The paragraph is an introduction to the Northern Trust Corporation's Third Quarter 2024 Earnings Conference Call. The operator hands over to Jennifer Childe, the Director of Investor Relations, who welcomes everyone and introduces key participants including Mike O'Grady, the Chairman and CEO; and other executives from Northern Trust. She mentions that relevant documents are available on the company's website and notes that the call is being webcast live. Jennifer also highlights that a replay of the call will be available online until November 23 and mentions the safe harbor statement regarding forward-looking statements. Participants are asked to limit their questions to allow as many as possible to engage during the Q&A session. The introduction concludes with Jennifer handing over the call to CEO Mike O’Grady.

The paragraph discusses leadership changes and financial performance within a company. Dave Fox has become the CFO, succeeding Jason, who is now President of Wealth Management. The company is grateful for Jason's previous contributions as CFO, and confident in his abilities to lead Wealth Management. Dave Fox is welcomed to the CFO position, having a successful track record, previously leading the Global Family Office and serving as Head of Asset Servicing for the Americas. The company's third-quarter performance was strong, with increases in trust fees, net interest income, and earnings per share. The company also returned $453 million to shareholders and achieved record assets under management in Wealth Management.

Over the past 12 to 18 months, Northern Trust has seen improved business momentum. The Global Family Office has achieved mid-single-digit organic growth, driven by strong international relationships and collaboration within the firm. Asset Management also experienced positive liquidity flows and growth in various asset categories, despite pressures on index products. Their ongoing strong investment performance, particularly in active fixed income, has supported this growth, aided by the One Northern Trust strategy. Year-to-date, Northern Trust Asset Management (NTAM) launched 13 new products, including a successful treasury-only money market fund. The Asset Servicing business has performed well with increased transaction volumes and capital markets activities. The firm is focused on scalable new business opportunities, cross-selling products, and expanding existing client relationships, as evidenced by their recent development with the U.K. firm Artemis.

The paragraph discusses the outsourcing of trading activities for Artemis' equity funds and derivatives to Northern, which will handle the full life cycle of these investments. The shift in strategy is aimed at enhancing profitable growth and operational efficiency. The company, celebrating its 135th anniversary, continues to prioritize service, expertise, and integrity. It remains focused on strengthening its foundation, positioning for growth, and meeting client needs. Jason Tyler then reports on the third-quarter 2024 financial results: a net income of $465 million, earnings per share of $2.22, and a 15.4% return on average common equity. The results were bolstered by a $68 million pretax gain and a $13 million escrow payment, increasing other operating income by $55 million pretax and $40 million after tax. Trust and servicing fees rose to $1.2 billion, showing 3% sequential and 8% annual growth.

The paragraph discusses financial highlights, indicating a record net interest income of $569 million with substantial annual and sequential growth. Assets under custody, administration, and management showed significant increases over the previous year, reflecting strong equity markets and a weak U.S. dollar. Despite a minor drop in non-interest income and slight increase in expenses, revenue and earnings per share saw notable growth. Asset servicing recorded $16.3 trillion in assets with revenue from fees seeing healthy year-over-year rises. Wealth Management also reported a strong year-over-year increase in assets and servicing fees. Overall credit quality was strong, and average earning assets remained stable due to offsets between loans and securities.

The paragraph outlines the company's robust liquidity, with highly liquid assets making up 62% of deposits and over half of the total earning assets. The securities portfolio has a duration of 1.6 years, and the overall balance sheet duration is under one year. The company reported net interest income of $569 million and a net interest margin of 1.68%, driven by better-than-expected deposit levels and improved deposit pricing, along with favorable market conditions. This led to an increase in third-quarter net interest income by approximately $10 to $15 million. Non-interest expense for the third quarter was about $1.4 billion, down 11% from the previous quarter and up 6% year-over-year. Core expenses, excluding notable items, rose 1% sequentially and 6% annually. Compensation expenses increased by 5% from the prior year, while being flat compared to the previous quarter, due to base pay adjustments, hiring for modernization initiatives, business growth, and currency impacts.

The paragraph discusses financial performance and projections for a company, highlighting a 12% increase in outside services expenses due to modernization efforts, and a 14% year-over-year rise in equipment and software expenses. Operating leverage improved, evidenced by a better expense to trust fee ratio and increased capital levels, with regulatory ratios remaining strong. The common equity Tier 1 ratio was stable at 12.6%, while the Tier 1 leverage ratio increased slightly. The company returned $453 million to shareholders through dividends and stock repurchases. The outgoing CFO expresses gratitude and introduces Dave Fox as his successor, praising his strategic vision for the company's future.

In the article's paragraph, Sharon, speaking on behalf of Steven Chubak from Wolfe Research, asks Jason Tyler about the asset sensitivity of different balance sheet categories, particularly focusing on the floating rate mix following securities repositioning. Jason Tyler responds that the floating rate mix is now about 50%. Sharon also inquires about future expenses, particularly regarding investments in modernization and resiliency, and whether these will eventually decrease. Jason Tyler indicates that these investments are expected to continue for the next two to three quarters, but a decline might begin late next year.

The paragraph features a discussion between several individuals, including Ebrahim Poonawala from Bank of America and Michael O'Grady, regarding organizational and leadership changes announced in September. Ebrahim congratulates Jason and David on their new roles and inquires about the implications of these changes for operational efficiency and expense management. He notes investor frustration regarding the lack of bottom-line results from operational efficiency efforts. Michael responds by saying the organizational changes are aligned with their long-term strategy focused on strengthening the foundation, optimizing growth, and enhancing productivity, which was established over a year ago.

The paragraph discusses recent organizational changes in a company, including the appointment of Pete Cherecwich as COO to enhance operational excellence and scalability, and Teresa Parker taking over as President of Asset Servicing. Steve Fradkin focuses on the One Northern Trust strategy. Jason Tyler addresses a positive surprise in net interest income (NII) for the quarter, despite flat deposits. The company expected deposit reductions due to the exit of large, low-margin deposits but was able to replace them with more favorably priced ones, indicating a positive outlook for NII growth if the deposit environment stabilizes.

The paragraph discusses the financial outlook for the fourth quarter, with a focus on net interest income (NII) and deposits. It notes that while deposit levels and their nature have improved, anticipating rate cuts makes it unlikely for deposits to fully offset declines. As a result, the NII for the fourth quarter is expected to be between 550 to 560, which remains strong but slightly lower. Alex Blostein from Goldman Sachs questions Jason Tyler on expectations for the sequential decline in NII, particularly due to elevated transactional activity that boosted Q3 results. Tyler explains that the current level of deposits is a good point to start from, and various factors like FX swap activity and other financial elements played a role in the third quarter's performance.

The paragraph discusses the impact of certain conditions on the company's financial performance, particularly regarding a $10 to $15 million increase in net interest income (NII) due to favorable factors in the current quarter. These factors include opportunities for more foreign exchange (FX) swaps and other activities influenced by the current rate environment. The elevation seen from the second to the third quarter is partially expected to persist, although it will also normalize due to the effects of central bank rate actions. Additionally, Alex Blostein inquires about long-term expense growth, referencing a previous target of around 5%, noting it has exceeded 6% this year due to market-related factors and increased revenues. Mike is asked to clarify expectations for expense growth over the next few years in light of organizational changes aimed at better aligning business growth with expenses.

In the paragraph, Michael O’Grady discusses focusing on achieving positive fee operating leverage and reducing the expense-to-trust fee ratio to the target range of 105% to 110%. He highlights the goal of achieving a pretax margin in the low 30s and mentions the need to manage the expense growth rate as a key objective for 2025. Betsy Graseck from Morgan Stanley raises questions about deepening relationships as a growth focus and asks how this represents a shift in strategy. She inquires whether it involves hiring more resources or delivering more products and seeks clarification on which areas of the organization, such as asset servicing, asset management, investment management, or the wealth platform, offer the most opportunity for relationship deepening. Michael O’Grady acknowledges these points but does not provide specific answers in the excerpt.

The paragraph discusses Northern Trust's strategy, "One Northern Trust," which aims for integrated collaboration across its business divisions to optimize client and stakeholder outcomes. This approach involves synchronizing asset servicing, asset management, and wealth management to provide comprehensive solutions rather than single offerings with later cross-sells. The strategy has led to new product developments and services, such as integrated trading solutions like outsourced trading for significant clients like Artemis. The focus is on strong business linkages and addressing specific client needs through innovative investment products.

The paragraph involves a discussion between Betsy Graseck and Michael O’Grady about Northern Trust's strategy for improving profitability by focusing on scalable growth through existing client relationships and minimizing the need for new resources. O’Grady emphasizes success in providing custody services to asset owners with minimal additional resources. Following this, Michael Mayo from Wells Fargo questions the discrepancy between Northern Trust's historical reputation and its recent stock performance, noting a loss of premium compared to peers and asking if this situation presents an opportunity.

The paragraph discusses the ongoing changes at Northern Trust, highlighting a strategic move to enhance organic growth by appointing existing employees to new roles while bringing in external talent. Michael O'Grady explains that this approach leverages both internal experience and new perspectives to improve execution and achieve growth. The focus is on a comprehensive strategy aimed at not only boosting earnings but also enhancing their quality and stability, which is expected to positively impact the company's stock price.

The paragraph discusses the strategic focus of a company on creating value through its earnings and stock price, with an emphasis on the scalable aspects of its Wealth Management and Asset Management businesses. Michael Mayo inquires about the potential impact of new managerial perspectives on this strategy. Michael O'Grady highlights the goal of accelerating organic growth in these areas, while Dave's understanding of the business and strategic value creation is also mentioned. Jason Tyler shares his initial views on leveraging market specialization and offering diverse solutions to clients, indicating his efforts to acquaint himself with the business and explore more growth opportunities.

The paragraph discusses the commitment to managing expenses and achieving operating leverage, despite facing growth challenges in recent years, partly due to inflation. Brennan Hawken from UBS questions the expense growth based on a fourth-quarter guide suggesting over 6% growth in 2024. Jason Tyler had previously committed to keeping 2025 expense growth under 5%, and this commitment is questioned in light of a new CFO. Michael O'Grady responds, emphasizing the importance of organizational changes, such as centralizing operations, and making necessary investments to better control expenses and maintain a steady operating leverage.

The paragraph discusses the company's strategy for long-term management by investing in foundational improvements, particularly in technology and risk management. These investments include moving off outdated platforms, transitioning to the cloud, automating changes, ensuring systems' stability and redundancy, and understanding third-party provider resiliency. These efforts aim to enhance risk management, client experience, and efficiency, benefiting clients and shareholders by driving quality growth. The conversation then shifts to the balance sheet, noting a recent decline in loans and prompting a discussion on future loan growth expectations.

The paragraph discusses a finance-related company's approach to growing its loan book and wealth management business. The speaker indicates there is no strategic trend driving the current quarter's results and there are no specific initiatives to expand the loan book, though it's not intended to shrink either. Instead, growth in lending will align with overall client franchise growth, particularly in the Wealth business. This growth is more connected to lending on the wealth side of the business rather than institutional deposits. In response to a question from Glenn Schorr, Jason Tyler explains the company's strategy to invest heavily at the upper end of the Wealth market, particularly through the GFO business, which serves larger clients. Recent investments in people, products, and new geographies are highlighted, including a collaboration with Hamilton Lane.

The paragraph discusses a strategic focus on enhancing services for high net worth clients by investing in skilled professionals and forming partnerships. Northern aims to expand its expertise in estate planning, investment advising, and banking by hiring more professionals, including a distinct group for ultra-high net worth clients. They also highlight the partnership with Hamilton Lane to improve data and analytics for private investments, catering to the increasing demand for private market expertise among institutional clients. Overall, the company is positioning itself for growth by building capabilities and strengthening client relationships.

In the paragraph, Gerard Cassidy from RBC asks Jason Tyler and Michael O’Grady from Northern Trust about how investors can measure the success of the company's "One Northern Trust" strategy, which involves integrating their various business units. Michael O'Grady explains that while similar programs are used by peers, Northern Trust's approach is unique due to its focus on uniting the entire company. This strategy aims to break down internal silos, achieve client and market success, and improve efficiencies across the organization. Success is measured by setting specific objectives, such as the number of new market opportunities that involve collaboration between the company's different business units.

The paragraph discusses the aim of increasing organic growth through internal metrics and collaboration among businesses, which will reflect in financial performance. There is mention of providing key performance indicators (KPIs) as they progress, with Steve Franken playing a significant role due to his extensive experience across the businesses. Gerard Cassidy asks Jason Tyler about net interest income (NII) expectations for the fourth quarter, considering potential changes in the Fed funds rate and interest rate curves. Jason responds that their securities portfolio duration has been shortened for various reasons, while the rest of the balance sheet remains stable without strategic changes to the loan book's duration.

The paragraph discusses the management of a company's balance sheet, particularly the securities portfolio, in response to changes in the yield curve. The company successfully shortened the duration of its holdings, but anticipates headwinds from potential rate cuts in the coming year. Despite this, the company is optimistic about deposit stability and sees some benefits from reinvestment of maturing securities. They acknowledge the influence of various factors on the balance sheet but are not yet providing specific guidance. Additionally, it's noted that the company is slightly asset-sensitive due to recent balance sheet actions.

In the paragraph, Brian Bedell from Deutsche Bank asks about the focus on organic revenue growth in the Wealth segment, specifically whether more growth is expected from internal initiatives or new customers. Jason Tyler responds by stating that they aim for around 3% organic growth for the overall business, with a slightly lower expectation for the Wealth segment. He suggests a medium-term target of 2.5% to 3% growth for Wealth, emphasizing a balanced approach focusing on both acquiring new clients and enhancing relationships with existing ones. Tyler notes that they are not aggressively targeting increased product utilization, but are concentrating on various categories within their existing client base for growth.

The paragraph discusses a company's strategy for organic growth, emphasizing the importance of maintaining current risk tolerances and focusing on enhancing relationships with existing clients. It mentions that growth for wealthy clients, when they invest more into the business, is considered organic. The conversation shifts to loan pricing, explaining that yield increases are related to timing lags in pricing adjustments, with most of the loan book adjusting within three months. The final part touches on expense management, indicating a current expense growth target of 6% and the possibility of maintaining or exceeding this growth rate if revenue performance is strong enough to generate positive operating leverage. Jason Tyler confirms the accuracy of the described pricing lags.

The paragraph discusses the relationship between revenue growth and expense growth in a business. Traditionally, higher revenue growth has led to higher expense growth, but the business is trying to decouple this dynamic. They aim for expense growth to be more absolute rather than just following revenue growth, targeting 5% or less for next year, with increased confidence in achieving this goal. It also touches on loan pricing, specifically mentioning that 70-80% of the loan book consists of floating, variable-rate loans that reset within three months, which influences yield performance.

The paragraph discusses the company's capital return strategy, specifically regarding share buybacks and capital ratios. Jason Tyler explains that while the current level of buybacks is elevated, it could remain so for a while. The company allocates about a third of its net income to dividends, aiming for 30% to 50% over time. Their Common Equity Tier 1 (CET1) capital ratio is at the upper end of their usual range, around 12.5% to 12.6%. The monetization of Visa shares has provided liquidity for share repurchases, allowing them to maintain the CET1 level even as it may decrease slightly. The company plans a thoughtful approach to capital deployment over several quarters, avoiding aggressive strategies. A question is raised about the potential for a lower CET1 ratio in the future as more Visa shares are monetized, considered a positive factor.

In the conversation, Jason Tyler and Michael O’Grady discuss their comfort with lowering capital levels below the current 12.6% and their satisfaction with the higher repurchase levels seen this quarter. Vivek Juneja from JPMorgan raises questions about expense growth attributed to spending on resilience and modernization, which contributed to a 6% growth rate. Michael O’Grady explains that it's challenging to attribute the entire growth rate to these factors but notes that much of the growth is in equipment and services. He adds that market conditions also impact revenue and expenses, contributing to the growth rate, and they aim to reduce this rate moving forward.

The paragraph discusses a conversation between Vivek Juneja and Michael O'Grady about Northern Trust's strategy for organizational changes and talent acquisition. Michael O'Grady explains that they employ a balanced approach by promoting internal talent, supplemented with external hires, as part of their talent development strategy. Vivek Juneja thanks him, and the operator introduces a question from Mike Mayo of Wells Fargo, who asks about Northern Trust's organic growth target of 2.5% to 3% in Wealth Management. Jason Tyler responds, noting that this target is higher than recent years but aligns with their goals before recent underperformance.

The paragraph discusses the confidence of a company in achieving strong growth and profitability relative to its peers. It highlights the difficulty in comparing firms due to differences in what is included in their financial measures, such as banking or product fees. The company believes its wealth management business has strong profitability and growth potential, which benefits shareholders. The conversation involves Michael Mayo thanking Jason Tyler, followed by Jennifer Childe concluding the call and expressing anticipation for future discussions.

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