Q2 2025 Northern Trust Corp Earnings Call

Ladies and gentlemen, good day and welcome to the Northern. Trust Corporation, second quarter 2025 earnings conference call. Today's conference is being recorded.

Speaker Change: At this time, I'd like to turn the conference over to Jennifer child director of investor relations. Please go ahead ma'am.

Thank you, operator. Good morning, everyone and welcome to Northern Trust Corporation. Second quarter 2025 earnings conference. Call joining me on our call. This morning is Michael Grady, our chairman and CEO Dave, Fox our Chief Financial Officer, John Landers, our controller and Trace Stegman 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'll find our quarterly earnings review presentation, which we will use to guide. Today's conference, call this July 23rd call is being webcast live on Northern trust.com, the only authorized rebroadcast of this call is the replay that will be made available on our website through August 23rd.

Speaker Change: To ask questions as time permits, thank you again for joining us today. Let me turn the call over to Mike ogrady. Thank you, Jennifer, let me join in welcoming you to our second quarter 2025 earnings call, we reported another quarter of improving results, reflecting a consistent execution of our 1. Northern Trust strategy, which we introduced at the beginning of 2024.

Speaker Change: We delivered our fourth consecutive quarter of generating positive organic growth and operating leverage Revenue, grew 8% and earnings per share. Increase, 20%, excluding notables in the prior year period and we returned more than 100% of our earnings to our shareholders, through dividends and record, share repurchases.

As we passed the midpoint in the year, I'd like to share our progress on our multi-year, transformational strategy, which is producing Clear Proof points that it's gaining traction.

Speaker Change: Turning to slide 2. Our 1, Northern Trust strategy is centered on our mission to be our clients. Most trusted Financial partner and commitment to leverage, the full breadth of the firm's capabilities to deliver seamless high impact Solutions.

We deliver a holistic client experience through the collaboration of our 3, businesses to serve the full spectrum of individual, and institutional clients,

Speaker Change: a great example in the second quarter is our work with timeline 1 of the UK's fastest growing discretionary fund, managers

Speaker Change: As timeline evolved, its business model to launch a proprietary fund to funds range. Northern Trust asset management and asset servicing partnered to deliver a fully integrated solution.

Speaker Change: Together we provided Investment Management fund infrastructure and Operational. Support enabling timeline to scale its offering with speed and confidence.

Speaker Change: This win reflects how Northern Trust brings together capabilities across the firm to support the growth of high potential clients and dynamic markets.

Speaker Change: Turning to slide 3.

Speaker Change: While we continue to deliver exceptional outcomes for clients. We're equally focused on delivering long-term value for all of our stakeholders.

Speaker Change: Our 1 Northern Trust. Strategy Is Anchored in 3 pillars, optimizing growth driving productivity and strengthening resiliency and managing risk. These overlapping pillars, operate as a flywheel. Each 1 amplifying the others

Our organic growth is gaining momentum fueled by numerous strategic initiatives launched over the past 12 to 18 months that are now delivering results and are, well, positioned to drive greater performance in the months and years ahead.

Speaker Change: In parallel, we're driving meaningful, gains in productivity, across the organization.

Speaker Change: through a client-centric capability driven, operating model or aligning resources more effectively to deliver value where it matters most

Speaker Change: We're also accelerating the deployment of AI tools to streamline processes, reduce manual effort and enhance, decision-making and manage risk.

Speaker Change: Together, these efforts are bending the cost curve and freeing up resources to enable reinvestment in growth and Innovation all while delivering higher margins. And a better experience for our clients and employees.

Speaker Change: Finally.

Speaker Change: Investments. We've been making in resiliency are paying off through an enhanced control environment.

Speaker Change: Over the past year, we've added new roles across our 3 lines of defense and built greater stability, security and scalability into our technology infrastructure.

Speaker Change: These capabilities are increasingly embedded into how we operate influencing decision-making and enabling us to manage risk, proactively and stay ahead of a rapidly evolving industry.

Speaker Change: Turning to slide 4.

Speaker Change: as we execute on our 1, Northern Trust strategy or advancing several Enterprise growth initiatives that are aligned with both evolving client needs and represent opportunities where we have differentiated capabilities across our businesses

Speaker Change: 1 of these is clearly Alternatives, which I'll Spotlight today.

Speaker Change: the rapid expansion of global private markets is undeniable and projected to continue at twice, the pace of public markets, over the next decade with total assets expected to exceed 60 trillion,

Speaker Change: Our integrated model and expanding capabilities position us well to capitalize on this growth and deliver long-term value for clients and shareholders.

Speaker Change: We're leveraging this fast opportunity, and several ways. First 50 South Capitol, the Alternatives investment platform within our asset management business, which specializes in fund of funds, primarily targeting emerging managers, is having a record fundraising year.

Speaker Change: They recently closed their largest secondaries fund with investors across wealth family, offices, intermediaries and institutions.

Speaker Change: Second and wealth management. We continue to build out our platform for third-party funds.

Speaker Change: Targets underscoring the strength of our offerings and the trust clients place in our platform.

Speaker Change: We're also unlocking incremental value for clients through collaboration with 50, South capitals research team, which is cultivated relationships with over 270 managers to offer, access to highly curated hard-to-reach, alternative investment funds. As a result, our fund launch pipeline has tripled compared to Prior years, reflecting strong client demand

Speaker Change: Third for clients with significant Alternatives portfolios. We also offer our alternative advisory Services which provide Consulting, and customized Solutions.

Speaker Change: Assets under advisement are up 66%. Year-over-year reflecting demand from both institutional and wealth clients for differentiated High conviction strategies.

Speaker Change: Recent examples, such as a 1.25 billion private credit mandate for a multinational corporate pension and 1 for a family office from the Middle East, highlight our ability to deliver bespoke Solutions at scale.

Speaker Change: And forth in asset servicing, we continue to expand our leadership position in particular, in the semi-liquid fund Market. Where we now support, 6 of the 12 long-term asset funds in the UK with 7 more. In the pipeline, we also support 5 European long-term investment funds.

Speaker Change: We're building real momentum and Alternatives. And we're only just beginning to unlock the full potential.

In parallel, with these firmwide priorities. Each of our businesses is executing targeted growth strategies that reflect their unique client bases and Market opportunities.

Turning to slide 5.

Speaker Change: Starting with wealth management, our wealth management business continues to deliver on its unique value proposition and is making solid progress on the 3 C, strategic priorities. I outlined at the beginning of the year.

Speaker Change: First, our Global family office franchise is a powerful example of our strategy and action.

Speaker Change: By integrating asset servicing industry-leading, custody platforms and Technology capabilities.

Speaker Change: wealth Management's, deep fiduciary and banking expertise, and asset Management's, Innovative investment Solutions, gfo delivers a seamless, end-to-end platform, tailored to the world's most sophisticated family offices,

Speaker Change: Gfo continues to deliver, strong organic growth with Revenue growing 8% in the first half of 2025, including International Revenue growing at over 20% and now accounting for nearly 15% of total gfo revenue.

Northern Trust: With the launch of family Office Solutions earlier this year, we're building on the proven success of our gfo, Playbook to bring a new offering to ultra high net worth clients. That do not have a dedicated family office structure but can benefit from institutional grade capabilities and the personalized service. Northern Trust delivers, the new offering leverages the same Elite capabilities. The gfo combined with a dedicated family Office Solutions, relationship advisor, serving as a single point of contact to coordinate the client's entire Financial life.

Northern Trust: And just the first 2 quarters, this new approach has a higher than 75% win rate with a deep pipeline heading into the second half of the year.

Northern Trust: We're also making deliberate changes and Investments to increase our market share in key. Geographic markets, we recently reorganized our core wealth management business, from 3 to 4 regions and appointed new leadership in both the west and Northeast bringing in experienced Executives with strong Market connectivity, and a clear mandate to accelerate growth,

Northern Trust: We're also actively investing in Revenue, generating Talent across these regions to strengthen client coverage and drive new business.

Turning to slide 6. Northern Trust Asset Management continues to execute successfully against its strategic priorities.

Northern Trust: In addition, to scaling our alternative platform, through both 50, South Capitol and our Alternatives advisory capability. We're expanding into other key growth areas, particularly custom, smas

Northern Trust: As a leader in direct indexing and tax advantaged Equity strategies, we continue to build on strong inflows into our strategies by investing in technology and advisor tools to scale. Personalization extend, internationally and deepen penetration across institutional and wealth channels.

Northern Trust: Another example of our success is a recent 1 billion Equity, mandate with the public investment Fund in Saudi Arabia, 1 of the largest Sovereign wealth funds in the world. We expect this mandate to expand to additional quantities, demonstrating our ability to serve the world's most sophisticated Sovereign clients.

Northern Trust: In ETFs, we're enhancing our platform with the planned. Upcoming launch of 11, new fixed income strategies and the third quarter.

Northern Trust: And will complement our existing index and liquidity offerings.

Northern Trust: Turning to slide 7, our asset servicing business is executing on a disciplined strategy, centered on scalability and client, centricity to drive profitable growth.

Northern Trust: We serve a focused set of client segments where we have deep expertise and a differentiated value. Proposition 1 that continues to drive, strong win rates and high levels of client satisfaction and retention.

Northern Trust: I already mentioned our strong position with alternative investment managers where our assets under Administration are now approaching 1 trillion dollars. Underscoring the strength of our platform and the trust place in Us by Leading institutional clients.

Northern Trust: We also have good momentum in the asset owner Segment 1 of our highest margin businesses, which now comprises 50% of our segment level Revenue. Our success is driven in part by our up Market strategy to serve larger more complex institutions with tailored Solutions and Global reach.

Recent wins include the 89 billion University of Texas, Texas A&M investment management company.

Northern Trust: A 55 billion Canadian Foundation.

A top 20 us pension plan.

Telstra 1 of Australia's most significant superannuation funds.

And a large Sovereign wealth fund. Our first front office Solutions client in Saudi Arabia where our technology was cited as a key differentiator

Our Capital markets business continues to perform well.

Northern Trust: In the first half of the Year Revenue was up 15%.

Northern Trust: Including more than 30% growth in both outsourced trading and currency management.

Northern Trust: these results reflect the strength of our Capital efficient model and our ability to deliver scalable high-value solutions to institutional clients,

Northern Trust: This discipline approach is delivering tangible results. Organic growth is accelerating with new business tracking well and at above average profitability and overall margins improving significantly.

Northern Trust: Turning to slide 8.

Northern Trust: We've demonstrated our ability to bend the cost curve and remain firmly, committed to continuing to do. So, while making Necessary investments in critical infrastructure and growth initiatives,

Northern Trust: through the first half of the Year Express growth was 4.8% and we're on track to achieve our full year goal of below 5%.

Northern Trust: Our progress is underpinned by a series of structural and operational advancements.

Northern Trust: For modernizing our operating model and increasingly leveraging AI such as GitHub. Co-pilot and document digitization to enhance employee productivity and increase automation across the Enterprise.

Northern Trust: for example, thoughtful reorganization of our Global operations under our chief, operating officer is unlocking efficiencies while preserving our world-class service

Northern Trust: Headcount with an acidic and operations has declined for 9 consecutive quarters and is down 7% from its peak.

Northern Trust: Importantly, these gains are accreting a margin and we've strengthened our governance and controls to ensure they are sustainable.

Northern Trust: We've also implemented centralized oversight of multi-year, Technology programs and introduced new tools to monitor hiring activity and Workforce composition in real time.

Northern Trust: These measures give us confidence in our ability to continue driving productivity and margin expansion. While maintaining the flexibility to reinvest in areas that support growth.

Northern Trust: And that reinvestment is underway focused on 3 levers, Talent product expertise and Technology on the talent front. We're hiring Revenue generating professionals, across wealth, and asset management.

Northern Trust: From a product standpoint. We're ensuring. We have the expertise to create innovative solutions and support the growth across the businesses which I described earlier.

Northern Trust: And the technology side we're investing in capabilities that enhance the client experience and support scalable growth.

Northern Trust: These Investments are enabling us to deliver more personalized, efficient and high impact Solutions. Together, these efforts reflect our disciplined approach to cost management and our commitment to sustainable margin expansion. While continuing to invest in the capabilities, that will drive long-term value for clients and shareholders alike.

Northern Trust: Turning to slide 9.

Northern Trust: Our financial model is designed to deliver an attractive combination of growth and returns and we're making tangible progress against these targets.

Organic growth is steadily improving and should accelerate as our initiative is further developed and expand

Northern Trust: We have a clear and credible Pathway to generate higher margins and at the core is our Rock Solid balance sheet which provides flexibility for our clients and meaningful Capital return. Optionality for our shareholders.

Northern Trust: Substantial Capital return, including meaningful, share repurchases and higher Roes.

Northern Trust: Given our recent momentum and confidence in our trajectory, for changing, our Roe Target from 10, to 15% to 13 to 15%.

Earning the slide 10.

To close.

Northern Trust: I want to reaffirm our commitment to remain independent.

Northern Trust: contrary to recent speculation during my tenure as CEO, we have never entertained discussions regarding the sale of the company with any financial institution nor do we intend to

Northern Trust: the board and management team remain confident that Northern Trust is well positioned to continue driving long-term growth and value creation as evidenced by our visibly improved performance and momentum in our 1, Northern Trust strategy.

Northern Trust: Our 135 year, track record of stewardship of multi-generational personal and institutional wealth.

Northern Trust: Unwavering fiduciary commitment.

Northern Trust: Ingrained culture of integrity and long-term perspective, instill confidence in our clients that we will be here for them.

Northern Trust: not just today, but for generations to come

Northern Trust: And with that, I'll turn it over to Dave to review our second quarter results. Dave

Dave: Thanks Mike. Let me join Jennifer, and Mike and welcoming you. To our second quarter 2025 earnings call.

Dave: You may have noticed that we included a number of new disclosures in our earnings materials this quarter. They include additional segment level detail, including average loans.

Dave: Average deposits pre-tax profit and margins along with enhanced Regulatory and capital metrics.

Dave: These additional metrics aim to enhance the quality and transparency of our disclosures ensuring we are responsive to shareholder feedback.

Dave: Now, let's discuss the financial results of the quarter starting on page 12.

Dave: This morning, we reported second quarter, net income of 421 million.

Dave: Earnings per share of $2.13 and our return on average, common Equity was 14.2%.

Dave: As Mike mentioned we delivered our fourth consecutive quarter of generating positive organic growth and positive operating leverage. It's also our fourth consecutive quarter of delivering positive trust fee, operating leverage and improving our expense to trust fee ratio on a year-over-year basis, excluding notables.

Dave: These are clear signs that we're moving in the right direction and our strategy is gaining momentum relative to the prior year currency movements favorably. Impacted our Revenue growth by approximately 90 basis points and I'm favorably impacted our expense growth by approximately 100 basis points.

Dave: Relative to the prior period currency movements favorably. Impacted our Revenue growth by approximately 110 basis points and unfavorably impacted, our expense growth by approximately 130 basis points.

Dave: That is just in common, an FTE basis was a record 615 million up 7% compared to the prior period and up 16% from a year ago.

Dave: Excluding notables in the prior year. Other non-interest income was down, 4% year-over-year, larger reflecting weaker reported FX trading income, partially offset by strength in other Capital markets activities.

Dave: 1 reminder related to our FX trading income.

Dave: We've seen steady growth in the underlying Core Business over time, but it's often muted by the overnight swap activity conducted by our Treasury Department, which was more pronounced this quarter.

Dave: Core FX trading Revenue, excluding the impact of our swap activity was up, 10% year-over-year.

Dave: And administration were up 7% sequentially, and up 9% compared to the prior year.

Dave: Our assets under management were up 6%, sequentially and up 11% year-over-year.

Over our credit quality remains very strong.

Dave: With all key credit metrics in line with historical standards.

Dave: The provision for credit losses, increased to 16.5 million in the second quarter, largely reflecting an increase in reserves related to small number of non-performing loans. But we expected to return to more normalized levels in subsequent quarters.

Dave: Relative to the prior year period in the excluding notable, items Revenue was up 8%. Expenses were up 4.8%, our pre-tax margin was up, 160 basis points, earnings per share, increased 20% and our average shares outstanding decreased by 5%.

Turning to our asset servicing results on page 13.

Dave: Double digits over the prior year and new business growth continues to be booked and attractive margins.

Dave: Assets under custody Administration for asset servicing clients were 16.9 trillion at quarter, end reflecting a 9% year-over-year. Increase.

Dave: Asset servicing fees totaled 692 million reflecting a 6% increase over the prior year.

Dave: Custody and fund Administration. Fees were 469 million up 5% year-over-year largely reflecting the impact from strong underlying Equity markets. Favorable currency, robust transaction, activity and new business generation.

Dave: Assets under management for asset servicing. Clients were 1.2 trillion up 11% over the prior year Investment Management fees with an asset. Servicing were 157 million up 8% year-over-year due to favorable markets and new business activities,

As you can see, on the right side of the slide average deposits, grew 7%, sequentially accounting for most of the total increase.

Dave: Loan volume increased slightly relative to the first quarter.

Dave: Asset servicing. Pre-tax profit, nearly doubled over the prior year period and the asset servicing pre-tax margin was up more than 10 points to 23.2%.

Dave: Excluding 75 million in notables in the prior year. Asset servicing pre-tax profit increased 29% and the pre-tax margin expanded by approximately 330 basis. Points. Reflecting the pivot in our new business, approach our focus on cross-selling, high margin, Capital, markets, and other, adjacent products, and services, and our efforts to streamline our operations.

Moving to wealth management business on page 14.

Dave: Wealth management. Also had a healthy quarter with continued strength and Global family office.

Dave: Assets under management for our wealth management. Clients for 469 billion at quarter end up 12% year-over-year.

Dave: Trends servicing fees for wealth management, clients for 539 million up, 5% year-over-year, primarily due to strong Equity markets,

Dave: As you can see, on the right side of the slide, both averages, deposits, and average, loans were flattish, relative to the first quarter.

Dave: Wealth, Management's, pre-tax profit, increased 18% over the prior year period and the pre-tax margin was flattish at 37.2%.

Dave: Excluding approximately 33 million in notables in the prior year. Period wealth Management's pre-tax profit increased 5% year-over-year. While the pre-tax margin decreased 25 basis points.

Dave: It's worth noting that more than 2/3 of the 16.5 million. Second quarter provision was allocated to the wealth segment.

Dave: Moving to page 15 in our balance sheet and an interest income trends.

Dave: Our average earning assets were up. 6% on a link quarter basis fueled by higher deposit levels which drove an increase in cash held at the fed and other central banks and a slight increase in securities.

The duration of our Securities portfolio decreased to 1.5 years.

Dave: While our opportunistically adding duration to protect against future rate Cuts, we've also shifted the mix of the portfolio slightly. So the fixed floating breakdown is now 52% to 48%, including the impact of swaps

Dave: The duration of our total balance sheet remains under 1 year.

Dave: Managers can come on, an FTE basis, was a record 615 million and our net interest margin held steady at 1.69%.

Nii outperformed, our expectations largely due to higher than expected deposit levels.

Dave: Average deposits were 122 billion up 6% compared to the first quarter levels.

within this interest bearing deposits increased by 7% will not interest bearing deposits, decrease by 60 basis points comprising 14% of the overall mix

Dave: The quarterly contribution from transactional and other 1-time items was elevated in the second quarter, mostly due to the overnight FX swap activity conducted, by our treasury team. As we capitalized on FX volatility during the quarter

Dave: We estimate this edit and incremental 10 million to second quarter knee, that is not expected to persist.

Dave: Turning to our expenses on page 16.

Dave: Excluding notable items in the prior period is listed on the slide expenses. In the second quarter were up 4.8% year-over-year.

And unfavorable currency movements expenses were up just 3.8% the lowest rate of growth in the past 6 quarters.

Dave: Turning to page 17.

Shows remain strong in the quarter and we continue to operate at levels. Well above our required regulatory minimums, our common Equity Tier 1 ratio under the standardized approach. Decreased by 70 basis points on a link quarter basis, to 12.2% with capital accretion more than offset by an increase in rwa. The rwa growth was driven largely by quarter, end lending coupled with higher Capital markets activities,

Our Tier 1. Leverage ratio was 7.6% down, 40 basis points from the prior quarter,

Dave: At quarter end or unrealized after tax loss on available for sale Securities was 481 million.

And we returned 486 million to Common shareholders in the quarter, through cash, dividends of 146 million and common stock, repurchases of 339 million reflecting a payout ratio of 117%.

Dave: Finally based on the 2025 ccar results. We recently disclosed that our stress Capital buffer will remain at the 2.5% minimum requirement.

Dave: And yesterday our border approved a 5-cent or a 7% increase to our quarterly dividend.

Dave: Turning to our guidance. Starting with expenses, we continue to expect our total operating expense growth to be below 5% for the full year.

Dave: Excluding notable items in both periods and regardless of currency movements.

Dave: Turning to knee.

Dave: We now expect a full year, nii to increase by mid single digits over the prior year.

Dave: this assumes a modest decline in third quarter, deposits in line with seasonal Trends in mostly stable deposits, meaning that we wouldn't expect absolute levels of nib to move materially from current levels, but the percentage of the overall mix could change

Dave: Market implied forward curves as of this week and slightly weaker institutional deposit bases with the next series of global rate cuts.

Speaker Change: And with that operator, please open the line for questions.

Speaker Change: And ladies and gentlemen, if you would like to ask a question, please signal by pressing star 1 on your telephone keypad, if you're using a speaker-phone, please make sure your mute function is turned off to allow your signal to reach our equipment, a voice prompt on the phone line will indicate when your line is open and again that it's star 1 to ask a question, we'll pause for just a moment to allow everyone the opportunity to signal for questions.

And our first question comes from Glenn, Shore with evercore, your line is open.

Glenn: Hi thanks, and thanks for that. Uh, definitive Declaration of Independence, put that to bed. Um, I'm I'm curious on these, there's multiple initiatives across Alternatives and the 11 new fixed income ETFs that you have scheduled for the second half.

and I guess a I'd love any numbers that you could throw at it because you talked about the progress but whether it be AUM, caval raising a revenue, anything

Glenn: But, but, I'm also very interested in how much you define that as push, meaning, you, you rolling out products and pushing them across the platform, and playing a little catch-up versus pull, where you're where you're seeing, whether it be clients or or advisor demands from these products and you're developing a, a, as a, as a response to that. I appreciate it. Thanks.

Speaker Change: Sure. Thanks Glenn. Uh, so on the alternative front as as you heard yes a lot of effort on that front and the overall, I would definitely characterize it as poll and I say that because of just the uh, changes in the marketplace that you're well aware of towards more, you know, private markets versus public markets. And we need to make sure for our clients that we're providing the right alternatives for them. So that's I would say the the overriding factor that's driving.

Speaker Change: Get closer to what we would even see as the appropriate allocation. And that's going to depend on the, the client segments, uh, you know, at the, the upper tiers, as you know, uh, you know, family offices can have as high as, you know, 40 plus percent allocation to Alternatives. Uh, and then as you work your way through the tears, uh, you would be you know, closer to maybe 10% uh or 15%. That's still a lot of uh I'll say room for them to to grow through that poll of what they want in their portfolio is

Speaker Change: Thanks, maybe anything on the, what's driving, the the uh 11 fixed income ETFs. You talked about efficient, scalable exposures. I'm just curious. Uh, what that might uh, Encompass that you didn't already have in the uh, portfolio. Thank you.

Speaker Change: Sure. So on the ETFs that we're rolling out uh I would say at this point our ETF complex has mostly uh uh index and other certain exposures. Uh whereas there's less on the fixed income front, particularly the type of fixed income uh characteristics that our client base is looking for. So this is another example of how asset management and the wealth management business work together to develop specific, uh, products that fit for the needs of our client base. So, uh, I won't go into all the details because we're going to be rolling that out very shortly. But think about, uh,

Speaker Change: The needs across uh municipalities think about the need for uh fixed income ladders. Uh all trying to put that in a very efficient uh, vehicle for them to be able to invest in

Speaker Change: Thanks for all that. Appreciate it.

Speaker Change: Sure.

Betsy Grac: And our next question comes from Betsy grac with Morgan, Stanley. Your line is open.

Betsy Grac: Hi, good morning.

Betsy Grac: Good morning.

Speaker Change: I wanted to just dig in a little bit on the decision to um tighten up the range for Roe.

Um, I think it's from 10 to 15 to 13 to 15 and within that understand where the line of sight is that you have on the expense ratio with the operating leverage that you're delivering. Where do you, where do you anticipate? You can take this expense ratio to as you, um,

Speaker Change: Move forward over the next several years in the medium tone.

Speaker Change: Sure. So, uh, if if we go back in time a little bit, when we first set, the the range at 10 to 15%, uh, our Roe was below 10%. So a lot of the objective at that point was get into the range, uh, which we did, uh, you know, sometime ago. And then frankly, we've just continued to move up in that range and at times have been at the top end. Uh, and even a little bit over and it definitely depends on our, I'll say, organic performance and execution, but also it's influenced by market.

Speaker Change: Conditions. And so that's why we over time maintained it at 10, to 15%. It took into account. I'll say different interest, rate cycles and uh, significant changes in the equity markets. And so we felt like that was the right broad range. Well, we've been uh, producing returns now at that upper half for some time period and with the momentum that we have here in the strategy, we think that's going to continue to be the the case. Uh, and I would also say that, oh, over time there's been less Clarity or certainty around uh, the capital framework, the regulatory Capital framework. And so it was also taking into account that there could be higher Capital requirements. Um, as much as we can predict, where, where that goes and and for how long uh, at this point we believe there's a very, I'll say constructive framework around Capitol. And so we just have greater greater Comfort. I'll say that the capital requirements are in the range that we're in right now. Uh,

Speaker Change: And so, as long as we continue to to execute and under you know, I'll say somewhat normal level of uh market conditions, we think that range of 13 to 15% is appropriate.

And then Betsy just to to, uh, address the expense part of it. I, you know, from an expense to trustee ratio perspective, uh, we, we believe the right range. Is we put out there is, uh, 105 to 110. Uh, we're working our way towards that. We're at 1:15 now, you know, that's down from where it was. Um, and so, we'll look to continue to, to grind it into that range. And that, obviously, then, uh, provides a higher level of profitability, which then translates into the Roes in that range.

Speaker Change: Okay, thank you.

Speaker Change: Sure.

Ibrahim Poonawalla: Our next question comes from Ibrahim poonawalla from Bank of America. Your line is open.

Ibrahim Poonawalla: Hey, good morning.

Ibrahim Poonawalla: My uh so thanks for kind of uh going through that uh, on your, in your prepared remarks in terms of strategy update, Etc. I guess as we think about um independence of some version of mergers, I I guess. Is there a any scenario in which you think?

Ibrahim Poonawalla: M&a would make sense from a shareholder, return perspective, or do you think, uh, the uniqueness of the northern franchise the scale in the custody business? Uh, all of that kind of make just m&a, unattractive. Strategically like how, how should we think about it? Uh, outside looking in as shareholders?

Ibrahim Poonawalla: Sure. So as you've heard from my comment, we are completely focused on executing on our our strategy. Um, and we believe that that strategy of Independence, uh, is what will produce the best returns for our shareholders, ultimately. Uh, and the reason why that is is a little bit to your point. We believe that that, uh, provides a unique value proposition for our clients. Um, and, you know, frankly through this, uh, you know, the last several weeks, we've heard from a lot of our clients, uh, who've made it clear that they have lots of alternatives for various, you know, providers or financial partners that they could have uh, across. And this is across families through, you know, very large institutions who have said, you know, we chose Northern Trust because it's a different value proposition. Uh, it's 1 where you are focused on trying to provide a

Ibrahim Poonawalla: Higher level of client service where you do have very targeted expertise, uh, and, and just certain segments of the market where you, uh, you compete. And so, we believe that that differentiated value proposition is the 1 that's going to create the most value. Now, over time as, as you know, we have done Acquisitions that enable us to either enter another, uh, Market or to bolster our capabilities in a particular market. And we'll continue to look at those over time if they make sense. Uh, we're an organic Growth Company. So it's not by any means that the primary driver. But if at times, uh, there's something that would be attractive for us, uh, on the inorganic front, uh, to do to, to improve that value proposition, you know, we would consider doing it obviously, uh, with very high standards.

Speaker Change: Got it and I guess let me just sticking with capital deployment.

Speaker Change: Uh, how just give us, remind us. How you think about space of BuyBacks relative to just giving means the stocks obviously done well year to date. Is there a certain valuation tries to earnings price, to tangible book? Multiple, where BuyBacks, begin to look less attractive? Thank you. Sure. I'm going to let Dave take that. Yeah, so when we look at BuyBacks, you know, isn't just about the stock price, right? We're looking at our regulatory Capital, uh, earnings power, Roe loan growth,

Speaker Change: As you know, dividends um we like we like our balance sheet to be available for our clients, right? So we still like to run a little bit of a, a cushion, if you will that we want to have in the system. Um, we've picked up our, our Capital return to shareholders significantly. When you think about, uh, the current Pace that we're on, we will probably end up exceeding what we did all of last year and last year had Visa included in it. So I think we're at a very healthy clip close to 500 obviously uh, this quarter. And so if you take all those factors into consideration, not just the stock price when we look at it and we balance that against our Capital requirements and other other issues at the time.

Got it. Thank you.

Speaker Change: Sure.

Mike Mayo: And we'll take our next question from Mike Mayo with Wells Fargo, your line is open.

Mike Mayo: Hey, I'm going to continue the line of discussion. It's it's been so much for us and it must be disruptive to your clients and employees and perhaps annoying, but it still comes up among investors. And I, you know, I hear you commitment to Independence 135 Years, be around for generations to come. And you mentioned the short, term 4 quarters of growth and operating, leverage, medium-term higher, Roe targets, long term 1 Northern Trust. So I hear you loud and clear and, and my, you know, your before Northern Trust. I certainly, you know, about deal making. So that's all clear. Um, but

Mike Mayo: But maybe strategically you could do more there or alternatively, maybe you could buy somebody else to get that scale.

Speaker Change: So, thanks for the question, Mike. So when it comes to scale, I I think it's important to start with the fact that size does not necessarily equal scale. Um, we absolutely need scale but we don't need size to get there and our strategy is around that, but then you have to execute to demonstrate it, right? Because, uh, scale is all about the ability to I'll say, grow the revenue side at a pace that's faster than the cost side or increase your volume at lower unit cost, so to speak as you go forward. And the reason why I say it's not about science is because there are different drivers of creating that scale. So we try to focus on just certain sectors where we believe we can build scale within the sector, uh, and also differentiate ourselves. So, when you think about specific areas on the institutional side like us, pension plans, UK, pension plans, our business with hedge funds, uh, in the

Speaker Change: Us those those specific segments where we say our value proposition resonates but now we also have to drive sta scale. Uh so that we can get, you know, the value proposition to a place that attractive and we can get the financial Returns on that front so that so that's the first thing. The second piece of that is a place that you do get scale is through technology and so

Speaker Change: So how can we apply technology in such a way and leverage technology to create that? And certainly the direction of travel on that front is 1, that once again, doesn't necessarily, uh, uh, favor just being bigger there, there's more complexity with being bigger, and the ability to not have to necessarily operate, everything yourself, meaning on Prem and to do more through the cloud, is an equalizer. If you will, when it comes to scale and then certainly with AI, the AI is a tool which we know creates tremendous leverage uh and scalability for both processes, but also for people uh and we're in the early days of that. And so we have to be able to deploy those Technologies in a way that it creates scale, uh, within it. And then the third thing I would say is there are different parts of the value chain, that create scale for you. And what we've tried to do and are in the

Speaker Change: Midst of I'll say, transforming it again is to make sure that on the front end dealing with the client that we have that differentiation. But as you move back through the value chain, we find those areas where more centralization more standardization, you know, more automation is where you create that, you create that scale. And so more specifically, that's why we, we we're moving to what we call our client Centric, capability operating model. We're trying to take the common processes from across

Speaker Change: The businesses but particularly within asset servicing and focus them on capabilities as opposed to necessarily being in a particular region or for just a particular segment. So all of your Capital markets capabilities, you know, specifically cash payments. That's the way we're organizing it underneath. Uh, the COO Pete and then again, centralized standardized automate using technology to do that. We're seeing the early returns or benefits from that, we've gone down. Uh, headcount consistently since we started, uh, on that, uh, transformation of the operations and then the last thing I would say is in areas where there is a benefit for size and scale. That's where we just our centralized across the entire company. So think about our core Technology Group and infrastructure and we may not have the same. I'll say buying power as the other large players on that front but frankly that that differential at that level uh is not enough to outweigh all the benefits.

Speaker Change: Of the chain that I talked about. So we need to continue to do it. We know, we need to demonstrate it so it has to flow through to the numbers. That's why the margins in our asset servicing business need to go up, you know, we're in the, the low 20s right now. Those should be in the, you know, high 20s. And that's what we're moving towards with that. But that actually, at the end of the day, that's what we'll demonstrate. You know, are you getting scale? Is that an attractive business to the extent? It, not, it's not to your point. You think about different ways that you?

Speaker Change: You can, you know, potentially modify that or change it to ensure that you get it.

Speaker Change: Is already there.

Speaker Change: Got it. Thank you.

Speaker Change: Thank you.

Speaker Change: And we'll take our next question from Alex blasting with Goldman Sachs your line is open.

Speaker Change: Hi, good morning everybody. Thank you for the question. Um, appreciate all the, all the extra segment disclosure on the margins profitability and and obviously the targets as well, that's all very helpful. Um I wanted to ask you guys around the timing to achieve some of these. So you've had the 30% plus pre-text margin as a Target out there for a little while. Um it's helpful to understand the pieces a little bit but as you think about how long it will take you guys to get there and ultimately what interest environment does that contemplate because obviously there's a lot of profitability related to knee and you talking about profitability of the firm as a whole. Um, so curious kind of how that plays into the rubric

Sure. So just as far as the, the backdrop on the the market environment for it, it it's 1 of I would say like normalized, meaning a uh, a normal uh, yield curve normal shape of the yield curve and, you know, the pace at which you get there. Uh, what what makes it difficult in managing, for any, you know, financial institution, uh, is the speed of those changes. So we've gone through a time period, obviously, where rates were going up, but then they went down to zero. Then they went up very fast and now you know, it appears that we're at the beginning of a time period where they're going to go down. But at a more gradual Pace, that just allows for the transition of Dior.

Speaker Change: Ation in the portfolio, you know, on the balance sheet, to be able to, I'll say leg into that, uh, change in the, in the shape of the yield curve. So, that that's the expectation. But, of course, we have to be positioned for, you know, different things happening, uh, on that front, um, to the, to the I'll say the, the more important part Alex, which is just, what's the time frame on that? I obviously, we're executing hard on that. You, you see the positive operating leverage that we achieved in a quarter like this, where, as I say, it's kind of chunky or yards if you will and you need to pick those up while you can. But if you said okay, but you know, there are certain quarters or even, you know, multiple quarters, where it's more difficult to get those chunkier yards and your grinding more up, you know, that that would that would infer that it's, you know, likely to be kind of 2,027, you know, where we're achieving that 30 plus percent. If we can get there sooner. Great, uh, you know, and as I mentioned, like the environment can help us, it can create a headwind as well, but that's what we're looking to move towards.

Gotcha. Thanks man. That's helpful. Um, and just to follow up on and and and I I um heard the guidance for the full year, obviously implies something in the maybe 570 range per quarter I guess uh from from here on as you look at the balance sheet I think I heard you say it a little bit less than 1 year duration. Overall um with rate Cuts kind of how you thinking about the trajectory from an AI off of that jumping off point and are there any things you're you could do today to mitigate the effects uh of potentially lower interest.

Right in the US.

Speaker Change: Yeah. So as I've said to you guys before, um, we have about a billion and a half of Securities that roll off every quarter and we can reinvest those that I think a 100 basis points over the, the yield, the runoff yield. So that's that's 1 area to do it. The second area, obviously, as we've been very focused on our deposit pricing and things of that nature. We, we are not just in US dollars in deposits as well. So we took we take a look at opportunities across all the different currencies and there are rate cuts that are going to be, I think realized with some of those currencies as well. Um, so from our perspective it's really going to be a question of um, you know, the reinvestment going out a bit longer when we have the opportunity uh not just to protect Q3 and Q4 but to protect, you know, 26 as well.

Speaker Change: Great. Thank you.

Houston: And up. Next is can Houston with autonomous research. Your line is open.

Speaker Change: Hi, good morning. Um, I did was to ask you to follow up on your comments about the asset servicing fees. You mentioned that the transaction activity was really strong. I'm sure part of that is just the core business, but was part of that just in relation to the April dislocation and I guess kind of, how would you help us? Understand the push and pull between organic growth and markets? Help that you already have baked in for the third quarter versus some of the stuff that might have been like above Trend just given the environment.

Houston: Thanks.

Houston: Business in the house, we've not lapped that yet. And so, I would say 0.5, you know, percent of the growth got got nicked by that. So as we get Beyond those 2 client losses, you'll see some more realistic numbers in terms of year-over-year comparisons on that. Um,

Houston: So that, that's the way sort of the way I think about it.

Speaker Change: And will those be out? What do you know when those will be lapsed? Are they lapped in the third quarter or after the third quarter? Yeah, they're

so yeah, after the third quarter, those have been lapped defensively.

Speaker Change: and so, you know, right now,

Speaker Change: Go ahead. Yep.

Speaker Change: No, go ahead. You follow up.

Speaker Change: No. So, I mean, basically, the quarter was client neutral, I mean, when you think about it. So, um, from that perspective and you know, keep in mind, when you look at the asset servicing business, you, you know this, I'm sure. Uh, it's on a quarter to lag basis, right? So, um, you've got to take that into consideration as well. Uh, that also affected the wealth business. Um, you know, wealth wealth is on a a obviously, on a month lag basis and q1, you know, if you look at the S&P it was down 5%, NASDAQ down, 10 and a half percent. So take all that into consideration as you're taking a look at those absolute levels.

Speaker Change: Yeah. And um, follow up just on the website, just like the layout that you gave in in that Mike gave in in, in the prepared remarks on the slides. You know, any any any change in just the organic growth rate, um, in wealth. I know you have a lot of these initiatives going forward, but when, when you think we'll, we'll start to see, you know, a definitive like observable change in the organic growth rate their

Speaker Change: Yeah. So as we talked about we we are seeing positive organic growth in the wealth business. Um but it is not at the level that we want in our targeting and to your point, it it's a it's a little bit more of a, you know, gradual uh, increase in momentum and the way we're going about it is a few different ways. You know, the first and you heard this in my comments again but is, you know, from I'll call the segmentation perspective. So we're trying to get more focused on certain segments so that we can increase the rate there. Um, we've had that in gfo so we're trying to essentially replicate that in the ultra high net worth segment but it it's it's early days on it but the win rates are heavier or higher. Um and as a result, we've also added more Talent on that front to be able to, to continue to increase the the growth rate of that segment. And then I would say, you know, as you go down to the, the tiers below that, that's where we're really focused on particular markets. Uh, Geographic markets, um, where

Speaker Change: Essentially what we're trying to do is get our Market penetration, you know, more in line with the way it is in our more mature markets. Uh we have very strong market share in Illinois in Florida as as maybe you'd expect you know High success rate there. But we're trying to do the same thing uh in in Northern California. Southern California. Texas New York where our market share is still you know low relative to the the potential and on that front I would say you you heard some of the you know the organizational changes adding some additional leadership some from the outside. But also, you know, we're going to be hiring more Revenue, generating roles, uh, in those markets to be able to drive that, but that to your point, it takes some time to get, you know, more people on board, uh, get them up to speed, uh, and to get then that higher level of organic growth, but we're extremely focused on it.

Mike Mayo: Great. Thanks a lot, Mike.

And up. Next is David Smith with truist. Your line is open.

David Smith: Thank you. Good morning. Um, any caller on what's driving the the strength and deposits of this quarter.

Speaker Change: Yeah, I mean, we talked about it last quarter a little bit. Um, you know, obviously uh,

Speaker Change: The, uh, there was a bit of a risk off, uh, trade that we, we took advantage of During the period. So from that perspective, they are running a little bit higher. I will say, uh, in the current quarter, they're starting to to normalize, uh, and that's probably why I'm keeping the guide where it is. And and when I look at third and fourth quarter, third, quarter tends to always be a little bit weaker just because of a seasonal pattern, fourth quarter picks up a little bit. But they, they're beginning to normalize back to what I would say is a, you know, a more, a more predictable run rate. We did have in particular, and in the swap activity was driven by this. We had a very extremely large, uh, Euro deposit that came in. Uh, and this is why I always tell you folks that we want to have a flexible uh uh balance sheet. Because we have a very large clients that come to us, not just for loans but for deposits as well. So we did have some uh you know, deposit activity that was concentrated among some very large clients in the quarter as well.

Speaker Change: so far on the third quarter,

Speaker Change: Yeah.

Speaker Change: I mean, it's, it's back to where we thought it would be. I mean, the average is 122, uh, for this quarter. I think it's, it's, it's if you take a look at our last 3 quarters, but before The Liberation day and the risk off trade, it's back to those levels.

Speaker Change: I think you, you said that uh, flows and asset servicing were relatively neutral in the second quarter. Um, any, any detail you can offer on segments where you're seeing stronger growth versus where there's more opportunity for catch-up?

Speaker Change: Yeah, I I would just go back to, uh, the the up Market of asset owners. You heard about some of the, the wins that I talked about there, which are, you know, significant, uh, clients at this point, you know, relatively large clients as well. So, so that's where we're seeing particular strength on that front. The, the other thing I would just say is, you know, we we often are impacted as well by the success of our clients, uh, and

Speaker Change: Every time period, where, uh, for Market reasons and others, that some of the, the strategies of our asset management clients, uh, resulted in net. Outflows for them. We've seen that stabilized. So so that's a positive for us as well on the asset manager side.

Speaker Change: Yeah. I I'd also add that AUM flows, which obviously impact both businesses were positive and liquidity was a real standout and that uh is biased towards the institutional business. But you know, 8 billion in in in in the second quarter 19 billion year to date on liquidity side which represents our 10th consecutive quarter of positive, liquidity flows and that's obviously great for our business.

Speaker Change: Thank you.

Brian Padell: And our next question comes from Brian. Padell with Joyce Bank. Your line is open.

Brian Padell: Oh great. Uh, thanks. Thanks, good morning, folks. Thanks for taking my question. I appreciate all the extra uh, color, uh, on in the slides and your commentary today and the businesses is really great. Um, and 2 questions. Maybe the first 1, uh, they're both going to focus on wealth management. But the first 1, um, going back to the efficiency initiative within wealth management, particularly on the digital side and, and AI. Um, and and and automating some more of the services. Um, can you comment about like, um,

Brian Padell: How that's, um, enhancing the ability for, you know, uh, for for client delivery and relationship management and just thinking about some of your differentiating aspects, as a wealth manager. Obviously the personal relationship side is a is a huge 1 is is there any risk of of getting too automated um or rather? Do you see it as really just enhancing

Brian Padell: Answering and it actually strengthening the relationship. And and then um in in that vein, um you you've always you've gone sort of up market for, you know, really the last couple of decades in terms of the services. Any interesting moving a little bit down Market within within the wealth Spectrum to potentially improve that organic growth rate.

Sure. So on the, on the first 1, I what I would say is definitely uh, those initiatives are focused on enhancing the client experience and and let me be more specific about what we're doing on that front. I I would put it into to the, to 3 categories. Uh, the, the first being processes, the second being what we would call Partners or the employees. And then the third being with clients on the processing side. If you just think about all of the documentation that is involved, with client relationships, you know, and in this case, I'm speaking about wealth management. So think about trust documents and things like that, the ability to use AI to digitize those documents. Uh, definitely creates productivity for us, but also makes it easier for the employees to be able to utilize that information. So that's the type of thing we're doing to to, you know, improve the client experience. Uh as a part of that um specifically on the partner side.

There are employees making them more efficient, giving them the tools to be able to do things, you know, more quickly. So on that front, we

Brian Padell: Dancing in that way. And then also certainly the client itself. And I would say that's where providing them additional capabilities that, uh, enable them to do things. I'll say on their own, uh, because of the technology uh, is is kind of the third aspect or wave of what we think we can do with the AI. So all of that, you know, to answer your question, goes to the experience, but it also produces the, the efficiency and the productivity. And then with regard to the, the markets, uh, you know, you're thinking about the the direction of travel of our strategy correctly, you know, which is we're trying to say, how do we, you know, replicate for the different tiers such that we get higher organic growth overall. And so you heard me talk about obviously gfo but then ultra high net worth and then absolutely, you know, below that level. Uh, so think kind of anywhere from 10 million to, you know, a hundred million dollar segment, we are further refining.

Brian Padell: You know, what is the value proposition specifically for those groups of clients and Prospects? Um, and how can we then as a result, uh, increase the the growth rate there, um, you know, to your point we we see stronger organic growth right now, you know, in everything above kind of the 10 million segment, you know, versus below. And so the more we can uh, differentiate what we're doing on those different tiers, we think it it gives us stronger growth across all of them.

Brian Padell: That that's great color. And then on on Alternatives, uh, you mentioned, I think a 5% orderly less than 5% penetration across the franchise but um, gfo obviously much more, you know, much higher more institutional based if you um um, can you can you strip out the allocation between those 2 segments? And I guess what I'm getting at is excluding gfo. What do you really see as the current penetration uh and therefore the runway and do you do you currently have all the right products um available and what I'm really getting at is like the access to the to the largest um even publicly traded um alternative managers or private Market managers that have you know, democratized product in the channel. Do do, do your clients have full access to those yet?

Speaker Change: Sure. So, uh, I, I'll comment on on gfl a little bit, but Dave, certainly add. But the, the way to think about gfo is really more thinking about the assets that we custody for them. Um, and, you know, again, you know, very large, uh, dollar amount of it, the amount that then is invested with us through, uh, Alternatives is relatively small so that the, the, uh, penetration level if you will, is even lower than it would be in our, you know, core wealth on that front and a lot of it's because they're, you know, going direct to the largest managers on their own. Um, but we have found that, you know, we have the ability to bring differentiated opportunities to them. Um, some of them,

Speaker Change: Do utilize uh 50 South but also often, they're utilizing the, I'll call it the research capability of 50 South where there will where we will then bring certain managers to them that they might not otherwise, uh, have access to. Um, so that's how to think about the the gfo side of it. And then, you know, more broadly or certainly with, uh, core wealth. I I would say it's it's less about, you know, providing access to things that they don't have or that we couldn't get access to, it's just providing more of it. So some of the largest, uh, alternative managers. We do have them on our WM alts platform, our third, uh, party funds platform. Uh, and so, we'll continue to provide some of that. But frankly, uh, our clients, uh, tend to be interested in things that are more bespoke or, uh, you know, hard to get tight managers where we do have the relationships, uh, through 50 South and as a result, we can provide those types of funds and then I would also

Speaker Change: Say just with regard to Vehicles, we expect that the uh Vehicles will continue to evolve, you know, from what used to be the you know, straightforward funds, you know to then what will be you know, interval funds to Evergreen funds. So this whole idea of democratization of Alternatives that's going to continue to evolve. We're going to make sure that we have the right vehicle.

Space. Yeah, I would, I would just add to that particular, on the gfo front. I mean, access to top managers is not a problem. We, we have the client base

Speaker Change: That all the top managers want. I think we are extremely Discerning. I have a very high bar in terms of what makes it onto our platform. Uh, and if it fits our client base accordingly, the other thing I would say is um we're doing a lot more on the uh alternative advisory front.

Speaker Change: Have not seen a lot of realizations uh in the recent uh, past and have come to us with a, you know, with a bent towards. What do I have and what should I do with this existing portfolio? Uh, and so we've been restructuring a lot of that stuff for them, giving them advice on that to make sure they've got the right mix uh within their portfolio. So it's not just selling our own products. It's also taking a look at what what they've done and giving advice on all that.

Speaker Change: Right? That, that that's super a great color. Thank you so much.

Speaker Change: Sure.

Speaker Change: And up next Gerard Cassidy, with RBC. Your line is open.

Speaker Change: Hi, good morning. Uh, this is Thomas, Ley, standing in for Gerard, uh, just giving all the recent headlines. Can you give us your latest thoughts on stable coins, and how broader adoption could impact both your businesses and then deposit levels?

Speaker Change: Sure. So, we're excited by the direction of what, I'll just call, you know, more broadly digital assets. You know, this is an area that, you know, we've been embracing for some time and developing capabilities for some time. And we really do feel like we're on the, you know, the precipice of the next stage of evolution, uh, for digital assets. Uh, and specifically, it is starting with stable coins, uh, and and we think it'll evolve into tokenization of, you know, a number of different, uh, asset classes, on that front. And so we've developed the capabilities uh, to, to be able to

Speaker Change: To, you know, do both stable coins. But also uh tokenize assets that the key part of it is going to be, we've done them on private blockchains. A lot of this now will move to public blockchain. So we need to have the capability to interact, uh, with the public blockchains on that front, uh, and are planning to do that. Um, we've already, uh, done a number of things with tokenization for carbon credits uh, in other areas. Uh, and so we just see this as as the next stage uh for this.

Speaker Change: Thank you, that's helpful. And then just quick follow-up. So, uh, it appears, you know, expected regulatory relief for the industry. We'll have a pretty big impact on, at least the money center Banks, you know, we saw the recent stress test results and then the resulting Seb is coming out of that. Uh, can you just share your thoughts on the potential benefits for Northern Trust? More specifically from expected relief?

Speaker Change: I'm sorry, I didn't quite you. Your phone cut out there for just a minute. Can you repeat your question, please? Yeah, of course. Sorry about that. So, it appears the expected regulatory relief. Uh, for the banking industry, will have a pretty big impact on. At least the money center Banks, we saw the recent, uh, stress test results, and the resulting sebs can you just share your thoughts on the potential benefits more specifically for Northern from expected relief.

Speaker Change: Yeah, so we, we would say that that the regulatory environment. As we look out, is, you know, very constructive. Uh, overall, um, there's a number of changes. I think they're trying to, to, uh, uh, to make and, and, you know, from our perspective, whether it's across Capital, uh, liquidity. Um, but also, as they think about how they, uh, regulate operational risk, all all of this is, you know, setting up for a constructive, uh, environment for us on that front. A lot of it is around predictability, uh, and we do feel that we're in a, a time period here. That allows us to ensure that we have the right uh, risk management framework at the company. The right controls we've made Investments over the last number of, uh, Quarters on that front. We have more to do but feel very good about, uh, the results that we're getting from that. And we think it aligns with, uh, the regulatory environment.

Speaker Change: Okay, great. Thank you for taking my question.

Speaker Change: Sure.

VC Junia: And our next question comes from VC Junia from JP Morgan.

Thank you. My question, a follow up on some of the questions that have come up on the call. Today, I hear you you want to um increase your operating margin on the custody of the servicing business.

Speaker Change: To the high 20s.

Speaker Change: Service. Um, ability is why not split the 2? Why is that not a consideration?

Speaker Change: So the the business model for Northern Trust is highly integrated. I when you think about just the the various segments, there's a number of ways. Why we have a 1 Northern Trust strategy is because of the interplay between the businesses. So we've talked a lot about the success and differentiation, we have with gfo, you know, that the, the platform behind gfo is our asset serving platform, you know? And the technology much of it, uh, is from our asset servicing business. When you think about the financial, uh, aspects of of the company, a lot of the deposits that we generate on the institutional side through asset servicing and what we're doing for those clients, get deployed through wealth management and our ability to offer credit to, you know, both our core wealth management clients. But importantly to those gfo clients as well. And, you know, needless to say, you know, the integration of our asset management business with the other 2. Uh it is highly aligned.

Um, and it's not just I, I would say distribution channels for asset management but it's the things that we talked about here. It's the co-creation of product to get better outcomes for our clients. So, you know, we believe that the model is integrated. Uh, we know that we have to be able to demonstrate that the profitability of all aspects of the business and the company overall.

You know, to your point on those margins, you know, the only difference between, you know, saying that the target is, you know, in the 30s for that business and it's a high 20s. We have to get through the high 20s, to get to the 30s. So, uh, we, we certainly wouldn't stop, uh, when we get it into that range, it's just trying to say, you know, how do we get there first and then we'll move move above that, from there?

Speaker Change: And the high 20s might.

Speaker Change: Go ahead.

Speaker Change: No, I would just, I would like to emphasize particularly for the family Office business, that it isn't just about Investments, right? So it's about operating Alpha.

Speaker Change: And at the end of the day, a lot of these family offices don't want to be in the vendor management business. They would much rather go to a firm that has the scale and ability to help them operate, the full infrastructure inside of family office, you know, and that's what we've got. And we have that scale through gfo uh and and by leveraging off our asset servicing business to do that. So um, you know, when you think about a family office infrastructure, it almost looks and feels a lot like a very sophisticated investment office and a lot of the tools like front office solutions that are used by. Those sophisticated asset managers are also used by our family office clients so that Interlink is incredibly important.

David Smith: Okay? And, and, and Dave, let me thank you. Uh, join the, the chorus of, um, applauding you on the increased disclosures, it's taken us. Several years to get there, but thank you for doing that.

Speaker Change: Did it just for you?

David Smith: Yeah.

Brennan Hawkins: And our next question comes from Brennan Hawkins with Bank of Montreal. Your line is open.

Brennan Hawkins: Good morning. Thanks, thanks for taking my question. Um, morning, I uh, I I recognize you gotten a lot of questions on this, uh, and I also appreciate that. Uh, it's disruptive. I I I really do. Um, but some of your shareholders have asked me to ask a fiduciary. Obligation question here. Um, at Mike, I'd like to explore your conviction. That remaining an independent company is in shareholders best interests.

A couple sub points, like you said in your prepared marks that you're well, positioned to continue to create value. But, you know, when I pull up the comp

Brennan Hawkins: Function for Northern and Bloomberg. It just shows the past 5 years.

Brennan Hawkins: The stocks Swag, like all of the relevant benchmarks and and the clothes peers, I I I appreciate that. You're some of your customers, want you to be independent, but, you know, the company isn't structured as a mutual. So so it's owned by the shareholders is not the customers. So so why be so categorically closed off to exploring those options. Um, when it IT the independent path has has resulted

Brennan Hawkins: In the stock wagon.

Brennan Hawkins: We have an exceptional board. They take their fiduciary duties, uh, extremely seriously. Uh, and so, they understand the duty that they owe to the shareholders, um, and that's how they operate. So, that that's the framework at which they look at everything and, you know, you heard where they stand, you know, with regard to the strategy. But they also understand that they have to always make sure that they're upholding those fiduciary duties. So, so that's the first 1, and hopefully that's Crystal Clear. Um, to your second Point, uh, you know, just stepping back a little bit on. I'll say, performance over time. Uh, I I think you can divide it up into some different time periods, uh, to just kind of understand the stage that we're in right now. Um, you know, you use 5 years we could use any number of different time periods, but there, there was a, a time period for a number of years where we were operating very much within our Target financial model.

Brennan Hawkins: Model. Um, you know, frankly going into uh Co and coming out of co uh the growth rates, you know, for Revenue both organic and overall you know, we're within that Target financial model. Our average pre-tax margin uh was about 32% over the that time period uh earnings per share grew at double digits over that time period. And then as we've talked about, we then have gone into a period where we've made some Investments, uh, in the OR

Brennan Hawkins: Organization a number of them across uh, enhancing and bolstering the resiliency of the company, uh, which again, we've tried to to detail and outline, uh, with investors. Um, and we've also invested in the businesses. You know, we've built out a number of these capabilities that we talked about, uh, so that we can, uh, have long-term organic growth and sometimes you need to make those Investments that, you know, can hit margin, uh, in the short term, but produce the opportunity to grow from a much longer time period, uh, over that and going forward. So as a result, you know, whether you, you know, again, use 4 years or 5 years or 3 and a half years or whatever it is, you know, over that time period our financial performance in that period, you know, has lagged and has not met up with our long-term, uh, standards and expectations for performance. Uh, and that's why, you know, going to the beginning of 2024, we launched the 1, Northern Trust strategy because that was going to take us forward for the next

Brennan Hawkins: You know, say 4 year, uh, time period over that so we're, you know, call it a year and a half into that uh, executing on it and and hopefully you and others heard today with our progress, you know, we've tried to be very objective and even clinical about how we look at our our performance and what we're trying to convey is, you know, we have good momentum, but we're nowhere near finished with executing on our strategy but given the proof points that we see the strategy is working.

Brennan Hawkins: And it's a matter of staying focused on that strategy and executing it in order to see the performance, you know, for all of our constituencies. So, yes, including clients and our partners that are working on this and and others but specifically for shareholders as well, through improved financial performance, which will translate into improved stock price performance as well.

Right. Okay Mike. Thank you for the um for the clear and thoughtful and answer to what can be a very charged question. So I appreciate that and um for the first time and I don't know how long I my follow-up actually is related. Um so uh great to see the Roe Target, come up.

Brennan Hawkins: um,

Speaker Change: But like if if, if this is if you guys are moving all in and staying independent and totally committed why not re underwrite uh, some of these targets. Um, you you said you've been at the upper end of the new Range. Um, but you also said that recent performance has sort of lagged, so why not up the ante and make the Roe target range in its entirety? Not just the lower end but the upper end too. Move higher, and really press for some value creation.

Speaker Change: It's growth and returns. And so if it was a matter of just can you you know top tick on the highest Roe in a particular period of time. We don't think that creates the greatest value for shareholders, they, they want growth as well. That's why our strategy is also about organic growth because that's what generates more, you know, shareholder value over time is the combination of the 2

That's great. Thanks so much, Mike.

Okay. Thanks Brandon. Appreciate it.

Speaker Change: And there are no further questions in queue. At this time, I will now turn the conference back to Jennifer child for closing remarks.

Jennifer child: Thank you, operator. And thanks everyone for joining us today. We look forward to speaking with you again in the future.

Speaker Change: Thank you, ladies and gentlemen, this concludes our call for today. You may now disconnect and thank you for participating.