Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
NTRS > SEC Filings for NTRS > Form 10-Q on 25-Oct-2013All Recent SEC Filings

Show all filings for NORTHERN TRUST CORP | Request a Trial to NEW EDGAR Online Pro

Form 10-Q for NORTHERN TRUST CORP


25-Oct-2013

Quarterly Report


MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

THIRD QUARTER CONSOLIDATED RESULTS OF OPERATIONS

General

Northern Trust Corporation (the Corporation), together with its subsidiaries, is a leading provider of asset servicing, fund administration, asset management, fiduciary and banking solutions for corporations, institutions, families, and individuals worldwide. Northern Trust focuses on servicing and managing client assets through its two primary business units, Corporate & Institutional Services (C&IS) and Wealth Management (WM). Asset management and related services are provided to C&IS and Wealth Management clients primarily by a third business unit, Asset Management. Northern Trust emphasizes quality through a high level of service complemented by the effective use of technology, delivered by a fourth business unit, Operations and Technology (O&T). Except where the context otherwise requires, the term "Northern Trust" refers to Northern Trust Corporation and its subsidiaries on a consolidated basis.

The following should be read in conjunction with the consolidated financial statements and related footnotes included in this report. Investors should also read the section entitled "Factors Affecting Future Results."

Overview

Net income per common share in the third quarter of 2013 was $0.84 compared to $0.73 per common share in the third quarter of 2012. Net income for the current quarter was $206.5 million, up $27.7 million, or 15%, from $178.8 million in the prior year quarter. The performance in the current quarter produced an annualized return on average common equity of 10.6% as compared to 9.6% in the prior year quarter. The annualized return on average assets was 0.9% in the current quarter and 0.8% in the prior year quarter.

The current quarter includes a $32.6 million pre-tax gain ($20.3 million after tax, or $0.08 per common share) on the sale of an office building property. Excluding the current quarter gain, net income per diluted common share, net income, and return on average common equity would have been $0.76, $186.2 million, and 9.6%, respectively.

Consolidated revenue of $1.05 billion in the current quarter was up $74.7 million, or 8%, from $972.5 million in the prior year quarter. Noninterest income, which represented 77% of revenue, increased $83.3 million, or 11%, to $810.2 million from the prior year quarter's $726.9 million, primarily reflecting higher trust, investment and other servicing fees; other operating income; and foreign exchange trading income.

Net interest income for the quarter decreased $8.6 million, or 4%, to $237.0 million as compared to $245.6 million in the prior year quarter, primarily due to a decrease in the net interest margin.

Noninterest expense totaled $740.7 million in the current quarter, up $44.3 million, or 6%, from $696.4 million in the prior year quarter, primarily reflecting higher outside services, equipment and software, and compensation expense.


Noninterest Income

The components of noninterest income are provided below.



 Noninterest Income                                 Three Months Ended September 30,
 ($ In Millions)                                2013           2012            Change
 Trust, Investment and Other Servicing Fees   $   648.0       $ 601.9     $ 46.1          8 %
 Foreign Exchange Trading Income                   62.8          44.0       18.8         43
 Treasury Management Fees                          17.6          16.3        1.3          8
 Security Commissions and Trading Income           16.8          17.9       (1.1 )       (6 )
 Other Operating Income                            67.2          46.6       20.6         44
 Investment Security Gains (Losses), net           (2.2 )         0.2       (2.4 )      N/M

 Total Noninterest Income                     $   810.2       $ 726.9     $ 83.3         11 %

Trust, investment and other servicing fees are based generally on the market value of assets held in custody, managed and serviced; the volume of transactions; securities lending volume and spreads; and fees for other services rendered. Certain market value fee calculations are performed on a monthly or quarterly basis and can be based on the beginning, ending or daily average value of the client portfolio. Certain investment management fee arrangements also may provide for performance fees based on client portfolio returns that exceed predetermined levels.

The following tables present Northern Trust's assets under custody and assets under management by business segment.

                                                                                              Change        Change
Assets Under Custody                  September 30,       June 30,        September 30,       Q3-13/        Q3-13/
($ In Billions)                           2013              2013              2012             Q2-13         Q3-12
Corporate and Institutional          $       4,766.5      $ 4,538.9      $       4,331.9            5 %          10 %
Wealth Management                              470.5          452.6                429.5            4            10

Total Assets Under Custody           $       5,237.0      $ 4,991.5      $       4,761.4            5 %          10 %

                                                                                                   Change        Change
Assets Under Management                   September 30,        June 30,        September 30,       Q3-13/        Q3-13/
($ In Billions)                               2013               2013              2012             Q2-13         Q3-12
Corporate and Institutional              $         634.6      $    600.5      $         565.6            6 %          12 %
Wealth Management                                  211.6           202.5                184.1            4            15

Total Assets Under Management            $         846.2      $    803.0      $         749.7            5 %          13 %

C&IS assets under custody totaled $4.8 trillion, up 10% from the prior year quarter, and included $3.0 trillion of global custody assets, 13% higher compared to the prior year quarter. C&IS assets under management included $104.6 billion of securities lending collateral, a 7% increase from the prior year quarter.

Changes in assets under custody and under management are in comparison to the twelve month increase in the S&P 500 index and EAFE index (USD) of 16.7% and 20.4%, respectively.


Noninterest Income (continued)



Custodied and managed assets were invested as follows at September 30:



                                         2013                                    2012
                          C&IS        WM       Consolidated       C&IS        WM       Consolidated
Assets Under Custody
Equities                     46 %      53 %               47 %       44 %      47 %               44 %
Fixed Income Securities      35        23                 34         36        25                 36
Cash and Other Assets        19        24                 19         20        28                 20

Assets Under Management
Equities                     54 %      45 %               52 %       50 %      37 %               47 %
Fixed Income Securities      13        28                 17         16        32                 20
Cash and Other Assets        33        27                 31         34        31                 33

Trust, investment and other servicing fees in C&IS increased $25.4 million, or 8%, to $359.8 million in the current quarter from the prior year quarter's $334.4 million.

C&IS Trust, Investment and Other Servicing Fees         Three Months Ended September 30,
($ In Millions)                                     2013            2012            Change
Custody and Fund Administration                   $   239.4       $  214.4     $ 25.0        12 %
Investment Management                                  71.3           73.2       (1.9 )      (3 )
Securities Lending                                     22.7           23.8       (1.1 )      (5 )
Other                                                  26.4           23.0        3.4        15

Total                                             $   359.8       $  334.4     $ 25.4         8 %

Custody and fund administration fees, the largest component of C&IS fees, increased 12%, primarily driven by favorable equity markets and new business. C&IS investment management fees decreased 3%, primarily due to higher waived fees in money market mutual funds, partially offset by favorable equity markets and new business. Money market mutual fund fee waivers in C&IS, attributable to persistently low short-term interest rates, totaled $15.3 million in the current quarter, compared to waived fees of $6.5 million in the prior year quarter. Securities lending revenue decreased 5%, primarily reflecting lower spreads in the current quarter, partially offset by higher volumes.

Trust, investment and other servicing fees in Wealth Management totaled $288.2 million in the current quarter, increasing $20.7 million, or 8%, from $267.5 million in the prior year quarter. The increased fees in the current quarter are primarily due to new business and the favorable impact of equity markets on fees, partially offset by higher waived fees in money market mutual funds. Money market mutual fund fee waivers in Wealth Management totaled $17.1 million in the current quarter compared with $10.3 million in the prior year quarter.

Foreign exchange trading income totaled $62.8 million, up $18.8 million, or 43%, compared with $44.0 million in the prior year quarter. The current quarter increase is attributable to higher currency market volatility and trading volumes compared to the prior year quarter.


Noninterest Income (continued)

Other operating income totaled $67.2 million in the current quarter, up $20.6 million, or 44%, from $46.6 million in the prior year quarter. The current quarter includes the $32.6 million pre-tax gain on the sale of an office building property. The prior year quarter included a $5.3 million gain on foreign exchange contracts related to hedges of certain investments in foreign currency denominated subsidiaries. Excluding the current and prior year quarter gains, other operating income decreased $6.7 million. The components of other operating income are provided below.

        Other Operating Income               Three Months Ended September 30,
        ($ In Millions)                  2013           2012            Change
        Loan Service Fees              $   15.8       $   16.7     $ (0.9 )       (5 )%
        Banking Service Fees               12.8           13.8       (1.0 )       (7 )
        Other Income                       38.6           16.1       22.5        139

        Total Other Operating Income   $   67.2       $   46.6     $ 20.6         44 %

Net investment security losses totaled $2.2 million, reflecting realized losses on the sale of securities in the current quarter.

Net Interest Income

Net interest income for the quarter on an FTE basis totaled $244.8 million, down $12.1 million, or 5%, compared to $256.9 million in the prior year quarter. The decrease is primarily the result of a decline in the net interest margin to 1.14% from 1.21% in the prior year quarter, partially offset by higher levels of average earning assets. The decline in the net interest margin primarily reflects lower yields on earning assets, partially offset by a lower cost of interest-related funds due to lower short-term interest rates. Average earning assets for the quarter were $85.5 billion, up $1.0 billion, or 1%, from $84.5 billion in the prior year quarter. Net interest income is defined as the total of interest income and amortized fees on earning assets, less interest expense on deposits and borrowed funds, adjusted for the impact of interest-related hedging activity. Net interest income stated on an FTE basis is a non-generally accepted accounting principle (GAAP) financial measure that facilitates the analysis of asset yields. When adjusted to an FTE basis, yields on taxable, nontaxable, and partially taxable assets are comparable; however, the adjustment to an FTE basis has no impact on net income. A reconciliation of net interest income on a GAAP basis to net interest income on an FTE basis is provided on page 23.

Federal Reserve deposits and other interest-bearing assets averaged $8.0 billion in the current quarter as compared to $6.1 billion in the prior year quarter, an increase of $1.9 billion, or 31%.

Average securities, inclusive of Federal Reserve and Federal Home Loan Bank stock and certain community development investments, which are classified in other assets in the consolidated balance sheet, were $30.6 billion, up $698.3 million, or 2%, from $29.9 billion in the prior year quarter.


Net Interest Income (continued)

Loans and leases averaged $28.7 billion in the current quarter, down $383.6 million, or 1%, from $29.0 billion in the prior year quarter. Commercial and institutional loans averaged $7.2 billion in the current quarter, down $205.5 million, or 3%, from the prior year quarter's average of $7.4 billion. Residential real estate loans averaged $10.1 billion in the current quarter, down $308.4 million, or 3%, from the prior year quarter's average of $10.4 billion.

Northern Trust utilizes a diverse mix of funding sources. Total interest-bearing deposits averaged $59.3 billion in the current quarter, compared to $55.7 billion in the prior year quarter, an increase of $3.6 billion, or 7%. Other interest-bearing funds averaged $8.9 billion in the current quarter, an increase of $2.5 million, or 40%, from $6.4 billion in the prior year quarter, primarily attributable to an increase in short-term borrowings, partially offset by a decrease in long-term debt and senior notes. The balances within short-term borrowing classifications vary based on funding requirements and strategies, interest rate levels, changes in the volume of lower-cost deposit sources, and the availability of collateral to secure these borrowings. Average net noninterest-related funds utilized to fund earning assets decreased $5.2 billion, or 23%, to $17.3 billion from $22.5 billion in the prior year quarter, resulting primarily from lower levels of demand and other noninterest-bearing deposits.

For additional quantitative analysis of average balances and interest rate changes affecting net interest income, refer to the Average Consolidated Balance Sheet with Analysis of Net Interest Income and the Analysis of Net Interest Income Changes Due To Volume and Rate on pages 24 and 25.

Provision for Credit Losses

The provision for credit losses was $5.0 million in the current quarter compared to $10.0 million in the prior year quarter. Net charge-offs were $8.3 million in the current quarter resulting from $11.6 million of charge-offs and $3.3 million of recoveries, compared to $11.9 million of net charge-offs in the prior year quarter resulting from $16.3 million of charge-offs and $4.4 million of recoveries. Nonperforming assets declined slightly from the prior year quarter. Residential real estate loans accounted for 70% and 66% of total nonperforming loans and leases at September 30, 2013 and 2012, respectively. For additional discussion of the provision and allowance for credit losses, refer to the "Asset Quality" section beginning on page 18.


Noninterest Expense

The components of noninterest expense are provided below.



          Noninterest Expense               Three Months Ended September 30,
          ($ In Millions)               2013            2012            Change
          Compensation                $   324.6       $  315.7     $  8.9         3 %
          Employee Benefits                63.5           61.3        2.2         4
          Outside Services                145.9          126.6       19.3        15
          Equipment and Software           95.5           86.0        9.5        11
          Occupancy                        43.3           43.8       (0.5 )      (1 )
          Other Operating Expense          67.9           63.0        4.9         8

          Total Noninterest Expense   $   740.7       $  696.4     $ 44.3         6 %

Compensation expense, the largest component of noninterest expense, equaled $324.6 million, up $8.9 million, or 3%, from $315.7 million in the prior year quarter, attributable to higher staff levels. Staff on a full-time equivalent basis at September 30, 2013 totaled approximately 14,600, up 3% from a year ago. Employee benefit expense equaled $63.5 million, up 4% from $61.3 million in the prior year quarter.

Expense associated with outside services totaled $145.9 million, up $19.3 million, or 15%, from $126.6 million in the prior year quarter. The current quarter increase is primarily due to higher consulting and technical services expense, including costs associated with a growing set of regulatory and compliance requirements.

Equipment and software expense totaled $95.5 million, up $9.5 million, or 11%, from $86.0 million in the prior year quarter. The current quarter includes higher software amortization associated with the continued investment in technology related assets. Occupancy expense equaled $43.3 million, relatively unchanged from $43.8 million in the prior year quarter.

Other operating expense totaled $67.9 million compared with $63.0 million in the prior year quarter, an increase of 8%. The components of other operating expense are provided below.

        Other Operating Expense               Three Months Ended September 30,
        ($ In Millions)                   2013           2012            Change
        Business Promotion              $   17.9       $   16.4     $  1.5          9 %
        FDIC Insurance Premiums              6.6            5.7        0.9         16
        Staff Related                        7.3           10.9       (3.6 )      (33 )
        Other Intangible Amortization        5.2            5.2         -          -
        Other Expenses                      30.9           24.8        6.1         25

        Total Other Operating Expense   $   67.9       $   63.0     $  4.9          8 %

The increase in the "other expenses" component of other operating expense reflects increases in various miscellaneous expense categories.


Provision for Income Taxes

Income tax expense was $95.0 million in the current quarter, representing an effective tax rate of 31.5%, and $87.3 million in the prior year quarter, representing an effective tax rate of 32.8%.

BUSINESS UNIT REPORTING

The following tables reflect the earnings contributions and average assets of Northern Trust's business units for the three and nine month periods ended September 30, 2013 and 2012. Business unit financial information, presented on an internal management-reporting basis, is determined by accounting systems that are used to allocate revenue and expense related to each segment and incorporates processes for allocating assets, liabilities, and equity, and the applicable interest income and expense.

Three Months Ended                                   Corporate &                        Wealth                       Treasury and                       Total
September 30,                                  Institutional Services                 Management                        Other                        Consolidated
($ In Millions)                                 2013             2012            2013            2012            2013            2012            2013            2012
Noninterest Income
Trust, Investment and Other Servicing Fees   $     359.8      $    334.4      $    288.2      $    267.5      $       -       $       -       $    648.0      $    601.9
Foreign Exchange Trading Income                     61.8            41.3             1.0             2.7              -               -             62.8            44.0
Other Noninterest Income                            44.3            50.2            54.3            23.3             0.8             7.5            99.4            81.0
Net Interest Income (FTE)*                          70.1            68.0           136.3           157.4            38.4            31.5           244.8           256.9

Revenue*                                           536.0           493.9           479.8           450.9            39.2            39.0         1,055.0           983.8
Provision for Credit Losses                          0.4            (1.6 )           4.6            11.6              -               -              5.0            10.0
Noninterest Expense                                412.0           394.5           297.3           285.2            31.4            16.7           740.7           696.4

Income (loss) before Income Taxes*                 123.6           101.0           177.9           154.1             7.8            22.3           309.3           277.4
Provision (Benefit) for Income Taxes*               38.8            32.7            67.0            58.1            (3.0 )           7.8           102.8            98.6

Net Income                                   $      84.8      $     68.3      $    110.9      $     96.0      $     10.8      $     14.5      $    206.5      $    178.8

Percentage of Consolidated Net Income                 41 %            38 %            54 %            54 %             5 %             8 %           100 %           100 %
Average Assets                               $  53,653.5      $ 50,638.6      $ 22,923.6      $ 23,530.7      $ 18,635.4      $ 18,540.6      $ 95,212.5      $ 92,709.9

* Stated on a fully taxable equivalent basis (FTE). Total consolidated includes FTE adjustments of $7.8 million for 2013 and $11.3 million for 2012.

Nine Months Ended                                    Corporate &                        Wealth                       Treasury and                       Total
September 30,                                  Institutional Services                 Management                        Other                        Consolidated
($ In Millions)                                 2013             2012            2013            2012            2013            2012            2013            2012
Noninterest Income
Trust, Investment and Other Servicing Fees   $   1,072.7      $    989.8      $    863.3      $    793.1      $       -       $       -       $  1,936.0      $  1,782.9
Foreign Exchange Trading Income                    189.8           155.3             3.8            10.0              -               -            193.6           165.3
Other Noninterest Income                           130.1           145.9            95.8            70.1             5.4             6.1           231.3           222.1
Net Interest Income (FTE)*                         200.2           217.0           425.3           476.9            81.0            93.6           706.5           787.5

Revenue*                                         1,592.8         1,508.0         1,388.2         1,350.1            86.4            99.7         3,067.4         2,957.8
Provision for Credit Losses                         (1.1 )          (1.6 )          16.1            21.6              -               -             15.0            20.0
Noninterest Expense                              1,206.7         1,190.0           900.9           878.4            91.7            68.9         2,199.3         2,137.3

Income (loss) before Income Taxes*                 387.2           319.6           471.2           450.1            (5.3 )          30.8           853.1           800.5
Provision (Benefit) for Income Taxes*              123.0           102.1           177.8           170.2            (9.3 )           8.6           291.5           280.9

Net Income                                   $     264.2      $    217.5      $    293.4      $    279.9      $      4.0      $     22.2      $    561.6      $    519.6

Percentage of Consolidated Net Income                 47 %            42 %            52 %            54 %             1 %             4 %           100 %           100 %
Average Assets                               $  52,323.8      $ 49,642.8      $ 22,863.1      $ 23,527.6      $ 18,036.6      $ 20,243.2      $ 93,223.5      $ 93,413.6

* Stated on a fully taxable equivalent basis (FTE). Total consolidated includes FTE adjustments of $23.3 million for 2013 and $31.4 million for 2012.


Corporate & Institutional Services

C&IS net income for the current quarter totaled $84.8 million as compared to
$68.3 million in the prior year quarter, an increase of $16.5 million, or 24%.
Noninterest income was $465.9 million, up $40.0 million, or 9%, from $425.9
million in the prior year quarter, reflecting higher trust, investment and other
servicing fees and increased foreign exchange trading income.



C&IS Trust, Investment and Other Servicing Fees         Three Months Ended September 30,
($ In Millions)                                     2013            2012            Change
Custody and Fund Administration                   $   239.4       $  214.4     $ 25.0        12 %
Investment Management                                  71.3           73.2       (1.9 )      (3 )
Securities Lending                                     22.7           23.8       (1.1 )      (5 )
Other                                                  26.4           23.0        3.4        15

Total                                             $   359.8       $  334.4     $ 25.4         8 %

Custody and fund administration fees, the largest component of C&IS fees, increased 12%, primarily driven by favorable equity markets and new business. C&IS investment management fees decreased 3%, primarily due to higher waived fees in money market mutual funds, partially offset by favorable equity markets and new business. Money market mutual fund fee waivers in C&IS, attributable to persistently low short-term interest rates, totaled $15.3 million in the current quarter, compared to waived fees of $6.5 million in the prior year quarter. Securities lending revenue decreased 5%, primarily reflecting lower spreads in the current quarter, partially offset by higher volumes.

Foreign exchange trading income totaled $61.8 million in the current quarter, an increase of $20.5 million, or 50%, from $41.3 million in the prior year quarter, attributable to higher currency market volatility and trading volumes compared to the prior year quarter.

Other noninterest income totaled $44.3 million, down $5.9 million, or 12%, from $50.2 million in the prior year quarter, primarily reflecting current quarter decreases within various miscellaneous categories of other operating income.

Net interest income stated on an FTE basis was $70.1 million, up 3% from $68.0 million in the prior year quarter. The current quarter net interest margin . . .

  Add NTRS to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for NTRS - All Recent SEC Filings
Sign Up for a Free Trial to the NEW EDGAR Online Pro
Detailed SEC, Financial, Ownership and Offering Data on over 12,000 U.S. Public Companies.
Actionable and easy-to-use with searching, alerting, downloading and more.
Request a Trial      Sign Up Now


Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.