Great. For those that weren't in the morning session, the breakfast session, I'm Jason Goldberg. I cover the U.S. Large-C ap Bank stocks here at Barclays. Thank you for coming for our 24th Annual Global Financial Services Conference. We've got a very strong lineup of banks basically running all day in this room. And very pleased to kick it off with Northern Trust. We have both Dave Fox, Chief Financial Officer, and Jason Tyler, President of Wealth Management. Gentlemen, thanks for making the trip.
Thanks, Jason.
Congrats. I also heard record number of people at this conference.
Yeah. 24th year. Congratulations.
Thank you.
That's a big deal.
It is. Thank you.
All right.
Appreciate that. It has been exactly two years, actually, at this conference where Northern announced a leadership realignment with Dave succeeding Jason as CFO and Jason becoming President of Wealth Management, which includes Global Family Office business that Dave previously led. So maybe just looking back, what do each of you view as the most meaningful change in Northern Trust trajectory since then? How has this cross-pollination influenced the firm, how the firm allocates capital, evaluates opportunities, and perhaps can each discuss the One Northern Trust strategy from both a corporate financial perspective and a business unit growth perspective?
Before we dig in, I will let Dave kick off and do the corporate side. I will just say it was really funny. Two years ago, we were here and we did meetings all day, and we had the press release lined up to be distributed as we came off stage. The timing was really funny because if we had started this right after the market closed, then I think it was 20 minutes, we actually were thinking about announcing it so that we could talk about it on stage. But I promise, at least to my knowledge, there is no press release about org change teed up for this afternoon.
Yeah. No, I think from the corporate end, the idea behind One Northern was really to take a lot of the concepts we developed for Global Family Office, which sort of sits at the center of the Venn diagram of all our businesses, and take that sort of DNA and knowledge and push it out so that a lot of our clients could benefit from the same kind of synergy across all the businesses. Ironically, Jason and I actually put together a large part of that when he was running distribution within asset management. So it has been a really iterative process, but I think it has been great for the firm overall. So I think that is one of the biggest changes. The second big change really has been how we allocate capital and how we look at productivity and expense.
I think all credit to the entire management team at Northern for kind of getting on board with this. But it is really a focus of figuring out productivity first. Once you have got that sort of bucket nailed down, then you can inform how much you can invest in a given year, and then that will inform how much expense growth you are going to get. A lot of that discipline has been driven over the last couple of years, which is why I think you have seen that we have been pretty good at keeping our expenses sort of where we want them to be.
Then we won't both answer every question, but since you asked specifically on this one, I think people have heard us talk about One Northern, so we're at least trying to illustrate for investors what does that really mean practically for the business. A few things. One is, I think even as you think about our alternatives business, our clients were telling us they wanted to be doing more in alternatives. We had capabilities there, but they wanted us to accelerate. We didn't have to go to the market and establish new partnerships. Our internal proprietary 50 South business is one of the industry leaders in alts, largely in fund of funds, but also very strong in doing alternatives advisory for the very upper end of our client base, including GFO business, which Dave ran for nine years.
That's a good example of how we've come together, and we've had really successful launches coming out of that with their partnerships with managers being able to leverage the fact that they've got such a strong captive client base internally. That's been really helpful. Then even in marketing, we work really hard on the upper end of the market, but we do a lot of digital marketing as well. There are a lot of people that are selling their business, and they're thinking about what to do once that liquidity takes place. They may not know a list of two or three or four firms or who's the best, so we've been working internally with our marketing team to aggressively go after that space so people are able to find us when they're doing research, and it's changed a lot.
It's not just doing URL searches anymore. Now LLMs are so much more important, so that's been a key component of what we've been doing. Then even in our other corporate groups like HR, we've been ramping up very aggressively how we're thinking about recruiting and even retaining talent.
I guess maybe a follow-up, Jason. You're two years into this new role. Maybe just talk about your confidence to continue to grow this business.
Yeah. So maybe I will answer that one way more qualitatively and then in another more quantitatively. Qualitatively, what has jumped out at me in the last two years is that both clients and also potential partners, they want to be part of Northern Trust. Last week I was on the phone with a client, very sophisticated, very large client who runs a financial services company. I called him to give him a really small update on something that he and I have been talking about. What I thought was going to be a 30-second conversation, he said, "Look, while I have you, I want to run something by you." He has been thinking about changing the dynamics of the business to bring somebody else in. It turns into a 40-minute conversation and me introducing him to a couple of subject matter experts in the company.
He calls me two days later and says, "This is the expertise that I want and also the discretion that I want to have." He did not want to tell this to Investment banks, but because I know they would be following up aggressively to try and get me to do a transaction, this is exactly what I was looking for. I have those conversations a lot. It has been really pleasantly, I should not say surprising, but it is just every week I have something like that that gives me appreciation for the strength of the brand. Even from a talent perspective, I spend a lot of time talking to people that are thinking about coming to Northern.
I was talking to two people last week, and they were saying, "We have thought about a lot of places that we would want to work together, but we both came to the conclusion that there is one firm in the industry that we would want to work for, and it is Northern." When you are not competing against 10 firms, but you are competing against two or one or in some instances, zero, I just think that is really powerful. Secondly, if I think about it more quantitatively, some of the things that we do that have given me more confidence, one is FOS, which Jason I know you are going to want to talk about more, but it is a real differentiator for us in the market.
That gives then the acceleration of that and how we are utilizing it and the way we are training, it just gives me really strong optimism about what we are going to be able to do. Even from a training perspective. Secondly, just the partnership. It is one of the advantages of having somebody like Dave in the CFO role. He has run businesses, and everybody on our management team is committed to growing wealth. I think we are at the point now where we have worked on the strategy. We feel like we have aligned around a handful of really important initiatives, early results from some of those, and now is the time for us to be investing much more aggressively in them.
I guess at the start of the year, Mike highlighted four growth priorities for wealth management, and maybe just quickly run through each. The first one you touched on, leveraging leading capabilities in the upper tier wealth market, and you have this new FOS initiative. For those not familiar with it's Family Office Solutions, which basically extends what you're doing at the ultra-high-net-worth down a tier. Just maybe talk to how you're scaling this model and the opportunity you see.
Yeah. Thanks for doing an accurate short depiction of it. I'll double-click just a little bit because I should have explained it more. At the upper end of the market, a lot of times the family will say, "Okay, I'm ready to have a family office. I don't want to do bill pay. I need to do sleeve accounting. I have to have investment reporting that's more customized. I need to think about security for my family. I need to think about how we're investing in alternatives. I have to have a family office to do all those things." That's basically the core of what our business is in the family office business, is capturing those assets, but helping clients do all those things.
We realized we can take that and we can help others that don't want a family office still get those services. A lot of times families will say, "Well, I don't want to do all of those things. I don't want to have another 10 employees, but I want to save time in my life and be more accurate with how I'm doing those things." FOS is all about taking that breadth of services and being able to allocate it to clients. It's effectively an outsourced family office. It's a multifamily office. That's the way you should think about it. Our clients then say, some say, "Yes, I do have a family office. It's Northern Trust." Or some say, "I don't have a family office, but I outsource all the services I want to Northern Trust." Either way, it's the same thing.
They're selecting among the 50, 60 services that a family office will traditionally do, and they're saying, "We're going to have Northern do that for us." It's been very successful. We've started at the very top end of our client base, frankly, clients that have $100 million, $200 million, $500 million. There's a client I'm very close to that's got $700 million in assets, and he says, "I absolutely don't want a family office." This service is perfect for somebody like that. We've been taking it, and also a key component of it is we're training the advisors that are in that group on all of those different 50, 60 services and on everything that's happening in the market.
They are able to go to their clients and act not as a subject matter expert for investing or banking or trust and fiduciary, but they are able to effectively be a CEO of multiple family offices using all the services that Northern has to bear. When we are bringing that approach to clients, prospects, we are winning at an incredibly high rate in pitches, and it has gotten to the point where now we are converting a lot of our existing clients into that. The big thing, Jason, at this point is, how do we scale it fast enough and make sure we maintain the quality of the training, the quality of the advisors, but at the same time, the need there is obviously very, very heavy.
Got it. The second priority was investing in high-performing talent. I know last year unified the sales across Global Family Office and the regional markets. It also feels like you stepped up hiring. Reading about more hiring last month in New York. There were a couple. Maybe just talk to what has changed there or the competitive dynamic and what differentiates Northern?
Yeah. The talent battle, I do not want to use the word war because it is not fair to service members, but the battle is just brutal. Everybody wants to hire somebody from Northern Trust. I feel like it is a nice story to tell inside any organization to say that you hired somebody. So we have to play defense really well. At the same time, we have got to play offense. We cannot win by keeping our retention or turnover very low and recruiting just a little bit above that, we have got to be able to win by also aggressively hiring, again, highest quality talent in the marketplace. One of the things we did to help illustrate our strategy for organic growth was to separate our initiatives to categorize them into three different buckets. The first is retain.
We have got to retain clients, and frankly, we do not have a retention problem, but the first thing is you know our culture well enough to know we have got to maintain our clients. That has got to be primary focus. Two is we have got to acquire. We are acquiring clients at a higher. So many of our initiatives are around finding clients at the high level. The third is expanding what we are doing with those clients. That comes to things like alternatives. It comes to things like what we are doing in FOS for our existing client base. Now you can take that same framework of retain, acquire, expand, and you can do the same thing with partners and with talent. That is what we have done.
We have said we want to have aggressive initiatives in how we retain talent, how we acquire it, and what we are doing to develop it. In each one of those effectively six categories, clients, partners, retain, acquire, expand, there's a list of initiatives. In talent, some of the big ones from an acquisition perspective, we're being much more aggressive initiating conversations with folks external. You mentioned historically, we haven't looked to go get teams of individuals to come to Northern Trust. We've said it's riskier from a culture perspective, but we feel like we're at a point now our culture is strong enough, we can do that. We can bring on small groups of people and certainly individuals. We also created a new role because we realized a lot of the market is contained of individuals that they want to stay close to their clients.
We frankly did not have a role where somebody could come to Northern Trust and be part of our overall infrastructure, our company, our culture, and hang on to those clients. We tend to say, "If you bring them in, that's great, but we're going to transition them to a team." We've created this role, a director role. There's a level in FOS and a level in the rest of private wealth. You tell there's a lot of different initiatives across those six different categories, all geared toward helping the wealth business grow faster.
I guess the third priority was expand the investment solution suite. You touched on alternatives, obviously a big focus across the industry. Can you just describe some of the products and distribution enhancements you made, just how you're competing in that space?
Channels is important, and frankly, it's where we don't have as many client acquisition channels as our peers. We do not have an investment bank. We do not have a mortgage company. We don't have employee benefits management. We don't have a commercial bank. There's so many different channels that our peers are now, and you hear them in their earnings calls talking about how they're successfully moving clients there. We've got the ability, again, to be very good from a digital perspective, but to match our brand, it really comes down to what the industry refers to as Center of Influence. These are, for us, they're trust and estate attorneys. They're the very highest quality tax consultants.
As they are dealing with their clients, even if their client is going through a liquidity event, we often get a phone call late in the process saying, "Our client is being pitched by this other group, but we have told them they should really meet with you." We are focusing a lot on that effort around those Center of Influence. We should be best at that. Given our model, we should be better than everyone else in the industry. We cannot just hope. We hired someone to run that effort who is former CEO of a company that operates in the upper-end wealth space. She is building out a team. She is building out an effort. We are having a large conference in Chicago for our top COIs, not in 2028. It is tomorrow. It is Wednesday. These are the things.
We are going much faster, much more aggressively on things like this to make sure that those COIs realize that we appreciate what they are doing. We want to make sure that we are also in turn giving back to them. We are not going to have 15 channels, but the handful that we do have, we are going to be very aggressive about it. Even events, that is a way for clients, are a channel for us to get new clients. That is where one of our biggest referral networks is our clients. We have got to treat them and show our appreciation of them and what they are doing.
We have had very high-quality new events all over the country in the last two years, and we are investing in those from a quality perspective and bring clients together so they can hear about what is happening in the industry and also feel the appreciation that we have for them and what they are doing.
Got it. I guess as we approach the halfway point, Dave, we have got to get you involved in some of the financial stuff. Maybe to start with deposits obviously have a lot of attention lately. From Northern Trust in both 1Q and 2Q, you talked about higher-than-expected institutional deposits. I know 3Q has been historically seasonally the weakest quarter. Just maybe against that backdrop, how is the current quarter shaping up in terms of balance, mix, cost?
Yeah. So it is interesting. We do these conferences, and we reported earnings not that long ago, so not that much has really changed in terms of the outlook. S&P has barely moved, and the outlook has kind of tracked exactly where we thought it would track. Our jumping-off point was artificially high. It was 128. I think a billion was the average. So we expect a seasonal downturn during this quarter, and that has tracked exactly the way we thought it would track, and we will see how it bounces back towards the remainder of the year. But I would just say that it is generally in line with what I thought it was going to do.
Got it. That is balances. I guess anything in terms of mix or cost or anything you would flag? I know the rates are going to change maybe tomorrow, maybe.
Yeah. That certainly would not affect us, the next quarter as much as it depends when and how much, right? If you think about the rate environment and the rule of thumb for us is every 25 basis points increase in the U.S. translates into about $3 million-$4 million a quarter of NII benefit for us. So think of it that way. If it is 25 basis points of all currencies, it is more like $5 million-$6 million. So think about it that way. But it needs to be in place, right? So it is not in place yet. So we have not felt any of that.
Got it. I guess on NII, you increased your net interest income outlook to 9%-10% year-over-year in the July call. It was mid-single digits prior, and that outlook assumed a relatively stable interest rate environment. I guess you talked about kind of what current rate moves will be. But I guess as you think about the trajectory into next year, maybe talk to some of the puts and takes around NII?
Well, we obviously did a securities repositioning, which will obviously have an impact, and you guys can do the math around that. We still have a fair amount of repricing to do on our back book. That's going to come out again. We have lapsed some of our deposit pricing, although we still continue to be very disciplined around that. Then the deposits tend to grow with the business, right? We're not seeing any pressure on institutional deposits, and we're getting a lot of questions around as rates go up, is that going to change, et c. A lot of our clients are very sticky operational deposits. From that perspective, when we have these sort of jumps in a given quarter, that's usually episodic. It's one particular large institutional client putting money with us.
We think that's going to continue to be the case in the sense that our clients are going to need to have those operational deposits there. Our business pipeline's good. I think the year-over-year comparisons get tougher as you get into next year because we had such an amazing first half of this year. But ultimately, there should still be growth in the portfolio on NII. Just at this point, it's really difficult to say the extent to which it will be there.
You still feel good about up to 9%-10% this year-
Yeah.
and then additional growth into 2027.
Yeah.
For sure. I know you guys don't manage the net interest margin, but I do get asked about it all the time. Yours has kind of been bouncing around, like up 11 basis points in the fourth quarter last year, then down 6 basis points in the first quarter, then up 9 basis points in the second quarter. Maybe just talk to how we should think about it from here, particularly in the context of an ever-changing forward curve.
Well, it went down in that one quarter because we had an extremely large institutional deposit that was very aggressively priced. I mean large. We had another one come in too. I think generally speaking, somewhere between the two quarters would probably be the way to think about it. So I think we've gotten close to a normalized level. But 175- 180 kind of range, depending again on NIB, right? That's sort of the big swing factor as well, and that popped up a bit. But generally speaking, it's those idiosyncratic large deposits from the institutional side that come for two, three weeks that you can't really budget for. They definitely impact the NIM during that period of time, so.
I guess maybe looking out against the backdrop of the Fed potentially tightening, just how do you think about deposit betas? I think a lot of the institutional stuff, even the wealth stuff is indexed. But should it be similar to what we saw on the down cycle and just how you were thinking about that?
Higher rates are good, generally speaking. I think if you do a blended beta for us, it is going to be around 80%. Wealth is obviously lower than institutional. Institutional tends to go up pretty quickly. Assets are going to reprice faster than liabilities. I think on the whole, that is a good environment for us. I am not too worried about a down rate environment right now. Maybe you are, but I do not think we are going to be doing that anytime soon.
Maybe a while.
Yeah.
I guess maybe shifting gears to fee income. If we do some math, effectively increased the fee income outlook to 9%-10% year-over-year growth, up from mid-single digits previously on the July call. That assumed a relatively stable market environment. Obviously, there has been a puts and takes so far this quarter between volumes and volatility and market levels. Just maybe talk to kind of maybe your near-term outlook as well as where you see the greatest organic growth opportunities?
Yeah. On the fee front, it is funny, I have been trying to guide everybody more to total revenue as opposed to fees because operating leverage is our North Star. At the end of the day, operating leverage takes total revenue into impact. You will get puts and takes. For example, I mentioned earlier the securities repricing, which was a benefit, but on the other end, we had a repricing of our money market fund for our wealth clients, which took out some revenue. The two almost offset each other to a certain extent. So you have got to look at total revenue. From that perspective, I am very consistent with what I have told everybody in the past. When you think about organic growth, Jason and I have talked about this a lot in terms of how to get you guys thinking about wealth in particular.
Wealth gets paid in two different ways. There's advisory fees, there's product fees, right? You've got to really look at the advisory side of the business. The advisory side of the business has grown really well. The organic growth's been solid over a five-year period. It's continuing to build on itself. From that perspective, you can't really influence what happens in the market in terms of what assets are in favor or not in favor on the product end. All our product revenues flow through wealth and asset servicing. For example, if you've got a multi-manager or index or things that kind of go out of favor, that does flow through those results. We think of it more as the advisory revenues that come through. You don't see those, but they're all part of the P&L, but I would just tell you, those are very healthy.
Got it. Maybe Jason, in terms of wealth management fee income, I think AUM in wealth management was up 14% year-over-year, last quarter. Trust fee's up 10%. If you look sequentially, they look to some softness in the quarter. I think obviously there's some lag pricing. You talked about time and alternative asset billing. Maybe just unpack those dynamics a bit more, and just how should investors think about the fee revenue run rate entering third quarter and beyond?
Well, first of all, the lag impact was probably, I think it was more than people modeled last quarter. It hits GFO more than any of the other businesses because that business works off of more of a quarter and lag. If you look at where the markets had really troughed in March, we printed July numbers based on that March low. The first half of the year in general, I feel was pretty good. I think about it more, I can unpack, just look at the base of business more than anything else. I look at ex markets, ex lag, where's AUM and how's that trending? Even there's some transaction fees that, and that's why Dave is saying total revenue, because even outside the fees, you get to some other just normal transactional activity.
But if you just look at the base of business and what our pipeline looked like, I felt pretty good about the first half of the year. Coming into the second half, we feel good. But at the same time, you can look back over the last few years, and this dynamic that Dave is talking about, I think is actually important for people to understand. If you look just at the advisory fee nature of the business and wealth, over the last five years, it's been a couple hundred basis points annualized growth. We look so much at peers and we see their growth higher, but so much of that is coming from often either acquisitions or using the balance sheet to buy revenue and bring it on.
I think you have to couple the margin that we have and really get down to what's happening underlying with clients. That's been a better story. It's particularly good at the higher end. As I look at how are we doing in the $10 million and up space, the $25 million, the $50 million and up space, family office, the growth rates in those areas are higher each tier you go up. It just gives a sense of where our capabilities and our advice resonate most with clients. It's at the real upper end. We've got to be good at each one of them, but we're not fighting that and saying we want to become a mass affluent shop. We'd much rather do even better and separate ourselves even more from the competition at the upper end of the market.
That area is growing well. We have a right to win there. I think that's where we can succeed.
Got it. As a follow-up, Dave, second quarter results, very strong FX trading, security commission revenues, client activity across the board, you and your peers was strong, particularly in Asia. As we kind of third quarter, any normalization of those trends that we should be aware of?
Yeah. As I told you guys, I didn't think the second quarter was the run rate going forward, particularly on the FX side. There were some things in the market at that time that was driving probably a higher number. I would say that somewhere between a normalized FX and where we are today, there has been a lot of volatility still in the marketplace as you've seen recently. I think from that perspective, it's tracking right about where I thought it would, but certainly not at the same level as it was in the second quarter.
Makes sense. You wanted to focus us on operating leverage, so here's an operating leverage question. You got it for the year, I think roughly 400 basis points for the year. You did 700 basis points in the first half, which is obviously fairly strong. 400 basis points would get us to about 5.5% expense growth for the full year if we take your revenue growth as being accurate. Is that still how you're thinking about 2026? Just as you kind of start thinking about 2027 and putting together the budget, just how you think about expense growth and operating leverage?
Yeah. I've said this before, the comparisons year-over-year get tougher because we did very well in the fourth quarter. When I think about third quarter and fourth quarter, I think fourth quarter is really when the markets picked back up again, and we had some very good growth in those quarters. Year-over-year tends to be tougher going into the fourth quarter and also into next year. Obviously the overarching goal is to keep the operating leverage where we need it to be and get our margins where we need them to be at the end of the day. I just think when you do really well, that's a good thing. On the other hand, on the year-over-year, you're going to have to live with that. Too soon to say about 2027.
Clearly, organic growth will become a bigger determinant in terms of the growth profile in 2027. I think that's on a good track to do just fine, so.
Let me frame it this way. You talked about this 105%-110% expenses to trust fee ratio for a while. You are getting there. I guess what else needs to happen for you to get there? I know you did some restructuring in the second quarter on the heels of the Visa gain. Is that still the right number, and I guess what do you need to do to get to it?
Yeah. I think business mix plays a big role there. Take into consideration that our wealth management business is probably, some businesses are at the target or better than the target, and some are above the target. The ones that are above the target are primarily going to be on the asset servicing side. When you think about asset servicing, we are not taking on some of the more cost-intensive deals that we used to take on, where we have this giant J-curve of a lot of upfront cost, and then eventually it pays off. I think as you see the business mix changing, you are going to see the margins continue to kind of edge up and up and up. I also think the capital markets side of the business has been a great story, and that is growing at a strong double digits rate.
All those things contribute to the numerator, and from that perspective, I think that is what I would be more focused on than anything else, is that.
Jason, for you've been kind of running this 38% pre-tax margin in wealth management. Just how do you balance these investments you need to make? Obviously, you want to continue to grow against that margin.
Yeah, it's the right number to call out, actually, and we talk about it a lot. If anything, if we had confidence that the growth would come quickly and directly, we certainly are tolerant for that margin to come down, and we certainly have to be willing to bring it down a little bit to get the growth that we want. With that said, we take pride in the fact that it is a highly profitable business, and we don't want to just take margin down to do it. We want to make sure that we're thinking about it in thoughtful ways. Another dynamic, though, is that some of the investment we'll make should be in capital. We are going through a transformation, and digital is a very big component of that.
A lot of the expenses that we're going to be investing there are going to come onto the balance sheet first before they come through the income statement. I think investors should be asking both, what are we doing from an OpEx side and a CapEx side to invest in the business. But you're right, there's certainly room to You listen to our peers, and they're operating at much, much lower margins partially in order to get the growth that they're targeting.
Before I ask the next question, we have eight minutes left and I have five questions I want to get through. But I want to make sure we touch on AI. Jason, just maybe talk about how you're leveraging AI in the wealth business and obviously, Dave, maybe more broadly at Northern.
I will try and do it fast, but double-click if you want because I know you want to get through a lot. One is always start, what are we doing for clients? The clients want to invest in it, so we are helping them do that. Even if something is anecdotal as just the SpaceX, that IPO last year, it comes down to our clients' desire to invest more in technology, but inside the business. We facilitated that for clients. They were very happy about it, to their ability to invest in it. We had hundreds of families make that investment at its IPO. But inside the business, we are using a light. The focus is on the advisor.
A lot of people think, "Well, is it going to be about reporting?" If we can have the advisors able to use AI well, they will have better conversations with clients. They will get to clients faster with better information. That is where we are focusing a lot of the effort right now is helping them think about what is their next best action.
Yeah. First and foremost, given all the more recent news too, when you think about AI, is we need to make sure that we protect our clients and protect the bank. That is of paramount importance to a lot of our large wealth clients, as you can imagine. So to make sure that we are on a cutting edge of any vulnerabilities that we might have, which other banks are also dealing with, we want to make sure we have got that completely nailed down and that we are totally on top of it because AI cuts both ways, right? We are doing that as a priority, whether it is cyber, controls, risk, et c. The second thing is around productivity, and I would say that we have got more, and I said this before, we have more use cases for AI than we have time and money to do.
The trick is going to be picking the right ones, right? We have got a very new governance process around that to make sure the ones we do pick and we do invest in are going to drive the most productivity and also be sustainable. One of the things you think about with AI is can you really rely on it? Before you go and replace a whole bunch of employees with agents, you need to make sure they are going to do the right thing at all times, right? I think tons of use cases, tons of ways to use it, already using it in things like coding and taking manual processes out and things like that. So it is a productivity and a security would be the corporate way I would look at it.
I guess, Dave, on the second quarter earnings call, both you and Mike referenced inorganic growth opportunities. Maybe just what appears most attractive from an acquisition standpoint, and what are financial and strategic hurdles you need to apply when evaluating potential transactions?
Yeah. I think some folks maybe got a little bit too excited about our comments there. But I think we wanted to make sure that people knew that we didn't have our head in the sand as it relates to opportunities that come to us. And obviously, the bar is extremely high. And of course, we've got a CEO who was a FIG banker, investment banker, so you know he knows how to assess deals. From that perspective, we are open-minded. But for Northern, we're a terrible investment banking client because we don't buy a lot of stuff. And we're not going to change our culture. And we have a very unique culture and a unique way of doing business. So anything we would do would have to fit naturally into that.
So we've talked a bit about asset management being if there was a distribution capability there, that would be helpful. That might be kind of interesting. And on the wealth side, Jason and I have talked a bit about that. But ultimately, that's not our model to go out and sort of to be aggressively buying teams and throwing them on. That being said, people that want to come into our model, and there's quite a bit of them, say, "I want to come to Northern for these four or five reasons," we would certainly take a hard look at that. But the bar is very high. The valuations are very high. PE firms that are doing roll-ups are paying, I think, very high multiples. So the message there is open-minded but extremely disciplined.
Got it. On capital, you ended the quarter 12.2% CET1 above your kind of 11%-12% operating target. I know you had kind of the excess Visa gains. Just how do we think about kind of the capital getting deployed? Buybacks have actually been elevated relative to prior years recently. Does that continue?
Yeah. We're not solving so much for percentage anymore because when you start making this kind of money, it's hard to land on the head of a pin. We have a program in place, and I would just say that that program has been consistent throughout the year and we're executing on that. I think from that perspective, it's more the aggregate number that we're trying to do is in line as opposed to the percentage. The percentage is hard to land exactly. We've done 95% year- to- date. That's pretty darn good, but it's a priority too, as well. I wouldn't expect any huge changes there. We're on track to do sort of what we said we were going to do.
I think usually with Northern, credit quality is not something we worry about, but we always have to ask. Anything you're paying particularly close attention to? Any economy that gives you pause?
Yeah. Well, the line I always like to use is we lend money to people who don't need it. But at the end of the day, we're there to support our clients in every way, shape, or form, and we haven't changed our philosophy there either. We haven't really seen any particular pressure on our loan portfolio right now. We don't do a lot of those private credit. We've gone through all that, and so we do some PE stuff, but it's usually subscription facilities and things of that nature where the risk isn't really in the fund itself. Haven't changed any of that. We're not reaching out to do anything more than we've done in the past. We like loans, but we like the ones that pay us back, so.
Sounds good. Just coincidentally this morning in this room, we got you guys, BNY, and State Street. Beginning of the year, you kind of raised some of your medium-term targets, mid-teens ROTCE, already 33% pre-tax margin. Both those companies have also kind of rolled out targets a little bit above yours. Just as you think about Northern over the next few years, what is the right way for investors to benchmark success? Is there something structurally different about your business mix or priorities that leads you to set targets differently? Or do you ultimately think there's room to kind of exceed those targets over time?
Yeah. Well, a couple of things to take into consideration if you are going to compare us to peers is that we do not have a lot of intangibles, right? If you look at a different measurement, they are actually not as good as we are in that particular category. There is that. We are also not in all the same businesses, right? As Jason mentioned earlier, I think we have reached a point now where we want to get our margins to a point where we can really focus almost primarily on growth, right? For us, we are not going to put our head in the sand and manage to an artificially low expense number if we see opportunities to invest in the business. We think the targets we just put out are reasonable over that medium-term timeframe. We just did them.
We do not expect to change them anytime soon. You have got to also make sure it is apples to apples when you look at us. They do not really have much of a wealth business. We have a big wealth business. It is different. We think those targets are appropriate.
Great. On that note, please join me in thanking Dave and Jason for their time today.