Northern Trust Corp 2026 Q3 Earnings Call

Please go ahead. Thank you, operator.

Good morning, everyone, and welcome to Northern Trust Corporation's third quarter 2026 earnings conference call. Joining me on our call this morning is Mike O'Grady, our chairman and CEO, Dave Fox, our chief financial officer, John Landers, our controller, and Trey Stegman from our investor relations team. Our third 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 October 21st 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 November 21st. Northern Trust disclaims any continuing accuracy of the information provided in this call after today.

Please refer to our safe harbor statement regarding forward-looking statements in the back of the accompanying presentation, which will apply to all 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 Mike O'Grady.

Thank you, Steve, and good morning, everyone. Let me join in welcoming you to our third quarter 2026 earnings call. Northern Trust had a strong third quarter in a macroeconomic environment that remained constructive but evolving. Excluding notable items, revenue grew 11%, supported by 8% growth in trust fees, 14% growth in net interest income, and 38% growth in capital markets revenues, which include foreign exchange trading, securities commissions, and other trading activities. Expenses were well managed and increased 5%, generating more than 600 basis points of positive operating leverage and demonstrating the scalability of our business. Pre-tax income rose 21% and earnings per share increased 40% year over year. Our return on equity, pre-tax margin, and expense-to-trustee ratio were all at or slightly better than our medium-term targets, and all three businesses generated organic trust fee growth.

Our capital position remains strong, giving us the flexibility to support our clients, invest in strategic growth opportunities, and continue returning capital to our shareholders. We returned more than $500 million in the third quarter and more than $1.5 billion year to date. We remain focused on executing on our One Northern Trust strategy and achieving our ambition to be a consistently high-performing company. We continue collaborating across the company to bring more of the firm to our clients and capture more of the opportunity within our existing and prospective relationships. For example, in our international Global Family Office, a prominent European family during the quarter by combining our relationship expertise with our Luxembourg asset servicing platform. This integrated solution supports the family's complex investment structure and creates opportunities to deepen the relationship over time.

Similarly, a recent win with a large U.K. wealth manager brought together NTAM's index management capabilities with asset servicing strengths across custody, securities lending, foreign exchange, and fund administration. This is One Northern Trust in practice, combining capabilities around client needs, strengthening relationships, and creating additional avenues for growth across the firm. Accelerating our strategic execution and the transformation of the company is AI. Our focus has been on converting widespread adoption into business value. Our approach is disciplined, starting with outcomes, simplifying processes, and redesigning work rather than just adding tools. We consider AI to be augmented intelligence and a durable force multiplier for our service, expertise, and integrity, and the long-term value we create for shareholders. We're seeing this show up in results. Our client action plan agents now save relationship managers 2 to 3 hours on every client memo, time they can redirect to clients.

In alternative servicing, AI-enabled digitization has nearly doubled straight-through processing, improving both client turnaround and the scalability of our platform. Our internal AI assistant, Byron, provides answers to partner questions and will allow our wealth advisors to bring sharper insights into client conversations. We're building these capabilities internally and with frontier AI firms, and our employees have access to some of the most advanced models available. In institutional client onboarding, for example, we combine advanced AI with enterprise-grade privacy, security, and governance to make the process faster for clients. We're also building for where markets are headed. In digital assets, our role is to help clients connect traditional and digital financial markets with the institutional standards of control, servicing, and risk management they expect. Demand is translating into mandates across tokenization, digital settlement infrastructure, and stablecoin-related solutions, with momentum in asset servicing building in the third quarter.

We also expanded our digital liquidity capabilities with the launch of the Northern Institutional Funds Stablecoin Cash Reserves Portfolio, a money market fund that helps stablecoin issuers meet their reserve needs through high quality, short-term U.S. government assets. Separately, earlier this year, we introduced a tokenized share class of our Treasury Instruments Portfolio. Together, these launches demonstrate our continued focus on product innovation and help ensure we're well-positioned to meet client needs as the digital ecosystem evolves. Digital assets remains an emerging business for us, and we will continue to build our capabilities thoughtfully. Let me now turn to each of our businesses. In wealth management, Global Family Office fees increased 16% year over year, and asset flows were the strongest of any quarter this year.

Clients with $100 million or more in assets continued to outpace the broader wealth management portfolio, with both fees and assets under management in this group growing at double-digit rates year to date. Demand is also growing for Global Family Office solutions, our outsourced offering for families with complex needs, and we are investing in the specialized talent needed to scale it. We also continue to build our alternatives offering. Client interests remain broad-based across venture and growth, value buyout, hedge funds, and customized strategies. Year to date fundraising has already well surpassed the level achieved in all of 2025. Talent remains one of the most important drivers of growth in wealth management. Our focused recruiting efforts have accelerated hiring and contributed to growth in our revenue-generating population quarter over quarter, and we will continue that campaign through year-end.

Turning to asset servicing, we continue to expand our work with complex asset managers and asset owners while driving scalable, profitable growth. Third quarter pre-tax margin exceeded 30%, up six percentage points year over year. Excluding notable items, our year to date pre-tax margin is 30%. Expanding relationships with existing clients remains an important source of growth. We recently announced an agreement with UBS to broaden our long-standing fund administration relationship. Subject to regulatory approvals, UBS's Swiss and Luxembourg management companies will extend our mandate to additional funds over the next two-plus years, including administering the former Credit Suisse funds in those markets, increasing UBS assets we service by more than 50%. The expansion further cements our position as the leading fund administrator in Switzerland and reflects UBS confidence in us to handle more complex work. In the U.K., J.O. Hambro appointed our Integrated Trading Solutions desk, building on a servicing relationship that dates back to 2008.

We are also seeing relationships that begin with trading expand into broader asset servicing mandates. Alternatives also continue to be an important growth area, supported by demand for semi-liquid fund solutions, with combined assets in our LTAFs and ELTIFs more than doubling from the prior year. In the U.S., where asset managers increasingly want a single provider to support both mutual funds and ETFs, we are meeting that need through the launch of our ETF servicing platform. In asset management, NTAM continued to execute across its priority growth areas: ETFs, tax alpha, alternatives, and quantitative equities. We achieved our sixth consecutive quarter of positive ETF flows and launched 10 new ETFs, expanding our fixed income capabilities and broadening the range of tax-efficient solutions available to clients.

Our intermediary business also delivered its strongest quarter of long-term flows in three years. Looking ahead, we plan to convert six Northern Funds, representing approximately $33 billion in assets, into ETFs during the first quarter of 2027. In tax alpha, we are building on long-standing capabilities to capture opportunities in a direct indexing market estimated at more than $1 trillion. Our direct indexing advisor education program received a 2026 Wealth Management Industry Award, and demand for our long-short strategies continues to build, with a growing pipeline across a range of mandate sizes. Our quantitative equity business is also gaining traction. Institutional clients, including a Middle Eastern sovereign wealth fund and a large asset owner in the Nordic region, are seeding key strategies in our new adaptive equity suite, which brings together our established quantitative expertise with advanced data science and AI-assisted research.

Stepping back, this quarter showed progress across each of our businesses, and One Northern Trust is broadening what we do for clients. We have demonstrated the strength and resilience of Northern Trust across a range of macroeconomic environments, and we will continue to grow the franchise and pursue the opportunities ahead with discipline. Before I turn it over, I want to acknowledge that Dave Fox has announced his plans to retire. He will remain CFO through the first quarter of next year to ensure a seamless transition, and there will be ample opportunity to recognize his many contributions before then. With that, Dave, over to you.