Q2 2024 Northern Trust Corp Earnings Call

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Operator: Good day, and welcome to the Northern Trust Corporation second quarter 2024 earnings conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Jennifer Childe, Director of Investor Relations. Please go ahead, ma'am.

Jennifer Childe: Good day and welcome to the Northern Trust Corporation second quarter 2024 earnings conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Jennifer Childe, Director of Investor Relations. Please go ahead, ma'am.

Jennifer Childe: Thank you, operator. Good morning, everyone. Welcome to Northern Trust Corporation's second quarter 2024 earnings conference call. Joining me on our call this morning is Michael OGrady, our chairman and CEO, Jason Tyler, our chief financial officer, John Landers, our controller, and Grace Higgins from our investor relations team. Our second quarter earnings press release and financial trends report are both available on our website at northerntrust.com. Also on our website, you will find our quarterly earnings review presentation, which we will use to guide today's conference. This July 17th call is being webcast live on northerntrust.org. The only authorized rebroadcast of this call is the replay that will be made available on our website through August 7th.

Jennifer Childe: Thank you, operator. Good morning, everyone. Welcome to Northern Trust Corporation's second quarter 2024 earnings conference call.

Speaker Change: Joining me on our call this morning is Michael OGrady, our Chairman and CEO , Jason Tyler, our Chief Financial Officer, John Landers, our Controller, and Grace Higgins from our Investor Relations team.

Speaker Change: Our second quarter earnings press release and financial trends report are both available on our website at northerntrust.com. Also on our website, you will find our quarterly earnings review presentation, which we will use to guide today's conference call.

Speaker Change: This July 17th call is being webcast live on NorthernTrust.com. The only authorized rebroadcast of this call is the replay that will be made available on our website through August 17th.

Speaker Change: Northern Trust disclaims any continuing accuracy of the information provided in this call after today. Please refer to our Safe Harbor Statement regarding forward-looking statements on page 12 of the accompanying presentation, which will apply to our commentary on this call.

Speaker Change: During today's question and answer session, please limit your initial query to one question and one related follow-up. This will allow us to move through the queue and enable as many people as possible the opportunity to ask questions as time permits. Thank you again for joining us today. Let me turn the call over to Mike OGrady.

Jennifer Childe: Northern Trust disclaims any continuing accuracy of the information provided in this call after. Please refer to our Safe Harbor Statement regarding forward-looking statements on page 12 of the accompanying presentation, which will apply to our commentary on the. During today's question and answer session, please limit your initial query to one question and one related follow-up. This will allow us to move through the queue and enable as many people as possible the opportunity to ask questions as time permits. Thank you again for joining us today. Let me turn the call over to Michael O'Grady. Thank you, Jennifer.

Michael Gerard OGrady: Let me join in welcoming you to our second quarter 2024 earnings call. Our results for the quarter reflect continued progress executing against our strategic priorities, boosted by strong underlying equity markets and favorable client activity levels. Trust fees were up a solid 6% over the prior year, deposit levels proved resilient, and our capital levels reached a multi-year high. In the quarter, we participated in the Visa Class B Common Stock Exchange offer, positioning us to monetize 50% of our long-held stake in Visa. As a result, we recognized a pre-tax gain of nearly $900 million, with another 50% of shares still to be monetized.

Michael Gerard OGrady: Thank you, Jennifer. Let me join in welcoming you to our second quarter 2024 earnings call. Our results for the quarter reflect continued progress executing against our strategic priorities, boosted by strong underlying equity markets and favorable client activity levels.

Michael Gerard OGrady: We intend to use the visa proceeds to fund additional share repurchases, contribute to our charitable foundation, and make investments in the resiliency of our business. Reported results also included approximately $200 million in restructuring charges and other notable items, reflecting our continued efforts to optimize our cost base, drive efficiencies, and affect change within the organization. Jason will discuss the details in a few minutes.

Michael Gerard OGrady: Trust fees were up a solid 6% over the prior year, deposit levels proved resilient, and our capital levels reached a multi-year high.

Michael Gerard OGrady: In the quarter, we participated in the Visa Class B Common Stock Exchange offer, positioning us to monetize 50% of our long-held stake in Visa. As a result, we recognized a pre-tax gain of nearly $900 million, with another 50% of shares still to be monetized.

Michael Gerard OGrady: We intend to use the visa proceeds to fund additional share repurchases, contribute to our charitable foundation, and make investments in the resiliency of our business.

Michael Gerard OGrady: Reported results also included approximately $200 million in restructuring charges and other notable items, reflecting our continued efforts to optimize our cost base, drive efficiencies, and affect change within the organization.

Michael Gerard OGrady: Turning to the performance of the business units, wealth management generated 9% year-over-year trust fee growth, and our new business momentum remains strong. We're continuing to generate interest in our Secrets of Enterprising Families National Book Tour, and we're seeing solid success with digital marketing initiatives. In May, we hosted our annual Northern Trust Institute Symposium, attracting more than 1,500 influential estate planning attorneys, trust practitioners, and other wealth industry specialists who serve as key referral sources. We also celebrated the opening of our new office in New York City.

Michael Gerard OGrady: Jason will discuss the details in a few minutes.

Jason Jerrome Tyler: Turning to the performance of the business units, wealth management generated 9% year-over-year trust fee growth, and our new business momentum remains strong. We're continuing to generate interest from our Secrets of Enterprising Families National Book Tour, and we're seeing solid success from digital marketing initiatives.

Jason Jerrome Tyler: In May, we hosted our annual Northern Trust Institute Symposium, attracting more than 1,500 influential estate planning attorneys, trust practitioners, and other wealth industry specialists who serve as key referral sources. We also celebrated the opening of our new office in New York City.

Michael Gerard OGrady: Asset management generated positive liquidity flows for the sixth consecutive quarter and delivered strong performance within active fixed income. We raised assets in the private equity space in the quarter, although index flows have otherwise been sought. NTAM continued to leverage our One Northern Trust strategy, delivering clients the solutions and capabilities of the entire firm.

Jason Jerrome Tyler: Asset management generated positive liquidity flows for the sixth consecutive quarter and delivered strong performance within active fixed income.

Jason Jerrome Tyler: We raised assets in the private equity space in the quarter, although index flows have otherwise been soft.

Jason Jerrome Tyler: NTAM continued to leverage our One Northern Trust strategy, delivering clients the solutions and capabilities of the entire firm.

Michael Gerard OGrady: Joint meetings between our asset management and asset servicing businesses accelerated in the second quarter, leading to more than 100 new business opportunities and 15 wins year-to-date. NTAM also launched seven new funds in the second quarter, expanding our global liquidity business and adding to our fixed income solution. Our asset servicing business performed well in the quarter. Transaction volumes were healthy, capital markets activities were up 16%, and new business growth continues to be booked at attractive margins.

Jason Jerrome Tyler: Joint meetings between our asset management and asset servicing businesses accelerated in the second quarter, leading to more than 100 new business opportunities and 15 wins year-to-date. NTAM also launched seven new funds in the second quarter, expanding our global liquidity business and adding to our fixed income solutions.

Jason Jerrome Tyler: Our asset servicing business performed well in the quarter. Transaction volumes were healthy, capital markets activities were up 16%, and new business growth continues to be booked at attractive margins.

Michael Gerard OGrady: As we discussed, our goal is to generate new business that is scalable. We've shifted our sales focus to opportunities that require lower levels of incremental costs while emphasizing approaches with multiple points of connectivity. In addition to the bundled sales generated with NTAM, more than 140 existing asset servicing clients have expanded their relationships with us by adding services such as capital markets and data analytics.

Speaker Change: As we discussed, our goal is to generate new business that is scalable. We've shifted our sales focus to opportunities that require lower levels of incremental costs while emphasizing approaches with multiple points of connectivity.

Speaker Change: In addition to the bundled sales generated with NTAM, more than 140 existing asset servicing clients have expanded their relationships with us by adding services such as capital markets and data analytics.

Michael Gerard OGrady: We're being disciplined on pricing and bidding on fewer opportunities. In spite of our new focused approach, asset servicing continues to gain momentum, particularly among asset owners. In the second quarter, Northern Trust was appointed as the new custodian and asset servicing provider for NEST Invest, the United Kingdom's largest workplace pension scheme.

Speaker Change: We're being disciplined on pricing and bidding on fewer opportunities.

Speaker Change: In spite of our new focused approach, asset servicing continues to realize momentum, particularly among asset owners.

Speaker Change: In the second quarter, Northern Trust was appointed as the new custodian and asset servicing provider for Nest Invest.

Michael Gerard OGrady: Initially an NTAM client, NEST supports 13 million members and has AUM of approximately $45 billion. Our ability to manage sophisticated strategies and the flexibility of our open architecture approach were the key factors that helped secure this highly competitive win. In North America, we've achieved more than 30 new wins year-to-date among asset owners. We enter the second half of the year with strong market tailwinds and good new business momentum, well-positioned to navigate the current macroeconomic environment and generate value for our stakeholders. With that, I'll turn it over to Jason to review our financial performance for the quarter.

Speaker Change: United Kingdom's Largest Workplace Pension Scheme

Speaker Change: Initially an NTAM client, NEST supports 13 million members and has AUM of approximately 45 billion dollars.

Speaker Change: Our ability to manage sophisticated strategies and the flexibility of our open architecture approach were the key factors that helped secure this highly competitive win.

Speaker Change: In North America, we've achieved more than 30 new wins year-to-date among asset owners.

Speaker Change: We enter the second half of the year with strong market tailwinds and good new business momentum.

Speaker Change: well positioned to navigate the current macroeconomic environment and generate value for our stakeholders.

Speaker Change: And with that, I'll turn it over to Jason to review our financial performance for the quarter. Jason? Thank you.

Jason Jerrome Tyler: Thank you, Mike. And let me join Jennifer and Mike in welcoming you to our second quarter 2024 earnings call. Let's dive into the financial results of the quarter starting on page 4. This morning, we reported second quarter net income of $896 million, and earnings per share of $4.34.

Jason Jerrome Tyler: Thank you, Mike. And let me join Jennifer and Mike in welcoming you to our second quarter 2024 earnings call.

Jason Jerrome Tyler: Let's dive into the financial results of the quarter, starting on page 4.

Jason Jerrome Tyler: This morning, we reported second quarter net income of $896 million, earnings per share of $4.34, and our return on average common equity was 31.2%.

Jason Jerrome Tyler: And our return on average common equity was 31.2%. Our reported results included an $878 million net pre-tax gain related to visa and $196 million of restructuring charges and other notable items, which I'll discuss in more detail shortly. Our assets under custody and administration and assets under management were up modestly on a sequential basis and up sharply on a year-over-year basis. Strong equity markets drove the year-over-year improvement.

Jason Jerrome Tyler: Our reported results included an $878 million net pre-tax gain related to visa and $196 million of restructuring charges and other notable items, which I'll discuss in more detail shortly.

Jason Jerrome Tyler: Our assets under custody and administration and assets under management were up modestly on a sequential basis and up sharply on a year-over-year basis. Strong equity markets drove the year-over-year improvement.

Unknown Executive: Excluding notable items in all periods, revenue is up 5% on a year-over-year basis and 1% sequentially. Expenses are up 6.6% over the prior year and essentially flat sequentially. Trust investment in other services in fees, total $1.2 billion, the 2% sequentially increase and the 6% increase compared to last year. Excluding notable in both periods, all other 9 interest income on an FTE basis was down 2% sequentially and up 9% over the prior year. We experienced good momentum in our effects trading business, where we saw another strong quarter of client volume. Then interest income on an FTE basis was 530 million dollars, down 1% sequentially and up 1% from a year ago.

Jason Jerrome Tyler: Excluding notable items in all periods, revenue is up 5% on a year-over-year basis and 1% sequentially, while expenses are up 6.6% over the prior year and essentially flat sequentially. Trust investment and other servicing fees totaled $1.2 billion, a 2% sequential increase and a 6% increase compared to last year. Excluding notables in both periods, all other non-interest income on an FTE basis was down 2% sequentially and up 9% over the prior year.

Jason Jerrome Tyler: Excluding notable items in all periods, revenue was up 5% on a year-over-year basis and 1% sequentially. Expenses were up 6.6% over the prior year and essentially flat sequentially.

Jason Jerrome Tyler: Trust, investment, and other servicing fees totaled $1.2 billion, a 2% sequential increase and a 6% increase compared to last year.

Jason Jerrome Tyler: Excluding notables in both periods, all other non-interest income on an FTE basis was down 2% sequentially and up 9% over the prior year. We experienced good momentum in our FX trading business where we saw another strong quarter of client volume.

Jason Jerrome Tyler: We experienced good momentum in our FX trading business, where we saw another strong quarter of client volume. Net interest income on an FTE basis was $530 million, down 1% sequentially and up 1% from a year ago. Our credit quality remains very strong, with no net charge-offs and non-performing loans representing nine basis points of total loans.

Jason Jerrome Tyler: Net interest income on an FTE basis was $530 million, down 1% sequentially and up 1% from a year ago.

Unknown Executive: Our credit quality remains very strong, with no net charge loss and non-performing loans representing 9 basis points of total loans.

Jason Jerrome Tyler: Our credit quality remains very strong, with no net charge-offs and non-performing loans representing nine basis points of total loans.

Unknown Executive: Turning to our asset servicing results on page 5. Assets under custody and administration for asset servicing clients were 15.5 trillion dollars at quarter end, with asset servicing fees totaling $651 million. Custaining funded administration fees were $446 million, up 4% year over year, driven by both strong underlying equity markets and new business activities. Assets under management for asset servicing clients were 1.1 trillion dollars. Invested management fees within asset servicing were $146 million, up 9% year over year, due to favorable markets and strong flows into our institutional liquidity funds.

Jason Jerrome Tyler: Turn to our asset servicing results on page 5. Assets under custody and administration for asset servicing clients were $15.5 trillion at quarter end, with asset servicing fees totaling $651 million. Custody and Fund Administration fees were $446 million, up 4% year-over-year, driven by both strong underlying equity markets and new business activities.

Jason Jerrome Tyler: Turn to our asset servicing results on page 5.

Jason Jerrome Tyler: Assets under custody and administration for asset servicing clients were $15.5 trillion at quarter end, with asset servicing fees totaling $651 million.

Jason Jerrome Tyler: Custody and Fund Administration fees were $446 million, up 4% year-over-year, driven by both strong underlying equity markets and new business activities.

Jason Jerrome Tyler: Assets under management for asset servicing clients were $1.1 trillion. Invested management fees within asset servicing were $146 million, up 9% year-over-year due to favorable markets and strong flows into our institutional liquidity fund. Moving to our wealth management business on page six, assets under management for our wealth management clients were $419 billion at quarter end.

Jason Jerrome Tyler: Assets under management for asset servicing clients were 1.1 trillion dollars.

Jason Jerrome Tyler: Investment management fees within asset servicing were $146 million, up 9% year-over-year due to favorable markets and strong flows into our institutional liquidity funds.

Unknown Executive: Moving to our wealth management business on page 6. Assets under management for our wealth management clients were $419 billion at quarter end. Trust investment and other servicing fees for wealth management clients of $516 million, up 8% year over year, do primarily the strong equity markets and asset inflows within global family office.

Jason Jerrome Tyler: Moving to our wealth management business on page 6.

Jason Jerrome Tyler: Assets under management for our wealth management clients were $419 billion dollars at quarter end.

Jason Jerrome Tyler: Trust Investment and Other Servicing Fees for Wealth Management Clients of $516 million, up 8% year-over-year, due primarily to strong equity markets and asset inflows within Global Family Office. Turning to page seven of our balance sheet and net interest income trend, average deposits were $113 billion, up $1 billion or 1% from the first quarter, modestly better than our expectations. Deposit costs increased slightly due to a handful of large, thinly-

Jason Jerrome Tyler: Trust investment and other servicing fees for wealth management clients of 516 million dollars of 8% year-over-year due primarily to strong equity markets and asset inflows within Global Family Office.

Unknown Executive: Turning to page 7 in our balance sheet and net interest income trends. Invested deposits were $113 billion, up $1 billion, or 1%, from the first quarter, modestly better than our expectations. Deposit cost increased slightly due to a handful of large, thinly priced deposits shifting to the asset side of the balance sheet. Our average earning assets increased 1% on a linked quarter basis primarily due to higher deposit levels and the proceeds from the partial sale of our Visa shares. Our average liquidity levels remain very strong, with highly liquid assets equal to 60% of our deposits and more than 50% of total earning assets on average.

Jason Jerrome Tyler: Turning to page 7 in our Balance Sheet and Net Interest Income Trends.

Jason Jerrome Tyler: Average deposits were $113 billion, up $1 billion or 1% from the first quarter, modestly better than our expectations.

Jason Jerrome Tyler: Deposit costs increased slightly due to a handful of large, thinly priced deposits.

Jason Jerrome Tyler: Shifting to the asset side of the balance sheet, our average earning assets increased 1% on a linked quarter basis, primarily due to higher deposit levels and the proceeds from the partial sale of our Visa shares. Our average liquidity levels remain very strong, with highly liquid assets equal to 60% of our deposits and more than 50% of total earning assets on average. The duration of our securities portfolio is 1.7 years, and the total balance sheet duration continues to be less than one year.

Jason Jerrome Tyler: Shifting to the asset side of the balance sheet, our average earning assets increased 1% on a linked quarter basis, primarily due to higher deposit levels and the proceeds from the partial sale of our Visa shares.

Jason Jerrome Tyler: Our average liquidity levels remain very strong, with highly liquid assets equal to 60% of our deposits and more than 50% of total earning assets on average.

Unknown Executive: The duration of our securities portfolio is 1.7 years, and the total balance sheet duration continues to be less than one year. And interest income was $530 million, and our net interest margin was 1.57%.

Jason Jerrome Tyler: The duration of our securities portfolio is 1.7 years, and the total balance sheet duration continues to be less than one year.

Jason Jerrome Tyler: Net interest income was $530 million, and our net interest margin was 1.57%. Turn to page 8. As reported, non-interest expense was $1.5 billion in the second quarter, up 12% sequentially and up 15% as compared to the prior year. Excluding notable items in both periods, as listed on the slide, expenses in the second quarter were flat sequentially.

Jason Jerrome Tyler: Net interest income was $530 million and our net interest margin was 1.57%.

Unknown Executive: Turning to page 8, as reported, non-interest expense was $1.5 billion in the second quarter, up 12% sequentially and up 15% as compared to the prior year. Including notable items in both periods, listed on the slide, expenses in the second quarter were flat sequentially.

Jason Jerrome Tyler: Turn to page 8.

Jason Jerrome Tyler: As reported, non-interest expense was $1.5 billion in the second quarter, up 12% sequentially, and up 15% as compared to the prior year.

Jason Jerrome Tyler: Excluding notable items in both periods as listed on the slide, expenses in the second quarter were flat sequentially.

Jason Jerrome Tyler: Now let's take a step back and discuss how we're approaching the visa stage. This is an asset we have held on a balance sheet at zero value since Visa went public over 15 years ago. Entering the quarter, the position was approximately $1.8 billion in value on a pre-tax basis.

Unknown Executive: Now let's take a step back and discuss how we're approaching the visa stake. This is an asset we held on a balance sheet at zero values since Visa went public over 15 years ago. Entering the quarter, the position was approximately $1.8 billion in value on a pre-text basis. With the ability in the second quarter to liquidate half of our position at full value, the Visa transaction provides an opportunity to return more capital to shareholders while accelerating certain strategic priorities. With this first conversion of shares, we're taking the following steps as Mike highlighted. First, the meaningful portion of the proceeds will be used to increase pacing in our share repurchases.

Speaker Change: Now let's take a step back and discuss how we're approaching the Visa stake. This is an asset we held on a balance sheet at zero value since Visa went public over 15 years ago.

Speaker Change: Entering the quarter, the position was approximately $1.8 billion in value on a pre-tax basis.

Jason Jerrome Tyler: With the ability in the second quarter to liquidate half of our position at full value, the visa transaction provides an opportunity to return more capital to shareholders while accelerating certain strategic priorities. With this first conversion of shares, we're taking the following steps, as Mike highlighted. First, a meaningful portion of the proceeds will be used to increase the pace of our share repurchase. We began that process in the second quarter and will continue it at elevated levels over the next several quarters. Second, approximately 10% of the after-tax proceeds are contributed to our foundation. This pre-funds some of our community giving. That contribution is fully accounted for in the second quarter.

Speaker Change: With the ability in the second quarter to liquidate half of our position at full value, the visa transaction provides an opportunity to return more capital to shareholders while accelerating certain strategic priorities.

Jason Jerrome Tyler: With this first conversion of shares, we're taking the following steps, as Mike highlighted. First, a meaningful portion of the proceeds will be used to increase pacing in our share repurchases.

Unknown Executive: We began that process within the second quarter and will continue elevated levels over the next several quarters. Second, approximately 10% of the actor tax proceeds are being contributed to our foundation. This pre-fun in some of our community giving. That contribution is fully accounted for in the second quarter. Third, the visa share conversion enables us to accelerate strategic investments over the next several quarters to modernize our technology infrastructure and enhance our resiliency. This includes investments in refreshing our tech infrastructure, automating manual processes, enhancing risk management systems, reducing end-of-life platforms, strengthening our cyber defenses, and accelerating cloud migration.

Michael Gerard OGrady: We began that process within the second quarter and will continue elevated levels over the next several quarters.

Jason Jerrome Tyler: Second, approximately 10% of the after-tax proceeds being contributed to our foundation. This pre-funds some of our community giving.

Jason Jerrome Tyler: That contribution is fully accounted for in the second quarter.

Jason Jerrome Tyler: Third, the Visa share conversion enables us to accelerate strategic investments over the next several quarters to modernize our technology infrastructure and enhance our resilience. This includes investments in refreshing our tech infrastructure, automating manual processes, enhancing risk management systems, reducing end-of-life platforms, strengthening our cyber defenses, and accelerating cloud migration. These investments will further strengthen service levels and enhance the client experience while reducing risk and generating efficiency. This incremental modernization and resiliency spend is visible this quarter in the outside services line. We'll continue to update you on our progress. Meanwhile, separately, we also announced nearly $200 million in restructuring charges and notable expenses.

Jason Jerrome Tyler: Third, the Visa share conversion enables us to accelerate strategic investments over the next several quarters to modernize our technology infrastructure and enhance our resiliencies.

Jason Jerrome Tyler: This includes investments in refreshing our tech infrastructure, automating manual processes, enhancing risk management systems, reducing end-of-life platforms, strengthening our cyber defenses, and accelerating cloud migration.

Unknown Executive: These investments will further strengthen service levels and enhance the client experience while reducing risk and generating efficiencies. This incremental modernization or resiliency spend, as visible this quarter, and the outside services line. We'll continue to update you on our progress.

Jason Jerrome Tyler: These investments will further strengthen service levels and enhance the client experience while reducing risk and generating efficiencies.

Jason Jerrome Tyler: This incremental modernization and resiliency spend is visible this quarter in the outside services line. We'll continue to update you on our progress.

Unknown Executive: Separately, we also announced nearly $200 million in restructuring charges and notable expenses. The larger items included severance expense of $85 million associated with a significant reduction in force, split between both compensation and outside services expense. Various software write-downs and accelerations, and the $70 million contribution to our foundation I mentioned earlier. Now let's go back and review our core expenses from the quarter, which exclude all notable items. Compensation expense was up a little less than 3% versus the prior year, moderately better than we anticipated. At some anticipated hiring was shifted into third-party consulting work and conjunction with the incremental modernization and resiliency spend.

Jason Jerrome Tyler: Separately, we also announced nearly $200 million in restructuring charges and notable expenses.

Jason Jerrome Tyler: The larger items included severance expense of $85 million associated with a significant reduction in force split between both compensation and outside services expense, various software write-downs and accelerations, and the $70 million contribution to our foundation I mentioned earlier. Now, let's go back and review our core expenses from the quarter, which exclude all notable items. Compensation expense was up a little less than 3% versus the prior year, moderately better than we anticipated, as some anticipated hiring was shifted into third-party consulting work in conjunction with the incremental modernization or resiliency spend visible within the outside services line.

Jason Jerrome Tyler: The larger items included severance expense of $85 million associated with a significant reduction in force, split between both compensation and outside services expense.

Jason Jerrome Tyler: various software write-downs and accelerations, and the $70 million contribution to our foundation I mentioned earlier.

Jason Jerrome Tyler: Now let's go back and review our core expenses from the quarter, which exclude all notable items.

Jason Jerrome Tyler: Compensation expense was up a little less than 3% versus the prior year, moderately better than we anticipated, as some anticipated hiring was shifted into third-party consulting work in conjunction with the incremental modernization and resiliency spend visible within the outside services line.

Unknown Executive: Visible within the outside services line. Full-time equivalent head count was down 500 or 2% over the prior year and essentially flat sequentially. Outside services expense increased by 12% relative to the prior period. The bulk of which reflects the incremental modernization and resiliency spend. Equipment software expense increased by 3% sequentially. Slightly better than anticipated, reflecting higher software consumption and amortization from projects coming online. Excluding notables, our expense to trust fee ratio improved 200 basis points on its sequential quarter basis to 116%. As we look at to the third quarter, we expect our sequential expense growth, adjusted for notable items, to be approximately 1%.

Jason Jerrome Tyler: Full-time equivalent headcount was down 500, or 2% over the prior year and essentially flat sequentially; outside services expense increased by 12% relative to the prior period, the bulk of which reflects the incremental modernization and resiliency spend. Equipment and software expense increased by 3% sequentially, slightly better than anticipated, reflecting higher software consumption and amortization from projects coming online.

Jason Jerrome Tyler: Full-time equivalent headcount was down 500 or 2% over the prior year and essentially flat sequentially.

Jason Jerrome Tyler: Outside services expense increased by 12% relative to the prior period, the bulk of which reflects the incremental modernization and resiliency spend.

Jason Jerrome Tyler: Equipment and software expense increased by 3% sequentially, slightly better than anticipated, reflecting higher software consumption and amortization from projects coming online.

Jason Jerrome Tyler: Excluding notables, our expense to trust fee ratio improved 200 basis points on a sequential quarter basis to 116%. As we look out to the third quarter, we expect our sequential expense growth, adjusted for notable items, to be up approximately 1 percent. Equipment and software expenses are expected to range between $270 and $275 million, largely reflecting investments in technology and systems upgrades associated with the Modernization and Resiliency Initiative. We do not expect a material increase in outside services in the third quarter from the current elevated level.

Jason Jerrome Tyler: Excluding notables, our expense-to-trust fee ratio improved 200 basis points on a sequential quarter basis to 116%.

Jason Jerrome Tyler: As we look out to the third quarter, we expect our sequential expense growth, adjusted for notable items, to be up approximately 1%.

Unknown Executive: Equipment software expenses are expected to range between 270 to 275 million. Largely reflecting investments in technology and systems upgrades associated with the modernization and resiliency initiative.

Jason Jerrome Tyler: Equipment and software expenses are expected to range between $270 to $275 million, largely reflecting investments in technology and systems upgrades associated with the Modernization and Resiliency Initiative.

Jason Jerrome Tyler: We do not expect a material increase in outside services in the third quarter from the current elevated level.

Jason Jerrome Tyler: Turn to page 9. Our capital levels and regulatory ratios remain strong in the quarter, and we continue to operate at levels well above our required regulatory minimums. Based on the 2024 CCAR results, our stress capital buffer will remain at the 2.5% minimum requirement.

Jason Jerrome Tyler: Turning to page 9. Our capital levels and regulatory ratios remain strong in the quarter. We continue to operate at levels well above our required regulatory minimums.

Jason Jerrome Tyler: Based on the 2024 CCAR results, our stress capital buffer will remain at the 2.5% minimum requirement.

Jason Jerrome Tyler: Our common equity Tier 1 ratio under the standardized approach increased 120 basis points to 12.6%. The decrease in RWA levels, the visa transaction, and capital accretion drove the improvement. This reflects a 560 basis point buffer above our regulatory requirements. Our Tier 1 Leverage Ratio was 8%, up 20 basis points from the prior quarter. At quarter end, our unrealized pre-tax loss on available-for-sale securities was $6

Jason Jerrome Tyler: Our common equity Tier 1 ratio under the standardized approach increased 120 basis points to 12.6%.

Jason Jerrome Tyler: The decrease in RWA levels, the visa transaction, and capital accretion drove the improvement. This reflects a 560 basis point buffer above our regulatory requirements.

Jason Jerrome Tyler: Our Tier 1 leverage ratio was 8%, up 20 basis points from the prior quarter. At quarter end, our unrealized pre-tax loss on available-for-sale securities was $667 million.

Jason Jerrome Tyler: We generated $607 million in the quarter from the sale of Visa shares and expect to generate another $300 million in proceeds in early August .

Jason Jerrome Tyler: We return $405 million to common shareholders in the quarter through cash dividends of $154 million and common stock repurchases of $251 million. With that, Jessica, please open the line for questions.

Operator: We generated $607 million in the quarter from the sale of Visa shares and expect to generate another $300 million in proceeds in early August. We returned $405 million to common shareholders in the quarter through cash dividends of $154 million and common stock repurchases of $251 million. And with that, Jessica, please open the line for questions. Thank you. If you would like to ask a question, please signal by pressing star one on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment.

Jessica: Certainly, thank you. If you would like to ask a question, please signal by pressing star 1 on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment.

Operator: Again, that is star number one to ask a question. We'll pause for just a moment to allow everyone an opportunity to signal. Our first question comes from Betsy Graseck with Morgan Stanley. Your line is open. Please go ahead. Hi, good morning. Excellent. Thanks so much.

Jessica: Again, that is star 1 to ask a question.

Jessica: We'll pause for just a moment to allow everyone an opportunity to signal.

Speaker Change: Our first question comes from Betsy Graseck with Morgan Stanley . Your line is open. Please go ahead.

Betsy Lynn Graseck: Okay. Yeah, sure. Two-part question. First, on the remaining embedded gains in the visa that you still have. I know you mentioned that there's still some realization to come. Are you talking about the?

Betsy Lynn Graseck: Hi, good morning.

Betsy Lynn Graseck: Excellent, thanks so much. Okay, yeah, sure, two-part question. First is just on the remaining...

Betsy Lynn Graseck: embedded gains in the visa that you still have. I know you mentioned that there's still some realization to come. Are you talking about the

Betsy Lynn Graseck: The one-third piece that's coming in the third quarter, is that what you're referencing? Or are you referencing the broader point that you still have more visa shares and the next time this is able to get done, you'll have access there? Yeah, it's both.

Speaker Change: piece, the one third piece that's coming in the third quarter, is that what you're referencing? Or are you referencing the broader point that you still have more visa shares and the next time this is able to get done, you'll have access there?

Jason Jerrome Tyler: So if you're just close to it, but for people that may not be this first tranche, the first tranche enables us to monetize half, but enable us to convert half. But that's split into actually selling it in three pieces, as you're referencing. Two of those pieces are done. One is still yet to come in August.

Speaker Change: Yeah, it's both. So if you just, you're close to it, but for people that may not be, this first tranche, that first enable us to monetize half,

Speaker Change: but enable us to convert half, but that's split into actually selling it in three pieces. As you're referencing, two of those pieces are done. One is still yet to come in August . When that's done, we'll still have half of the entire pool left.

Jason Jerrome Tyler: When that's done, we'll still have half of the entire pool left to convert at some point in the future. Right. And that's a function of, you know, the visa side and the B-Shares being opened up to monetize. That's a problem. It's not only your decision to do that.

Speaker Change: to, at some point in the future, to convert and monetize.

Speaker Change: Right, and that's a function of, you know, the visa side and the BSHRs being opened up to monetize. That's there. It's not only your decision to do that.

Jason Jerrome Tyler: Yeah, correct. Not at all. And we've said all along that Visa's not a strategic asset for us, and so we haven't wanted to monetize more at a meaningful discount in the private markets. And so we've waited to be able to do it in the public markets. This enabled us to do it without any discount, and we'll likely pursue a similar path when the remaining shares are opened up for conversion. Okay

Speaker Change: Yeah, correct. Not at all.

Speaker Change: As soon as, and we've said all along, Visa's not a strategic asset for us, and so we haven't wanted to monetize more at a meaningful discount in the private markets, and so we've waited to be able to do it in the public markets. This enabled us to do it with no discount.

Speaker Change: And we'll likely pursue a similar path when the remaining shares are opened up for conversion.

Betsy Lynn Graseck: And then just a separate part is on the resiliency investments that you're making. What's your sense of the time frame for the investments? I would think it's a multi-year time frame, but it would be helpful to understand your point of view on that. Thank you.

Speaker Change: Okay perfect and then just a separate part is on the resiliency investments that you're making.

Speaker Change: What's your sense of the time frame for the investments? I would think it's a multi-year time frame, but it would be helpful to understand your point of view on that. Thank you.

Jason Jerrome Tyler: Sure. So I think about it in two pieces. One is that there's elevated spending right now as we accelerate the project. That's why it's showing up more in outside services. And as we get some of the technology spend there and some third-party outside help on getting some things executed, that should last in that line item at about this current level for the next few quarters. Eventually, that's going to decline as some of that initial project work is done.

Speaker Change: [inaudible]

Speaker Change: So I think about it in two pieces. One is that there's elevated spending right now as we get the project accelerated. That's why it's showing up more in outside services and as we get some of the technology spend there.

Speaker Change: and some third-party outside help on getting some things executed. That should last in that line item at about this current level for the next few quarters.

Jason Jerrome Tyler: But at the same time, we'll, over time, see an increase in compensation as some of the work continues in more of a persistent environment by actual FTE, but not likely at the same elevated level of where we are. That's the overall view of how it should work. Super. Okay. Thank you so much. Morning. Hey, it's Moksh. Hey, it's Moksh. I'm on for Ken.

Speaker Change: Eventually, that's going to decline as some of that initial project work is done, but at the same time, we'll, over time, see an increase in compensation as some of the work

Speaker Change: continues in more of a persistent environment by actual FTE, but not likely at the same elevated level of where we are today. That's the overall view of how it should work.

Speaker Change: Super. Okay, thank you so much.

Speaker Change: We'll go next to Ken Houston with Jeffreys. Your line is open. Please go ahead.

Unknown Caller: I just wanted to ask about the NII cadence for the rest of the year. What are you assuming about deposit levels, deposit rates, and where we can see that going forward? I just wanted some color on that.

Speaker Change: Good morning. Hey, it's Moksh.

Speaker Change: Hey, it's Moksha. I'm on for Ken. I just wanted to ask about just NII cadence for the rest of the year. What are you assuming on deposit levels, deposit rates, and where we can see that going forward? I just wanted some color on that. Thanks.

Jason Jerrome Tyler: Thanks. Yeah, so balances are much more stable than they were last year, obviously, and our client engagements worked well. At this point, the bigger factor definitely appears to be rates. So there's no estimate for us to share for the third quarter. But in that period, we do tend to see a slight seasonal decline in balances.

Speaker Change: Yeah, so balances are much more stable than they were last year, obviously, and our client engagements worked well.

Speaker Change: At this point, the bigger factor definitely appears to be rates. So there's no estimate for us to share for third quarter. But in that period, we do tend to see a slight seasonal decline in balances.

Jason Jerrome Tyler: And so there's a couple of things to keep in mind. One, the seasonal decline in balances, but then that could be offset by the fact that we still have the positive impact of reinvestment spread, Day Count Improvement, and then some other factors.

Speaker Change: And so there's a couple of puts and takes to keep in mind. One, the seasonal decline in balances, but then that could be offset by the fact that we still have positive impact of reinvestment spread.

Speaker Change: day count improvement, and then some other factors.

Jason Jerrome Tyler: Okay, fantastic. Just more on just servicing. What are you seeing out there in terms of pipelines and anything on wealth management, how are the flows there? client asset. Sure, I'll start, and Mike may jump in.

Speaker Change: Okay, fantastic. Just more on just servicing. What are you seeing out there in terms of pipelines and anything on wealth management, how the flows are there of client assets?

Jason Jerrome Tyler: So on asset servicing, and Mike and I both referenced it briefly, the overall activity in the business from a net new business perspective is, I think, very positive. The impact in this quarter comes from the fact that we've got one client exit that we've known about for a long time; the big exits we have with, we can we have a longer line of sight on. And that finally took place within the quarter, which reduced our trust fees by a few million dollars during the quarter.

Speaker Change: Sure, I'll start and Mike may jump in. So on asset servicing, you know, we, Mike and I both referenced it briefly, the overall activity in the business from a net new business perspective is, I think, very positive.

Michael Gerard OGrady: The impact in this quarter comes from the fact that we've got one client exit that we we've known about for a long time the big exits we have with we can we have longer line of sight on and that finally took place within the quarter which reduced

Jason Jerrome Tyler: I should also note that we also have line of sight to another similar dollar amount impact in the next, third quarter that'll come in. But overall, the volume of activity is good, and pipeline is strong within the business. Mike?

Speaker Change: our trust fees by a few million dollars in the quarter. I should also note we also have line of sight to another similar dollar amount impact.

Speaker Change: in next in third quarter that'll come in. But overall, the volume of activity is good and pipeline is strong within the business. Mike.

Michael Gerard OGrady: Yeah, the only thing I would add is, as I mentioned, we've really focused our strategy on the opportunities that we think are most attractive for our value proposition. So those opportunities where we can be compensated for what we believe to be a higher service level for the clients. That has meant, you know, being more disciplined around pricing. As I mentioned, in certain cases, it means not bidding on it if we believe it's going to be something that's, you know, low cost.

Michael Gerard OGrady: The only thing I would add is, as I mentioned, you know, we've really focused our strategy on the opportunities that we think are most attractive for our value propositions.

Michael Gerard OGrady: So, those opportunities where we can be compensated for what we believe to be a higher service level for the clients. That has meant being more disciplined around pricing. As I mentioned, in certain cases, it means not bidding on it if we believe it's going to be something that's low-cost driven. And so far, that hasn't really, I would say, reduced the overall momentum in the business and what we're seeing in the opportunities.

Michael Gerard OGrady: And so far, you know, that hasn't really, I would say, reduced the overall momentum in the business and what we're seeing and the opportunities. And, you know, frankly, it's resulting in higher margins for the business that we are winning. So it's a more, it's a more selective approach to it, but one that, so far, I would say, is going well.

Michael Gerard OGrady: and you know frankly it's resulting in higher margins for the business that we are winning. So it's a more it's a more selective approach to it but one so far I would say is going well.

Jason Jerrome Tyler: And then I'll offer two headlines on wealth and then Mike can add more. One is the regions; the net new businesses was relatively soft, but GFO, in general, continues to do well, bringing in new business from existing clients and then also some nice external names. The connectivity they have with the largest asset owners is outstanding, so that business continues to do well, and a lot of initiatives inside the more wealth advisory space in the region.

Speaker Change: And then I'll offer two headlines on wealth, and then if Mike may add more.

Speaker Change: One is the...

Speaker Change: Regions.

Speaker Change: The net new business was relatively soft, but GFO in general continues to do well, bringing on new business from existing clients and then also some nice external names.

Speaker Change: The connectivity they have with the largest asset owners is outstanding, so that business continues to do well and a lot of initiatives inside.

Jason Jerrome Tyler: The second dynamic I'll mention within the business, a different view is what are clients using us for? The advisory fee, the advisory component of what our clients are doing with us, is doing well. It's positive both in the regions and in GFO, but that's being offset by lower product utilization.

Speaker Change: The second dynamic I'll mention within the business, a different view, is what are clients utilizing us for.

Speaker Change: The advisory fee, the advisory component of what our clients are doing with us is doing well. It's positive both in the regions and in GFO.

Speaker Change: but that's being offset by lower product utilization. That tends to ebb and flow, and we look more closely at the advisory component. It's more of an indication of the base of business, and that's trending positively in both businesses.

Jason Jerrome Tyler: That tends to ebb and flow, and we look more closely at the advisory component. It's more of an indication of the base of business, and that's trending positively in both. Thanks for the color, guys.

Speaker Change: Thanks for the color, guys. Appreciate it. Sure.

Operator: Appreciate it. Just a reminder, it was star one if you had a question. We will move next to Brennan Hawken with UBS. Your line is open. Please go ahead. Good morning, Brennan. Good morning. Hey, how are you?

Speaker Change: Just a reminder, it was Star 1 if you had a question. We will move next to Brennan Hawken with UBS. Your line is open. Please go ahead.

Brennan Hawken: Good morning, Jason. Good morning. I'm curious to know and...

Brennan Hawken: Good morning, Brian. Hey, how are you? Good morning, Jason.

Jason Jerrome Tyler: I got most of that; I just want to clarify the last sentence; how much of it is what? What are the deposit costs on those accounts? Got it. I'm glad I asked because I did not hear that one.

Brennan Hawken: I was curious to know, and I couldn't find a specific disclosure on this, so apologies if you have disclosed it separately, but

Speaker Change: Did you tell me what percentage of your wealth management client assets are in advisory accounts and if you know what are the deposit costs for those accounts?

Speaker Change: I got most of that. I just want to clarify the last sentence. How much of it is what? What the deposit costs on those accounts would be?

Jason Jerrome Tyler: So on the first component, we actually have not historically disclosed the breakdown of our fees that come from product versus from advisory, but almost just at a high level, virtually all of our wealth, particularly in the regions, virtually all of those relationships have an advisory fee associated with them, and the vast majority have product fees associated with them. OK. Then in terms of deposit costs, we haven't talked about deposit costs for that group specifically, but I think where you're going with it is accurate. The deposit costs in that client base are significantly lower than on the institutional side in general.

Speaker Change: Got it. I'm glad I asked because I did not hear that one. So on the first component, we actually have not historically disclosed the breakdown of

Speaker Change: our fees that come from product versus from advisory, but almost just at a high level, virtually all of our wealth.

Speaker Change: It's particularly in the regions. Virtually all of those relationships have an advisory fee associated with them, and the vast majority have product fees associated with them.

Jason Jerrome Tyler: Now the GFO business, the family office, has some clients that are equal in size to some of our largest asset servicing clients, but the bulk of that book is priced much higher with lower deposit costs relative to the institution. Okay, so I don't know if you were aware of this or saw this, but in the last week at this point, three of the warehouses have come out and said that they are bringing up the deposit costs on advisory relationships up to equivalent to money fund levels.

Speaker Change: Okay. And then in terms of deposit cost, we haven't talked about deposit cost for that group specifically, but I think where you're going with it is accurate. The deposit. Okay. Thank you.

Speaker Change: [inaudible]

Speaker Change: asset servicing clients, but the bulk of that book is priced much more with lower deposit costs relative to the institutional side.

Speaker Change: Okay, so I don't know if you were aware of this or saw this, but in the last week, at this point, three of the wirehouses have come out and said that they are bringing up the deposit costs on advisory relationships up to equivalent to money fund levels. Wells and BofA did that in the second quarter. During the second quarter, Morgan Stanley just yesterday announced that they intend to do it in the third. Given that this is the direction, some of the largest providers in the industry are going this direction, you know, what are your thoughts and plans around making sure or

Jason Jerrome Tyler: Wells and BFA did that in the second quarter. Morgan Stanley just yesterday announced that they intend to do it in the third. Given that some of the largest providers in the industry are going this direction, you know what are your thoughts and plans around making sure or aligning with this practice, and if you don't plan to, how do you intend to manage any legal or or lawsuit risk on fiduciary issues? Yeah, Brennan. It's Mike.

Speaker Change: Aligning with this practice and if you don't plan to, how do you intend to manage any legal or lawsuit risk on fiduciary issues?

Michael Gerard OGrady: Within the business, it's true of all of our businesses, but just to be clear, you know, within wealth management as well, it's a competitive marketplace for all the products that we offer. And so to your point, if other competitors or service providers in the space change their pricing on anything, frankly, but to your point on deposit levels, then we absolutely have to react to that. And so that's the first point. You know, it's dynamic.

Michael Gerard OGrady: Brennan, it's Mike.

Brennan: Within the business, it's true of all of our businesses, but just to be clear, you know, within wealth management as well, it's a competitive marketplace for all the products that we offer. And so to your point, if other competitors or service providers in the space

Brennan: Change their pricing on anything frankly, but to your point on deposit levels, then we absolutely have to react to that

Michael Gerard OGrady: The second thing I would say is that it's also based on the holistic relationship that we have, and you know, the entirety of what we're offering for the client, and as a result, the different needs that they may have. Point being, you know, say not every deposit is created equally, almost as simple as just starting with, you know, a checking account is different than a savings account. And, and the terms and the nature of it, and, Sure, fair enough.

Brennan: So that's the first point, you know, it's dynamic.

Brennan: The second, I would say, is that

Brennan: It's also based on the holistic relationship that we have and the entirety of what we're offering for the client, and as a result, the different needs that they may have. Point being, say, not every deposit is created equally, almost as simple as just start with a checking account is different than a savings account, and the terms and the nature and characteristics are different, and so the actual deposit cost, if you will, is going to be different based on that as well. But needless to say, if others are doing things in the market, we have to be able to respond in kind.

Michael Gerard OGrady: One other dynamic is our sweep clients within the wealth business; they already have the option to sweep onto our money. Oh, that's a feature within the system where the advisor team or whatever could just adjust the sweep default and go into the money fund rather than deposit.

Speaker Change: Sure, fair enough. One other dynamic is our sweep clients within the wealth business, they already have the option to sweep on to our money market platform.

Speaker Change: Oh, that's a feature within the system where the advisor team or whatever could just adjust the sweep default and go into the money fund rather than deposit.

Michael Gerard OGrady: Yeah, and to be clear, the client has the option to select what they would like to do, right? Well, in an advisory relationship, there's a little bit of a different dynamic, but I got it. OK, just given the focus on this, it might be helpful to consider disclosing some of these details going forward. I know you said you didn't have them today, but it might be helpful going forward.

Speaker Change: Yeah, and to be clear, the client has the option to select what they would like to do.

Speaker Change: Right. Well, in an advisory relationship, there's a little bit of a different dynamic, but I got it. Okay. Just given the focus on this, it might be helpful to consider disclosing some of these details going forward just to, I know you said you didn't have them today, but it might be helpful going forward. Appreciate that.

Brennan Hawken: I appreciate that. OK. We'll go next to Mike Mayo with Wells Fargo. Your line is open. Please go ahead.

Speaker Change: Okay.

Speaker Change: We'll go next to Mike Mayo with Wells Fargo. Your line is open. Please go ahead.

Michael Lawrence Mayo: Hi Jason, you mentioned the $200 million restructuring charge. Part of that was severance. What were the underlying drivers for that charge? What might cause you to do that again?

Michael Lawrence Mayo: Hi. Jason, you mentioned the $200 million restructuring charge. Part of that is severance. What were the underlying drivers for that charge?

Jason Jerrome Tyler: And what sort of future expense savings do you expect from that, including for OPEC? Sure. So it really comes down to productivity, Mike.

Michael Lawrence Mayo: What might cause you to do that again? And what sort of future expense save do you expect from that, including for OPEX?

Speaker Change: Sure. So drivers really comes down to productivity, Mike, and you've heard us talk about it a lot.

Jason Jerrome Tyler: And you've heard us talk about it a lot. And we've got to continually look at the activities across the business and determine whether we have the right skills. Do we have the right people?

Speaker Change: And we've got to continually look at the activities across the business and determine do we have the right skills, do we have the right people, are we in the right local geographies.

Jason Jerrome Tyler: Are we in the right geographies? And importantly, also, we've got to look at the span of control and the number of layers we have in the organization. And all of those different analyses led us to the conclusion that we could, we should take some action here. And so, obviously, even with an example like spans and layers, you might do eliminations, but then you might also replace them with a different skill set or a different span from a leadership perspective.

Speaker Change: And importantly also, we've got to look at the span of control and the amount of layers we have in the organization. And all of those different analyses led us to the conclusion that we should take some actions here.

Speaker Change: Well, though, obviously, even with an example like spans and layers, you might do eliminations, but then you might also replace with eventually with a different

Jason Jerrome Tyler: And so we won't get 100% savings of these salaries, but we should get at least 50%. And in general, we anticipate about half of the severance. The impact is a decline in the ongoing salary run rate.

Speaker Change: skill set or a different span from a leadership perspective. And so we won't get 100% savings of these salaries, but we should get at least 50%. And in general, we anticipate about half of the severance.

Speaker Change: [inaudible]

Speaker Change: are

Jason Jerrome Tyler: Now, obviously, we're growing in other areas of the company. We're growing headcount and wealth management to grow that business. We're obviously investing in resiliency. But for these areas that are affected here, we should see that type of impact in the salary. Okay, so a permanent reduction and a salary equal to about half the severance with some of that reinvested back in the firm where you're hiring elsewhere.

Speaker Change: A Decline in the Ongoing Salary Run Rate. Now, obviously, we're growing in other areas of the company. We're growing headcount and wealth management to grow that business. We're obviously investing in resiliency, but for these areas that are affected here, we should see that type of impact in the salary line.

Speaker Change: Okay, so a permanent reduction in salary equal to about half the severance with some of that reinvested back in the firm where you're hiring elsewhere, is that correct?

Michael Lawrence Mayo: Is that correct? Now, let me clarify. So the total amount of impacted salary would be close to the amount of the severance line, but we would reinvest about half of it. And so we should get an improvement from these areas of about in the neighborhood of $40 million run rate on salary. Okay, got it. And then just more generally, maybe, Mike.

Speaker Change: Now, let me clarify. So it would be the total amount of impacted salary would be close to the amount of the severance line, but we would reinvest about half of it. And so

Speaker Change: We should get an improvement from these areas of about, in the neighborhood of $40 million run rate on the salary line.

Speaker Change: Okay, got it. And then, just more generally, maybe, Mike,

Michael Gerard OGrady: You know, you're talking about productivity and the custody business, and it seems like you're committed to the custody business, but not just for growth, but for more profitable growth. You say you're bidding less, you're being more selective, and you're picking your spot. So how would you describe Northern's positioning in the custody business today versus the past? So a couple points. Mike.

Mike: You know, you're talking about productivity and the custody business.

Speaker Change: And it seems like you're committed in the custody business, but not just for growth, but for more profitable growth. You say you're bidding less, you're being more selective, you're picking your spot. So how would you describe Northern's positioning in the custody business today versus the past?

Michael Gerard OGrady: You know, one is within, broadly speaking, asset servicing. At a high level, you have the services that we provide to asset owners and then the services we provide to asset managers. Now, you know, there's a lot of hybrids within that as well, and crossover of services. But largely speaking, those are the two big groups of clients. And within the asset owner part of the space, you know, the nature of what we're doing there is more scalable in the sense of, to your point, custody, where adding on a new client requires less in the way of headcount addition and technology spend, if you will, to customize for what they're doing.

Speaker Change: Yeah, so a couple points to it, Mike. You know, one is within, broadly speaking, asset servicing at a high level.

Speaker Change: You have the services that we provide to asset owners, and then the services we provide to asset managers. Now, you know, there's a lot of hybrids within that as well, and crossover of services. But largely speaking, those are the kind of two big groups of clients.

Speaker Change: And within the asset owner part of the space, the nature of what we're doing there is more scalable in the sense of, to your point, custody, where adding on a new client requires less in the way of.

Speaker Change: of Headcount Edition and Technology Spend, if you will, to customize for what they're doing.

Michael Gerard OGrady: Now, you've also heard us talk about certain things like front office solutions. You know, that's a case where with an asset owner client that we're looking to provide a higher differentiated level of capability for them and then correspondingly have the associated fee that goes with providing that. So that's how I would say in the positioning there: we're trying to differentiate what we're doing, a combination of capabilities like front office solutions and with a higher level of service that is consistent, I would say, with our brand, with our culture, and the way that we approach clients across the company.

Speaker Change: Now, you've also heard us talk about...

Speaker Change: certain things like front office solutions.

Speaker Change: That's a case where with an asset owner client that we're looking to provide a higher differentiated level of capability for them, and then correspondingly have the associated fee that goes with providing that.

Speaker Change: So that's how, I would say, in the positioning there, we're trying to differentiate what we're doing, combination of capabilities like front office solutions, and with a higher level of service.

Speaker Change: That is consistent, I would say, with our brand, with our culture, and the way that we approach the clients across the company.

Michael Gerard OGrady: And then I would say on the asset manager side, the asset manager services that we provide to them, that has been a stronger source of growth for us over the last, you know, many years, but it is more resource intensive. So when you look at the headcount growth that we've had over time, a lot of that is because it's supporting bringing in new business there that does require additional partners, meaning employees, for us to provide that. And that's an area I'd say we're trying to be, you know, much more selective about those relationships and the opportunities that we pursue there.

Speaker Change: And then I would say on the asset manager side, the asset manager services that we provide to them, that has been a stronger source of growth for us over the last, you know, many years, but it is more resource intensive.

Speaker Change: So when you look at the headcount growth that we've had over time, a lot of that is because it's supporting bringing on new business there that does require additional partners, meaning employees for us to provide that. And that's an area where I'd say we're trying to be, you know, much more selective about those relationships and the opportunities that we pursue there. So you heard me also talk about connectivity points.

Michael Gerard OGrady: So you heard me also talk about connectivity points. And the point on that, Mike, is that with an asset manager client, for example, if we're only going to do one thing for them, it's probably not going to be attractive for us. Whereas if we can do a number of different things across the spectrum, that's where that type of client relationship provides the level of profitability that we're looking for. So that's where I would say that the focus is, you know, when you look at the business overall, but then within the segment. I got it.

Speaker Change: And the point on that, Mike, is that with an asset manager client, for example, if we're only going to do one thing for them, it's probably not going to be attractive for us.

Speaker Change: Whereas if we can do a number of different things across the spectrum, that's where that type of client relationship provides the level of profitability that we're looking for. So that's where I would say that the focus is, you know, when you look at the business overall, but then within the segments.

Speaker Change: Got it. All right. Thank you.

Michael Lawrence Mayo: All right. Thank you. So next to Brian Bedell with Deutsche Bank, your line is open, please go ahead. Morning, Brian.

Speaker Change: [inaudible]

Speaker Change: So next to Brian Bedell with Deutsche Bank. Your line is open, please go ahead.

Brian Bertram Bedell: Good morning. Maybe just one on net interest revenue. Maybe, Jason, just your view on deposit betas across your franchise on the downside when the Fed cuts and, Transcription by Transcription Outsourcing, LLC. Interest Bearing Deposit Line on the Average Balance Sheet, it's a smaller category, but that seemed to go down a lot. I just was wondering what was driving that.

Speaker Change: Morning, Brian .

Brian Bertram Bedell: Good morning. Maybe just one on net interest revenue. Maybe, Jason, just your view on deposit betas across your franchise on the downside when the Fed cuts, and if you could just differentiate between wealth and

Speaker Change: Asset Servicing. And I did see the interest bearing deposit line on the average balance sheet. It's a smaller category, but that seemed to go down a lot. I just was wondering what was driving that down to $253 from $315.

Jason Jerrome Tyler: I want to make sure I get the last, what were you on the average balance sheet? I think just the interest-bearing deposit with banks on the asset side. What seemed to go down a lot, I don't know if that's just noise or not. Page PAGE of NUMPAGES www.verbalink.com Page PAGE of NUMPAGES, The due from banks, and we can come back to you on that, I think that's just noise in the reporting on a small denominator, but in general on the betas, you saw the ECB reduction; we got effectively 100% beta on that.

Speaker Change: Thank you very much, Clay.

Speaker Change: I want to make sure I get the last, what were you referencing on the average balance sheet, I think just the interest bearing deposit with banks on the asset side.

Speaker Change: What seemed to go down a lot, I don't know if that's just noise or...

Speaker Change: on the rate on that. It might be, that might be the thick repo. Okay.

Speaker Change: Yeah, the due from banks and we can come back to you and I think that's just noise in the in the reporting on a small denominator, but but in general on on the betas.

Speaker Change: The, I mean, you saw the ECB reduction. We got effectively 100% beta on that. And so we've

Jason Jerrome Tyler: At this point, with rates at these levels, the betas are going to be very high, and in that example, both the standard rate card and the negotiated rates both came down in conjunction with the central bank change. And even the negotiated rates tend to be on a spread to central bank rates. And so we feel like, again, in this zone of where rates are. The spread shouldn't change materially, just differentiating between wealth and the asset servicing business in terms of those deposit betas. Yeah, it's similar.

Speaker Change: At this point, with rates at these levels, the betas are going to be very high.

Speaker Change: In that example, both the standard rate card and

Speaker Change: The negotiated rates both came down in conjunction with the central bank change, and even the negotiated rates tend to be on a spread to central bank rates, and so we feel like, again, in this zone of where rates are,

Speaker Change: The spread shouldn't change materially.

Speaker Change: and just differentiating between wealth and the asset servicing business in terms of those deposit betas.

Jason Jerrome Tyler: The institutional business sometimes will have, again, very large, very large deposits. That won't change; that'll have more of what we should think of as a mixed impact, more than an impact coming from the rate changes from the central bank. So we gave an example even earlier of the very small number of very large deposits that can come on at tight spreads to central banks, and so that will tighten spreads. But that doesn't, and it's not correlated to the actual central bank movement, which is really more the sphere of your question, from what I'm saying on the wealth side, just to hammer the helmets on the wealth side.

Speaker Change: Yeah, it's similar. The institutional business sometimes will have, again, very large, very large deposits. And so

Speaker Change: That won't change. That'll have more of what we should think of as a mixed impact, more than an impact coming from the rate changes from central banks.

Speaker Change: So, we gave an example even earlier in the very small number of very large deposits that can come on at tight spreads to central banks, and so that will tighten spreads, but that's not correlated to the actual central bank movements, which is really more the sphere of your question from what I'm understanding.

Speaker Change: So on the wealth, just to hammer it down, on the wealth side, do you...

Jason Jerrome Tyler: The world size is even a higher percentage of deposits on standard rates, which, again, with rates at this elevated level, we'll be able to move in conjunction with central banking, and then just some expenses for the school year. I guess you'd have to have a downtick in 4Q. Sorry, can you hear me? No, no, no, you broke up real bad.

Speaker Change: The wealth size is even a higher percentage of deposits on standard rates, which, again, with rates at this elevated level, will be able to move in conjunction with central bank movements.

Speaker Change: Okay, and then just on expenses...

Speaker Change: I guess you'd have to have a downtick in 4Q. Sorry, can you hear me?

Brian Bertram Bedell: Sorry, can you hear me? Can you hear me now? Okay, thanks. I have my hands up.

Speaker Change: You broke up real bad. Sorry. Can you can you hear me? Can you hear me now?

Brian Bertram Bedell: Expenses for the full year. So I know the 1% up in 3Q. Are you still targeting 5% or better expense growth for the full year, which would imply, I guess, a downtick in 4Q? Are you still also targeting positive fee operating leverage? And might that even be possible if net interest revenue continues to hold up? Might it be possible to generate operating leverage on total?

Speaker Change: That's better.

Speaker Change: Okay, thanks. I have my hand set. Expenses for the full year. So I know the 1% up in 3Q. Are you still targeting the 5% or better expense growth for the full year, which would imply, I guess, a downtick in 4Q? And are you still also targeting positive fee operating leverage?

Speaker Change: Maybe, you know, might that even be possible if net interest revenue continues to hold up? Might it be possible to generate operating leverage on total revenue for 2024?

Jason Jerrome Tyler: Revenue for 2020. Yeah, so on the expense, expense year over year. 5% is going to be really hard. I mean, we're in the sixes in the first half of the year.

Speaker Change: Yeah, so on the expense, expense year over year.

Speaker Change: We 5% it's going to be really hard. I mean, we're in the sixes first half of the year. And we and it's largely because of two factors. One, the markets elevated really quickly at the beginning of the year. And that drove just in the first quarter alone.

Jason Jerrome Tyler: And we think it's largely because of two factors. One, the markets rose really quickly at the beginning of the year. And that drove just in the first quarter alone, 10 to $15 million in lift, which is over 100 basis points year over year. And then, in conjunction with us deciding to accelerate the resiliency work, that adds another layer. And so it's going to be hard this year, and unlikely this year, but it does not mean that our long-term target is 5% or less. And there's no reason for us to change that long-term target, just two dynamics this year.

Speaker Change: It drove $10 to $15 million in lift, which is over 100 basis points year over year. And then in conjunction with us deciding to accelerate the resiliency work.

Speaker Change: That adds in another layer and so it's going to be it's going to be hard this year and and unlikely this year, but it does not are still our long term.

Speaker Change: target is 5% or less. And there's no reason for us to change that long term target. Just two dynamics this year. One is, is frankly, a good one, because we get positive operating leverage out of the markets being higher. And another one is us

Brian Bertram Bedell: One is, is frankly, a good one because we get positive operating leverage out of the markets being higher. And another one is us positioning ourselves for lower expense growth rates in the future as a result of what we're doing on resilience. On the operating leverage side, we on the fee operating leverage side, we should get operating leverage in the second half of the year. And because the fee rates are higher, revenue is higher.

Speaker Change: positioning ourself for lower expense growth rate in the future as a result of what we're doing on resiliency. On the operating leverage side, we on from a fee operating leverage side, we should get

Speaker Change: fee operating leverage in the second half of the year. And the fee rates are higher, revenue is higher. And so that puts us in a good position.

Brian Bertram Bedell: And so that puts us in a good position. From a total operating leverage perspective, a little harder in the third quarter, just based on where markets are at this point. Hard to tell. But fourth quarter, from what we can see at this point, would be much more likely to have total operating leverage. Great callers.

Speaker Change: From a total operating leverage perspective, a little harder in third quarter, just based on where markets are at this point, hard to tell. But fourth quarter, from what we can see at this point, would be much more likely to have total operating leverage there.

Speaker Change: Okay, great colors. Thank you.

Alexander Blostein: Thank you. We'll move next to Alex Blostein with Goldman Sachs. Your line is open, please go ahead. Hi Jason, Mike, good morning, everybody.

Speaker Change: You bet.

Speaker Change: We'll move next to Alex Blostein with Goldman Sachs. Your line is open, please go ahead.

Alexander Blostein: So I wanted to follow up on the questions Brennan was asking earlier, just as far as the wealth dynamics go, and just, I guess, a couple of questions around that. I guess, one, it sounds like you're still evaluating what the competitors have done. So is it just kind of a matter of time before you guys decide to kind of go through the same process? Or, I guess, if you choose not to, and outside of competitive pressures, are there any other ramifications that might kind of force you and the industry to go down the same path?

Speaker Change: Yeah.

Alexander Blostein: Hi. Hey, Jason, Mike, good morning, everybody.

Alexander Blostein: So, I wanted to follow up on the questions Brennan was asking earlier, just as far as the wealth dynamics go.

Alexander Blostein: Just, I guess, a couple of questions around that. I guess, one,

Speaker Change: It sounds like you're evaluating still what the competitors have done. So is it just kind of a matter of time before you guys decide to kind of go through the same process?

Speaker Change: I guess if you choose not to, and outside of competitive pressures, are there any other ramifications that...

Michael Gerard OGrady: So, like, in other words, are you hearing anything from the regulators? Are you hearing anything about, you know, the potential risk of litigation that could sort of ultimately force the industry to go in this direction? So that's the first question. And you're talking specifically about deposits, Alex? Yeah, so the wealth deposits with an advisory relationship where the firm has a fiduciary.

Alexander Blostein: might kind of force you and the industry to go down the same path. So like, in other words, are you hearing anything from the regulators? Are you hearing anything from, you know, potential risk of litigation that could sort of ultimately force the industry to go in this direction? So that's the first question. And you're talking specifically on deposits, Alex?

Alexander Blostein: Yeah, so the wealth deposits with advisory relationship where the firm has a fiduciary duty.

Michael Gerard OGrady: Yeah, I just wanted to I just wanted to be clear. So in that space, you know, we already have our rates at market. And the clients and the advisors work together to determine what they want to select from a sweep perspective. And so they can elect to sweep into money market mutual funds or onto our balance sheet.

Alexander Blostein: Yeah, I just wanted to, I just wanted to be clear, to clarify. So in that space, you know, we already have, our rates are already at market.

Alexander Blostein: And the clients and the advisors work together to determine what they want to select from a sweep perspective. And so they can elect to sweep into money market mutual funds or onto our balance sheet.

Michael Gerard OGrady: But, But the dynamics that we've read about are not reflective of our client base and of our platform. Sorry, but I guess if the industry goes to five and you're saying you're at market, but the market is at five on deposits, does that mean you guys would have to go to the market rate at five? No, we're closer to five now.

Alexander Blostein: But the dynamics that we've that we've read about, it doesn't, it's not it's not reflective of our client base and of our platform.

Speaker Change: Sorry, but I guess if the industry goes to five and you're saying you're at market, but the market is at five on deposits, does that mean you guys would have to go to the market rate at five?

Michael Gerard OGrady: Got it. Okay. And then in terms of the sizing, I think in the past you talked about, I think about a quarter of the deposit base was wealth. The other 75% was institutional.

Speaker Change: No, we're closer to five now.

Speaker Change: Got it. Okay. And then in terms of the sizing, I think in the past you talked about, I think about a quarter of the deposit base was wealth. The other 75% was institutional. So the quarter that is wealth, can you delineate like kind of what the U.S. deposit base is?

Jason Jerrome Tyler: So the quarter that is wealth, can you delineate like kind of what the US deposit base is, what the realized deposit is? Well, the quarter is the 25% is roughly right. It's a little bit less than that, but that's ballpark. And what else are you trying to get? Just like, what's the US piece of that is? Is there a way to do that?

Speaker Change: what the realized deposit

Speaker Change: Well, the quarter is, the 25% is roughly right. It's a little bit less than that, but that's the ballpark. And what else are you trying to get?

Jason Jerrome Tyler: The US piece? Yeah, that's virtually all of it. The family office business, you know, might have, you know, some that's non-U.S., but the vast majority of deposits on the well side are U.S. Gotcha, understood. Thank you. And then my only follow-up question is around expenses. So you guys are implementing incremental savings initiatives, so it kind of makes sense. And that's probably causing an incremental technology spend this year. As you sort of think about the long term, and we've talked about, you know, the expenses to fee ratio for many years now, but given that it's still proven to be pretty sticky at this kind of 115-ish percent range, what's the goalpost as you kind of put this all through and maybe take a year, two years, three years? But what are you driving towards? And how long do you think it'll take you to get there?

Speaker Change: Just like, what's the US piece of that is? Is there a way to do it? The US piece? Yeah, that's virtually all of it.

Speaker Change: The family office business, you know, might have, you know, some that's

Speaker Change: that's non-U.S. but the vast majority of deposits on the well side are U.S. denominated.

Speaker Change: Gotcha, understood. Thank you. And then just my follow-up question is around expenses. So

Speaker Change: You guys are implementing incremental savings initiatives, so it kind of makes sense, and that's causing maybe incremental technology spend this year.

Speaker Change: As you sort of think about long term, and we've talked about, you know, expenses to fee ratio for for many years now, but given that it's still proven to be pretty sticky at this kind of 100 and sort of 15 ish percent range.

Speaker Change: What's the goalpost as you kind of put this all through and maybe takes a year two years three years but what are you driving towards and how long do you think it'll take you to get there?

Alexander Blostein: The goalposts haven't changed, Alex. I mean, when I say the timing, not even saying how far out it is per se, but just as you know, the components of that calculation are going to move at different rates for different reasons, meaning markets and organic growth on the fee side. And then likewise, you're going to have time periods where the expense growth can be a little bit higher, a little bit lower on that part of the equation. And so the goalposts are still getting that to 105 to 110.

Speaker Change: Yeah, Mike, what do you want to say? The goal posts haven't changed, Alex.

Alexander Blostein: I mean, that when I say the timing, not even saying like how far out it is per se, but just

Speaker Change: As you know, the, you know, the components of that calculation are going to move at different rates for different reasons, meaning, you know, markets and organic growth on the fee side. And then likewise, you're going to have time periods where the expense growth can be a little bit higher, a little bit lower on that part of the equation. And so the goalpost is still getting that to that 105 to 110. We think that's our target operating range for that ratio. And as you've seen, you know, we've we've brought that down. Would we like it to go faster? Yes. But again, it's balancing off the things that we need to do.

Michael Gerard OGrady: We think that's our target operating range for that ratio. And as you can see, you know, we've brought that down. Would we like it to go faster?

Michael Gerard OGrady: Yes. But again, it's balancing the things that we need to do in order to drive organic growth so that you get the benefit of that in the ratio. And then, as Jason's saying, you make certain investments that you absolutely are looking to get greater efficiencies as a result of those going forward. So, you know, we have a lot of, you know, manual processes, for example, that we're automating across not only the operations of our business but also across other parts of the business that have to do with our risk and control.

Jason Jerrome Tyler: in order to drive organic growth so that you get the benefit of that on the ratio. And then as Jason saying, you make certain investments that you absolutely are looking to get greater efficiencies as a result of those going forward. So, you know, we have a lot of, you know, manual processes, for example, that we're automating, you know, across not only the operations of our business, but also across other parts of the business that have to do with our risk and control. So a lot of opportunities there to, yes, improve the resiliency, as we've mentioned a number of times, but also get efficiency out of it.

Speaker Change: Got it. Great. Thank you guys very much.

Michael Gerard OGrady: So a lot of opportunities there to, yes, improve the resiliency, as we've mentioned a number of times, but also get efficiency out. Great. Thank you guys very much. We'll go next to Vivek Juneja with J.P. Morgan. Your line is open. Please go ahead. Hi, thanks. A couple of questions. Just want to understand.

Speaker Change: We'll go next to Vivek Juneja with J.P. Morgan. Your line is open. Please go ahead.

Vivek Juneja: Mike and Jason, the severance charge that you're taking is a much larger severance charge than we've seen you take in many years. I guess the visa gain gives you that opportunity. When do you expect to start to have that show up in the compensation line and over what period? So we mentioned that a lot of the many actions have already been taken and At the same time, the program that we instituted this time is more for 18 months. And so it'll bleed in, it'll get embedded over that time.

Vivek Juneja: Hi. Thanks. A couple of questions. I just want to understand,

Speaker Change: Mike and Jason, the severance charge that you're taking, it's a much larger severance charge than we've seen you take in many years.

Speaker Change: I guess the visa game gives you that opportunity.

Speaker Change: When do you expect to start to have that show up in the compensation line and over what period?

Speaker Change: So we mentioned that a lot of the many of the actions have already been been taken and at the same time the program that we institute this time is more over 18 months and so it'll it'll it'll bleed in over it'll get embedded over that time frame.

Jason Jerrome Tyler: Ah, but you've taken the charge right up front. Okay. Okay. All right. When you talk about the under 5 percent, I know Mike, you said to Jason that it's unlikely this year. Should this make it much more likely next year?

Speaker Change: Ah, but you've taken the charge right up front. Okay.

Speaker Change: Okay. All right. And, and

Speaker Change: when you so it so when you talk about the under 5% I tell Mike you said Jason that it's

Mike: Unlikely this year.

Jason Jerrome Tyler: Where do you, you know, given especially the severance benefit that bleeds in over the next 18 months? It puts us in a better position next year. And the spirit of what we're doing, particularly with the resiliency spend, is to accelerate some of the spend that we've had on our roadmap over the next several years. So that helps.

Speaker Change: should this

Mike: Make it much more likely next year. Where do you, you know, given especially the severance benefit that bleeds in over the next 18 months?

Speaker Change: It does put us in a better position next year, and the spirit of what we're doing, particularly with the resiliency spend, is to accelerate some of the spend that we've had on our roadmap over the next several years, so that helps.

Jason Jerrome Tyler: And also the actions we're taking around productivity help a lot as well. And so it definitely puts us in a better position. But it's early July, and it's still early to talk about what next year looks like.

Speaker Change: Also, the actions we're taking around productivity help a lot as well, and so it definitely puts us in a better position. But it's early July , and it's still early to talk about.

Jason Jerrome Tyler: But from what we see right now, of the things that are predictable at this point, there's nothing that tells us we shouldn't have that 5% or better. Outlook for next year, and we feel like we're well positioned for it at this point, given some of, And again, related to the visa, pardon me if I missed something, anything, because there's a lot of earnings going on this morning, but buybacks, you did some, over what period should we see the rest, given that you've used about a couple hundred million? Now I know that it's all pre-tax.

Speaker Change: what next year looks like. But from what we see right now, there's the things that are predictable. At this point, there's no, there's nothing that tells us we shouldn't have that 5% or better.

Speaker Change: Outlook for next year and we feel like we're well positioned for it at this point given some of the things that we've talked about.

Speaker Change: And again, related to the visa, pardon me if I missed something, anything, because it's, there's a lot of earnings going on this morning, but buybacks, you did some, over what period should we see the rest, given that you've used about a couple hundred million, now I know that's all pre-tax.

Speaker Change: But how much more should we expect to see and how soon?

Jason Jerrome Tyler: But how much more should we expect to see and how soon? So the visa situation is very helpful, and it puts several hundred million dollars, call it half of the after-tax proceeds, in our minds available for buyback, particularly if you look at where our capital ratios, capital levels are right now. There's no race for us to do that, and so we can do it over time. We can do it deliberately.

Speaker Change #100: So the visa situation is very helpful and it puts

Speaker Change #100: It puts.

Speaker Change #100: Several hundred million dollars and you call it half of the

Speaker Change #101: After-tax proceeds in our minds available for buyback, particularly if you look at where our capital ratios are, capital levels are right now.

Speaker Change #101: There's no race for us to do that, and so we can do it over time, we can do it deliberately. We also have to keep an eye on what's happening from...

Jason Jerrome Tyler: We also have to keep an eye on what's happening in the regulatory environment and what FASL requirements might be from a capital perspective. But we're obviously positioned very well to continue to have elevated levels of buyback. We'll go next to Ebrahim Poonawala with Bank of America. Your line is open, please go ahead. Good morning, everyone.

Speaker Change #101: Regulatory Environment and what FASL requirements might be from a capital perspective. But we're obviously positioned very well to continue to have elevated levels of buyback.

Speaker Change #101: Thanks.

Speaker Change #102: We'll go next to Ebrahim Poonawala with Bank of America. Your line is open. Please go ahead.

Ebrahim Huseini Poonawala: Hey, morning, and thank you. And I'm sorry, Jason, if I'm being repetitive; I just wanted to make sure we heard you correctly. The stock was up about 8% at one point, still down a lot. I just want to make sure that your messaging on NII is essentially saying that you expect third-quarter NII growth to be relatively flat. Given that the decline in balances should be offset by investment yields, am I hearing that correctly? And you're not really seeing any impact from these sweep deposits that have impacted some of the other banks, given where you already priced deposits for your customers. We see third-quarter NII at this point flat.

Speaker Change #102: Morning, everyone.

Ebrahim Huseini Poonawala: Good morning and thank you. I'm sorry, Jason, if I'm being repetitive. I just wanted to make sure we heard you correctly. The stock was on about 8% at one point, still down a lot.

Speaker Change #105: I just wanted to make sure that your messaging on NII is essentially saying you expect third quarter NII to be relatively flat.

Speaker Change #103: Given the decline in balances should be offset by the investment yields. Am I hearing that correctly? And you're not really seeing any impact from these sweep deposits that have impacted some of the other banks given where you already price deposits for your customers.

Speaker Change #104: Correct. We see third quarter NII at this point flat.

Jason Jerrome Tyler: And from there on, rate cuts, if we get them in September, should be positive for the NII or negative? Unlikely to be less likely to be positive, but we don't see as long as rates are at these levels and we just take the Fed being in the in the five, at this high level of rates on an absolute basis, getting a 2550 basis point reduction should not have material spread degradation at this point. That's helpful and clear. And on the fee revenue side, apologies if you missed this. I think you mentioned you lost a client. That's going to have a few million dollar impact.

Speaker Change #107: And from there on, rate cuts, if we get them in September , should be a positive for the NRI or negative?

Speaker Change #108: Unlikely to, less likely to be positive, but we don't see, as long as rates are at these levels and just take U.S., just take the Fed being in the fives at this high level of rates on an absolute basis.

Speaker Change #108: Getting 25, 50 basis point reductions.

Speaker Change #108: at this point should not have material spread degradation.

Speaker Change #109: That's helpful and clear. And on the fee revenue side, apologies if we missed this. I think you mentioned you lost a client.

Jason Jerrome Tyler: I'm just trying to get a sense of what your expectations are for fee revenue. All else equal, as we think about the third quarter, I have nothing to provide in terms of an estimate. Transcripts provided by Transcription Outsourcing, LLC; the trustee base is over $600 million.

Speaker Change #112: That's going to have a few million dollar impact. I'm just trying to get a sense of what your expectations are for fee revenue, all else equal, as we think about the third quarter.

Speaker Change #110: Nothing to provide in terms of an estimate, and if you think about it, the

Speaker Change #111: If it's a few million dollars this quarter, a few million dollars next quarter, cumulatively that's a reduction of $10 million, you know, round number on a, on a, even within asset servicing on a quarterly

Jason Jerrome Tyler: And so we're just trying to, once we start talking about growth in the business and about, you know, overall net new business activity, that number has more of an impact, but it doesn't have as much of an impact on the overall amount of fees in the business. And so that's why we called it out. It's just in the context of thinking about new business activity and organic growth, where it has more of an impact on our percentage.

Speaker Change #113: Trust fee base is over 600 million dollars and so we're just trying to once we start talking about

Speaker Change #111: about growth in the business and about.

Speaker Change #111: In overall net new business activity, that number has more of an impact.

Speaker Change #111: But it doesn't have as much of an impact on the overall amount of fees in the business, and so that's why we called it out. It's just in the context of thinking about new business activity and organic growth, where it has more of an impact on a percentage basis.

Jason Jerrome Tyler: But in general, the business is doing well, and the activity levels, the pipeline, and what we see on the horizon are still good. Just important to call out those two items. If I can sneak in one quick follow-up on expenses, the actions you took this quarter might take, you're not guiding for this, my takeaway is it probably sets up for an even better or lower expense growth for 2025. Is that the right way to interpret that relative to whatever you do in 2024? Yeah, it is.

Speaker Change #111: But in general, the business is doing well, and the activity levels, the pipeline, and what we see on the horizon is still good, just important to call out those two items.

Speaker Change #115: If I can sneak in one quick follow-up on expenses, the actions you took this quarter, my take, you're not guiding for this, my takeaway is it probably sets up for an even better or lower expense growth for 2025. Is that the right way to interpret that relative to whatever you do in 2024?

Jason Jerrome Tyler: There's no doubt that some of the expenses that we put on now are an acceleration of what we planned, and some of it we do believe will come down next year. I talked about the offset as we do some hiring in some of these spaces. But we also came into this year feeling very good about the 5%.

Speaker Change #114: Yeah, it is. There's no doubt that some of the expenses that we put on now, again, it's an acceleration of what we planned, and some of it we do believe will come down next year. I talked about the offset as we do some hiring in some of these spaces.

Speaker Change #114: But we also came into this year feeling very good about the 5%, but the markets moved early, and so it does give an indication that

Jason Jerrome Tyler: But the markets moved early. And so it does give an indication that when markets move, and it can impact expenses, again, we have positive operating leverage in that. But at this point in mid July, I'm hesitant to talk in too much detail about 2025. We'll certainly give an impact and update later in the year. But the spirit of your question is right.

Speaker Change #114: When markets move, and it can impact the expenses. Again, we have positive operating leverage in that, but at this point of mid-July, I'm hesitant to talk in too much detail about 2025. We'll certainly give an update later in the year, but the spirit of your question is right.

Speaker Change #114: And some of the spending now positions us for even better expense trajectory management going into next year.

Speaker Change #116: Extremely helpful. Thank you.

Jason Jerrome Tyler: And that some of the spending now positions us for even better expense trajectory management going into next year. Extremely helpful. Thank you. We'll return to Brennan Hawken with UBS.

Speaker Change #116: [inaudible]

Brennan Hawken: Your line is open, please go ahead. Hi. Thanks for taking my follow-up. I just wanted to clarify something specific because it was a little unclear with Alex's follow-up to the question on the wealth deposits. Did you say that the advisory wealth deposits are currently priced at 5%, or do they have the option to elect for money funds that could yield 5%? I'm just trying to square all the commentary. Sure. So it's the latter.

Jason Jerrome Tyler: They have the ability to sweep into our money, our money fund complex, which is already priced in the fives. And so they have the ability, our clients have the ability to, to elect for that deposit mechanism now, when to the extent that they are to the extent that they are sweeping. Got it. So just to add a little color to my question, the option to, you know, move into money funds was available at most of the wirehouses too. And they made this move, that's my understanding, due to concerns about, you know, the fiduciary obligation and whether or not just basically paying out that level would be necessary from a legal perspective.

Speaker Change #116: We'll return to Brennan Hawken with UBS. Your line is open. Please go ahead.

Brennan Hawken: Hi, thanks for taking my follow-up. I just wanted to draw a specific understanding because it was a little unclear with Alex's follow-up to the question on the wealth deposits. Did you say that the advisory wealth deposits

Speaker Change #117: are currently priced at 5% or they have the option to elect for money funds that could yield 5%. I'm just trying to square all the commentary.

Speaker Change #118: Sure. So it's the latter. They have the ability to sweep into our money fund complex.

Speaker Change #119: which already is priced in the fives.

Speaker Change #119: And so they have the ability, our clients have the ability to elect for that deposit mechanism now, to the extent that they are sweeping.

Speaker Change #120: Got it. So just to further add a little color to my question, that the option to, you know, move into money funds was available at most of the wire houses too, and they made this move.

Speaker Change #121: There's my understanding, you know, due to concerns about, you know, the fiduciary obligation and whether or not just

Brennan Hawken: So it sounds like from your answer, you guys don't have any plans to make any changes at this stage. Although, as you said, depending on competitive pressures, you may seek to make adjustments going forward. I think that's a good start. Excellent. Thanks very much. You bet. And we'll return to Vivek Juneja with J.P. Morgan. Your line is open. Please go ahead.

Speaker Change #122: basically paying out that level would be just necessary from a legal perspective. So it sounds like from your answer, you guys don't have any plans to make any change at this stage. Although, as you said, depending on competitive pressures, you may seek to make adjustments going forward.

Speaker Change #123: I think that's a good summary.

Speaker Change #124: Excellent. Thanks very much.

Speaker Change #125: You bet.

Speaker Change #125: And we'll return to Vivek Juneja with J.P. Morgan. Your line is open. Please go ahead.

Vivek Juneja: Thanks. Just wanted to clarify, Jason, a comment you made, which was that rate cuts of 25 to 50 basis points should not have material spread degradations. So does that mean if we do have rate cuts, those would be hurt, that would hurt your NIM and NII? Are you asset sensitive?

Vivek Juneja: Thanks. Just wanted to clarify, Jason, a comment you made, which was rate cuts 25 to 50 basis points should not have material spread degradations.

Vivek Juneja: So does that mean if we do have rate cuts, those would be hurt, that would hurt your NIM and NII?

Unknown Executive: like you are as a sensitive? No, I'm saying that as we have a rate cuts at this point, we should be able to pass along those declines in the form of lower deposit yields to clients in our standard rate cards and in our negotiated rates.

Jason Jerrome Tyler: No, I'm saying that as we have rate cuts at this point, we should be able to pass along those declines in the form of lower deposit rates, yields to clients in our standard rate cards, and in our negotiated rates. Okay, what did you see with the ECB 25 basis point rate cut that has come through? Have you cut those deposit rates by 25 basis points? Yeah, and I did comment on that, really specifically earlier. We did. The Aligned Reductions in Deposit Costs on the ECBD. Okay, that means you've passed on the full 25. Yeah,

Speaker Change #126: If you are asset sensitive.

Jason Jerrome Tyler: No, I'm saying that as we have rate cuts at this point, we should be able to pass along those declines in the form of lower deposit.

Jason Jerrome Tyler: yields to clients in our standard rate cards and in our negotiated rates.

Unknown Executive: Okay, what did you see with the ECB-25? This is one great cut that has come through. Have you cut those deposit rates by 25 basis points?

Speaker Change #127: What did you see with the ECB 25 basis point rate cut that has come through? Have you cut those deposit rates by 25 basis points?

Unknown Executive: Yeah, and I did comment on that really specifically earlier. We did the aligned reductions in the deposit costs on the ECB change. Okay, that means you passed on the full 25.

Speaker Change #128: Yeah, and I did comment on that really specifically earlier. We did see

Speaker Change #129: Aligned Reductions in Deposit Costs on the ECB Change.

Unknown Executive: Yeah.

Speaker Change #130: Okay, that means you've passed on the full 25.

Unknown Executive: Sorry, just as I said, the too many on these calls today, and you are overlapping with others, so that makes it hard to keep up with all of them.

Vivek Juneja: Sorry, there's just, as I said, there are too many on these calls today and you're overlapping with others, so that makes it hard to keep up with all of them. Thank you, and I will now turn the conference back to Jennifer Childe for any additional or closing remarks. We'd like to thank everyone for joining us today, and we look forward to speaking with you again. Thank you. Ladies and gentlemen, that does conclude today's earnings release. We thank you.

Speaker Change #130: Yeah.

Speaker Change #131: Sorry, just as I said, there are too many on these calls today and you are overlapping with others, so that makes it hard to keep up with all of them.

Jennifer Childe: Thank you, and I will now turn the conference back to Jennifer Childe for any additional or closing remarks. We'd like to thank everyone for joining us today. We look forward to speaking with you again soon.

Speaker Change #131: Thank you, and I will now turn the conference back to Jennifer Childe for any additional or closing remarks.

Jennifer Childe: We'd like to thank everyone for joining us today. We look forward to speaking with you again soon.

Jennifer Childe: Thank you, ladies and gentlemen. That does conclude today's earnings release. We thank you for your participation. You may disconnect your phone line at this time.