Good day, and welcome to the Northern Trust Corporation's Third Quarter 2024 Earnings Conference Call. As a reminder, today's conference is being recorded. At this time, I'd like to turn the call over to Ms. Jennifer Childe, Director of Investor Relations. Please go ahead, ma'am.

Thank you, operator. Good morning, everyone, and welcome to Northern Trust Corporation's third quarter 2024 earnings conference call. Joining me on our call this morning is Mike O'Grady, our Chairman and CEO; Jason Tyler, our new President of Wealth Management and Former Chief Financial Officer; Dave Fox, our new Chief Financial Officer; John Landers, our Controller; and Grace Higgins from our Investor Relations team. Our third quarter earnings press release and financial trends report are both available on our website at northerntrust.com. Also on our website, you will find our quarterly earnings review presentation, which we will use to guide today's conference call. This October 23 call is being webcast live on northerntrust.com. The only authorized rebroadcast of this call is the replay that will be made available on our website through November 23. Northern Trust disclaims any continuing accuracy of the information provided in this call today. Please refer to our safe harbor statement regarding forward-looking statements on Page 12 of the accompanying presentation, which will apply to our commentary on this call. During today’s question-and-answer session, please limit your initial query to one question and one related follow-up. This will allow us to move through the queue and enable as many people as possible, the opportunity to ask questions as time permits. Thank you again for joining us today. Let me turn the call over to Mike O'Grady. Michael O’Grady: Thank you, Jennifer. Let me join in welcoming you to our third quarter 2024 earnings call. As Jennifer mentioned, Dave Fox became our CFO on October 1, when Jason became President of our Wealth Management business. Jason will review our financial performance for the third quarter in a few minutes, and he and I will take your questions. Dave will take Jason's place on our fourth quarter earnings…

Thank you, Mike. And let me join Jennifer and Mike, and welcome you to our third quarter 2024 earnings call. Let's dive into the financial results of the quarter starting on Page 4. This morning, we reported third quarter net income of $465 million, earnings per share of $2.22 and our return on average common equity was 15.4%. Our reported results included a $68 million pretax gain on an equity investment, and a $13 million escrow payment associated with our existing Visa swap agreements. Together, these two notable items boosted other operating income by $55 million pretax and $40 million after tax. Trust, investment and other servicing fees totaled $1.2 billion, a 3% sequential increase and an 8% increase compared to last year. Net interest income on an FTE basis was a record $569 million, up 7% sequentially and up 21% from a year ago. Our assets under custody and administration were up 5% sequentially and 23% as compared to the prior year. Our assets under management were up 6% sequentially and 22% year-over-year. And overall, our credit quality remains very strong. Excluding notable items in all periods, Other non-interest income was down 5% sequentially and down 3% for the prior year. Revenue was up 3% sequentially and up 10% on a year-over-year basis. Expenses were up slightly less than 1% sequentially and up 6% over the prior year and earnings per share grew 36%. Turning to our asset servicing results on Page 5. Assets under custody and administration for asset servicing clients were $16.3 trillion at quarter end, reflecting a 23% year-over-year increase. Asset servicing fees totaled $667 million. Custody and fund administration fees were $453 million, up 6% year-over-year, reflecting the impact from strong underlying equity markets and a weaker U.S. dollar. Both comparisons were dampened by the…

Thank you. [Operator Instructions] We will take our first question from Steven Chubak with Wolfe Research.

Hi. Good morning. This is Sharon actually filling in for Steven this morning. Jason, earlier this year, you had talked about the asset sensitivity across the different categories on the balance sheet. So cash 100% sensitive to short rates, loans and securities, about a third floating. Can you give us a quick update on the floating rate mix just given that you've done a couple of securities repositioning actions since the last time we updated?

I'm sorry. I didn't catch on. Can you -- I just want to make sure I answer your question really precisely. Can you do it again a little louder?

Yeah. Sure. Sorry. So earlier this year, you talked about the asset sensitivity across the different balance sheet categories, cash 100% sensitive to short rates and loans as well and securities book about a third floating. Just given some of the securities repositioning actions you've taken since that update, can you give us like a quick mark-to-market on the floating rate mix?

Yes. Floating is about 50% at this point.

Okay. Great. And then, as we look at our expense forecast beyond '24, can you just frame how much of this year's expense growth was inflated by investments in resiliency? When those investments should be completed and whether we should expect those investment dollars to fall to the bottom line or get redeployed elsewhere in the franchise?

Yeah. And just to clarify, you're asking about the expense investments in modernization and resiliency and how that's going to trend over time?

Yeah.

Yeah. So we do expect that, that will continue for the next at least two, three quarters. But at some point, likely late next year, we’ll start to see it decline. We don’t have any plans to dollar for dollar thematically redeploy that somewhere else. This is more of a distinct effort to try and address our desires to improve modernization and some other technology and automation efforts in the business.

Great. Thank you very much.

Sure.

We will take our next question from Ebrahim Poonawala with Bank of America.

Hey, good morning.

Good morning, Ebrahim. How are you?

Good and congrats, Jason and David on your new roles. Just maybe following up on expense and more broadly, going back to the leadership changes that were announced back in September. Maybe Mike, Jason, give us a perspective of, I think, I hear frustration from investors from time-to-time around just the focus on operational efficiency kind of not translating into bottom line results. What -- should we read into these changes, realignment is something a little bit out of the ordinary in terms of what it means for operational efficiency going forward? Would love any perspective there. And how we should think about incremental expense spend? I heard what you responded to Jason. But I'm just wondering, is all of this baked into the expense base as we come out of the fourth quarter or will there be more additional expenses and investments tied to resiliency? Thank you. Michael O’Grady: Sure, Ebrahim. It's Mike. I'll start off. So I would say, we believe in structure following strategy. And so, the organizational changes that we announced in September reflect the strategy that we've put in place going back over a year ago, and we've tried to keep very straightforward, which is focused on strengthening the foundation, optimizing our growth and driving productivity. And we already mentioned the changes with Jason and Dave. But importantly, one of the other big changes was creating the role of a COO, Chief Operating Officer, which Pete Cherecwich will be the COO or is the COO company. And with Pete's decades of experience in managing both complex client relationships, but also global operations, he's really well positioned to drive operational excellence, resiliency and also scalable growth. So to your point, we are very much trying to align the organization in such a way that we can get greater scale and operating efficiencies and resiliency out of the company on that front. Teresa Parker took over the role of President of Asset Servicing for Pete, to work through that organizational transition to ensure that we do it in a way that we continue to be client focused and differentiate ourselves in that way. And likewise, Steve Fradkin is a Vice Chair and importantly is focused on the One Northern Trust strategy and operationalizing all the things that we do on that front. So I feel very good about the organizational changes to help us drive the strategy.

Got it. And I guess, so if I may follow up on just the NII question, Jason, for you. It was a positive surprise this quarter, when we look at that $569 million in NII this quarter. If we get some gradual rate cuts, given the positioning of the balance sheet, if the deposit backdrop is stabilizing, should we expect NII continues to grow from the third quarter levels?

We're -- there's some good news in the NII results for sure. And even though it looks like deposits were just flat. Underneath that, we had meaningful exits of some very thinly large deposits. And we knew that coming into -- that those were going to leave coming into the quarter, that's part of the reason we anticipated deposits being down. But we were pleasantly surprised by the fact that in other areas of the organization, that level of deposit was replaced with much more attractively priced deposits. You add on to that, we didn't see the typical seasonal decline that we go through in August, in particular. And so, it's not just the deposit levels holding in, but the underlying nature of the deposits and where they are now is much better. That said, if you look into the fourth quarter, we're anticipating rate cuts. And as much as we feel good about the strength of the book -- the deposit book right now, it's hard to offset the deposits fully. And so an increase from here would have to call it unlikely as possible. But that's why we think that -- in general, we're looking at a 550 (ph) to 560 (ph) level for fourth quarter in NII, which is still good, still very strong, but would be slightly down.

Thank you.

Thank you.

We will take our next question from Alex Blostein with Goldman Sachs. Michael O’Grady: Hey, Alex.

Hey. Good morning, everybody and congrats to the whole team on various moves. Just to level set the NII discussion, just one more time. So Jason, it sounds like Q3 had $10 million to $15 million of sort of elevated transactional activity. Do you expect that to basically fall off in Q4, and that's what's partially driving the kind of the sequential decline and maybe expand on kind of what those were? And on deposits, this is the right jumping off to use as far as cost of deposits go, right? And then obviously, deposit betas are likely to be fairly high from there, but I'm just kind of trying to level set on the go-forward potentially beyond the fourth quarter guidance that you have you highlighted.

Sure. So let me try and go in reverse order. On deposits on the launch point, I feel like this is a good level. And then if I come back to the third quarter items, there's the core asset and liability pricing, but there's also another element of FX swap activity, FHLB dividends, premium AM. FTE adjustments, repo activity, leveraging the whole basket of other things. It doesn't add up to a lot. But -- and there's -- usually there's put takes in that. Most of those went in our direction this quarter. And so that's that $10 million to $15 million elevation. But the way you ask the question is thoughtful because we actually don't expect all those to just go away into the next quarter. It's just -- part of it is the environment the way it is right now with the way rates are. It gives us more of an opportunity to do more FX swaps and to have other activity that adds to NII. And so we don't expect it to fully -- that lift to fully come down. It was more of an explanation of why we saw the elevation going from second to third quarter. And so that 550 to 560 (ph) largely is a reflection of some of those items going to more normalized levels, but also impact of rate actions with different central banks that are going to have a drag on the 569 (ph).

Got it. All right. Thank you for clarifying that. And then a question on expenses for you guys just with respect to maybe longer-term expense growth algorithm. And Mike, I heard your answer to the previous questions around the organizational changes that you guys have made, which are obviously substantially and hopefully can, further align the growth in the business with the expense structure. But I guess in the past, you talked about maybe this 5%-ish bogey for expense growth over time, hoping to be below that. This year is obviously shaking out to be north of 6, and there are some market-related items and stronger revenues to come along with that. So it's good news. But maybe help us sort of summarize, given these changes where you expect the firm's kind of longer-term expense growth to be over the next kind of couple of years? Michael O’Grady: So Alex, we're continuing to be focused on driving positive fee operating leverage and positive operating leverage with the level of our expense-to-trust fee ratio at this point for this quarter, year-to-date, it's still above our target range of 105% to 110%. So we want to continue to grind that down into that target range. And likewise, from a margin perspective, pretax margin, want to be in the low 30s as a target area as well. So -- that's the first driving goal. And then to accomplish that, we've had strong revenues this year, which has enabled us to achieve the leverage that we have. That said, can't always count on the strength in the market and a rate environment that may drive that. So we need to bring the absolute expense growth rate down further. And so that will be the objective as we go into 2025 is to achieve that operating leverage and also increase the probability of hitting it by driving down our expense growth rate below the level that it's been.

Got it. That’s helpful. Thank you, guys. Michael O’Grady: Thank you.

We will take our next question from Betsy Graseck with Morgan Stanley.

Hey, good morning. How are you doing? Michael O’Grady: Yeah. How are you?

Okay. So a couple of questions here. One on -- Mike, you mentioned the deepening of relationships as a key focus for growth going forward. Could you help us understand how that pivot is affected? Is there -- is that different from what you're doing before? Is it more -- just to key off the last conversation, is it more resources to hire or is it more products to deliver? And then how should we be thinking about where in the organization you have the most opportunity? Is this asset servicing, asset management, is it investment management? Is it the wealth platform? Help us understand how you're thinking about where the pockets of opportunity are richest for those deepening of relationships? Michael O’Grady: Sure. So Betsy, to your point, that is our One Northern Trust strategy, which is to ensure that all of the businesses and all of the groups within the company are working together to produce the best outcomes for our clients and likewise for other stakeholders. And from a client perspective, it is a combination of a number of things. So first, it is the businesses working more closely right from the beginning, if you will. So going to market and opportunities. So for example, with asset servicing and asset management providing an overall solution for clients as opposed to necessarily starting with one and then trying to cross-sell, if you will, the second opportunity on that front. As far as where the opportunities are? Definitely between asset servicing and asset management, but I would also highlight with Wealth Management as well. A lot of work has been done to ensure that the linkages between those two businesses are very strong and that we are thinking about the needs of our Wealth Management clients as we produce new investment management products. As I mentioned, we launched a number of new funds this year that were really off of the back of, I'll say, research that was done for some of the needs of our specific client base. We'll continue to do that in order to provide the right solutions for them. Also as far as the types of capabilities that we have to deliver, to your point, it is new products or new services. So I mentioned the Artemis, example, that's just the latest client where we're providing a new capability to them of outsourced trading or what we call integrated trading solutions, which we launched a number of years ago, and we've built that business up and taken this to a level where that capability works for clients of size like Artemis. So a lot of opportunity on that front as well. So as you can see -- go ahead.

No, you finish up, sorry. Michael O’Grady: No. Go ahead, Betsy.

Thanks very much for those examples. That was very useful. I just wonder, holistically then as we're thinking about not just the expense line, but just the overall impact on profitability. When you think about what you're looking to accomplish and opportunities you see in this pivot, how should -- how do you think that's going to translate into return on tangible or return on common equity? Michael O’Grady: Yeah. So there's no question that to the extent we already have the client relationship that the incremental services that we provide to them are more scalable for us. And so that's where it translates into more profitability overall. The second thing I would mention, Betsy, on that front is in thinking about the type of business that we're pursuing the most. As we say, we want more scalable growth on that front. And what we really mean on that front is focusing on new opportunities that require less in the way of new resources. So to the extent that we can win the business that is, again, more scalable for us, areas where we’ve had a lot of success, for example, this year with asset owners in America, but also in Europe, where we’re providing custody to them in a way that the incremental resources required, both in people but also in technology, are less than if we are adding other services or to other segments that would require that. That translates into a higher level of profitability overall. So that’s the objective on that front.

Okay. Thanks so much. Really appreciate it.

We will take our next question from Mike Mayo with Wells Fargo. Michael O’Grady: Good morning, Mike.

Good. I see 135 years best-in-class private banking relationships, all the One Northern Trust initiative and everything else happening. And then I see a stock price that has lost is premium versus the Trust bank peers and even trade 3 point below Morgan Stanley or something. So I'm just wondering how much -- and maybe this is an opportunity and if it is, let us know why. But how much of this is business mix? How much of this is the environment and how much of this is execution? And I hear what you have to say, strategy drive structure, drives execution should drive results. I guess that would drive the stock price. But I'm just trying to wonder how or why the same cast of characters can generate better organic growth in their new roles? And when I saw the press release come out with the CFO and COO and Head of Wealth and Head of Asset Servicing and Head of Family, of all changing at the same time. I just haven't seen something like that or I don't recall something like that. So Mike, you have a big perspective on that. But if you give that perspective on why you think this will change things? Thanks. Michael O’Grady: Sure. So Mike, it's a combination of both putting people into the new roles where we can leverage their experience, but also we brought in talent from the outside. So just over about a year ago, 1.5 years ago, we brought in Daniel Gamba to run Asset Management. And so we want to have both the benefit of people who really understand everything you talked about as far as Northern Trust and how we're client focused, but also new blood and new ideas from the outside. And we'll continue to do that as we go forward. Also to drive it, it does come back to execution. I mean to where we're focused, and so that's what we're trying to drive, that's where we spend our time on that front. And that will then ultimately drive not only the earnings but also the multiple for the stock. I think that another big part of this is the strategy around where that growth comes from. So that's why when we talk about the One Northern Trust aspect of it and the type of growth, that also affects the stability and growth rate of the earnings as well. So it's not just the earnings themselves, but it's the quality, as you know. So that's what it's all directed at the ultimately create value through the earnings and the multiple to drive the stock price.

And then maybe just as one follow-up. So the incremental extra that we might be able to expect by that fresh perspective by the managers bring in their new roles. Maybe Dave, as it relates to the CFO function, or Jason is right next to you. But incrementally, what would you like to emphasize a little bit more, maybe it's already started. And Jason, would you like to emphasize a little bit more and well to take it to the next level? Thanks. Michael O’Grady: Yeah. So what I would emphasize with those two, and then I do think it's a good opportunity for Jason just to give his initial thoughts here. But it is around the more scalable parts of our company overall. So not just products or service but company. And that is our Wealth Management business and our Asset Management business. So we are trying to grow those businesses organically faster than we have in the past. And so that's the tilt or the push, Mike, on that front. And I think with Dave, you and others will quickly get comfortable with. His deep understanding of the business and the strategic approach to it and also understanding of value creation. But Jason, do you want to talk just a little bit about just some of your initial views.

Yeah. Sure, Mike. So obviously, I've already been on the road a lot, and I know the business reasonably well and spent time just in the last few weeks, L.A., New York, Texas, I'm going to a really good client event tonight in San Francisco. And I -- but I do think there's opportunity for us to do more. And a framework to think about, Mike, is one way you can think about the business, the markets that we're in, the segments that we're in, which gets to where do we have specialization that we can deepen and hope to leverage more and then different solutions for our clients. And you know really well, we have a phenomenal client base and great talent across the organization. And so I think it’s very clear that there is more that we can do. And using that framework is a way that I think we can talk about it in the future where we’re putting the initiatives in each of those different dimensions to try to grow the business faster.

All right. Thank you.

We will take our next question from Brennan Hawken with UBS.

Good morning, Brennan. How are you?

I’m good. Thanks for taking my question. So I actually wanted to circle back on expenses. And totally appreciate the commitment that was made operating leverage and driving down expenses to fees. But based on the fourth quarter guide, I think my quick math suggested that we're going to be north of 6% on expense growth in 2024. And Jason, as you're sort of last act as at least CFO in name, right before the press release went out, you had said that you made another commitment to keep 2025 sub-5%. And so -- Dave is an internal candidate. So does that 2025 commitment hold with a new CFO? How should we think about it? And how -- like importantly, I understand operating leverage matters and whatnot, but expense growth has really been an issue. It's gotten more elevated here recently in recent years compounded a bit with inflation, but it's not a new issue for Northern. How is it that you guys can get this under control to a point where you can have a more steady cadence of operating leverage without having the bar quite high? Michael O’Grady: Yeah. So Brennan, part of it is the organizational change. So just fundamentally, that will involve centralizing a number of operations that are now more distributed. And so it's more than just, I'll say, committing to it. It's actually making changes to do that. The other part of it is you have to make the investments, where they're required and when they're required. That's part of managing this for the long term. And in the environment that we've been in as far as just the, I'll call it, the level of volatility and risk that's in the broader environment, we felt that making these investments in the foundation is the…

Okay. I look forward to getting some meat on those bones in the coming quarter. So that's great. If I could transition into the balance sheet, it looks like loans pulled back a decent amount this quarter. I don't think you touched on it. What caused that and how should we be thinking about loan growth or the outlook for growth or further decline in balances from here?

Sure. I've noted before, the loans and deposits can be very spiky. And the headline is there's nothing strategic or creating a trend that we see in what we experienced in the quarter. And then in terms of growth going forward, we've had initiatives in the past to specifically grow the loan book. We don't have that initiative right now. We're not trying to shrink it. And so you should think about growth in the loan book coming alongside growth in the overall client franchise. A lot of our lending, ironically, the deposits are more on the institutional side. The lending is on the wealth side of the business. And so the correlation will be more tied to growth in the Wealth business.

Okay. Thanks for that.

Sure.

We will take our next question from Glenn Schorr with Evercore.

Good morning.

Yeah. Maybe another question on the Wealth side. Like, we always want to grow Wealth. It's a great business, and you're great at it. You talked about the concept, maybe drill down a little bit more because I think you've been making some investments in people, products and new geographies. Maybe talk a little bit about that and include maybe a comment about the Hamilton Lane collaboration that you had a press release on yesterday. Thanks so much.

Yeah. So I'll start. So I think what you should see is, us investing even more aggressively at the upper end. We do really well at the high end of the market. And you see it very early in what Dave has been able to do with the GFO business because that's the -- on average, those are our larger clients, and that's been growing faster than the rest of Wealth. If you were to look beneath you'd be able to see that even within the regions, we're doing better at the higher end. That's where our franchise, and that's where our value proposition holds well. And we feel great about that. We can invest even more heavily there in revenue generating and client-generating professionals and in the town supports those clients from an experience perspective. So a lot of RIAs brag about having one or maybe two app tech fellows. And those respected people and Trust in a state point, Northern has 15 or 20. And so when clients are trying to go deeper in their state work, more complicated planning, we've got the professionals to do that. And that's part of the reason why just in that area, we do well, but also the same thing in investment advising and in banking. And so the more we invest at the upper end of the market, that's where we feel we're going to have a better return. So we announced an ultra -- a distinct ultra-high net worth group just this past quarter, and we're dedicating professionals to just that area where they're going to be dealing with clients at the very upper end of Wealth advisory. And working closely with the family office business to bring those capabilities into the more traditional Wealth space for us. And so there's a lot of things we're excited about that where we feel we're planting seeds for growth. And then I also look at just the talent we're being -- we're able to bring on board. Really exciting hires across the franchise that we think are going to be helpful to growing the business, growing the client franchise. Michael O’Grady: Okay. And Glenn, on Hamilton Lane, that is a partnership that we’re excited about, which is with our asset sourcing business to provide even better data and analytics on the private investments of our large institutional clients. As you know, as their asset allocators portfolios have moved more and more to private markets and alternatives, the capabilities required to due diligence them, analyze them has gone up. And we’ve had or offering front office solutions, which looks across the entire portfolio that we’ve been very successful with. And this is an addition to that will provide even better, as I said, data analytics to it. So very positive and promising.

All right. Thanks so much for all that.

Sure.

We will take our next question from Gerard Cassidy with RBC.

Hey, Gerard. How are you?

Good. How are you? Congratulations, Jason. Mike, you touched on Northern One a number of times in your prepared remarks as well as your answers to questions. As outsiders, investors, how should we measure the success of what you're trying to achieve? Your peers are using similar types of programs as well or strategies. I was wondering if you could somehow point us to some metrics that we can review regularly just to measure your success in pursuing this strategy? Michael O’Grady: Sure, Gerard. So to your point, using One is not unique. The fact that it's One Northern Trust is, what is unique about it because it's our business that we're focused on with it. And it's something that, Gerard, is really important, I'll say, within the company, but also in the marketplace. Within the company, we want to make sure that we're breaking down silos and that everybody across the company, regardless of what business or group you're in are working together, in order to get the right outcomes. And that can be, certainly, as we've talked about on the client front, it can also be in ensuring that we're getting the right efficiencies across the businesses, so that cuts across that way. And then as I mentioned, certainly going to market and with the client, we're stronger as Northern Trust than we are as any one of our businesses alone. So that's what's behind it. To your point on measuring it, the way that we're doing it is, we start with the specific objectives of what we're trying to do. So thinking about specifically, I mentioned, okay, how many times did we go to market with a new opportunity where it involved two or all three of our businesses to do that. That's something that we can measure, granted it's an internal measurement or metric, but it has to start there if it's going to flow through to the KPIs that the key performance indicators that we're then looking at, which really then it's going to be in our organic growth rate. And so that's what we're trying to drive is a higher organic growth rate. And so to do that, we need to see that collaboration between the businesses. That then flows into our financial performance overall when you add into it, the markets and the impact from that. So ultimately, you're going to see it in the financial performance. And we can provide, I'll say, some KPIs as we go forward here, that's part of what I mentioned with Steve Franken, who as you know, has worked across all of these businesses in one way or another over his career. And that's why we're looking to not just say One Northern Trust, but actually ensure that we're doing it by operationalizing a lot of those activities.

Very good. And I apologize screwing up the name Northern One -- One Northern Trust, but thank you. Jason, coming back, I know you touched on the net interest income expectations for the fourth quarter. And with the balance sheet duration, I think you said the entire balance sheet is about a year in securities portfolio is a little longer than that. If the forward curve is correct, and we do see a Fed funds rate by the end of next year in that 3.5% range, let's call it, in the long end of the curve stays incur above 4%. So we get a positive slope in the curve. I'm not asking for a guidance number on '25 NII. But generally, is that a favorable net interest income environment for you folks or can you share some color there?

Well, for various reasons, we came shorter on the securities portfolio. And so the rest of the balance sheet is pretty stable. The cash is what it is. And the loan book, we haven't done anything to strategically change the duration of that effectively. So the duration of the balance sheet and NII moves largely with what we do with the securities portfolio. And we did come shorter, that played out well for us. We did it for a variety of reasons. One was a view of the yield curve. And again, that played out well for us. At this point, if we look at what the yield curve is telling us, it's obviously going to be more of a headwind going into next year. So especially, if we see five, six, seven rate cuts, there's -- we're not going to change our risk tolerances, our philosophy, our approach on how we manage the balance sheet. So that's going to be a headwind. That said, there are some offsets to it that are occurring just in how we normally manage the portfolio. For example, one, we are feeling better the stability of the deposit level. So that gives us the ability to consider using more non-HQLA. Second, if we did see arise effectively in the base of the deposit book. And so we think deposit levels are positive. And then there's still a slight benefit into next year from the reinvestment of securities that are maturing, not as much as we would have seen before, but there is some. And so -- those are just some of the puts and takes. And you're right, it's too early for us to give a guidance, but I did want to make sure people realize all the different factors that are playing into it. There are some puts as well as the takes.

Very good. And is it fair to say that I think you pointed out to us in your Q, when you give us the interest sensitivity table that you guys are asset-sensitive presently at the end of the third quarter. Is that a fair statement?

Yeah, and thanks for clarifying that. I should have mentioned that in my summary of where we are, Gerard. So there is slight asset sensitivity at this point, just largely coming from the actions we’ve taken in the balance sheet over the last couple of years.

Appreciate it. Thank you so much.

You bet.

We will take our next from Brian Bedell with Deutsche Bank.

Great. Thanks. Good morning and congrats to you and everyone else on the organizational changes. Maybe a question for you, Jason, and Mike could chime in too maybe. But just going back to the organic growth comments, I appreciate all of the comments you've talked -- you've discussed in Q&A. In the Wealth segment, first and foremost, at focusing on organic revenue growth as opposed to asset growth. So I just want to confirm that. And do you see more of that organic growth coming internally? So from, let's say, selling more or providing more Northern Trust investment managed product, doing more potentially within the Wealth segment. Other things that you can do internally as opposed to getting new customers. So would we see more of the organic growth -- revenue growth coming from that? And if you could just think about maybe just what type of target organic growth rate are you looking for in Wealth over time?

Yeah. So let me start with the end. We're -- we have talked about somewhere around a 3% level of organic growth for the business overall. We've historically said that we'd like to see that we should expect a higher amount coming from asset servicing and a little bit lower amount from Wealth. I think we should try to be more -- have more of an expectation that, that's balanced. And so I think in the medium term, a 2.5% to 3% number for Wealth is reasonable. If we start to break it down with where that's come from, it's got to be a combination of both, new clients and doing more with existing clients. But within the existing client base, there's a lot of different categories that people should think about, and I want to try and focus on a couple to give a sense of where we're focusing because it's less for us about thinking about more product utilization. We've talked about that, but it's not something that we would aggressively target. And even more lending, if that comes organically, within our philosophy and risk tolerances, great. But not an area where we see we're going to be pushing the envelope and changing our risk tolerances. And so it's more thinking about our wallet share with clients, thinking about different solutions we can do with them. And also at the upper end of the market, to the extent that our overall client base shifts that way, those clients are still in a mode of -- they still gain Wealth. And so their growth becomes our growth. And our view is that, that's organic as well if they're putting more flows into our business, not just not their market growth, which we don't think of as organic, but there are new flows coming into the company. Then you couple that with what we should be able to do from a new client perspective and that's how we're thinking about getting to that organic growth target level.

Super helpful. And then maybe just a couple of cleanup questions. Just one on loan pricing. It looks like the yields went up. Is that a factor of the lag? I think you've got about -- correct me if I'm wrong, but I think a three quarters of the book prices within three months, that's variable rate and then there's a portion that prices over a longer time period. So just maybe if you can talk about the pricing relative to rates in that book? And then just one on expenses, and thanks for all the commentary on expenses, it's great. Just one question there would be that expense growth, which looks like 6% this year. You're targeting to bring that down if you have a really strong revenue year and you're generating operating -- positive operating leverage on total revenue, and your expense Trust fee is moving towards your goal. Is it possible that you'd still have expense growth that could be 6% or higher in that scenario?

Well, first, on the lags, you got them right in terms of the month lag. But just keep in mind, there's a small portion in both business that is daily as well, that's tied more to the extent that clients have more mutual funds. But that's a very -- that's a small dynamic. But you're right, in general, on the month lag. And then on the expense growth, and Mike likely want to comment on it here. One of the things we talked about last year was that we want to try to decouple this concept of, if we have a strong revenue growth, that should lead to a higher expense growth. Now some of that is inevitable because if we're growing the business, there are some expenses that are going to come along with it. We've talked about the impact of markets on expenses. But in general, we shouldn't -- we're trying to get away from that dynamic of projecting higher revenue growth. And therefore, tolerating higher expense growth. It has to be more of an absolute. And so we -- that's why next year, we came into this year with good confidence about being able to do 5% or less. Come into next year, confidence level is even higher.

Agreed. Michael O’Grady: Again, same framework that we've talked about, Brian.

Yeah. Thank you for that. Just on the pricing, I was talking about the loans, the variable rate loans on that, not the market. So -- was -- is it a three quarters of the book, I think was -- of the loans were variable rate and reset within three months in the quarter resets. So the lag is what drove the yield up this quarter?

No, it would over draft a little bit higher -- we're a little bit higher. That's what drove the yield up. Thanks. I really appreciate you clarifying that. But – and it is about – it’s like 70% to 80% that’s floating in the loan book.

Got it. Thank you so much.

Thank you.

We will take our next question from Jim Mitchell with Seaport Global.

Hey, good morning.

Good morning.

Yeah. Jason, -- yeah. Good morning. Just maybe on the capital return. You guys have been stepping up the buybacks capital ratios are pretty high, as you pointed out, still well above the minimum. So is this something we should expect this level for the intermediate term as profitability improves and rates are pretty stable? OCI looks good. Can you keep this level up or is this is sort of a high watermark on the buyback side?

It's not -- it's maybe neither. And so, it is elevated, but it should stay -- it could stay elevated for a while. And if I walk through the pieces, if you think about -- we have about of third of net income going to dividends at this point. We talk about it being 30% to 50% over time, and it's right at about a third right now. If you take out the -- or even including the equity investment and the Visa dynamic. And -- but us being at 12.5% or 12.6%, that's the upper end of where we've been in CET1. And we've been at that level before, and so we're comfortable at that level, but it's the upper end. But Visa monetizing that obviously put a lot of liquidity available for share repurchase and so we are deploying that over time. And we could continue to do that and still be at approximately this 12.5% level, maybe it comes down a little bit. And the reason we tolerate that is we know at this point, we still have other Visa tranches coming over the next year or two. And so it will be another roughly equivalent benefit. And so would be okay for us to CET1 come down from this 12.6% a little bit. But we'll -- we're thinking about it working through it and not trying to be overly aggressive at any point in time trying to take more of a thoughtful approach over several quarters, not trying to do anything too aggressively.

Right. Great. And then when you think about the monetization of the second half, of the Visa shares, that's obviously a tailwind. Do you contemplate maybe longer term, intermediate term of a lower than 12.5% CET1 given the exit I have? Can you take it to 12% or lower?

I should -- we're talking that far in the future, I should let Mike or… Michael O’Grady: As Jason is saying, 12.6% is a very strong level of capital, and that's fine, given the, I'll say, the broader environment and yet at the same time, yeah, absolutely are comfortable at lower levels as well. So we feel very good about the capital position and the higher level of repurchases that we had in this quarter and as we move into next year.

Okay. Great. Thanks for taking my questions. Michael O’Grady: Thanks, Jim.

We will take our next question from Vivek Juneja with JPMorgan.

Hi. Thanks. Good morning. A couple of questions. Firstly, Mike, Jason, you all mentioned the incremental spending for resilience, modernization, etc., that's what's driven your expense growth to the 6% level. How much has that added would you say, a couple of hundred basis points to the growth rate this year? And if that goes away in three quarters, what would that -- does that bring you down to -- since you won't need to fund that -- 4% or below in the second half of next year? Any clarification on that? Any more color on that? Michael O’Grady: Yeah. So Vivek, I think it's difficult to, I'll say, do an attribution on the 6% and then project that all going forward. I do think that one indication of the growth in the areas that I talked about there, you see it in the higher growth rate that we have in equipment and services. So that's where you'll see most of that technology spend come through. But it's not the -- that doesn't make up 6%, if you will. As Jason has broken it down before, there are other components that drive overall, including the fact that we are levered to market, both on the revenue side and on the expense side. So that's an aspect of what drove that -- the rate to 6% this year. As we go forward, as we've talked about, Vivek, certainly looking to bring that down. But we'll make the investments we need in technology and just more broadly to be able to accomplish what we want to overall.

Separate question for you, Mike. There was a question earlier about the organizational changes. Why don't you use this opportunity where you're making such a lot of changes at one shot to bring in some more talent from the outside? Michael O’Grady: Yeah. Over time, Vivek, we continue to do a combination of both. And so there are a number of roles some of which we talked about here but other roles which we will go to market and bring in external talent. For some time period, that has been the strategy on management. I mean, as you know as much as you might say, Jason or Dave or myself have been at Northern for some time period, but we’d actually been in other places longer than we’ve been at Northern. So it’s a mix between promoting talent within because we think we have strong talent that we develop and having a strong talent development program, if you will, is a big part of what we want to do and at the same time, bringing in talent from the outside. So there will be plenty of opportunities to be able to do that.

Thank you. Michael O’Grady: Sure.

We will take our next question from Mike Mayo with Wells Fargo.

Hi. Thanks for my follow-up. So did I hear you right because you're targeting organic growth and Wealth 2.5% to 3%. How does that compare to the last few years? And when you benchmark that versus peers, how does that stack up when you see growth in the off state private equity, some other brokers just seems like it's more than that, and maybe it's just the Sandbox where you compete? Thanks.

Sure. So a couple of things. One, it's -- that would be higher than what it's been over the last couple of years. It's been lower than that over the last couple of years. Before that, we had been at -- within that target range. And so we've done it before, and that's why we feel confident we can do it again. And then from comparative purposes, it's other -- there are some firms that are doing better than that and some that are doing worse. We want to be a winner. We want to be at the top end of that range. And I also think it's very hard to compare. Some firms include banking, some firms don't, some firms include their product fees, some firms don't. Some -- and our model also is from a profitability perspective because of our financial model that we can do better from an earnings perspective, if relative to our peers, if we do same amount of growth. That's our -- the profitability and the incremental profitability of our Wealth business is very strong. That's why that's part of the reason it's such a good business. The clients are embedded and they’re institutionalized. And it makes it so that our growth leads to better economics for shareholders. And so we feel good about that target and what it would mean for shareholders.

Thank you.

Thank you.

We do not have any further questions. I would like to turn the call back to Jennifer Childe for closing remarks.

Thanks for your participation on today's call. We look forward to speak with you again in the near future.

This concludes today's call. Thank you for your participation. You may now disconnect.