Q2 2025 Earnings Call Transcript

Ladies and gentlemen, good day, and welcome to the Northern Trust Corporation Second Quarter 2025 Earnings Conference Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Jennifer Childe, Director of Investor Relations. Please go ahead, ma'am.

Thank you, operator. Good morning, everyone, and welcome to Northern Trust Corporation's Second Quarter 2025 Earnings Conference Call. Joining me on our call this morning is Mike O'Grady, our Chairman and CEO; Dave Fox, our Chief Financial Officer; John Landers, our Controller; and Trace Stegeman from our Investor Relations team. Our second quarter earnings press release and financial trends report are both available on our website at northerntrust.com.

Also on our website, you will find our quarterly earnings review presentation, which we will use to guide today's conference call. This July 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 August 23. Northern Trust disclaims any continuing accuracy of the information provided in this call after today. Please refer to our safe harbor statement regarding the forward-looking statements in the back of the accompanying presentation, which will apply to our commentary on this call. [Operator Instructions] Thank you again for joining us today.

Let me turn the call over to Mike O'Grady.

Michael Gerard O’Grady: Thank you, Jennifer. Let me join in welcoming you to our second quarter 2025 earnings call. We reported another quarter of improving results, reflecting the consistent execution of our One Northern Trust strategy, which we introduced at the beginning of 2024. We delivered our fourth consecutive quarter of generating positive organic growth and operating leverage. Revenue grew 8% and earnings per share increased 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 pass the midpoint in the year, I'd like to share our progress on our multiyear transformational strategy which is producing clear proof points that is gaining traction. Turning to Slide 2. Our One Northern Trust strategy is centered on our mission to be our client's 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. A great example in the second quarter is our work with Timeline, one of the U.K.'s fastest-growing discretionary fund managers. As Timeline evolved its business model to launch a proprietary fund-to-funds range, Northern Trust Asset Management and Asset Servicing partner to deliver a fully integrated solution. Together, we provided investment management, fund infrastructure and operational support, enabling Timeline to scale its offering with speed and confidence. This win reflects how Northern Trust brings together capabilities across the firm to support the growth of high potential clients in dynamic markets. Turning to Slide 3. While we continue to deliver exceptional outcomes for clients, we're equally focused on delivering long-term value for all of our stakeholders. Our One 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 one 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. In parallel, we're driving meaningful gains in productivity across the organization through a client-centric capability-driven operating model, we're aligning resources more effectively to deliver value where it matters most. We're also accelerating the deployment of AI tools to streamline processes, reduce manual effort, enhance decision-making, and manage risk. 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. Finally, the investments we've been making in resiliency are paying off through an enhanced control environment. 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. 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. Turning to Slide 4. As we execute on our One Northern Trust strategy, we're advancing several enterprise growth initiatives that are aligned with both evolving client needs and represent opportunities where we have differentiated capabilities across our businesses. One of these is clearly alternatives, which I'll spotlight today. 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. Our integrated model and expanding capabilities position us well to capitalize on this growth and deliver long-term value for clients and shareholders. We're leveraging this vast opportunity in several ways. First, 50 South Capital, the alternatives investment platform within our Asset Management business, which specializes in fund-to-funds, primarily targeting emerging managers is having a record fundraising year. They recently closed their largest secondaries fund with investors across wealth, family offices, intermediaries and institutions. Second, in Wealth Management, we continue to build out our platform for third-party funds. Several year-to-date raises have already exceeded initial targets, underscoring the strength of our offerings and the trust clients place in our platform. We're also unlocking incremental value for clients through collaboration with 50 South Capital's research team which has 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. Third, for clients with significant alternatives portfolios, we also offer our alternatives advisory services, which provide consulting and customized solutions. Assets under advisement are up 66% year-over-year, reflecting demand from both institutional and wealth clients for differentiated high-conviction strategies. Recent examples such as a $1.25 billion private credit mandate for a multinational corporate pension and one for a family office from the Middle East highlight our ability to deliver bespoke solutions at scale. And fourth, 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 U.K. with 7 more in the pipeline. We also support 5 European long-term investment funds. We're building real momentum in alternatives, and we're only just beginning to unlock the full potential. In parallel with these firm-wide priorities, each of our businesses is executing targeted growth strategies that reflect their unique client bases and market opportunities. Turning to Slide 5. Starting with Wealth Management. Our Wealth Management business continues to deliver on its unique value proposition and is making solid progress on the 3 core strategic priorities I outlined at the beginning of the year. First, our Global Family Office franchise is a powerful example of our strategy in action by integrating asset servicing industry- leading custody platform and technology capabilities, 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. 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. 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 ultrahigh 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 to GFO combined with a dedicated Family Office Solutions relationship adviser serving as a single point of contact to coordinate the client's entire financial life. In just the first 2 quarters, this new approach has achieved a higher than 75% win rate with a deep pipeline heading into the second half of the year. 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. 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. In addition to scaling our alternatives platform through both 50 South Capital and our alternatives advisory capability, we're expanding into other key growth areas, particularly custom SMAs. 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 adviser tools to scale personalization, extend internationally and deepen penetration across institutional and wealth channels. Another example of our success is a recent $1 billion equity mandate with the public investment fund in Saudi Arabia, one of the largest sovereign wealth funds in the world. We expect this mandate to expand to additional quant strategies demonstrating our ability to serve the world's most sophisticated sovereign clients. In ETFs, we're enhancing our platform with the planned upcoming launch of 11 new fixed income strategies in the third quarter. These products are designed to meet growing demand for efficient, transparent and scalable exposures and will complement our existing index and liquidity offerings. Turning to Slide 7. Our Asset Servicing business is executing on a disciplined strategy, centered on scalability and client centricity to drive profitable growth. We serve a focused set of client segments where we have deep expertise and a differentiated value proposition, one that continues to drive strong win rates and high levels of client satisfaction and retention. I already mentioned our strong position with alternative investment managers where assets under administration are now approaching $1 trillion, underscoring the strength of our platform and the trust placed in us by leading institutional clients. We also have good momentum in the Asset Owner segment, one of our highest margin businesses, which now comprises 50% of our segment level revenue. Our success is driven in part by our upmarket 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. A $55 billion Canadian foundation, a top 20 U.S. pension plan. Telstra, one 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. In the first half of the year, revenue was up 15%, including more than 30% growth in both outsourced trading and currency management. These results reflect the strength of our capital-efficient model and our ability to deliver scalable, high-value solutions to institutional clients. This disciplined approach is delivering tangible results. Organic growth is accelerating with new business tracking well and at above-average profitability and overall margins improving significantly. Turning to Slide 8. 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. Through the first half of the year, expense growth was 4.8%, and we're on track to achieve our full year goal of below 5%. Our progress is underpinned by a series of structural and operational advancements. We're modernizing our operating model and increasingly leveraging AI, such as GitHub, Copilot and document digitization to enhance employee productivity and increase automation across the enterprise. For example, thoughtful reorganization of our global operations under our Chief Operating Officer, is unlocking efficiencies while preserving our world-class service. Headcount within asset servicing and operations has declined for 9 consecutive quarters and is down 7% from its peak. Importantly, these gains are accreting to margin and we've strengthened our governance and controls to ensure they are sustainable. We've also implemented centralized oversight of multiyear technology programs and introduce new tools to monitor hiring activity and workforce composition in real time. 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. 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. 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. In the technology side, we're investing in capabilities that enhance the client experience and support scalable growth. 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. Turning to Slide 9. 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 initiatives further develop and expand. 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. Continued successful execution should translate into double-digit annual earnings per share growth, substantial capital return, including meaningful share repurchases and higher ROEs. Given our recent momentum and confidence in our trajectory, we're changing our ROE target from 10% to 15% to 13% to 15%. Turning to Slide 10. To close, I want to reaffirm our commitment to remain independent. 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. 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 One Northern Trust strategy. Our 135-year track record of stewardship of multi-generational personal and institutional wealth, unwavering fiduciary commitment, ingrained culture of integrity, and long-term perspective, instill confidence in our clients that we will be here for them, not just today but for generations to come. And with that, I'll turn it over to Dave to review our second quarter results. Dave?

Thanks, Mike. Let me join Jennifer and Mike in welcoming you to our second quarter 2025 earnings call. 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, average deposits, pretax profit and margins, along with enhanced regulatory and capital metrics.

These additional metrics aim to enhance the quality and transparency of our disclosures, ensuring we are responsive to shareholder feedback. Now let's discuss the financial results of the quarter, starting on Page 12. This morning, we reported second quarter net income of $421 million, earnings per share of $2.13 and our return on average common equity was 14.2%. 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.

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 unfavorably impacted our expense growth by approximately 100 basis points. 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. Trust, investment and other servicing fees totaled $1.2 billion, a 1% sequential increase and a 6% increase compared to last year.

Net interest income on an FTE basis was a record $615 million, up 7% compared to the prior period and up 16% from a year ago. Excluding notables in the prior year, other noninterest income was down 4% year-over-year, largely reflecting weaker reported FX trading income, partially offset by strength in other capital markets activities. One reminder related to our FX trading income. 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.

Core FX trading revenue, excluding the impact of our swap activity was up 10% year-over-year. Our assets under custody and administration were up 7% sequentially and up 9% compared to the prior year. Our assets under management were up 6% sequentially and up 11% year-over-year. Overall, our credit quality remains very strong with all key credit metrics in line with historical standards.

The provision for credit losses increased to $16.5 million in the second quarter, largely reflecting an increase in reserves related to a small number of nonperforming loans, but we expect it to return to more normalized levels in subsequent quarters. Relative to the prior year period, and excluding notable items, revenue was up 8%. Expenses were up 4.8%. Our pretax 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. Our Asset Servicing business performed well in the quarter. Transaction volumes were particularly strong. Capital Markets activities were up double digits over the prior year, and new business growth continues to be booked at attractive margins.

Assets under custody and administration for Asset Servicing clients were $16.9 trillion at quarter end, reflecting a 9% year-over-year increase. Asset Servicing fees totaled $692 million, reflecting a 6% increase over the prior year. 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. Assets under management for asset servicing clients were $1.2 trillion, up 11% over the prior year.

Investment management fees within 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. Loan volume increased slightly relative to the first quarter. Asset Servicing pretax profit nearly doubled over the prior year period.

And the Asset Servicing pretax margin was up more than 10 points to 23.2%. Excluding $75 million in notables in the prior year, asset servicing pretax profit increased 29% and the pretax 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. Wealth Management also had a healthy quarter with continued strength in Global Family Office.

Assets under management for our wealth Management clients were $469 billion at quarter end, up 12% year- over-year. Trust, investment and other servicing fees for Wealth Management clients were $539 million, up 5% year-over-year, primarily due to strong equity markets. As you can see on the right side of the slide, both average deposits and average loans were flattish relative to the first quarter. Wealth Management's pretax profit increased 18% over the prior year period and the pretax margin was flattish 37.2%.

Excluding approximately $33 million in notables in the prior year period, Wealth Management's pretax profit increased 5% year-over-year, while the pretax margin decreased 25 basis points. It's worth noting that more than 2/3 of the $16.5 million second quarter provision was allocated to the Wealth segment. Moving to Page 15 and our balance sheet and net interest income trends. Our average earning assets were up 6% on a linked-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. While we're 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. The duration of our total balance sheet remains under 1 year.

Net interest income 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. Average deposits were $122 billion, up 6% compared to the first quarter levels. within this, interest-bearing deposits increased by 7%, while noninterest-bearing deposits decreased by 60 basis points, comprising 14% of the overall mix. The quarterly contribution from transactional and other onetime 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.

We estimate this added an incremental $10 million to second quarter NII that is not expected to persist. Turning to our expenses on Page 16. Excluding notable items in the prior period as listed on the slide, expenses in the second quarter were up 4.8% year-over-year. Excluding notables and unfavorable currency movements, expenses were up just 3.8%, the lowest rate of growth in the past 6 quarters. Turning to Page 17. Our capital levels and regulatory ratios remained 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 linked 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. At quarter end, our 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%.

Finally, based on the 2025 CCAR results, we recently disclosed that our stress capital buffer will remain at the 2.5% minimum requirement. And yesterday, our Board approved a $0.05 or a 7% increase to our quarterly dividend. Turning to our guidance. Starting with expenses.

We continue to expect our total operating expense growth to be below 5% for the full year, excluding notable items in both periods and regardless of currency movements. Turning to NII. We now expect the full year NII to increase by mid-single digits over the prior year. This assumes a modest decline in third quarter deposits in line with seasonal trends and mostly stable deposit mix, 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.

Market implied forward curves as of this week, and slightly weaker institutional deposit betas with the next series of global rate cuts. And with that, operator, please open the line for questions.

[Operator Instructions] And our first question comes from Glenn Schorr with Evercore.

Thanks for that definitive declaration of independents, put that to bed. 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, capital raising, AUC, revenue anything. But I'm also very interested in how much you define that as push, meaning you rolling out products and pushing them across the platform and playing a little catch-up versus pull where you're seeing whether it be clients or adviser demand from these products and you're developing as a response to that?

I appreciate it.

Michael Gerard O’Grady: Sure. Thanks, Glenn. So on the alternative front, as you heard, yes, a lot of effort on that front. And overall, I would definitely characterize it as pull. And I say that because of just the changes in the marketplace that you're well aware of, towards more private markets versus public markets. And we need to make sure for our clients that we're providing the right alternative for them. So that's, I would say, the overriding factor that's driving it. On the other side of it, we have to all say, push internally to make sure that we have those alternatives for them. And that's why across the front, you see everything from 50 South through the advisory through our third-party platform. We're trying to do it in a number of different ways. So it's not just one thing pushing hard. To try to size it for you a little bit, I would say, in the first half we raised across all of those, about $2.5 billion. That does not include the advisory, which was another approximately $1 billion on that front. When you think about just at a high level kind of what the opportunity is, if you just look at our wealth franchise and our wealth client base, we're below -- our clients are below 5% when it comes to allocation to private markets. And so there's still plenty of room in their portfolios to get closer to what we would even see as the appropriate allocation. And that's going to depend on the client segment. The upper tiers, as you know, family offices can have as high as 40-plus percent allocation to alternatives. And then as you work your way through the tiers, you would be closer to maybe 10% or 15%. That's still a lot of, I'll say, room for them to grow through that poll of what they want in their portfolios.

Thanks. Maybe anything on the -- what's driving the 11 fixed income ETFs. You talked about efficient scalable exposures, I'm just curious what that might encompass that you didn't already have in the portfolio.

Michael Gerard O’Grady: Sure. So on the ETFs that we're rolling out, I would say, at this point, our ETF complex has mostly index and other certain exposures, whereas there's less on the fixed income front, particularly the type of fixed income 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 products that fit for the needs of our client base. So I won't go into all the detail because we're going to be rolling that out very shortly. But think about the needs across municipal securities. Think about the need for fixed income ladders all trying to put that in a very efficient vehicle for them to be able to invest in.

And our next question comes from Betsy Graseck with Morgan Stanley.

I wanted to just dig in a little bit on the decision to tighten up the range for ROE. 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 anticipate you can take this expense ratio to as you move forward over the next several years in the medium term?

Michael Gerard O’Grady: Sure. So if we go back in time a little bit, when we first set the range at 10% to 15%, our ROE was below 10%. So a lot of the objective at that point was get into the range which we did some time ago. And then, frankly, we've just continued to move up in that range and at times have been at the top end 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 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 significant changes in the equity markets. And so we felt like that was the right broad range. Well, we've been 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 case. And I would also say that over time, there's been less clarity or certainty around the capital framework, the regulatory capital framework. And so it was also taking into account that there could be higher capital requirements as much as we can't predict where that goes and for how long. At this point, we believe there's a very, I'll say, constructive framework around capital. And so we just have greater comfort, I'll say, that the capital requirements are in the range that we're in right now. And so as long as we continue to execute and under, I'll say, somewhat normal level of market conditions, we think that range of 13% to 15% is appropriate. And then, Betsy, just to address the expense part of it. From an expense to trust fee ratio perspective, we believe the right range as we put out there is 105% to 110%. We're working our way towards that. We're at 115% now that's down from where it was. And so we'll look to continue to grind it into that range. And that obviously then provides a higher level of profitability, which then translates into the ROEs in that range.

Our next question comes from Ebrahim Poonawala from Bank of America.

So I guess, maybe Mike, so thanks for kind of going through that on -- in your prepared remarks in terms of strategy update, et cetera. I guess as we think about independence or some version of mergers. I guess, is there any scenario in which you think M&A would make sense from a shareholder return perspective? Or do you think the uniqueness of the Northern franchise the scale in the custody business, all of that kind of make just M&A unattractive strategically?

Like how should we think about it outside looking in as shareholders?

Michael Gerard O’Grady: Sure. So as you've heard from my comment, we are completely focused on executing on our strategy. And we believe that, that strategy of independence is what will produce the best returns for our shareholders ultimately. And the reason why that is, is a little bit to your point, we believe that, that provides a unique value proposition for our clients. And frankly, through this -- the last several weeks, we've heard from a lot of our clients who've made it clear that they have lots of alternatives for various providers or financial partners that they could have across -- and this is across families through very large institutions who have said, we chose Northern Trust because it's a different value proposition. It's one where you are focused on trying to provide a higher level of client service, where you do have very targeted expertise in just certain segments of the market where you compete. And so we believe that, that differentiated value proposition is the one that's going to create the most value. Now over time, as you know, we have done acquisitions that enable us to either enter another market or to bolster our capabilities in a particular market. And we'll continue to look at those over time if they make sense. We're an organic growth company. So it's not, by any means the primary driver. But if at times, there's something that would be attractive for us on the inorganic front to do to improve that value proposition, we would consider doing it, obviously, with very high standards.

Got it. And I guess maybe just sticking with capital deployment. Is there -- just give us -- remind us how you think about pace of buybacks relative to just given means the stocks obviously done well year-to-date. Is there a certain valuation price to earnings, price of tangible book multiple where buybacks begin to look less attractive?

Michael Gerard O’Grady: Sure. I'm going to let Dave take that.

Yes. So when we look at buybacks, it isn't just about the stock price, right? We're looking at our regulatory capital, earnings power, ROE, loan growth, as you know, dividends, we like our balance sheet to be available for our clients, right? So we still like to run a little bit of a cushion, if you will, that we want to have in the system.

We've picked up our capital return to shareholders significantly. When you think about 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 this quarter. And so 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 issues at the time.

And we'll take our next question from Mike Mayo with Wells Fargo.

I'm going to continue the line of discussion. There's been so much press and it must be disruptive to your clients and employees and perhaps annoying, but it still comes up among investors. And I hear your commitment to independence, 135 years be around for generations to come. And you've mentioned the short term, 4 quarters of growth and operating leverage medium term, higher ROE targets long term One Northern Trust.

So I hear you loud and clear. And Mike, you're -- before Northern Trust, you certainly know about dealmaking. So that's all clear. But it doesn't stop others from saying, "Hey, maybe we want to buy you." You've been in that state for the last, I'd say, three decades.

So that's also nothing new. Having said that, under what circumstance would you consider ridding the custody business because you talked about scalability, the first word when you gave the update there and perhaps that could use more scale or the way I think about, I think of the crown jewel is the private bank and the asset management and the asset servicing. You're trying to optimize more, but maybe strategically you could do more there or alternatively, maybe you could buy somebody else to get that scale.

Michael Gerard O’Grady: So thanks for the question, Mike. So when it comes to scale, I think it's important to start with the fact that size does not necessarily equal scale. 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 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 size 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 and also differentiate ourselves. So when you think about specific areas on the institutional side like U.S. pension plans, U.K. pension plans, our business with hedge funds in the U.S., those specific segments where we say our value proposition resonates, but now we also have to drive scale so that we can get the value proposition to a place that's attractive and we can get the financial returns on that front. So that's the first piece. The second piece of that is a place that you do get scale is through technology. And 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 one that, once again, doesn't necessarily favor just being bigger. 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 and scalability for both processes but also for people. 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 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 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, more automation is where you create that scale. And so more specifically, that's why we're moving to what we call our client-centric capability operating model. We're trying to take the common processes from across 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 specifically cash, payments. That's the way we're organizing it underneath the COO, Pete Cherecwich. And then again, centralized, standardize, automate using technology to do that. We're seeing the early returns or benefits from that. We've gone down headcount consistently since we started on that 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 are 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 differential at that level is not enough to outweigh all the benefits 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. We're in the low 20s right now. Those should be in the 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, are you getting scale? Is that an attractive business? To the extent it's not, to your point, you think about different ways that you can potentially modify that or change it to ensure that you get it.

Yes, Mike. And I would only add to that, that when you look at the Asset Owner segment within Asset Servicing, it already chins the bar in terms of our margins where we're trying to go. And so as that business gets bigger, and the Asset Management side of the equation gets smaller, you're going to see the margins drift up as well. So that particular segment we've identified is already there.

And we'll take our next question from Alex Blostein with Goldman Sachs.

I appreciate all the extra segment disclosure on the margins, profitability and obviously, the target as well. That's all very helpful. I wanted to ask you guys around the timing to achieve some of these. So you've had the 30% plus pretax margin as a target out there for a little while.

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 NII and you're talking about profitability of the firm as a whole. So I'm curious kind of how that plays into the rubric?

Michael Gerard O’Grady: Sure. So just as far as the backdrop on the market environment for it, it's one of, I would say, like normalized, meaning a normal yield curve, normal shape of the yield curve, and the pace at which you get there. What makes it difficult in managing for any financial institution, 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 0, then they went up very fast. And now 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 duration in the portfolio on the balance sheet to be able to, I'll say, leg into that change in the shape of the yield curve. So that's the expectation. But of course, we have to be positioned for different things happening on that front. I'll say the more important part, Alex, which is just what's the time frame on that. Obviously, we're executing hard on that. You see the positive operating leverage that we achieved in a quarter like this where, as I say, it's kind of chunkier yards, if you will, and you need to pick those up while you can. But if you said, okay, but there are certain quarters or even multiple quarters where it's more difficult to get those chunkier yards and you're grinding more up, that would infer that it's likely to be kind of 2027 where we're achieving that 30-plus percent. If we can get there sooner, great. 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.

Got you. That's helpful. And just a follow-up on NII. I heard the guidance for the full year, obviously implies something in the maybe $5.70 range per quarter, I guess, from here on.

As you look at the balance sheet, I think I heard you say a little bit less than 1-year duration overall with rate cuts kind of how you're thinking about the trajectory from NII off of that jumping off point? And are there any things you could do today to mitigate the effects of potentially lower interest rates in the U.S.?

Yes. So as I've said to you guys before, we have about $1.5 billion of securities that roll off every quarter, and we can reinvest those at, I think, 100 basis points over the yield, the runoff yield. So that's one area to do it. The second area, obviously, is we've been very focused on our deposit pricing and things of that nature.

We are not just in U.S. dollars and deposits as well. So 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. So from our perspective, it's really going to be a question of the reinvestment going out a bit longer when we have the opportunity, not just to protect Q3 and Q4, but to protect '26 as well.

And up next is Ken Usdin with Autonomous Research.

Dave, I was going 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's 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 market health 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?

Yes. So yes, it was because of that. I mean, transaction volume was higher than it would be traditionally, if you look at the averages during the quarter, which wasn't surprising to anybody. You also have to take into consideration in Asset Servicing.

When you look at the growth side, and you guys know this, we had 2 large client losses in Q2 and Q3. And one of those losses, which is they took the business in-house. We've not lapped that yet. And so, I would say 0.5% of the growth 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.

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

And will those be out? Do you know when those will be lapped? Are they lapped in the third quarter or after the third quarter?

Yes, so after the third quarter, those have been lapped definitively. So right now...

No, go ahead. You follow up...

No. So I mean, basically, the quarter was client neutral. I mean, when you think about it. So, from that perspective.

And keep in mind, when you look at the Asset Servicing business, you know this, I'm sure it's on a quarter lag basis, right? So you've got to take that into consideration as well. that also affected the Wealth business. Wealth is obviously on a month lag basis. And Q1, if you look at the S&P, it was down 5%, NASDAQ down 10.5%, so take all that into consideration as you're taking a look at those absolute levels.

Yes. And a follow-up just on the Wealth side. Just like the layout that you gave and that Mike gave in the prepared remarks and the slides. Is there any change in just the organic growth rate in wealth. I know you have a lot of these initiatives going forward. But when do you think we'll start to see a definitive like observable change in the organic growth rate there?

Michael Gerard O’Grady: Yes. So, as we talked about, we are seeing positive organic growth in the wealth business, but it is not at the level that we want and are targeting. And to your point, it's a little bit more of a gradual increase in momentum. And the way we're going about it is a few different ways. The first, and you heard this in my comments, Ken, but is from I'll call it a segmentation perspective. So we're trying to get more focused on certain segments so that we can increase the rate there. We've had that in GFO. So we're trying to essentially replicate that in the ultra-high net worth segment. But it's early days on it, but the win rates are heavier -- or higher and as a result, we've also added more talent on that front to be able to continue to increase the growth rate of that segment. And then I would say as you go down to the tiers below that, that's where we're really focused on particular markets, geographic markets, where essentially, what we're going to do is get our market penetration more in line with the way it is in our more mature markets. We have very strong market share in Illinois, in Florida, as maybe you'd expect, a high success rate there. But we're trying to do the same thing in Northern California, Southern California, Texas, New York, where our market share is still low relative to the potential. And on that front, I would say, you heard some of the organizational changes, adding some additional leadership, some from the outside, but also we're going to be hiring more revenue-generating roles in those markets to be able to drive that. But that, to your point, it takes some time to get more people on board, get them up to speed, and to get then that higher level of organic growth. But we're extremely focused on it.

And up next is David Smith with Truist.

Any color on what's driving the strength in deposits this quarter?

Yes, I mean we talked about it last quarter a little bit. Obviously, there was a bit of a risk-off trade that we took advantage of during the period. So from that perspective, they are running a little bit higher. I will say, in the current quarter, we're starting to normalize.

And that's probably why I'm keeping the guide where it is. 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're beginning to normalize back to what I would say is a more predictable run rate. We did have, in particular, and the swap activity was driven by this.

We had a very extremely large euro deposits that came in. And this is why I always tell you folks that we want to have a flexible balance sheet because we have very large clients that come to us not just for loans, but for deposits as well. So we did have some deposit activity that was concentrated among some very large clients in the quarter as well.

Got it. So it's normalizing beyond typical seasonality so far in the third quarter?

Yes. I mean it's back to what we thought it would be. I mean the average is 122 for this quarter. I think 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.

I think you said that flows and Asset Servicing were relatively neutral in the second quarter. Any detail you can offer on segments where you're seeing stronger growth versus where there's more opportunity for catch-up?

Michael Gerard O’Grady: Yes. I would just go back to the upmarket of asset owners. You heard about some of the wins that I talked about there, which are significant clients at this point, relatively large clients as well. So that's where we're seeing particular strength on that front. The other thing I would just say is we often are impacted as well by the success of our clients. And in a time period where for market reasons and others that some of the strategies of our Asset Management clients resulted in net outflows for them. We've seen that stabilize. So that's a positive for us as well on the asset aanager side.

Yes, I'd also add that AUM flows, which obviously impact both businesses were positive. And liquidity was a real standout. And that is biased towards the institutional business. But $8 billion in the second quarter, $19 billion year-to-date on the liquidity side, which represents our tenth consecutive quarter of positive liquidity flows, and that's obviously great for our business.

And our next question comes from Brian Bedell with Deutsche Bank.

Great. I appreciate all the extra color on -- in the slides and your commentary today and the businesses. It's really great. Two questions.

Maybe the first one, they're both going to focus on Wealth Management, but the first one, going back to the efficiency initiatives within Wealth Management, particularly on the digital side and AI and automating some more of the services. Can you comment about like how that's enhancing the ability 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 huge one. Is there any risk of getting too automated? Or rather do you see it as really just enhancing and actually strengthening the relationship?

And then in that vein, you've always -- you've gone sort of upmarket for really the last couple of decades in terms of the services. Any interest in moving little bit down market within the wealth spectrum to potentially improve that organic growth rate?

Michael Gerard O’Grady: Sure. So on the first one, what I would say is definitely those initiatives are focused on enhancing the client experience. And let me be more specific about what we're doing on that front. I would put it into 3 categories. The first being processes, the second being what we would call partners or the employees, and then the third being with clients. On the processes side, if you just think about all of the documentation that is involved with client relationships, 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, it 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 improve the client experience as a part of that. Specifically on the partner side or our employees, making them more efficient, giving them the tools to be able to do things more quickly. So on that front, we have deep knowledge and, I'll call it, databases, if you will, of this deep knowledge, the Northern Trust Institute, et cetera. The ability for our partners to be able to very efficiently and quickly tap into that data and that information to provide the advice to the clients is another unlock on that front to enable them to be not just more reactive quickly, but proactive, right? To be able to prompt different discussions and conversations that should be had with the client. So enhancing in that way. And then also, certainly the client itself. And I would say that's where providing them additional capabilities that enable them to do things, I'll say, on their own because of the technology is kind of the third aspect or a wave of what we think we can do with the AI. So all of that, to answer your question goes to the experience, but it also produces the efficiency and the productivity. And then with regard to the market, you're thinking about the direction of travel of our strategy correctly, which is we're trying to say, how do we 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 below that level. So think kind of anywhere from $10 million to $100 million segment we are further refining what is the value proposition, specifically for those groups of clients and prospects and how can we then as a result, increase the growth rate there. To your point, we see stronger organic growth right now in everything above kind of the $10 million segment versus below. And so the more we can differentiate what we're doing on those different tiers, we think it gives us stronger growth across all of them.

That's great color. And then on alternatives, you mentioned, I think, a 5% or less than 5% penetration across the franchise. But GFO, obviously much more -- much higher, more institutional based. If 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 and therefore the runway? And do you currently have all the right products available? And what I'm really getting at is like the access to the largest, even publicly traded alternative managers or private market managers that have democratized product in the channel. Do your clients have full access to those yet?

Michael Gerard O’Grady: Sure. So I'll comment on GFO a little bit, but Dave certainly add. But the way to think about GFO is really more thinking about the assets that we custody for them. And again, very large dollar amount of it, the amount that then is invested with us through alternatives is relatively small. So that the penetration level, if you will, is even lower than it would be in our core wealth on that front. And a lot of it is because they're going direct to the largest managers on their own. But we have found that we have the ability to bring differentiated opportunities to them. Some of them do utilize 50 South, but also often they're utilizing, I'll call it the research capability of 50 South, where he will then bring certain managers to them that they might not otherwise have access to. So that's how to think about the GFO side of it. And then more broadly or certainly with core wealth, I would say it's less about 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 alternative managers, we do have them on our WMLTs platform, our third party funds platform. And so we'll continue to provide some of that but frankly, our clients tend to be interested in things that are more bespoke or hard to get tight managers where we do have the relationships through 50 South. And as a result, we can provide those types of funds. And then I would also say, just with regard to vehicles, we expect that the vehicles will continue to evolve from what used to be the straightforward funds to then what will be 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 base.

Yes. I would just add to that, particularly on the GFO front. I mean access to top managers is not a problem. We have the client base that all the top managers want.

I think we are extremely discerning and have a very high bar in terms of what makes it onto our platform and if it fits our client base accordingly. The other thing I would say is we're doing a lot more on the alternatives advisory front. A lot of our clients that got very heavy into alts have not seen a lot of realizations in the recent past and have come to us with a bent towards what do I have and what should I do with this existing portfolio. 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 within their portfolio.

So it's not just selling our own product, it's also taking a look at what they've done and giving advice on all that.

And up next Gerard Cassidy with RBC.

This is Thomas Leddy standing in for Gerard. Just given 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?

Michael Gerard O’Grady: Sure. So we're excited by the direction of what I'll just call more broadly, digital assets. This is an area that we've been embracing for some time and developing capabilities for some time. And we really do feel like we're on the precipice of the next stage of evolution for digital assets. And specifically, it is starting with stable coins. And we think it will evolve into tokenization of a number of different asset classes on that front. And so we've developed the capabilities to be able to do both stable coins, but also tokenized assets. 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 blockchains, so we need to have the capability to interact with the public blockchains on that front and are planning to do that. We've already done a number of things with tokenization for carbon credits and in other areas. And so we just see this as the next stage for this.

That's helpful. And then just a quick follow-up. So it appears expected regulatory relief for the industry will have a pretty big impact on at least the money center banks. We saw the recent stress test results and then the resulting SCBs coming out of that. Can you just share your thoughts on the potential benefits for Northern Trust more specifically from an expected relief?

Michael Gerard O’Grady: I'm sorry, I didn't quite hear your phone cut out there for just a minute. Can you repeat your question, please?

Yes, of course. Sorry about that. So it appears the expected regulatory relief for the banking industry will have a pretty big impact on at least the money center banks. We saw the recent stress test results and the resulting SCBs. Can you just share your thoughts on the potential benefits more specifically for Northern from expected relief?

Michael Gerard O’Grady: So we would say that the regulatory environment as we look out is very constructive overall. There's a number of changes. I think they're trying to make, and from our perspective, whether it's across capital, liquidity, but also as they think about how they regulate operational risk. All of this is setting up for a constructive environment for us on that front. A lot of it is around predictability, and we do feel that we're in a time period here that allows us to ensure that we have the right risk management framework at the company, the right controls. We've made investments over the last number of quarters on that front. We have more to do, but feel very good about the results that we're getting from that, and we think it aligns with the regulatory environment.

And our next question comes from Vivek Juneja from JPMorgan.

My question, a follow-up on some of the questions that have come up on the call today. I hear you want to increase your operating margin on the custody of the servicing business to the high 20s. Why is that good enough? I mean, given your mix like you've got hedge funds, that's an attractive margin business, as your peers have talked about.

Your peers are well above that, some of your peers are well above that today about your high 20s. So why would you not consider something much more value additive more quickly rather than over a multiyear period? And think about alternatives like getting spinning off or merging the custody part. If the Wealth Management is where your unique service ability is, why not split the two?

Why is that not a consideration?

Michael Gerard O’Grady: Yes. So the business model for Northern Trust is highly integrated. When you think about just the various segments, there's a number of ways why we have a One 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. The platform behind GFO is our Asset Servicing platform and the technology, much of it is from our Asset Servicing business. When you think about the financial aspects 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 both our core Wealth Management clients, but importantly, to those GFO clients as well. And needless to say, the integration of our asset management business with the other two is highly aligned. And it's not just, 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 we believe that the model is integrated. We know that we have to be able to demonstrate the profitability of all aspects of the business and the company overall. To your point on those margins, the only difference between saying that the target is in the 30s for that business, and it's the high 20s. We have to get through the high 20s to get to the 30s. So we certainly wouldn't stop when we get it into that range. It's just trying to say, how do we get there first and then we'll move above that from there.

And the high 20s, Mike. Sorry, go ahead.

No. I would just like to emphasize particularly for the Family Office business that it isn't just about investments, right? So it's about operating alpha. 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 a family office. And that's what we've got. And we have that scale through GFO and by leveraging off our asset servicing business to do that. So 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.

And Dave, let me thank you -- join the course of applauding you on the increased disclosure has taken us several years to get there, but thank you for doing that.

I did it just for you.

And our next question comes from Brennan Hawken with Bank of Montreal.

I recognize you've gotten a lot of questions on this. And I also appreciate that it's disruptive. I really do. But some of your shareholders have asked me to ask a fiduciary obligation question here.

Mike, I'd like to explore your conviction that remaining an independent company is in the shareholders' best interest. A couple subpoints, like you said in your prepared remarks that you're well positioned to continue to create value. But when I pull up the comp function for Northern and Bloomberg, which just shows the past 5 years, the stocks lagged like all of the relevant benchmarks and the close peers. I appreciate that your -- some of your customers want you to be independent, but the company isn't structured as a mutual, so it's owned by the shareholders, not the customers.

So why be so categorically closed off to exploring those options when the independent path has resulted in the stock lagging?

Michael Gerard O’Grady: Sure. And Brennan, I appreciate the question because it gives me the opportunity to kind of wrap up on this point. First of all, we have an exceptional board. It's a board that we've built up and evolved over time, but it has a great combination of experience in different industries, including financial services, technology expertise, deep expertise and experience on governance matters and frankly, situations like this. So we have an exceptional Board. They take their fiduciary duties extremely seriously. And so they understand the duty that they owe to the shareholders, and that's how they operate. So that's the framework at which they look at everything. And you heard where they stand with regard to the strategy but they also understand that they have to always make sure that they're upholding those fiduciary duties. So that's the first one. And hopefully, that's crystal clear. To your second point, just stepping back a little bit on, I'll say, performance over time, I think you can divide it up into some different time periods to just kind of understand the stage that we're in right now. You use 5 years, we could use any number of different time periods, but there was a time period for a number of years where we were operating very much within our target financial model. Frankly, going into COVID and coming out of COVID. The growth rates for revenue, both organic and overall, we're within that target financial model. Our average pretax margin was about 32% over that time period. 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 in the organization. A number of them across enhancing and bolstering the resiliency of the company, which, again, we've tried to detail and outline with investors. And we've also invested in the businesses. We've built out a number of these capabilities that we talked about so that we can have long-term organic growth. And sometimes you need to make those investments that can hit margin in the short term but produce the opportunity to grow for a much longer time period over that and going forward. So as a result, whether you, again use 4 years or 5 years or 3.5 years or whatever it is, over that time period, our financial performance in that period has lagged and has not met up with our long-term standards and expectations for performance. And that's why going to the beginning of 2024, we launched the One Northern Trust strategy because that was going to take us forward for the next, say, 4-year time period over that. So we're, call it, 1.5 years into that, executing on it. And hopefully, you and others heard today with our progress. So we've tried to be very objective and even clinical about how we look at our performance. And what we're trying to convey is 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. And it's a matter of staying focused on that strategy and executing it in order to see the performance for all of our constituencies. So yes, including clients and our partners that are working on this 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 clear and thoughtful answer to what can be a very charged question. So I appreciate that.

And for the first time, and I don't know how long I had my follow-up actually is related. Great to see the ROE target come up, but like if this is -- if you guys are moving all in and staying independent and totally committed, why not re-underwrite some of these targets? You said you've been at the upper end of the new range, 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?

Michael Gerard O’Grady: Yes. So a little bit like my response on margins, too. It's like we're going to work our way through this. This range, if you will, and then we'll reestablish a range above that to the extent that we likewise say, okay, now we've been performing in that range. Maybe that's part of our, I'll say, approach or style or culture to make sure that we deliver on what we say we're going to do, but that's the intention. And part of it as well, Brennan as you know, is the ROE is important, but it's not just the ROE. As I talk about our financial objectives, it's growth and returns. And so if it was a matter of just can you top tick on the highest ROE in a particular period of time, we don't think that creates the greatest value for shareholders. They want growth as well. That's why our strategy is also about organic growth, because that's what generates more shareholder value over time is the combination of the two.

And there are no further questions in queue at this time. I will now turn the conference back to Jennifer Childe for closing remarks.

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

Thank you, ladies and gentlemen. This concludes our call for today. You may now disconnect, and thank you for participating.