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Hello, and welcome to the continuation of State Street Corporation's Fourth Quarter and Full Year 2024 Earnings Conference Call and Webcast. Today's call will be hosted by Elizabeth Lynn, Head of Investor Relations at State Street. Today's discussion is being broadcasted live on State Street's website at investors.statestreet.com. This conference call is also being recorded for replay. State Street's conference call is copyrighted, and all rights are reserved. This call may not be recorded for rebroadcast or distribution, in whole or in part, without the expressed written authorization from State Street Corporation. The only authorized broadcast of this call will be housed on the State Street website. Now, I would like to hand the call over to Elizabeth Lynn.

Thank you, operator. Good morning, and thank you all for joining us today. Before we begin the Q&A session of our fourth quarter earnings call, I would like to apologize for any inconvenience caused by the technology issue related to a vendor that we experienced on Friday, which prevented us from completing the Q&A portion of our earnings call last week and we appreciate you taking the time to join us again today. With me on the call are State Street's Chief Executive Officer, Ron O'Hanley; Chief Financial Officer, Eric Aboaf; and EVP and Investment Services CFO and incoming Interim CFO, Mark Keating. Before we get started, I'd like to remind you that today's call will reference results presented on a basis that excludes or adjusts one or more items from GAAP. Reconciliations of these non-GAAP measures to the most directly comparable GAAP or regulatory measure are available in the appendix to our fourth quarter and full year 2024 earnings presentation from Friday's call, which is available on our website, investors.statestreet.com. 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 Factors section in our Form 10-K. Our forward-looking statements speak only as of today, and we disclaim any obligation to update them even if our view should change. With that, let me turn it back over to the operator to open the call for Q&A.

[Operator Instructions] Our first question comes from Jim Mitchell with Seaport. Your line is open. Please go ahead.

Hey, good afternoon. Thanks for hosting the second round. Just maybe digging into the puts and takes on the NII guide, understand the asset sensitivity to non-US. I think, 100 basis point downward shift in your Q is $260 million, but you had a $10 billion maturities in the HTM book and a pickup of 200 to 250 basis points there almost offsets that asset sensitivity. So outside of that, is it real and you had deposit growth that was 15% heading into the year? So is it really just about the growth and mix of deposits and maybe a little bit of loan growth from here that will dictate up or down?

Hey, Jim, it's Mark Keating here. Thanks for the question. I'll start with that. I think it would be good maybe just to take the NII topic from a few different angles. It's -- I want to try to give you a bit of a comprehensive overview of how we think about our NII guide. And there's really four items I want to cover pretty quickly. Two are headwinds, which would be things like deposit mix and levels and the rate environment and a couple would be things we would consider a tailwind. You mentioned loan growth, for example, the investment portfolio rollover. So I thought I would just cover those and give you some context for how we're thinking about the outlook. So, first, on the deposit levels and mix. As we've talked about on the call, Friday, deposits did finish strong for the year in 2024 and a strong finish in Q4 specifically. Noninterest-bearing was up about -- was up in Q4, but that was after three quarters of sequential kind of decrease, and we saw the same pattern in Q4 2023. So there was a seasonality through the end of the year. So we do expect to see some leveling off as we come out of Q4 into Q1 this year. Overall, we expect deposits to remain elevated in the [$230 million to $240 million] (ph) range with some ups and downs, for example, noninterest-bearing while up in Q4. Year-over-year, it was down about 12% or about $3 billion. And we've talked before about expecting noninterest-bearing to continue to trend a bit lower and somewhere in the range of $20 billion to $25 billion is the range that we think of. Secondly, around the impact of rate cuts, as we've laid out our outlook was based on the rate curve at the end of the year, which was two rate cuts in the US, five at the ECB, three at the Bank of England. And as rate curves have moved around, I would just note that, so far, the reduction in the number of cuts looks mostly to be back-loaded at the end of this year. So we don't see much of a change there in our assumption. I'd also remind you that as you mentioned, we are asset sensitive, particularly in non-US currencies. We're pretty neutral around US rate changes. We are more sensitive to non-US rates and a cut in either euro or sterling is roughly $5 million to $10 million per cut per quarter for us. So that can be meaningful as well. Turning to kind of more of the tailwinds that we see, we do expect our loan growth to continue. It was about 14% in 2024. We have a similar expectation. It's something that we're doing really well with our clients on and supporting them, specifically our private markets clients. So we continue to see that to be a growth area. And then lastly, finally, I would say on the portfolio rollovers, we have discussed in other forums that we see roughly $4 billion per quarter, but that can be lumpy depending on maturities. I'd keep in mind also that we have had a couple of portfolio repositionings as recently as last third quarter. And currently, the pickup from rollovers is roughly 100 to 150 basis points. So hopefully, laying all that out and giving you a sense of how we balance out the puts and takes and the headwinds and tailwinds gives you a sense of why we think that we have a realistic and appropriately conservative outlook. But those are the variables, and we look forward to updating the group here as we move through the year.

No, that's really helpful and makes a lot of sense. Just on the deposit, I guess, expectation, it's pretty flattish, I guess, with fourth quarter levels. Is that the sort of uncertainty and seasonality, potentially any sense of how deposits have acted in January, I guess, as a help.

I think it's still pretty early. Again, we're a couple of weeks into the year. There's always a trend kind of coming out of the high point at the end of the year. So I think it's still pretty early to say.

Okay. Thanks.

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

Hi. Can you talk about what you view as your core organic revenue growth rate in the fee businesses. And I guess, I know we talked after your call, but you have 100 basis point headwinds from the BlackRock roll off, you have 100 basis point headwind from the currency. So, what do you see as a core growth rate exiting those factors out for '25 and what do you think the long-term growth rate is? And do you think that growth rate should keep up with the pace of growth in capital markets, which seem to have exceeded what you guys have done? Thanks.

Thank you.

Our next question will come from the line of Glenn Schorr with Evercore. Your line is open. Please go ahead.

Hi, thank you. Maybe a quick one first. In Prime Services, you talked about $2 billion increase in RWA to support clients. I'm curious the size and scope of what you do or don't do in prime services that might be redemption facilities or capital commitment lines for the private markets, but just curious if you could expand on that.

Yeah, Glenn, it's Eric. Let me take that. Prime services or prime brokerage is an integral part of what we've built over the last say, seven, eight, nine, 10 years. And what we've done over the last few years is really worked with clients to find the right way to deploy capital and to do it in a Basel III friendly manner, but also in a client-friendly manner. So it's an important part of what we do. You can see our securities finance revenues, which for the year are close to $450 million, a solid third, almost half of that is prime services. And it's really a way that we help support our clients. And it's hedge funds clients, it's the multi-manager client who also have hedge funds within their umbrella. And for us, it's a way as we support those clients and offer them capital, which they cherish and they value. They often bring to us more servicing fees, more FX trading, more thick repo, more depository business. And so it's really become an integral part of what we're doing and one that has a real substantial amount of growth and growth to it as well given the demands out there at clients have the needs they have and our ability in a capital-light business to put an extra couple of billion and draw up what turns out to be very strong double-digit teen growth this past year.

Thank you, Glenn. Our next question will come from the line of Brian Bedell with Deutsche Bank. Your line is open. Please go ahead.

Great. Thanks. Good afternoon, folks. Maybe just circling back on NII. Just to back into the -- on the deposit side, I guess what is the interest of doing any sort of more aggressive deposit raising? How do you think about that? And I guess that would be through pricing or other initiatives with the servicing client base to expand that base of deposits. So I guess what's the chance we could see upside from that -- the mid-30s number.

Hey, Brian, it's Mark. I can take that. Thanks for the question. I think over the recent history, we've shown a very strong capability in engaging with our clients around deposits. And I think it's across the balance sheet, not just deposits but speaking of deposits. So I mean, it is something that we are always looking at with our clients. I think we have some of that built into our outlook today. I mean again, I mentioned that there's some ups and downs. So you can kind of assume that there is some expansion of some of those initiatives that we have with our clients. So I think -- it's something we're certainly always -- we've built that muscle over the last few years, and it's something that we're always working with our clients on in terms of what their cash needs are.

Yeah. That’s great perspective. Thank you.

Our next question will come from the line of Brennan Hawken with UBS. Your line is open. Please go ahead.

Thanks. And thanks for taking the question. I'd like to drill down to the loan growth that you said embedded in your outlook, 14% last year, similar rate here in 2025. It's a rather punchy level of loan growth. So could you speak to the types of loans that you are adding, the efforts involved. You said it was about expanding the client relationship. So maybe pulling back and thinking about how these loans are connected to expanding relationships and how you go through the risk parameters around adding new loans at this pace? Thanks.

Sure, Brennan, it's Eric. Let me just describe the loan growth. 2024 is a good example year. It continues the strength we had out of the year before and for shadows, the kind of lending we do. So roughly two-thirds or more of our loans are really clear towards alternative and private market clients. There is also a series of loans that we provide insurance companies, asset managers, as backup clients and so forth. But the growth is driven around private markets. That is, first, an area that we think is -- we can serve particularly well. We know the clients. We know their end users, a good part of the loans are cap call financing. So it's -- the recourse is strong to their underlying institutional investors. We also do BDC lending. We know the underlying assets in those funds. We help seed or support the expansion of CLOs. Again -- and we'll often do the servicing for those BDCs and those CLOs or the funds for the capital bolt on. So in a way, it's an ecosystem that we're quite comfortable with on one hand, because we're so familiar with it. It's one that is quite benign from a risk standpoint, that we're always vigilant and I say benign because we understand it so well and we seek out the -- a high standard of credit and assurance. And then it's an area of lending that is incredibly valuable to those private markets firms as a way to support the -- our growth in that business. And in my prepared remarks, I said we had had about 15% private market servicing fee growth and a good way for us to help drive that and encourage that is to be there for our clients. And what we found is our clients really value it, not only the individuals across those firms, but all the way up to the C-suite. And the more private markets as part of the array of just about every asset manager, not just the alternative providers, it just becomes an important part of the, I'll describe, as the balance of trade and the balance of the relationship that we see as particularly strong and particularly renumerative for both us and for them.

Great. Thanks for that, Eric. And we touched on this last week, but I don't think it was broadly broadcast. So I wanted to circle back to it. The deposit betas here recently, so the euro and the sterling, the pound sterling looked a little bit lower than what you guys normally talk about in your expectations. Could you speak to what might have caused that? And then how should we think about the betas by currency going forward?

Sure. Let me take that again, Brennan. And we've put out good disclosure here on our deposit betas. You could see it at a very high level on the average balance sheet where it's done on a -- I'll call it, a general basis. But in particular, we've got additional information in our addendum where we actually describe it by currencies. What we've described is that our betas will generally be symmetric on the way down for rates as they were on the way up by deposit segment. So we have a market index deposits, we have administered rate deposits, and we have deposit types in between. What we found so far is within our expectations that across the deposit base, and I think the US dollar was the easiest one to see, and it's the largest single group. So the law of large numbers helped to see the trend. We had 60%, 65% of betas over the course of this past quarter and it’s something that we expect to be representative across the deposit stack. Euro and sterling has bounced around. Now, those deposit levels in those areas are anywhere between [GBP11 billion and EUR30 billion and change] (ph). So if a new client comes in, a client shifts their currency makeup, you'll have some other elements coming through that affects the averaging in the deposit yields and thus the betas or what I might say would be the immediate calculation. But I think the dollar one is representative and something that we'd expect in general in the seasoning cycle and the dollar betas that we saw, the 60%, 65% is something we'd expect and have seen if you look deep into the data, in euros and sterling. It just gets in those other currencies, it gets overshadowed by mix and volume changes in any particular quarter.

Got it. Thanks for the color.

Sure.

Our next question will come from the line of Gerard Cassidy with RBC. Your line is open. Please go ahead.

Very good and very thoughtful. Thank you for the response. And just as a follow-up, possibly to Eric, coming back to the loan portfolio, and certainly, it's not very large relative to the total assets. We all understand that. How large are you guys willing to allow the portfolio to grow to it relative to either capital or assets? And then at what point do you think giving investors better detail in the portfolio in your public disclosures would be helpful. Thank you.

Gerard, it's Eric. We've been comfortable with this double-digit teen growth of the lending portfolio for a number of years now, and you've seen us either high single-digits or low to mid double-digits. And that's just become part of our business model. And so we don't see any immediate limits. We look around at other trust and custody banks and some of them have larger lending books as a percentage of assets. And so we think from a peer standpoint, a market acceptance standpoint, from an investor standpoint, to be honest, that there is -- we're such a capital-light model that we could comfortably afford to continue the growth in our lending book while still returning very substantial amounts of capital like we did this year to investors. And so it's become more and more, I would say, a relationship-based lending portfolio and one that is integral to our private markets plans -- our private market success and then our broader support of vast managers, insurers and even corporates. So it will be, I think, something that’s -- in which we'll see sustained growth. I think in terms of disclosure, we're certainly open. And if you've got some thoughts, please share with them, share them with our IR team. we could certainly do a more different breakdown to may be delighted to get your and others input on that and share with you some more of the texture there over time.

Thank you, Ron.

Our next question will come from Vivek Juneja with JPMorgan. Your line is open. Please go ahead.

Vivek, it’s Eric. And I’d just add that CET1 has been our dominant binding constraint for many, many years and over a long series of quarters. Occasionally, Tier 1 leverage will move around and lined up this quarter as the balance sheet grows and we support more clients. And so we've just been, I think, careful and diligent about as needed, supplementing Tier 1 leverage with some preferred equity and doing that in a judicious way. But if you think about our capital ratio, CET1 is the dominant one in risk-based, it's risk sensitive. We've said for the time being, just given the external economic and geopolitical environment, we operate towards the upper end of our CET1 range. We've not said the same thing about Tier 1 leverage. Tier 1 leverage is really just a function of the size of the balance sheet. And ironically, as we get more deposits and more clients trust us, it floats down a bit, but that's manageable and something we'll just work with team in the course of business. But we're comfortable with our leverage ratio and the general zone that it's been running over the last couple of quarters.

Completely different question, if I may. You talked about in the presentation deck about winning a large business from an APAC lender. Could you talk a little bit about the fee rate on that kind of business. Is it more akin to US type? Is it lower than what you've seen historically in the Asian when we look at your fees on the business wins and the AUCA on the business wins? It seems to imply that. Any color on that?

Hi, Vivek, it's Mark Keating. Thanks for the question. Yeah. So I think when we talk about the APAC asset owner client deal that we signed in Q4, it's a good question because I think we framed that as a multiregional type of deal. So it's a business -- it's a client that has products and we'll be servicing in multiple regions. So whether it's in Europe, in a place like Luxembourg, for example, or in the US. So you shouldn't take the APAC as being the parent as being specific to kind of the APAC business in terms of pricing. I think sometimes people want to take the assets and divide it by perceived revenues. So, I think, hopefully, that helps in terms of -- it's a multi regional deal that has pricing very consistent in what we're seeing in these different jurisdictions.

Great. Thank you, Mark.

Our next question comes from the line of David Smith with Truist. Your line is open. Please go ahead.

That's correct. Yeah. And maybe I'd just maybe add on the end of that, that we have -- we did seven mandates in 2024, and we're comfortable in the same range in 2025, six to eight. But I think beyond just the number of mandates, I think as Ron said, and there's a couple of other things maybe I'd just add at the end, which is that the kind of what's next here is aligning it ever more to our core business pieces in the asset servicing side and what we're focused on there a lot is around how do we look at product enhancements within what we're doing today? How do we manage the talent around onboarding. As Ron said, these can be quite complex conversions. And then always looking to standardize and enhance the tools for integration. If you think about any time, you kind of create a marketplace, so you create ecosystem like we have with Alpha, you learn a lot along the way. And that's kind of first generation. And as you start to do more mandates, you start to standardize, enhance the tools for integration and you kind of leverage what you've learned, and I think that's what we're entering into now.

Thank you. And then separately on deposits. You talked about 60-ish percent in the fourth quarter for US deposits being pretty representative. Can you help us unpack what's underlying there and why it might be lower than the 75%, 80% beta you saw in the US on the way up?

Sure, David. It's Eric. We saw, I think, at the very beginning of the rate cycle, the betas, betas that were quite low and then they steepened over time. They got to that 60 -- and I can use a broad range, 65%, 70%, 75% quarter-by-quarter. But it literally dependent on individual quarters, individual pricing changes, specific mix of deposits. And so I wouldn't -- I think we're in the same general zone as we've begun to see the beta changes. As I said, US dollars was in that 65% this past quarter. Euros was also quite high around 65%. It's just British pound sterling just because it's a small pool. So the difference between 60% and 75% is usually an artifact of mix, individual client moves and so forth. But I think we're seeing something quite similar. Our deposit mix is always shifting some from year-to-year and quarter-to-quarter. But I think we're in the same general zone and one where we're going to -- we continue to be disciplined and thoughtful about our pricing. At the same time, we want to build our deposit franchise. And you saw that again this quarter, not withstanding those pricing adjustments and the betas we had in the fourth quarter, we had another quarter of deposit growth. And that just demonstrates the strength of our proposition, the strength of our relationship and the ability we have, as mark described, to secure deposits that -- at appropriately healthy margins.

All right. Thank you.

There are no further questions. I will turn the call over to management for closing remarks.