01—Abstract
Summary
Summary of the 10-K filed February 27, 2024. Cited figures are marked; the original filing is the authoritative source.
Northern Trust Corporation reported 2023 net income of $1.11 billiona, or $5.08 per diluted common share, down from $1.34 billion and $6.14 in 2022, as noninterest income fell and noninterest expense rose.
Total revenue was essentially flat at $6.77 billionb. Net interest income increased to $1.98 billion, supported by a net interest margin of 1.56% on an FTE basis (up from 1.39%), while Trust, Investment and Other Servicing Fees declined 2% to $4.36 billion on net asset outflows and unfavorable markets. Noninterest expense rose 6% to $5.28 billion, including an $84.6 million FDIC special assessment, and Investment Security Gains (Losses) included a $176.4 million loss from a fourth-quarter securities repositioning.
Client assets grew sharply on favorable markets: Asset Servicing AUC/A reached $14.36 trillionc and total AUC/A rose 13% to $15.40 trillion, while consolidated AUM increased 15% to $1.43 trillion. Total assets were $150.8 billion at year-end, down from $155.0 billion, and stockholders' equity rose to $11.9 billion. Capital ratios remained above well-capitalized levels, with a standardized Common Equity Tier 1 ratio of 11.4% at the Corporation, and the company disclosed that the proposed Basel III Endgame rule could raise expanded risk-weighted assets by an estimated 5% to 15%.
The filing also highlights ongoing regulatory exposure, including proposed long-term debt and clean holding company requirements, and a $200.0 milliond pension contribution made in January 2024. Subsequent to year-end, the company sold $2.2 billion of available-for-sale securities, recognizing a $189.4 million loss in the first quarter of 2024.
02—Key points
Key Highlights
- Net income fell $228.7 million, or 17%, to $1.11 billion, and diluted EPS declined to $5.08 from $6.14.
- Total revenue was $6.77 billion, essentially flat versus $6.76 billion, as Net Interest Income rose 5% offset a 2% decline in noninterest income to $4.79 billion.
- Net interest margin on an FTE basis improved to 1.56% from 1.39%, primarily from higher average interest rates.
- Noninterest expense rose 6% to $5.28 billion, including an $84.6 million FDIC special assessment.
- Investment Security Gains (Losses) included a $176.4 million loss on a fourth-quarter portfolio repositioning; a $189.4 million loss followed in January 2024.
- Assets under custody/administration reached $15.40 trillion (up 13%) and AUM $1.43 trillion (up 15%), reflecting favorable markets and net inflows.
- Common stock dividends were maintained at $0.75 quarterly, and the company repurchased 4,384,678 shares for $347.5 million in 2023.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2023filed February 27, 2024Financial Statements
FY2023 against FY2022
| Line item | FY2023FY2022 | Change |
|---|---|---|
| Revenue | $6.77B$6.76B | +0.2% |
| Interest Expense | $5.34B$990.50M | +439.4% |
| Net Income | $1.11B$1.34B | −17.1% |
| EPS (Basic) | $5.09$6.16 | −17.4% |
| EPS (Diluted) | $5.08$6.14 | −17.3% |
| Shares Outstanding (Basic) | 207.25M208.31M | −0.5% |
| Shares Outstanding (Diluted) | 207.56M208.87M | −0.6% |
05—Questions
Frequently Asked Questions
Why did Northern Trust's earnings decline in 2023 despite higher client assets?
Net income fell to $1.11 billion from $1.34 billion. The filing attributes this mainly to higher noninterest expense, including the $84.6 million FDIC special assessment and higher equipment and software costs, along with lower Trust, Investment and Other Servicing Fees (down 2%) and lower Foreign Exchange Trading Income (down 29%). Client asset growth was driven largely by favorable markets rather than fee-generating net flows.
How did net interest income perform?
Net Interest Income increased to $1.98 billion from $1.89 billion, up 5%. The filing attributes this to higher average interest rates, partially offset by an unfavorable funding mix shift and lower average earning assets, which declined $8.0 billion to $130.8 billion.
Is Northern Trust well capitalized, and what regulatory changes could affect it?
The filing states that all capital ratios exceeded the requirements for well-capitalized classification at December 31, 2023. The Corporation's standardized Common Equity Tier 1 ratio was 11.4%. The company noted that the proposed Basel III Endgame rule could increase its expanded risk-based RWAs by approximately 5% to 15% on a fully phased-in basis, and a proposed long-term debt requirement could also apply to the Corporation and the Bank.
What drove the securities losses and how might they affect future results?
In the fourth quarter of 2023, the Corporation sold $3.2 billion of AFS securities with a fair value of $3.0 billion, recognizing a $176.4 million loss in a portfolio repositioning. In January 2024, it sold $2.2 billion of amortized-cost AFS securities and recognized a $189.4 million loss in the first quarter of 2024.
What were the main sources of client asset growth?
Consolidated AUC/A increased 13% to $15.40 trillion, and AUM increased 15% to $1.43 trillion. Management attributed the increases primarily to favorable markets, with AUM also benefiting from net inflows of $43.9 billion and favorable currency translation.
06—Continue