Northern Trust (NTRS) Q3 2026 earnings review
Northern Trust lifts its outlook, but trading income falls
Northern Trust earned more from its clients' assets and deposits, while the trading boom that drove the first half began to fade. Revenue excluding one-offs grew 11% and costs grew 5%, so pre-tax profit rose much faster. Chief executive Michael O'Grady set a fourth-quarter plan with net interest income growth of 8-9%, which by our math lifts the full year above the July outlook.
| Revenue, excluding one-offs | $2.25B +11% from a year ago; flat on the quarter |
|---|---|
| Profit per share, excluding one-offs | +40% $3.40 as reported, up 48% |
| Net interest income | $679M +14% from a year ago |
| Fourth-quarter outlook, net interest income | +8-9% about $707-713 million by our math, above this quarter |
⚖️ Verdict: 🟢 Bullish
The story got better because the fourth-quarter plan asks for more, not because the quarter beat the old one. Deposits that management had called temporary did leave, and net interest income held, so the outlook now points higher than in July. The bad news: foreign exchange trading income fell 13% from the second quarter, and custody fees did not grow at all despite higher client assets.
The question now is whether trading income has peaked or only paused. One answer is that the first-half levels were a volatility windfall, so revenue growth slows to the 6-7% the plan assumes. The other is that client activity stays high and the plan proves cautious again. Fourth-quarter foreign exchange income will tell.
🐂 Bull Case
Costs Grew Half as Fast as Revenue
Northern Trust's biggest cost is its people, and that bill barely moved. Chief executive Michael O'Grady said "disciplined expense management generated more than 600 basis points of positive operating leverage". That means revenue excluding one-offs grew more than six points faster than costs.
Total expenses rose 5% from a year ago and stayed flat against the second quarter, excluding last quarter's severance and software write-offs. Pay and benefits, the largest line, fell 2.7 percentage points as a share of revenue because the custody bank paid out smaller performance bonuses.
- Pay and benefits: up 3% from a year ago; 33.8% of revenue, down from 36.5%
- Equipment and software: up 9%, the fastest-growing large line, on technology spend and depreciation
- Other operating expense: up 25% on "an increase in account servicing costs"
- Expenses as a share of trust fees: 108.7%, inside the 105-110% medium-term target
That matters because almost none of these costs fall when fees fall, so a lean cost base is the bank's only cushion if markets turn. Expenses were 112% of trust fees a year ago, so the ratio has reached the target range a year or more early.
What to watch: fourth-quarter expenses against the company's commitment to positive operating leverage. Cost growth above the 6-7% revenue plan would mean this year's margin gains have started to reverse.
Deposits Left, Yet Interest Income Held
A standing worry was that large, temporary institutional deposits had inflated net interest income, the difference between what Northern Trust earns on its assets and pays on deposits. Management said in July that those deposits would not stay through the third quarter, and they did leave.
Average deposits fell 3.5% from the second quarter, and the balance sheet was 7% smaller at quarter-end. Net interest income barely moved, because the bank paid less for the funding it kept and its margin on earning assets widened.
- Net interest income: $679 million, down 0.6% from last quarter, up 14% from a year ago
- Net interest margin: 1.83%, up from 1.81% last quarter and 1.70% a year ago
- Average deposits: $123 billion; quarter-end deposits down 9% from June
- Interest expense: down 7% from last quarter
The year-ago gain came from "higher deposits, a favorable deposit mix, and lower funding costs", the company said. The fourth-quarter plan then calls for 8-9% growth, about $707-713 million by our math, above this quarter. So the runoff has happened and the plan has income rising anyway.
What to watch: fourth-quarter net interest income against the $707-713 million the plan implies. A figure inside that range would confirm the business no longer depends on the deposits that have gone.
The Fourth-Quarter Plan Points Above July's Outlook
In July the company told investors to expect 9-10% growth for the full year in both revenue and net interest income, excluding one-offs. By our math, that implied second-half figures for both below what the third quarter then delivered.
- Fourth-quarter net interest income: 8-9% growth, about $707-713 million by our math
- Full-year net interest income: about 12% growth by our math, against 9-10% planned in July
- Fourth-quarter revenue: 6-7% growth, about $2.28-2.31 billion by our math, lifting the year to about 11%
- Full-year operating leverage: more than 500 basis points, up from about 400
A result above what the July outlook implied says that outlook was cautious, not that the risks behind it have gone. But the presentation also reported returns "at or slightly better than medium term targets": pre-tax margin excluding one-offs reached 33.5% against a 33% goal, and return on equity 20.1% against a mid-teens goal.
What to watch: fourth-quarter revenue growth against the 6-7% plan. Growth above the range would mean Northern Trust set its outlook with the same caution as in July.
Positives this quarter didn't test
Two drivers of the longer-term story got no new numbers in the release or the presentation, so neither can be tested this quarter. Both were reported as gaining ground in the second quarter.
- Alternative assets: administration of hedge, private-capital and semi-liquid funds passed $1 trillion in the second quarter; no update on assets or fundraising, which the quarterly filing may give.
- AI: the presentation says "AI adoption embedded in how we work" but gives no cost saving or revenue figure; a stated saving would move the expense case.
🐻 Bear Case
Lower Taxes Supplied a Third of Profit Growth
O'Grady presented the quarter as 40% growth in profit per share on 21% growth in pre-tax income, both excluding one-offs. The gap between those two figures is mostly the tax rate, not the business.
Northern Trust paid tax at 19.3% of profit, against 26.1% a year ago. The company attributed the drop to a "lower net tax impact from international operations, including a reduction in the current year valuation allowance attributable to U.S. foreign tax credits".
- Net income excluding one-offs at last year's tax rate: up about 21% by our math
- Profit per share at last year's tax rate: up about 27% by our math, against the 40% reported
- Diluted shares: down 4% from a year ago, most of the remaining gap
This matters because releasing a valuation allowance is a judgment about past tax credits, not a sign the bank earns more. The July plan had a full-year tax rate of 26-26.5%, and the nine-month rate now sits at 23.5%, so either the rate rebounds in the fourth quarter or the plan has changed without being restated.
What to watch: the fourth-quarter tax rate and whether management restates the full-year rate on the call. A return toward 26% would show this quarter's profit growth was partly a one-time tax effect.
Trading Income Fell From Its Second-Quarter Peak
Northern Trust earns trading income from exchanging currencies for clients, executing securities trades for them, and lending out their securities. These lines grew fastest in the first half of the year, so the open question was how much of that growth would last.
In the third quarter they turned down. Foreign exchange trading income fell 13% from the second quarter, which the company put down to "lower trading volumes driven by client activity and market volatility, particularly in Asia-Pacific markets".
- Foreign exchange trading income: $84 million, down 13% from last quarter, still up 47% from a year ago
- Security commissions and trading: $52 million, down 6% from last quarter, up 24% from a year ago
- Securities lending fees: $29 million, flat on last quarter, up 39% from a year ago
- The three lines together: 7.3% of revenue excluding one-offs, down from 8.1% in the second quarter
The year-ago comparisons still look strong because the third quarter of 2025 was quiet. But this is the first decline since the volatility-driven growth began, and management does not say how much of the remaining income it considers repeatable. The strengthening theme and the risk are the same line, and this quarter the risk got the evidence.
What to watch: fourth-quarter foreign exchange trading income against this quarter's $84 million. A second decline would mean the first-half growth rates were a volatility windfall rather than a new level.
Custody Fees Stood Still as Client Assets Rose
"All three businesses delivered organic trust-fee growth, reflecting strong execution across the company," O'Grady said. Custody and fund administration, the largest fee line, is where that claim is hardest to see: fees were $511.7 million, unchanged from the second quarter.
The assets behind those fees had risen 8% in the second quarter, and the bank bills them with a lag of one month to one quarter. So the third quarter should have shown the catch-up. Instead the fee earned on each dollar of assets kept falling.
- Custody and fund administration fees: up 6.0% from a year ago, flat on the quarter
- Asset Servicing assets under custody and administration: up 9.1% from a year ago
- Fees per dollar of assets, annualized: 1.10 basis points, down from 1.14 a year ago by our math
- Investment management fees in Asset Servicing: up 10%, the one fee line ahead of its assets
The company said fee growth came "primarily due to favorable markets", which means markets gave more than the fees show. Either clients pay lower rates, or lower-fee assets grow faster, or some clients left. Any of those weighs on the margin, because expenses do not shrink with fees.
What to watch: custody and fund administration fees in the fourth quarter against the $512 million of the last two quarters. Another flat quarter while assets grow would confirm pricing pressure in the core business.
Risks this quarter didn't answer
Four standing concerns got no decisive reading from the release and the presentation, because the number each one needs was not disclosed or the event it needs did not happen.
- Market drawdown: equity markets were roughly flat in the quarter, so the lag between falling asset values and falling fees went untested.
- Wealth growth from new clients: not disclosed; wealth fees rose 3% from last quarter, but by our math pre-tax profit excluding the guardianship gain rose only 4% from a year ago against 9% fee growth.
- French estate-tax liability at the Guernsey trustee subsidiary: no update; the quarterly filing's legal note will show whether a tax-court decision has arrived.
- Fee pressure in index and liquidity products: no commentary; the filing's assets-under-management flows by product would show it.
👓 Other Themes
Northern Trust Sold Its Guardianship Services Business
The sale brought a $34.0 million pre-tax gain in Wealth Management, and a second one-off of $14.7 million came from Northern Trust's participation in Visa's second exchange offer. Both sit in other operating income, which is why that line rose 62% from a year ago. The company gave no description of the business or its revenue. Excluding both gains, other operating income fell 7% by our math.
💲 Other KPIs
Northern Trust returned $514 million through dividends and buybacks, 82% of profit available to common shareholders. In January the company set a target of more than 100% for 2026. After nine months the payout stands at 79%. The quarterly dividend rose to $0.88 from $0.80, and buybacks bought 12% fewer shares than a year ago at a 45% higher price.
A small charge after three quarters of reserve releases, caused by "the charge-off of one Commercial and Institutional (C&I) loan". Loans not paying interest still fell to $55.5 million from $71.3 million, and the loan reserve covers them 2.8 times. Credit remains a small part of the story at a bank whose loans are a quarter of its earning assets.
Paper losses on bonds the bank may sell rose from $373 million at June, as it moved $4.7 billion more into that portfolio. These losses reduce book equity, where the accumulated loss widened to $719 million. The common equity tier 1 ratio still rose to 12.4% from 12.2% because risk-weighted assets fell 2%.
🔮 Guidance
Raised. The plan now has net interest income of about $707-713 million in the fourth quarter by our math, above this quarter's $679 million. In July the outlook had the second half running below the second quarter; it has not. The full year now lands near 12% growth against the 9-10% set in July. The record runs one way: the 2025 outlook was raised twice and still beaten.
Unchanged for the quarter, but higher for the year. By our math the range means revenue excluding one-offs of $2.28-2.31 billion, about 2% above this quarter. Because the third quarter grew 11%, the full year now lands near 11% rather than the 9-10% set in July. The base is demanding: the fourth quarter of 2025 was itself a strong quarter for deposits and markets.
New. The company commits only to revenue growing faster than costs in the fourth quarter, after more than 6 points this quarter and more than 7 for the year so far. By our math the full-year floor of 500 basis points allows fourth-quarter expenses to grow about 7%, so the commitment asks little of the quarter.
Raised. The plan now has revenue growing more than five points faster than costs for the year. Third raise in a row: from more than 100 basis points in January, to about 400 in July, to more than 500 now, with each move smaller than the last. The year-to-date figure is already above 7 points, so the floor leaves room for a weak fourth quarter.
❓ Key Questions
What is the full-year tax rate now?
The July plan said 26-26.5%; the third quarter came in at 19.3% after a valuation-allowance release. If the rate stays low, this quarter's profit growth is partly a tax event, not an operating one.
How much trading income does management consider repeatable?
Foreign exchange and securities trading income fell from the second quarter but remain far above a year ago. The fourth-quarter revenue plan depends on where these lines settle.
Why did custody fees not follow second-quarter asset growth?
Assets under custody rose 8% in the second quarter, yet custody and fund administration fees were flat in the third. Repricing, mix or client losses would each mean something different for the margin.
What was fee growth from new business, by business line?
The company says all three businesses grew fees organically but gives no rates. The wealth figure matters most, since its pre-tax profit excluding the sale gain grew far slower than its fees.
What is the exposure from the French estate-tax ruling?
The Guernsey trustee subsidiary's joint liability for unpaid taxes, penalties and interest awaits a tax-court decision and sits outside the disclosed loss range. Any figure would set a bound on the risk.