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Northern Trust Annual Report, Year Ended Dec 31, 2013

Filing Date
Filed February 26, 2014
Period End
December 31, 2013
Securities
NTRSNTRSO
In the record · 2016–202610-K1110-Q338-K118

NTRS filed 11 annual reports (10-K), 33 quarterly reports (10-Q) and 118 current reports (8-K) between 2016 and 2026.

  1. Leadership change8-K · Feb ’19Feb ’19
  2. FY2020 annual report10-K · Feb ’21Feb ’21
  3. Leadership change8-K · Sep ’25Sep ’25

01—Abstract

Summary

Summary of the 10-K filed February 26, 2014. Cited figures are marked; the original filing is the authoritative source.

Northern Trust Corporation, a financial holding company providing asset servicing, fund administration, asset management, fiduciary and banking solutions, reported consolidated total assets of $102.9 billiona and stockholders' equity of $7.9 billion at December 31, 2013.

Net income for 2013 was $731.3 millionb, or $2.99 per diluted share, compared with $687.3 million, or $2.81 per diluted share, in 2012. Revenue rose 5% to $4.09 billion, driven by an 8% increase in trust, investment and other servicing fees to $2.61 billion, while net interest income fell 6% to $933.1 million as the net interest margin declined to 1.13% from 1.22%. Noninterest expense increased 4% to $2.99 billion, including a $19.2 million pre-tax legal settlement charge tied to securities lending litigation, and the company recorded a $32.6 million pre-tax gain on the sale of an office building.

Assets under custody reached $5.6 trillionc and assets under management reached $884.5 billion at year-end, up 16% and 17% respectively. Credit quality improved, with the provision for credit losses falling to $20.0 million from $25.0 million, though net charge-offs rose to $39.7 million and nonperforming assets were essentially flat at $274.7 million. Capital remained strong, with a Tier 1 capital ratio of 13.4% and total capital ratio of 15.8%, and the Corporation returned $609.2 million to shareholders through dividends and buybacks.

The Federal Reserve notified the company on February 21, 2014 that it could exit parallel run under Basel III advanced approaches, and the filing reports a common equity tier 1 ratio of 11.6%d on that basis. The filing also highlights regulatory headwinds, including Dodd-Frank heightened prudential standards, the Volcker Rule, and Basel III implementation, along with Moody's downgrade of the Corporation's long-term rating from A1 to A2 in November 2013. Management states that it cannot yet determine the full impact of several pending rules on earnings or financial position.

02—Key points

Key Highlights

  1. Net income rose to $731.3 million ($2.99 diluted EPS) in 2013 from $687.3 million ($2.81) in 2012.
  2. Revenue increased 5% to $4.09 billion; trust, investment and other servicing fees grew 8% to $2.61 billion.
  3. Net interest income declined 6% to $933.1 million as the net interest margin fell to 1.13% from 1.22%.
  4. Assets under custody rose 16% to $5.6 trillion and assets under management rose 17% to $884.5 billion.
  5. Noninterest expense rose 4% to $2.99 billion, including a $19.2 million legal settlement charge.
  6. Tier 1 capital ratio of 13.4% and total capital ratio of 15.8% at year-end 2013, both above well-capitalized minimums.
  7. Moody's lowered the Corporation's long-term rating from A1 to A2 on November 14, 2013.

03—One dollar

04—Financials

Financial Highlights

Figures from 10-KFY2013filed February 26, 2014
Revenue$4.09BNet Income$731.30M17.9% Net MarginEPS (Diluted)$2.99Total Assets$102.95BFree Cash Flow$747.40M

Financial Statements

FY2013 against FY2012

Line itemFY2013FY2012Change
Revenue$4.09B$3.90B+5.0%
Interest Expense$222.40M$297.40M−25.2%
Net Income$731.30M$687.30M+6.4%
EPS (Basic)$3.01$2.82+6.7%
EPS (Diluted)$2.99$2.81+6.4%
Shares Outstanding (Basic)239.27M240.42M−0.5%
Shares Outstanding (Diluted)240.55M240.88M−0.1%

05—Questions

Frequently Asked Questions

  1. What drove the increase in Northern Trust's 2013 revenue?

    Revenue rose 5% to $4.09 billion, mainly from trust, investment and other servicing fees, which increased 8% to $2.61 billion on new business and favorable equity markets. Foreign exchange trading income also rose 19% to $244.4 million, partly offset by lower net interest income.

  2. Why did net interest income decline in 2013?

    Net interest income fell 6% to $933.1 million, primarily because the net interest margin declined to 1.13% from 1.22%, reflecting lower yields on earning assets. Higher average earning assets partially offset the decline.

  3. How did Northern Trust return capital to shareholders in 2013?

    The Corporation declared $299.2 million in common dividends and repurchased 5.5 million shares at a cost of $310.0 million, for total returns of $609.2 million. The dividend payout ratio was 41%, and the total payout ratio was 83%.

  4. What regulatory developments could affect Northern Trust going forward?

    The company is subject to Dodd-Frank heightened prudential standards, the Volcker Rule (with a conformance period extended to July 21, 2015), Basel III capital and liquidity rules, and a proposed rule on money market mutual funds. On February 21, 2014 the Federal Reserve permitted the Corporation and the Bank to exit parallel run, and management states it cannot yet determine the ultimate effect of several pending regulations.

  5. How did credit quality trend in 2013?

    The provision for credit losses decreased to $20.0 million from $25.0 million, reflecting improvement in commercial and institutional and commercial real estate loans, while residential real estate weakness persisted. Net charge-offs increased to $39.7 million from $26.3 million, and nonperforming assets were $274.7 million at year-end, roughly unchanged.

06—Continue

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