NTRS — Q3 2026 Financial Report Analysis

Overview: earnings up 40%, with a lower tax bill doing a third of the work

Northern Trust earned $642.9 million, or $3.40 per diluted share, in the third quarter of 2026, up from $457.6 million and $2.29 a year earlier. Reported EPS rose 48%. Two one-off gains added $48.7 million before tax ($36.8 million after tax), or about $0.20 a share: $34.0 million from selling its guardianship services business and $14.7 million more from the Visa share exchange that produced last quarter's large gain. Without them, EPS was about $3.20, up 40%, the same figure management gives.

The operating story is good. Revenue excluding those gains rose about 11% while costs rose 5%, so pre-tax profit before one-offs rose about 21%. The rest of the EPS growth came from somewhere else. The effective tax rate fell to 19.3% from 26.1%, which the release attributes to "lower net tax impact from international operations, including a reduction in the current year valuation allowance attributable to U.S. foreign tax credits." The company does not count that as a notable item, but it is worth roughly $0.29 a share this quarter (see below).

Northern Trust is a trust bank. Most of its revenue comes from fees for holding, administering and investing other people's money, for pension funds, fund managers and wealthy families, not from lending. So fee income and the size of client assets matter as much as its loan book.

This report is based on the earnings release (Exhibit 99.1 to the 8-K filed October 21, 2026), with guidance and notable-item detail from the earnings presentation filed alongside it. The full 10-Q, which carries the cash flow statement and the detailed management discussion, has not been filed yet.

Key figures

Total deposits are interest-bearing plus noninterest-bearing deposits from the period-end balance sheet. Northern Trust does not report an efficiency ratio or a return on tangible common equity (ROTCE) in the release, so both are left out rather than estimated. The company's headline net interest income and margin are on a "fully taxable equivalent" (FTE) basis, which grosses up tax-exempt interest as if it were taxable: $679.1M and 1.83% this quarter, versus $596.3M and 1.70% a year ago.

Stripping out the one-offs

The pre-tax figures below come from the release and presentation. The "ex-items" column is simple arithmetic on them. Q3 2025 had no notable items.

Revenue growing about 6 percentage points faster than costs is what management calls "more than 600 basis points of positive operating leverage." Operating leverage means revenue growing faster than expenses, so each extra dollar of revenue adds more to profit. Sequentially, underlying costs were flat: Q2's $1,638.6M less $145.6M of severance, software write-offs and a one-time staff equity grant is $1,493.0M, against $1,492.5M now.

Fees: markets did most of the work again

Trust, investment and other servicing fees, the largest revenue line, rose 8.5% to $1,373.0 million and 2% from Q2. These fees are mostly charged as a percentage of client assets, so they move with markets. The release attributes most of the increases to "favorable markets."

• Asset Servicing (custody and fund administration for institutions) fees rose 8% to $761.5M. Custody and fund administration rose 6%, investment management 10%, and securities lending 38% to $29.4M on "higher trading volumes and spreads."
• Wealth Management fees rose 9% to $611.5M. Private Wealth rose 8% to $494.3M. Global Family Office, which serves very large family fortunes, rose 16% to $117.2M on "favorable markets and asset inflows."

Client assets stalled in the quarter. Assets under custody/administration (money Northern Trust holds and services but does not invest) were $19.9 trillion, up 9% from a year ago but down 1% from June 30. Assets under management (money it actively invests) were $1.96 trillion, up 11% but flat with June. That matters for Q4 because, per the release, fees "are impacted by both one-month and one-quarter lagged asset values": a fee bill can be priced on asset values from one month or one quarter earlier. Flat-to-lower September balances give less of a lift to Q4 fees than June's gains gave to Q3.

Trading income cooled from Q2 but stayed well above last year. Foreign exchange trading income was $84.1M, down 13% from Q2 but up 47% from a year ago. The release cites client activity and market volatility, "particularly in Asia-Pacific markets," in both directions. Security commissions and trading income rose 25% to $52.0M on growth in outsourced trading, where Northern Trust executes trades for asset managers. Other operating income, excluding the two notable gains, was about $65.2M, down from $70.1M.

Net interest income: deposits and cheaper funding

Net interest income is what the bank earns on its loans and securities minus what it pays depositors and lenders. It rose 13.6% to $671.4M, but slipped 0.6% from Q2's $675.5M. The net interest margin (that income as a share of the assets earning it) was 1.80%, up from 1.68% a year ago and 1.79% in Q2. The release attributes the year-over-year rise to "higher deposits, a favorable deposit mix, and lower funding costs." The income statement shows the mechanism: interest income fell 3% to $2,073.1M while interest expense fell 10% to $1,401.7M.

The deposit picture depends on which measure you use:

• Average deposits rose 6% to $123.4B, and average noninterest-bearing deposits (money clients leave with the bank without earning interest, the cheapest funding there is) rose 13% to $18.4B. That is the "favorable deposit mix."
• Period-end deposits fell 9% from June 30 to $132.2B, and are down 2.7% from a year ago. Custody banks' deposits swing a lot around quarter-ends as clients move cash, so the average figures say more about earnings. The drop still matters: average deposits were down 3% from Q2, which is why net interest income stopped growing sequentially.

The bank also moved money out of cash at the Fed and into bonds. Central bank deposits fell to $37.8B from $50.6B at June 30, while available-for-sale securities rose 12% to $42.9B. Bonds usually earn more than cash at the Fed, which supports the margin. The cost is more exposure to bond prices: after-tax unrealized losses on available-for-sale securities were $547.0M at September 30, and accumulated other comprehensive loss widened to $718.7M from $551.7M.

Costs and segments

Noninterest expense rose 4.9% to $1,492.5M. Compensation and benefits rose 3%. Equipment and software rose 9% on "higher technology expense and higher depreciation and amortization." Other operating expense rose 25% to $106.3M on higher account servicing costs. Headcount was 23,800, up 1%.

Asset Servicing did most of the improving. Its pre-tax income rose 38% to $405.2M and its pre-tax margin reached 30.3%, up from 24.7% a year ago, with no notable items in either quarter. Backing segment revenue out of the stated margins, revenue rose about 12% and costs about 4%. That is our estimate; the release does not break out segment costs.

Wealth Management's headline flatters it. Its pre-tax income rose 14% to $391.6M at a 41.1% margin, but the release says the full $34.0M guardianship gain sits in this segment. Without it, pre-tax income was $357.6M, up about 4%. Backing segment revenue out of the stated margin, the margin excluding the gain was roughly 39%, below last year's 40.5%. That is our estimate, not a company figure.

What the headline numbers hide

• The tax rate. At last year's 26.1% rate, tax on this quarter's underlying pre-tax income would have been about $53M higher, roughly $0.29 a share. Underlying EPS would then have been about $2.91, up 27% rather than 40%. So about 13 of the 40 points of underlying EPS growth came from a lower tax rate. The release does not say whether the foreign-tax-credit benefit will repeat. Treat it as at least partly non-recurring until the 10-Q says otherwise.
• Buybacks. Diluted shares fell 4% to 183.2M. That adds about 4 points to per-share growth on its own. The rest of the 40%, about 21 points, matches pre-tax profit growth before one-offs.
• One-offs. The $48.7M of gains (guardianship sale and Visa exchange) are flagged by the company and excluded above. Q3 2025 had none. The quarter-on-quarter fall in EPS from $4.23 is almost all Q2's $525.4M Visa gain dropping out.
• Credit had its first real loss in a while. The provision for credit losses was $5.4M, against reserve releases in each of the previous four quarters. The release says it "primarily resulted from the charge-off of one Commercial and Institutional (C&I) loan." Net charge-offs were $11.0M, an annualized 0.11% of average loans. Nonaccrual loans (loans no longer paying interest as agreed) fell to $55.5M from $71.3M, 0.14% of loans. A single loan does not make a trend.
• Cash conversion can't be checked yet. The earnings release has no cash flow statement. That comes with the 10-Q.
• Guidance is new, not revised. The Q2 release and 10-Q we used last time gave no numerical outlook, so there is no earlier number to compare against.

Takeaway: The underlying business is improving the way management says: revenue excluding one-offs up 11% against costs up 5%, and Asset Servicing's margin up nearly 6 points. But the 40% EPS growth leans on a tax rate that fell to 19% and a 4% smaller share count. Pre-tax profit growth of about 21% is the better guide to what the business itself is doing.

Capital and shareholder returns

The CET1 ratio (core equity capital as a share of risk-weighted assets, the regulator's main measure of loss-absorbing capacity) was 12.4%, up from 12.2% in Q2 and against a 7.0% minimum. Northern Trust returned $514.2M to common shareholders in the quarter: $352.3M of buybacks (1.9 million shares at an average $185.27) and $161.9M of dividends, after raising the quarterly dividend 10% to $0.88. That is 82% of the quarter's earnings and over $1.5 billion year to date. Return on average common equity was 20.1%, and book value per share rose 8% to $68.89.

Did last time's read hold up?

Our Q2 report flagged five things. Mostly they played out:

• "Fees should hold into Q3 if markets stay put": held. Trust fees rose 2% from Q2 and 8.5% from a year earlier.
• "Trading income is the most exposed line": partly. FX trading gave back 13% from Q2's $97.1M, but at $84.1M it is still 47% above last year.
• Net interest income depends on deposit costs: the margin edged up to 1.80%, but net interest income dipped 0.6% from Q2 as average deposits fell 3%.
• The Visa B-3 shares as a possible future gain: only a small $14.7M "incremental gain" related to the second exchange offer came through. No new exchange offer was reported.
• "Watch the cost line": held. Underlying costs were flat from Q2, so the Q2 severance and software write-offs have so far come with a flat run-rate.

Outlook

Management's presentation gives Q4 2026 guidance of net interest income up 8–9% and total revenue up 6–7% versus Q4 2025, positive operating leverage in Q4, and more than 500 basis points of operating leverage for full-year 2026.

Our read:

• Net interest income is guided up from Q3. On Q4 2025's $641.6M GAAP (or $654.3M FTE), 8–9% growth implies roughly $693–713M, about 3–5% above Q3's level. That needs deposits to recover from September's drop or the bond reinvestment to keep lifting yields. It is the guidance figure most at risk if client cash keeps leaving.
• Revenue guidance implies a Q4 roughly level with Q3. 6–7% on Q4 2025's $2,123.1M is about $2.25–2.27B, close to Q3's $2.25B excluding notable items. With client assets flat at September 30 and fees priced on lagged values, that looks achievable but leaves little room for a weaker trading quarter.
• The full-year operating leverage target is close to banked. Year to date, management's ex-notable figures show revenue up 12% and expenses up 6%, more than 7 points of leverage, so Q4 only needs to stay positive.
• Watch the tax rate in the 10-Q. If the effective rate goes back toward the mid-20s in Q4, EPS growth will slow even if pre-tax growth holds near 20%.