Northern Trust Corp Q4 2024 Earnings Call Summary

The following is excerpted from the question-and-answer section of the transcript.

Question: Glenn Schorr - Evercore ISI Institutional Equities - Analyst : Hi, thanks very much. Quick follow-up on and thank you for the NII guide. I'm just curious on the durability of some of the underlying trends, meaning the 7% growth in noninterest-bearing deposits in the quarter. Like was there some parking of cash by clients that naturally flows out? And then if you could just clarify when you talked about made pricing decisions in line with market conditions, is that just rates came down and you lowered some deposit pricing on clients? Thanks.

Question: Glenn Schorr - Evercore ISI Institutional Equities - Analyst : Okay. I appreciate it. The other one I want to talk on is alternatives were a big part of your objectives across each of the Wealth asset management, asset servicing objectives. So my question is, a, are things accelerating? And then maybe you could talk about what is already built, what needs to be built. And then I think we're all curious on some specifics, like what product? What asset classes are seeing the most demand in?

Question: Glenn Schorr - Evercore ISI Institutional Equities - Analyst : I appreciate all that. Thank you.

Question: Brennan Hawken - UBS Investment Bank - Analyst : Good morning. Thanks for taking my question. Love to start out maybe a bit granular. In the past, you guys have spoken to targeting keeping, the expense growth in 2025 at 5% or better. Dave, you had some comments made in December industry conference where it seemed as though there was a little bit of uncertainty around that. Could you maybe clarify, is that a reasonable level to expect for 2025? And if not, what are the variables that we should watch?

Question: Brennan Hawken - UBS Investment Bank - Analyst : Got it. That's very clear. And then taking a step back, you guys provided some good details here in your strategic update, laying out the progress. But I'd like to maybe lay out a question that I get from investors a lot, which is the ROE targets. Do you think that the ROE targets are ambitious enough? The lower end of the range doesn't really suggest a ton of improvement from recent levels. And why is it that we haven't seen those ROE targets move higher, particularly as we've seen maybe some of the growth rates begin to swell?

Question: Betsy Graseck - Morgan Stanley - Analyst : Hi, good morning. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 23, 2025 / 2:00PM, NTRS.OQ - Q4 2024 Northern Trust Corp Earnings Call

Question: Betsy Graseck - Morgan Stanley - Analyst : During the prepared remarks, you were talking about how you've been able to get some of the expense improvements from asset servicing business lines, in addition to others, obviously. But in the asset servicing piece, with some headcount reduction, if I heard you correctly. And the reason I'm asking the question is Northern Trust has a long history of excellent quality service, right? Service quality is the other North Star that you've got for yourself, if I could borrow that phrase, and I'm wondering how have you been able to reduce headcount and keep that service quality high. In the past, it's been this friction point that's kept, I think, the organization from executing the kind of efficiencies that you're seeing now. And could you help us understand what is it that you're doing differently that's enabling this headcount reduction while maintaining the service quality? Is it something to do with where technology is today? Is it the AI? Is it something totally different, how you're organized?

Question: Betsy Graseck - Morgan Stanley - Analyst : Okay. And how do you see the forward look here? How many more years of this do you feel that you have to be able to leverage the new structure?

Question: Betsy Graseck - Morgan Stanley - Analyst : Thanks so much.

Question: Ebrahim Poonawala - BofA Securities, Inc. - Analyst : Good morning. I just wanted to follow up on the Global Family Office piece. Looking at sort of Slide 13, just talk to us, it was a priority in '24, I'm assuming it remains a big area of focus. When we think about the revenue growth, whether or not that should be sort of leading the way going forward, on a year-over-year basis, pretty strong growth in revenues within the GFO segment. It sort of plateaued out over the last few quarters. If you can talk to how we should think about revenue growth within GFO given the investments you made, given just the secular growth in that segment would be helpful.

Question: Ebrahim Poonawala - BofA Securities, Inc. - Analyst : Understood. And maybe just a separate question. So I heard you on the NII guide. How should we think about the gearing of the balance sheet? One, do you think that we are at a point where if the Fed were not to do anything, rates stay more or less same, NII and deposit balances should grow from here, all else equal?

Question: Ebrahim Poonawala - BofA Securities, Inc. - Analyst : But rate cuts alone, would that be incrementally positive or negative given the bad balance sheet mix? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 23, 2025 / 2:00PM, NTRS.OQ - Q4 2024 Northern Trust Corp Earnings Call

Question: Ebrahim Poonawala - BofA Securities, Inc. - Analyst : Okay, got it. Thank you.

Question: Alex Blostein - Goldman Sachs Group, Inc. - Analyst : Hey Mike. Hey, good morning, everybody. I wanted to ask you guys a question around expenses again. So I heard you loud and clear on the at or below the 5% number. I guess in the past, the revenue base or rather the expense base, sorry, used to flex a little bit more up and down with revenues. So I just want to understand a little better, has that changed at all, meaning that if you are in a sort of better fee environment in 2025 versus what you're contemplating? Are you still kind of committing to the 5% as the upper end of that? And maybe a better way to ultimately calibrate this is to talk about the expense to fee ratio that you expect for the full year 2025.

Question: Alex Blostein - Goldman Sachs Group, Inc. - Analyst : Got you. I know that all makes sense, like, obviously, ultimately, higher revenue comes with higher expenses, and that's a high cost problem. But I guess as you think about the expense to fee ratio, which would kind of normalize for that flex, so to speak, what do you guys are aiming for 2025? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 23, 2025 / 2:00PM, NTRS.OQ - Q4 2024 Northern Trust Corp Earnings Call

Question: Alex Blostein - Goldman Sachs Group, Inc. - Analyst : Got it. Okay. That's perfect. Thank you, guys.

Question: David Smith - Truist Securities - Analyst : Your capital levels are still pretty elevated versus your closest peers at 12.4% CET1. Can you talk about how you expect to use your capital in the near term and where you might want to bring your capital levels to over the next year or so?

Question: David Smith - Truist Securities - Analyst : Thank you. And then separately on NII. If I just take the midpoints of your 1Q and full year NII guide, it would suggest NII staying pretty consistent throughout the year, at least on average. Is there anything that we should be considering in terms of the cadence there across the cuts, in the forward curve as well as your expectations for loan growth or balance sheet shifts? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 23, 2025 / 2:00PM, NTRS.OQ - Q4 2024 Northern Trust Corp Earnings Call

Question: David Smith - Truist Securities - Analyst : Understood. Thanks.

Question: Brian Bedell - Deutsche Bank Securities, Inc. - Analyst : Hi, good morning, folks. Thanks for taking my question. Maybe just on the NII line and then correlate that with expenses because clearly, you're what you can manage more -- with more certainty is the expense to Trust fee ratio. I guess the question is, to the extent NII oxalates around that sort of range to say if it is lower. Are you still keeping a target of generating total operating leverage on total revenue, not just fees, but combined with NII? Or would you just really just focus on the fee side?

Question: Brian Bedell - Deutsche Bank Securities, Inc. - Analyst : Yes. That's good color. And then maybe just shifting over to the Wealth Management business and sort of the mission of improving the penetration within that channel Northern Trust Managed products, good success the last couple of quarters with the cash product that you mentioned Mike, which we can see in the results. How are you envisioning that over the next year, one to two years in longer-term product? Back several years ago, you -- I think that the mix of NTAM product within the channel was in the north of 40%. It's in the high 30s now. Do you see that getting back to the mid say, low to mid-40s over time? And then how do you think about the incremental revenue pickup from doing that? Or is that kind of neutral? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 23, 2025 / 2:00PM, NTRS.OQ - Q4 2024 Northern Trust Corp Earnings Call

Question: Brian Bedell - Deutsche Bank Securities, Inc. - Analyst : Great, great. Thank you. Sure.

Question: James Mitchell - Seaport Research Partners - Analyst : Hey, good morning. Maybe just on asset servicing. So you guys obviously have narrowed your focus to more back-office custody. So it seems like the pipeline is still pretty solid. But how do you think about the organic growth from here, the trade-off between that and the improving incremental margins? And then secondly, how do you think -- it sounds like a lot of your larger peers are attempting the same strategy. So have you seen pricing pressure or competition increase for pure custody deals? Thanks.

Question: James Mitchell - Seaport Research Partners - Analyst : Okay. Just to clarify, so pricing, you feel has been better as companies just focus more on margins. Is that the takeaway?

Question: James Mitchell - Seaport Research Partners - Analyst : Right, great. Thanks for that.

Question: Steven Chubak - Wolfe Research - Analyst : Hi, good morning. So I wanted to start off with a question just given the strong performance and better organic growth, that was cited for Wealth and asset servicing, looking given the favorable trends that were cited, I was hoping you could speak to what drove the more subdued AUM and AUC growth relative to peers in 4Q? And are there any future plans to maybe include organic fee or asset growth targets in addition to the medium-term targets that you just unveiled?

Question: Steven Chubak - Wolfe Research - Analyst : And regarding any potential plans to include future organic fee or asset growth targets as part of like the range of targets that you guys just revealed? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 23, 2025 / 2:00PM, NTRS.OQ - Q4 2024 Northern Trust Corp Earnings Call

Question: Steven Chubak - Wolfe Research - Analyst : Understood. And if I could squeeze one more, similar line of questioning to what Brennan asked on the medium-term targets. I actually want to drill down into pretax margin target, given you already achieved a 30% profitability level in the back half of this year, I heard along on this call about the commitment to drive better efficiency from here. I was hoping to get some perspective or context as to what informed the decision to set the bar at 30 and not something higher in terms of the longer-term objectives?

Question: Steven Chubak - Wolfe Research - Analyst : Understood. Thanks so much for taking my questions.

Question: Gerard Cassidy - RBC Capital Markets - Analyst : David, when you mentioned in response to one of the questions about Northern is focused on building a sustainable financial model. Can you through the cycles, can you define what that sustainable financial model is from your viewpoint? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 23, 2025 / 2:00PM, NTRS.OQ - Q4 2024 Northern Trust Corp Earnings Call

Question: Gerard Cassidy - RBC Capital Markets - Analyst : Very good. And then a more macro question for Mike and you, David. What are some of the optimism many investors, we all seem to be sharing this optimism about the outlook for your business as well as the markets in general for 2025? The economy, we have a new administration coming in, as we all know. What are the risks that you guys keep your eyes on aside from the geopolitical global risks, which we all know about? But when you guys sit around at the end of the day and the outlook, again, appears to be optimistic, but what are the risks that you talk about and always keep your eyes on?

Question: Gerard Cassidy - RBC Capital Markets - Analyst : Very good. Thank you, Michael.