The operator introduces the Northern Trust Corporation First Quarter 2024 Earnings Conference Call and turns it over to Director of Investor Relations, Ms. Jennifer Childe. She introduces the executives on the call and directs listeners to the company's website for relevant documents and the live webcast. She also reminds listeners to refer to the safe harbor statement for forward-looking statements. During the Q&A session, she asks participants to limit their questions to one initial question and one follow-up. CEO Mike O'Grady thanks everyone for joining the call and mentions that the company had a good start to the year.

The company's results for the quarter were strong due to growth in equity markets and progress in their strategic priorities. Wealth Management saw growth in client fees and new high-profile client relationships. Asset Servicing also had solid growth, with a focus on scalable new business. The company had notable wins, including providing asset servicing solutions for True Potential and becoming the sole provider for Sanlam Asset Management's funds. Their capital market solutions are becoming popular and leading to expanded relationships with clients.

The One Northern Trust strategy has led to success in the asset management sector, with joint meetings between asset management and asset servicing resulting in new business opportunities and wins. Asset management has also strengthened its coordination with the wealth management business and launched new products geared towards wealth clients. The first quarter saw positive liquidity flows for the fifth consecutive quarter and strong momentum in fixed income and alternatives. The company is well-positioned to navigate market uncertainty. The first quarter net income was $215 million, with a return on average common equity of 7.3%. The reported results included a $189 million loss on the sale of securities.

In the fourth quarter, the company recognized a $12.5 million FDIC special assessment and saw increases in assets under custody and management due to strong equity markets and client flows. Revenue and expenses were also up compared to the previous year. Trust, investment, and other servicing fees increased by 5% sequentially and 7% year-over-year. Non-interest income increased by 11% sequentially and 16% year-over-year, driven by strong performance in capital markets, particularly in FX trading and bond underwriting referral fees. Net interest income was up 7% sequentially but down 2% from the previous year. Credit quality remained strong with a decline in the allowance for credit losses and a decrease in non-performing loan levels. Assets under custody and administration for asset servicing clients were $15.4 trillion and asset servicing fees totaled $640 million, with custody and fund administration fees up 6% year-over-year.

The article discusses the increase in fees and assets under management for asset servicing and wealth management clients. It also mentions the growth in the GFO business and the increase in deposits and average balance sheet. The average loan balances remained stable and the end-of-period loan balances were elevated due to market timing dynamics.

The company's loans have returned to $41 billion and the increase in activity at the end of the quarter did not significantly impact net interest income. The balance sheet duration is less than one year and liquidity levels remain strong. The company expects a 3% to 5% decline in net interest income due to deposit behavior. Non-interest expenses were $1.4 billion in the first quarter, down 2% sequentially and up 6% year-over-year, but excluding notable items, expenses were up 4% sequentially and up 6% year-over-year. The expense to trust fee ratio remained elevated at 118%. Compensation expense and full-time equivalent headcount were essentially flat sequentially and down 800 or 3% over the prior year. Non-compensation expense was up 7% year-over-year due to increased depreciation and amortization expense and growth in tech spend and other consulting areas.

In the first quarter, market-related expenses increased by $13 million, primarily due to higher market data costs and third-party advisory fees. However, we saw favorability in the occupancy line due to our efforts to rationalize our footprint. Looking ahead to the second quarter, we expect a decrease in compensation expenses due to the absence of seasonal equity incentives, but there will be an increase in outside services and equipment and software expenses. Our capital levels and regulatory ratios remain strong, with a 440 basis point buffer above our required regulatory requirements.

In the first quarter, the Tier 1 leverage ratio decreased by 30 basis points and the company returned $285 million to common shareholders through cash dividends and stock repurchases. The operator then opened the line for questions, and the first question was regarding the 3-5% decrease in NII guidance for the second quarter. The decrease is primarily due to assumptions around deposit levels, which saw a significant increase at the end of the first quarter. However, this increase was driven by large clients and deposits have since decreased in the first few weeks of the second quarter. The company also does not assume any benefits from the recent Visa proceeds.

The paragraph discusses the factors that affected the bank's performance in the quarter, including a decrease in deposits and the impact of the Visa deal. The bank has seen a significant increase in cash balances and is considering how to redeploy this cash, potentially by extending the duration of their balance sheet. However, predicting deposit levels has been difficult and the bank is not actively driving them.

The speaker discusses the current rate curve environment and the impact it may have on their net interest margin. They also mention their strategy for managing cash and their intention to stay in the shorter part of the yield curve. They then address expenses, stating that comp expense is down 35-40% sequentially and services and equipment expenses are up 10-15%. They reaffirm their goal of keeping expenses below 5% and mention that they are still working to achieve this.

The company is constantly trying to reduce expenses and has a strong focus on finding opportunities for productivity and efficiency. The numbers mentioned in the opening reflect some of the larger expenses, but the company is still pushing for a 5% reduction. The increase in markets has also had an impact on expenses, but it has been offset by an increase in revenues.

The speaker, Jason Tyler, is discussing the pricing and deposit behavior in the first quarter of the year. He mentions that pricing has been better than anticipated and that the pressure on pricing has lessened. The next speaker, Mike O'Grady, talks about the growth in wealth management and expects it to continue in the future. He also mentions that product level fees have been a headwind but are now subsiding.

The speaker discusses the growth of their family office business and asset servicing in the first quarter, with strength in ultra-high net worth and asset owners in North America and Europe. They also mention the positive impact of cash and money market mutual funds on their profits. The speaker then takes a question about the flow of client assets between cash and fee generating and confirms that cash has been a significant factor in their strong quarter.

The speaker acknowledges that the company has a strong capital model and asks about their plans for capital accretion and buybacks. The company mentions that their capital levels are artificially low and will likely increase with the addition of Visa. They also mention the possibility of extending duration in their securities book, but do not provide specific details.

Jason Tyler discusses the duration of the securities portfolio and the unpredictability of deposit duration in the past year. He notes that they are currently shorter in duration than usual, but this may change if investment opportunities arise and the yield curve indicates it is beneficial. He also mentions that any changes in duration will protect against declines in short-term rates but may impact short-term net interest income. In response to a question about deposits, Tyler clarifies that while deposits have declined, the average balances have remained stable in the $100-110 million range.

Jason Tyler and Mike O'Grady discuss the stability of average deposits and the difficulty in predicting financial results due to factors such as tax payments and client behavior. They mention the impact of quantitative easing and tightening on deposit levels and how it will depend on the broader macro environment.

The speaker discusses the impact of quantitative easing levels and the expectation of settling somewhere in the current neighborhood. The next question is about NII and the timing of Visa's deployment, with the speaker noting that there will be some lift in the second quarter but the biggest benefit is on capital and liquidity. The speaker also mentions the importance of considering strategic ways to deploy the funds.

The speaker discusses the possibility of NII growth in 2024, but acknowledges that it is difficult to predict at this point. They also mention that expenses will likely be lower in the second half of the year compared to the second quarter, and that positive operating leverage may be possible if NII continues to perform well.

The company is focused on finding productivity and improving fee operating leverage. They are uncertain about the impact of NII on expenses, but are working to control costs. The guidance for the second quarter suggests a decrease in compensation expenses and an increase in equipment, software, and outside services expenses. The speaker is unable to provide a concrete estimate for the impact of Fed cuts on NII, but is considering both pricing and balance sheet volume.

The speaker acknowledges that there are uncertainties regarding the impact of potential interest rate cuts on the bank's net interest income. They mention that their previous repositioning of securities has helped in terms of capital and strategic investment, but it is unlikely that they will do another one in the near future. The bank is closely monitoring the market and debating the possible effects of rate cuts.

Jason Tyler, speaking on behalf of Visa, discusses the company's plans for using the proceeds from their recent investments. They are looking for ways to invest in their existing businesses and clients to maintain their target return on capital of 10-15%. However, they are also considering using some of the capital for share repurchases. Non-interest bearing deposits have stabilized and did not decline as much as expected, but it is uncertain if they will continue to decline in the future.

The speaker, Sharon Leung, asks about the growth in AUM and AUC and the pressure on fee rates in the business. The speaker, Jason Tyler, explains that fee rates should not be the main focus when analyzing the business as they are affected by various factors such as contracts and mix shifts. Instead, they look at client performance and product mix. The operator then concludes the call.

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