Northern Trust(NTRS) - 2025 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - In Q4 2025, net income was $466 million, with earnings per share (EPS) of $2.42 and a return on average common equity of 15.4% [18] - Trust fees grew by 7%, net interest income (NII) increased by 14%, and revenue was up 9% year-over-year, excluding notable items [5][21] - For the full year, revenue rose by 7%, expenses grew by 5%, resulting in a pre-tax margin of 30% and a 14.8% return on equity [5][29] Business Line Data and Key Metrics Changes - Wealth Management saw assets under management (AUM) reach $507 billion, up 13% year-over-year, with trust fees increasing by 6% [22] - Asset Servicing reported assets under custody and administration of $17.4 trillion, reflecting an 11% year-over-year increase, with asset servicing fees totaling $730 million, an 8% increase [24] - Asset Management (NTAM) maintained strong liquidity flows, with AUM in liquidity reaching nearly $340 billion, marking the 12th consecutive quarter of positive flows [14][15] Market Data and Key Metrics Changes - The company experienced strong market conditions, contributing to the growth in trust fees and net interest income [6] - The international markets contributed significantly to the growth, with the Global Family Office (GFO) segment seeing a 15% increase in contributions from international markets [10] Company Strategy and Development Direction - The company is focused on executing its "One Northern Trust" strategy, which aims to enhance collaboration across business units and improve operational efficiency through AI-driven automation [7][9] - The strategy includes expanding private markets and capital markets penetration, which now contributes over one-third of enterprise revenue [7] - The company plans to raise its productivity target by 10% for 2026, supported by ongoing initiatives and broader AI deployment [9] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to maintain strong financial performance and achieve double-digit EPS growth through cycles [17] - The effective tax rate is expected to remain stable at approximately 26%-26.5% in 2026, with a focus on generating positive operating leverage [19][31] - Management highlighted the importance of maintaining a strong capital position while pursuing organic growth and selectively considering acquisitions [61] Other Important Information - The company returned $1.9 billion to shareholders in 2025, including a record $1.3 billion in share repurchases, reducing the share count by 5% [6][30] - The company recorded $69 million in net unfavorable notable items in Q4, impacting overall financial results [20] Q&A Session Summary Question: Can you speak to your conviction in driving change across the organization and the timing of financial results? - Management expressed high conviction in the ongoing changes and expects to see consistent high performance as a result of these efforts [34][36] Question: What drove the lower cost on the interest-bearing side? - Management noted that the growth in non-interest-bearing deposits was influenced by seasonal factors and cash stockpiling due to the government shutdown [38][39] Question: What does the fee growth outlook look like for 2026? - Management anticipates mid-single-digit revenue growth, driven by strong performance in the Global Family Office segment and family office solutions [44][46] Question: How does the company view potential acquisitions in asset management? - Management is open to acquisitions but primarily focused on organic growth, particularly in alternatives and expanding distribution [50][51] Question: What is the outlook for the expense-to-trust-fee ratio? - Management indicated that they consider the expense-to-trust-fee ratio when pricing new business and continuously assess client profitability [63][65] Question: How sustainable is the NII growth outlook? - Management believes they can maintain a stable net interest margin (NIM) in the 170s for 2026, with various levers available to optimize the balance sheet [66][68]