Northern Trust Corporation (NTRS) Earnings Call Transcript & Summary

Great. Moving right along, very pleased to have Northern Trust with us this morning. If we could put up the first ARS question that we've been asking everyone. We got Jason who's been a regular participant at this conference, CFO. We have Peter returning, was here, I think last kind of right before COVID, who runs their asset servicing unit. So we try to kind of balance the conversation between Pete's world and Jason's world.

Pete, maybe begin with you, President of Asset Servicing, I think $13.5 trillion in assets under costing and administration, $1 trillion in AUM, it's like 60% of the company's revenue. So obviously, a very, very big business and driver of a lot of the stuff that Jason talks about. Maybe you could start big picture in terms of kind of what you're hearing, seeing from your clients against this dynamic backdrop.

Sure. I'll start off with -- I've seen a lot of clients over the last 6 months globally. Number one is clients actually want to see you in person. So business is back, we're traveling and that's great to see. They're under a lot of pressure and the pressure for returns, pressure to reduce cost, the pressure from consolidation given the pension industry consolidation or asset management. So a lot of things that they're grappling with. And those present, frankly, opportunities for us because as they look at their cost, they look at what they do and really what they should outsource, we can sit down and help provide those solutions to them. Beyond that, they're looking for resiliency. They want to make sure the regulatory environment continues to increase in this macro environment we have and then want to make sure that you're resilient that you've invested enough in cyber, that you've invested enough in your technology, stability, et cetera. So doing all that, providing good service, that's what they want.

And then can you maybe just expand upon maybe your strategy for asset servicing? How are you differentiating yourself from peers and just maybe how you've been doing in the marketplace against them?

Sure. Outside of the macro, what I tell our Board, strategy simple, scalable growth. So we need to grow, and we need to grow in a scalable method. And we talk about expense to trust fees and things like that. So you have to focus on the expense line and you have to focus on the top line. Our industry is really a situation we provide a commodity product coupled with sophisticated solutions. And where we end up winning is when we can do that better than the competition, right? And the commodities, you got to do that in a cost-effective way, but that sophisticated solution and that service around that, that is our differentiator. The other thing we do is we -- our strategy is one Northern. So we go out and we win a client, then we try to cross-sell everything. And that cross-sell can include all the capital markets businesses. It includes Asset Management business, that ability to diversify our revenue from one stream to the others is very, very important. Next, digitize. Our business has to be digitized as we go forward. We think about productivity. The problem with our strategy is we win because of client service. But client service means that you do some special things for clients that may be bespoke, et cetera. We have to be better than the competition at digitizing that customized solution for our clients. So a lot of effort going in, in terms of taking all of the new tools that are available, AI, et cetera, and making sure that all of this can be automated.

Got it. And if you look, I guess, assets under custody, asset servicing fees have both increased in the last 2 quarters, obviously, some benefits from the market there. I know you speak to in the past kind of mid-single-digit organic growth. Can you maybe talk to what you're doing to kind of drive that growth and kind of maybe some of your near-term, medium-term expectations?

Sure. I'll start off with one thing, I think, is unique about us is that we're split equally in revenues between asset owners to your pension funds, your not-for-profits, et cetera, and asset managers. It's about 50-50. That enables us to go to market really selling to both client basis. And what we're trying to do there is really look at the combination of the alternatives and the public assets. So if we think of one of the big trends that's out in the industry right now is continuing to be the purchasing of alternative assets, be it private equity, private credit, et cetera. How that's manifesting itself in the asset management area is our ability to sell more fund administration to private equity, private credit funds, right, in Ireland and the U.S. and Luxembourg, and that is growing faster than our average across our business. And you're an asset owner, you want to see your public assets and your private assets altogether in one view and you want to do risk and performance. And we have built a system that does that for us called front office solutions, and that has been a differentiator for the asset owner community on a global basis. So those 2 things are really important. The last thing, all about data, so we've built a new data warehouse, won some awards for that. And what clients want. Clients want their data, when they want it, how they want it. But the ability to us to take all of our data throw it into Snowflake account, Azure or whatever, enable the clients to grab it via APIs. If they still want FTP, God love them, we'll do FTP whatever they want, we can deliver that data. And that's the key back to that synergies, back to that ability to make sure that the manual is between us and just the data going up.

I guess on the July earnings call, Mike noted that asset servicing pipeline remains robust, maybe just give us more color where it's coming from custody and fund administration, middle office, front office, any geographic differences. And then just maybe who in the marketing place, who is the lead there?

Yes. So, first of all, I think I do need to just step back for a second and talk about growth. And when we talk about organic growth, organic growth is really for us made up of many different things. One is the pipeline, right? So we have to win. We have new business coming in. But the other half of organic growth comes from transaction fees, our transactions going up and down. As we go to market, it comes from flows from our asset managers, it comes from withdraws from large pension plans or inputs from the large pension plans, et cetera. So you need to think of organic growth in 2 buckets. So on the pipeline, where it's coming from really 2 places. If you think about the asset manager group, the asset managers, it's really selling all of our services. So for example, just one big client in the U.K. where they bought everything. They bought custody, they bought fund administration, our middle office, FX and share class hedging, all -- the whole works. And that is the goal for us. If we can get that all into our platform, we'll continue to grow them. On the asset owner side, there was just an article out there we won in Nebraska. And so midsize U.S. pension, great. We won that because of our -- that front office solutions product and that ability to combine the alternatives and the publics and present that performance in one manner, that's good for them, that worked well. But what's really unique there is we ended up winning a bunch of asset management as well. And so on the beta side and liquidity side and bundling all of that up as one offering and one Northern definitely a way we can drive revenues for the asset owner community.

I guess one of the things that people will look at you kind of look at the AUC rankings and there's maybe 3 big competitors and then Northern is down a little bit. Can you maybe just talk to -- does that -- maybe advantages or disadvantages of that in terms of size and just how that factors into how you operate the business.

Yes. So how do you define scale? So do you find scale because you have more assets under custody. If your assets are all U.S. equities, I'm very efficient with U.S. equity, someone going to have $10 trillion more in U.S. equities. It's not giving them a scale pricing advantage at all, right? You get scale by how good are you at actually being on one platform. Do you have 15 accounting engines? Or do you have 1 or 2? How are you running -- for us, if I look at our derivatives processing, our derivatives processing runs on one platform, regardless of whether you've bought middle office, you've bought fund accounting, you've bought custody or you're in the hedge fund group. It's all on one platform. So when someone out here creates a new derivative, we're building at once. So that scale gotten intelligently, not scaled just size. So I really need to stress that, and that's how we compete.

And then maybe just -- you mentioned pricing, pricing pressure in these businesses seems to be a recurring theme. Maybe just talk to in terms of what you're seeing any changes?

Yes. It's tough, right? There is definitely a lot of pricing conversations that happen out there. We're in a business where if you're a public funds, they have to go out every certain amount of time. There's a lot of consolidation on the asset management side. That's providing more opportunity for them to go to market [indiscernible] bundle. Markets go up, managers say, "Hey, you got to pay a lot more. " Let me talk about repricing potentially. What's good now is that if I go back to pre-'08 and I don't know if everybody realized how custody banks, trust banks made money. Everyone knows now. So you can sit down and have a conversation of [indiscernible]. So where are your balances, where is your FX done? Are you doing trading with us? What are you doing? And we can have a conversation in the round and make sure we're getting enough revenue. And that's really what we do. So I don't care how we get paid, I just need to get paid. And so we are -- we do have many of those conversations that are happening.

And then I was wondering maybe could you just talk to the competitive landscape. We had one of your peers here yesterday, from Boston, I won't say who it was, but they actually showed how they...

They maybe my alma mater.

They actually showed how they've been kind of losing market share, particularly in U.S. asset servicing over the last few years and then you talked about efforts there going out to kind of rehiring -- or not rehiring, but hiring more RMs and trying to step up their game there. Could you maybe just talk to in terms of main names, but kind of the overall competitive landscape.

Yes. So clients want service. We -- as we've gone through our actions and things like that, we have not cut into our relationship management teams, our client service teams because clients want individuals to pick up the phone that understand them and they can service them. That's key. And so what others are, I think, realizing is you have to do that. And so they're going ahead and rehiring and compete as we go forward. But if I think about where we are as an organization, I think we're pretty good in the sales sector, pretty good in the relationship time. What we have to do is continue to focus, so I cannot sit down and compete in every single jurisdiction, for example, that my competitors competed. To give you an example, I'm not in Taiwan. I'm not in Japan. We're not going, right? We can't afford to do that. It's not in the cards. So we have to sit down and say, if we can be #1, #2 or #3 in a market, let's go and we'll stay in that market and correctly invest and build the teams locally trying to build that up. If we can't get to that position, do we really want to be there or should we do something different.

Got it. And then I know Northern hasn't been a very active acquirer over the years, but there's [ Softgen ] reporting looking to sell. It's close to the union. I think there's kind of others on the -- potentially out there. Just maybe talk about how acquisitions can play a role in your world?

It's funny because no, we haven't been a big acquirer but most of them have been in my -- right now, I would say we don't need scale for scale's sake. So our goal is not to just say, okay, we need to add another $7 trillion in assets, let's go and put them on our system. What we will do is continue to see if there is a bolt-on acquisition that makes sense from a capability or a jurisdictional perspective. So if there's something that pops up, this is a jurisdiction we're not in, okay, we would consider that and look at that. That's frankly what we do with UBS. It's now #1 in Switzerland. We keep driving that. But that's going forward. Chips are falling in the right place there for us, so that's good. So we'll continue to look at that, but it's really a one-off basis as we continue to grow organically as a primary strategy.

And Jason, maybe kind of bring you into the conversation. We obviously talked a lot about asset servicing so far. Maybe talk to just general trends you're seeing assets in Wealth Management or Asset Management now there's been some changes there.

Sure. Well, first of all, congratulations on the conference. It's a lot of people. It seems like attendance is up and a lot of good commentary coming out of yesterday. I must be in here. So congratulations. If I -- we transition and talk about maybe Asset Management first because there's actually some interesting exciting moves that have happened there for people who follow the company closely. Daniel Gamba joined as President of that business from BlackRock in April. And he just got a great experience in Asset Management. He has run different businesses in different areas, institutional, more retail, active, passive and so he understands product and client and manufacturing really, really well. And he's already made some changes and focused the business. I think the best thing you can see externally is just geographically and product-wise, super focused on where we can win. And he always -- he talks all the time about we have to invest where we have a right to win. And it's going to everybody that comes away from talking about takes that away. And so I think you'll see the business more focused on areas where we've got competitive advantage where we have access where we have good product. And the Asset Management business is hard, but we all feel excited about his leadership. And you think about areas for us like cash, indexing and then even customized indexing, we call it tax-advantaged equity, a lot of what we do in the Wealth Management business for the market that wants more beta exposure, but wants to manage taxes more efficiently. We're -- we've done really well in area, a lot of assets. And so I think in a lot of different [indiscernible] to that business, you'll see us investing and getting more focused. So it's exciting quarter. And then Wealth Management business, the momentum that we've been talking about over the last couple of quarters is continuing. And as I look at the numbers, it just strikes me over and over again, the upper end of the market, we do better. I can look at the tiering and we get $5 million and below, $5 million to $25 million, $25 million to $100 million, $100-plus million, the Family Office business. And the higher the tier you go, the better our market share and the better the growth in the company. And so I think that's reflective of where the brand is and where our top people are. And that Family Office business sits right in the middle of all of our capabilities. And so they work a lot with Pete in Asset Servicing. Their clients uses a lot for that, but more and more we're engaging with them on advice and on Asset Management. And so a lot of new things going on in the Wealth business, too.

Got it. And maybe you can delve into some of the financials.

That was the transition one.

You mentioned we're investing, so that kind of your thinking.

Yes. There you go.

We will get to expenses a little bit, but maybe start with deposits. In mid-July, I think you kind of threw out $106 billion, which were down from quarter end, but kind of in line with 2Q's average. Although I know August tends to be seasonally soft. Maybe just speak to kind of current mix trends, cost trends and maybe talk to what you're seeing changed [indiscernible] channel over wealth channel?

Yes. Actually, I can give a little color on both channels. I think the headlines of people as the deposits have held in very well and certainly in line with what we anticipated. And this would be a tough part in the 92-day cycle, coming off of August, but even with that, deposits are holding in well. And it's clear to me when given a choice, clients will -- they just prefer to be on our balance sheet, and that's continued. And ironically, so August was soft. It was -- we anticipate that. It was as soft as we anticipated it to be, but the trend in deposits was held in overall just as we would have thought so far during the quarter. To separate the businesses, the Wealth business is actually -- it's smaller and so you can't over read. You don't over interpret this. But the deposits are actually up a little bit in Wealth. And -- so that was a pleasant surprise to see that. And prior to that is probably just the resiliency and the fact that they're not spending as much in the summer months, it's probably a little bit less volatility there. And the -- in the Asset Servicing business, we've seen a very slight decline, again, all within the range that we talked about. But again, it's been highly anticipated. It's just the competition and spreads are tough there. So just answering a lot of phone calls and talking about what we should -- how we're thinking about maintaining spread.

Any, I guess, thoughts in terms of kind of mix or cost?

So costs are up, and we -- coming -- at the end of second quarter, we felt good about cost pressure. We knew it was coming, but it hadn't really hit hard. In the third quarter, it's hit very hard. And it's not -- it's let us going out and aggressively trying to bring deposits and it's just let us saying we're going -- when in doubt, we are going to hold on to the deposits inside the house. And so we said that the overall NII would be down in the 5% range. It looks like it's going to be closer to 10% down for the quarter. And again, that's not on volume. That's just -- that's all on spread and just us defending and we feel good about what we're doing, but that's the implication of it in the short run. We can -- it's too early to talk in any detail about fourth quarter, but there are pros and cons to what that will look like and the pros are we still have securities that are maturing from pre rate rises. And so we're still getting a lift from that. And at the same time, we'll have more of a full quarter of the rate rise reflected on the asset side, less on the liability side. So some pros, but then we'll see what happens with spread pressure there as well, but certainly don't see anything close to a 10% decline in the fourth quarter.

So, all right, we were down 4% in Q2, we were thinking down 5% in Q3, and now we're thinking it's really going to be down 10%. You mentioned being a bit more aggressive in terms of pricing deposits on the interest-bearing front. And I guess that's the biggest driver as opposed to maybe mix shift out of noninterest-bearing?

It's a little bit -- a very small decline in noninterest-bearing. But just from what I am seeing or anecdotes on it saying, we want to stay there. We're just looking at what our rate options are, whether it's at your peers or money market funds or elsewhere. And this is where we see the market, we imagine, and in some instances, we are.

And it takes time to the timing of that decision and the conversation of while we need to get paid on the other side. That doesn't happen overnight. So you make sure people stay on the balance sheet, you price with the market then you can have another conversation that says, okay, now what's the total revenue we're getting from you, but that can take months as real to go through and have that conversation. So there is a mismanagement timing as we go forward.

Actually, I guess it's -- we've heard something a little bit different from some of the other banks in terms of maybe the NII underperform kind of first half of the year and now we're kind of seeing stabilization. So I just want to get a sense, do you think you're kind of -- maybe we're a little bit behind in terms of kind of raising pricing? Or is this kind of the next leg of another repricing higher if [indiscernible] now elevated for a prolonged period of time?

My interpretation is that we were a little behind in feeling spread compression. Because if you look at the results and where -- I don't talk about others guidance just -- I don't follow it that obsessively. But I think the results are going to be close to this -- the results might be closer to similar, I think it just has to do with who is feeling it at one point and was able to communicate it at different point. But from my sense is that it really is more timing and there's nothing idiosyncratic. And again, it's not -- the conversations I'm having with clients and with the field and Pete's team and Steve Fradkin's team, everybody is coming back saying, look, spreads are just tight. And how do we want to handle it? Do we want to hold on to these or let them go. And when rates were going up -- when rates were coming down in the beginning of the health crisis, we said our bias is going to be hold on to the deposits, and it's the same thing now.

All right. So then down less than 10% for Q4. I won't pinpoint a number for late October. But as we kind of begin to think about 2024, you have a really short-duration balance sheet, maybe there's room to extend duration, pickup some NII. How do you just kind of -- how should we start to think about 24?

We, run a -- I don't even think duration gets to how short the balance sheet is because I think it undersells -- we don't have some of the assets in the securities portfolio. It's actually $40 billion to $50 billion on $130-plus billion balance. It's actually not that large. And then you look at home book, in particular, and the duration there is a year or less. And then we run a really high cash position with the duration, obviously, to 0. And so you add it all together, I think about it in terms of the overall balance sheet duration and so you waited -- if you average those out and weight them, you get to a balance sheet duration that's really low. And frankly, if there are lessons coming out of the -- what's happened in the volatility of deposits over the last couple of years, lesser is -- shorter is better. And we're still able to generate really good returns for shareholders. I mean if we're staying in a 10%, 15% return on equity range and also able to not do uncomfortable things, then it puts us in a really good position. And I think it's another reason why our clients, all things equal, we prefer to be on Northern Trust's balance sheet. And so not looking to change that significantly to go bring up extra NII and feel like it's the right thing for a variety of reasons to stay overall position the way we are. Now things will change in the market and totally different dynamics at play, but we felt good about where the positioning was, especially through the volatility that took place over the last couple of years.

Got it. And then maybe shifting to the income side. Markets have been good. Activity volatility, maybe not so good. Just maybe any color on the performance there?

Actually, do you want to -- I mean a lot of the trading activity has been light, and that doesn't show up in dramatic changes to our income statement. It's just -- it's something that we observe and look at and talk about. So I don't think it's noteworthy if you're thinking about the long-term earnings of the company at this point, but the transaction activity inside the business has been volatile. It was with good quarter last quarter. It's been more normalized this quarter so far. So I wouldn't say anything significant to note. Anything you want to add, Pete?

Yes, I would agree. And the other point is that while our Brokerage business is not a huge number, right, across the company. That's getting larger, right? And that as well, transactions impact that. Again, as you look at it, we've added a lot of clients, but you're kind of running fast to stand still on that side.

And then I guess on the earnings call, one of the highlights was you're kind of talking to expenses up 6% or less for '23 versus up 7% or less for prior, I guess, maybe just talk to any kind of updated thoughts there like maybe revenues maybe a bit softer than we thought?

Yes. Frankly, not connected to NII and the actions we've taken in the [indiscernible] have been good. And we've continued to execute on those well. They're taking hold well. And so as we came into the year looking at what fourth quarter looked like and looking at some lenses on first quarter, we saw 7% as a possibility. And so we've got to do better than that. And we said 6% has got to be -- and then we said we had a good first quarter, had a good second quarter and so -- and that's continuing. And so we feel good that we can -- for the second half of the year, we'll have a 6% or better. And our confidence around that is even higher than it was as we talked in July. And a lot of that is the things that we launched and are able to control are, again, taking hold. And it's the comp line that we've got to make sure we can keep an eye on closely. And the actions that we mentioned in January, the ones we talked about in July, we've been able to execute on those at a good pace. And so specifically on comp, we mentioned that we have that -- the comp line would be flat to down. And at this point, this far in the quarter, we can see that line is going to be -- I don't think it will be interpreted as flat. I think it will be interpreted as down. And so feeling more confident about the execution of those programs.

Got it. There's more stuff on expenses I want to get to, but I want to make sure we touch on capital first. So I'm going to come back to that. But if we could just put up the next ARS question. Basel III endgame proposal, maybe just talk to the potential impact for Northern, I know not a ton of market that's relative to the big banks, not a ton of credit risk. Operational risk is something new in these standardized approaches. Can you maybe just talk about the impact and how you think about it?

Yes, I will. I think people are getting it mostly right in their overall assumptions of what the impact will be for us that -- and you framed it well, there's decent -- there's operational risk, which is going to have obviously an upward impact for us. And then there's multiple components of lending that will have impact and those will generally go in our favor. And ironically, I think relative to peers, we tend to have more direct lending. And so that might be more beneficial for us and our weight of operational within our overall business is less than some people, I think, sometimes remember. And so at a headline level, our RWA should be up 10%, 15%. So wanted to give people a chance to go to see -- they get it right. So that's good. And -- but in general, if you think about our capital levels, we run a lot of room. And so don't think it's going to have a dramatic impact on how we manage capital at this point.

I guess on that notion, right, you -- over 11% CET1 manageable RWA inflation over a period of time. You have to not to increase the dividend this year, modest buyback. Just how do you kind of think about capital management from here?

That 30% to 50% dividend payout ratio, that may go outside that range for short periods of time, which sounds like we're going to panic and do anything. But in general, our earnings are relatively stable and predictable, given the recurring nature of the revenue. And so I think that's something people should really focus on in terms of our dividend policy. And then you look past that and -- it really is -- we do look carefully at where a broad set of peers are from a CET1 perspective. And so that matters. And part of it is that Pete's office is literally right next to mine, and he'll pop over, I'll go over and he'll say, "I'm going down." I'm going to Asia to visit with clients and what are the talking points that we should be using about the balance sheet. We take pride in it. And we think it's part of our differentiated story to talk about where we are. And so again, it doesn't need to be there every single quarter. But in general, based on where we see people moving and where they're saying they're going to go with capital, we want to have a strong story there. So that's the second dynamic. And then from a share repurchase perspective, a lot of these dynamics come into play. We've got a big FDIC bill coming. And so that's the kind of thing that we weigh in and say, "Okay, do you take a quarter off in order to just get that done without impacting capital?" And what are the options that we have to reinvest inside the business and we think about the stock just as we think about other investments that we can make. And so all these things play in, they cannot overread, you shouldn't over interpret our actions in any 1 quarter as an indication that one of those blinking bright green or bright red, but that is literally how we think about it on a quarter-to-quarter basis.

Got it. All right. Now just pivot back to expenses. You talked about that 6% or less number for 2023. You talked about this office of productivity earlier this year, I think you unveiled that, which has obviously proven down some initial success. As you kind of get into the 2024 budget process, you think you can improve on that 6%? Or kind of just where are you in this productivity journey?

So first, we should not have -- our long-term run rate should not be 6% expense growth. That is not good. And so we will plan for the company over time to be doing better than that. And so that's most important from what you said that jumped out. That's not the financial model. And people should know that. And we're extremely committed to a financial model that has less than 6% expense growth period. And the productivity office, it just improves the opportunity for us to do that very consistently. And the 3 things that are in my mind most foremost are, one, the workforce because, again, it's our biggest cost. We've taken significant actions this year to reduce cost or they are supposed to be. We absorbed in large ways the base pay increase that we did and we're doing much more analytical about how we're addressing the workforce. And so I think that's been really strong. And there are a lot of things that are in play there. As we think about bringing on new people, it's much more quantitative and analytical to think about where should they come, at what rate. Pete and I and our teams work super closely on that and feel really good about how that's been launched. And I think that's a big -- that's been a win so far, frankly. And second is vendor management. And we spend a lot of money with contractors, with vendors in general. And so we have to get that right and ensuring that we're negotiating well, getting proper rebates, ensuring third-party hiring is done right, super essential. And I think the evolution of that is maturing as well. We've had good negotiations, good conversations with results on some of our largest vendors and we're involved in very senior levels on that. I am, Pete's, others directly in those conversations. And then the third is IT capital. And that one I did less far along on the evolution of what we're doing within the productivity office, but also another really important item. We spend over $1 billion a year total in technology. And that's been the highest growth rate area for us over the last 10 years. And now that it's bigger, it has to be managed that much better and fully committed to making sure that we're doing that, too.

So maybe what is the right way to think about it? It's not -- it's something less than 6%. You did a 25% pretax margin last quarter and 116% expense to trust fee ratio. Is there -- kind of what do you have in mind is the proper metrics for this operating model?

Yes. We think about them all the time. So 105% to 110% expense of trust fee ratio, we're not there now, but as I start looking at 2024 and beyond, I'm looking really closely. The same question other people are asking when can we get that range? It's really important for us to be inside that range for us to perform well as a company. And then also just top line revenue growth number, and you've got to be able to do something 200 basis points above GDP. And then we have internally, there's one area you can't see, but we're looking at organic growth -- organic trust fee growth rate targets as well. And then that pretax margin of 30% is in the short run, it's going to be a tough one to get to. We layered on some expenses in the company as a result of the health prices and as a result of inflation, it's going to take us a while to grow and get to that. And then lastly, that return on equity, 10% to 15%, to me, that's the fundamental component and there's no reason for us to change. That's the one that we start with when we talk about performance internally. That's the biggest litmus test that we have for the institution.

I guess, why -- you still have the mic. Any other comments on the quarter as we [indiscernible] our models?

No.

All right. Any questions from the audience? We can go to the next ARS question because you guys are shy. Let's see what this is. All right, this is topical just what we're talking about, but where do you see Northern's expense trust fee, not trust fee ratio in 2024?

I'd love to and by giving a really specific answer. The reality is that the trust -- our model is really -- the revenue model is driven a lot by macro factors. And so if you had on there, given a specific increased rate for equity markets, then it'd be easier to answer, but the reality is where we end this year in the S&P and EAFE is a really big indicator for that. I do think directionally, yes, it's going to be -- barring a significant increase in the S&P and the EAFE, hard for us to get down to 115% next year. But you hear the commitment we have to getting there as well. And so it's not just -- we think a lot about what's the financial model, the financial algorithm for the company. And we feel like getting that 110% to 115% is important. It enables us to be a high-performance company and to be able to grow EPS at a good sustainable rate.

And I would add, just from a cultural change perspective, and I have 2/3 of the people in my organization and every 2 weeks, personally approving any add to staff that would come into that group and scrubbing in and [indiscernible], et cetera. So there is a very high hurdle now to add teams, to add staff, et cetera. And when we do, it's like where is the productivity offset on the other side because if we win a lot of business, which we're winning, we want to add new relationship managers, new client service folks. So we need productivity in that aside in order to fund that. And that's on a base of 14,000 people with high turnover in some areas. So that's where a lot of the demand comes from.

Okay. On that note, please join me in thanking Jason and Pete for their time today.