Good day, and welcome to the Northern Trust Corporation Fourth Quarter 2025 Earnings Conference Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Jennifer Childe, Director of Investor Relations. Please go ahead.

Thank you, operator, and good morning, everyone. Welcome to Northern Trust Fourth Quarter 2025 Earnings Conference Call. Joining me on our call this morning is Michael O’Grady, our Chairman and CEO; David W. Fox, our Chief Financial Officer; John Landers, our Controller; and Trace Stegeman from our Investor Relations team. Our fourth quarter earnings press release and financial trends report are both available on our website at northerntrust.com. Also on our website, you will find our quarterly earnings review presentation, which we will use to guide today's conference call. This January 22 call is being webcast live on northerntrust.com. The only authorized rebroadcast of this call is the replay that will be made available on our website through February 22. Northern Trust disclaims any continuing of the information provided in this call after today. Please refer to our safe harbor statement regarding forward-looking statements in the accompanying presentation, which will apply to our commentary on this call. During today's question and answer session, please limit your initial query to one question and one related follow-up. This will allow us to move through the queue and enable as many people as possible the opportunity to ask questions as time permits. Thank you again for joining us today. Let me turn the call over to Michael O’Grady. Michael O’Grady: Thank you, Jennifer. Let me join in welcoming you to our fourth quarter 2025 earnings call. Turning to Slide four, in 2025, we made significant progress executing on our One Northern Trust strategy, delivering strong and improving financial performance and providing solid momentum going into 2026. In the fourth quarter, compared to the prior year, trust fees grew 7%, net interest income increased 14%, and revenue was up 9%, excluding notables. For the sixth consecutive quarter, we delivered positive trust fee and total…

Thanks, Mike. Let me join Jennifer and Mike in welcoming you to our fourth quarter 2025 earnings call. Let's discuss the financial results of the quarter starting on Slide twelve. This morning, we reported fourth quarter net income of $466 million, earnings per share of $2.42, and our return on average common equity was 15.4%. Our fourth quarter results reflect another quarter of solid progress toward achieving our financial objectives and enhancing the durability of our financial model. Relative to the prior year, currency movements favorably impacted our revenue growth by approximately 90 basis points and unfavorably impacted our expense growth by approximately 140 basis points. Relative to the prior period, currency movements were immaterial to both revenue and expense growth. Trust, investment, and other servicing fees totaled $1.3 billion, a 3% sequential increase and a 7% increase compared to last year. Net interest income on an FTE basis was up 10% sequentially, to $654 million, a new record, and up 14% from a year ago. Our assets under custody and administration were up 3% sequentially and up 11% compared to the prior year. Our assets under management were up 2% sequentially and up 12% year over year. Overall, our credit quality remains very strong, with all key credit metrics in line with historical standards. We recorded an $8 million release of the credit reserve in the fourth quarter, largely reflecting refinements to factors used to estimate losses for the C and I portfolio. Our effective tax rate was 26.5% in the fourth quarter, up three ten basis points over the prior year's rate, largely as a result of higher tax impacts from international operations. We expect the effective tax rate in 2026 to be approximately 26 to 26.5%. Our results included $69 million in net unfavorable notable items, including…

Thank you. If you're dialed in via the telephone and would like to ask a question, please signal by pressing star 1 on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Please limit yourself to one question and one follow-up in order to allow everyone an opportunity to ask a question again. Press star 1 to ask a question. And our first question is going to come from Brennan Hawken from BMO Capital Markets.

Good morning. Thank you for taking my questions. Good morning. Michael O’Grady: Hi.

Hi, Mike. Really encouraging to see the targets moved higher on the medium term. And actually, looks like really some encouraging ambition in the targets. Can you speak to your conviction in driving change across the organization? And like when you think the timing of some of this traction could start to come through in the financial results? Michael O’Grady: So I would say, Brennan, that we have a high level of conviction that we're seeing the change transmit through the entire company. I talked about in my comments there just the fact that this is an effort on the part of all of our employees, all of our partners to do this. And I think you're seeing, you know, what I think I'll call the early days of the results from a financial perspective. And that to the extent we continue to maintain that conviction and execute on the strategy, we'll continue to see consistently high performance like we did this quarter. That's why we had the confidence to move the targets up in the medium term, which we look at as kind of a three to five-year time frame. And if you just think about, you know, what Dave has said even for the year that we're in right now, trying to generate more positive, operating leverage, you know, that will take us in the direction towards those targets.

Right. Okay. Thank you for the timing around that. And definitely really encouraging to see it. I it was great. Maybe one on the balance sheet. So the deposit cost trends were encouraging here in the quarter. Can you speak to what drove the lower cost on the IB side? We saw the net the NIBs, the noninterest-bearing balances move higher, but sometimes that's seasonal. So you spoke to I think, stable deposits in the outlook. For the NII, does that mean that that include maybe the IB composition normalizing and how sustainable is the ability to drive down the interest-bearing deposit costs? Thanks.

Yeah. So there's a lot to unpack in that question. I would say generally speaking, fourth quarter growth in NIB particularly, I think had a lot of definitely seasonal, but also keep in mind that the government was closed for forty-three days during the quarter. And I do think there was some cash stockpiling during that period because of the lack of economic data. So I think it may have been a little inflated because of that. And going forward, into Q1, you should expect the seasonality of that to fall. Too soon to say when and how. Usually, it happens sort of after audit season when they when the funded admin companies decide that they've spent all their money for that particular quarter. So it will normalize at some point during Q1. I would just say that Q4 is definitely not a jumping-off point. For NII going forward into Q1. It will Q1 will definitely be lower in terms of total NII. In terms of the deposit pricing, we continue to spend a lot of time through our liquidity solutions efforts to look at our deposit pricing. We still have a lot of tools in our tool shed to continue to lower that going forward. We also had in the quarter, though, some expensive wholesale funding that rolled off, and we need to replace it. And so because of that more stability there, we're able to bring down our deposit cost accordingly.

Okay. Thanks for that color, Dave.

Sure.

And our next question is going to come from Ebrahim Poonawala from Bank of America.

Hey. Good morning. Michael O’Grady: Morning.

I guess, maybe Paul, if you could just start on the fee growth side. And just talk to us, I appreciate you don't want to sort of pin down the guidance if we assume a relatively sort of a steady state macro backdrop, one, what does that imply for fee growth this year? And then you and just talk to us in terms of, like, one or two areas you think drives trends. You talked about GFO ending 25 on a strong note. Would love to get some color around sort of the two or three drivers of growth that you are seeing on the fee side. For 2026? Thank you.

Yeah. So, you know, the way we look at '26 and we just finished our planning period, is if the market conditions as are you as the way you described, we would think that we would be around mid-single digits in revenue growth. And trust fee and revenue growth, maybe revenue growth a bit higher, but around mid-single digits. And that would also give you an implication in terms of where we wanna solve for our expense growth for the year as well. So that's sort of how we're thinking about it going into '26. You know, in terms of the fee growth, you know, as you know, in GFO, the business there can be very lumpy. And when you win, you usually win very large amounts. And so the traction win rate in GFO really picked up in Q3. And because of the quarter lag, you saw a lot of it in Q4. We even had additional inflows in GFO of another $5 billion, and Q4, which you're going to see primarily in Q1. So that's driving a lot of the growth. The other thing I would say, and Mike can comment on this as well is the traction we're getting in the ultra-high-net-worth segment around from the front of or the family office solutions. Which really we're finding our win rate and our traction and our backlog in that particular area of the $100 million plus that don't have a family office. Has really picked up considerably. Michael O’Grady: Yeah. And I would just add beyond wealth management that in the asset servicing business, again, with our strategy focused on moving upmarket, just meaning some of the larger more complex asset owners, where we had the success in the wins, in 2025. You know, some of those are being onboarded now. So you'll see some of the strength in the fee growth, in '26, and that's both in The Americas, but also, UK and more broadly. And on the asset management front, you know, we've, as you've heard, continued to have strong flows in liquidity. And in many respects, that's been offset from a flow perspective by outflows on the index side. To the extent that that slows down, that drag goes away, and we still have the strength and liquidity, know, that'll add a boost on the asset management front.

Got it. And just maybe just sticking with asset management, you know, this leadership changes eighteen months ago. You we've seen the results in terms of the targets. When we think about on a go-forward basis, the capital position that you have where the stock's trading, are there opportunities in asset management to bolster that business inorganically? Via tuck-in deals or something larger? Just give us a sense of how you're thinking about that business over the next year or two. Thank you. Sure. Michael O’Grady: Yeah. So and as you heard in my opening comments there, the strategy is pretty focused, in asset management. And so, know, looking to continue to execute on that. From an organic perspective. To the extent that we can accelerate it, with inorganic opportunities, whether that's acquisitions or partnerships, we're certainly open and looking to do that. If you think about where those might be, on the capability side, you know, you've heard about the success we've had in alternatives, but it is an area that continues to grow. And so that's an area that we certainly look at ways to increase our exposure there. And then on the other side, opportunities to expand our distribution. You know, the majority of, NTM product is distributed through the partners in the business through wealth management and through the asset servicing side and quite well. But anything we can do to expand to know, third-party intermediary, which we do, but it's right now a smaller portion than we'd like to see long term.

And our next question is going to come from Michael Mayo from Wells Fargo.

Hi. What is it about now that gives you the confidence to increase your pretax return targets? And three to five years, I guess, that would be what, somewhere between 2029 and 2031 if I'm reading that correctly. Michael O’Grady: Yeah. And Mike, I would say it's a few things. And they're aligned with strategy and with what we're seeing. So the from the first perspective is we've talked about optimized growth. And we've talked about it now for a few years here. And the whole point on that was focusing on scalable growth focusing on profitable growth. And that has a couple dynamics. One is just the mix overall for the company. So the emphasis on growing the wealth management business faster and asset management and those two businesses have higher margins. So just the mix shift that we'd like to see as we grow those businesses. And then even within asset servicing, focusing on, again, scalable opportunities, and where we've built out our capabilities. In those specialized areas or segments. Where we have the scale to not only compete effectively but do so in a profitable way. So we're seeing that work. So that's the first thing I'll say. They that gives us confidence as we go forward. The second is around productivity. You know, again, you heard me mention our productivity for 2025 was about 4% of our expense base. And this year, you know, we bumped that up. It's gonna be know, closer to 5%. And a lot of that is because of the impact we're seeing of AI. It lends itself to a lot of our activities. Across the company, but I would say particularly in asset servicing and in the COO organization. So that makes the business more scalable is what we're seeing. Long…

And our next question is going to come from Steven Chubak from Wolfe Research.

Hi, good morning, and thanks for taking my questions. Michael O’Grady: Sure. Good morning.

So maybe to start just on the expense to trust fee ratio. When we think about the in margins that are contemplated in the medium-term guidance, given some of the enhanced focus on improved profitability at what expense to trust ratio are you underwriting new business today? And does the mid-single-digit revenue growth that's contemplated in the guide for earnings this coming year, assume any revenue attrition from shedding less profitable business? Just trying to gauge how the enhanced focus on profitability might impact some of that through the cycle revenue growth. Michael O’Grady: So the answer to the first part of your question is, yes. When we price new business, we absolutely look at that expense to trust fee ratio. But that's at a, I'll call it, high level. Just meaning that it really depends on the nature of the business as to what the right expense to trust fee ratio is. So you can just imagine, you know, certain relationships, the fee portion of that relationship is going to be, you know, higher or lower relative to other businesses, other relationships that you're looking to price. So that's one, you know, important factor. Second is it gets broken down even further as to the types of expenses as a percentage of those fees. So it's very much, you know, the expense of trust fee we use is the broader metric. It breaks down much further by business, by product, and by client type on that front. And I would just say that to the second part of your question, yes. We continually look at client profitability. That's something that we view as a part of good relationship management. It's something where, you know, we don't wanna have relationships that are not value-generating for both partners, meaning ourselves and our clients. And we look to, you know, address those relationships in a way that we can get improved profitability as opposed to just necessarily exiting relationships. But from time to time, if it's not aligned, that's when we have to take those types of actions. I wouldn't say there's anything, you know, dramatic in there, but it is just something we do on a continual basis.

That's great. And for my follow-up, just on the NII and maybe the NIM outlook more specifically, NIM in the quarter reached a post GF high. You guys have been very focused on optimizing the balance sheet. Was hoping you could unpack as we think about the glide path towards a 33% margin, how much of that is a function of continued benefit from rate tailwinds versus volume? Just trying to gauge what's gonna how you're thinking about sustainable NII growth over the next couple of years, so beyond 2026?

Yeah. So a couple of things. The NIM in the quarter, of course, was artificially boosted by about three points because of the FTE true-up that we did. So think more high high one seventies than one eighty one. The second thing would be that as we go forward, we have a lot of levers we can pull both on the asset and the liability side. And we don't see a lot of compression in the NIM until we get to much lower interest rates. And so from our perspective, we think during the course at least of 26, would never wanna do an estimate of 27 at this point. But in '26, we think we can keep the NIM pretty stable during the course of the year in the January. And that's how we're looking at it going forward. So obviously, deposit growth something that we're looking at. Quite carefully and in particular in the wealth management business. There is an effort going on to get our loan to deposit ratio higher within that business. And so from that perspective, we're trying to drive more deposit growth, but we're also looking at both sides, asset and liability side, to make sure we have offsetting measures. And we really feel like we have a lot we can still do I would also tell you to keep in mind that a lot of deposit pricing actions that we took we took in the middle to the end of last year. And so we haven't lapped those yet. So as we go into the first and second quarters, it gives us more confidence around our NII guide, and our ability to continue to kinda grow that line going forward.

And our next question is going to come from Betsy Graseck from Morgan Stanley.

Thank you. Just one follow-up on the deposit question here. I know you indicated there was a bit of a boost in the quarter with the government shutdown. And when I look at the balance sheet, it looks like most of that boost came from non-US offices and interest-bearing. I just anticipate that the q q increase that we got there around $7 billion comes out over the course of the quarter. As you've been discussing, it's gonna take some time to flow out. Is that the level about that you see as being unusually high from the government shutdown.

No. I mean, I think the increase in the noninterest bearing was around 3 I do think there was a lot of new business as well that we grow with new business, but I think there was also some cash hoarding as I mentioned previously, because of the lack of economic data. So I wouldn't take out the entire $7 billion. A lot of that was just normal growth that we would have in the quarter.

Okay. Perfect. And then follow-up question here is on the buyback. You indicate, you know, over a 100% payout ratio. And I just wanted to understand, what's the governor on the buyback? Which capital ratios are you thinking about with regard to how high and how long you let that over a 100% ride? Thank you.

Yeah. It's a good question. And, you know, the variables the number of variables in that decision are many. It's regulatory capital. It's earnings power. It's ROE, loan growth, dividends, m and a. You go through the entire menu of what you're looking at, and then share price obviously has a role. But at the end of the day, if we feel there's an opportunity to reinvest in the business, that's also compelling. But right now, we feel as if we'll have that ability going forward into 2026 sort of the same way we did in 2027. That's how we're looking at it.

And our next question is gonna come from Glenn Schorr from Evercore.

Let's start with an easy one. FX trading was strong, better than peers. In the text, you talk about lower FX swap activity on your part. Could we just break down what's what's you driven versus client driven and just so we can get our expectations going forward? Thanks.

Yeah. So, obviously, volatility and volumes will help us quite a bit in the quarter, but we also added quite a few new clients. And one of the things we don't talk about a lot as it relates to foreign exchange flows is the integrated trading solutions business or the outsourced business we have in both FX and brokerage. And we've seen a much greater adoption as clients start to realize that they can offload middle and back office functions on an agency basis to us. As a result of that, we get more flows because of it. So the growth in that ITS business has really been strong and continues to be strong. So I would say it's a combination of volume, I'd also say it's also a lot to do with the traction we've gotten in our integrated solutions business and outsourcing going forward. Michael O’Grady: And just to add to that, Glenn, that level of activity that Dave's talking about, is more consistent than what comes through the FX line there because of that swap activity. And so this quarter, just the nature of the swap activity, I resulted in more of that showing up in the FX line and less in NII. Even though know, the actual level of activity was not that much greater than the previous quarters.

Okay. I don't wanna put words in your mouth, but does that mean this quarter is as good as we got as a jumping-off point?

But, know, obviously, dependent on the markets. Yeah. I mean, volatility is gonna play a huge role there. I do think it's gonna steadily tick up because of the additional clients we're bringing in. So I would just say that in that business generally, there is more traction than just waiting around for clients to make a decision around their hedging. There's proactive sourcing of new business going on as well.

And our next question is gonna come from Kenneth Michael Usdin from Autonomous Research.

Hi. Good morning, guys. This is Bob Chetzalin in for Ken. Sure. How are you guys talking about growing the wealth and asset businesses, which helps the PTM. How do you guys just think about the split between the two businesses? Do you still envision high twenties for the asset servicing while wealth grows at current? PTM margins? Michael O’Grady: Yeah. So I would say that with the asset servicing business, it had a good quarter from a margin perspective, but there's still more work that needs to be done in order to get it consistently at the level of margins that we expect for that business in the high 20s. And with the wealth management business, it already has very attractive margins. We're looking to grow that business faster. And, you know, to the extent that that came at some margin dilution, if it if you will, that would be okay if we were getting the growth that's creating more value, on that side. So it's you know, in the right range, but not something where we operate that business in order to just maintain high margins.

Got it. And just in terms of just organic growth trends, within each business, what was the organic growth rate for this quarter? And how do you envision that to pick up over the next few years? Any color on that would be great. Michael O’Grady: Sure. So within the wealth management business, the organic growth rate was somewhere in the for the year which is also consistent with the quarter, kind of the 1% to 2% range. As Dave talked about earlier, there are different parts of the business that are growing faster or slower within that. So a GFO, for example, is at a higher organic growth rate. The business the ultra-high-net-worth, so think about families with a net worth above $10 million. Growing faster. And then also, the advisory, component of what we do. Has a higher organic growth rate right now, whereas the product portion, of the fee has been flat. And so as we go forward, we expect that combination, to increase. And that's why the strategies that I talked about are focused on that. Asset servicing, it had strong organic growth rate in fourth quarter. You know, closer to kind of 2%, 3%. And as we've talked about before, very focused on making sure that that's scalable profitable growth for us. So it's at an attractive level for us, at this point.

And our next question is going to come from David Charles Smith from Truist Securities.

Good morning. I was wondering if you'd help us frame out how the degree of operating leverage might move depending on the revenue backdrop I think this past year, for example, you did about 7% revenue growth and got closer to 200 points of operating leverage. You know, if the revenue environment ends up being similar next year, you know, is that 200 basis points, like, plus or minus a decent way to think about how you might, you know, keep the expense growth moving. And on the flip side, you know, how you know, painful would the revenue environment have to be for you to feel like you would be better served going below a point of operating leverage in order to keep all the investments that you still wanna make for the longer-term health of the business? Michael O’Grady: Yeah. I think the way I would have you guys this year focus on the expense line in particular and then the operating leverage that comes out of that is the fact that our planning process this year is a little bit different than it was last year. In that, we start with productivity. We don't start with, I got this much last year in expenses, and I'm gonna increase it by x or y. We start with productivity. And then we look at that number relative to the investments we wanna make during the course of the year. And that implies an expense growth rate. And you kinda go back and forth that until you sort of land where you think you should land. And so from our perspective, keeping that 1% is critical. In any environment. And the idea is from my perspective, not to be attached to a particular expense growth number but to know that we have the discipline built in in the muscle memory developed within the company to flex up or flex down if we need to. We don't wanna starve our businesses of growth opportunities. And right now, we're seeing a lot of really interesting growth opportunities organically within the company. And so to the extent that the environment lets us do that, we wanna maintain the one point of operating leverage, but at the same time, be able to invest in those businesses. So we don't sell for one, two, three, four. We sell for greater than one. Right? And so and then we look at every quarter in terms of the relative investments we wanna make, and we balance that against know, what we're seeing in the following quarter as well.

Okay. I mean, just in your base case, though, if you're doing about five points of efficiency, and net expenses are growing something like 4%, you know, of those 9% of, like, gross expense growth approximately, could you break it down for us how much of that would be volume and revenue related versus new investments to grow the bank?

Well and obviously, a large part of our expense base is compensation. Right? And then it's gonna be our technology spending. If you look at equipment and software as an example of that, you know, depreciation is two-thirds of that. So when you think a little bit about the additional investment we're gonna be making in the course of the year, a lot of that is gonna be growth investment. Right, from the business perspective. So that's really what I'm talking about is the growth investment. So if we're able to free anything up, during the course of the year, it's going to go towards the business growth. Not towards the, you know, the operate the bank growth, for example. We feel like we've got a very good handle on our tech expenses, on our modernization expenses at this point. So that additional dollar flow would go into those growth levers.

And our next question is going to come from Gerard Cassidy from RBC Capital Markets.

Thank you. Hi, Mike. Hi, Dave. Michael O’Grady: Good morning.

Good morning.

At the risk of being called a commotion again like I was on one of your peer calls earlier in the week. Can you guys the setup for yourselves, your peers, the banking industry is very positive. Going into 2026. And you know, we always are looking at, you know, both the positives and risks. Can you share with us, aside from the geopolitical environment that we're all dealing with, what when you look around corners, what are you guys watching for? Is that know, you gotta make sure we don't get surprised by as we as 2026 unfolds. Michael O’Grady: Sure. So as you know, Gerard, that can be either incredibly complex, or relatively simple. And I would say we look around all the corners as best we can. We worry about everything. But if you boil your question down to, okay, what can have a very negative impact on the environment, which to your point right now is very positive, certainly, on one front, if interest rates change dramatically, that is more difficult for us and for other financial institutions to adjust. You know, we've seen that in the past. When interest rates go up 500 basis points in a year, that is a challenge to the financial models of financial institutions. So that can be up. Certainly, one direction, it creates big issues. And also down. When you think about the impact on zero rates, when you have waivers on money market funds, things like that. That's where, like, big impact second, obviously, is the market. You know, much of what we do is priced on AUM levels, AUC levels, AUA levels that are based on the market. And a lot of our growth that we've had this year is based on those strong market levels. So anything that obviously causes the markets to go down, almost like regardless of what it is, is concerning, and we'll have a big financial impact to us. Then the last thing I would just say is you have challenging operational environments. Just given the nature of our business. The pandemic is certainly an example of that. Where it's extreme and how you have to be able to operate the business to continue to provide the services to your clients. And once again, hard to predict those. We try to do a lot. To prepare for them, to anticipate them, and you've seen in the last few years, invest to be able to deal with those types of environments as well. So trying to do everything we can. Can't predict it, but, you know, hope for the best.

No. Very helpful. I appreciate the insights, Mike. Thank you. Michael O’Grady: Sure.

And there are no further questions in the queue at this time. I'd like to turn the conference back to Jennifer Childe for any additional or closing remarks.

Thanks for joining us, and we look forward to speaking with you again soon.

And this concludes today's call. We appreciate your participation. You may now disconnect.