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DATE

Thursday, January 22, 2026 at 9:00 a.m. ET

CALL PARTICIPANTS

  • Chairman and Chief Executive Officer — Michael O’Grady
  • Chief Financial Officer — David W. Fox
  • Head of Investor Relations — Jennifer Childe

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TAKEAWAYS

  • Net Income -- $466 million reported for the quarter.
  • Earnings per Share (EPS) -- $2.42 for the quarter, up 19% year over year (excluding notables).
  • Return on Average Common Equity -- 15.4% for the quarter.
  • Revenue -- Up 9% year over year (excluding notables); $1.3 billion in trust, investment, and other servicing fees, up 3% sequentially and 7% year over year.
  • Net Interest Income (NII) -- $654 million, up 10% sequentially and 14% year over year; reported as a new record.
  • Pretax Margin -- 33.2% for the quarter (excluding notables), an increase of 250 basis points year over year.
  • Operating Leverage -- Over four percentage points of positive operating leverage achieved in the quarter (excluding notables).
  • Return on Equity (Full Year) -- 14.8% (excluding notables); 14.4% on a GAAP basis.
  • Shareholder Returns -- $1.9 billion returned for the year, including a record $1.3 billion in share repurchases, reducing share count by 5%; quarterly payout ratio was 113%, and 111% for the full year.
  • Expense Growth -- Up 9% year over year for the quarter, but only 5% excluding notables and 3.8% excluding notables and unfavorable currency impacts; full-year expenses rose 5% (excluding notables).
  • Productivity Savings -- Realized savings representing more than 4% of expense base; goal to increase productivity target by 10% for 2026.
  • Assets Under Custody/Administration (AUC/AUA) -- $17.4 trillion for asset servicing clients at period end, up 3% sequentially and 11% year over year.
  • Assets Under Management (AUM) -- $1.3 trillion for asset servicing at quarter end, up 2% sequentially and 12% year over year; $507 billion for wealth management, up 13% year over year.
  • Deposit Trends -- Average deposits were $119.8 billion, up 3% sequentially; noninterest-bearing deposits increased by 10% sequentially to 15% of total mix.
  • Net Interest Margin (NIM) -- Increased sequentially to 1.81%; management clarified "artificially boosted" by three basis points due to FTE true-up.
  • Effective Tax Rate -- 26.5% for the quarter; guidance for 2026 remains 26%-26.5%.
  • Pretax Margin Target Raised -- Management now targets 33% pretax margin (mid-teens ROE) in the medium term, citing execution of "One Northern Trust" strategy.
  • Expense to Trust Fee Ratio -- 110.8% for the quarter (excluding notables); improvement for the sixth consecutive quarter.
  • GFO and Family Office Solutions (FOS) -- GFO recorded record new business in 2025, including $5 billion flows in the quarter; FOS surpassed client and asset goals, targeting families with $100M+ net worth.
  • ETF and Alternatives Growth -- Asset management doubled product launches year over year, introducing 11 new ETFs, and alternatives assets raised tripled in 2025; liquidity AUM reached nearly $340 billion.
  • FX Trading and Integrated Trading Solutions (ITS) -- Robust FX trading and strong ITS client adoption contributed to revenue growth in capital markets.
  • Organic Growth by Segment -- Wealth management organic growth rate in the 1%-2% range; GFO and ultra-high-net-worth subsegments growing faster; asset servicing organic growth in the 2%-3% range.
  • Notable Items -- $69 million in net unfavorable notables in the quarter, including $19 million in Visa swap expenses, $59 million severance, and $10 million FDIC assessment reversal.
  • Capital Ratios -- Common Equity Tier 1 ratio at 12.6% (up 20 bps sequentially); Tier 1 leverage ratio at 7.8% (down 20 bps).
  • Guidance -- 2026 NII expected to grow by low to mid-single digits; management moving away from specific expense growth guidance, emphasizing positive operating leverage as guiding principle.

SUMMARY

Northern Trust (NTRS +6.15%) reported sequential and year-over-year improvement in key profitability metrics, anchored by positive operating leverage, increased net interest income, and higher trust fees across core segments. Management elevated medium-term financial targets, with a stated goal of achieving a pretax margin of 33% and return on equity in the mid-teens, reflecting continued confidence in the One Northern Trust strategy. Productivity gains, primarily from AI-driven efficiency and operational restructuring, are being redeployed into growth and resiliency initiatives to sustain future results. The firm outperformed historical records on share repurchases, supported by a strong capital position and ongoing discipline in balance sheet management. Guidance for 2026 anticipates continued NII growth, stable NIM, and flexible expense management to preserve positive operating leverage through market cycles.

  • "Wealth management average deposits were up 5% sequentially, reflecting year-end portfolio repositioning coupled with new business momentum" and management noted average loans declined by 4% due to repayment of a large GFO loan.
  • The asset servicing segment produced a pretax profit growth of 23% or 40% excluding severance; full-year segment pretax margin exceeded 30% on new business.
  • NTAM's liquidity platform marked its twelfth consecutive quarter of positive flows, with direct indexing and customized SMAs attracting $5 billion net organic flows within tax-advantaged equity funds in 2025.
  • Management commented, "enhanced our capital markets and banking penetration, which now contributes more than one-third of enterprise revenue."
  • Operational changes included increasing managerial spans of control by over 35% and reducing management layers by 20%+ in the COO organization, supporting scalability and accountability.

INDUSTRY GLOSSARY

  • GFO (Global Family Office): A division addressing multi-jurisdictional and ultra-high-net-worth client financial needs with integrated, institutional-quality services.
  • FOS (Family Office Solutions): An outsourced suite of administrative and investment services for families with $100 million+ net worth, leveraging Northern Trust’s platform.
  • NTAM (Northern Trust Asset Management): The asset management division of Northern Trust (NTRS +6.15%), offering mutual funds, ETFs, alternatives, and bespoke investment solutions.
  • ITS (Integrated Trading Solutions): Northern Trust’s outsourced trading model enabling clients to delegate middle and back office trading functions, primarily in FX and brokerage.
  • SMAs (Separately Managed Accounts): Customized investment portfolios managed to specific client objectives, often used for direct indexing and tax optimization.
  • Expense to Trust Fee Ratio: Operating expenses as a percentage of trust and related servicing fee revenue, measuring cost efficiency.

Full Conference Call Transcript

Michael O’Grady: Thank you, Jennifer. Let me join in welcoming you to our fourth quarter 2025 earnings call. Turning to Slide four, in 2025, we made significant progress executing on our One Northern Trust strategy. Delivering strong and improving financial performance and providing solid momentum going into 2026. In the fourth quarter, compared to the prior year, trust fees grew 7%, net interest income increased 14%, and revenue was up 9%, excluding notables. For the sixth consecutive quarter, we delivered positive trust fee and total operating leverage while continuing to invest meaningfully in the business. Excluding notables, pretax margin expanded to 33% and EPS grew 19%.

For the full year, revenue rose 7% and expenses grew 5%, delivering over two points of operating leverage and a 30% pretax margin, 14.8% return on equity, and 17% EPS growth, all excluding notables. We returned $1.9 billion to shareholders in 2025, including a record $1.3 billion of share repurchases, which reduced share count by 5%. These results reflect strong market conditions and demonstrate the strength of our One Northern Trust strategy, which serves as our roadmap to becoming a consistently high-performing company that delivers meaningful value for clients, partners, and shareholders. Turning to Slide five, we've made significant strides across each of our strategic pillars, starting with optimized growth.

We advanced several initiatives at both the enterprise and business unit levels, resulting in deepened client relationships and expanded market share in key areas. We broadened our private markets footprint across the enterprise and further enhanced our capital markets and banking penetration, which now contributes more than one-third of enterprise revenue. These firm-wide efforts improve collaboration across our businesses, allowing us to bring the full capabilities of Northern Trust to our clients while accelerating the pace of product development and innovation. Turning to productivity.

Michael O’Grady: We initiated significant changes to enhance and scale our operations. Our client-centric capability operating model provides a unified and consistent way of working across the company, standardizing core processes, increasing spans of control, reducing organizational layers, and empowering the broad adoption of AI-driven automation inclusive of our AI platform NT Byron. For example, the chief operating officer's organization, which encompasses more than half of our workforce, increased managerial spans of control by over 35%, while reducing management layers by over 20%. This is improving speed, accountability, and efficiency across the firm, creating a leaner, more agile operating structure and fostering enhanced collaboration.

Our accelerated deployment of AI across high-volume activities, such as digitizing documents and automating manual tasks, is driving efficiency gains while improving quality and consistency across key workflows. Overall, we increased productivity savings last year representing more than 4% of our expense base. We strategically reinvested these savings into growth and resiliency initiatives fueling our future performance. For 2026, we plan to raise our productivity target by 10%, supported by maturing initiatives, further structural and workforce improvements, and broader AI deployment. On resiliency, we strengthened the firm's risk technology and operational foundations. We advanced cybersecurity, upgraded our data environment, expanded cloud adoption, modernized key software platforms, and enhanced core risk and control processes. These initiatives help future-proof the company.

Turning to our business unit performance. Starting with wealth management on Slide six. We delivered strong momentum in the fourth quarter, particularly in our upper-tier segments, continuing to deepen our leadership position in global family office and the ultra-high-net-worth market. GFO achieved record new business in 2025, surpassing last year's high watermark with strong contributions from both domestic and international markets, the latter up 15%. Last year, we launched Family Office Solutions, extending our world-class GFO platform to families with more than $100 million in net worth, to serve as their outsourced family office. FOS exceeded its goals for clients and assets last year, and we're scaling this proven model across all markets.

Together, GFO and FOS position us exceptionally well to meet the needs of the most complex segment of the market. Another area of focus is talent. In 2025, we unified sales across GFO and the regions, strengthened coverage models, and enhanced pipeline rigor and win rate expectations. We will continue to invest in high-performing, growth-oriented front office talent while sharpening incentives around new client acquisition and organic growth. The third area of focus is expanding our suite of investment solutions. Alternatives remain a key priority in 2025, as we more than doubled the number of funds launched on the platform and tripled assets raised, broadening client choice across strategies.

We also made the fund launch and distribution process more scalable, which will support a faster cadence in 2026, including our first evergreen fund. Finally, we will enhance our client acquisition strategies across segments, geographies, and channels, including deeper engagement with centers of influence and intensified digital engagement initiatives to generate more high-quality leads. Across each of these areas, we are simplifying processes, upgrading platforms, and applying AI to reduce friction in service delivery. These steps will enhance both the client and partner experience and strengthen wealth management growth. Turning to Asset Servicing on Slide seven. Overall, we ended the year with improved organic growth and profitability, driven by our strategic focus on scalable growth in core product areas.

Capital markets performed particularly well in 2025, ending the year with robust FX trading and integrated trading solutions activity in the fourth quarter. Private markets were another highlight, with wind-related revenue up 18% over the prior year, further solidifying our leading position with global hedge fund managers and UK LTAS. We will build on the success in 2026 by further scaling core fund administration and depository services while increasing cross-sell of capital markets activities. Led by our industry-leading front office solutions offering, which continues to be a key differentiator, we will further expand our global asset owner franchise building on the over 100 new mandates in 2025.

Finally, we will sharpen our focus on selectively enhancing the products and services we offer, such as growing ETF servicing in The US, expanding European transactional banking, and building out our digital asset capabilities. Asset servicing enters the year with solid tailwinds and a clear path to accelerate profitable growth. Turning to Asset Management on Slide eight. NTAM delivered another solid year and is well-positioned to continue executing on its growth initiatives. Liquidity was particularly strong, with the fourth quarter marking the twelfth consecutive quarter of positive flows, and liquidity AUM reaching nearly $340 billion. We continue to broaden our successful liquidity franchise by leveraging digital capabilities, including introducing a tokenized share class of one of our money market funds.

Building on last year's strong alternatives fundraising, we will continue to expand our product capabilities and strengthen distribution across wealth and institutional channels. On the product innovation front, we maintained a high-velocity cadence last year, doubling product launches year over year, including 11 new ETFs, meaningful expansion of our SMA fixed income suite, and the rollout of multiple custom solutions across alternatives. NTAM will maintain an elevated new product base and work closely with Northern Trust Wealth Management to co-develop tailored solutions, building on the first-of-their-kind distributing ladder ETFs introduced in 2025. Direct indexing and customized SMAs remain areas of strong client demand, supported by $5 billion of net organic flows in our tax-advantaged equity suite in 2025.

We will extend this momentum through the launch of a long-short tax-advantaged equity strategy and expanded customized fixed income SMAs, reinforcing our position as a top-three industry provider. Together, these priorities strengthen our growth trajectory, deepen our client engagement, and expand our ability to deliver differentiated high-demand investment solutions. Turning to Slide nine. The execution of our One Northern Trust strategy over the last two years is translating into improved financial performance. Productivity and expense discipline are driving positive operating leverage, reducing our expense to trust fee ratio, and improving pretax margin levels. While ROE has been at the high end of our target range, and EPS have grown at a double-digit pace for the past two years.

Turning to Slide 10, as we move forward, we're doing so with a clear vision, good momentum, and a resolute commitment to consistently deliver on our strategic pillars, producing financial performance that rewards shareholders. With the goal of generating attractive returns on capital and double-digit EPS growth through cycles, we have the conviction to boost two of our medium-term financial targets. In addition to targeting expense to trust fees below 110%, we're now targeting a pretax margin of 33% and return on equity in the mid-teens. To wrap up, this progress is only possible as a result of the exceptional efforts of my fellow Northern Trust colleagues. I want to thank them for their commitment to delivering for our stakeholders.

With that, Dave will take you through our fourth quarter and full-year financial results. Thanks, Mike.

David W. Fox: Let me join Jennifer and Mike in welcoming you to our fourth quarter 2025 earnings call. Let's discuss the financial results of the quarter starting on Slide twelve. This morning, we reported fourth quarter net income of $466 million, earnings per share of $2.42, and our return on average common equity was 15.4%. Our fourth quarter results reflect another quarter of solid progress toward achieving our financial objectives and enhancing the durability of our financial model. Relative to the prior year, currency movements favorably impacted our revenue growth by approximately 90 basis points and unfavorably impacted our expense growth by approximately 140 basis points. Relative to the prior period, currency movements were immaterial to both revenue and expense growth.

Trust, investment, and other servicing fees totaled $1.3 billion, a 3% sequential increase and a 7% increase compared to last year. Net interest income on an FTE basis was up 10% sequentially, to $654 million, a new record, and up 14% from a year ago. Our assets under custody and administration were up 3% sequentially and up 11% compared to the prior year. Our assets under management were up 2% sequentially and up 12% year over year. Overall, our credit quality remains very strong, with all key credit metrics in line with historical standards.

We recorded an $8 million release of the credit reserve in the fourth quarter, largely reflecting refinements to factors used to estimate losses for the C and I portfolio. Our effective tax rate was 26.5% in the fourth quarter, up three ten basis points over the prior year's rate, largely as a result of higher tax impacts from international operations. We expect the effective tax rate in 2026 to be approximately 26 to 26.5%.

Our results included $69 million in net unfavorable notable items, including $19 million in expenses associated with our Visa swaps, recognized within other operating income, $59 million in severance-related expense primarily recognized within compensation expense, and a $10 million release of our FDIC special assessment reserve recognized within our other operating expense. Relative to the prior year period and excluding notable items, revenue was up 9%, expenses were up 5%, our pretax margin was up 250 basis points to 33.2%, we generated over four points of positive operating leverage, earnings per share increased 19%, and our average shares outstanding decreased by 5%. Turning to our wealth management business on Slide 13.

Wealth management had a good quarter with strength in both GFO and the regions. GFO won three of its largest wins of the year in the quarter. Priority markets delivered their best overall quarter of the year, and the regions posted their best quarter for flows. Assets under management for our wealth management clients were $507 billion at quarter end, up 13% year over year. We saw healthy incremental flows late in the quarter, including $5 billion within GFO. Trust investment and other servicing fees for wealth management clients were $578 million, up 6% year over year, primarily due to strong equity markets as the favorable flows occurred late in the quarter.

Trust fees within the regions were up 5% year over year in the quarter and were up 6% for the full year, with strength mostly attributable to favorable equity markets as strong advisory fee growth was mostly offset by continued product pressure. Within GFO, trust fees were up 6% in the fourth quarter relative to the prior year, showing healthy improvement from the third quarter's more muted performance. They were up 5% for the full year. Wealth management average deposits were up 5% sequentially, reflecting year-end portfolio repositioning coupled with new business momentum. Average loans were down 4%, reflecting the repayment of a large GFO loan.

Including severance charges of $15.2 million, wealth management's pretax profit decreased 3% over the prior year period's record levels, and the pretax margin contracted by 300 basis points to 38.9%. Excluding these charges, the pretax margin was down 120 basis points. Moving to asset servicing results on Slide 14. Our asset servicing business also had a very strong finish to the year. Transaction volumes accelerated, capital markets activities were robust, while new business generation continued to be healthy and margin accretive. Assets under custody and administration for asset servicing clients were $17.4 trillion at quarter end, reflecting an 11% year over year increase. Asset servicing fees totaled $730 million, reflecting an 8% increase over the prior year.

Custody and fund administration fees were $496 million, up 9% year over year, reflecting the impact from strong underlying equity markets, net new business, and favorable currency movements. Assets under management for asset servicing clients were $1.3 trillion, up 12% over the prior year. Investment management fees in asset servicing were $166 million, up 6% year over year, largely due to favorable markets. Asset servicing average deposits increased 3% sequentially, reflecting normal seasonal patterns, and were up 6% year over year. Loan volume increased 6% from third quarter levels but remained down 8% year over year, albeit off a small base. Asset servicing pretax profit grew 23% over the prior year or 40% excluding severance charges.

The pretax margin expanded two ten basis points year over year to 25.5%, an increase of five fifty basis points excluding severance. The segment level margin benefited from the NII associated with the seasonally strong deposit levels, the pivot in our new business approach, including our focus on cross-selling high-margin capital markets and other adjacent products and services, which translated to a pretax margin on our new business that was above 30%, as well as our efforts to streamline our operations. Moving to Slide 15, and our balance sheet and net interest income trends.

Average earning assets were up 3% on a linked quarter basis, as higher deposits drove an increase in cash held at the Fed and other central banks and in our securities portfolio. We issued $1.25 billion in new debt in November, $500 million in senior and $750 million in sub debt. The debt was swapped to floating and proceeds were invested in floating rate securities at a positive carry. As a result, the fixed percentage of the securities portfolio dropped to 52% from 54% in the third quarter, including the impact of swaps.

The duration of the securities portfolio dipped slightly to 1.48 at the end of the quarter, and the duration of our total balance sheet continued to be under one year. Average deposits were $119.8 billion, up 3% compared to third quarter levels reflecting normal seasonality. Deposits performed largely as expected throughout the quarter, but we saw a higher than usual surge in the last two weeks. We expect deposit levels to normalize in the first quarter.

David W. Fox: Within the deposit base, interest-bearing deposits increased 2% sequentially and noninterest-bearing deposits increased by 10%, climbing to 15% of the overall mix. Net interest income on an FTE basis was $654 million, up 10% sequentially and up 14% compared to the prior year. Sequentially, NII was favorably impacted by higher deposit levels, a greater proportion of noninterest-bearing deposits, and the ongoing impact from deposit pricing actions we've taken outside of rate cuts. Our net interest margin increased sequentially to 1.81%, reflecting the favorable deposit pricing actions taken coupled with a more favorable deposit mix shift. Turning to our expenses on Slide 16.

Expenses increased 9% year over year in the fourth quarter, but excluding the notables listed on the slide, they were up 5% over the prior year. Excluding both notables and unfavorable currency movements, expenses were up just 3.8% in the quarter and 4.3% for the full year. This translated to an expense to trust fee ratio of 110.8% excluding notables, and our sixth consecutive quarter of year over year improvement. Turning to Slide 17 and our full year results. Including notable items listed on the slide, full year revenue decreased 2% and EPS declined by 11%. Our ROE was 14.4%, and we returned 111% of our earnings to shareholders.

Relative to 2024, currency movements favorably impacted our revenue growth by approximately 50 basis points and unfavorably impacted our expense growth by approximately 60 basis points. Our full year results included $69 million in net unfavorable notable items, all reported in the fourth quarter. 2024 results included $536 million in net favorable notables recorded in quarters one through three, including an $878 million gain related to the Visa B share monetization. Excluding notable items in both periods, 2025 revenue was up 7%, expenses were up 4.9%, or 4.3% excluding unfavorable currency impacts. Our pre-tax margin was up 160 basis points to 30%. We delivered over 200 basis points of positive operating leverage, and earnings per share increased 17%.

Turning to slide 18, our capital levels and regulatory ratios remained strong in the quarter, and we continue to operate at levels well above our required regulatory minimums. Our common equity Tier one ratio under the standardized approach increased by 20 basis points on a linked quarter basis to 12.6%, driven by capital accretion and a decrease in RWA. Our tier one leverage ratio was 7.8%, down 20 basis points from the prior quarter driven by our larger balance sheet. At quarter end, our unrealized after-tax loss on available for sales securities was $401 million. For the fourth quarter, we returned $522 million to common shareholders through cash dividends of $152 million and stock repurchases of $370 million.

For the full year, we returned $1.9 billion, including a record $1.3 billion in share repurchases. This reflected a 113% payout ratio in the fourth quarter and 111% for the full year. Turning to our guidance on Slide 19. As I've been signaling, we're moving away from an expense growth target instead focusing on positive operating leverage, which is our North Star. We want to maintain the flexibility to opportunistically invest in growth initiatives when top-line growth is more favorable and dampen expense growth when the market environment is more muted. But generally speaking, I can assure you that the direction of travel for expense growth will be down.

As shown on the slide, we now expect full year 2026 NII to grow by low to mid-single digits over the prior year, which is up from our previous guidance. This assumes current market implied forward curves and relatively stable deposit mix. We expect to generate more than 100 basis points of positive operating leverage and we expect to return more than 100% of our earnings to shareholders. And with that, operator, please open the line for questions.

Operator: Thank you. If you're dialed in via the telephone and would like to ask a question, please signal by pressing star 1 on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Please limit yourself to one question and one follow-up in order to allow everyone an opportunity to ask a question again. Press star 1 to ask a question. And our first question is going to come from Brennan Hawken from BMO Capital Markets.

Brennan Hawken: Good morning. Thank you for taking my questions. Good morning.

David W. Fox: Hi. Hi, Mike. Really encouraging to see the targets moved higher on the medium term. And actually, looks like really some encouraging ambition in the targets.

Brennan Hawken: Can you speak to your conviction in driving change across the organization? And like when you think the timing of some of this traction could start to come through in the financial results?

Michael O’Grady: So I would say, Brennan, that we have a high level of conviction that we're seeing the change transmit through the entire company. I talked about in my comments there just the fact that this is an effort on the part of all of our employees, all of our partners to do this. And I think you're seeing you know, what I think I'll call the early days of the results from a financial perspective. And that to the extent we continue to maintain that conviction and execute on the strategy, we'll continue to see consistently high performance like we did this quarter.

That's why we had the confidence to move the targets up in the medium term, which we look at as kind of a three to five-year time frame. And if you just think about, you know, what Dave has said even for the year that we're in right now, trying to generate more positive, operating leverage, you know, that will take us in the direction towards those targets.

Brennan Hawken: Right. Okay. Thank you for the timing around that. And definitely really encouraging to see it. I it was great. Maybe one on the balance sheet. So the deposit cost trends were encouraging. Here in the quarter. Can you speak to what drove the lower cost on the IB side? We saw the net the NIBs, the noninterest-bearing balances move higher, but sometimes that's seasonal. So you spoke to I think, stable deposits in the outlook. For the NII, does that mean that include maybe the IB composition normalizing and how sustainable is the ability to drive down the interest-bearing deposit costs? Thanks.

David W. Fox: Yeah. So there's a lot to unpack in that question. I would say generally speaking, fourth quarter growth in NIB particularly, I think had a lot of Definitely seasonal, but also keep in mind that the government was closed for forty-three days during the quarter. And I do think there was some cash stockpiling during that period because of the lack of economic data. So I think it may have been a little inflated because of that. And going forward, into Q1, you should expect the seasonality of that to fall. Too soon to say when and how.

Usually, it happens sort of after audit season when they when the funded admin companies decide that they've spent all their money for the that particular quarter. So it will normalize at some point during Q1. I would just say that Q4 is definitely not a jumping-off point. For NII going forward into Q1. It will Q1 will definitely be lower in terms of total NII. In terms of the deposit pricing, know, we continue to spend a lot of time through our liquidity solutions efforts to look at our deposit pricing. We still have a lot of tools in our tool shed to continue to lower that going forward.

We also had in the quarter, though, some expensive wholesale funding that rolled off, and we need to replace it. And so because of that more stability there, we're able to bring down our deposit cost accordingly.

Brennan Hawken: Okay. Thanks for that color, Dave.

David W. Fox: Sure.

Operator: And our next question is going to come from Ebrahim Poonawala from Bank of America.

Ebrahim Poonawala: Hey. Good morning.

Michael O’Grady: Morning.

Ebrahim Poonawala: I guess, maybe Paul, if you could just start on the fee growth side.

David W. Fox: And just talk to us, I appreciate you don't want to sort of pin down the guidance if we assume a relatively sort of a steady state macro backdrop, One, what does that imply for fee growth this year? And then you and just talk to us in terms of, like, one or two areas you think drives trends. You talked about GFO ending 25 on a strong note. Would love to get some color around sort of the two or three drivers of growth that you are seeing on the fee side. For 2026? Thank you.

David W. Fox: Yeah. So, you know, the way we look at '26 and we just finished our planning period, is if the market conditions as are you as the way you described, we would think that we would be around mid-single digits in revenue growth. And trust fee and revenue growth, maybe revenue growth a bit higher, but around mid-single digits. And that would also give you an implication in terms of where we wanna solve for our expense growth for the year as well. So that's sort of how we're thinking about it going into '26. You know, in terms of the fee growth, you know, as you know, in GFO, the business there can be very lumpy.

And when you win, you usually win very large amounts. And so the traction win rate in GFO really picked up in Q3. And because of the quarter lag, you saw a lot of it in Q4. We even had additional inflows in GFO of another $5 billion, and Q4, which you're going to see primarily in Q1. So that's driving a lot of the growth. The other thing I would say, and Mike can comment on this as well is the traction we're getting in the ultra-high-net-worth segment around from the front of or the family office solutions.

Which really we're finding our win rate and our traction and our backlog in that particular area of the $100 million plus that don't have a family office. Has really picked up considerably.

Michael O’Grady: Yeah. And I would just add beyond wealth management that in the asset servicing business, again, with our strategy focused on moving upmarket, just meaning some of the larger more complex asset owners, where we had the success in the wins, in 2025. You know, some of those are being onboarded now. So you'll see some of the strength in the fee growth, in '26, and that's both in The Americas, but also, UK and more broadly. And on the asset management front, you know, we've, as you've heard, continued to have strong flows in liquidity. And in many respects, that's been offset from a flow perspective by outflows on the index side.

To the extent that slows down, that drag goes away, and we still have the strength and liquidity, know, that'll add a boost on the asset management front.

Ebrahim Poonawala: Got it. And just maybe just sticking with asset management, you know, this leadership changes eighteen months ago. You we've seen the results in terms of the targets. When we think about on a go forward basis, the capital position that you have where the stock's trading, are there opportunities in asset management to bolster that business inorganically? Via tuck-in deals or something larger? Just give us a sense of how you're thinking about that business over the next year or two. Thank you. Sure.

Michael O’Grady: Yeah. So and as you heard in my opening comments there, the strategy is pretty focused, in asset management. And so, know, looking to continue to execute on that. From an organic perspective. To the extent that we can accelerate it, with inorganic opportunities, whether that's acquisitions or partnerships, we're certainly open and looking to do that. If you think about where those might be, on the capability side, you know, you've heard about the success we've had in alternatives, but it is an area that continues to grow. And so that's an area that we certainly look at ways to increase our exposure there. And then on the other side, opportunities to expand our distribution.

You know, the majority of, NTM product is distributed through the partners in the business through wealth management and through the asset servicing side and quite well. But anything we can do to expand to know, third-party intermediary, which we do, but it's right now a smaller portion than we'd like to see long term.

Operator: And our next question is going to come from Michael Mayo from Wells Fargo.

Michael Mayo: Hi. What is it about now that gives you the confidence to increase your pretax return targets? And three to five years, I guess, that would be what, somewhere between 2029 and 2031 if I'm reading that correctly.

Michael O’Grady: Yeah. And Mike, I would say it's a few things. And they're aligned with strategy and with what we're seeing. So the from the first perspective is we've talked about optimized growth. And we've talked about it now for a few years here. And the whole point on that was focusing on scalable growth focusing on profitable growth. And that has a couple dynamics. One is just the mix overall for the company. So the emphasis on growing the wealth management business faster and asset management and those two businesses have higher margins. So just the mix shift that we'd like to see as we grow those businesses.

And then even within asset servicing, focusing on, again, scalable opportunities, and where we've built out our capabilities. In those specialized areas or segments. Where we have the scale to not only compete effectively but do so in a profitable way. So we're seeing that work. So that's the first thing I'll say. They that gives us confidence as we go forward. The second is around productivity. You know, again, you heard me mention our productivity for 2025 was about 4% of our expense base. And this year, you know, we bumped that up. It's gonna be know, closer to 5%. And a lot of that is because of the impact we're seeing of AI.

It lends itself to a lot of our activities. Across the company, but I would say particularly in asset servicing and in the COO organization. So that makes the business more scalable is what we're seeing. Long way to go. But that's why, you know, I'll say that three to five-year time frame makes sense. To see that. And then the third is on returns. We have a strong capital position. We always wanna have a strong capital position. You know? So we feel good about the level that we're at. And as you saw, we purchased repurchased more than a 100% of our net income this year.

Dave mentioned we'll be, you know, somewhere in that neighborhood next year or excuse me, 2026. So that is a demonstration of just the level of capital we think we need in the business. But, also, I would say, the clarity and stability on the capital regime and regulations around that also gives us more confidence in that level. So you put that together and also just trying to raise the bar to make sure that we're doing everything we can to meet the financial expectations of our shareholders. And, there's still the lingering question about Wood Northern combined with another bank. I assume your board saw these revised targets, approved that.

Michael Mayo: So I guess that puts a fork in the idea of you doing anything other than this organic growth you know Yeah. To the into the medium term. And but if you can confirm that, but also as far as you pursuing acquisitions, I mean, seeing some of your peers do some smaller deal. Deals. Sure. So as we've said consistent, we have to earn our independence. And so, yes, that involves having strong financial performance like that. And so that is absolutely our strategy and our intention. And as always, you know, the board also takes its fiduciary duties very seriously and has to always consider, you know, what would be best, for our stakeholders and for our shareholders.

So that is absolutely the plan. And, yes, to your point, you know, we'll look at acquisitions. We do look at acquisitions. But we're primarily focused on organic growth and generating these types of results. If we see opportunities that we think can help in those areas that I mentioned, along the strategy, that's when we look to deploy capital. Or we think we can get an attractive return on it. Will help us further, meet those targets.

Operator: And our next question is going to come from Steven Chubak from Wolfe Research.

Steven Chubak: Hi, good morning, and thanks for taking my questions.

Michael O’Grady: Sure. Good morning.

Steven Chubak: So maybe to start just on the expense to trust fee ratio. When we think about the in margins that are contemplated in the medium-term guidance, given some of the enhanced focus on improved profitability at what expense to trust ratio are you underwriting new business today? And does the mid-single-digit revenue growth that's contemplated in the guide for earnings this coming year, assume any revenue attrition from shedding less profitable business? Just trying to gauge how the enhanced focus on profitability might impact some of that through the cycle revenue growth.

Michael O’Grady: So the answer to the first part of your question is, yes. When we price new business, we absolutely look at that expense to trust fee ratio. But that's at a, I'll call it, high level. Just meaning that it really depends on the nature of the business as to what the right expense to trust fee ratio is. So you can just imagine, you know, certain relationships, the fee portion of that relationship is going to be you know, higher or lower relative to other, other businesses, other relationships that you're looking to price. So that's one, you know, important factor.

Second is it gets broken down even further as to the types of expenses as a percentage of those fees. So it's very much you know, the expense of trust fee we use is the broader metric. It breaks down much further by business, by product, and by client type on that front. And I would just say that to the second part of your question, yes. We continually look at client profitability. That's something that we view is a part of good relationship management. It's something where, you know, we don't wanna have relationships that are not value generating for both partners, meaning ourselves and our clients.

And we look to, you know, address those relationships in a way that we can get improved profitability as opposed to just necessarily exiting relationships. But from time to time, if it's not aligned, that's when we have to take those types of actions. I wouldn't say there's anything you know, dramatic in there, but it is just something we do on a continual basis.

Steven Chubak: That's great. And for my follow-up, just on the NII and maybe the NIM outlook more specifically, NIM in the quarter reached a post GF high. You guys have been very focused on optimizing the balance sheet. Was hoping you could unpack as we think about the glide path towards a 33% margin, how much of that is a function of continued benefit from rate tailwinds versus volume? Just trying to gauge what's gonna how you're thinking about sustainable NII growth over the next couple of years, so beyond 2026?

David W. Fox: Yeah. So a couple of things. The NIM in the quarter, of course, was artificially boosted by about three points because of the FTE true-up that we did. So think more high one seventies than one eighty one. The second thing would be that as we go forward, we have a lot of levers we can pull both on the asset and the liability side. And we don't see a lot of compression in the NIM until we get to much lower interest rates. And so from our perspective, we think during the course at least of 26, would never wanna do an estimate of 27 at this point.

But in '26, we think we can keep the NIM pretty stable during the course of the year in the January. And that's how we're looking at it going forward. So obviously, deposit growth something that we're looking at. Quite carefully and in particular in the wealth management business. There is an effort going on to get our loan to deposit ratio higher within that business. And so from that perspective, we're trying to drive more deposit growth, but we're also looking at both sides, asset and liability side, to make sure we have offsetting measures.

And we really feel like we have a lot we can still do I would also tell you to keep in mind that a lot of deposit pricing actions that we took we took in the middle to the end of last year. And so we haven't lapped those yet. So as we go into the first and second quarters, it gives us more confidence around our NII guide, and our ability to continue to kinda grow that line going forward.

Operator: And our next question is going to come from Betsy Graseck from Morgan Stanley.

Betsy Graseck: Thank you. Just one follow-up on the deposit question here. I know you indicated there was a bit of a boost in the quarter with the government shutdown. And when I look at the balance sheet, it looks like most of that boost came from non-US offices and interest-bearing. I just anticipate that the q increase that we got there around $7 billion comes out over the course of the quarter. As you've been discussing, it's gonna take some time to flow out. Is that the level about that you see as being unusually high from the government shutdown.

David W. Fox: No. I mean, I think the increase in the noninterest bearing was around 3 I do think there was a lot of new business as well that we grow with new business, but I think there was also some cash hoarding as I mentioned previously, because of the lack of economic data. So I wouldn't take out the entire $7 billion. A lot of that was just normal growth that we would have in the quarter.

Betsy Graseck: Okay. Perfect. And then follow-up question here is on the buyback. You indicate, you know, over a 100% payout ratio. And I just wanted to understand, what's the governor on the buyback? Which capital ratios are you thinking about with regard to how high and how long you let that over a 100% ride? Thank you.

David W. Fox: Yeah. It's a good question. And, you know, the variables the number of variables in that decision are many. It's regulatory capital. It's earnings power. It's ROE, loan growth, dividends, m and a. You go through the entire menu of what you're looking at, and then share price obviously has a role. But at the end of the day, if we feel there's an opportunity to reinvest in the business, that's also compelling. But right now, we feel as if we'll have that ability going forward into 2026 sort of the same way we did in 2027. That's how we're looking at it.

Operator: And our next question is gonna come from Glenn Schorr from Evercore.

Glenn Schorr: Let's start with an easy one. FX trading was strong, better than peers. In the text, you talk about lower FX swap activity on your part. Could we just break down what's what's you driven versus client driven and just so we can get our expectations going forward? Thanks.

David W. Fox: Yeah. So, obviously, volatility and volumes will help us quite a bit in the quarter, but we also added quite a few new clients. And one of the things we don't talk about a lot as it relates to foreign exchange flows is the integrated trading solutions business or the outsourced business we have in both FX and brokerage. And we've seen a much greater adoption as clients start to realize that they can offload middle and back office functions on an agency basis to us. As a result of that, we get more flows because of it. So the growth in that ITS business has really been strong and continues to be strong.

So I would say it's a combination of volume, I'd also say it's also a lot to do with the traction we've gotten in our integrated solutions business and outsourcing going forward.

Michael O’Grady: And just to add to that, Glenn, that level of activity that Dave's talking about, is more consistent than what comes through the FX line there because of that swap activity. And so this quarter, just the nature of the swap activity, I resulted in more of that showing up in the FX line and less in NII. Even though know, the actual level of activity was not that much greater than the previous quarters.

Glenn Schorr: Okay. I don't wanna put words in your mouth, but does that mean this quarter is as good as we got as a jumping-off point?

David W. Fox: But, know, obviously, dependent on the markets. Yeah. I mean, volatility is gonna play a huge role there. I do think it's gonna steadily tick up because of the additional clients we're bringing in. So I would just say that in that business generally, there is more traction than just waiting around for clients to make a decision around their hedging. There's proactive sourcing of new business going on as well.

Operator: And our next question is gonna come from Ken Usdin from Autonomous Research.

Ken Usdin: Hi. Good morning, guys. This is Bob Chetzalin in for Ken. Sure. How are you guys talking about growing the wealth and asset businesses, which helps the PTM. How do you guys just think about the split between the two businesses? Do you still envision high twenties for the asset servicing while wealth grows at current? PTM margins?

Michael O’Grady: Yeah. So I would say that with the asset servicing business, it had a good quarter from a margin perspective, but there's still more work that needs to be done in order to get it consistently at the level of margins that we expect for that business in the high 20s. And with the wealth management business, it already has very attractive margins. We're looking to grow that business faster. And, you know, to the extent that came at some margin dilution, if it if you will, that would be okay if we were getting the growth that's creating more value, on that side.

So it's you know, in the right range, but not something where we operate that business in order to just maintain high margins.

Bob Chetzalin: Got it. And just in terms of just organic growth trends, within each business, what was the organic growth rate for this quarter? And how do you envision that to pick up over the next few years? Any color on that would be great.

Michael O’Grady: Sure. So within the wealth management business, the organic growth rate was somewhere in the for the year which is also consistent with the quarter, kind of the 1% to 2% range. As Dave talked about earlier, there are different parts of the business that are growing faster or slower within that. So a GFO, for example, is at a higher organic growth rate. The business the ultra-high-net-worth, so think about families with a net worth above $10 million. Growing faster. And then also, the advisory, component of what we do. Has a higher organic growth rate right now, whereas the product portion, of the fee has been flat.

And so as we go forward, we expect that combination, to increase. And that's why the strategies that I talked about are focused on that. Asset servicing, it had strong organic growth rate in the fourth quarter. You know, closer to kind of 2%, 3%. And as we've talked about before, very focused on making sure that's scalable profitable growth for us. So it's at an attractive level for us, at this point.

Operator: And our next question is going to come from David Smith from Truist Securities.

David Smith: Good morning. I was wondering if you'd help us frame out how the degree of operating leverage might move depending on the revenue backdrop I think this past year, for example, you did about 7% revenue growth and got closer to 200 points of operating leverage. You know, if the revenue environment ends up being similar next year, you know, is that 200 basis points, like, plus or minus a decent way to think about how you might, you know, keep the expense growth moving.

And on the flip side, you know, how you know, painful would the revenue environment have to be for you to feel like you would be better served going below a point of operating leverage in order to keep all the all the investments that you still wanna make for the longer-term health of the business?

David W. Fox: Yeah. I think the way I would have you guys this year focus on the expense line in particular and then the operating leverage that comes out of that is the fact that our planning process this year is a little bit different than it was last year. In that, we start with productivity. We don't start with, I got this much last year in expenses, and I'm gonna increase it by x or y. We start with productivity. And then we look at that number relative to the investments we wanna make during the course of the year. And that implies an expense growth rate.

And you kinda go back and forth that until you sort of land where you think you should land. And so from our perspective, keeping that 1% is critical. In any environment. And the idea is from my perspective, not to be attached to a particular expense growth number but to know that we have the discipline built in the muscle memory developed within the company to flex up or flex down if we need to. We don't wanna starve our businesses of growth opportunities. And right now, we're seeing a lot of really interesting growth opportunities organically within the company.

And so to the extent that the environment lets us do that, we wanna maintain the one point of operating leverage, but at the same time, be able to invest in those businesses. So we don't sell for one, two, three, four. We sell for greater than one. Right? And so and then we look at every quarter in terms of the relative investments we wanna make, and we balance that against know, what we're seeing in the following quarter as well.

David Smith: Okay. I mean, just in your base case, though, if you're doing about five points of efficiency, and net expenses are growing something like 4%, you know, of those 9% of, like, gross expense growth approximately, could you break it down for us how much of that would be volume and revenue related versus new investments to grow the bank?

David W. Fox: Well and obviously, a large part of our expense base is compensation. Right? And then it's gonna be our technology spending. If you look at equipment and software as an example of that, you know, depreciation is two-thirds of that. So when you think a little bit about the additional investment we're gonna be making in the course of the year, a lot of that is gonna be growth investment. Right, from the business perspective. So that's really what I'm talking about is the growth investment. So if we're able to free anything up, during the course of the year, it's going to go towards the business growth. Not towards the, you know, the operate the bank growth, for example.

We feel like we've got a very good handle on our tech expenses, on our modernization expenses at this point. So that additional dollar flow would go into those growth levers.

Operator: And our next question is going to come from Gerard Cassidy from RBC Capital Markets.

Gerard Cassidy: Thank you. Hi, Mike. Hi, Dave.

Michael O’Grady: Good morning.

David W. Fox: At the risk of being called a commotion again like I was on one of your peer calls earlier in the week. Can you guys the setup for yourselves, your peers, the banking industry is very positive. Going into 2026. And you know, we always are looking at, you know, both the positives and risks. Can you share with us, aside from the geopolitical environment that we're all dealing with, what when you look around corners, what are you guys watching for? Is that know, you gotta make sure we don't get surprised by as we as 2026 unfolds.

Michael O’Grady: Sure. So as you know, Gerard, that can be either incredibly complex, or relatively simple. And I would say we look around all the corners as best we can. We worry about everything. But if you boil your question down to, okay, what can have a very negative impact on the environment, which to your point right now is very positive, certainly, on one front, if interest rates change dramatically, that is more difficult for us and for other financial institutions to adjust. You know, we've seen that in the past. When interest rates go up 500 basis points in a year, that is a challenge to the financial models of financial institutions. So that can be up.

Certainly, one direction, it creates big issues. And also down. When you think about the impact on zero rates, when you have waivers on money market funds, things like that. That's where, like, big impact second, obviously, is the market. You know, much of what we do is priced on AUM levels, AUC levels, AUA levels that are based on the market. And a lot of our growth that we've had this year is based on those strong market levels. So anything that obviously causes the markets to go down, almost like regardless of what it is, is concerning, and we'll have a big financial impact to us.

Then the last thing I would just say is you have challenging operational environments. Just given the nature of our business. The pandemic is certainly an example of that. Where it's extreme and how you have to be able to operate the business to continue to provide the services to your clients. And once again, hard to predict those. We try to do a lot. To prepare for them, to anticipate them, and you've seen in the last few years, invest to be able to deal with those types of environments as well. So trying to do everything we can. Can't predict it, but, you know, hope for the best.

Gerard Cassidy: No. Very helpful. I appreciate the insights, Mike. Thank you.

Michael O’Grady: Sure.

Operator: And there are no further questions in the queue at this time. I'd like to turn the conference back to Jennifer Childe for any additional or closing remarks.

Jennifer Childe: Thanks for joining us, and we look forward to speaking with you again soon.

Operator: And this concludes today's call. We appreciate your participation. You may now disconnect.