Northern Trust Corporation (NTRS) Q4 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call summary presents a mixed outlook: while there are positive elements like AI deployment, wealth management growth, and strong FX trading performance, there are also concerns. Uncertainty about deposit normalization, lack of clear guidance on inorganic growth, and potential risks like interest rate changes temper optimism. The Q&A highlights strategic focus on organic growth and shareholder returns, but the lack of specific details on certain aspects and potential risks lead to a neutral sentiment overall.
Key Financial Performance
Trust Fees Grew 7% year-over-year in Q4 2025. Reasons: Positive trust fee and total operating leverage, strong market conditions, and investments in the business.
Net Interest Income (NII) Increased 14% year-over-year in Q4 2025. Reasons: Favorable deposit pricing actions, higher deposit levels, and a more favorable deposit mix shift.
Revenue (excluding notables) Up 9% year-over-year in Q4 2025. Reasons: Strong market conditions and execution of the One Northern Trust strategy.
Pretax Margin (excluding notables) Expanded to 33% in Q4 2025. Reasons: Positive operating leverage and expense discipline.
Earnings Per Share (EPS) Grew 19% year-over-year in Q4 2025. Reasons: Positive operating leverage, reduced share count, and strong financial performance.
Return on Equity (ROE) 14.8% for the full year 2025. Reasons: Strong market conditions and execution of strategic initiatives.
Share Repurchases $1.3 billion in 2025, reducing share count by 5%. Reasons: Record repurchases to return value to shareholders.
Assets Under Custody and Administration Up 11% year-over-year in Q4 2025. Reasons: Strong equity markets and net new business.
Assets Under Management Up 12% year-over-year in Q4 2025. Reasons: Favorable markets and strong incremental flows.
Trust, Investment, and Other Servicing Fees $1.3 billion in Q4 2025, up 7% year-over-year. Reasons: Strong equity markets and favorable flows.
Wealth Management Pretax Margin 38.9% in Q4 2025, down 300 basis points year-over-year. Reasons: Severance charges and product pressure.
Asset Servicing Pretax Margin 25.5% in Q4 2025, up 210 basis points year-over-year. Reasons: Robust capital markets activities, cross-selling high-margin products, and streamlined operations.
Net Income $466 million in Q4 2025. Reasons: Solid progress toward financial objectives and favorable currency movements.
Effective Tax Rate 26.5% in Q4 2025, up 310 basis points year-over-year. Reasons: Higher tax impacts from international operations.
Average Deposits $119.8 billion in Q4 2025, up 3% sequentially. Reasons: Normal seasonality and higher-than-usual surge in the last two weeks of the quarter.
Net Interest Margin (NIM) 1.81% in Q4 2025, up sequentially. Reasons: Favorable deposit pricing actions and a more favorable deposit mix shift.
Expenses (excluding notables) Up 5% year-over-year in Q4 2025. Reasons: Investments in growth and resiliency initiatives.
Assets Under Management for Wealth Management Clients $507 billion in Q4 2025, up 13% year-over-year. Reasons: Strong equity markets and favorable incremental flows.
Custody and Fund Administration Fees $496 million in Q4 2025, up 9% year-over-year. Reasons: Strong equity markets, net new business, and favorable currency movements.
Investment Management Fees within Asset Servicing $166 million in Q4 2025, up 6% year-over-year. Reasons: Favorable markets.
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Operating Highlights
Family Office Solutions (FOS): Launched to serve families with over $100 million in net worth, exceeded goals for clients and assets, and is scaling across markets.
Alternatives Investment Solutions: Doubled the number of funds launched and tripled assets raised in 2025, with plans for faster cadence in 2026, including the first evergreen fund.
Tokenized Share Class: Introduced for a money market fund, leveraging digital capabilities.
Customized SMAs: Expanded offerings with $5 billion in net organic flows in tax-advantaged equity suite in 2025, with plans for new strategies in 2026.
Private Markets Expansion: Broadened footprint across the enterprise, contributing to 1/3 of enterprise revenue.
Global Family Office (GFO): Achieved record new business in 2025, with international markets up 15%.
ETF Servicing and Digital Assets: Plans to grow ETF servicing in the U.S., expand European transactional banking, and build digital asset capabilities.
AI-Driven Automation: Adopted AI for digitizing documents and automating tasks, increasing productivity savings by over 4% of expense base in 2025.
Client-Centric Operating Model: Standardized processes, increased managerial spans of control by 35%, and reduced management layers by 20%.
Cybersecurity and Cloud Adoption: Enhanced risk technology, expanded cloud adoption, and modernized software platforms.
One Northern Trust Strategy: Focused on optimized growth, productivity, and resiliency, delivering 7% revenue growth and 2 points of operating leverage in 2025.
Expense Discipline: Achieved 6 consecutive quarters of year-over-year improvement in expense-to-trust fee ratio.
Profitability Targets: Raised medium-term targets to a pretax margin of 33% and return on equity in the mid-teens.
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Risk or Challenges
Market Conditions: Currency movements have impacted revenue and expense growth, with unfavorable impacts on expenses by approximately 140 basis points.
Regulatory and Taxation: The effective tax rate increased to 26.5% due to higher tax impacts from international operations, which could affect profitability.
Operational Efficiency: Severance-related expenses of $59 million and other notable items have increased operational costs, impacting margins.
Deposit and Loan Trends: Deposit levels are expected to normalize after a higher-than-usual surge, and loan volumes have decreased year-over-year, which could impact interest income.
Expense Management: While expenses grew by 5% year-over-year, the company faces challenges in maintaining positive operating leverage amidst rising costs.
Cybersecurity and Technology: Investments in cybersecurity, cloud adoption, and AI-driven automation are critical but require significant resources, posing a challenge to cost management.
Competitive Pressures: The need to scale operations and enhance product offerings to maintain market share and profitability in competitive markets.
Economic Uncertainties: The company’s financial performance is sensitive to market conditions, including equity markets and interest rate changes, which could impact revenue and profitability.
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Guidance & Outlook
Productivity Target for 2026: The company plans to raise its productivity target by 10%, supported by maturing initiatives, further structural and workforce improvements, and broader AI deployment.
Wealth Management Growth: The company will continue to invest in high-performing, growth-oriented front office talent, sharpen incentives around new client acquisition and organic growth, and expand its suite of investment solutions. Plans include launching a long/short tax-advantaged equity strategy and expanding customized fixed income SMAs.
Asset Servicing Growth: Plans to further scale core fund administration and depository services, increase cross-sell of capital markets activities, and expand global asset owner franchise. Focus areas include growing ETF servicing in the U.S., expanding European transactional banking, and building out digital asset capabilities.
Asset Management Growth: The company will maintain an elevated new product base, expand product capabilities, and strengthen distribution across wealth and institutional channels. Plans include launching a long/short tax-advantaged equity strategy and expanding customized fixed income SMAs.
Financial Targets for 2026: The company is targeting a pretax margin of 33% and return on equity in the mid-teens. Full-year 2026 NII is expected to grow by low to mid-single digits over the prior year, with more than 100 basis points of positive operating leverage and a return of more than 100% of earnings to shareholders.
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Shareholder Return Plan
Total dividends returned to shareholders in 2025: $1.9 billion
Cash dividends in Q4 2025: $152 million
Total share repurchases in 2025: $1.3 billion
Share repurchases in Q4 2025: $370 million
Reduction in share count due to repurchases: 5%
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Key Q&A
Q:Can you speak to your conviction in driving change across the organization and the timing of traction in financial results?
A:Michael O'Grady expressed high conviction in driving change across the organization, attributing it to efforts by employees and partners. He noted early financial results and emphasized maintaining conviction and executing strategy to achieve consistently high performance. The medium-term targets were moved up, reflecting confidence in achieving positive operating leverage within a 3- to 5-year timeframe.
Q:What drove the lower cost on the interest-bearing (IB) side and how sustainable is the ability to drive down interest-bearing deposit costs?
A:David Fox explained that Q4 growth in non-interest-bearing (NIB) deposits was influenced by seasonal factors and government shutdown-related cash stockpiling. He noted that Q1 would see normalization. Deposit pricing improvements were attributed to liquidity solutions and the roll-off of expensive wholesale funding, which reduced deposit costs.
Q:What does a steady-state macro backdrop imply for fee growth this year, and what are the key drivers of growth for 2026?
A:David Fox projected mid-single-digit revenue growth for 2026 under steady-state macro conditions. Key drivers include strong traction in the ultra-high net worth segment, family office solutions, and onboarding of large asset servicing clients. Michael O'Grady added that asset management growth is supported by strong liquidity flows and reduced index outflows.
Q:Are there opportunities in asset management to bolster the business inorganically via tuck-in deals or larger acquisitions?
A:Michael O'Grady stated that the strategy focuses on organic growth but is open to inorganic opportunities like acquisitions or partnerships, particularly in alternatives and expanding third-party distribution.
Q:What gives you the confidence to increase pretax return targets over the next 3 to 5 years?
A:Michael O'Grady cited scalable and profitable growth, productivity improvements (including AI impact), and a strong capital position as key factors. He emphasized the mix shift towards higher-margin businesses and stable capital regulations as additional confidence drivers.
Q:Does the revised pretax return target indicate a focus on organic growth rather than combining with another bank?
A:Michael O'Grady confirmed the focus on organic growth and strong financial performance to maintain independence. He noted that the Board considers all options but prioritizes organic growth and shareholder expectations.
Q:How does the enhanced focus on profitability impact revenue growth and expense-to-trust fee ratio?
A:Michael O'Grady explained that expense-to-trust fee ratios vary by business and client type. The focus is on scalable, profitable growth, with continual client profitability assessments to improve or exit unprofitable relationships.
Q:What is the outlook for net interest margin (NIM) and net interest income (NII) growth?
A:David Fox projected stable NIM in the 170s for 2026, with levers to manage both asset and liability sides. He noted that deposit pricing actions taken in 2025 would support NII growth in 2026.
Q:What is the impact of the government shutdown on deposits, and how does it affect Q1 expectations?
A:David Fox noted that the government shutdown led to cash hoarding, inflating deposits in Q4. He expects some normalization in Q1 but not a full reversal of the $7 billion increase.
Q:What are the factors influencing buyback decisions and payout ratios?
A:David Fox highlighted multiple factors, including regulatory capital, earnings power, ROE, loan growth, dividends, M&A, and share price. He indicated confidence in maintaining over 100% payout ratios in 2026, similar to 2025.
Q:What drove strong FX trading performance, and is it sustainable?
A:David Fox attributed strong FX trading to volatility, volumes, and new client additions, particularly in integrated trading solutions. He expects steady growth due to client traction, though volatility remains a key factor.
Q:How do you view the split between wealth and asset management businesses, and what are the organic growth trends?
A:Michael O'Grady noted that asset servicing margins need improvement to reach high 20s, while wealth management has attractive margins and faster growth. Organic growth rates were 1-2% for wealth management and 2-3% for asset servicing, with higher growth in ultra-high net worth and advisory segments.
Q:How does the degree of operating leverage vary with revenue growth, and what is the focus for expense management?
A:David Fox emphasized maintaining at least 1% operating leverage, with flexibility to adjust expenses based on revenue environment. Growth investments are prioritized, with discipline in managing tech and modernization expenses.
Q:What are the key risks to the positive setup for 2026?
A:Michael O'Grady identified significant interest rate changes, market declines, and challenging operational environments (e.g., pandemics) as key risks to the positive outlook for 2026.
Q:Review of Unclear Management Responses
A:Management avoided providing specific details on the timing of deposit normalization in Q1, the exact breakdown of expense-to-trust fee ratios by business, and the precise impact of AI on productivity improvements. Additionally, responses on inorganic growth opportunities and buyback decisions lacked detailed quantitative guidance.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
AI automation
AI deployment
AI friction
AI platform
AI volume
AUM liquidity
Alternatives priority
Asset Servicing
Asset Slide
Byron example
CEO Fox
Childe Director
ETF servicing
FOS
NTAM
Relations Northern
adoption
area focus
banking
cadence
channel
class
client acquisition
client partner
commitment
control layer
engagement
focus product
franchise
market GFO
pace
pillar
saving
span control
strategy
suite
talent
tax equity
workforce
NTRS Transcript
Northern Trust Corporation (NTRS) Q4 2025 Earnings Call Transcript
Unknown1-22
The earnings call summary presents a mixed outlook: while there are positive elements like AI deployment, wealth management growth, and strong FX trading performance, there are also concerns. Uncertainty about deposit normalization, lack of clear guidance on inorganic growth, and potential risks like interest rate changes temper optimism. The Q&A highlights strategic focus on organic growth and shareholder returns, but the lack of specific details on certain aspects and potential risks lead to a neutral sentiment overall.
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Northern Trust Corporation (NTRS) Q3 2025 Earnings Call Transcript
Positive10-22
The earnings call summary and Q&A indicate positive financial performance, strong shareholder returns, and strategic growth initiatives in wealth and asset management. Despite fee pressures and operational challenges, the company is focused on profitability and efficiency improvements. AI investments and a focus on tokenization signal innovation. The Q&A reveals optimism with adjusted NII guidance and strategic responses to market challenges. Overall, the company's strategic plans and shareholder return initiatives suggest a positive outlook for stock price movement.
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NTRS Slides
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Frequently Asked Questions
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