Summary of Northern Trust Conference Call (December 10, 2025) Company Overview - **Company**: Northern Trust (NasdaqGS: NTRS) - **Assets**: Approximately $14.5 trillion in custody assets and $1.8 trillion in assets under management - **Focus**: Transitioning towards more profitable areas of organic growth, particularly in wealth management and asset servicing Key Points Strategic Shifts and Priorities - **Strategic Pillars**: The company is executing a strategy centered on three pillars: optimizing growth, strengthening resiliency, and driving productivity [21][29][31] - **Growth Focus**: Aiming for higher organic growth in wealth and asset management, with a target to improve profitability in the Asset Servicing business from low 20s to high 20s margins [35][36] - **Revenue Growth**: Achieved an average revenue growth of about 7% over the past two years, with positive operating leverage of approximately 2 points and ROEs exceeding 13% [44][46] Asset Servicing Business - **Retention Rates**: High retention rates in the institutional client base, around the high 90s percentage, are crucial for maintaining revenue [51][54] - **Client Relationship Expansion**: Approximately half of new business comes from existing clients, emphasizing the importance of expanding relationships and offering additional services [74][75] - **New Client Acquisition**: Winning new clients is essential for long-term sustainability, with a focus on ensuring new business is profitable from the outset [85][96] Digital Asset Ecosystem - **Investment in Capabilities**: Northern Trust is investing in capabilities to support digital assets, including stablecoins and tokenized assets, to meet client needs in capital markets [121][130] - **Commercialization Opportunities**: Exploring new revenue streams through tokenization, particularly in asset management, with potential services for tokenized money market funds [132][134] Wealth Management Business - **Market Position**: Northern Trust has a strong position in the high net worth segment, particularly with global family offices, and is expanding services to ultra-high net worth families without dedicated family offices [151][155] - **Alternative Investments**: Currently, less than 5% of the $500 billion in assets under management is allocated to alternatives, indicating significant growth potential in this area [175][176] - **Product Offerings**: The company is enhancing its alternatives platform, doubling the number of funds offered in 2025, and focusing on providing differentiated opportunities for clients [189][191] Financial Performance and Guidance - **Net Interest Income (NII)**: Expected to finish the year up mid to high single digits year-over-year, with a strong deposit base contributing to this growth [212][213] - **Expense Management**: Committed to keeping expenses below 5% for the year, with a dynamic planning process to adjust as needed [213][250] - **2026 Outlook**: Anticipating flat to marginally up NII in 2026, with potential for growth driven by new business and effective deposit pricing strategies [232][234] Capital Return and Investment Strategy - **Capital Management**: Aiming to maintain a capital return strategy similar to 2025, with a focus on balancing loan activity, ROE, and potential M&A opportunities [276][277] - **Investment Flexibility**: The company has a detailed list of capital expenses and investments, allowing for flexibility in response to market conditions [252][256] Additional Insights - **Technology and Client Experience**: Emphasizing the importance of technology platforms and client education in enhancing the overall client experience in wealth management [200][201] - **Market Conditions**: The company is prepared to operate within a muted market environment while maintaining a focus on productivity and efficiency [250][256] This summary captures the essential insights and strategic directions discussed during the Northern Trust conference call, highlighting the company's focus on growth, profitability, and adaptability in a changing financial landscape.

Financial Data and Key Metrics Changes - The company reported third quarter net income of USD 458 million and earnings per share of USD 2.29, with a return on average common equity of 14.8% [17] - Revenue increased by 6% year-over-year, while expenses rose by 4.7%, resulting in a pre-tax margin expansion of 200 basis points [19][25] - Year-to-date, the company returned 110% of earnings to shareholders, contributing to a 5% decrease in shares outstanding [5][25] Business Line Data and Key Metrics Changes - **Wealth Management**: Assets under management increased to USD 493 billion, up 11% year-over-year, with trust investment and other servicing fees rising to USD 559 million, a 5% increase [20] - **Asset Management**: The company launched 11 new ETF strategies, with liquidity remaining strong, reporting 11 consecutive quarters of positive flows [11][21] - **Asset Servicing**: Assets under custody and administration reached USD 17 trillion, reflecting a 4% year-over-year increase, with asset servicing fees totaling USD 707 million, a 6% increase [21][22] Market Data and Key Metrics Changes - The company experienced a 1% sequential increase in assets under custody and administration and a 5% year-over-year increase [18] - Average deposits were USD 116.7 billion, down 5% compared to the second quarter, reflecting typical seasonal patterns [24] Company Strategy and Development Direction - The company is focused on its "One Northern Trust" strategy, emphasizing organic growth and operational efficiency through AI and a client-centric operating model [5][8] - The Enterprise Growth Program is driving improvements in organic growth, particularly in private markets, with a focus on high-value client segments [6][9] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to deliver strong financial performance despite potential economic challenges, emphasizing a disciplined execution of strategy [15][16] - The company anticipates continued growth in net interest income and expects operating expense growth to remain below 5% for the full year [26] Other Important Information - The company has embedded AI in over 150 use cases, enhancing efficiency and client service across various business lines [7][8] - The company is exploring opportunities in digital assets and tokenization, with a focus on enhancing operational efficiency and scalability [79] Q&A Session Summary Question: NII outlook and deposit trends - Management indicated that deposits performed in line with expectations and anticipated a slight pickup in Q4, with NII expected to grow mid to high single digits [31][32] Question: Challenges at the investment product level - Management noted pressure on index products due to asset allocation and pricing, and emphasized a focus on improving product performance and pricing [34][35] Question: AUCA growth and outflows - Management explained that AUCA growth was driven by specific clients, and outflows were due to restructuring rather than client losses [40][41] Question: Expense growth and operating leverage - Management reaffirmed commitment to keeping expense growth below 5% and highlighted ongoing efforts to improve productivity and efficiency [42][44] Question: Focus on profitability versus growth - Management confirmed a focus on profitability, allowing low-margin business to roll off while seeking accretive margins on new business [48][49] Question: AI's impact across business lines - Management stated that AI is enhancing efficiency across all areas, with specific applications in operations, technology, and client service [74][76] Question: Digital assets and stablecoin strategy - Management discussed the importance of innovation and regulation in the digital asset space, indicating a focus on tokenization rather than issuing a stablecoin [79][80]

Core Insights - Northern Trust Corporation reported a net income of $421 million for Q2 2025, with earnings per share (EPS) of $2.13, reflecting a 20% increase excluding prior-year notables [4][40] - The company raised its return on average common equity (ROE) target to a range of 13%-15% from the previous 10%-15% [5][11] - Total revenue increased by 8% year over year, with favorable currency movements contributing approximately 90 basis points to revenue growth compared to the prior year [5][41] Financial Performance - Net interest income reached a record $615 million, up 7% sequentially and 16% year over year, although $10 million of this was attributed to nonrecurring FX swap activity [8][13] - Total expenses rose by 4.8% year over year, marking the lowest expense growth rate in the past six quarters when excluding notable items [6][52] - The asset servicing pretax margin increased over 10 points to 23.2%, with a 29% increase in pretax profit when excluding prior-year notables [6][47] Shareholder Returns - The company returned $486 million to shareholders, with a payout ratio of 117% and a board-approved 7% increase in the quarterly dividend [7][53] - Average deposits were $122 billion, up 6% sequentially, with interest-bearing deposits increasing by 7% [8][51] Growth Initiatives - The company reported approximately $2.5 billion raised in alternatives in the first half of 2025, with an additional $1 billion in advisory, reflecting a 66% year-over-year increase in alternatives advisory assets under advisement [9][25] - Northern Trust plans to launch 11 new fixed income ETFs in Q3 2025 to meet client demand for scalable exposures [10][31] - The firm is investing in new talent and leadership within Wealth Management to strengthen client coverage and accelerate new business generation [14][29] Strategic Focus - The "One Northern Trust" strategy emphasizes integration and momentum across its business segments, particularly in alternatives [11][20] - The company aims to centralize and automate core operational processes, leveraging AI and public blockchains to enhance client experience and internal productivity [16][22] - Management reaffirmed the company's commitment to independence, stating they have never entertained discussions regarding a sale [12][39]

Financial Data and Key Metrics Changes - The company reported first quarter net income of $392 million and earnings per share of $1.90, with a return on average common equity of 13% [15] - Earnings per share, excluding notable items, increased by 13% year-over-year, while expenses rose by 4.8% compared to the prior year [18][23] - The company generated its third consecutive quarter of positive operating leverage, driven by mid-single-digit growth in trust fees and net interest income [6][15] Business Line Data and Key Metrics Changes - Trust investment and other servicing fees totaled $1.2 billion, reflecting a 1% sequential decline but a 6% increase year-over-year [17] - Asset Servicing business saw assets under custody and administration increase to $15.8 trillion, a 3% year-over-year increase, with custody and fund administration fees up 4% year-over-year [19] - Wealth Management assets under management reached $447 billion, up 6% year-over-year, with trust investment and other servicing fees increasing by 8% year-over-year [21] Market Data and Key Metrics Changes - The company experienced strong capital markets activity due to elevated volatility levels, which positively impacted performance late in the quarter and into April [7][14] - The company reported a healthy increase in deposit levels as clients adopted a risk-off approach, reallocating portfolios and raising cash [11] Company Strategy and Development Direction - The company is focused on optimizing growth through collaboration between business units and advancing enterprise-wide growth initiatives, particularly in alternative investment solutions and family office services [8][9] - The launch of Family Office Solutions aims to enhance service offerings for ultra-high-net-worth clients, targeting those with over $100 million in net worth [10][44] - The company is also investing in technology to improve operational efficiency and productivity, including the use of machine learning and automation [13][77] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in navigating a challenging macroeconomic environment, highlighting the strength of the balance sheet and the ability to meet evolving client needs [14] - The company raised its full-year guidance for net interest income growth from low single digits to low to mid-single digits, reflecting strong deposit levels [26] Other Important Information - The company returned $435 million to shareholders through cash dividends and stock repurchases, reflecting a payout ratio of 116% [26] - The common equity Tier 1 ratio increased to 12.9%, indicating strong capital levels well above regulatory minimums [25] Q&A Session Summary Question: Deposit beta assumptions and guidance - Management indicated that deposit betas remain stable, with institutional business closer to 100% and wealth business around 60-70% [32] Question: Fee outlook and expense flexibility - Management reaffirmed the commitment to keep expense growth below 5%, with identified discretionary and nondiscretionary spending to manage flexibly [36] Question: Capital markets activity - Management noted increased capital markets activity driven by market volatility, particularly in foreign exchange and brokerage services [41] Question: Family Office Solutions and market expansion - Management confirmed the launch of Family Office Solutions, aiming to provide outsourced family office capabilities to ultra-high-net-worth clients [44] Question: Addressable market for Family Office Solutions - Management highlighted a large addressable market for ultra-high-net-worth clients, with hundreds of existing clients fitting this profile [63] Question: Impact of market volatility on new business and client attrition - Management acknowledged that market volatility can influence client decision-making, potentially causing delays in switching custodians or managers [110]