Northern Trust Corporation — 2013 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2013; filed February 26, 2014. This is an annual report, not a standalone fourth-quarter report. Northern Trust is a financial holding company focused on asset servicing, asset management, fiduciary and banking services. The detailed parent-company financial statements and management discussion are incorporated by reference to the 2013 Annual Report and are not reproduced in the provided filing text.
Business context and scale
- The company operates through Corporate & Institutional Services, Wealth Management, Asset Management, and Operations & Technology; it emphasizes recurring fee-based revenues.
- At year-end, consolidated assets were $102.9 billion and stockholders’ equity was $7.9 billion. The Bank, its principal subsidiary, reported assets of $102.7 billion and common bank equity capital of $7.1 billion.
- Assets under custody and assets under management were $5.1 trillion and $662.7 billion, respectively, for C&IS; $496.0 billion and $221.8 billion, respectively, for Wealth Management.
Financial metrics
The detailed consolidated Corporation revenue, earnings, cash-flow, margin, and liquidity figures are not clear in the supplied text. The following income statement and balance sheet figures are for The Northern Trust Company (the Bank), are unaudited, and should not be mistaken for consolidated Corporation results.
| Bank metric | 2013 | 2012 | Change / context |
|---|---|---|---|
| Trust, investment and other servicing fees | $2,404.9 million | $2,208.2 million | Increased |
| Total noninterest income | $2,944.9 million | $2,741.1 million | Increased |
| Net interest income | $977.9 million | $1,034.6 million | Decreased; total interest income fell to $1,155.2 million from $1,286.8 million |
| Provision for credit losses | $20.0 million | $25.0 million | Decreased |
| Noninterest expense | $2,823.9 million | $2,722.4 million | Increased |
| Net income | $727.5 million | $706.9 million | Increased |
| Total assets at year-end | $102,658.7 million | $97,138.8 million | Increased |
| Total deposits at year-end | $85,717.1 million | $83,134.2 million | Increased |
| Loans and leases at year-end | $29,385.5 million | $29,504.5 million | Slightly decreased |
| Allowance for credit losses | $307.9 million | $327.6 million | Decreased; net charge-offs were $39.7 million versus $26.3 million |
- The Bank’s average total deposits were $75.6 billion in 2013 versus $75.2 billion in 2012. Average interest-related deposit rates declined to 0.18% from 0.28%.
- Corporation capital ratios at year-end, under the then-applicable framework: Tier 1 capital 13.4%, total capital 15.8%, and Tier 1 leverage 7.9%. The filing states the Corporation and Bank exceeded well-capitalized thresholds.
- Bank year-end borrowings included $1.0 billion federal funds purchased, $0.9 billion repurchase agreements, $1.6 billion other borrowings, $1.0 billion senior notes, and $2.0 billion long-term debt.
- Corporation cash-flow totals and consolidated net interest margin are not provided clearly in the supplied text.
Material changes, outlook and risks
- Bank fee income and net income rose year over year, while net interest income declined amid lower interest income. The Bank’s 2013 provision for credit losses was lower, but net charge-offs increased from 2012.
- No specific earnings or revenue guidance is stated in the supplied text. Management said it believed its capital strength, balance sheet and business model positioned it well for U.S. Basel III implementation, while noting that the ultimate effects of capital and liquidity rules were still under review.
- Key exposures include persistently low interest rates and pressure on net interest margin and money-market fees; asset-value and market volatility affecting fee income; credit, counterparty, foreign-exchange and securities-valuation risks; operational, cyber, vendor and business-continuity risks; fiduciary and investment-performance risks; and intense competition.
- Regulatory uncertainty is material: Dodd-Frank implementation, Basel III, the Volcker Rule, derivatives rules, and proposed liquidity requirements could increase costs, constrain activities or affect profitability. The filing says the impact of several evolving rules could not yet be determined.
- The Corporation and Bank submitted a joint resolution plan in December 2013. The Federal Reserve did not object to the Corporation’s 2013 capital plan; the Corporation submitted its 2014 capital plan in January 2014.
- The Corporation repurchased 2,144,788 shares in the fourth quarter at an average $57.31 per share under its announced program; 7,857,965 shares remained authorized at December 31, 2013. The Bank paid $880 million in dividends to the Corporation in 2013, compared with $440 million in 2012; subsidiary dividends are subject to regulatory limits.
- Legal proceedings and contingent liabilities are referenced to the incorporated annual report; the supplied text does not provide a clear amount for related reserves or exposures.
Important facts for investors to verify
- Review the incorporated 2013 Annual Report for consolidated Corporation revenue, net income, cash flows, margins, segment results, liquidity, debt maturities and full year-over-year analysis; the Bank-only figures above are not substitutes.
- Confirm the trend and drivers of fee revenue, net interest income, expenses and credit quality, including the increase in net charge-offs despite a lower provision.
- Assess the Corporation’s consolidated liquidity, funding concentration and sensitivity to interest rates, market values and foreign-currency movements.
- Review the incorporated disclosures on litigation, contingencies, securities valuations, securities lending and off-balance-sheet commitments.
- Track implementation and financial effects of Basel III, Dodd-Frank, Volcker Rule, derivatives regulation and liquidity requirements, as well as subsequent capital distributions and share repurchases.