The paragraph introduces the Northern Trust Corporation Fourth Quarter 2023 Earnings Conference Call and identifies the participants on the call. It also provides information on where to access the company's financial reports and the webcast of the call. The speakers remind listeners of the safe harbor statement and guidelines for the question-and-answer session. Finally, the CEO acknowledges the challenging operating environment in 2023.

Despite facing challenges such as geopolitical instability, bank failures, and inflation, the company's teams worked tirelessly to serve clients. The fourth quarter results showed progress in driving improved financial performance, with revenue and expenses remaining flat after adjusting for notable items. The company focused on expense control throughout the year, making changes to improve productivity. However, expense growth was still too high relative to revenue growth, so lowering it further is a top priority. Organic growth remained below historical levels, but there was improvement throughout the year. Wealth management saw solid growth in client advisory fees, but product-level asset outflows offset this. The company continues to see strength in higher wealth tiers, where their expertise and industry leadership set them apart.

Northern Trust's success is attributed to their ability to utilize data and analytics from serving wealthy clients, as well as their advice-driven culture. They will be publishing a book on the secrets of successful ultra-high net worth families, which will help them establish relationships and develop business. They have also been recognized for their exceptional client service and expertise. While asset servicing saw growth, there were also outflows and lower transaction volumes. They had notable wins in the Americas and UK/EMEA regions, and have recently partnered with a large private market firm.

The company's recent appointment is a reflection of their ability to compete with larger mandates. They have received numerous awards for their asset servicing business and have seen positive inflows in their asset management sector. They have also launched new products focused on alternatives. The company is well positioned for the future and is focused on driving profitable growth and maintaining financial discipline. The financial results for the fourth quarter of 2023 include a net income of $113 million, earnings per share of $0.52, and a return on average common equity of 4%. These results were impacted by a loss on the sale of securities and an FDIC special assessment.

The company saw a significant increase in assets under custody/administration and assets under management due to strong equity and fixed income markets and favorable currency movements. However, asset outflows offset some of this growth. Revenue was flat on a sequential and year-over-year basis, while expenses were well-controlled. Trust, investment, and other servicing fees decreased sequentially but increased compared to last year. Non-interest income and net interest income were both down compared to the prior year. The company's credit quality remains strong, with a low provision for credit losses and stable non-performing loan levels. Assets under custody/administration and assets under management for asset servicing clients also saw significant growth.

The paragraph discusses the performance of the company's asset management and wealth management businesses, as well as trends in their balance sheet and net interest income. The company saw a decrease in average balance sheet and borrowing activity, but a stronger than expected increase in deposits. They also completed a securities repositioning and reduced the duration of their portfolio. Loan balances remained flat.

In the fourth quarter, our end of period loan balances increased by $4 billion due to higher levels of year-end trading and settlement activity. However, this did not have a significant impact on our net interest income. Our loan portfolio is mostly floating and our balance sheet duration is less than a year. Our average liquidity levels are strong, with high-quality liquid assets comprising a significant portion of our deposits and earning assets. We expect our net interest income in 2024 to be driven by client deposit behavior, but it may be affected by the current rate cycle. We anticipate an increase in net interest income in the first quarter due to securities repositioning. Our noninterest expenses were up in the fourth quarter, but excluding notable items, they only increased by 2% year-over-year. Compensation expense was up 2% year-over-year.

The paragraph discusses the impact of various factors on the company's financial results for the year 2023. These include base pay adjustments, reductions in incentive compensation and headcount, equipment and software expenses, trust fees, and net interest income. The company also expects to bring down the expense growth rate in 2024, with base pay adjustments and depreciation and amortization increases being the main drivers.

The paragraph discusses the expected increase in operating expenses for the company in 2024, as well as the potential for efficiency gains through productivity improvements. It also mentions the expected increase in compensation and employee benefits expenses for the first quarter of 2024. The company's capital levels and regulatory ratios are also noted to be strong, and they have returned a significant amount of money to shareholders in the previous quarter. The call is then opened for questions.

The speaker thanks the person for their help with numbers and asks about the stability of deposits and the potential impact on net interest income (NII) in the second quarter and beyond. The speaker acknowledges that it is too early to provide full year numbers, but suggests that the initial rate cuts may have a different impact on NIM than later ones. They also mention that their goal is to keep deposits in-house and that market reactions may initially keep deposit yields higher. However, the unpredictability of volumes may also play a significant role.

The speaker discusses the critical role that volumes will play in the first half of the year and the difficulty in predicting them. They also mention the potential for progress in the fee to expense ratio due to a higher launch point and positive signs in their asset management business. A question is then asked about the impact of ongoing Fed QT on deposits.

The RRP program has had a significant impact on deposit flows and helped stabilize the system. However, with the program expected to be exhausted in the next few months, the impact on deposits may change. The rate environment will also play a role in how clients think about their deposits, as rates have gone up significantly in the second half of the year. The transition from QE to QT will also affect deposit flows, and the timing of when QT will stop will be important.

The company has seen changes in client behavior as interest rates have fluctuated. As rates have risen, more liquidity has moved into treasury, but as they come down, the company expects that money to move into other alternatives. The company is working to meet clients' needs and keep their money with the company. The duration and weighted average maturity of the portfolio are important factors in assessing the impact of rate changes. About a third of the securities book is floating.

The speaker asks about the bank's plans for dealing with lower interest rates and extending duration, to which the CEO responds that they have been actively managing their balance sheet and will continue to do so. They also discuss the bank's expense outlook, clarifying that 2024 expense growth is expected to be lower than 2023 and the core expense base will likely be around $5.1 to $5.2 billion.

In the paragraph, Jason Tyler confirms that the 2023 number is 5.1% and explains the various charges and adjustments that were made to arrive at this base. He also clarifies that the company is aiming to drive expense growth lower than 2023 levels, but there is a 3% uplift from base paying software. This is not a floor, but the company will use productivity measures to aggressively reduce expenses.

In response to a question about the 2024 increase, the speaker confirms that the write-off of the capability in other operating expenses is included in the adjustments. Another analyst asks about the increase in noninterest-bearing deposits, and the speaker explains that it was driven by a specific channel in the institutional business and the wealth book. They believe that the NIBs have flattened out and may stabilize at their current level.

The speaker, Michael Brown, asks Jason about the competitive landscape and alternative asset opportunities for Northern Trust. Michael O’Grady responds by saying that they believe the alternative space is a major opportunity for them and that they recently won a large mandate in that area. He also mentions that they have a strong value proposition and are focused on growing in this market. The next question is about their CET1 ratio and the recent comment letter from Basel Endgame, which has received industry pushback.

Northern is considering their options for capital allocation, including potential buybacks. They have already done a fair amount of buybacks in the quarter and are always looking at other opportunities to invest capital, such as growing the loan book or repositioning the securities portfolio. They take pride in their strong capital base and are keeping an eye on the potential impacts of the Basel Endgame. They are also considering the timing and impact of disposing of Class B visa shares on their capital and buyback outlook.

Jason Tyler, a representative from Northern Trust, discusses the company's ownership of 4 million Visa B shares, which translates to about $1.7 billion. There is a proposal that would allow B shareholders to monetize half of their holdings, but nothing can be done until the proposal is voted on and timing restrictions are lifted. Northern Trust does not consider these shares a strategic asset and is discussing options for them. During a call with Deutsche Bank, it was clarified that the November repositioning helped the quarter by $6 million and the January repositioning will help by $15 million per quarter. There was also a discussion about expense growth.

The speaker confirms the numbers mentioned by the questioner regarding the increase in comp expense and employee benefits in the first quarter. These numbers are largely due to seasonal factors and will decrease in the following quarters. The speaker states that the goal is to improve upon the 5% expense growth seen in the previous year, but it will be difficult due to the 3% increase already built into the base. The company is also targeting organic growth in each of its business sectors.

The company expects to see increased expenses and lower organic growth in the coming year, but is optimistic about their strategies to drive profitable growth. Factors such as client activity and outflows in the asset management business have impacted organic growth in the past, but recent trends have turned around. The company is focused on improving their portfolio of growth, with asset servicing historically being the main source of organic growth.

Northern Trust is planning to shift towards more scalable parts of their business, such as wealth and asset management. This doesn't mean that their asset servicing business won't grow, but they will focus on the most profitable and scalable areas. They have had success with asset owners in the Americas, and will continue to do business with asset managers, but will be more disciplined in taking on resource-intensive business. They are optimistic about organic growth because their businesses are working together more closely and they are approaching clients with a bundled offering from multiple businesses. Wealth management's advisory fees have been growing and they believe it can continue to grow at a higher rate, and they also hope to increase product offerings for these clients.

The speaker discusses the potential for organic growth through transitioning to quantitative tightening and moving clients into fixed income funds. They also mention that deposit pricing is under pressure due to lags and negative mix shifts, and that they expect costs to be higher in the first quarter. They are committed to keeping clients' deposits and will have conversations with them about potential rate reductions. The speaker is then asked about how they would handle a scenario with better than expected revenue growth and its impact on expenses.

The company is focused on maintaining a balance between expense growth and scalable growth. They are working to bring expenses within their desired range and are considering different scenarios for NII sensitivity, but the unpredictability of spread retention makes it difficult to predict the impact of potential Fed cuts.

The company is trying to be more predictable with expenses, but there is more flexibility with deposit side. Custody fees were down 5% due to lower transaction volumes, but there is relatively stable pricing. Net new business for the year was positive, but there were declines in asset levels for clients.

The speaker discusses the impact of lower transaction volumes and same number of clients on the repricing story of the business. They mention that the win rate in the market is strong and the growth rate in the global family office sector has decelerated. However, they have invested heavily in technology and are optimistic about the business's future growth.

The operator announces the end of the question-and-answer portion of the call and turns it back over to Jennifer Childe for closing comments. Jennifer thanks everyone for joining and looks forward to speaking with them again. The operator then concludes the call and participants may now disconnect.

This summary was generated with AI and may contain some inaccuracies.