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DATE

Wednesday, July 22, 2026 at 9:00 a.m. ET

CALL PARTICIPANTS

• Chairman and Chief Executive Officer - Mike O'Grady
• Chief Financial Officer - Dave Fox
• Controller - John Landers
• Head of Investor Relations - Stephen Carroll
• Investor Relations - Trace Stedman

TAKEAWAYS

• Total Revenue (FTE) -- $2.7 billion, representing a 35% increase reported or a 13% increase excluding notable items, driven by robust trust fee growth and higher net interest income.
• Diluted Earnings Per Share -- $4.23 for **Northern Trust Corporation** (NTRS -3.52%), an increase from $2.13 in the prior-year quarter, reflecting the significant pre-tax gain from the Visa Class B common stock exchange offer.
• Net Interest Income (FTE) -- $683.1 million, growing 11% year over year due to higher average deposits and lower funding costs.
• Assets Under Custody/Administration -- $20.0 trillion, up 11% year over year, primarily reflecting favorable market conditions and net new client inflows.
• Assets Under Management -- $2.0 trillion, increasing 16% year over year, driven by favorable markets and positive asset gathering across priority areas.
• Visa Exchange Gain -- $525.4 million, a pre-tax gain recognized in other operating income following participation in the second Visa Class B common stock exchange offer.
• Full-Year NII Guidance -- 9% to 10% growth year over year, an upward revision from previous guidance of mid to high single digits, assuming stable interest rates.
• Full-Year Revenue Guidance -- 9% to 10% growth year over year, increased from a mid-single-digit estimate due to strong underlying momentum across the franchise.
• Operating Leverage Guidance -- 400 basis points for the full year, excluding notable items, assuming a relatively stable market environment.
• Quarterly Dividend -- $0.88 per common share, following a 10% increase approved by the board, reflecting confidence in the firm's earnings power and capital position.
• Shareholder Returns -- $499.4 million returned in the quarter through $148.8 million in common stock dividends and $350.6 million in share repurchases.
• Asset Servicing Fees -- $757.4 million, up 9% year over year, supported by custody and fund administration growth and elevated securities lending income.
• Wealth Management Fees -- $592.1 million, an increase of 10% year over year, reflecting success in the ultra-high-net-worth segment and favorable market conditions.
• Securities Lending Income -- $29.4 million, increasing 46% year over year, reflecting higher trading volumes and spreads in Asia-Pacific and IPO-related securities.
• Foreign Exchange Trading Income -- $97.1 million, a 92% year-over-year increase, driven by higher client activity and market volatility, particularly in Asia-Pacific markets.
• Securities Repositioning Loss -- $73.9 million pre-tax loss, resulting from the strategic sale of available-for-sale debt securities to improve the portfolio's earnings profile.
• Software Disposition Charge -- $61.5 million pre-tax charge, following a periodic review of capital planning that led to the decision not to complete a subset of an existing fund administration project.
• Severance Charge -- $51.0 million pre-tax expense, associated with a reduction in force to manage the company's cost structure.
• Net Interest Margin (FTE) -- 1.81%, up 12 basis points year over year, primarily driven by lower funding costs and an improved deposit mix.
• Common Equity Tier 1 Ratio -- 12.2%, up 20 basis points from the prior quarter, largely due to the impact of the Visa transaction.
• Alternatives Assets Under Administration -- Over $1 trillion, including hedge funds and private capital, highlighting demand for institutional-grade servicing.
• Asset Management Liquidity Flows -- 14 consecutive quarters of positive organic liquidity flows, resulting in record quarterly flows for the period.
• Provision for Credit Losses -- Negative $5.3 million, resulting from a reserve release due to improved credit quality in the commercial and institutional portfolios.
• Operating Leverage -- Over 700 basis points in the second quarter, excluding notable items, driven by strong revenue growth and disciplined expense management.
• Global Family Office Revenue -- 9% growth in the first half of 2026, supported by continued momentum in international markets and the ultra-high-net-worth segment.

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RISKS

• Fox stated, "Those deposits are not expected to last into the third quarter, which tends to be our weakest quarter in terms of overall average deposits," noting that certain large institutional deposits from the first half of the year were idiosyncratic and temporary.

SUMMARY

Management reported that Northern Trust Corporation's results for the second quarter were characterized by strong execution of the One Northern Trust strategy and a constructive market environment. The company achieved its eighth consecutive quarter of positive organic fee growth and generated significant positive operating leverage, excluding notable items. Strategic activities during the period included a substantial monetization of Visa Class B shares and a repositioning of the investment securities portfolio to improve future earnings. The company also adjusted its cost structure through restructuring charges and investments in talent, while raising full-year guidance for revenue and net interest income based on first-half performance.

• Mike O'Grady stated that Northern Trust views AI as "augmented intelligence, a force multiplier that can help us deliver on those commitments with greater speed, insight, and consistency while keeping our people and clients at the center."
• The company launched Invested as One, an employee ownership initiative providing shares to eligible employees to reinforce a culture of shared accountability for long-term performance.
• Management reported that the number of new product launches from existing hedge fund clients increased approximately 50% quarter over quarter, reflecting demand for institutional-grade servicing.
• Mike O'Grady noted that capital raised for alternative investment strategies in the first half of 2026 is "approaching 80% of last year's full-year total."
• The Wealth Management segment implemented a lead lab that helped increase marketing qualified leads by over 50% compared to the prior year.
• Management identified producer roles as a primary driver of Wealth Management growth and reported solid progress in adding revenue-generating professionals to the trajectory of the second half of the year.
• The company reported that revenues from outsourced capital markets solutions, such as Integrated Trading Solutions, grew almost 50% year over year.

INDUSTRY GLOSSARY

• AUA: Assets Under Administration; assets for which a financial institution provides administrative services but does not have investment discretion.
• AUC/A: Assets Under Custody/Administration; a measure of the total assets for which a bank provides custody or administrative services.
• CCAR: Comprehensive Capital Analysis and Review; a U.S. regulatory framework to assess and regulate the capital adequacy of large financial institutions.
• FTE: Fully Taxable Equivalent; a method of adjusting tax-exempt interest income to a pre-tax basis to compare it with taxable income.
• GFO: Global Family Office; a specialized segment of Northern Trust serving the needs of the world's wealthiest families and individuals.
• NIM: Net Interest Margin; the difference between interest income generated and the amount of interest paid out to lenders, relative to the amount of interest-earning assets.
• RWA: Risk-Weighted Assets; the total assets held by a bank, weighted by credit risk to determine the minimum amount of capital required.

Full Conference Call Transcript

Operator: Good day, welcome to the Northern Trust Corporation second quarter 2026 earnings conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Stephen Carroll, head of investor relations. Please go ahead.

Stephen Carroll: Thank you, operator. Good morning, everyone, welcome to Northern Trust Corporation's second quarter 2026 earnings conference call. Joining me on our call this morning is Mike O'Grady, our chairman and CEO, Dave Fox, our chief financial officer, John Landers, our controller, and Trace Stedman from our investor relations team. Our second quarter earnings press release and financial trends report are both available on our website at northerntrust.com. Also on our website, you will find our quarterly earnings review presentation, which we will use to guide today's conference call. This July 22nd call is being webcast live on northerntrust.com. The only authorized rebroadcast of this call is the replay that will be made available on our website through August 22nd.

Northern Trust disclaims any continuing accuracy of the information provided in this call after today.

Stephen Carroll: Please refer to our safe harbor statement regarding forward-looking statements in the back of the accompanying presentation, which will apply to our commentary on this call. During today's question and answer session, please limit your initial query to one question and one related follow-up. This will allow us to move through the queue and enable as many people as possible the opportunity to ask questions as time permits. Thank you again for joining us today. Let me turn the call over to Mike O'Grady.

Mike O'Grady: Thank you, Steve, good morning, everyone. Let me join in welcoming you to our second quarter 2026 earnings call. Our results this quarter reflect strong execution of our One Northern Trust strategy and a very constructive market environment. We delivered an eighth consecutive quarter of positive organic fee growth and generated significant positive operating leverage, underscoring both the strength of our diversified business model and the discipline with which we are managing the firm. As we've discussed, our strategy is centered on driving sustainable organic growth, improving productivity, and strengthening resiliency. Across each of these priorities, we continue to see clear proof points and are demonstrating our ability to perform consistently across a range of market environments.

In the quarter, we participated in the second tranche of the Visa Class B common stock exchange offer, positioning us to recognize a pre-tax gain of nearly $525 million.

Mike O'Grady: Reported results also include approximately $220 million in restructuring charges and other notable items, which Dave will discuss in more detail. Excluding notable items, earnings per share increased 40% year-over-year. Total revenue increased 13%, driven by 10% growth in trust fees, 11% growth in net interest income, and 69% growth in capital markets revenues, including foreign exchange trading and securities commissions and trading income. Non-interest expense was up 5% as we continue to balance disciplined cost management with ongoing investments in the business. Importantly, strong revenue growth combined with expense discipline drove positive operating leverage of over 700 basis points, excluding notable items. We returned almost $500 million to shareholders during the quarter.

Year-to-date, we've returned over $1 billion to shareholders. Excluding notable items, this represents a payout ratio of 95% through the first half of the year.

Mike O'Grady: Overall, these results demonstrate solid progress on our financial objectives and reinforce the strength and durability of our business model. Turning to wealth management, the business delivered another solid quarter, with trust fees increasing 10% year-over-year, reflecting continued client engagement and strong execution across the franchise. Assets under management were up 7% sequentially and 14% year-over-year. We also continue to make progress against our strategic growth priorities. Our differentiated capabilities continue to support growth in global family office and the ultra-high net worth segment. GFO revenue increased 9% in the first half of 2026, and continued momentum internationally. Revenue from wealthy individuals and families with more than $100 million in assets outpaced the broader portfolio.

Family Office Solutions is an important part of this success as we extend our proven GFO playbook to clients that can benefit from an outsourced family office model.

Mike O'Grady: Talent remains one of the most important drivers of wealth management growth. We're making solid progress adding revenue-generating professionals, particularly critical producer roles, where pending hires and active recruiting give us confidence in the trajectory of the second half of the year. This is a competitive market for the best talent, but we believe Northern Trust offers a differentiated platform, an excellent brand, deep fiduciary expertise, strong banking capabilities, and a compelling position in the upper tiers of the market. We also continue to expand our alternatives offering and deepen adoption across our client base. During the quarter, we added funds to our platform across secondaries, buyout, venture, and growth strategies, while also expanding our custom fund of one offering.

Capital raised in the first half of the year or currently in process is approaching 80% of last year's full-year total.

Mike O'Grady: Finally, we're generating more leads through our digital channel through the introduction of our lead lab, which is helping us better qualify and prioritize opportunities. In the first half of the year, marketing qualified leads were up over 50% from the same period last year. This is driving increased activity that can ultimately be translated into durable organic growth. Overall, wealth management continues to deliver on its differentiated value proposition, and we're making solid progress against the strategic priorities that should support stronger growth over time. Turning to asset servicing, the business delivered another strong quarter, with revenues up 16% year-over-year and a pre-tax margin of over 30%, excluding notable items.

The results benefited from a constructive market and rate environment, but also reflect the progress we're making against our strategy. Alternatives remain an important growth area.

Mike O'Grady: Assets under administration across hedge funds, private capital, and semi-liquid structures now exceed $1 trillion. We added two semi-liquid mandates during the quarter. The number of new product launches from existing hedge fund clients increased approximately 50% quarter-over-quarter, highlighting continued demand for institutional-grade servicing as clients launch and scale more complex vehicles. Banking and capital markets continued to perform well. Favorable market conditions supported higher client activity. We're also expanding the underlying business through new client wins and continued adoption of our solutions. For example, revenues from our outsourced capital markets solutions, such as Complete FX and Integrated Trading Solutions, were up almost 50% year-over-year. Momentum in these scalable businesses deepen client relationships beyond core custody and fund administration.

Finally, we continue to progress our digital assets capabilities as institutional clients look for trusted providers to support the evolution of tokenized markets.

Mike O'Grady: Our approach remains targeted and disciplined, focused on areas where Northern Trust can bring institutional standards of control, servicing, and risk management to both traditional and digital markets. Overall, asset servicing's performance reflects the continued execution of a focused strategy, deepening relationships with sophisticated clients, scaling high-value capabilities, and investing in the areas where clients' needs are evolving. Turning to asset management, NTAM continued to build momentum in the second quarter, with diversified asset gathering across several priority areas. Starting with ETFs, we had another strong quarter, marking our fifth consecutive quarter of positive flows.

Quarterly asset flows were particularly strong in U.S. quality large cap, U.S. equity factor tilt, and tax-efficient fixed income strategies, reflecting the investments we've made in the ETF platform and the benefits of a One Northern Trust approach, particularly our collaboration across asset management and wealth management to address specific client needs.

Mike O'Grady: Liquidity was also a standout area. We had a record quarter for liquidity flows, extending our streak to 14 consecutive quarters of positive organic liquidity flows while continuing to gain market share across both the U.S. and EMEA. As a top 10 money market fund manager in the U.S., we continue to benefit from the breadth of our global liquidity platform and clients' confidence in our risk discipline and service model. Tax Alpha remains another important growth area. We continue to build on our position as a top three direct indexer and are growing our long/short tax alpha strategies, expanding the range of solutions we can offer larger taxable clients seeking more sophisticated after-tax outcomes.

Finally, our alternatives platform continues to progress with ongoing fundraising momentum and continued demand for custom alternatives solutions. Over the past several quarters, the conversation around AI has moved from experimentation to execution.

Mike O'Grady: Across the industry, firms are positioning AI around many of the same benefits: productivity, scale, and efficiency. Those are important. They will not be enough on their own. At the same time, clients are asking a more fundamental question: how will AI change the relationship they have with the institutions they trust? They do not want judgment, accountability, or personal service handed over to a machine. They want AI to sharpen and elevate the people, advice, and standards they already rely on. That is how we're organizing our approach at Northern Trust.

Across our businesses, we're aiming AI not simply at baseline improvements, but at the qualities that have always made Northern Trust uniquely valuable to our clients, our service, expertise, and integrity. These principles have defined Northern Trust for more than 135 years and remain core to our One Northern Trust strategy.

Mike O'Grady: We view AI as augmented intelligence, a force multiplier that can help us deliver on those commitments with greater speed, insight, and consistency while keeping our people and clients at the center. Service is becoming hyper-personalized, more predictive, and adaptive, creating experiences built around each client's unique needs at scale. One clear proof point is the use of client action plan agents that help relationship managers quickly synthesize data to drive more meaningful client engagement. Expertise is being amplified, delivering knowledge, insights, and advice with greater speed, precision, and impact. In our asset management business, for example, we're using AI to enhance our investment research and idea generation, uncovering signals that may be overlooked by traditional industry approaches.

These capabilities are embedded most directly in our adaptive equity quant strategies.

Mike O'Grady: Integrity is extending beyond individual judgment and being embedded into our data practices, models, and controls to strengthen the rigor and resiliency of how we operate. A tangible example of this is horizon scanning agents that enhance our vulnerability detection and strengthen cybersecurity capabilities. This technological rigor is built on a foundation of human oversight and accountability. We're especially pleased with how quickly our partners have embraced AI in their daily work. That momentum is helping us turn AI from a set of tools into a true force multiplier, strengthening our service, expertise, and integrity in ways that create lasting value for our stakeholders.

More broadly, we also launched Invested as One, a new employee ownership initiative that provides eligible employees with Northern Trust shares. Together with our employee stock purchase plan, it strengthens employee ownership and reinforces our culture of shared accountability for performance and long-term value creation.

Mike O'Grady: Looking ahead, the macro environment remains dynamic. We remain confident in our ability to deliver consistent performance as our strategy is designed to perform across a range of conditions. We remain focused on execution, driving organic growth, maintaining disciplined expense management, and continuing to invest in the capabilities that strengthen our competitive position. With that, let me turn it over to Dave to take you through the financial results in more detail.

Dave Fox: Thanks, Mike. Let me join Steve and Mike in welcoming you to our second quarter 2026 earnings call. Let's discuss the financial results of the quarter. This morning, we reported second quarter net income of $792.2 million, earnings per share of $4.23, and return on average common equity of 25.9%. Pre-tax income was $1.1 billion, and our pre-tax margin was 39.6%. Our results reflect strong underlying momentum across the franchise, including continued organic fee growth, disciplined expense management, and meaningful operating leverage. Our reported results included a $525 million pre-tax gain in other operating income related to our participation in the second Visa Inc. exchange offer.

That gain was partially offset by a $74 million pre-tax loss in other non-interest income associated with the strategic repositioning of the available-for-sale securities portfolio.

Dave Fox: The repositioning improved the portfolio's earnings profile while maintaining a relatively short duration, a neutral liquidity position, and the flexibility to adapt as the rate environment evolves. Additionally, expense in the quarter included a $62 million pre-tax charge related to software dispositions, a $51 million pre-tax severance charge associated with a reduction in force, and a $33 million pre-tax compensation expense related to a one-time equity grant. In aggregate, these notable items had an approximately $306 million favorable pre-tax income impact and an approximately $232 million favorable impact to net income in the quarter.

Similar to our approach to the first Visa Inc. monetization, the exchange offer provided an opportunity to realize value from a long-held asset, while the offsetting actions we took this quarter support future positioning of the business. Excluding notable items in all periods, total revenue was up 2% sequentially and up 13% year-over-year.

Dave Fox: Total expenses were down 1% sequentially and up 5% year-over-year, and we delivered over 700 basis points of operating leverage. Currency movements were immaterial to revenue and expense growth in both the sequential and prior-year comparisons. Trust, investment, and other servicing fees totaled $1.3 billion, up 1% sequentially and up 10% compared to the prior year as favorable markets benefited fees, and we delivered our eighth consecutive quarter of positive organic fee growth. Excluding notable items, other non-interest income was up 42% year-over-year, with elevated client activity and higher-value trading flows, particularly in Asia Pacific, driving strong FX trading and securities commission and trading income.

Our assets under custody and administration were $20 trillion, up 8% sequentially and up 11% year-over-year. Our assets under management were $2 trillion, up 10% sequentially and up 16% year-over-year.

Dave Fox: Overall, our credit quality remains very strong. In the quarter, we recorded a $5 million reserve release reflecting improved portfolio quality, primarily in the commercial and institutional book, and an improving macroeconomic outlook. Our effective tax rate was 25.6%, up 60 basis points from the prior quarter and up 20 basis points from the prior year. We continue to expect the full-year effective tax rate to be approximately 26%-26.5%. Turning to our wealth management business on page eight. Wealth management delivered another solid quarter, where success with ultra-high net worth clients and an expanding capability set drove double-digit fee growth. Trust, investment, and other servicing fees for wealth management clients were $592 million, up 10% from the prior-year quarter.

Assets under management for our wealth management clients were $534 billion at quarter end, up 7% sequentially and 14% year-over-year.

Dave Fox: Average deposits within wealth management were $26.7 billion, up 1% sequentially, while average loans were $35.8 billion, also up 1%. Pre-tax income was $334 million, generating a pre-tax margin of 37%. As discussed in the second quarter of 2025, we reorganized wealth management to better drive growth and client coverage. Our financial disclosures continue to reflect the legacy structure. As of the second quarter of 2026, we have updated our disclosures to align with how we operate the business today, consolidating the regions into private wealth. This creates consistency with how we manage the business and the rest of our disclosures for wealth management, including assets under management. Moving to our asset servicing results on page nine.

Asset servicing also performed well in the quarter, driven by adding scalable new business, executing our enterprise liquidity strategy, and continued strength in capital markets-related activity.

Dave Fox: Assets under custody and administration for asset servicing clients were $18.6 trillion at quarter end, up 10% from the prior-year quarter. Asset servicing fees totaled $757 million, up 9% from a year ago. Custody and fund administration fees were $512 million, up 9% year-over-year. Assets under management for asset servicing clients were $1.4 trillion, up 17% year-over-year. Investment management fees were $172 million, up 10% from the prior-year quarter, driven largely by favorable markets and growth in liquidity solutions, partially offset by price compression in select index mandates. Securities lending income was $29 million, up 46% year-over-year, driven by elevated demand for U.S. equities, robust borrowing of Asia Pacific, and IPO-related securities, among other factors.

Average deposits were $101 billion, down 1% sequentially, while average loans were $5.8 billion, up 3% sequentially.

Dave Fox: Pre-tax income was $323 million, generating a pre-tax margin of 24%. Excluding notables, asset servicing's 8-point margin expansion year-over-year reflects the disciplined execution across new business economics, deepening relationships with existing clients, and a favorable macro environment backdrop. Turning to our balance sheet and net interest income trends on page 10. Our average earning assets were $151 billion, down 2% sequentially, as lower deposits drove a decrease in money market assets. The fixed percentage of the securities portfolio was 52%, consistent with the prior quarter, including the impact of swaps. The duration of the securities portfolio was 1.4 years, and the duration of our total balance sheet remained under one year.

Average deposits were $128 billion, down 1% sequentially, reflecting slight normalization following elevated short-term institutional deposits in the first quarter.

Dave Fox: Within the deposit base, interest-bearing deposits decreased 2% sequentially, while non-interest-bearing deposits increased 4%, representing 15% of the overall mix. Net interest income on an FTE basis was $683 million, up 3% sequentially and up 11% from a year ago. Sequentially, NII was favorably impacted by an improved deposit mix, higher yields from securities repositioning mentioned earlier, and one additional day in the quarter. Our net interest margin on an FTE basis was 1.81%, up 6 basis points sequentially, reflecting a favorable deposit mix in the second quarter. The sequential comparison also benefited from the reversal of NIM compression in the first quarter due to the impact of elevated short-term institutional deposits. Turning to our expenses on page 11.

Non-interest expense was $1.6 billion, up 9% sequentially and up 16% year-over-year. Excluding notables, non-interest expense was down 1% sequentially and up 5% year-over-year.

Dave Fox: The year-over-year increase was driven primarily by compensation and benefits, reflecting higher incentive compensation tied to improved financial performance, while outside services spend was muted. Excluding notables, our expense-to-trust fee ratio improved to less than 111%, compared to 115% in the prior-year quarter. Turning to capital on page 12. Our capital position remained strong in the second quarter, and we continue to operate at levels well above our required regulatory minimums. Our common equity Tier 1 ratio under the standardized approach was 12.2%, up 20 basis points from the prior quarter. The Visa transaction, partially offset by notable expense items and higher RWA, was the primary driver of the improvement.

Our Tier 1 leverage ratio was 7.6%, up 30 basis points from the prior quarter. At quarter end, our unrealized after-tax loss on available-for-sale securities was $373 million.

Dave Fox: We returned $499 million to common shareholders in the quarter through common stock dividends declared of $148.8 million and common stock repurchases of $350.6 million. This represented a 63% payout ratio on a reported basis. Excluding notable items, the payout ratio was approximately 90%, consistent with our ongoing commitment to disciplined capital return while preserving flexibility to support clients, invest in growth, and manage through a range of environments. Finally, based on the 2026 CCAR results, our stressed capital buffer remains at the 2.5% minimum requirement. The board also approved an $0.08 or 10% increase to our quarterly common dividend, reflecting our strong capital position, the durability of our business model, and our continued confidence in the firm's earnings power.

Turning to our guidance.

Dave Fox: For the full year, assuming a relatively stable market environment and interest rate backdrop, we now expect net interest income to be up 9%-10% year-over-year. This is an increase from our previous guide up mid to high single digits. We now expect total revenue to grow by 9%-10% year-over-year, which is an increase from our previous guide of up mid single digits. Excluding notable items, we now expect to deliver approximately 400 basis points of operating leverage for the full year. With that, operator, please open the line for questions.

Question-and-Answer Session

Operator: Thank you. If you would like to ask a question, please signal by pressing star one on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow the signal to reach our equipment. In the interest of time, we ask that you please limit yourself to one question and one follow-up. Again, press star one to ask a question. We'll pause for just a moment to assemble the queue. We will take our first question from Glenn Schorr with Evercore.

Glenn Schorr: Hi. Thanks very much.

Dave Fox: Sure.

Glenn Schorr: Maybe we'll start right where you left off. The 400 basis points for positive operating leverage is great. You were a lot better than that in the first half. Maybe you could help with the right perspective on the jumping-off point for expenses because there were some moving parts this quarter, and what right things should we be considering on the top-line side that bring down the operating leverage? There's seasonality, FX trading was really high. Just maybe square that circle for us in terms of the right perspective on the second-half operating leverage. Thanks.

Dave Fox: Sure. You kind of gave part of my answer for me there. It's more revenue-driven than expense-driven. At the end of the day, from our perspective, the year-over-year comparisons get a bit tougher in the second half of the year. The S&P really had a pretty good run from Q2 to Q4 in 2025, was up 20%. As we get into Q3 and Q4, it's going to be a tougher year-over-year comparison. It still implies solid growth and positive operating leverage in our business going forward. It's just we do feel, as you mentioned, there'll be some normalization of foreign exchange, capital markets, securities lending from particularly elevated flows that we had in the quarter.

We also had some very large deposits that came in Q1 and actually also came in Q2, which was unexpected.

Dave Fox: Those deposits are not expected to last into the third quarter, which tends to be our weakest quarter in terms of overall average deposits. From that perspective, those are sort of the issues we looked at. We're assuming a flat market as well. We're not assuming any additional uplift from the market, and we're assuming stable interest rates and all of that. If you do all the math, it's roughly a 5% to 7% increase in total revenues during that period. We feel like the operating leverage number is manageable at around 400 when you do all the math.

Glenn Schorr: I appreciate that. That's very good. One tiny little follow-up. Within the one-time items, there is the software write-down. I appreciate taking advantage of the Visa gain. Very cool with it. I'm just curious what software you took a look at, you wrote down how that decision was made, and then what you replace with it. Are you building something on your own? I'm just curious for obvious reasons. Thanks.

Dave Fox: Well, first of all, I would say it's not necessarily timed with anything in particular. It was a periodic review that we do as part of our capital planning and investment planning during the course of the year. As you probably know, the pace of change that's going on today with AI and project lengths have shortened significantly. So some of our longer-term projects, we have to take a look at. We just don't keep funding them ad infinitum. This in particular was a subset of an existing fund administration project that we had going on.

When we looked at our operating model and infrastructure, we just decided that it didn't hit the appropriate ROI compared to other opportunities that we had to invest in.

Dave Fox: We just took advantage of that opportunity to sort of declassify or take a certain amount of work in progress and say, "We're not going to complete that portion of it." It really was not a wholesale part of it. It was just a certain portion of that particular fund administration infrastructure that we decided to change. We're not expecting to do that again anytime soon.

Glenn Schorr: I appreciate. You are not exactly vibe coding a whole new infrastructure. I appreciate that. Thanks.

Dave Fox: Right.

Operator: We will take our next question from Ken Usdin with Autonomous Research.

Ken Usdin: Hi, good morning.

Dave Fox: Morning.

Ken Usdin: Just wanted to follow up on the deposit point, Dave, and the NII. I mean, it makes sense that the implied new guide would be for a little bit lower run rate than the second quarter. These deposits are proving stickier. I guess, can you just walk through what you see happening in the environment with regards to deposit generation and that related activity that you cited? Why wouldn't these deposits outside of seasonality prove to be more sticky in terms of a run rate? Thanks.

Dave Fox: Well, listen, I mean, average deposits are higher, which is why we have growth in NII for the year. I do think we have some very large institutional clients that, in the first and second quarters, decided to put substantial amounts on our balance sheet. We don't view those as being permanent. As I guided you last quarter, we were about $4 billion above where we normally would have been. I guided you down, obviously we had a second quarter event, related to a different client, a different situation. In that case, it was at good, better economics as well. That also arrived during the second quarter, and those are idiosyncratic. You can't really predict those.

We try to really distinguish between what we consider to be operational deposits, sticky deposits, and ones that are more one-time.

Dave Fox: In this particular case, in Q2, it had to do with a particular fund that was liquidating. They had to, as part of that transition, put that cash on our balance sheet for a certain period of time.

Ken Usdin: Okay. Second question, just on the wealth management business. Obviously, we knew about the lag from the first quarter, slight market decline, so wealth management fees were down a little bit. That obviously should pick up with the baked-in lag we have for the third quarter. Just wanted to just ask, outside of the markets, was there anything else that pulled down wealth management fees a little bit sequentially in terms of either activity or flows, or should we just expect a better trajectory from here? Thanks.

Dave Fox: Sure. I just would like to say on the top end that the fundamental business activity is strong, pipeline's strong, flows are good. We have these quarterly aberrations, what I would call them, and having run the family office business for a long time, I usually had to explain quarter over quarter what was going on because a lot of the change, sequential distortion comes from GFO. When you think a little bit about 70% of their fees being on a lag basis and the fact that the S&P went up 1,000 points during the quarter, you do get a disconnect between AUM growth, which was up, and fee growth, which was moderately down.

The other thing I would say, particularly as it relates to GFO, is the billing in GFO is different than core wealth. Core wealth is pretty straightforward.

Dave Fox: You've got advisory fees and product fees. GFO is a potpourri of different types of services that we provide to clients. The fee structures we have are much more customized and sometimes take longer and/or have true-ups. They also have a much higher allocation to alternatives. When you think about alternatives, those are valued much less frequently, and also done a lot manually. You're going to have situations there where you're going to have some inconsistencies between quarters. I tend to look at the wealth management business more on a run-rate basis, and six months is a better indicator of where we're going. I would take your last sentence and say that's absolutely true.

What you're going to see is better sequential results from wealth in the third quarter.

Dave Fox: You also have things like one-time fees, like estate settlement, as well. We have seen a little bit of price compression as it relates to some of our liquidity products. We had some seasonal tax-related outflows, which we typically have. When you add all that together, it does create some distortion in the numbers and a disconnect between the assets going up and the fees going down.

Ken Usdin: Thanks for all that, Dave.

Operator: We will take our next question from Mike Mayo with Wells Fargo Securities.

Mike Mayo: Hey, just another question on wealth. If you could just give an update in terms of extending the GFO approach to a wider swath of your higher-end net worth clients. Also, to what degree are you at some kind of disadvantage because you don't have IPOs that you offer to your high net worth clients? Maybe you do, and I don't know about it, but some talk about net new assets really getting a lift from some of the IPOs that they've done. Thanks.

Dave Fox: Sure. I'll take both of those. To your point, one of our areas of focus is taking that set of GFO capabilities to the ultra-high net worth segment of the market. That's what we call Family Office Solutions. I would say that's going very well in the sense that offering is resonating extremely well with new clients where we're pitching on new business and prospects. Also with some existing clients where we're moving them into that offering. It's going very well. If anything, it's just a matter of our ability to scale that offering up, and be able to make sure that we have the teams and talent to be able to provide that offering.

Very encouraged by the market reception to that and the progress we're making. Just want to do it faster. On your second point, you're right.

Dave Fox: I mean, we're set up differently than the wealth management firms that are attached to an investment bank. When you have very robust IPO markets and capital markets activity like that, we're not going to have the same type of referral opportunities that are going to come from that. That said, that doesn't mean that we don't work with clients and don't prospect for that type of wealth. Frankly, we try to get out in front of it. Even with some of the recent offerings, the notable recent offerings, we benefited from those because we were working with some of the executives over five years ago, with how they can manage their wealth.

Mike O'Grady: Once again, being a holistic provider, there were things that we could do with them when it came to banking that was valuable to them at that point. They're now clients, we benefit as their company goes public and some of that wealth gets monetized. It's still a positive for us, but we are positioned definitely differently than the investment banks.

Mike Mayo: Maybe a related question to that. When we talk about the top of the funnel and your new client growth, what's your main key areas for that driver?

Mike O'Grady: It's a combination of things. You're exactly right. We're trying to drive more at the top of the funnel, of course, higher conversion as well. On the top of the funnel, one driver is certainly just talent overall. We talk about both revenue-generating roles, but also specifically producer roles. We are trying to hire more people that would enable us to prospect more and put more through the top of the funnel on that front. It's a competitive market for talent. We think we have an attractive value proposition for that talent, but it takes time to build that out. That's one. Two is we work very closely with centers of influence.

Think about estate planning attorneys and accountants and those type of service providers that are working with high net worth, but more ultra-high net worth clients with family offices.

Mike O'Grady: They're almost like a client base to us and the focus that we have on them. Often they're going to get the first call, or they've been working with the family or the prospect in advance of when they begin to work with one of the wealth managers. Third is around marketing and specifically digital marketing. I made a couple comments in the opening remarks about really trying to ramp that up further.

The key there is not only utilizing the latest technology and AI to be able to more aggressively determine where there are prospects that meet our profile or potential prospects on that front, but then trying to get them converted and do so at an attractive cost per lead.

Mike O'Grady: A lot of effort on that, both, I'll say, internal team, but then the data sources that we're using and the technology to be able to increase the number of leads that we get, and then likewise, increase the conversion rate.

Mike Mayo: Thank you.

Mike O'Grady: Sure.

Operator: We will take our next question from Brennan Hawken with BMO Capital Markets.

Brennan Hawken: Good morning. Thanks for taking my questions.

Mike O'Grady: Sure.

Brennan Hawken: The Visa gains this quarter were pretty substantial. I don't believe you touched on this. Apologies if you did, but could you give us your updated thoughts on how you plan to use these proceeds? Should we be thinking about reinvestment in the business, return of capital? What's the best way to think about this?

Mike O'Grady: Brennan, the answer is yes, in the sense of how we think about it. It's a capital gain for you, for us as David went through. There are certain areas where we can, I'll say, invest it immediately. Repositioning the investment portfolio, it gives us the ability to do that and take advantage of the shape of the yield curve right now as one example. Second, though, is to your point, if we can deploy that capital in the business through deployment of RWA, then we would look to do that. If we were to do something inorganic, it gives us the capital to be able to deploy it that way. Finally, it strengthened our capital ratios now.

That just puts us in a position to be able to buy back more stock.

Mike O'Grady: If you recall, a couple of years ago when we had the Visa gain, similarly, we had an increase in our capital ratio, our CET1 ratio, then over time, we brought it back down into our target range of 11%-12%. It gives us that flexibility in how we want to be able to deploy it best.

Brennan Hawken: Okay, great. Thank you. I assume the order that you went through those is significant. If that's wrong, Mike, just let me know. Is that fair?

Mike O'Grady: That's fair.

Brennan Hawken: Great. Thank you. Follow up, asset servicing, 24% pre-tax margin here in the quarter. It was down a bit from late 2025, although had some good year-over-year revenue growth. Previously, you talked about maybe letting some of the lower-margin business roll off to help drive the servicing margins into the high twenties. Could you provide maybe color in the pacing of that, how that's going? Is that presenting a headwind to fee revenue in that business and how we should think about the pre-tax margins in servicing going forward? Thank you.

Mike O'Grady: Sure. I'll start, and Dave may want to add to this, but this has been the strategy for that business. Scalable growth and profitable growth and increasing the margin in the business. Very favorable environment without a doubt, but also we're seeing progress on that. We have been, I'll say, very selective in the new business that we're taking on, ensuring that it will provide not only profitable business for us, but quicker to the levels of profitability that we like to have for those businesses. We've seen success with our asset owners business in the Americas. Similarly, in Europe, meaningful wins that many of them are just coming on board or being transitioned in right now. That's very positive.

Mike O'Grady: I would also say with our asset manager clients, it's trying to not only work with those clients where we already have a strong existing relationship, but doing more with them. Doing it in ways that makes that relationship more profitable. A great example of that is our Integrated Trading Solutions, so outsourced trading. There's more and more examples, what we would consider One Northern Trust examples, where we're providing that service now to the asset manager, amongst other things. Currency management for them as well. Those are higher-margin services for us. You're seeing the strategy come together with a favorable environment, and as a result, the margin going up.

Dave Fox: I think, Brennan, the pre-tax margin you quoted actually includes the notables. If you take the notable items out, the pre-tax margin is much higher, closer to 30%. We continue to see, given what's going on in the capital market side of the business too, which is growing double digits, that the asset servicing margins are continuing to go up. You just need to take that notable item and put it to the side.

Brennan Hawken: Great. Thanks for clarifying.

Operator: We will take our next question from Steven Chubak with Wolfe Research.

Sharnice Williams: Hi. Good morning. This is actually Sharnice Williams filling in for Steven Chubak. We saw some really encouraging deposit remixing trends in the interest-bearing versus non-interest-bearing. Looks like you guys have been more focused on managing the deposit costs and maintaining very disciplined pricing. I heard what you said about expecting some of the recent deposit strengths to kind of reverse in the third quarter, but I was wondering if you could talk about your outlook for the deposit mix. If we do see some rate hikes from the Fed, what are you anticipating in terms of deposit beta?

Dave Fox: Let's talk a little bit about what we benefited from in the quarter. You're right, our non-interest-bearing deposits did go up substantially. We obviously took advantage of the fact that we did some deposit repricing last year, and we still haven't wrapped all that. We have the lag benefit of that. We had lower wholesale funding costs as well. That obviously helped. Then we had some fixed asset repricing, which obviously we do almost every quarter from that perspective. When you think about the NIM going forward, the NIM was negatively impacted in Q1 by some of those very large deposits.

It kind of normalized back up in this quarter to what I think is going to be a more sustainable NIM level. If anything, as rates go up, that's good for us.

Dave Fox: When you think about the betas, two-thirds of our deposits are in U.S. dollars, right? If it's a Fed increase, that's one thing that will have a bigger impact. The beta we like to say is a combination of the wealth. Beta is much lower than the institutional beta. We round it out to about 80% in total on dollars. Other currencies are a little bit different, but they're much less a percentage of the overall picture.

Sharnice Williams: Okay, perfect. Just staying on the topic of balance sheet, can you just talk about how much of a benefit you're anticipating from the balance sheet restructuring and redeploying some of those proceeds at higher rates?

Dave Fox: Yeah. It should add about $30-plus million to NII annually, the repositioning that we just did.

Sharnice Williams: Okay, perfect. Thank you so much.

Operator: We will take our next question from Manan Gosalia with Morgan Stanley.

Manan Gosalia: Hi. Good morning. My question is around, I guess the wealth pre-tax margin. We're already at 37%. You're saying you should have a better quarter in wealth next quarter. As we go through this, some of the investment spend on the wealth side, how do you expect the wealth margins to trend from here?

Mike O'Grady: As you heard from my discussion of the strategy there, we are definitely investing in the wealth business for growth. It right now has an attractive pre-tax margin to it. Really, I believe we're in the right range for that business, meaning that it can go up a little bit depending on the conditions, but it also can go down as a result of the investments we're making. Bracket it by a few hundred basis points on both sides is kind of the range that I would expect as we go forward.

Manan Gosalia: Got it. Maybe just on the hiring and talent side. I know you said that you're seeing some momentum there. Can you talk about, I guess how much success you've had on the hiring front and also any competitive dynamics you're seeing in the upper tier of wealth?

Mike O'Grady: Yeah. It is a very competitive market, as I mentioned, for talent. I would say that we've seen good progress in our goals for the year on the hiring front. It's something where we're going to continue to have to keep at pace in order to achieve those goals. As I mentioned, I think we offer a proposition to advisors and other roles that's different than others in the market. That's the good news. It also means that it takes time to be able to recruit the right people into that model because it is different than most other models, I would say, out in the marketplace.

You're doing more very targeted hiring as opposed to just broadly anybody who's in the wealth management business. That doesn't fit our overall profile. It takes time to build that up.

Manan Gosalia: Great. Thank you.

Mike O'Grady: Sure.

Operator: We will take our next question from David Smith with Truist Securities.

David Smith: Hey, good morning.

Mike O'Grady: Good morning.

Dave Fox: Morning.

David Smith: On capital, you're running around 95% payout ratio on adjusted basis the first half of this year. Is 100% still the right benchmark we should be thinking about for the full year, adjusting out those notable items?

Dave Fox: The 100% number isn't sort of a hell-or-high-water for us. It's sort of the, when we start planning at the beginning of the year, obviously we're ahead of pace in terms of how much we've returned for the first half because we're making more money, obviously, and have more capacity to do that. As Mike mentioned earlier, while we still have aspirations to continue to have very healthy return on capital, at the same token, we want to have that flexibility to be able to obviously cover the dividend, et cetera. We have inorganic, we've got balance sheet issues and things of that nature.

You've heard me talk about our balance sheet being open to our clients and being a liability-driven institution. We don't like to commit specifically.

Dave Fox: It's really hard to land on the head of a pin as it relates to payout. I would say it's consistent with what we were trying to do at the beginning of the year. We take a look at it on a very dynamic basis. Absolute capital levels matter, stakeholder issues matter, clients matter as you look at that. I would just say that we're squarely within the range we wanted to be in, and we're actually ahead of ourselves in terms of what would've been 100% when we started the year.

David Smith: On the inorganic front, are you looking mostly at smaller tuck-in type acquisitions, or would you consider something larger too, if the opportunity set was right?

Mike O'Grady: We're looking for opportunities that can accelerate the organic strategy that we have. If you just go along the lines of what we've talked about as to where we're focused and what we're trying to achieve, if there's ways that we can accelerate that inorganically, we would consider that. It would have to obviously meet all the other parameters, both cultural fit, business fit, and also financial profile of that. That's how we consider inorganic opportunities.

David Smith: Thank you.

Mike O'Grady: Sure.

Operator: We will take our next question from Gerard Cassidy with RBC Capital Markets.

Gerard Cassidy: Hi, Mike. Hi, Dave.

Mike O'Grady: Hey.

Dave Fox: Hey, Gerard. How you doing?

Gerard Cassidy: Can you guys share with us, Mike, I think you touched on this, about IPOs, and I believe, Dave, in your prepared comments, you mentioned about stock loan was benefited partially from the IPO securities lending area. Besides the wealth management and in the stock loan, with this robust IPO market, are there other parts of the business that are benefiting from the IPOs, whether it's any of the servicing areas or the custody areas?

Mike O'Grady: Absolutely. With that activity, Gerard, you're right. Even aside from wealth management, we see the impacts and the benefits from that. We've talked about liquidity. Broadly speaking, when there is greater capital raising, those dollars need to go somewhere initially. We've seen the specific benefits of that flowing into, whether it's the balance sheet, but also into our money market funds. Also as far as the capital markets activity. Once these stocks are out there and they're trading and the ability to potentially short the stocks or any other hedging activity, that's something where we see it in the lending part of the business.

You saw that we had significantly higher volumes, but also it's the nature of the loans and the collateral for that. Just meaning if you have certain equities, you get a higher spread on those equities.

Mike O'Grady: It's something that we've seen, I'll say, cut across the businesses.

Gerard Cassidy: Then as a follow-up, I think, Dave Fox, you talked about some price compression on select index mandates. Can you give us any more detail on that? How does that compare, historically, you and your peers in the custody business have talked about pricing pressures. Is this something different than what you've seen in the past, or no, this is just a continuation of a trend that's been around a fair amount?

Dave Fox: Yeah. Thanks, Gerard. I was referring specifically to liquidity product, not index, and retail liquidity product, going into the wealth space, competition around that, shorter-term strategies, not our long-term strategies. Not specific to custody.

Gerard Cassidy: I'm sorry, go ahead, Mike.

Dave Fox: No, I'm just saying, I wasn't relating it to custody and other broader fees.

Gerard Cassidy: Got it. Okay. Thank you.

Operator: There are no further questions at this time. I will now turn the conference back to Mr. Carroll for any additional or closing remarks.

Stephen Carroll: Thank you for joining us, and we look forward to speaking with you again soon.

Operator: This concludes today's call. Thank you for your participation. You may now disconnect.