The paragraph provides an introduction to the Northern Trust Corporation's Fourth Quarter 2024 Earnings Conference Call. It is led by Jennifer Childe, Director of Investor Relations, and features key company executives, including Chairman and CEO Michael O'Grady. The call includes an earnings press release, a financial trends report, and a quarterly earnings review presentation, all accessible on their website. The live webcast, recorded on January 23rd, will have a replay available until February 23rd. The company disclaims the continuing accuracy of the information post-call. During the Q&A, participants are asked to limit their questions to ensure broad participation. Michael O'Grady begins by noting that the fourth quarter results highlight a solid year, with a 12% increase in trust fees and 15% growth in net interest income compared to the prior year.

The paragraph discusses the financial performance and strategic progress of Northern Trust. Excluding notable items, there was a 13% increase in revenue and over 50% growth in earnings per share, along with positive operating leverage for two consecutive quarters. The full-year revenue increased by 8%, contributing to a 24% EPS growth. The company returned over $1.5 billion to shareholders, a five-year high. The results are attributed to strong market performance and the implementation of the "One Northern Trust" strategy, which focuses on optimizing growth, strengthening resiliency, managing risk, and driving productivity. In 2024, they made significant progress in these areas, improving organic growth across all businesses and enhancing the client experience, leading to over 140 new business opportunities.

In the paragraph, NTAM, the asset management division, collaborated with other business units to develop a tax-efficient money market solution, resulting in a successful $3 billion fundraise involving 18 clients. As they move into 2025, they aim to institutionalize such solutions and focus on growing wealth and asset management, along with strengthening collaboration across businesses. Additionally, they are enhancing risk management by upgrading their risk and control systems, investing in technology to eliminate outdated software, improve cloud infrastructure, and enhance cybersecurity. Automation and AI adoption are reducing manual processes. In 2025, further investments will be made to modernize core platforms, increase cloud adoption, and explore more automation and AI opportunities to boost productivity and efficiency.

In 2024, the company focused on improving cross-functional areas by reducing headcount by 1%, despite growth initiatives and resiliency efforts. Asset servicing saw a 7% headcount reduction through automation and digitization, leading to significant savings. Efforts will continue to enhance productivity and centralize operations through the Chief Operating Officer's office. In wealth management, the company invested in organic growth by increasing sales talent by 20%, strengthening lead flow channels, and transitioning leadership. This led to improved growth, a 9% increase in wealth deposits, and a 400 basis point rise in pre-tax margins. The company was also recognized as the Best Private Bank in the US by the Financial Times Group. In 2025, they aim to retain their leading position in wealth management.

The paragraph discusses the strategic initiatives of a global family office business, which aims to optimize client relationships, enhance investment advisory capabilities, and expand into new markets, particularly targeting ultra-high net-worth families with over $100 million in assets. The business plans to increase its presence in affluent US markets by investing in brand awareness and expanding alternative investment solutions. In asset management, a strategy refresh in 2023 under President Daniel Gomba focused on products with a competitive edge. By investing in core products and collaborating with asset servicing, the firm achieved over 35 new client wins and launched new products for its wealth segments. This led to a 13% increase in liquidity, surpassing $300 billion in assets under management, and positive net flows, along with improved organic fee growth and investment performance.

The paragraph outlines the company's strategic plans and achievements. For 2025, the company aims to capitalize on industry trends by expanding alternative offerings, custom SMAs, and ETFs, while maintaining strengths in liquidity, indexing, quant, and fixed income. In asset servicing, the company shifted focus in the previous year to scalable growth leveraging existing capabilities. Despite bidding on fewer opportunities, its win rate remained stable, and its capital markets business grew by 17% with half of this growth from new clients, who could also use core services. Looking ahead, the company intends to maintain momentum by focusing on global private markets, targeted asset owner clients, and accelerating growth in its banking and capital markets business.

In the paragraph, the company outlines its medium-term financial targets, which include an expense to trust fee ratio of 105% to 110%, pre-tax margins over 30%, an ROE in the upper half of the 10% to 15% range, and double-digit EPS growth, alongside significant capital returns to shareholders. The company expresses confidence in its One Northern Trust strategy and emphasizes the contributions of its global partners. During the fourth quarter of 2024, the company reported a net income of $455 million, EPS of $2.26, and a return on average common equity of 15.3%. Currency impacts had a mixed effect on revenue and expense growth. Trust and servicing fees reached $1.2 billion, and net interest income hit a record $574 million, indicating strong performance.

The paragraph reports on financial performance across several business segments. Assets under custody and administration decreased 4% sequentially but increased 9% year-over-year, while assets under management decreased 1% sequentially but rose 12% annually. Credit quality remains strong, and excluding notable items, non-interest income rose 13% sequentially and 17% from the previous year. Revenue grew 3% sequentially and 13% year-over-year, with expenses rising 1.2% sequentially and 5.5% annually, while earnings per share increased over 50% from the previous year. In asset servicing, despite some negative currency impacts and bond market weakening, assets under custody and administration increased to $15.6 trillion, with new business growth and capital market activities up 20%. Fees and asset servicing income experienced growth, and client exits from the previous quarter have been accounted for in the run rate. The wealth management business also posted a strong quarter.

The paragraph reports on the financial performance of a wealth management firm. At the end of the quarter, assets under management reached $451 billion, showing a 12% year-over-year increase, with global family office AUM growing by 5%. Wealth management fees rose by 14% due to strong equity markets and slightly higher client flows. The average earning assets fell by 1% quarter-over-quarter, but net interest income grew by 1% to $574 million, with a net interest margin of 1.71%. The growth was supported by better-than-expected deposit mix, improved deposit pricing, increased loan activity, and contributions from transactional items, despite a flat average deposit level of $113 billion. Non-interest expenses were $1.4 billion, increasing 1% sequentially but decreasing 1% compared to the previous year.

In the fourth quarter, expenses increased by 1.2% sequentially and 5.5% year-over-year, excluding notable items. Compensation expenses rose by 5.5% due to base pay adjustments, hiring for modernization, and business growth. Outside services expenses increased by 7% year-over-year but decreased by 2% sequentially as consulting expenses transitioned to compensation expenses. Equipment and software expenses grew by 9% due to higher depreciation and cloud-related costs. Significant operating leverage improvements were achieved. For the full year, trust fees increased by 8%, mainly due to strong markets and new business, and NII rose by 8%, supported by deposits, a healthy loan book, and securities trades. Total revenue increased by 22% on an FTE basis, with reported expenses up 6.6% for the year, excluding notable items. Additionally, modernization and resiliency expenditures were accelerated.

The article highlights the financial performance of a company, emphasizing its strong capital levels and regulatory ratios that remain above the required minimum. The common equity Tier-1 ratio decreased slightly to 12.4% due to increased risk-weighted assets, and the Tier-1 leverage ratio remained stable at 8.1%. At the end of the quarter, there was a $598 million unrealized pre-tax loss on available-for-sale securities. The company returned $403 million to shareholders through dividends and stock repurchases, totaling over $1.5 billion for the year, with a payout ratio of 78%. Operating expense growth is expected to be at or below 5% for the year. Net interest income (NII) for the first quarter is projected between $555 million and $575 million, with a low-single-digit percentage growth expected for the full year. In a question, Glenn Schorr from Evercore seeks clarification on the sustainability of a 7% growth in non-interest-bearing deposits, questioning if it results from temporary cash placements by clients.

In the paragraph, David Fox discusses the financial institution's approach to pricing adjustments in response to market conditions, especially regarding non-interest-bearing deposits, which have increased by over $1 billion. He highlights the focus on comprehensive liquidity and balance sheet management rather than just routine pricing changes, ensuring pricing aligns with their strategic objectives. Glenn Schorr then asks about the role of alternative investment solutions in their wealth and asset management objectives. Michael O’Grady explains that alternatives are integral across their businesses and emphasizes a solutions-oriented approach rather than focusing on individual business units.

The paragraph discusses the expansion of private market solutions for investors, particularly wealth and institutional clients. Through 50 South Capital, which uses a fund-to-fund structure, the business has successfully raised over $1 billion. Additionally, there are plans to expand the offering on their platform that includes various private capital managers. Emphasis is also placed on educating portfolio managers about private capital alternatives and providing advisory services for institutional clients interested in alternatives. For private capital firms, the company offers capital call facilities, banking solutions, and administrative support.

The paragraph discusses the growth in the semi-liquid asset market in Europe, highlighting strong positions in areas like the UK's long-term asset funds. The speaker mentions a strategy to offer services to firms and convert them into wealth management clients. Brennan Hawken from UBS asks about expense growth targets for 2025, referencing previous uncertainties. David Fox, having reviewed plans over four months, confidently commits to maintaining expense growth at or below 5%, aligning it with positive operating leverage and ensuring a resilient business model despite buoyant market conditions in 2024.

In the paragraph, Brennan Hawken asks about the company's return on equity (ROE) targets, questioning whether they are ambitious enough given the slow growth rates and minimal improvement from recent levels. Michael O'Grady responds by explaining that the 10% to 15% ROE target range has been maintained to account for varying market environments and changing capital requirements. He mentions that while they aim for higher returns on capital, they also focus on business growth. O'Grady emphasizes the importance of balancing growth and returns, noting that the company sometimes exceeds the top end of the ROE range, indicating an effort to optimize both elements. Hawken thanks O'Grady for the explanation before moving on with the conversation.

In the paragraph, Betsy Graseck questions how Northern Trust has managed to reduce headcount in its asset servicing business while maintaining high service quality, historically a challenge for the organization. Michael O'Grady responds that the company has successfully implemented efficiencies by reorganizing its activities, particularly by creating a Chief Operating Officer role in 2024, which has centralized and standardized operations, allowing for more automation and improved service efficiency.

The paragraph discusses the expected benefits and timeline for implementing a new business structure aimed at improving services, resiliency, ease-of-use, and scalability. Michael O’Grady explains that while it takes a couple of years to realize the full benefits, the goal is to make these improvements sustainable for continued benefits over time. Betsy Graseck inquires about the timeline, and Ebrahim Poonawalla asks about the revenue growth in the Global Family Office (GFO) segment, noting its priority status, strong yearly growth, and recent plateau. David Fox responds, agreeing to provide insights on expected revenue growth in the GFO segment, considering recent investments and its potential for secular growth.

The paragraph discusses the performance of GFO, highlighting its strongest year in terms of organic growth, particularly in international markets, with high single-digit growth and a 5% increase in assets under management in the fourth quarter. The future pipeline looks promising for 2025. In a conversation, Ebrahim Poonawala inquires about the impact of interest rates and balance sheet gearing on net interest income (NII) and deposit growth. David Fox anticipates some rate cuts in the U.S. and globally, but notes that deposits are not all in dollars, and other factors like loan activity also influence NII. Fox suggests fewer rate cuts would be better for the balance sheet mix. Finally, the operator transitions to Alex Blostein from Goldman Sachs.

The paragraph discusses the relationship between expenses and revenues within a financial context. The speaker, Michael O’Grady, explains that while there will always be a correlation between expenses and revenues, efforts are being made to reduce this dependency. He mentions successful growth in capital markets and asset management, which have associated expenses like clearing costs. Although such growth incurs additional costs, the goal is to minimize expense fluctuations and maintain operating leverage. The speaker emphasizes that despite recent strong revenue, expenses are higher than desired, but have still resulted in significant operating leverage.

The paragraph discusses a financial strategy conversation between Alex Blostein and Michael O’Grady. Michael explains their aim for positive fee operating leverage by 2025 without specifying a precise target. They are currently achieving a fee-to-expense ratio of 115 for the year and 113 for the quarter, aiming to reduce it to between 105 and 110. This approach seeks to balance service efficiency and expense control, especially when revenue decreases. Following this, David Smith inquires about capital usage and levels, noting their 12.4% CET1 is higher than peers.

The organization currently maintains strong capital levels due to robust income generation and benefits from a previous Visa gain, allowing flexibility in stock repurchases based on capital positions. They aim to maintain or increase their payout ratio as they approach 2025, feeling comfortable with their current capital standing. Regarding net interest income (NII), they anticipate consistent results throughout the year, despite any expected forward curve rate cuts. Being a liability-driven institution, they retain excess capital to accommodate unpredictable loan activity and client demands, predicting a low-single-digit increase in NII for the year.

The paragraph is a conversation between financial analysts discussing a company's strategy for managing its expenses and revenue, particularly focusing on Net Interest Income (NII) and operating leverage. Michael O'Grady emphasizes the need for a sustainable financial model that isn't reliant on market dynamics, indicating the company's intention to control expenses regardless of market conditions. Brian Bedell appreciates the insight and shifts the discussion to the company's wealth management business, noting recent successes with certain products. The emphasis is on managing costs sustainably and improving product penetration within the wealth management sector.

Michael O’Grady discusses the strategic alignment between asset management and wealth management businesses to enhance service offerings. He mentions organizational changes made over a year ago to improve how asset management covers wealth management, resulting in early positive results. The collaboration aims to better meet the diverse needs of wealth management clients by providing tailored solutions, especially for ultra-high net-worth clients. O’Grady highlights the opportunity to offer more differentiated, segmented solutions, including alternatives and ETFs, to cater to specific client groups and drive growth in NTAM products.

The discussion focuses on the asset servicing business, emphasizing a balanced approach between services for asset owners and asset managers. Michael O'Grady explains that while historically the company focused on growing the asset manager side, they are now striving for balanced and scalable growth, which involves less resource-intensive operations. He acknowledges that competitors are also adopting similar strategies, but notes that the pricing conditions are favorable for both the company and its competitors, indicating a solid outlook for organic growth in the future.

In 2024, a company deliberately chose not to bid or participate in certain RFPs due to pricing that didn't align with their business strategy. They aim for higher-margin business and have been successful in obtaining it for their new portfolio. Jim Mitchell inquires if the focus on margins is improving pricing, and Michael O'Grady confirms this is true for them. Steven Chubak from Wolfe Research asks about the subdued asset under management (AUM) and assets under custody (AUC) growth compared to peers in Q4, despite strong performance in wealth and asset servicing. O'Grady responds that the decline wasn't due to client losses but rather currency movements and lower fixed-income market exposure.

In the conversation, Steven Chubak asks about including future organic growth targets in reported metrics, to which Michael O’Grady responds that they currently do not plan to include such targets due to the complexity of calculating organic growth, impacting market estimates, and currency fluctuations. Chubak then inquires about the decision to set a pre-tax margin target at 30%, despite achieving it in the back half of the year. David Fox explains that while they reached a 30% margin for the quarter, they are still working towards achieving it consistently over a year. He emphasizes the importance of balancing growth and returns, indicating that a focus solely on increasing margin could hinder growth, and believes the optimal margin range is in the low-30s percent.

In the conversation, Gerard Cassidy is asking David Fox and Michael O’Grady about Northern's approach to building a sustainable financial model and their outlook for the economy in 2025. David Fox emphasizes the importance of controlling expenses and fostering organic growth to create a resilient financial model that can endure external events. Gerard then shifts the discussion to the general optimism for the business and market outlook in 2025, with a new administration coming in. He asks about the risks they focus on, aside from known geopolitical risks. Michael O’Grady notes that they control what they can and are concerned about factors beyond their control.

The paragraph discusses the company's focus on resilience, forward-thinking, and generating financial returns for clients. It highlights concerns related to the macro-environment, market downturns, and operational risks from volatility. Central bank activities significantly impact the business by affecting market liquidity and interest rates, which influences the financial model, especially during periods of zero or negative interest rates. The company emphasizes preparation for potential scenarios rather than predicting outcomes. The paragraph ends with an operator and Jennifer Childe, Director of Investor Relations, concluding the conference call and thanking participants.

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