NORTHERN TRUST CORP Q3 FY2024 earnings call

• Third Quarter Performance: Results benefited from strong market performance, with Trust fees up 8%, net interest income growing 21%, and EPS up 36% excluding notables. Wealth Management had 9% year-over-year Trust fee growth and record AUM. Asset Management had positive liquidity flows and new product launches. Asset Servicing had healthy transaction volumes and new business growth at attractive margins.
• Organizational Changes: Jason Tyler became President of Wealth Management, Dave Fox became CFO. Pete Cherecwich is COO, Teresa Parker took over Asset Servicing, and Steve Fradkin focuses on the One Northern Trust strategy.
• One Northern Trust Strategy: Collaboration between businesses to provide better client solutions, e.g., partnering with Artemis to outsource trading activity for its equity funds and derivatives, supporting the complete life cycle of investments.

Asset Servicing: Assets under custody and administration were $16.3 trillion at quarter end, a 23% year-over-year increase. Asset servicing fees totaled $667 million, with custody and fund administration fees at $453 million, up 6% year-over-year. Assets under management for asset servicing clients were $1.2 trillion, up 22% over the prior year, and investment management fees within asset servicing were $153 million, up 11% year-over-year. Wealth Management: Assets under management for Wealth Management clients were $444 billion at quarter end, up 20% year-over-year. Trust, investment and other servicing fees for wealth management clients were $530 million, up 9% year-over-year. Asset Management: Generated positive liquidity flows for the seventh consecutive quarter and positive flows in tax advantaged equities, active fixed income and alternatives. Year-to-date, NTAM has launched 13 new products, including a treasury only money market fund that has generated nearly $2 billion in flows. Net Interest Income: Net interest income was $569 million, a 21% increase from the prior year, driven by stable deposits, improved deposit pricing, and transactional items.

• Fourth Quarter Expenses: Expected total operating expenses to be up approximately 2% relative to the third quarter.
• NII Outlook: Anticipated NII for the fourth quarter is 550-560 million, slightly down from Q3 due to rate cuts and normalized transactional activity.
• Expense Growth: Target to bring expense growth below 5% in 2025, with investments in modernization and resiliency expected to continue for 2-3 quarters before declining.

• Market and Interest Rate Risks: Impact on net interest income due to potential rate cuts and the balance sheet's duration, which is less than one year.
• Operational Risks: Dependence on technology investments for modernization and resiliency, which may affect expense levels and require continued investment in the short term.

Q: Earlier this year, you talked about asset sensitivity across balance sheet categories. Can you update the floating rate mix?

A: Floating is about 50% at this point.

Q: Expense forecast beyond 2024? How long will investments in modernization and resiliency continue?

A: Investments in modernization and resiliency are expected to continue for at least 2-3 quarters, then start to decline.

Q: What is the outlook for net interest income going forward, especially with expected rate cuts?

A: Anticipated NII for Q4 is 550-560 million, slightly down from Q3 due to rate cuts and normalized transactional activity, but some offsetting factors like FX swaps and other activity may mitigate the decline to some extent.