Northern Trust Corporation — 2012 Form 10-K
Reporting period: Fiscal year ended December 31, 2012. The filing is an annual report, not a stand-alone fourth-quarter report. It incorporates the Corporation’s full financial statements and management discussion by reference; the supplied text includes selected Corporation and Bank metrics, but not all consolidated results.
Business context
Northern Trust is a financial holding company providing asset servicing, fund administration, asset management, fiduciary and banking services. Its principal client businesses are Corporate and Institutional Services and Personal Financial Services. At year-end, C&IS reported $4.4 trillion in assets under custody and $561.2 billion under management; PFS reported $446.3 billion in custody assets and $197.7 billion under management.
Financial and operating metrics
| Metric | 2012 | Prior comparable period |
|---|---|---|
| Bank noninterest income | $2.741 billion | $2.503 billion in 2011 |
| Bank net interest income | $1.035 billion | $1.048 billion in 2011 |
| Bank net income | $706.9 million | $571.0 million in 2011 |
| Bank provision for credit losses | $25.0 million | $55.0 million in 2011 |
| Bank noninterest expense | $2.722 billion | $2.650 billion in 2011 |
| Bank total assets | $97.1 billion | $99.8 billion in 2011 |
| Bank deposits | $83.1 billion | $84.0 billion in 2011 |
| Bank loans and leases | $29.5 billion | $29.1 billion in 2011 |
| Bank stockholders’ equity | $7.23 billion | $6.89 billion in 2011 |
- Bank net income increased about 24% year over year. Noninterest income rose about 10%, while net interest income declined about 1%; the credit-loss provision fell by $30 million. Noninterest expense increased about 3%.
- Trust, investment and other servicing fees increased to $2.208 billion from $2.035 billion. Foreign-exchange trading income declined to $206.1 million from $324.5 million.
- Other operating income rose to $245.7 million from $87.3 million; the supplied filing text does not explain the drivers clearly.
- Bank net charge-offs were $26.3 million, down from $83.4 million. The year-end allowance for credit losses was $327.6 million, versus $328.9 million; the allowance assigned to loans and leases equaled 1.01% of year-end loans.
- At the Bank, cash and due from banks were $3.7 billion, interest-bearing deposits with banks $18.8 billion, Federal Reserve deposits and other interest-bearing balances $7.6 billion, and securities $31.0 billion. The filing text does not provide a standalone cash-flow summary here; consolidated cash-flow statements are incorporated by reference.
- Bank long-term debt declined to $1.71 billion from $2.43 billion. Corporation regulatory capital ratios at year-end were 12.8% Tier 1, 14.3% total capital and 8.2% leverage; all exceeded the stated “well-capitalized” thresholds.
- The Corporation reported consolidated assets of $97.5 billion and stockholders’ equity of $7.5 billion at year-end. Corporation-wide revenue, net income, margin and cash-flow values are not clearly provided in the supplied text.
Outlook, risks and contingencies
- No specific earnings or revenue guidance is provided. Management said it believed the Corporation’s capital strength, balance sheet and business model positioned it well for Basel III, while noting that the ultimate effects of evolving capital and liquidity rules remained uncertain.
- Key stated exposures include low interest rates and margin pressure, market and foreign-exchange volatility, asset-value-dependent servicing and management fees, counterparty and credit risk, operational and cyber-security failures, competition, and evolving U.S. and international regulation.
- The filing describes putative class actions and a shareholder derivative action involving the securities-lending program, alleged real-estate-loan loss provisions and related disclosures. Referenced details and the Corporation’s assessment are in incorporated Note 24; the supplied text does not state a clear quantified exposure or outcome.
- Dodd-Frank requirements, Basel III implementation, possible money-market-fund reforms and other regulatory changes may increase compliance costs or constrain activities. The Corporation also noted that its initial resolution plans were due to regulators by December 31, 2013.
- The Corporation repurchased 1,319,927 shares in the fourth quarter at an average $47.62 per share; 6,810,172 shares remained authorized for purchase under the program at quarter-end.
Important facts for investors to verify
- Review the incorporated 2012 Annual Report for complete Corporation-wide income, balance-sheet, cash-flow, margin, liquidity and segment results, and reconcile them with the Bank-only figures summarized here.
- Examine the drivers and recurrence of the sharp increase in Bank other operating income, and the decline in foreign-exchange trading income.
- Review asset quality, securities-lending exposures and the full allowance and contingent-liability disclosures, including the status and estimated range of litigation exposure.
- Assess sensitivity to sustained low rates, regulatory capital and liquidity implementation, and any restrictions on subsidiary dividends or share repurchases.