Northern Trust Corp (NTRS) — Q1 2026 Earnings Call Transcript

Thank you, operator, and good morning, everyone. Welcome to Northern Trust Corporation's First Quarter 2026 Earnings Conference Call. Joining me on our call this morning is Michael O’Grady, our Chairman and CEO; Dave Fox, our Chief Financial Officer; John Landers, our Controller; and Steve Carroll and Trace Stegeman from our Investor Relations team. Our first 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 April 21 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 May 21. Northern Trust disclaims any continuing accuracy of the information provided in this call after today. Please refer to our safe harbor statement regarding forward-looking statements in the back of the accompanying presentation, which will apply to our commentary on this call. Thank you again for joining us today. Let me turn the call over to Mike O’Grady.

Thank you, Jennifer. Let me join in welcoming you to our first quarter 2026 earnings call. We're off to a strong start in 2026, reflecting our ability to capitalize on a constructive market and rate environment while continuing to advance our One Northern Trust strategic priorities. Against this backdrop, first quarter trust fees increased 11%, net interest income grew 15% and total revenue rose 14%, all on a year-over-year basis. While continuing to invest in key growth initiatives, we generated more than 700 basis points of positive operating leverage, driving our pretax margin up nearly 500 basis points to 32% and fueling EPS growth of 43%. Return on average common equity reached 17.4%, which is at the higher end of our new medium-term target range, and we returned $510 million to shareholders, representing a total payout ratio of 100%. This included $359 million in share repurchases in the first quarter, contributing to a 5% reduction in share count as compared to the previous year. These results confirm that our One Northern Trust strategy is driving steady improvement in organic growth, consistent efficiency gains and resiliency in a volatile environment. AI is increasingly embedded in how we operate, enabling our teams to deliver more value with greater consistency and speed. Moving forward, we are accelerating this deployment in ways that will further advance our strategy and financial objectives. We're applying AI not only to drive incremental efficiency but also to scale knowledge and expertise while maintaining the resilience, governance and client confidence that define our franchise. Our AI strategy is anchored in three outcomes: hyper-personalization, AI-generated alpha and infinite scalability. Together, these outcomes focus investment where it matters the most, enhancing the client experience, improving decision quality and increasing operating leverage. Hyper-personalization allows us to move toward highly contextual tailored engagement. A tangible example is our One Wealth Assistant, which integrates the Northern Trust Institute insights directly into workflows. With future enhancements, this will equip our wealth management advisers with real-time client-specific context. Connecting market insights, portfolio considerations and client objectives to support more informed, high-touch conversations with speed at scale. AI-generated alpha focuses on strengthening investment outcomes through faster synthesis of information and generating deeper insight. Within asset management, AI-assisted research and product construction tools are enabling teams to process significantly larger structured and unstructured data sets, identify patterns more quickly and test scenarios more efficiently. This enhances both investment decision-making and operational execution, supporting stronger client outcomes without adding complexity. Infinite scalability is a key driver of operating leverage. By digitizing work through agents, we further disconnect the relationship between growth and staffing, allowing for consistent execution across value chains and supporting stronger controls, all of which enable us to scale while maintaining rigorous risk management. With that backdrop, let me now turn to business performance for the quarter, beginning with Wealth Management. Momentum from last year carried into the first quarter as improved organic growth underpinned by both strong advisory and product fees drove low double-digit trust fee growth. The regions delivered another quarter of solid results with trust fee growth accelerating to 11%, supported by especially robust performance in the Central region. We made good progress implementing various client acquisition initiatives across talent, centers of influence and digital channels. Talent is our most important growth driver. We're advancing plans to increase revenue-generating roles by high single-digit percentages by year-end. This includes significant increases in critical producer roles. Centers of influence, which include attorneys, accountants and other professionals, are a vital referral source, driving nearly 25% of our new business activity. In the first quarter, we introduced a more robust and structured outreach framework to engage key centers of influence, including hiring a senior leader to accelerate this initiative, targeting a 10% increase in opportunities in 2026. Digital channels also continue to be an increasingly important source of new business. To boost the transition from interest to conversion, we're enhancing data integration, lead qualification and personalization at scale. Notably, the opportunities originating from digital channels in the first quarter grew by nearly 50% year-over-year. Within our Global Family Office business, strength in international markets and investment management fees drove healthy performance. We also continued to scale family office solutions with early traction and client wins across several new markets. Expanding our investment offerings, particularly within alternatives, remains an important focus area. We had seven funds in the market during the first quarter, up from five in the previous quarter. Looking ahead, we will continue to build out our alternatives platform with a number of new alternative investment funds and strategies planned for launch later this year with the goal of increasing alts fundraising by 25%. These offerings spanning areas such as venture capital, co-investments and secondary funds will broaden access and flexibility for clients seeking diversified sources of return while maintaining our disciplined approach to portfolio construction and manager selection. Collectively, these initiatives are strengthening our ability to generate repeatable, scalable growth while enhancing both the client and employee experience. Turning to Asset Servicing. The business delivered another quarter of solid organic growth and strength in profitability, driven by disciplined execution of our strategic priorities. Trust fee growth of 10%, coupled with significant NII and capital markets activity fueled over 700 basis points of year-over-year pretax margin expansion. Our differentiated service model, deep institutional expertise and strength in supporting complex client needs continues to resonate, particularly with global asset owners. During the quarter, we secured nine new mandates across foundations, endowments and health care institutions, including four not-for-profit health care systems. As a result, we now serve three-quarters of the top 50 health care systems in the United States. Within alternatives, we remain a market leader with assets under administration approaching $1 trillion across hedge funds, private capital and semi-liquid vehicles. Demand for scalable institutional-grade services remains strong, supported by more than a dozen wins during the quarter. These included Igneo's planned second quarter launch of a new private equity fund focusing on energy infrastructure in Europe, further expanding our global relationship across Europe, Australia and the U.S. We also announced an expansion of our CLO middle office services, delivering a unified operational and compliance framework that supports the full life cycle of CLOs as interest in this offering continues to grow. Strong momentum in capital markets continued in the first quarter as elevated volatility and heightened client activity drove 34% growth, including another quarter of robust FX and core brokerage fees. We're also seeing continued interest in our digital asset strategy, particularly in custody, reporting and servicing of tokenized assets as tokenization moves toward scale. During the quarter, we onboarded five new clients, providing custody and other services for tokenized real-world assets, U.S. stablecoins, European money market funds and carbon credits. Turning to Asset Management. NTAM made good progress in the first quarter with strength across liquidity, alternatives and equities, positioning the business well to meet its 2026 targets. Within liquidity, we extended our streak to 13 consecutive quarters of positive flows with associated AUM increasing to $350 billion. Importantly, we continue to diversify our funding sources across global liquidity vehicles and third-party platforms while gaining overall market share. We also launched the tokenized share class for our NIF treasury instruments portfolio during the quarter, marking Northern Trust's entry into the digital asset marketplace. By applying tokenization to institutional-grade liquidity strategies, we're offering clients a modern digital-first way to access money market investments while maintaining our high standards for risk management and service. Within equities, ETF momentum remains strong with a fourth consecutive quarter of positive flows. This was supported by the successful launch of the Northern Trust U.S. equity ETF, our latest active ETF designed to deliver tax-efficient outcomes for investors. We also launched our first Saudi Arabia equity index strategy with $1 billion in client capital, reflecting our expanded presence and strategic partnerships in the Middle East. NTAM continued to broaden its alternatives capabilities through active fundraising, which included three new sizable custom solutions and advisory mandates spanning secondaries, private credit and private equity. Earlier in the quarter, we announced an important milestone in our third-party distribution strategy. Our institutional quality direct indexing capabilities became available on Envestnet's platform, the largest independent TAMP, which supports approximately one-third of all financial advisers in the U.S. This will enable advisers to access our diverse lineup of equity strategies, empowering them to personalize portfolios at scale while managing tax outcomes. Finally, reflecting the strength of our active investment platform and the expertise of our investment professionals, NTAM was recognized by Barron's as a top fund family in 2025, ranking fourth overall and fifth in general equity out of 46 fund families. To wrap up, as we enter the second quarter, our priorities are clear, and we remain focused on disciplined execution. With that, I'll turn it over to Dave to walk through our first quarter financial results.

Thanks, Mike. Let me join Jennifer and Mike in welcoming you to our first quarter 2026 earnings call. Let's discuss the financial results of the quarter, starting on Page 4. This morning, we reported first quarter net income of $526 million, earnings per share of $2.71 and our return on average common equity was 17.4%. We're off to a strong start to the year. We delivered our seventh consecutive quarter of positive organic growth, positive operating leverage and year-over-year improvement in our expense to trust fee ratio, all excluding notables. We also returned 100% of our earnings to shareholders. Relative to the prior year, currency movements favorably impacted our revenue growth by approximately 120 basis points and unfavorably impacted our expense growth by approximately 130 basis points. Relative to the prior period, currency movements were immaterial to both revenue and expense growth. Trust, investment and other servicing fees totaled $1.3 billion, an 11% increase compared to last year, driven by favorable markets, currency and new business generation. Other noninterest income was up 33% year-over-year, reflecting very strong FX trading and securities commission and trading income, which benefited from elevated macro volatility and uncertainty. Net interest income on an FTE basis was up 1% sequentially to $662 million, a new quarterly record and up 15% from a year ago. Our assets under custody and administration were down 1% sequentially, but up 10% compared to the prior year. Our assets under management were also down 1% sequentially and up 11% year-over-year. Overall, our credit quality remains very strong with all key credit metrics in line with historical standards. We recorded a $3 million reserve release in the first quarter, driven by improvements to the C&I portfolio, which was partially offset by a small number of nonperforming loans. Our effective tax rate was 25%, down 150 basis points from the previous quarter due to higher benefits associated with share-based compensation. We still expect the effective tax rate in 2026 to be approximately 26% to 26.5%. There were no notables in either the first quarter of 2026 or the first quarter of 2025. Turning to our Wealth Management business on Page 5. Wealth Management started the year well with strength in trust fees across both GFO and the regions, spanning both advisory and product channels. Assets under management for our wealth management clients were $498 billion at quarter end, down 2% sequentially but up 11% year-over-year. Trust, investment and other servicing fees for wealth management clients were $601 million, up 11% year-over-year with particularly robust organic growth within GFO. Average deposits within Wealth Management were flat sequentially, while average loans were up 1%. Wealth Management's pretax profit rose 9% over the prior year period, while the pretax margin remained flat at 37.1% as we continue to reinvest in the business to support future growth. Moving to our Asset Servicing results on Page 6. Our Asset Servicing business also had a good start to the year, boosted by healthy new business generation, coupled with robust capital markets activity. Assets under custody and administration for Asset Servicing clients were $17.3 trillion at quarter end, reflecting a 9% year-over-year increase. Asset servicing fees totaled $741 million, up 10% over the prior year. Custody and fund administration fees were $498 million, also up 10% year-over-year, largely reflecting the impact from strong equity markets, favorable currency movements and net new business. Assets under management for Asset Servicing clients were $1.3 trillion, up 11% over the prior year. Investment management fees within Asset Servicing were $169 million, up 11% year-over-year due to favorable markets and new business activities. Asset Servicing average deposits were unusually strong, increasing 11% sequentially, while average loan volume decreased 2% from fourth quarter levels, albeit off a small base. Asset Servicing pretax profit grew 59% over the prior year period, and the pretax margin expanded 740 basis points year-over-year to 28.3%, benefiting from elevated deposit levels, higher volatility-driven capital markets activities and the pivot in our new business approach. Moving to Page 7 on our balance sheet and net interest income trends. Our average earning assets were up 7% on a linked-quarter basis as higher deposit levels drove an increase in money market assets and in our securities portfolio. The fixed percentage of the securities portfolio remained flat at 52% in the first quarter, including the impact of swaps. The duration of the securities portfolio dipped slightly to 1.44 at the end of the quarter, and the duration of our total balance sheet continued to be under 1 year. Deposit levels were higher than expected throughout the quarter as a result of both elevated volatility and general uncertainty in the marketplace. Average deposits were $129 billion, up 8% compared to fourth quarter levels and 11% year-over-year. In the deposit base, interest-bearing deposits increased by 8% sequentially and noninterest-bearing deposits increased by 5%, remaining at 15% of the overall mix. Net interest income on an FTE basis was up 1% to $662 million sequentially and up 15% compared to the prior year. Sequentially, NII was favorably impacted by higher deposit levels, including growth in noninterest-bearing deposits, along with the impact from fixed asset repricing and deposit pricing actions we've taken, which was partially offset by the full quarter's impact from the fourth quarter rate cuts. Our net interest margin on an FTE basis decreased sequentially to 1.75%, primarily reflecting several large short-term institutional deposits and the absence of the higher FTE adjustment recorded in the fourth quarter. Turning to our expenses on Page 8. Expenses increased 6% year-over-year. We delivered 410 basis points of trust fee operating leverage and 740 basis points of total operating leverage and our expense-to-trust fee ratio, while seasonally higher at 112.4%, was down 440 basis points year-over-year. This translated to a pretax margin of 32%, up nearly 500 basis points year-over-year. Turning to Page 9. 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 60 basis points on a linked-quarter basis to 12%, driven by an increase in RWA related to elevated capital markets activities. Our Tier 1 leverage ratio was 7.3%, down 50 basis points from the prior quarter, driven by our larger balance sheet. At quarter end, our unrealized after-tax loss on available-for-sale securities was $446 million. We returned $510 million to common shareholders in the quarter through cash dividends of $151 million and stock repurchases of $359 million, reflecting a 100% payout ratio. Turning to our guidance. For the full year, we now expect NII to grow by mid- to high single digits over the prior year, which is an increase from our previous guide of up low to mid-single digits. We still expect to generate more than 100 basis points of positive operating leverage, and we expect to return at least 100% of our earnings to shareholders. Before we open it up for questions, I'd like to take a moment to thank Jennifer Childe, our Head of Investor Relations, and congratulate her on her upcoming retirement. Steve Carroll, currently the CFO of Northern Trust Asset Management, will be stepping into the role and will work closely with Jennifer over the coming weeks to ensure continuity. Jennifer has been a trusted partner to me and the leadership team, and we're very grateful for her many contributions over the years. And with that, operator, please open the line for questions.

I have two questions. First, regarding the pretax margin and ROE performance this quarter, particularly in asset servicing but for the entire business, there appears to be a strong macro element for Northern, along with a self-help component that started a couple of years ago. As we consider the sustainability of the ROE and pretax margin, could you provide some insight into how much cyclical tailwinds may be contributing to over-earning compared to the structural changes implemented in the past couple of years that might enhance resiliency relative to the results we reported for the first quarter?

Sure, Ebrahim, it's Mike. I'll take that. So our goal is to be a consistently high-performing company. And as you pointed out, that's something we put out there a few years ago, along with our One Northern Trust strategy. So we're very focused on executing on the three pillars of that strategy. We'll do that in different environments. And this past quarter was a very constructive environment. And so there's no question that we got a lift in our financial performance as a result of that. Equity levels are still relatively high. The level of volatility is attractive for our capital markets business, and there's a fair amount of liquidity, broadly speaking, in the market, which helps us with deposits and with money market funds as well. So very constructive on that front. That said, we also, to your point, think about it from a self-help perspective and try to just execute as well as possible, whether it's a really strong environment or not so strong. As far as the targets at the last earnings call, we put out medium-term targets. Some of those, as I mentioned, we've kind of largely hit or close to. That said, it was in this strong environment. So we're going to keep driving towards those medium-term targets.

Got it. And I guess maybe just switching to the Global Family Office. It's been a strong business over the last few years. Maybe talk to us around the win rate and the competitive landscape there and just the evolution of that client once they are on board, how do you think about just the growth runway and the opportunity to improve the ROI on the client once they're on board at Northern.

Sure. So the Global Family Office business is absolutely one of our strongest businesses. It's an area where truly we can deliver the entire firm. It's the best of all three of the businesses and working together for these largest families and their family offices. And as you pointed out, it's grown at a high rate. And once again, here in the first quarter, the organic growth rate for GFO was above the average for the businesses. And there are a number of dynamics that are allowing us to continue to grow at that high rate. One is certainly just the competitive position that we have and our offering on that front. But second is that it's still largely a U.S. domiciled or focused business. Right now, international is less than 15% of the client base and the revenues, and yet it's growing at a faster growth rate. And we do believe that this is something that is not only, I'll say, attractive offering globally, but also is something that is scalable globally. And then to the latter part of your question, you're absolutely right that often the relationship with the family office can start with a more limited breadth of offering. So it may focus primarily on custody and reporting to start, but then that's the opportunity to do much more with the family office when it comes to other opportunities, particularly along the lines of investment management. And you saw some of that in the first quarter as well. So we think it's a great business and continues to have a lot of upside.

I wanted to start on the operating leverage side. I mean, 740 basis points of operating leverage this quarter, really strong. I think you reiterated the guide of generating over 100 basis points of operating leverage this year. Can you help us just think through how we should think about, I guess, expense growth this year? Are there any investments that were maybe got pushed out? Any timing differences or anything else we should be considering here?

Our expense growth methodology hasn't really changed. If you think a little bit about the expense growth in this particular quarter, most of it was driven by incentives, and there was some noise from currency as well. So actually, when you make more money, you obviously are going to have a rising expense line. We still have in process the idea behind productivity funding investment and then solving for an expense growth as a result of that. And so we haven't changed. And what I would say is the productivity targets for the first quarter hit their target. The investments that we wanted to make, we were able to make and the expense growth we managed to was pretty much spot on where we thought it would be. And so that discipline and flexibility is built into our planning, which is why at the beginning of the year, I talked more about operating leverage than I did about attaching myself to a finite expense growth number. We wanted to have the flexibility to react when markets were conducive, but also have the discipline to be able to flex down in environments that are less. So when I think about expenses, I think about a dynamic expense line that basically is something we look at on a very continuous basis. And so it's very much driven today by the productivity and the investment side of the equation.

Got it. And then maybe to pivot over to capital. Any thoughts on the new Basel endgame proposal and maybe how it impacts your capital deployment strategy going forward?

Yes. I think it's too soon to think about how it might impact the capital return part of it. I will say that on measure, our preliminary view of it is it is a net positive for us as it relates to, obviously, the commercial loan side and the operational risk is something that we probably have less of than some other peer banks. And so net-net, we think that it's going to be a positive for RWA. But it's still early days. We're in the comment period. And so I would say it's taking a cautious look at it. I don't think it's going to have a massive impact. But if it does, it will certainly be net positive at this point.

Congrats, Jennifer.

Wealth is growing at double-digit rates. Firm-wide revenues have increased by 14%, reaching the higher end of our return targets, indicating that our strategies are effective this quarter. However, I'm particularly interested in the recent announcement of your plan to grow wealth producers by 7% to 9% this year. I believe we are currently in one of the most competitive markets we have ever witnessed in the wealth business. My question is not whether this strategy is correct, but rather why you have chosen this moment to expand the number of wealth producers. What is your approach for attracting new producers, given that virtually every major bank and brokerage firm is also focused on growing their wealth management divisions?

Thank you, Mike. You're correct that our focus is on hiring and investing in talent for our wealth management division. It is indeed a highly competitive market for attracting top talent, which is what we aim for. We are concentrating on revenue-generating roles, particularly producer positions. Over the past several years, while this group has expanded, the growth rate has not kept pace with the overall growth of the business. Recognizing this, we understand that we need more talent to boost the organic growth rate in wealth management. In terms of our value proposition for wealth management professionals and advisers, we believe we offer a unique appeal. Our brand is strong, and we are positioned among the top tier in the market, where highly skilled advisers want to not only serve existing clients but also attract new ones. We have been investing in our platform to support this. We've discussed our family office solutions, which we believe provide a distinct advantage. Compared to independent virtual family offices, our offering is more appealing because it includes a comprehensive range of resources and banking capabilities. Additionally, it allows us to leverage our long history and strong fiduciary and trust capabilities. Thus, we think we provide the best platform for advisers or professionals looking to excel in their field. This distinct model at Northern is a key aspect of why we believe it is more enticing.

As part of our increased investments for growth, whether in wealth or across the firm due to the various growth initiatives you mentioned, I want to clarify something. You're still projecting 100 basis points of operating leverage for this year, despite achieving over 700 basis points in the first quarter. Is the reason for maintaining that guidance due to a cautious approach, or do you believe it might also be because you're planning to increase spending as you onboard new producers?

Yes. So as I mentioned before, obviously, it's a very constructive backdrop and macro environment for us. So there's definitely some acknowledgment that the strong revenue growth here was driven and supported by that backdrop. We don't know what's going to happen as we go through the year. And there are also some tough comps in the sense of last year, we had strong second, third, and fourth quarters. So acknowledging that, that's ahead of us as well. And as Dave mentioned, we've really tried to align our, I'll say, resource deployment strategy based on productivity and looking to ensure that we're driving productivity to fund that investment. And so we haven't pulled off of that. Yes, we expect to continue to invest in these areas that we talked about, but the plan is to try to generate more productivity to do it and not necessarily change the expense growth profile that we've been on.

Yes. And I'd just like to add to that, the direction of travel on expenses is down for the remainder of the year.

So Dave, you mentioned the strong deposit growth. It appears that much of this growth was generated by the servicing business. You also pointed out that large institutional deposits are putting pressure on net interest margin. Were those large institutional deposits part of the deposit strength? How should we view the profile of deposits going forward, and what are your expectations for that throughout the year?

Yes, we experienced some unexpectedly large deposits. I've discussed before the reasons behind our capital ratios and our aim to keep our balance sheet accessible for our largest clients. Occasionally, these clients will engage in strategic repositioning, and we want to be in a position to capture those deposits. While these deposits are not core operational deposits and won't remain long-term, we want to accommodate them. In this quarter, they significantly increased our average deposit levels. This won't carry over into Q2, though we saw an increase of about $9 billion, and we expect to retain around $4 billion to $5 billion of that. Essentially, the significant increase was driven by large deposits from a few key clients.

Got it. Okay. That makes a lot of sense. And you also spoke to robust organic growth in the GFO business, but we didn't see a lot of deposit trends. We certainly saw the revenue look good. Is the organic growth in that business less tied to deposits the way we normally think about that, and therefore, that's the divergence? And also maybe could you give a little color around your new efforts around the GSO and how that's going? And when you guys talk about GFO, do you categorize those two together?

Sure. So just on the liquidity part of the question there, Brennan. So these family offices have significant liquidity, which they are, I'll say, utilizing and moving around quite a bit. And so it can move from on the balance sheet as deposits to into our money market funds or short-term treasuries. So it's, I'll say, a pretty active management of liquidity that we do, I'll say, on their part and for them. And so from quarter-to-quarter, for example, those deposit numbers can move up and down. And to your point, it's less of an indicator, I would say, of the organic growth and more of an indicator of just their activity. To the second part of your question, we have the benefit of having this strong family office business, which we've been in for quite a while and have built up the capabilities. And to your point, what we've looked to do with family office solutions is leverage those capabilities, but in such a way that we can create the virtual family office experience for a family that doesn't want to have to set up their own office. So it's not run as one business together, but I would say two businesses that are very closely related and highly coordinated in what they're doing because they're leveraging some of the technological capabilities, some of the expertise that cuts across that. And it's just a different service model where we're acting as essentially the head of that family office for them as opposed to that person and team being employees of the client's family office.

Jennifer, congrats on your retirement.

So Mike, top of the house question. So the tone in your prepared remarks and to some of the Q&A feels like leans on organic growth acceleration a little bit more than we heard from you guys in the past, and you talked about some of the investments you're making to sort of support that. Can we talk through maybe the areas where you see the most opportunity to accelerate growth? And ultimately, what you think Northern's organic fee growth, so, ex-markets, should look like over the next couple of years if you achieve these goals, both across the institutional business and the wealth?

Sure. I would begin by stating that we see organic growth opportunities across all three of our businesses, though the nature of that growth will vary. We discussed wealth management, where a significant part of our investment aims to attract more talent to elevate our growth rate. We've covered that aspect, but it also extends to other areas that contribute to growth. For example, in marketing, I've mentioned our focus on digital marketing and centers of influence, while also seeking to create more opportunities at the top of the funnel to enhance our growth rate. Many of these initiatives necessitate investment. Additionally, we believe AI will provide us with new opportunities to improve both the client and advisor experiences, especially as we consider different wealth tiers. We are enthusiastic about this potential, but it will also require investment to implement. In the Asset Servicing business, our primary objective is scalable growth. We intend to maintain our focus on our existing footprint, offerings, and the segments we're involved in, where we expect to achieve continued growth at a highly profitable level and improve margins. In asset management, we've seen substantial growth from our core products, especially liquidity. Our investments are focused on ETFs, tax-advantaged equity, and quant strategies, which necessitates enhancing our distribution capabilities for third parties. We see this as a promising area for growth, even though it currently represents a smaller portion of our asset management business. Overall, we have targeted an organic growth rate of around 3%, and the initiatives we've discussed should not only drive us toward that goal, but hopefully exceed it as well.

Got it. And then a quick follow-up just around capital management. With the Visa shares become available to you guys this year. Can you maybe just talk through the amount of proceeds you expect the use of these proceeds and timing when it comes to potentially bigger buybacks?

Yes. So we'll roughly get half of our position, let's say, $470 million pretax, so $350 million post-tax depending on the share price. And we've only just begun to sort of think about what we're going to do with it. I don't think we're going to use the same, obviously, playbook we had a few years ago. We've got other options at this point, but we're going to weigh it against all our other priorities and take a look at what to do at that point in time, but haven't landed yet on that.

I want to ask a question just about the balance sheet. You mentioned that the benefits that came through the size of the balance sheet and the deposits, maybe some of that doesn't stay, maybe some of it does. But just given the higher for longer environment, how do you think just about duration of the securities portfolio and any other changes to that? Or is it really more of a wait and see because you're not 100% sure if this elevated size of the balance sheet lingers?

Yes. When considering the potential improvements to our balance sheet and net interest income throughout the year, there are several factors we take into account. The first is the replacement of investment securities as they mature. We still have back book repricing available that we can utilize throughout 2026. We also took some measures to adjust deposit pricing towards the end of last year, particularly in the third and fourth quarters, which we have yet to fully experience the effects of. These represent built-in increases we anticipate for the year. Additionally, we are exploring some incremental investment strategies that focus on higher-yielding opportunities and reassessing our wholesale funding mix, with an increased emphasis on FICC repo. When we combine all these factors, along with expected deposit growth in alignment with our businesses, we also no longer see a potential rate cut in the U.S. as a concern, and there could even be rate increases in Europe. Bringing it all together, we believe we can achieve our goals without needing to chase higher yields or significantly alter our duration profile. We are confident we can reach our objectives without those changes. However, we acknowledge the uncertainty in the current environment, and we feel that our current positioning is quite stable.

And just a bigger picture follow-up. We've got potential new Fed chair coming on, talks about potentially shrinking the size of the Fed balance sheet. That Fed balance sheet has already been down $2.5 trillion and trust bank deposits keep growing. But can you just remind us of the rule of thumb to think about if the Fed balance sheet continues to shrink over time, how insulated is your balance sheet from that in terms of deposits?

So Ken, I would say that is something that we are obviously observant of and what's happening. And frankly, I'll say a little surprised that liquidity levels have remained so high on our balance sheet and in our funds given that the Fed has reduced its balance sheet as much as it has. To the extent that we're in, I'll say, some level of stabilization there, I think that's good because that means our deposit levels and money market fund levels will grow with our organic growth. So yes, there is definitely some exposure to the extent the Fed were to really shrink its balance sheet more. I think that pulls liquidity out of the marketplace. And our model as well as others, it tends to expand and contract with that somewhat. So yes, some exposure on the downside, I think less on the upside.

It's actually Sharon Leung filling in for Steven today. Just wanted to ask on the margins in the business segments. The margin in Asset Servicing has expanded nicely, but in Wealth, the margin was flat year-on-year despite some strong revenue growth. So just wanted to understand like what are the components that are going to drive the, I guess, the path towards your medium-term target of 33% in the margin?

So the goal of the Asset Servicing business, as I mentioned, is scalable growth. And as much as we did have a strong pretax margin here in the quarter, this is something that we're trying to consistently move up. And so the expectation is that we will continue to try to see a higher margin in the Asset Servicing business. We've talked about a particularly strong macro backdrop here. So capital markets, very strong, NII, very strong in Asset Servicing. So that definitely contributed to the higher pretax margin for this quarter. But we want to make that even more sustainable, if you will, and a more resilient high level of margin. So there's more opportunity on that front. On Wealth Management, where we have had a very attractive pretax margin, that's an area you've heard a lot where we've talked about growth and making investments for growth. So we feel like we're in, I'll say, a good range for that margin, but we are emphasizing growth as opposed to trying to see that margin go up. And to the extent we did have some pressure on the Wealth Management margin as we make some of these investments in the near term, the expectation is that we'll more than make up for those with improvement in asset servicing.

On organic growth, you cited seven consecutive quarters of positive growth for the business as a whole, and then there's a 3% target that you put out there, but you think there's opportunity to do better over time. Can you help us get a sense of where organic growth is today and where you were a year ago? We know GFO is above average, but is Asset Servicing and the regional part of Wealth fairly positive today, 1% or so, 2% or so? Sure it can bump around some quarter-to-quarter, but maybe over the past year, what kind of organic growth have each of those businesses earned and then where were those, say, like the year prior?

This quarter, all three of our businesses experienced positive organic growth, consistent across the major segments as well. When looking at them individually over time, Wealth Management has shown an organic growth rate of around 1%, with GFO performing slightly better and the regions lagging a bit. We expect GFO to maintain strong growth, with regions gradually enhancing their growth rates to aim for an overall rate above 3% this year and next. We made progress this quarter, but consistency is key. In Asset Servicing, the organic growth can fluctuate due to the nature of larger mandates, occasionally resulting in periods of flat or negative growth. Currently, it is positive and aligns with Wealth Management's growth rate. We see opportunities to increase that growth while focusing on profitability and scalability. In Asset Management, recent organic growth has largely been driven by liquidity, but we are also observing greater diversification. In the last quarter, areas such as ETFs and tax-advantaged equity have contributed to nice organic growth as well. Overall, the growth rates are similar across the segments, and we anticipate they will continue to improve. Yes. So the target is for all of them to be above the 3%. But just given the way that it varies, I'll say, from quarter-to-quarter or even year-to-year, they may not all be, but that's the benefit of having the three businesses.

Mike, I think you called out in your prepared remarks that you saw outsized growth in the Wealth Management area in your central region. Can you highlight what drove that?

Sure. You're right, Gerard, we did. And I would say, often, given that the company has been in the central region and headquartered in Chicago for a very long time, we have a very strong business here. And often, people think that it's a mature business that is not going to grow at the same rate or even a higher rate. But the fact of the matter is the team and the leadership of this region, particularly under John Fumagalli and his team, have consistently leveraged that strength to be able to grow at a higher rate. And one of the areas, I would say, more recently is around the family office solutions that I talked about. That's the area where we started with that solution set and with that offering. It's already gained momentum in this region, and now we're in the process of rolling that out to the other regions in the same way. So that's part of the driver of the strong quarter.

Very good. Obviously, the dominance of questions are all about the Wealth Management and the Custody business. So I want to pivot because it's always good to ask you folks about credit quality since it's always so superb. You guys obviously don't take a lot of risk in lending. Your portfolio is not that big relative to your asset size. Can you share with us what are you guys seeing in the credit quality trends? They're very strong, we understand that. Have things changed meaningfully from the financial crisis and pandemic that customers are more resilient today? Any color there?

Yes, when I look at Northern's portfolio, we are heavily focused on investment-grade corporate loans. In our Wealth division, we typically engage in secured facilities. For these to be in a stressful situation, it would require significant downside. This is why our credit quality remains very high. We are not exposed to private equity or private credit to the same extent, where there is some current pressure. We do not lend based on the valuation or performance of the underlying fund investments. Instead, we provide subscription facilities to institutional borrowers, who are generally quite strong. Therefore, we are not participating in the high-yield or leveraged loan markets and are not facing the same pressures other firms may be encountering.

Thanks for joining us, and we look forward to speaking with you again in the future.

Once again, Jennifer, thank you very much.

Thanks, Jennifer.