Northern Trust's Q1 2025: Unraveling Key Contradictions in Deposit Betas, Expenses, and Market Volatility

Deposit beta assumptions, expense-to-fee ratio target, capital markets activity and volatility, deposit betas and interest rate assumptions, and expenses and cost management are the key contradictions discussed in Northern Trust's latest 2025Q1 earnings call.



Positive Operating Leverage and Earnings Growth:
- Northern Trust Corporation reported positive total operating leverage for the third consecutive quarter, with earnings per share excluding notables increasing by 13%.
- This growth was driven by mid-single-digit growth in both trust fees and net interest income, despite a challenging macroeconomic backdrop.

Deposit Levels and Net Interest Income:
- Assets under custody and administration increased by 1% sequentially and 3% year-over-year.
- The company benefited from a healthy increase in deposit levels, with average deposits increasing by 3% on a linked quarter basis, contributing significantly to net interest income.

Margin and Asset Management Trends:
- Despite a sequential decline in trust, investment, and other servicing fees by 1%, they increased by 6% compared to the previous year.
- This was attributed to strong capital markets activity late in the quarter and elevated volatility, leading to strong equity performance and higher transaction volumes.

Regulatory Capital and Shareholder Returns:
- Northern Trust's CET1 ratio increased to 12.9%, supported by capital accretion and a decline in risk-weighted assets.
- The company returned $435 million to shareholders through dividends and share repurchases, reflecting a payout ratio of 116%.

Alternative Investment Solutions and Family Office Services:
- The company is on track to nearly double its capital raise in alternative investment solutions compared to prior year averages.
- This growth is supported by new business initiatives, including the roll-out of a dedicated ultra-high net-worth segment, focusing on clients with over $100 million in net worth.