Executive Summary / Key Takeaways

• Strategic Momentum and Profitability Expansion: Northern Trust is executing its "One Northern Trust" strategy with demonstrable success, achieving five consecutive quarters of positive organic growth and operating leverage. This has translated into a Q3 2025 pretax margin expansion of nearly 200 basis points year-over-year and a Return on Average Common Equity (ROE) of 14.8%, pushing the company towards its updated 13-15% ROE target.
• Technological Edge and Efficiency Drive: The company is aggressively deploying AI and modernizing its operating model to enhance productivity and client experience across all segments. Over 150 AI use cases are generating measurable results in automating workflows, data analysis, and document digitization, contributing to a disciplined expense growth target of below 5% for the full year.
• Diversified Growth in High-Value Segments: Northern Trust is strategically optimizing growth in high-margin areas. Wealth Management is expanding its Global Family Office (GFO) and new Family Office Solutions for ultra-high-net-worth clients, while Asset Servicing is securing significant mandates from large asset owners and growing its capital markets and alternatives businesses. Asset Management is seeing strong liquidity flows and expanding its ETF and custom SMA offerings.
• Robust Capital Management and Shareholder Returns: With a Common Equity Tier 1 (CET1) ratio of 12.4% and a Tier 1 Leverage ratio of 8% as of Q3 2025, Northern Trust maintains strong capital levels well above regulatory minimums. The company is committed to returning capital, with a year-to-date payout ratio of 110% of earnings to shareholders, including a 7% increase in its quarterly dividend in Q2 2025.
• Outlook and Risk Mitigation: Management projects full-year Net Interest Income (NII) growth in the mid to high single digits for 2025, with NII for 2026 expected to be flat to up 1-2% despite anticipated rate cuts. Credit quality remains strong, and the company is proactively managing macroeconomic uncertainties and operational risks through enhanced control systems and a flexible balance sheet.

The Enduring Trust: Northern Trust's Foundation and Strategic Evolution

Northern Trust Corporation, founded in Chicago in 1889, has cultivated a legacy of trust and service, establishing itself as a premier provider of wealth management, asset servicing, asset management, and banking solutions globally. Its enduring commitment to high-quality service and a client-centric approach has historically positioned it to serve higher-tier wealth clients and institutional investors. This foundational strength is now being leveraged through a multi-year strategic transformation, "One Northern Trust," launched in early 2024, aimed at optimizing growth, strengthening resiliency, and driving productivity.

The financial services landscape is undergoing profound shifts, driven by the rapid advancement of digital assets, artificial intelligence (AI), and the expanding private markets. Northern Trust is actively responding to these trends, recognizing that technological differentiation is paramount. The company's core technological advantage lies in its integrated platform capabilities, which are being enhanced to deliver seamless, high-impact solutions across its diverse client base. For instance, in its Capital Markets business, the evolution from a transactional focus to a service-oriented model, including outsourced trading and currency management, demonstrates an adaptive use of technology to create more predictable revenue streams.

Northern Trust's competitive positioning is distinct. While global financial giants like State Street Corporation and Bank of New York Mellon offer broader scale in asset servicing, and BlackRock dominates asset management with its vast ETF offerings and Aladdin platform, Northern Trust differentiates itself through a high-touch, bespoke service model. Its focus on long-term client loyalty and tailored advisory services, particularly for high-net-worth individuals and family offices, allows it to command a unique value proposition. For example, Northern Trust is often perceived as delivering greater efficiency in complex estate and philanthropic administration, areas where its competitors may offer more standardized, transaction-oriented approaches.

However, Northern Trust acknowledges its smaller scale compared to some rivals, which could lead to higher customer acquisition costs and potentially lower margins in highly commoditized segments. To counter this, the company is making targeted investments in technology and operational efficiency.

Technological Differentiation and Innovation

Northern Trust's technological differentiators are central to its "One Northern Trust" strategy, enabling both enhanced client experience and operational efficiency. The company is actively deploying AI and modernizing its infrastructure to create a more scalable and resilient business model.

A key area of innovation is the aggressive adoption of AI tools, with over 150 use cases already embedded across the organization. These applications are generating measurable results by:

• Automating workflows and digitizing documents: This streamlines numerous processes, particularly in operations, saving partners "tens of thousands of hours" and allowing them to focus on higher-value initiatives. For instance, in private capital processing, where much activity is still paper-based, AI is being utilized to automate a significant portion of the workflow, aiming to increase straight-through processing from an estimated 25% to 50-75%.
• Enhancing decision-making and data analysis: In asset management, AI is used in the fixed income muni area to summarize and analyze hundreds of investor call transcripts, providing better insights and dramatically saving analyst time.
• Improving client advisory services: For wealth management advisors, AI tools are used for prospecting by highlighting optimal opportunities and for preparing for client meetings by quickly pulling information from internal databases and public sources. Advisors can also tap into proprietary knowledge bases like the Northern Trust Institute to immediately answer client questions, making them more efficient and proactive.
• Strengthening risk management: AI is being applied in areas such as Anti-Money Laundering (AML), Know Your Customer (KYC), and fraud detection, improving the speed and accuracy of these critical functions.

Northern Trust is also investing in its technology infrastructure to eliminate legacy software, mature its cloud environment, and bolster cyber defenses. This modernization effort is foundational to creating a "stable, scalable, safe, secure environment" for stakeholders. The company is also expanding its ETF platform, with the launch of 11 new fixed income ETFs, including 8 industry-first fixed income distributing ladder ETFs, designed to meet client needs for tax and cost-efficient cash flow management.

The "so what" for investors is clear: these technological advancements are not merely incremental improvements but are fundamental to Northern Trust's competitive moat and financial performance. By driving operational efficiencies, technology helps "bend the cost curve down," contributing to the company's commitment to keep operating expense growth below 5%. This increased productivity frees up resources for reinvestment in growth initiatives, ultimately supporting higher margins and long-term value creation. The strategic intent is to improve unit economics as the company grows, ensuring that as volumes increase, the cost per unit decreases, thereby enhancing profitability and market positioning.

Segment Performance and Strategic Initiatives

Northern Trust's "One Northern Trust" strategy is driving targeted growth and efficiency across its two client-focused reporting segments: Asset Servicing and Wealth Management, with Asset Management (NTAM) playing a crucial, integrated role.

Wealth Management: Elevating the Client Experience

The Wealth Management segment continues to be a cornerstone of Northern Trust's client-centric approach, particularly resonating with the highest wealth tiers. For the three months ended September 30, 2025, Wealth Management reported Trust, Investment and Other Servicing Fees of $558.60 million, an increase of 5% year-over-year. The segment's Income before Income Taxes grew 11% to $342.40 million, and its Pretax Margin expanded by 250 basis points to 40.5%. Assets Under Management (AUM) for wealth clients reached $492.60 billion, up 11% year-over-year.

Strategic initiatives in Wealth Management are focused on deepening relationships and expanding offerings:

• Global Family Office (GFO) and Family Office Solutions: GFO continues to exhibit strong organic growth, with new business on pace to break previous records. The newly rolled out "Family Office Solutions" targets ultra-high-net-worth individuals and families with over $100 million in net worth, leveraging GFO's institutional-grade capabilities and high-touch service. This offering has achieved a win rate higher than 75% in its early stages.
• Alternatives Platform Expansion: Client appetite for alternative investments is accelerating. Northern Trust's 50 South Capital introduced a feeder fund structure in Q3 2025, providing wealth clients with direct access to top-tier alternatives managers. The company is on pace to more than double its third-party fund offerings within a calendar year.
• Geographic and Talent Expansion: The core Wealth Management business was reorganized into four regions, with new leadership and investments in revenue-generating talent aimed at accelerating growth in key markets like Northern and Southern California, Texas, and New York.

While GFO growth was sequentially muted in Q3 2025 by asset allocation changes and portfolio restructurings, the underlying business remains robust, with positive flows of $2 billion in September alone. The segment faces persistent fee pressure in some investment products, particularly in index and multi-manager platforms, which management addresses by ensuring competitive pricing and expanding into higher-value offerings like alternatives and custom SMAs.

Asset Servicing: Scalable Growth and Operational Excellence

Northern Trust's Asset Servicing segment delivered strong results, driven by a disciplined strategy focused on scalable growth across large asset owners, capital markets, and alternatives. For the three months ended September 30, 2025, Trust, Investment and Other Servicing Fees were $706.90 million, up 6% year-over-year. Custody and Fund Administration fees, the largest component, increased 7% to $482.70 million, primarily due to favorable markets, net new business, and favorable currency movements. The segment's Income before Income Taxes grew 14% to $294.10 million, and its Pretax Margin expanded by 150 basis points year-over-year to 24.7%. Assets Under Custody/Administration (AUCA) reached $16,990.40 billion, up 4% year-over-year, while Assets Under Management (AUM) for asset servicing clients grew 9% to $1,280.10 billion.

Key operational and strategic highlights include:

• Large Asset Owner Wins: Success continued with significant mandates, including the $14 billion Sacramento County Employees Retirement System, a $16 billion Atlanta-based private foundation, and the $19 billion New Mexico Educational Retirement Board. Revenue from front office solutions for large asset owners increased materially year-to-date.
• Capital Markets Strength: Capital markets activity remains robust, with over 100 new clients added year-to-date, primarily through cross-sell, driving significant growth in core brokerage and FX trading. Foreign Exchange Trading Income increased 10% year-over-year to $65.50 million.
• Alternatives Momentum: Hedge fund services and private capital practices generated double-digit year-over-year increases in both reported revenue and won but not funded business. Northern Trust maintains a market-leading position in semi-liquid funds, supporting over half of the approved long-term asset funds (LTAS) in the UK.
• Operational Streamlining: The company is selectively allowing non-core and underperforming business to roll off as contracts expire, contributing to margin improvement. The reorganization of global operations under a Chief Operating Officer is unlocking efficiencies through centralization, standardization, and automation, leading to a 7% reduction in headcount from its peak in asset servicing and operations over seven consecutive quarters.

Asset Management (NTAM): Innovation and Flow Generation

Northern Trust Asset Management (NTAM) plays a critical role in providing investment solutions across both the Asset Servicing and Wealth Management segments. In Q3 2025, Mike Hundstedt was appointed President of NTAM, signaling a continued focus on strengthening core capabilities and accelerating growth in strategic areas.

Key achievements and initiatives:

• Liquidity Leadership: NTAM reported its eleventh consecutive quarter of positive liquidity flows. Its US dollar treasury liquidity strategy for European clients has amassed over $6 billion since its June 2024 launch.
• Product Innovation: The launch of 11 new ETF strategies, including 8 fixed income distributing ladder ETFs, demonstrates NTAM's commitment to meeting evolving client needs, particularly for taxable clients seeking efficient cash flow management.
• Custom SMAs and Alternatives: NTAM continues to see positive flows in ETFs and custom SMAs, as well as in fixed income, including two large high-yield mandates. 50 South Capital, NTAM's alternatives platform, is having a record fundraising year, closing its largest secondaries fund with over $2 billion in commitments in Q2 2025.

Financial Performance and Health

Northern Trust's financial performance in 2025 reflects a company executing its strategy effectively amidst dynamic market conditions. For the three months ended September 30, 2025, Total Revenue increased 3% to $2,025.40 million compared to the prior-year quarter. This was driven by a 2% increase in Noninterest Income to $1,434.60 million and a 5% increase in Net Interest Income to $590.80 million. For the nine months ended September 30, 2025, total revenue decreased 6% to $5,963.30 million, primarily due to significant non-recurring gains in the prior-year period related to the Visa exchange program and an equity investment sale.

Profitability: The company's focus on operating leverage is yielding results. The Pretax Margin expanded by nearly 200 basis points year-over-year in Q3 2025, excluding notable items. The expense to trust fee ratio improved to 112% in Q3 2025, down from prior levels, as the company works towards its medium-term target of 105-110%. Net Income for Q3 2025 was $457.60 million, a 2% decrease from the prior-year quarter, while Diluted EPS was $2.29, up 3% year-over-year. For the nine months ended September 30, 2025, Net Income was $1,270.90 million, a 19% decrease, again largely due to the prior-year's notable gains.

Net Interest Income (NII): NII on an FTE basis for Q3 2025 was $596.30 million, up 5% year-over-year, primarily driven by lower funding costs. The Net Interest Margin (FTE) increased to 1.70% in Q3 2025, reflecting favorable deposit pricing actions, partially offset by a lower yield on interest-earning assets. Average deposits were $116.70 billion in Q3 2025, down 5% sequentially but up 4% year-over-year. The fixed-floating breakdown of the securities portfolio is 54% to 46%, with a portfolio duration of 1.5 years and a total balance sheet duration under one year.

Credit Quality: Northern Trust maintains a very strong credit quality profile. In Q3 2025, there was a negative Provision for Credit Losses of $17 million, primarily due to a decrease in collective reserves driven by improved macroeconomic factors impacting the Commercial and Institutional (CI) portfolio and improved projections for Residential Real Estate (RRE). Nonaccrual assets increased to $78.80 million as of September 30, 2025, up 41% from December 31, 2024, due to downgrades of a small number of loans across multiple segments. However, the company's credit policies are conservative, avoiding high-risk loan types.

Balance Sheet and Capital Management

Northern Trust's balance sheet remains robust, providing both stability for clients and flexibility for capital deployment. As of September 30, 2025, Total Assets stood at $170.26 billion, an increase of 9% from December 31, 2024. Total Deposits increased 11% to $135.80 billion, reflecting increased client activity and higher liquidity. Stockholders' Equity was $12.96 billion, up 1% from year-end 2024.

Capital Ratios: The company's capital ratios significantly exceed regulatory minimums, classifying it as "well-capitalized." The Common Equity Tier 1 (CET1) Capital ratio was 12.4% under the standardized approach in Q3 2025, up 20 basis points sequentially, driven by capital accretion and a decrease in Risk-Weighted Assets (RWA). The Tier 1 Leverage ratio was 8%, up 40 basis points from the prior quarter. Management targets a CET1 ratio range of 11-12%, indicating comfort with current levels and capacity for further capital actions.

Capital Return: Northern Trust is committed to returning capital to shareholders. Year-to-date through Q3 2025, the company returned $1.3 billion to common shareholders, representing a 110% payout ratio, putting it on track to return at least 100% for the full year. This included cash dividends of $154.30 million and common stock repurchases of $277 million in Q3 2025 alone. In Q2 2025, the Board approved a $0.05, or 7%, increase to its quarterly dividend. A new stock repurchase authorization of up to $2.5 billion was approved in July 2025, replacing a prior program.

Outlook and Guidance

Northern Trust's management provides a clear forward-looking perspective, grounded in its strategic initiatives and market assumptions.

Operating Expenses: The company maintains its guidance for total operating expense growth to be below 5% for the full year 2025, excluding notable items and regardless of currency movements. This commitment is underpinned by ongoing productivity initiatives, including the accelerating deployment of AI tools and the reengineering of its operating model. Management expects productivity gains in 2026 to be even greater than in 2025, indicating a sustained effort to "bend the cost curve down."

Net Interest Income (NII): For the full year 2025, Northern Trust expects NII to grow by mid to high single digits over the prior year. This guidance assumes a modest decline in Q3 deposits in line with seasonal trends, a mostly stable deposit mix, market-implied forward curves, and slightly weaker institutional deposit betas with anticipated global rate cuts. For 2026, NII is projected to be flat to up 1-2%, factoring in anticipated U.S. rate cuts (no more than two), carry-in from repricing initiatives, and the reinvestment of maturing securities. The company notes that a 25 basis point rate cut translates to less than $1 million per month impact, suggesting NII is relatively resilient to modest rate changes.

Profitability Targets: Northern Trust has updated its Return on Average Common Equity (ROE) target from 10-15% to 13-15%. This reflects confidence in the strategy's momentum and a more constructive regulatory capital framework. The company's medium-term targets also include achieving an expense to trust fee ratio of 105-110% and pretax margins above 30%, aiming for an optimal combination of growth and returns.

Risks and Challenges

While Northern Trust's strategic trajectory is positive, several risks and challenges warrant investor attention:

• Market Volatility and Fee Pressure: Fluctuations in equity and fixed income markets directly impact asset-based fees (AUCA, AUM). Persistent fee pressure, particularly in asset management products, could temper revenue growth. Management acknowledges that "there's consistently, you know, persistent pressure on fees overall" in asset management.
• Interest Rate Sensitivity: Although NII is relatively resilient to modest rate cuts, a rapid and significant decline in interest rates could lead to NIM compression, impacting profitability. The company's balance sheet duration is under one year, but reinvestment strategies for maturing securities are crucial.
• Competitive Intensity: The financial services industry is highly competitive. Larger players like State Street and BNY Mellon offer vast scale, while BlackRock leads in ETF and technology platforms. Fintech innovations and AI-driven solutions from indirect competitors could exert pressure on fees and market share, particularly in digital-first segments.
• Operational and Technological Execution: While Northern Trust is investing heavily in modernizing its operating model and deploying AI, successful execution is critical. Delays or inefficiencies in these multi-year transformation efforts could hinder productivity gains and impact service quality.
• Regulatory and Legal Risks: The company operates in a complex regulatory environment. Changes in capital requirements (e.g., Basel III endgame) or liquidity standards could impact financial flexibility. Ongoing legal proceedings, such as the French estate tax fraud case involving NTFS, carry potential financial liabilities, though management estimates the reasonably possible loss for such matters to be from zero to approximately $25 million in the aggregate as of September 30, 2025. The ultimate resolution of Visa-related litigation also remains uncertain, though the company believes a payment under the Makewhole Agreement is remote.
• Macroeconomic Uncertainty: Qualitative adjustments to credit reserves reflect "macroeconomic uncertainty affecting Northern Trusts CI portfolio, the potential for higher-than-anticipated losses on large individual exposures, and the possible impact of climate-related risks on CRE property values." While an improved outlook for the CRE portfolio and RRE in certain locations led to a decrease in the qualitative reserve component in Q3 2025, these factors remain areas of vigilance.

Conclusion

Northern Trust Corporation is in a period of strategic transformation, leveraging its deep history of client trust and service to adapt to a rapidly evolving financial landscape. The "One Northern Trust" strategy, with its pillars of optimizing growth, strengthening resiliency, and driving productivity, is yielding tangible results, evidenced by consistent operating leverage and expanding profitability. The company's aggressive adoption of AI and modernization of its operational backbone are key technological differentiators, enabling greater efficiency and enhancing its competitive moat against larger, more technologically agile rivals.

While facing persistent fee pressures and the inherent risks of market volatility and macroeconomic shifts, Northern Trust's disciplined approach to expense management, robust capital position, and strategic focus on high-value client segments position it for continued growth. The updated ROE target and commitment to significant capital returns underscore management's confidence in its ability to deliver sustainable shareholder value. For discerning investors, Northern Trust presents a compelling narrative of a specialized financial institution strategically investing in its future, aiming to unlock enhanced profitability and growth through integrated solutions and technological leadership.

Competitive Positioning

Northern Trust operates in a highly competitive financial services industry, primarily contending with global financial institutions that offer similar asset servicing, wealth management, and asset management solutions. Key direct competitors include State Street Corporation , Bank of New York Mellon , and BlackRock .

Northern Trust differentiates itself through its client-centric, high-touch service model and a long-standing reputation for reliability and personalized solutions, particularly for high-net-worth individuals and institutional clients with complex needs. This focus allows Northern Trust to command a unique value proposition in niches requiring deep advisory expertise, such as family office services and complex estate administration. For example, Northern Trust's offerings, like its multi-manager advisory services, are often perceived as more holistic, potentially providing greater efficiency for clients needing customized portfolios.

In asset servicing, while competitors like State Street (STT) and BNY Mellon (BK) boast larger scales, Northern Trust focuses on scalable growth in specific, higher-margin areas such as large asset owners, capital markets, and alternatives. Its market-leading position in semi-liquid funds in the UK and its ability to cross-sell high-margin capital markets products demonstrate a targeted competitive strategy. The company's operational streamlining, driven by its Chief Operating Officer, aims to enhance efficiency and service quality, directly addressing potential competitive disadvantages in scale-driven operational execution.

In wealth management, Northern Trust's Global Family Office (GFO) and new Family Office Solutions cater to ultra-high-net-worth clients, leveraging an integrated platform that combines asset servicing, wealth management expertise, and asset management solutions. This integrated model provides "operating alpha" by helping family offices manage their full infrastructure, a differentiated offering compared to more product-focused or transaction-oriented competitors.

Technologically, Northern Trust is actively deploying AI and modernizing its infrastructure to enhance productivity and client experience. While competitors like BlackRock (BLK) with its Aladdin platform may lead in broad technological agility and speed of innovation in digital asset management, Northern Trust's AI initiatives are focused on specific, measurable benefits in automating workflows, data analysis, and client advisory services. This targeted approach aims to improve unit economics and operational efficiency, thereby strengthening its competitive position without necessarily matching the sheer scale of its rivals' technology investments.

Financially, Northern Trust generally exhibits solid profitability and cash flow generation, comparable to its peers. For instance, its latest TTM Gross Profit Margin is 45.97%, Operating Profit Margin is 17.95%, and Net Profit Margin is 13.47%. While it may not always match the revenue growth rates of larger competitors in volatile markets due to their broader asset bases, Northern Trust's disciplined expense management and focus on accretive new business are designed to drive margin expansion. The company's ROE target of 13-15% reflects its ambition to deliver strong returns within its chosen market segments.

Indirect competition comes from fintech platforms and robo-advisors, which offer lower-cost, automated investment advice. These could attract cost-sensitive clients, potentially impacting Northern Trust's wealth management revenue through increased price competition. However, Northern Trust's emphasis on complex, high-touch services for affluent clients provides a buffer against these more commoditized offerings.

Overall, Northern Trust's competitive strategy is to leverage its strong brand, global network, and expertise in customized solutions to differentiate itself in high-value niches. By continuously enhancing its integrated platform and strategically deploying technology, it aims to maintain client loyalty and drive profitable growth, even as it selectively allows non-core business to roll off to improve overall margins.