First Quarter 2020 Quarterly Earnings Review · 2020. 4. 21. · Pre-Tax Income - Reported 461.1$...

1northerntrust.com | © 2020 NorthernTrustnortherntrust.com | © 2020 NorthernTrust

Northern Trust Corporation.First Quarter 2020Quarterly Earnings Review.

April 21, 2020

2northerntrust.com | © 2020 NorthernTrust

NORTHERN TRUST’S RESPONSE TO COVID-19

• Operational resiliency to support 60% year-over-year increase in volumes

• Capital to support 20% increase in deposits and loans

• Leveraging our digital capabilities for continued exceptional client servicing, including launching aCOVID-19 Thought Leadership site

• Offering our Client Relief Package to qualified clients, which includes options for payment deferments

• Providing access to Small Business Administration Paycheck Protection Program

FOR OUR CLIENTS FOR OUR EMPLOYEES FOR OUR COMMUNITY

• Enabling 90%+ of our workforce to work remotely

• Robust social distancing and enhanced cleaning protocols to protect our workforce

• Increased flexibility for alternative work options due to mandated school closures

• Additional support and compensation for eligible employees, including those who are deemed critical for working in our offices

• Philanthropic support to several nonprofit organizations around the world, including those that provide healthcare, food and other humanitarian relief

• Created a COVID-19 Matching Gift program to encourage and leverage gifts from Northern Trust staff

• Launched a virtual volunteer hub where employees can register for safe and immediate volunteer opportunities while sheltering in their homes


EXECUTIVE SUMMARY

Key Macroeconomic Factors1Q20 End of Period Month Lag1 Quarter Lag2

YoY Seq YoY Seq YoY Seq

S&P 500 (8.8)% (20.0)% 17.7% 2.8% 28.9% 8.5%

MSCI EAFE Local (15.1)% (21.2)% 8.8% (0.6)% 18.1% 4.8%

1 month Libor (150) bps (77) bps

3 month Libor (115) bps (46) bps

EUR / USD 2.3% 2.3%

GBP / USD 5.1% 6.8%

Net income of $360.6 million, earnings per common share of $1.55

Return on average common equity of 13.4%

1 Month Lag YoY represents the average month-ends of Dec. 2019 – Feb. 2020 vs. Dec. 2018 – Feb. 2019. Month Lag Seq represents the average month-ends of Dec. 2019 – Feb. 2020 vs. Sep. – Nov. 2019.

2 Quarter Lag YoY represents quarter-end Dec. 2019 vs. Dec. 2018. Quarter Lag Seq represents quarter-end Dec. 2019 vs. Sep. 2019.


SUMMARY RESULTS & KEY METRICS$ in millions (except EPS and as noted)

% Change Vs.

1Q 2020 1Q 2019 4Q 2019

Revenue (FTE1) $1,595.8 +7% +2%

Noninterest Expense 1,065.6 +4% (1)%

Provision for Credit Losses 61.0 N/M N/M

Net Income $360.6 +4% (3)%

Earnings per Share $1.55 +5% (9)%

Return on Equity2 13.4% 14.0% 14.8%

Pre-Tax Margin1,2 29.4% 30.9% 31.2%

Expense to Trust Fee Ratio2 106% 111% 108%

Assets under Custody / Administration3 (in billions) $10,877 —- (10)%

Assets under Custody3 (in billions) $8,255 +1% (11)%

Global Custody Assets3 (in billions) $5,218 +2% (11)%

Assets under Management3 (in billions) $1,119 (4)% (9)%

1 Revenue and pre-tax margin stated on a fully taxable equivalent (FTE) basis are non-GAAP financial measures. A reconciliation to reported revenue and reported pre-tax margin prepared in accordance with U.S. generally accepted accounting principles (GAAP) is included in the Appendix on page 11.

2 Actual numbers for all periods, not % change. 3 Client assets for the current quarter are considered preliminary until the Form 10-Q is filed with the Securities and Exchange Commission.


TOTAL REVENUE$ in millions

Total Revenue (FTE1)

$929 $955 $976 $992 $1,004

$66 $60 $60 $65 $89 $64 $73 $85 $70 $87

$430 $425 $425 $430 $416

1Q 2019 2Q 2019 3Q 2019 4Q 2019 1Q 2020

+7%+2%

Trust, Investment and Other Servicing FeesFX Trading Income

Other Noninterest IncomeNet Interest Income (FTE1)

Trust, Investment & Other Servicing Fees were up 8% year-over-year and 1% sequentially.

Foreign Exchange Trading Income increased 34% year-over-year and 38% sequentially.

Other Noninterest Income was up 37% year-over-year and 24% sequentially.

Net Interest Income (FTE1) was down 3% both year-over-year and sequentially.

Categories may not sum due to rounding.1 Net interest income and total revenue stated on an FTE basis are non-GAAP financial measures. A reconciliation of

these measures to reported results prepared in accordance with U.S. GAAP is included in the Appendix on page 11.


TRUST, INVESTMENT & OTHER SERVICING FEES$ in millions (except as noted) % Change Vs.

Trust, Investment & Other Servicing Fees 1Q 2020 1Q 2019 4Q 2019

Custody & Fund Administration $394.9 +5% (1)%

Investment Management 120.8 +16% +4%

Securities Lending 23.4 +3% +4%

Other 35.3 +7% +12%

Total Corporate & Institutional Services $574.4 +7% +1%

Central $159.4 +6% +1%

East 111.5 +11% +1%

West 87.0 +9% +2%

Global Family Office 71.3 +14% (1)%

Total Wealth Management $429.2 +9% +1%

Client Assets1 (in billions):

C&IS AUC/A $10,236 —- (10)%

C&IS AUC $7,621 +1% (10)%

Global Custody Assets $5,218 +2% (11)%

C&IS AUM $843 (3)% (8)%

Securities Lending Collateral $167 +2% +1%

Wealth Management AUC/A $640 (7)% (13)%

Wealth Management AUC $634 (5)% (14)%

Wealth Management AUM $277 (6)% (12)%

C&IS Trust, Investment & Other Servicing Fees were up 7% year-over-year and up 1% sequentially. Custody & fund administration fees increased

year-over-year primarily due to favorable lagged markets and new business, partially offset by unfavorable currency translation.

Investment management fees increased both year-over-year and sequentially primarily due to favorable lagged markets and new business.

Securities lending fees increased year-over-year primary due to higher volumes, while the sequential increase was primarily driven by higher spreads and volumes.

Wealth Management Trust, Investment & Other Servicing Fees were up 9% year-over-year, primarily due to favorable lagged markets and new business. Sequentially, it increased 1%.

1 Client assets for the current quarter are considered preliminary until the Form 10-Q is filed with the Securities and Exchange Commission.


NET INTEREST INCOME

Average Earning Assets($ in billions)

$110.7$105.7 $105.0 $107.2 $110.6

1.58%1.61% 1.61%

1.59%

1.51%

1Q 2019 2Q 2019 3Q 2019 4Q 2019 1Q 2020NII (FTE1)in millions

$429.8 $425.1 $425.3 $430.5 $416.2

Loans & LeasesSecurities

Deposits w/ BanksFed Deposits & Other

NIM (FTE1)

Net Interest Income (FTE1) was down 3% both year-over-year and sequentially. Net interest margin (FTE1) was 1.51%.

Average Earning Assets were flat year-over-year and up 3% sequentially.

Average Total Deposits were up 4% year-over-year and up 6% sequentially.

Net Interest Margin decreased 7 basis points versus the prior-year quarter primarily due to lower short-term interest rates, partially offset by a balance sheet mix shift.

Net Interest Margin decreased 8 basis points versus the prior quarter primarily due to higher premium amortization, balance sheet mix shift, and lower short-term interest rates.

1 Net interest income and net interest margin stated on an FTE basis are non-GAAP financial measures. A reconciliation of these measures to reported results prepared in accordance with U.S. GAAP is included in the Appendix on page 11.


NONINTEREST EXPENSE$ in millions

Total Noninterest Expense

$568 $545 $546 $556 $598

$188 $186 $194 $206 $193

$148 $147 $152 $165 $162 $52 $51 $53

$57 $51 $73 $77 $92 $88 $62

$1,029 $1,006 $1,036 $1,072 $1,066

1Q 2019 2Q 2019 3Q 2019 4Q 2019 1Q 2020

+4%(1)%

Compensation & BenefitsOutside ServicesEquipment & Software

OccupancyOther

Expenses totaled $1.1 billion in the first quarter, up 4% year-over-year and down 1% sequentially.

The year-over-year growth in expenses was primarily driven by increases in compensation and benefits and equipment & software related costs, partially offset by favorability in other operating expenses.

The slight sequential decline in expenses was primarily driven by decreases in other operating expenses and outside services, partially offset by increases in compensation and benefits.

Categories may not sum due to rounding.


CAPITALNorthern Trust Corporation Capital Ratios

Advanced Approach

Common Equity Tier 1 12.9%

Tier 1 14.1%

Total 15.7%

Tier 1 Leverage 8.1%

Supplementary Leverage 7.2%

Standardized Approach

Common Equity Tier 1 11.7%

Tier 1 12.8%

Total 14.5%

Tier 1 Leverage 8.1%

Capital Return

Declared $149 million in common stock dividends and $19 million in preferred stock dividends.

Repurchased 3.2 million shares of common stock in 1Q 2020 before announcing temporary suspension of repurchases, consistent with broader efforts to mitigate the impact of the COVID-19 pandemic.

As of March 31, 2020. Capital ratios for the current quarter are considered preliminary until the Form 10-Q is filed with the Securities and Exchange Commission.

Preferred Stock Issuance

During 4Q 2019, issued and sold 16 million depositary shares of Series E Preferred Stock for net proceeds of $391.4 million, which were subsequently used to fund the redemption of all Series C Preferred Stock outstanding in Q1 2020.

During Q1 2020, Series E Preferred Stock dividend was approximately $7.6 million, covering 11/5/2019 through 3/31/2020.

Ongoing quarterly Series E Preferred Stock dividend is approximately $4.7 million.


RECONCILIATION OF NON-GAAP FINANCIAL MEASURESThe following table presents a reconciliation of total revenue, net interest income, net interest margin and pre-tax marginprepared in accordance with GAAP to such measures on a fully taxable equivalent (FTE) basis, which are non-GAAPfinancial measures.

Management believes this presentation provides a clearer indication of these financial measures for comparativepurposes.

1Q20 4Q19 3Q19 2Q19 1Q19Reported 1,587.7$ 1,547.7$ 1,537.9$ 1,506.6$ 1,480.9$ FTE Adj. 8.1$ 9.7$ 7.6$ 7.7$ 7.8$ FTE 1,595.8$ 1,557.4$ 1,545.5$ 1,514.3$ 1,488.7$

1Q20 4Q19 3Q19 2Q19 1Q19Reported 408.1$ 420.8$ 417.7$ 417.4$ 422.0$ FTE Adj. 8.1$ 9.7$ 7.6$ 7.7$ 7.8$ FTE 416.2$ 430.5$ 425.3$ 425.1$ 429.8$

NIM - Reported 1.48% 1.56% 1.58% 1.58% 1.55%NIM - FTE 1.51% 1.59% 1.61% 1.61% 1.58%

1Q20 4Q19 1Q19Revenue - Reported 1,587.7$ 1,547.7$ 1,480.9$ Pre-Tax Income - Reported 461.1$ 476.4$ 452.2$ FTE Adj.* 8.1$ 9.7$ 7.8$ Revenue - FTE 1,595.8$ 1,557.4$ 1,488.7$ Pre-Tax Income - FTE 469.2$ 486.1$ 460.0$ Pre-Tax Margin - Reported 29.0% 30.8% 30.5%Pre-Tax Margin - FTE 29.4% 31.2% 30.9%

* FTE Adjustment applies to both revenue and pre-tax income

Revenue

Net Interest Income

Pre-Tax Margin


FORWARD-LOOKING STATEMENTSThis presentation may include statements which constitute “forward-looking statements” within themeaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are identified typically by words or phrases such as “believe,” “expect,” “anticipate,”“intend,” “estimate,” “project,” “likely,” “plan,” “goal,” “target,” “strategy,” and similar expressions or futureor conditional verbs such as “may,” “will,” “should,” “would,” and “could.” Forward-looking statementsinclude statements, other than those related to historical facts, that relate to Northern Trust’s financialresults and outlook, capital adequacy, dividend policy and share repurchase program, accountingestimates and assumptions, credit quality including allowance levels, future pension plan contributions,effective tax rate, anticipated expense levels, contingent liabilities, acquisitions, strategies, market andindustry trends, and expectations regarding the impact of accounting pronouncements and legislation.Forward-looking statements also include statements, other than those related to historical facts, thatrelate to the ongoing COVID-19 (coronavirus) pandemic and its impact on global economic and marketconditions and Northern Trust’s business, financial condition, and results of operations. Thesestatements are based on Northern Trust’s current beliefs and expectations of future events or futureresults, and involve risks and uncertainties that are difficult to predict and subject to change. Thesestatements are also based on assumptions about many important factors, including the factorsdiscussed in Northern Trust’s most recent annual report on Form 10-Q and other filings with the U.S.Securities and Exchange Commission, all of which are available on Northern Trust’s website. Wecaution you not to place undue reliance on any forward-looking statement as actual results may differmaterially from those expressed or implied by forward-looking statements. Northern Trust assumes noobligation to update its forward-looking statements.

This presentation should be reviewed together with Northern Trust Corporation’s First Quarter 2020 earnings press release, which is available at:

www.northerntrust.com/about-us/investor-relations

First Quarter 2020 Quarterly Earnings Review · 2020. 4. 21. · Pre-Tax Income - Reported 461.1$...

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