Northern Trust (NTRS) released its Q3'25 earnings and hosted its latest earnings conference call earlier this week. CEO Mike O'Grady says, "The third quarter was marked by product innovation, including the launch of 11 new ETF strategies, eight of which are industry-first fixed-income distributing ladder ETFs.... Liquidity continues to be a standout area, with NTAM reporting its 11th consecutive quarter of positive flows. We expanded our Global Money Market Fund platform in the quarter with the launch of a U.S. Dollar Treasury liquidity strategy for European clients, building on the success of our onshore U.S. Treasury instrument strategy, which has already amassed more than $6 billion since its launch in June of 2024. Beyond liquidity, we saw positive flows in ETFs and custom SMAs, both key areas of focus, and fixed income, including two large high-yield mandates."
CFO Dave Fox comments, "The quarterly contribution from transactional and other one-time items normalized in the third quarter following elevated second quarter levels. Our net interest margin increased sequentially to 1.7%, reflecting the favorable deposit pricing actions taken, partially offset by unfavorable change in asset mix. Deposits performed largely as we expected. Average deposits were $116.7 billion, down 5% compared to second quarter levels, reflecting typical seasonal patterns coupled with normalization from elevated second quarter levels."
He continues, "Within the deposit base, interest-bearing deposits declined by 5%, and non-interest-bearing deposits decreased by 3%, but remained at 14% of the overall mix. Turning to our expenses.... Expenses increased 4.7% year over year in the third quarter. There were no notable expenses in the current or prior periods. Excluding unfavorable currency movements, expenses were up 4.4%."
Asked about stablecoins during the Q&A, O'Grady replies, "They want to be able to utilize whether it's stablecoins or a tokenized asset with their other assets. We're just making sure that our platform can do both of them. Now specifically to stablecoin, I would say stablecoin will find the areas that have the greatest friction. A lot of that, as you know, right now is probably cross-border or outside the U.S. I'll say we'll have the ability to utilize stablecoin, but we’re not planning to issue a stablecoin on that front."
He tells us, "Where we're more focused is on tokenization, because we believe that will impact multiple asset classes. A good place to start would just be around money market funds. Thinking about a tokenized money market fund, that's an area where I'd say we would look to be an issuer of a tokenized money market fund. That gives you some idea of the direction that we see."
Glenn Schorr from Evercore asks a, "Small but interesting [question] regarding the deposit rate paid on savings, money market, and other deposits. After going down for four quarters straight because rates have been coming down, it was actually up 6 basis points, and we had a cut in the quarter.... That's interesting. I'm more thinking about the go-forward. What caused that savings and money market rate to go up in a quarter when there's a rate cut? I know you gave us your thoughts on next year, so I appreciate that. I'm just curious what's going on these deposits."
Fox responds, "Deposits are also multi-currency, they're not just U.S. dollar, right? There may be some differences there that you might want to take a look at. We could certainly get more granular with you. On the top of it, I can't say in particular. I'd have to look at each currency and each particular investment that we made to kind of give you that read."
O’Grady replies, "We talk all the time about deposits and money market funds, and being able to be on that side of it. The other side is at times they need overnight liquidity the other direction. Not only securities lending, but also, FICC repo has been an area where we've added capabilities to be able to serve those clients and create a business that's both diversified from the other activities we have and also an attractive financial profile."
