared remarks and as Dermot touched on as well, our focus here has really been wrapped around being more for our clients, our commercial model. We hired our first Chief Commercial Officer. We're operationalizing One BNY Mellon, as I called it, the nuts and bolts, kind of getting into building that into our client coverage organization, our coverage practice, starting to deliver integrated solutions. I gave a couple of examples of those in my prepared remarks. And we've got a whole bunch more things that really cut across all of the different segments that are related to that. So look, it's early in the journey. I would have said maybe last year we were working the problem. I think now I would say we're working the opportunity. Could you just remind me the second part of your question?

Yeah, sure. Really nice results out of Clearance to Collateral Management for the firm and it's been a pretty active market in Q1, related to treasury issuance and activity there broadly. I'm just trying to get a sense for a better baseline to think about from here. Was there anything kind of transitory in the first quarter that helped the numbers or this is a good baseline to think about going forward.

Look, I would say in terms of transitory, not really, but let me just go through a few of the drivers. So remember that it's a business that like several of the businesses we have, respond to volumes and it was an active quarter when it comes to trading volumes in the US Treasury market. Now for better or for worse, US Treasuries is kind of a growth business and so that's probably a bit more of a secular tailwind, as opposed to something cyclical. And then remember under the hood in Clearance and Collateral Management, we've also been investing in the operating model of that business as we talked about in our prepared remarks and took something that was very, very adjacent to our Clearing business from Pershing institutional clearing and aligned it with the rest of our clearing -- bigger clearing business in Clearance and Collateral Management. And what we're finding now in those conversations with customers, it's a much cleaner conversation because we've got the ability to deliver all the solutions in our clearing business whether it's US Treasuries, whether it's international, whether it's the different models of clearing that we offer we're able to deliver that in one conversation with a client, and clients are responding to that. So I would call that secular as well.

Great. Thanks so much. I'll hop back in the queue.

Thanks Alex.

And our next question comes from the line of Steven Chubak from Wolfe Research. Please go ahead.

Hi. Good morning, Robin. Good morning, Dermot.

Good morning, Steven.

So I want to start with a question on capital, a bit of a two-parter, if you will. I was hoping you could just speak to the drivers of RWA growth in 1Q, which was fairly robust, where you're seeing attractive opportunities to deploy that excess capital. And just -- how we should be thinking about the cadence of the buyback. You alluded to this somewhat, Dermot, but I was hoping we could drill down into -- you noted the 6% target or that upper bound on tier 1 leverage is, how should we be thinking about the cadence of buyback in light of planned balance sheet actions and growth potential.

Okay, I'll take that one. Steven, good morning. So some of the capital increase, there are two parts to the RWA increase, one was a kind of temporary increase around quarter end, as it relates to discrete overdrafts in custody and securities clearing businesses. So that kind of come and gone. And then there was also -- there was strong demand for our agency securities lending program throughout the quarter and particularly leading up to quarter end and that's continued into this quarter. So I would say, half of it was that and half of it was temporary. As it relates to the buyback, I guess there's a little bit of a Groundhog Day here in terms of how we thought about a Q1 of last year versus how we're thinking about a Q1 of this year. Both quarters, we got off to a strong start. But look at there -- there's a lot of rate volatility out there in the market. You've seen the backup in rates last week with the hot inflation report. Last year it was the war in Ukraine, this year it's the geopolitics in the Middle East. And so we kind of gave a guidance in January where we said we were going to be 100% more of earnings throughout the year. We don't give quarter-by-quarter guidance. I would reiterate the guidance of 100% or more, notwithstanding the fact Q1 was very good at 138%. I wouldn't expect that pace to continue, but we'll take it quarter-by-quarter.

Understood. And for my follow-up, maybe just drilling down into the investment and wealth margins, in particular, since across the other segments, we're seeing continued progress towards the longer-term targets. That's admittedly the segment with the biggest shortfall. I know in the prepared remarks, Dermot, you noted that you're making investments in the business and just wanted to better understand, one where are those dollars getting deployed? And maybe if you could just speak to the primary drivers underpinning that glide path to 25%. How much is contingent on revenue growth versus expense optimization?

Okay, so the first point would be pre-tax margin for the Q1 there was around 13%. If you normalize that for typical seasonal volatility in terms of retirement eligible stock and such, like, if you back that out and adjust it, the margin would have been somewhere in the 16% zip code. So we feel pretty good about that. Still a ton of work to do. And I would say, it's not one thing over the other, it depends on which part of the business you're talking about. In some of our asset managers, we're investing, we're launching new products. Clients, in some places, continue to de-risk and move from more risk on equity to passive fixed income. But in other cases, we see clients coming in and AUM growing. We saw -- we were very pleased with the performance of our drive with cash management business in Q1, where we saw strong inflows and the performance of the business in terms of returns was -- first quarter, so we feel very good about that. So we are investing the business to give our clients good products to invest in. The flip side is, we still believe as it relates to running the company better and desiloing the firm and connecting asset management to the broader enterprise, there's a lot of opportunity there. And at the same time as the opportunity, it allows us to take costs out and become a lot more efficient. So I would say we're working both sides of us. We see more opportunity on the revenue side, and we're working the problem on the efficiency side.

Very helpful, color. Thanks so much for taking my questions.

Our next question comes from the line of Betsy Graseck with Morgan Stanley. Please go ahead.

Hi. I had two questions. One was just on the AI commentary that you were leading with in the prepared remarks and I wanted to understand how you're thinking about the benefits to the expense ratio and the time frame with which this is going to flow through? Because there's clearly revenue enhancing opportunities and expense reducing or flattening. And how much of this AI investment is, how important is it to your 2024 expense outlook. And yeah, if you could give us the medium-term outlook, that'd be helpful, thanks.

Sure, hi Betsy. First of all, it's great to have you on the call. Really glad to have you back and to know that you're doing well.

Thanks so much.

So on the AI, I'll start with the sort of the latter part of your question, which is I really don't think this is a 2024 story. Of course, we're doing things in 2024. But if you ask me to try to put a pin in where the real benefits and sort of tailwinds kick in, I'm actually going to say it's not even necessarily a 2025 story, although maybe we'll see a little bit in ‘25. I think this is a ‘26 and on out benefit on the expense line. But let me go back to the sort of the premise of your question and just sort of briefly mention how we're embracing it, so I'll put it actually through the three pillars that we've laid out in terms of -- the guiding so much of what we're doing in the company. So first, being more for our clients, we think there are solutions out there for clients that are going to help them make better decisions, see risks, be able to be more efficient themselves. We've got software in market today doing that with predictive trade analytics around fails and settlements, allowing clients to be able to look out and to see and take evasive action essentially on potential fails. And by the way, some of those actions involve using other parts of the BNY Mellon platforms in order to be able to improve their businesses. And so that's an interesting example and there are going to be a lot more of those. Under the heading of running our company better this is going to be about streamlining business processes, productivity, figuring out and seeing anomalies that we can see, code assistant, as so many people talk about for our developers. I was walking around one of our…

Okay, got it. That's super helpful with the color. Appreciate that. And then just a follow up on the tax rate guidance. This is part of the accounting change, I believe, is that right? And can you tell us where in the [PPOP] (ph) the offsets are, thanks?

Sorry, I missed the last part of it, Betsy. Where are the --.

Offsets -- there's the offsets, right, to the tax -- the taxes impacted by the accounting change, is that right?

Yeah, so it's economically it's net neutral for the firm. It's just a gross up in revenue which will show up in the interest and other revenue line and then the offset to that is in the tax line. And we filed an 8-K, a couple of weeks ago where we restated all the prior periods for comparison so that people will see it on a consistent basis going forward.

Sure, I just wanted to highlight that your tax rate guide has the offsets in the revenue. So I appreciate that. Thank you.

Yeah.

Our next question comes from the line of Ebrahim Poonawala with Bank of America Securities. Please go ahead.

Thank you good morning.

Good morning Ebrahim.

Yes, I guess, not sure Dermot if this was addressed here but in terms of your outlook on deposits, I think the period ends, so a pretty big uptick to $309 billion. Just give us a sense of, within your NII guidance, one what are you assuming in terms of deposit balances? And secondly, if the forward curve holds, is the next inflection on NII and margin higher or lower? Yeah, thank you.

So, as at the quarter end, Ebrahim, I think the spot number was around $310 billion of deposits. And that was largely, you may recall that quarter end this year fell on a good Friday where markets were closed. So we got a lot of clients putting cash in, so that they could make certain payments. And so we saw a kind of surge in deposits over the last few days of the quarter. And they've largely left the system now. We've returned to more normal levels, which is in the kind of high [270 range] (ph). So that's kind of really the explanation for the spot deposit balance versus the average trend. So sequentially, we're down 6% in the deposits, or NII, an 8% year-over-year. And we saw a 2% growth in the deposit balance, generally speaking. Our guide at the beginning of the year was down 10% and given the rate volatility and what's going on with the inflation report last week and the back-up in rates et cetera, et cetera, we don't see, you know, there's nothing that's causing us to think that we should change our guidance between now and the balance of the year. We're very neutrally positioned, as to whether rates go up a little bit from here or down a little bit from here. And we feel very good about the overall guidance that we gave in January, which was approximately down 10%.

Got it. And I guess one just follow up in terms of some of the actions you took in moving businesses in Pershing. As we think about the strategic review, I guess Robin, maybe it began a year ago or longer than that, give us a sense of in terms of the franchise positioning, how the businesses are talking to each other and if they are in the right place within the enterprise. Is all of that done? How close are you to getting the franchise synced up in terms of what is coming along with regards to what you want to achieve in terms of client synergies? Thank you.

So the punch line is we're making good progress, but you're essentially asking a cultural question and we're not done on that. So when we did, to go back to your point, when we did our original strategy reviews, which is 18 months or so ago now, and took us a few months to go through, we were really focused on answering the questions of what are we doing, are we doing the right things, how are we doing them, are we doing them in the right way, do we have the right people doing them, and so we looked at that and we certainly found bits of the company that were just in the wrong place and so we've lifted those bits up and we put them in what we now think of the right place so that's what both Dermot and I talked about in our prepared remarks and that was what some of the restatement of prior periods so that you could make the easier comparisons there was about. That was basic blocking and tackling but the bigger opportunity for sure is how the businesses work together, not only to be more for clients by saying, hey, that client over there is a client, but they're not my client in my business, can we work together to basically make them a client of both businesses? That's very significant. That's where we talk about maturing One BNY Mellon into the real heart of a new commercial coverage model and that's being driven by our Chief Commercial Officer. Another part of this is saying, there are things that we used to think of as standalone capabilities, some might call them products, we think about them as client platforms. And in fact, what the client is asking for, and we really heard this when we did our voice of client survey, they don't want these individual products, they want us to take them and weave them together to create solutions for them that are on point to their needs. And so we've also started to do that, and I mentioned some examples of that, and that's a very powerful thing because that takes the breadth of our company, and rather than it being siloed, which is getting in the way of solutions, it's now actually ending up being the opportunity for us to deliver from the breadth of our platforms to our clients with solutions that frankly some other people aren't going to be able to do. So that's we think very exciting and in those journeys, we're still relatively early and that is cultural and we've been doing a lot of things internally in the firm to make sure that our people are lined up behind that. It's early days, but we're quite excited about the direction of travel.

Got it. Thank you both.

And our next question comes from the line of Brennan Hawken with UBS. Please go ahead.

Good morning. Thanks for taking my questions. I'd like to start, Dermot, when you were walking through Pershing, I believe you talked about the offboarding and the impact of how that was weighing on the net new assets. Could you give us a update on how far we are along in that off-boarding process and how much we should continue to expect for the rest of the year? And then also LPL recently announced the acquisition of Atria, which I understand was a Pershing client, and they're planning to consolidate those operations in 2025. So is that going to extend maybe some of the headwinds that we're seeing from some of these idiosyncratic off-boardings?

Okay, thanks for the question. So the first thing I would say about Pershing in the context of the overall kind of the segment. With respect to Pershing, we continue to invest in Pershing. Pershing continues to grow. As we said since the deconversion was announced, we're going to earn our way out of this situation. That's what's happening. So -- we still as a business feel very good about Pershing and our ability -- it's a market that's growing in mid-single digits on an annual basis and we're a big player in that market. So we're going to win our shares. So while the deconversion was unfortunate, we continue to march on and we learn our way out. Specifically, I would say, we'll be largely done with the deconversion by Q3 of this year. And as it relates to the second part, I would say look we're in a competitive market, people are going to do things the LPL Atria thing it's not a particular headwind, it's not been highlighted to me, it's not hit my radar in terms of oh my gosh, we need to worry about that. And so I think we're winning more than we're losing and we're investing and that's really going well. And when you take it in the context of what's going on with Wove, we're building a strong pipeline there. The backlog is looking good. We've added nine clients to the platform in Q1 of this year, and we made a commitment to the market that we would kind of add $30 million to $40 million of revenue this year, and we still feel very good about that guidance and that commitment that we made to you back in January.

And Brennan, I just add on the business front to that, which is remember that when we look at a deconversion, for sure those happen, and the one that you're referring to, the original one was a larger one. But we're also growing with our clients. Our clients are growing with us and we also are on the receiving end of roll-ups as well. Our clients are quite acquisitive and we have a couple of clients who've been doing acquisitions and we have some of our largest clients who are growing very significantly and very healthily. So it's always unfortunate when there's a roll-up that goes against us, but when there are roll-ups that go with our clients, those things balance out to some extent which is why Dermot makes the point about overall, we still feel quite enthusiastic about the net new assets growth over time.

Great thanks for that color And then when we think about the deposits, I'm trying to think about really, Dermot, the fact that here we are one quarter in. I get it -- you maybe don't want to update expectations. But it seems like, based on what we've seen so far, deposit trends seem to be doing better than expected. We saw a pick-up in the deposit balances at year-end. They sustained, which is a little unusual. And even though they've come down from [EOP at 331] (ph), they're still in a similar ballpark to where you were on the average. Are you guys -- is there something specific that's driving the expectation for deposit decline or is it just a component of conservatism?

If I'm honest with you, I would say it's a little bit of both, but I would expect, like everybody expected deposits to decline this year, and it hasn't necessarily happened yet, And I kind of think -- I make that statement in the context of QT. And so if you look at the [RRP] (ph) in Q1, the drain largely came from there. And if QT continues and rates stay higher for longer, on balance I would expect deposits to decline from here. And so I don't see anything that tells me that I should update the guidance from down 10% NII year-over-year. And then underneath the hood, in terms of the composition of the deposits themselves, you have the mix between interest bearing and non-interest bearing. And as rates stay higher for longer, I would expect NIBs to grind a little bit lower. So the overall balance may be higher, but you have to mix underneath, which will kind of feed into that overall NII guidance. So it's not just the absolute level, it's also the composition of it.

Yeah, yeah, that's great. Thanks for the candor and the embracing the uncertainty.

Our next question comes from the line of Mike Mayo with Wells Fargo Securities. Please go ahead.

Hi.

Hi, Mike.

Can you hear me? Yeah. So I guess non-interest bearing deposits inched down again, and I'm just wondering where that floor is. I guess it's 18% versus 19% last quarter and 26% year-over-year. And so on the other hand, your servicing fees were up 8% year-over-year. So I'm not sure if I should draw a link or not. Maybe what you're not getting in non-interest bearing deposits, you're getting in servicing fees. So I guess the question is, how are you getting such strong servicing fee growth year-over-year of 8%, how much of that is due to markets, how much of that is sustainable, and is any of that simply a substitution effect from the non-interest bearing deposits to servicing fees?

Thanks for the question, Mike. So let's go with the fee component first. Q1 is kind of one of those quarters where we came into the year I guess both in deposits and in pipeline and sales activity in very good shape. As it relates to kind of asset servicing in particular, the pipeline was strong, we felt good coming into the year, markets rallied nicely. And so clients were in risk on mode, doing more with us. Flows were stronger. Balances are higher. And we're winning our share of mandates. Little factoids for like, of all the deals that we competed for in Q1, we won north of 50%. So we're competitive, we're pricing well, we're very focused on client profitability and deal margin and it goes back to the point that we made in several quarters prior to this where we're very focused on the cost to serve. And so by improving margin, focusing on cost to serve, being more for clients, we can be more competitive in the pricing point. And I made that remark, I made the point in my prepared remarks that we saw repricing being de-minimis. So it was a good quarter all around and we feel very good about the backlog and the pipeline going forward. As it relates to the mix between fees and deposits, you know, we don't lead with deposits as an institution. Clients do multiple things with us across the enterprise and as a consequence of that they leave deposits with us. You know, it's an important point but two-thirds of our deposits are operational in nature and therefore very sticky. But with a higher for longer rate environment, it's only natural to expect that people with NIBs are going to over time move out of that and look for a higher yield. It's inevitable and it's a fact of life and we're ready to deal with that but I'm very proud of what our global liquidity solutions team is doing in terms of winning their share of the business in terms of the deposits and how we price them and so sequentially, we've seen the balances go up because of that competitive pricing. So all-in-all, when you take the ecosystem together we feel very good about where we're at.

And Mike there was nothing idiosyncratic about trade-offs to the other part of your question. I don't see the quarter built around that at all.

Okay. And so for -- a separate question, for all the growth and servicing fees, asset management, what can you do to reverse the trend for sustainable growth? I mean, would it ever be an option to consider selling that? The synergies, when you think about One BNY Mellon, I kind of get the rest of the firm being all one cohesive unit over time, but how does asset management fit into that?

Sure, so this is a question that we talked a little bit about last year and I said at the time that we think, and I'll underline the word think, that the business really can complement the strategy of the firm, but we had more work to do and that -- that was a thesis and we needed to put in place the various different steps to really be able to operationalize and make the most of that. And that's what we've been working on over the course of the past few months. The basic thesis is we think there's a strong industrial logic to have $2 trillion worth of manufacturing platform aligned to BNY Mellon's $3 trillion worth of retail distribution capacity, if you look across wealth and Pershing together. Pershing alone having [$2.5 trillion] (ph) plus of client assets on the platform. And so if you only operated in a silo in investment management where it was manufacturing and only its own distribution, there's a legitimate question there about whether or not it would have the scale and the capacity to be able to truly compete but when you put it together with the rest of the company we think there's a pretty compelling thesis there. And so we don't think we've properly capitalized on those benefits in the past and so our strategy is let's -- let investment management stretch its legs in that new approach. And we see some early signs of progress on that. We've been joining some dots. I mentioned a couple of things in my prepared remarks, both in terms of us having a broader distribution platform that actually can attract other investment managers who maybe don't have the benefit of our distribution and they want to come join our platform rounding out our offerings and essentially making our distribution platform more complete but also being attractive to them, so they don't have to build their own. If you will, they're building their business on one of our platforms. And so we've given you our targets. We want to be able to expand the pre-tax margin in the business to over 25%. It's not for nothing that we didn't grow expenses in that segment or in security services for that matter because we're really focused on the margin in those businesses and we have had some growth. And so this is about really working that set of opportunities and we'll see over the coming quarters how we do. But this quarter was one where we felt, we took an important step forward.

All right. Thank you.

And our next question comes from the line of Glenn Schorr with Evercore ISI. Please go ahead.

Hi, thanks very much. [Robin] (ph) mentioned it, so maybe it wasn't that big of a deal, but T+1 starts at the end of May. I'm curious if it was a big expense lift that we get some relief on going forward? And then related to that, are there any headwinds on NII and any benefits on capital that we have to think about as a result of moving towards a more T+1 world? Thank you.

So T+1 , sure we had to for sure spend money in different parts of the company in order to be able to ready ourselves for this. We view that as frankly ordinary course of business. There's always some market structure change going on in the world that we have to respond to. So while they may be individually lumpy, there's always something. So we just think about that as part of the expense of running the company and not something that will yield a particular benefit when we happen to have finished the work. Now, I do think that T+1 overall provides benefits to the financial system, improvements in efficiency, some risk reduction. I would say to the second part of your question that more of that probably accrues to our clients because we're not as big a principal player there. It can improve liquidity and capital requirements in the fullness of time. The industry's come a long way. You know, it wasn't that long ago that we're at T+5, T+3 sort of moving down the curve. And I will also say from an opportunity point of view, not only do clients look to us to help them navigate these types of things because they're complicated and detailed, and they want us to essentially help them in executing this type of change, and that's exactly what we've been doing. But we also think that there are just opportunities associated with these sorts of inflections, because clients look at us and it does sometimes cause the question to be raised of another big change in the post-trade landscape life's too short I'm an investment manager or I'm broker dealer or I want to go about the core of my business, I don't have to worry about that stuff as much as I currently do. BNY Mellon, can you help us? Can you help us and maybe there's a platform sale opportunity there for a little bit more outsourcing? Because if the world makes these changes, speeds up, gets more complicated, more change management, we of course have the benefit of scale, we get to change once and we get to take some of those problems off their hands. So I'd call that out when it comes to real-time payments, I'd call it out in T plus 1, I'd call it out in clearing. Each time these things happen, we look at it through a lens of opportunity as well as a lens of client service but overall also just good for the market nothing good happens between trading and settlement as is often said.

And Glenn on this specific point about headwinds as it relates to NII, I kind of look at the last two quarters together in terms of the strength of what we've done on NII and I feel overall we're in a good place. The balance sheet is very clean. Our CIO book is well positioned and kind of short duration and the CIO is doing a really good job at optimizing yield. And so when you see our securities that are maturing at the moment, they're rolling off at a 2% to 3% rate and then are being deployed at current market yields. So based on what I see today with the back-up in rates that happened last week as a result of the hot inflation report, we feel pretty good about where things are for the balance of the year just using that forward curve. As I said earlier, rates up a little, down a little, don't materially impact us. And so we feel like our base case is, we feel pretty good about it.

Thank you all.

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

Hi, Robin. Hi, Dermot.

Hey, Gerard.

Dermot, can you give us some color? I noticed you said in your prepared remarks the average loan balances were essentially flat in Q1 versus Q4. But I noticed the spot number, the year-end -- quarter-end number for loans was actually quite a bit higher, you know, around $73 billion versus the spot number in the fourth quarter. Was it something at the end of the quarter that caused that to increase?

Thanks, Gerard. Again, it was a little bit of what I call the Good Friday effect, where clients use our overdraft facility mechanisms going into that weekend. And so that really caused the spot balances to go up and that's kind of largely cleaned out so has reverted more to the average numbers that you're familiar with.

Okay, good. And I know this is not a big area for you guys, so maybe you could give us better insights since it's not as big as it is for a traditional bank. But can you maybe give us some color on the commercial real estate? I know you pointed out you've built up the allowances there. What are you guys seeing? Is it similar to what we're reading about and hearing from others or is it something different?

So I would say, look, we're prudently marked in the commercial real estate portfolio. Overall, our CRE portfolio in the context of our overall balance sheet is quite small. 3% of total loans, $2 billion. And the reserve builds that we took in Q1 was really just kind of being prudent on a couple of specific situations that are coming up for restructuring. But I would let you know that they're all still paying and everything is working, and their class A office buildings. And we feel good about the occupancy. So I would say overall very, very clean and nothing that really has me unduly concerned. And look, there has been a lot of chatter in the market, in the press over the last quarter about what's going to happen. I'm sure the back-up in rates, hasn't really helped that chatter but like surveying other banks results so far this quarter I haven't really noticed any specific CRE bills on the back of what's been going on over the last couple of quarters, so it does feel like as a sentiment matter to be quite muted at the moment on the back of others earnings release, at least what I've observed.

and Gerard I just add to that for the more general view which is I think the answer to what happens in corporate real estate, clearly it depends which markets you're involved in. There are some markets around the country that are more distressed than others. It continues to be focused on office, as you know, although there are certainly some questions on multi-family, but the fact that we're sort of still short housing in the US, as a general matter is probably, ultimately going to be helpful to that story. The most single most important driver of it, as we sit here today, is where are longer-term rates? And so there's so much chatter about what's going to happen in fed funds. Is the fed going to cut? Are they going to stay? Are they going to hike a little bit? But what really matters is where's the curve from five years to 10 years? And as that backs up to the extent that we cross 5%, you get very different outcomes on commercial real estate than you do at 10 years or at 4%. And if they ended up, for some reason, not our base case, but it's possible, you've got to plan for it. If they end up at 6%, then for some folks in the market, that's going to be a much more painful outcome. So I think you watch -- so goes the [10 year] to some extent, so goes the commercial real estate market. Because this is a ‘24 a little bit, but really ‘25 refinancing story.

Thank you. Appreciate those insights. Thank you.

Our next question comes from the line of David Smith with Autonomous Research. Please go ahead.

Good afternoon. Could you please help us think a little bit more about how far along you are in the efficiency opportunity journey? I know, it's really never ending in some ways, but can you help us think about when the pace of improvement might start to decline, as you get through more of the low-hanging fruit?

So, thanks for the question. I was wondering when it was going to come. It's a multi-year journey, and look let's go back to last year and kind of go through it. And last year, we kind of ended up at 2.7% versus a guide of 4% versus a previous year of 8%. And this year, we've guided flat. And we started Q1 on an operating basis of 1%. You'll see that our head count -- we've largely, you know, give or take a few hundred people, it's largely flat and so the headcount is flat, we feel like we have our arms wrapped around that. There's a lot going under the hood in terms of bringing in -- like growing our analyst class, high-value location growth, et cetera, et cetera. So we see a lot of opportunity to continue to improve the efficiency story. Also, as we both said in our prepared remarks, the migration to a new way of working, the platform operating model over the next couple of years, we feel will not only help us grow top-line, but it will also just help us run the company better. And I think, it's quite important culturally that we don't really talk about efficiency internally. We talk about running our company better, which is very important strategically and also culturally. So I think you're going to see quarter-by-quarter proof points on how we're able to run the company better, which will result in efficiency, which will then in turn result in improved margin. So we feel very optimistic about what's coming.

Thank you. And lastly, just to confirm, you know, $1 billion or so of buyback in 1Q, does that come out of the $6 billion new re-purchase authorization or is the $6 billion incremental to what you did in 1Q?

So we did an authorization last year which was $5 billion. We have a little bit left in that. And so -- it's just more of an administration thing that we decided to get another authorization this year for $6 billion. That's largely open-ended. So I wouldn't really dwell on the size of the authorization that much. It's just more of what we commit to you doing on an annual basis. And the key thing for you to take away is we're committing to north of 100% this year.

Got it. Thank you.

Thanks David.

Our next question comes from the line of Brian Bedell with Deutsche Bank. Please go ahead.

Great. Thanks for taking my questions. Maybe most of them have been asked and answered, but maybe just a couple of follow-ups. One, a little bit on that prior question, Dermot, I guess this could be for Robin as well. I think Robin you mentioned, earlier in the call about 15% of staff are in the new operating model. Maybe if you could just talk about your migration plan over time and going back to what you just answered, Dermot, about the efficiency improvement, should we be thinking of this over the long-term as maybe roughly even between expenses and revenue or still more geared towards expenses?

Okay. Let me just start with the platforms operating model. So ultimately, if you just go back to why are we doing -- what it is that we're doing, we've been pretty siloed as a company as we've talked about before. We think that's a bad artifact, at least it's a bad artifact for a company like us, which is inherently a scale platforms provider. It's kind of the nature of our business, diversified many different platforms but largely at scale. And so to have the separation of all of these pieces that are in support of that and in some cases, duplication, it just -- in our opinion wasn't the right way to run the company. So what is platform’s Operating Model going to do? It's going to simplify how we work, it's going to improve the client experience, and it's going to create more empowerment for our employees. It's an opportunity to do things in one place, do them well and elevate the quality of overall execution. And so with that said, it sort of hits on the expense line, as a benefit and it hits on the revenue line as well. And we've done, remember we did a bunch of studies for this before we embarked on it because pretty significant change. We also did some pilots and to some extent we've even built new businesses using this operating rhythm because we built Wove in that way and that wasn't entirely by accident. So we've had some experience associated with all of that and we feel pretty good therefore that we are going to get expense savings and revenue opportunities associated with it. We also think that from a cultural point of view, it's just an opportunity for our people because we think our people, and this…

And I would just, Brian, just to add on, I would just anchor you in a number. Like last year, when we grew expenses by 2.7%, we invested $0.5 billion in new initiatives within that 2.7%. And we're replicating that again this year. And so as somebody who's very close to the platform operating model strategy, the cultural point is when you walk the corridors of BNY Mellon now, you feel an energy and enthusiasm for our people, as Robin said, from embracing the model that hasn't been seen before. And it is a very, very exciting strategy that's going on at the firm.

That's fantastic, color. And maybe just one -- last one on the speaking of initiatives, the buy side trading solutions initiative. I know we've had a lot of other initiatives to talk about, so just maybe to get an update on how that's tracking.

Yeah, this was, I'll take this one. This was always going to be a medium-term thing. As we've told you, we sort of have this capability in-house. It's a great example of platform thinking. It was captive in one bit of the company, only looking internally. We essentially made it fit for external use as well. We onboarded, as we told you last quarter, a large client onto that platform, and that's been going very well. I have a lot of conversations with clients about how they could consider part of their trading desks to be outsourced. Sometimes it's all of it. Sometimes it's a region or a product that somebody wants to essentially say, hey, I'm not at scale. You're at scale. You're executing a $1 trillion worth of volumes. Can I rent that capability from you, essentially? We think there's a large addressable market here, but it's going to be, this is a longer sell process. The sale cycle of this takes longer. It's definitely a C-suite conversation, but we continue to be cautiously optimistic about this over time.

Great. Thanks for all the color. Thanks so much.

Thanks, Brian.

Our next question comes from the line of Ken Usdin with Jefferies. Please go ahead.

Thanks. I know we're getting on here. I'll try to ask just a couple quick cleanups. First of all, this is the first quarter that the securities book has actually grown in absolute terms, And I'm just wondering, is part of that an increased confidence in just where you do expect deposits to land, or was it more just opportunity cost of what your options were in the market?

Thanks, Ken. I would say very much the latter. And when you look at the overall portfolio, you think of cash and securities together. And it was really the CIO team just optimizing yield and deploying cash where they see the opportunities.

Yeah, okay. And then I know you said a little bit of this before, but I was wondering if you could tighten up. You know, last quarter you said, to Glenn's question, you talked about reinvesting at market rates. So last quarter you put that together and said that you would expect that this year's reinvestments to be 150 basis points to 200 basis points on your roll-on, roll-off. And with higher rates, I'm just wondering if you've kind of put that together for us. Like, what do you think that net benefit is now versus that 150 basis points to 200 basis points?

I think it's in the 200 zip code.

Okay, and then last one, just duration of the portfolio. Can you just give us an update on where that stands?

Roughly, two years, give or take, yeah, but yeah, two years is the best number to give you on that one.

Okay, so to your point, like still keeping really short and opportunistic.

Correct, yeah.

All right, great, thanks a lot.

And our final question comes from the line of Mike Mayo with Wells Fargo Securities. Please go ahead.

Hi. When you mentioned your comments about commercial real estate, I was just wondering, I don't think you have much exposure, but you highlighted that commercial real estate, I guess, to the industry or are you talking office? You said it's really a 2025 refinancing story and ASCO the 10-year, ASCO commercial real estate. It's just – if you could provide any color. Why did you highlight that and why do you have that sort of conclusion?

Well, the question, Mike, was more general in nature. It wasn't really applying to us. Dermot talked a little bit about us in particular on commercial real estate, but I think the question that was being asked was just using our vantage point, I think it was from Gerard, just using our vantage point in the world because we're not particularly invested in the space. What do we see in the world, maybe as a slightly less conflicted observer? And so I was just giving my perspective on it.

Yes, your perspective, what's -- I'm just curious, interested. ASCO to 10 year, it's a 2025 refinancing story. Any color behind that?

Sure, so at the end of the day, as you look at the various different owners of commercial real estate who have refinancings and they're looking at their own occupancy level, they're looking at their own maturity of their own debt stack, and they need to go out and they need to find refinancing, of course, as you know better than anybody, when their debt stack starts to come due. That isn't a Fed funds type of refinancing because they're not for funding of very short dates. And most of them, for understandable reasons, like to lock in funding as well. So they're looking further out the curve, it's not precisely at the 10 year point but my point really is the risk to refinancing in the commercial real estate space is very correlated to the shape of the treasury curve overall. Clearly credit spreads matter as well, but it's a different proposition when you have the longer, call it 10 years, but it's probably a little inside of that, part of the curve at 4% versus 5% versus 6%. That was the purpose of my observation.

All right. That's helpful. Thank you.

You're welcome.

And with that, that does conclude our question and answer session for today. I would now like to hand the call back over to Robin with any additional or closing remarks.

Thank you, operator. I'd just like to wrap up by thanking our employees for their hard work to unlock the tremendous opportunity inside of BNY Mellon. We started the year with great momentum, delivered very solid results in the first quarter, and the pace of change continues to pick up. And I want to thank our investors for their continued support. We appreciate your interest in BNY Mellon and thank you for your time today. If you have any follow-up questions, please reach out to Marius and the IR team. Be well.

Thank you. And that does conclude today's conference and webcast. A replay of this conference call and webcast will be available on the BNY Mellon Investor Relations website at 2 Eastern Standard Time today. Have a great day.