- Net Income: $896 million
- Earnings Per Share (EPS): $4.34
- Return on Average Common Equity: 31.2%
- Pre-tax Gain from Visa Stock Exchange: $878 million
- Restructuring Charges and Notable Items: $196 million
- Revenue (excluding notable items): Up 5% year-over-year, 1% sequentially
- Expenses (excluding notable items): Up 6.6% year-over-year, flat sequentially
- Trust, Investment, and Other Servicing Fees: $1.2 billion, up 6% year-over-year, 2% sequentially
- Net Interest Income: $530 million, down 1% sequentially, up 1% year-over-year
- Assets Under Custody and Administration: $15.5 trillion
- Assets Under Management (Asset Servicing Clients): $1.1 trillion
- Custody and Fund Administration Fees: $446 million, up 4% year-over-year
- Investment Management Fees (Asset Servicing Clients): $146 million, up 9% year-over-year
- Assets Under Management (Wealth Management Clients): $419 billion
- Trust, Investment, and Other Servicing Fees (Wealth Management Clients): $516 million, up 8% year-over-year
- Average Deposits: $113 billion, up 1% sequentially
- Net Interest Margin: 1.57%
- Non-interest Expense: $1.5 billion, up 12% sequentially, up 15% year-over-year
- Common Equity Tier 1 Ratio: 12.6%
- Tier 1 Leverage Ratio: 8%
- Unrealized Pre-tax Loss on Available-for-Sale Securities: $667 million
- Capital Returned to Shareholders: $405 million
Release Date: July 17, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Trust fees increased by 6% year-over-year, reflecting strong client activity and favorable equity markets.
- Northern Trust Corp (NTRS, Financial) recognized a pre-tax gain of nearly $900 million from the Visa Class B common stock exchange offer.
- Wealth management generated 9% year-over-year trust fee growth, with strong new business momentum.
- Asset management saw positive liquidity flows for the sixth consecutive quarter and strong performance in active fixed income.
- The company reported a return on average common equity of 31.2%, indicating strong profitability.
Negative Points
- Reported results included approximately $200 million in restructuring charges and other notable items.
- Net interest income was down 1% sequentially, indicating some pressure on interest margins.
- Expenses increased by 6.6% year-over-year, driven by higher compensation and outside services costs.
- The company experienced a client exit in the asset servicing business, impacting trust fees by a few million dollars.
- Non-interest expense was up 12% sequentially and 15% year-over-year, reflecting higher costs associated with modernization and resiliency investments.
Q & A Highlights
Q: Can you clarify the remaining embedded gains in Visa shares and the timeline for realization?
A: We have monetized half of our Visa stake, with the final portion of this tranche to be sold in August. We still hold the remaining half of our Visa shares, which we plan to monetize when the opportunity arises. (Michael O'Grady, CEO)
Q: What is the timeframe for the resiliency investments you mentioned?
A: The elevated spending on resiliency will continue for the next few quarters, primarily in outside services. Eventually, this will decline, but we will see an increase in compensation as some work continues in a persistent environment. (Michael O'Grady, CEO)
Q: What are your assumptions for net interest income (NII) and deposit levels for the rest of the year?
A: Balances are stable, and the bigger factor appears to be rates. We expect a slight seasonal decline in balances in the third quarter, offset by positive impacts from reinvestment spread and day count improvement. (Michael O'Grady, CEO)
Q: Can you provide more details on the restructuring charges and expected savings?
A: The $200 million restructuring charge includes severance expenses aimed at improving productivity. We expect to save about 50% of the severance amount in ongoing salary reductions, with some reinvestment in other areas. (Jason Tyler, CFO)
Q: How is Northern Trust positioning itself in the custody business compared to the past?
A: We are focusing on scalable opportunities and higher-margin business, particularly with asset owners. We are being more selective and disciplined on pricing, which has resulted in higher margins for the business we are winning. (Michael O'Grady, CEO)
Q: What are your views on deposit betas across your franchise when the Fed cuts rates?
A: At current rate levels, we expect high betas, meaning we can pass along rate cuts to clients. This applies to both standard rate cards and negotiated rates. (Jason Tyler, CFO)
Q: How do you plan to handle the competitive pressures on wealth management deposits?
A: Our clients already have the option to sweep into money market funds yielding around 5%. We will respond to competitive pressures as needed, but our current rates are already at market levels. (Jason Tyler, CFO)
Q: What are your expectations for fee revenue in the third quarter?
A: While we have some client exits impacting trust fees, the overall business activity and pipeline remain strong. We expect positive fee operating leverage in the second half of the year. (Jason Tyler, CFO)
Q: How will the recent severance actions impact your expense growth in 2025?
A: The actions taken this year position us for better expense management in 2025. We expect some of the current elevated spending to decline, setting us up for lower expense growth next year. (Jason Tyler, CFO)
Q: How do you plan to use the proceeds from the Visa share sales for share repurchases?
A: We plan to use a significant portion of the proceeds for share repurchases over the next several quarters. We will proceed deliberately, considering regulatory requirements and market conditions. (Jason Tyler, CFO)
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
