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    NTRS
    Earnings call· Mar 2025(Q1 FY25)

    NORTHERN TRUST Q1 FY25 earnings call NTRS

    Apr 22, 2025 Source

    Executive summary

    Northern Trust Q1 FY25 — Strong Operating Leverage and Capital Returns

    Northern Trust delivered a strong first quarter, marked by positive operating leverage and robust capital returns, despite a challenging macroeconomic backdrop. The company advanced its "One Northern Trust" strategy, focusing on optimized growth in alternatives and family office solutions, while maintaining a strong balance sheet and capital position. Management remains committed to expense discipline and a flexible business model to navigate market conditions.

    Highlights

    5

    • Generated third consecutive quarter of positive operating leverage, with EPS (excluding notables) up 13% YoY.

    • Achieved mid-single-digit growth in both trust fees (6% YoY) and net interest income (7% YoY).

    • Boosted capital levels meaningfully, with CET1 ratio increasing 50 bps sequentially to 12.9%.

    • Returned $435 million to shareholders, reflecting a payout ratio of 116%.

    • Asset Servicing fees up 6% YoY, driven by strong markets and new business, including Igneo Infrastructure Partners and Alchemy Partners mandates.

    Concerns

    4

    • Currency movements unfavorably impacted revenue growth by approximately 20 basis points YoY.

    • Net interest margin decreased 2 basis points QoQ to 1.69%.

    • Noninterest-bearing deposits decreased 3% sequentially, though remaining at 15% of the overall mix.

    • Unrealized pretax loss on available-for-sale securities was $527 million at quarter end.

    Guidance & targets

    4
    CategoryTargetConfidence
    Total operating expense growth
    below 5%
    high materiality
    High
    Net interest income (NII) growth
    low to mid-single-digit growth
    high materiality
    High
    Common Equity Tier 1 (CET1) ratio
    11% to 12%
    high materiality
    High
    Payout ratio
    around 100%
    medium materiality
    Medium

    Segment performance

    2
    SegmentRevenueYoYQoQMargin
    Asset Servicing
    Performed well with healthy transaction volumes and double-digit capital markets activities. New business growth continues to be booked at attractive margins. Year-over-year comparisons were dampened by client exits in Q2 last year.
    Assets under custody and administration: $15.8 trillionAssets under custody and administration growth YoY: 3%Custody and fund administration fees: $453 millionCustody and fund administration fees growth YoY: 4%Other fees: $48 millionOther fees growth YoY: 7%Assets under management for Asset Servicing clients: $1.2 trillionAssets under management for Asset Servicing clients growth YoY: 7%Investment management fees within Asset Servicing: $153 millionInvestment management fees within Asset Servicing growth YoY: 9%
    		$672 million6%-1%—
    Wealth Management
    Had a healthy quarter with continued strength in the Global Family Office business, primarily due to strong equity markets.
    Assets under management for Wealth Management clients: $447 billionAssets under management for Wealth Management clients growth YoY: 6%
    		$542 million8%——

    Operational metrics

    36
    EPS (excluding notables)
    $1.90up 13% YoY
    Q1 FY25

    Reported earnings per share, excluding notable items.

    Return on average common equity
    13%
    Q1 FY25
    Positive operating leverage
    third consecutive quarter
    Q1 FY25

    Achieved positive operating leverage for the third consecutive quarter.

    Trust fee operating leverage
    fourth consecutive quarter
    Q1 FY25

    Achieved positive trust fee operating leverage for the fourth consecutive quarter, excluding notables.

    Currency impact on revenue growth
    -20 bpsYoY
    Q1 FY25

    Unfavorably impacted revenue growth.

    Currency impact on expense growth
    +50 bpsYoY
    Q1 FY25

    Favorably impacted expense growth.

    Assets under custody and administration (firm-wide)
    $15.8 trillionup 3% YoY, up 1% QoQ
    Q1 FY25

    Firm-wide AUC/A at quarter end.

    Assets under management (firm-wide)
    $1.647 trillionup 7% YoY, flat QoQ
    Q1 FY25

    Firm-wide AUM at quarter end (derived from Asset Servicing and Wealth Management AUM).

    Net interest margin (NIM)
    1.69%down 2 bps QoQ
    Q1 FY25
    Average deposits
    $116 billionup 3% QoQ
    Q1 FY25
    Interest-bearing deposits growth
    4%QoQ
    Q1 FY25
    Noninterest-bearing deposits growth
    -3%QoQ
    Q1 FY25
    Noninterest-bearing deposits mix
    15%
    Q1 FY25

    Remained at 15% of the overall deposit mix.

    Compensation expense growth
    8%QoQ
    Q1 FY25

    Sequentially reflecting seasonal equity incentive grants; YoY due to modest hiring for modernization and growth.

    Outside services expense growth
    7%YoY
    Q1 FY25

    YoY due to higher spend on modernization and resiliency; QoQ as spend started to flatten.

    Equipment and software expense growth
    11%YoY
    Q1 FY25

    Mostly related to higher depreciation, amortization, and cloud journey costs.

    Tier 1 leverage ratio
    8%down 10 bps QoQ
    Q1 FY25
    Unrealized pretax loss on AFS securities
    $527 million
    Q1 FY25

    At quarter end.

    Capital returned to common shareholders
    $435 million
    Q1 FY25

    Total capital returned through dividends and repurchases.

    Payout ratio
    116%vs 90% in Q1 prior year
    Q1 FY25

    Reflecting capital returned to shareholders.

    Institutional deposit beta
    closer to 100%
    Current

    Remains high.

    Wealth deposit beta
    60% to 70% roughlystable
    Current
    NII sensitivity to 25 bps rate cut
    less than $1 million
    Monthly

    Does not significantly impact NII until much lower rates.

    Non-U.S. revenue percentage
    25% to 30%
    Current

    Roughly 25% to 30% of total revenue is non-U.S.

    Visa unrealized gain potential
    $1.1 billion
    Current

    Pretax unrealized gain on remaining Visa shares, carried at $0 on the balance sheet.

    Expenses to trust fees ratio
    118%about flat YoY
    Q1 FY25

    Calculated ratio, with a long-term goal for improvement.

    SMAs inflows (custom tax optimized)
    $1.7 billion
    Q1 FY25

    Capitalizing on market volatility for increased after-tax value.

    LTAFs supported in UK
    over half
    Q1 FY25

    Leading market share in semi-liquid funds.

    Ultra high net worth client base
    300 to 400
    Current

    Existing clients that would fit the Family Office Solutions profile.

    Securities portfolio duration
    1.6 years
    Q1 FY25

    Duration of the securities portfolio.

    Total balance sheet duration
    less than 1 year
    Q1 FY25
    Securities repricing schedule
    50%
    Within 90 days

    Percentage of securities repricing within 90 days.

    Securities portfolio currency mix
    over 80%
    Current

    Percentage of the securities book in U.S. dollars.

    Fixed securities run-off
    $1 billion
    Each quarter

    Fixed securities running off and being reinvested.

    Deposit currency mix
    about 70%
    Current

    Percentage of deposits in U.S. dollars.

    Expense growth rate (prior Q4)
    5.5%YoY
    Q4 FY24

    Year-over-year expense growth rate in the prior quarter, used as a comparison point for current Q1 FY25 growth of 4.8%.

    Industry KPIs

    3
    MetricValueDetails
    Cet1 ratio12.9%%
    Payout ratio116%%
    Net interest income$574 millionUSD

    Product announcements

    2
    ProductTypeDetails
    Family Office Solutionslaunch
    Fixed Income ETFsroadmap

    Deals & partnerships

    2
    Igneo Infrastructure PartnersGlobal outsourced private capital administration provider$20 billion alternatives manager

    Selected as the global outsourced private capital administration provider for Igneo Infrastructure Partners, a $20 billion alternatives manager specializing in global infrastructure investments.

    Alchemy PartnersAsset servicing business for a new fund launch$1 billion special opportunities fund

    Expanding upon a long-standing relationship with private equity firm Alchemy Partners, Northern Trust was awarded the asset servicing business for a new $1 billion special opportunities fund launch.

    Risks & headwinds

    3
    Macroeconomic and market backdropcurrent environment

    highly challenging

    Mitigation: Well positioned to navigate a wide range of outcomes; balance sheet strength allows meeting client needs and pursuing strategic objectives.

    Market volatility impact on client decision-makingfirst month of really high level of volatility

    can drive client decision-making; cause a pause for people to actually switch over

    Mitigation: Institutional clients are more accustomed to market changes; for Wealth, it may build up pipelines, but delay timing of account switches. No significant impact seen yet.

    Regulatory environment changesongoing

    Basel III end game has been out there for some time period, can't quite reach the end game on that front

    Mitigation: Basel III Endgame's focus on operational risk, if refined, could be favorable. Potential exclusion of government securities from SLR would create more capacity, though not currently needed.

    What to watch in Q2 FY25

    5

    Impact of market volatility on client activity

    Next quarter
    CurrentNo significant impact seen yet, but can cause pause in decision-making.
    TargetObserve if volatility leads to delayed client switches or changes in new business activity.

    Why it matters

    Market volatility🌐 can affect new business generation and client attrition rates, impacting fee revenue growth.

    Yes, I do think that market volatility🌐, uncertainty can drive client decision-making. And so it's -- we haven't seen anything, I would say, significant at this point. But frankly, we're still in the first month of this really high level of volatility. And so we'll see💬 how that plays out.

    Q&A highlights

    6

    What deposit beta assumptions underpin the raised NII guidance, especially given the cumulative beta of 86% in the easing cycle vs. 72% in tightening?

    Deposit betas remain relatively stable, higher for institutional business (closer to 100%) and lower for wealth (60-70%). Management's focus on deposit pricing and tiering has positively benefited betas.

    “Our deposit betas have remained relatively stable if you look historically. But I would say that it's obviously going to be higher for the institutional business, closer to 100 and then lower for wealth, 60% to 70% roughly.”

    asked by Steven Chubak · answered by Michael O'grady

    2 min read6 chapters

    Detailed Narrative

    01

    One Northern Trust Strategy Progress

    The company is making progress on its "One Northern Trust" strategy, aiming to be a consistently high-performing company. This includes optimizing growth by fostering collaboration, leveraging firm capabilities, and advancing enterprise-wide growth initiatives in alternative investment solutions, family office services, and liquidity solutions.

    02

    Alternative Investment Solutions

    Fundraising in Asset Management is strong, on track to nearly double capital raise versus prior year averages. In Asset Servicing, new business activity was brisk, particularly in private markets, with Igneo Infrastructure Partners and Alchemy Partners mandates. The company is expanding its market share in semi-liquid funds and supporting over half of approved LTAFs in the U.K.

    03

    Family Office Solutions Launch

    Northern Trust formally rolled out a dedicated ultra high net worth segment called Family Office Solutions, targeting individuals and families with over $100 million in net worth. This initiative aims to deliver outsourced family office capabilities, enhancing service for existing clients and attracting new ones by providing a broader set of services beyond traditional wealth management.

    04

    Liquidity and Deposit Trends

    The company observed a healthy increase in deposit levels as clients adopted a risk-off approach, reallocating portfolios and raising cash. Asset Management generated positive liquidity flows for the ninth consecutive quarter. Average deposits were $116 billion, up 3% QoQ, with interest-bearing deposits up 4% and noninterest-bearing deposits down 3%, maintaining a 15% mix.

    05

    Technology and Productivity Initiatives

    Northern Trust is advancing its technology journey for a more stable, scalable, and secure environment. Productivity initiatives for 2025 are on track, reengineering the operating model to enhance efficiency, standardize services, and streamline processes. This includes workforce initiatives, third-party vendor savings, and deploying machine learning, natural language processing, and generative AI for automation and digitization.

    06

    Capital Markets Activity

    Elevated market volatility🌐 levels drove strong capital markets activity late in Q1 and into April, particularly in foreign exchange and brokerage, including integrated trading services for asset manager clients repositioning portfolios. This momentum is expected to continue, though its duration is uncertain.

    AI-generated summary of the company’s earnings call. Not investment advice.