Northern Trust Corporation (NTRS) Earnings Call Transcript & Summary

Moving right along, very pleased to have Northern Trust with us. From the company, once again, we have Jason Tyler, Chief Financial Officer. And also I think making his debut at this conference is David Fox, joined Northern in 2012 and as President of their Global Family Office.

Before we kick it off, we'll get the first ARS question. And again, these are questions we've been asking everyone. What's your position in Northern Trust? Actually, the next question, we'll let you answer. And then, interesting. So one of the more underweight ones so far. I won't to write these at the end of today to get a better representation. But so this ducktails nicely into the next question. So why don't we go to the second ARS question is, what is holding you back from becoming more constructive on Northern? So competition and competitive pricing filed even by market and expenses. So we're going to make sure we touch on all of those. But David, since we got you here for the first time, maybe we'll start with you. Global Family Office, I think, at 40% type income growth in the second quarter, almost $100 million. That's 20% of management fees, almost 6% of total revenues of the fees, I'm not sure there's an NII component as well. 500 family relationships, over 120, which are billionaire families. I think we all aspire to be one of your clients one day. Can you maybe just further discuss kind of what you do, what Global Family offices is, the strategy, how you differentiate with peers? Is it retail? Is it institutional? And just how you think about the business in general?

Yes. So thank you very much for inviting me to speak. The first thing, I think, to distinguish for those of you that have followed us for a while or haven't followed us, is that the rest of our core wealth management business is divided into regions in the U.S., East, West, Central regions. Northern made a decision many years ago to segment the Family Office segment differently. It crosses all the U.S. regions, but also is very global. So we've got people in London, Abu Dhabi, Singapore. We view the opportunity overseas to be tremendous as well. And the reason we did that was we thought that this particular cohort group, and really, its family offices and private investment offices. As you travel up the spectrum of wealth, a family office could be someone with a liquidity profile of, let's say, $250 million. But as you travel across that spectrum into the hundreds of billions, it looks and feels more like a private investment office. And we segmented this particular cohort group together because we felt as if they had certain common features. And we wanted to make sure that we pull together our resources in such a way to offer them solutions based on our collective knowledge, if you will. So the GFO business, while it does report through the wealth management segment of Northern Trust, it actually sits at what we call a center of event diagram between our 3 core businesses: asset management, asset servicing and wealth management. And it's probably the one group inside of Northern that touches all 3 of those in a very material way. And so I rely just as heavily upon my partners in asset management and in the institutional asset servicing business as I do the wealth management business. So that's an important distinguishing feature to think about when you think about GFO. It's global, it's segmented, and it's really the center of the venn diagram across all of Northern Trust Company, which is kind of a powerful thing, we think, to do it that way. Strategically, from our perspective, we feel that domain knowledge is incredibly important in this space. Particularly if you're a newly formed family office, you want to be interacting with a financial institution or adviser that has that domain knowledge and benchmarking. We've actually spun up. We have professionals in the group that have been there for 20-plus years. We have collective experience over many, many years. And we feel that, that consulting side of our business or advisory side of that business is critical. When you have a large liquidity event, who do you want to talk to? We want to talk to someone who is the axe in that market, who has that benchmarking ability. If you go on to our website, you'll actually see we put out a benchmarking study. We do them very often across a variety of different topics, incredibly valuable for our client base to do that. The second part of our strategy that I think is a little different is our technology. We made a conscious decision to invest in what we call the whole office. If you think a bit about what's inside of a large family office, a well-developed family office, you're going to have a CEO, a CFO, in many cases, a Chief Investment Officer, an HR Officer, you're going to also have family members. And each of those different constituents is going to consume information in a different way. So if you're going to offer a value-added service to that family office, and Northern does a lot of custody and data aggregation and reporting for our clients, you have to be able to cleanse that data and put it in a format that is actually usable by each and every one of those particular constituents and they don't consume it the same. What a family member wants to see is probably going to be on a mobile application, is going to be very simplified. It's going to be some kind of dashboard they can look at to get the critical information they're looking for. If you're a Chief Investment Officer, you probably have a high preponderance of your investments in alternative investments. You're going to want some pretty sophisticated reporting that comes out of that to do your capital call execution, to do your cash forecasting and things of that nature. And I go back to what I said previously around being in the center of that venn diagram, A lot of what we do for large sophisticated asset managers, we use a lot of that technology in the family office space to provide that type of information for that Chief Investment Officer, if you will. And then the third thing around our strategy is really having dedicated resources across all of our product array that only cover family office clients. We've reached a critical mass in this business now where we can afford to do that. So when you pick up your phone as a family office client and you call one of my people if they're in investments, if they're in banking, if they're in asset servicing, they only cover family office clients. We have a chief investment strategist who only covers family office clients. There is commonality across that space in terms of how they invest their money, how they aggregate their data, how they do their banking. And we've got that service model that I think is extremely powerful. The last thing I'd say, you talked about a little bit differentiation, is Northern segmented this business over 40 years ago. We were founded by a family. We still have a family member, our original family on our Board. So it's in our cultural DNA, if you will, to have this business and have it segmented the way it is. But 40 years is a long time to cultivate and bring these clients along. Within that client base, you're going to have founder offices and fifth and sixth generation multi-gen offices, all buying different services across the continuum. So we think that's extremely powerful. The other thing I would say is that this is a marquee business inside of our firm. So when I say that, I wouldn't call it the crown jewel but it's a business that gets a lot of attention from our senior management and our Board. So when I have to get something done internally, work across 3 different businesses in silos, it's very easy for me to do that. We have very high exposure inside the institution because of that.

Got it. And just clearly, the markets have been more volatile, valuations under pressure, both public and private. Just how does it impact kind of the new business pipeline? Does it help you? Does it hurt you?

It's a good question. I mean, so when you think about our client base, what I usually say is, when you're flying at 100,000 feet, you're not worried about hitting the ground. A lot of our clients are going to be continuously invested in the marketplace. And a lot of them still own big operating companies. And so they're throwing off cash and they're in the market on a consistent basis. What I would say is it may affect the type of products that they buy, but will, in fact, necessarily the volume of products. And in a certain sense, because we have that underlying liquidity from our operating businesses, the reset of valuations is viewed by many of my clients as an opportunity to get back into the market at a more attractive level. And many of them have already set their investment parameters for the year. So they do a lot of planning and analysis. Unlike a retail wealth client, they don't have a knee jerk reaction to market volatility. Many of them view volatility as an opportunity to put money to work at better value and also just to take a look at doing things differently in different markets and different sectors. So if there's inflation, maybe you're going to do more infrastructure or things of that nature. And so really, I don't think it affects the pipeline and the volume, it just affects the type of business that we get.

Can you just maybe just talk to the competitive landscape. Obviously, this is a very attractive customer segment, not the easiest to service, but who do kind of compete against? What's your share? Where can it go? And then you talked about how you kind of work well with all 3 businesses, are there any kind of lessons that you've learned now that you segmented out GFO that could be kind of redeployed back into other businesses?

Let me take the second one first because people talk a lot about the size of the market being finite and what's the growth potential. And if you look at the size of the billionaire population in the U.S., it's roughly, let's say, 1,000 billionaires. So you mentioned earlier, we have 120 or some-odd billionaires, so that's not a huge amount. There's a lot of growth opportunity there. There's probably 6,000-ish family offices in the U.S. alone. There's 3,000 billionaires globally. So when you think about the addressable market for what we do, it's very large. And so we feel there's a huge opportunity for growth there. In terms of the competitive landscape, what you really have to do is look at each of the individual lines or services that we offer to our clients. There's the custody side of the business. There's the investment side of the business, there's the banking side, there's the fiduciary side and the technology. I would actually say there was no one provider that goes across all of them the way we do. So in each of those segments, you're going to have a different type of competitor. On the investment side, it's going to be some of the larger banks, wealth advisory firms. It's going to be consulting firms, third-party consulting firms. Many of our clients really do cherish having an open architecture system. They don't like to be pushed products. They'd like to know they're getting best-in-class across whatever is available in the marketplace, so they don't want proprietary product. And we do have that. At Northern, we have a very open architecture system. So from that perspective, you've got a different set a competitors. On the technology side, it's going to be fintech firms to a large extent. And what we end up doing in that case is we either partner, we do it on our own or we'll just do it through a third party and they'll do a white label. But at the end of the day, we like to put a service wrapper across everything that we do. So if we do provide a whole office concept to our client, front, middle and back office, we're going to do it in a way where they can still call us on any of those issues and go through us because many of our clients don't want to be in the vendor management business. They don't want to be doing that. And I've got scale, right? So when you think about the scale I've got, roughly $700 billion of assets, the same folks in the technology side that are calling on those family offices are calling on us. And we can assess them, rate them, go through them and probably get some better economies of scale and pricing out of them. And on the fiduciary side, different set of competitors. So you have to look at each different component and go from there.

And then I guess just you mentioned kind of the whole office strategy and technology. I mean, this is obviously a more service-oriented customer base. How important is technology in this segment? And how is Northern [indiscernible] to differentiate?

Yes. So it's incredibly important when you think about the efficiencies of operating a family office construct, a lot of it’s fund administration at the end of the day. And if you've got a lot of your assets and alternative investments, it can be a huge headache for you trying to track and reconcile all those alternative assets. The other thing I would say is, during COVID, it's kind of interesting, it brought to life a lot of the inefficiencies that were already embedded in light of these longer-standing family offices. Many of them had built their own systems internally. They have too many manual processes. And so we did a lot of work with a lot of our clients during that period of time to take a lot of those inefficiencies out and either use technology that we have in-house or help them with third-party technology. The other thing I would said, and I mentioned this earlier around technology, from my perspective, is, when you're looking at that continuum of clients, we get to leverage off of the investments for 90% of the larger asset management clients. So we're not duplicating investments. We're not just investing from family offices alone. We're investing across that client base that's inherent in order and that we get to take advantage of certain applications. Particularly on the alternative investments, we've developed, for institutional clients, [indiscernible] office solutions, which is very powerful. We can use that for large [indiscernible] family offices as well. So technology is great. It takes cost out of the system. And the other thing for us is, as an operating entity, when our clients become more efficient, we become more efficient because if they're doing things manually or they're sending us instructions in a way that's not straight through, that makes our lives more difficult and we have to have people dedicated to that. And so as they get more efficient, we get more efficient and technology enables all of that.

Great. Jason, maybe we'll bring you into the conversation. We wouldn't let you get off easy. And I get a lot of questions on deposits, if you don't mind if we stop there or start there rather. You saw a 7% decline in average deposits in 2Q. I know a lot of them are on operational deposits. Some of that was seasonality. You did allude to some signs of stabilization in May or June. Maybe can you talk to how the third quarter is progressing in that vein?

First of all, actually, before I even answer that, congratulations. You've got 1,500 people in financial services conference and still people are not traveling as much. And at least for me, it's been awesome to see investors and everybody else. And so thanks for getting everybody together, it's been really good. On volumes, so the strategy is the same. And that for us, it's really 2 components. One, in Wealth Management, those deposits are incredibly valuable. And so if you think about the very high network individuals depositing, and we know that the life of those deposits is going to be longer, it enables us to be more flexible with what we do with it and be closer to what clients are doing, we're going to defend those aggressively, and we have been. And we've seen those deposits throughout stay very stable. And some fluctuation, but not nearly as much as on the institutional side. In aggregate, cumulatively, we saw deposits go from $85 billion or $90 billion to $140 billion at the peak of the crisis. Most of that volatility is come on the asset servicing side. So that's the second component. Strategically there, it's different. And we're going to try and play the long game and we're going to be there for clients that want to be a true client for Northern for the long run. But when clients are looking to rate shop, we're going to be less aggressive, not absent but less aggressive. So what has that led to so far in the third quarter? We mentioned on the second quarter call that we thought that deposit levels would level out at about $120 billion. That's played through, plus or minus but it varies consistently with that level. And in general, the betas have actually also played through as we anticipated, we can talk about that more in a little detail. But most of the decline has actually come from non-interest-bearing moving to interest-bearing. And that's less clients leaving Northern Trust and more saying, we weren't as focused on rates before, but with rates moving at this higher level, they're more interested in following rate opportunities. And so that's where we're seeing most of the decline from roughly $130 billion to that roughly $120 billion.

Got it. So $120 billion in total deposits as you expected. Maybe just delve into that, you've kind of touched on the mix, add of non-interest-bearing into interest-bearing. And then you mentioned data as kind of in line with expectation [indiscernible] second quarter with a 25% beta. Maybe just expand upon in terms of how betas are progressing this quarter on the interest-bearing side and just how we think about the overall cost of deposits as the mix shifts to be a higher cost of one?

Yes. So on betas, we were 25% first quarter. We mentioned that we were anticipating approximately 50% in the second quarter, and that's played through. That's what we've seen so far in the quarter. That said, every rate hike has a double life to it, is what we're experiencing. When the rates will move more aggressively, we'll have more client engagement. And frankly, we're also looking very closely at our peers and what they're doing as well. And so this is a component of our business where clients are thinking about is very much on a relative basis and again, to protect the wealth side aggressively and be disciplined with participants in the asset servicing side.

Got you. So if we kind of frame that, you had a 20% plus year-over-year growth in MAI in the second quarter. I mean it was up like 35 basis points extra recovery you had. So it's 1.32%, I think. And I think back to 2019 year-over-year, it was like 160 basis points. Just how should we think about kind of near intermediate-term [indiscernible] for MAI against that evolving deposit back job?

Yes. Well, let's think about mix volume rate. On mix, relative to 2019 or before, the big headlines or securities were down on a mixed basis and cash is higher. And so just as people -- I want to make sure people have the components to do their modeling here because rates will move around but I think if you're comparing to that 2019 period at 160 securities lower cash higher, volume levels we've talked about but the most important is rate. And I think that's where people should focus a lot of their attention. I think that's most important. And at that point, the shape of the curve matters a lot. And if I go back to that 2019 , the yield curve, it was inverted a little bit. And right now, the shape of yield curve is a little bit steeper, there's positive movement to it. But at the same time, we're all anticipating that short end to move aggressively. So we could end up in a similar position again. And those things all have big influences on what NAV looks like. That said, we still believe there's no reason we wouldn't be above 160 with where we think the short end of the curve is going, barring some significant movement in the middle part of the curve. Each rate hike has its own dynamics to it. As we get higher, we're obviously going to continue to see the benefits flatten out. We look back, we saw betas flatten at about 80% in historical periods. Even that do did see FED funds at 3.25%, 3.50%, maybe 4%. And so we had to temper our expectations, but that $160 million, we definitely don't think that was a cap.

And I guess you mentioned cash is a higher portion of the balance sheet, securities, less. Is there an opportunity as rates move up to kind of shift cash to securities?

There is. There is. I think what people sometimes don't think about is, in each of our geographies across the globe as we are interacting with clients and they want us to have deposits in different denominations, we have our own relationships with central banks in those jurisdictions, and that's related to the size of our business there. And so the cash levels are not a completely discretionary determination for us. Some of it has to do with the volume of business and the mix that we have of business. And so in some ways, we have to keep that in mind as we think about that. But we'll certainly be thinking about in general what those, not only non-cash but also what is non-HQLA as a function of the portfolio look like to make sure we're optimizing the balance sheet.

Got it. And then just on the top of the balance sheet, just maybe talk about the loan book, you actually kind of outperformed peers last year, in terms of just kind of what you're seeing as potentially the economy goes into slower recession, whatever you want to call it?

Yes. Headline, to answer your question, it's been flat. And we continue to anticipate actually some business as usual growth there. We obviously, as you know, we now talk about we were on more of an initiative a couple of years ago, to grew loans. That's largely done. Now, we're in BAU, and that's continuing to play through. The loan volume has held in quite well. Dave's client base is a really good example. Sometimes they're borrowing not out of the need but out of convenience. They don't want to liquidate an asset, it's at a low basis, and they'll go to Dave's group and say, can you loan us funds against that? And that's very chunky. And when I always talk about the chunkiness of that loan book, it's a lot talking about Dave's business. And so that can be a driver. And as interest rates are higher, the carrying cost of debt, if it's more discretionary, the demand for that can change. But thus far, at an enterprise level, it's been flat.

Got you. And maybe shift gears to the fee income side. Earlier link, we kind of asked the question, what's holding you back from being more constructive on Northern? Market risk and expense management were tied for second. But could you maybe just talk to, kind of more near term, how move in the market kind of impacts fee income? You have different businesses that are lagged differently. You've got a little bit of lift recently but you may not feel that until later and just how we should be thinking about just maybe fee income overall?

Yes. At a high level, well, first of all, answer is about 55% of the business of the fees are related in some ways to markets. Now, that's not all equity markets. It's by maybe 1/3 roughly to equity markets, but then the remainder of that 55% to fixed income markets. And I mentioned that because normally, it's a flow away. They're not moving around as much, but we shouldn't forget in this market, what's happened with rates, the fixed income value levels can come down. And so obviously, not as aggressively, but it can be impactful. And then overall, the lag effect is meaningful. And the way to think about it directionally is that where our clients have more exposure to mutual funds, the pricing is more daily based on NAVs, where it's less and it's more dependent on longer-term management and processing, it tends to be more of a lag. And so in general, when we talk through those, we can always give people refreshers on in more detailed levels because we put those in the public sphere. But that has an impact, and it should have more of a downward impact in third quarter based on where we look at markets today.

Got it. The #1 response to the question in terms of what was holding back people more constructive was kind of competitive/pricing pressures. We had State Street speak this morning, they talked to trying to reprice certain aspects of their servicing business. I guess there's 2 things you can do is one, you could follow them and reprice your clients higher to and benefit that way or you could maybe not raise pricing and look to take share? I don't know, how are you kind of thinking about that? Have you heard from the customers? Have you seen anything in the marketplace around that? Just any kind of context you can provide, I think, would be interesting?

Yes. So at a high level, this is anecdotal but our repricing of the existing book may be a little bit lighter than what it has been. Leisurely, that's part of our financial algorithm is to budget for that because we know that a lot of the largest more institutional clients are going to be on a 3-year or a 5-year cycle and in situations where they're coming back to us, even if we're doing well and markets are up over 3 years, maybe 15%, you can imagine what the conversation is going to be about pricing. Now, that said, this year, the conversation is much more inclusive of the fact that rates are higher. And so clients that are dealing with us and have deposits with us, they know that we're benefiting from higher rates and that's part of the overall discussion. And so in some ways, our business, the asset servicing business has even positioned those discussions as saying, we're going to hold on to more of the NII as a way to potentially address inflation overall. And so there are different ways to address this but we've taken it, trying to ensure that our clients know we're very holistic in how we think about the economic relationship that we have with them.

And then, I guess, tied for second was expenses. So one of the [indiscernible] we have at Northern, it's expenses, higher than expected expense growth. I think you're up 8% year-on-year. Last quarter, obviously, you have inflation you talked about, but the equipment, the software expenses, kind of all this stuff going on. I guess I'd love to get kind of your thoughts on expenses, maybe higher than ours that they have been kind of in line with what you expected, better than you expected, worse and just how you kind of manage our all expense process, particularly now as you're, I suspect, approaching kind of a 2023 budgeting process?

Yes. Well, we've talked about expense to trust fees a lot. And I think that's a core dynamic for us. And also, we talked about trust fee operating leverage. Now, I'm not going to get it out because unfortunately, you guys don't see the visibility into that. But this is an odd year for a couple of years for those, if I was modeling more than, I guess, I do model, it's an odd on those dynamics for a couple of reasons. One, the adjusted operating leverage, if you just look revenue versus expense, it's a false positive in some ways because we know that we're getting benefits from rates being higher. And so to compare that to the expense growth, it probably isn't fair. Now, then go to just something like fee operating leverage and it's the exact opposite because you're taking all of the detriment of inflation and you're putting in expenses but you're not getting the benefit of it in trust fees. The benefit is coming more in NII. And so those measures are tricky relative to what we'd normally talk about. But at a high level, we're focused a lot on expense to trust fees because it's a measure of, more than anything else, how reliant are we on the rate environment to have very attractive returns. And in general, I think we've got to look at both those things at the same time, look at expense to trust fees but also look at return on equity. And that's an area where we've stated a 10% to 15% range. Even when rates were at 0 last year, we printed numbers that were attractive. We're in that range and above the median point of that range. And so we're going to work hard to make sure that we're being prudent. But at the same time, if there are expenses that we think it's prudent to embark upon, particularly around technology and protecting high-quality people, we're going to do it. And we think the fact that we can do that and still have return on equity that's at a very appealing level on an absolute basis and relative to peers, it means it's and prudent for us to do that for the long-term strength of the business.

Got it. I would put up the next ARS question on in that vein. Where do you see Northern's expensive to trust-fee ratio? So it looks like people expect the back half of the year to be better than the first half of the year?

We'll see.

I guess, in that vein, I guess, anything you kind of want to update around kind of near-term expense? I now the past couple of quarters has kind of been various moving pieces.

Yes, there's a couple of things. One, just a clarification of some of the things we talked about in the second quarter call, one, headcount, as we continue to do work on technology, that in and of itself would create a $5 million to $10 million lift quarter-over-quarter in third quarter. And that's us continuing to invest in making sure that we're in good shape on 3 components of technology. The first would be how we think about the foundation, just the modernization, the continued investment in our core infrastructure technology spend. And then, second, in the middle, there's risk, regulatory, cyber, those areas we've invested in. And then, third, at the top are client-related investments in technology. And you heard Dave talk about that, people think about our global family office as just talking to individuals and large families about fiduciary and tax transfer and how they are thinking about investing, technologies, it's a significantly important part of our client engagement. And oftentimes, clients are coming to us and they're saying, will we deal with you on this endeavor or we're going to deal with another financial technology firm? And literally, to Dave's point earlier, competing with them on that component of their services and so we want to be good in that from that perspective. And then I should also just always remind people that the cash-based incentive accrual comes into play as we think about expenses. But those are the only items from an expense perspective that I mentioned.

And that 5%, is that similar to the second quarter call or incremental?

That's incremental to second quarter.

Understood. Understood. Not incremental to the commentary that we made in second quarter, so thank you for clarifying that. And then you kind of mentioned technology, as we kind of look into next year, just really talk to kind of any major initiatives, areas of emphasis and focus and kind of what more needs to be done on that front?

Yes. That framework that I just threw out of those 3 categories, I think that's one that hopefully helps people understand and frame how we are thinking about technology that components of the core infrastructure being run [indiscernible] in the middle of what are we doing from risk, regulatory cyber and then client related. And I think that top, the client related is some of the things we're doing in front office solutions, where we're engaging with clients and saying, you want to effectively outsource things like what's on your portfolio managers' desks to be able to see what exposures they have and what we call front office solutions to be able to help analysts and portfolio managers operate more effectively. And then if I skip to the bottom and think about the foundation, that's our continued view of migration on a perpetual basis towards the cloud, whether it's private cloud or public cloud. And the consumption we have there from a market data perspective, we're all reading about just the extraordinary amount of data and processing that takes place as you're dealing with trillions of dollars of assets and providing good reporting and risk reporting for our clients.

Got it. Maybe let's shift gears and just talk about your [indiscernible] portfolio for a minute?

Yes.

It's fine. We just talked about it in NII. Now we talk about it more with capital. We can kind of cut both ways. In the 10-Q, you talked about moving more securities when they invest to HTM. Ca you talk obviously for AOCI risk issues, can you maybe talk about any other limitations or impacts of you doing that? Just kind of your thoughts on the whole securities book in the current backdrop?

Yes. The implications of that are incredibly light, and you have to really get a nuance stress scenario where you'd say that you'd come back to that and it would have influence. And so for us, it's just acknowledging in general, rates are moving. We've got plenty of capital to absorb that. But if you think at a high level about the fact that we have roughly, roughly $400 million in net income. And then on a quarterly basis that we've had over the last couple of quarters and then take out the $140 million, $150 million in dividends, and you've got $250 million to play with. But then think about what AOCI has been, it's been more than that. And so again, we're in a position to be able to say we can take CET1 from 12.5% to 13% down to 10.5%, and we could absorb a lot more. But the ease with which we can say, let's just move $6 billion, $7 billion from AFS to HTM and protect against that, it's the prudent thing to do. And so within this quarter, at this point, the last time I did numbers last week, the impact of AOCI and incremental that was already in the portfolio is another $100 million. And if we hadn't done that mover, we'd win another $250 million. So we'd have effectively eaten up all of the earnings post dividends and our ability to create back capital. And so it's the right thing to do. It doesn't have long-term implications for us with where we are, 10.5 even, there's plenty room for us if we wanted to do an acquisition if we wanted to do other things with capital, I need to continue to invest in the business. And even with these capital levels, which are very attractive relative to peers, again, we're still pointing return on equity that's well within our range, if not at the top end of it.

All right. That ducktails nicely into the last ARS question, so we'll put that up. We'll get the last ARS question. There we go. Northern Trust had a 10% CTV ratio in 2Q. What do you think it should target? And I guess, as people respond, one of the things that State Street has talked about and not as one of the [indiscernible] State Street but they spoke before, and you guys are in a similar game, they have increased their HCM component too, and they've kind of reduced the AOCI risk. So they're kind of more comfortable operating below 10% despite having much higher regulatory requirements in Northern. So just talk about do you think you could operate less than 10.5% and just how that current environment, you're thinking about kind of capital management and share repurchase?

Yes. That's interesting. So people think you could go below 10.5%. Yes.

The vast majority of people think.

Yes. Exactly. For the top end, yes, I believe 10.5%. So a couple of thoughts. One, I referenced the fact that with our clients, we tend to be not just a deposit taker but effectively, we're a borrower at those high levels. They care about our capital levels, particularly given the fact that we're smaller. And then secondly, I do feel, historically, we've been able to deliver good levels of returns at the capital levels we have, which means in this type of market where we had to absorb client deposits come and going from $90 million to $140 million, it's given us flexibility and strength that a lot of our long-term shareholders, when I talk to them, we're very appreciative of. And it's tough to say, well, you could operate lower, but we feel like that's the appropriate level to have been running.

Great. With that, please join me in thanking Jason and David for their time today.