Reporting Segments and Related Information

12 Months Ended

Dec. 31, 2020

Segment Reporting [Abstract]

Reporting Segments and Related Information

Reporting Segments and Related Information

Segment Information. Northern Trust is organized around its two client-focused reporting segments: C&IS and Wealth Management. Asset management and related services are provided to C&IS and Wealth Management clients primarily by the Asset Management business. The revenue and expenses of Asset Management and certain other support functions are allocated fully to C&IS and Wealth Management.

Reporting segment financial information, presented on an internal management-reporting basis, is determined by accounting systems used to allocate revenue and expense to each segment, and incorporates processes for allocating assets, liabilities, equity and the applicable interest income and expense utilizing a funds transfer pricing (FTP) methodology. Under the methodology, assets and liabilities receive a funding charge or credit that considers interest rate risk, liquidity risk, and other product characteristics on an instrument level. Equity is allocated to the reporting segments based on a variety of factors including, but not limited to, risk, regulatory considerations, and internal metrics. Allocations of capital and certain corporate expense may not be representative of levels that would be required if the segments were independent entities. The accounting policies used for management reporting are consistent with those described in Note 1, “Summary of Significant Accounting Policies.” Transfers of income and expense items are recorded at cost; there is no consolidated profit or loss on sales or transfers between reporting segments. Northern Trust’s presentations are not necessarily consistent with similar information for other financial institutions.

Effective January 1, 2019, Northern Trust implemented several enhancements to its FTP methodology, including the allocation of contingent liquidity charges to C&IS and Wealth Management client instruments and products. These methodology enhancements affect the results of each reporting segment. Due to the lack of historical information, segment results for periods ended prior to January 1, 2019 have not been revised to reflect the methodology enhancements.

Also effective January 1, 2019, revenues, expenses and average assets are allocated to C&IS and Wealth Management with the exception of non-recurring activities such as certain costs associated with acquisitions, divestitures, litigation, restructuring, and tax adjustments not directly attributable to a specific reporting segment.

For reporting periods ended prior to January 1, 2019, income and expense associated with the wholesale funding activities and investment portfolios of the Corporation and the Bank, as well as certain corporate-based expense, executive-level compensation and nonrecurring items, were not allocated to C&IS and Wealth Management, and were reported in Treasury and Other.

Reporting segment results are subject to reclassification when organizational changes are made. The results are also subject to refinements in revenue and expense allocation methodologies, which are typically reflected on a prospective basis.

The following tables reflect the earnings contribution and average assets of Northern Trust’s reporting segments for the years ended December 31, 2020, 2019, and 2018.

TABLE 138: CORPORATE & INSTITUTIONAL SERVICES RESULTS OF OPERATIONS

	FOR THE YEAR ENDED DECEMBER 31,
($ In Millions)	2020			2019			2018
Noninterest Income
Trust, Investment and Other Servicing Fees	$	2,321.6		$	2,211.5		$	2,173.1
Foreign Exchange Trading Income	276.3			232.2			233.4
Other Noninterest Income	222.5			178.2			183.0
Total Noninterest Income	2,820.4			2,621.9			2,589.5
Net Interest Income(1)	665.5			918.7			992.2
Revenue(1)	3,485.9			3,540.6			3,581.7
Provision for Credit Losses	38.1			1.9			1.9
Noninterest Expense	2,752.7			2,605.5			2,421.4
Income before Income Taxes(1)	695.1			933.2			1,158.4
Provision for Income Taxes(1)	174.4			219.4			255.3
Net Income	$	520.7		$	713.8		$	903.1
Percentage of Consolidated Net Income	43		%	48		%	58		%
Average Assets	$	104,790.6		$	87,557.1		$	82,996.5

(1) Non-GAAP financial measures stated on an FTE basis.

TABLE 139: WEALTH MANAGEMENT RESULTS OF OPERATIONS

	FOR THE YEAR ENDED DECEMBER 31,
($ In Millions)	2020			2019			2018
Noninterest Income
Trust, Investment and Other Servicing Fees	$	1,673.4		$	1,640.6		$	1,580.6
Foreign Exchange Trading Income	14.1			18.7			4.2
Other Noninterest Income	168.0			131.1			102.7
Total Noninterest Income	1,855.5			1,790.4			1,687.5
Net Interest Income(1)	812.1			792.0			816.5
Revenue(1)	2,667.6			2,582.4			2,504.0
Provision for Credit Losses	86.9			(16.4)			(16.4)
Noninterest Expense	1,559.7			1,531.6			1,460.0
Income before Income Taxes(1)	1,021.0			1,067.2			1,060.4
Provision for Income Taxes(1)	291.8			271.1			262.1
Net Income	$	729.2		$	796.1		$	798.3
Percentage of Consolidated Net Income	60		%	53		%	51		%
Average Assets	$	32,020.5		$	29,994.3		$	26,163.7

(1) Non-GAAP financial measures stated on an FTE basis.

TABLE 140: TREASURY AND OTHER RESULTS OF OPERATIONS

	FOR THE YEAR ENDED DECEMBER 31,
($ In Millions)	2020			2019			2018
Noninterest Income	$	(18.3)		$	(17.1)		$	60.5
Net Interest Income(1)	—			—			(144.8)
Revenue(1)	(18.3)			(17.1)			(84.3)
Noninterest Expense	35.8			6.4			135.5
Income (Loss) before Income Taxes(1)	(54.1)			(23.5)			(219.8)
Provision (Benefit) for Income Taxes(1)	(13.5)			(5.8)			(74.8)
Net Income	$	(40.6)		$	(17.7)		$	(145.0)
Percentage of Consolidated Net Income	(3)		%	(1)		%	(9)		%
Average Assets	$	—		$	—		$	13,786.4

(1) Non-GAAP financial measures stated on an FTE basis.

TABLE 141: CONSOLIDATED FINANCIAL INFORMATION

	FOR THE YEAR ENDED DECEMBER 31,
(In Millions)	2020		2019		2018
Noninterest Income
Trust, Investment and Other Servicing Fees	$	3,995.0	$	3,852.1	$	3,753.7
Foreign Exchange Trading Income	290.4		250.9		307.2
Other Noninterest Income	372.2		292.2		276.6
Total Noninterest Income	4,657.6		4,395.2		4,337.5
Net Interest Income(1)	1,477.6		1,710.7		1,663.9
Revenue(1)	6,135.2		6,105.9		6,001.4
Provision for Credit Losses	125.0		(14.5)		(14.5)
Noninterest Expense	4,348.2		4,143.5		4,016.9
Income before Income Taxes(1)	1,662.0		1,976.9		1,999.0
Provision for Income Taxes(1)	452.7		484.7		442.6
Net Income	$	1,209.3	$	1,492.2	$	1,556.4
Average Assets	$	136,811.1	$	117,551.4	$	122,946.6

(1) Non-GAAP financial measures stated on an FTE basis. The consolidated figures include $34.4 million, $32.8 million, and $41.2 million, of FTE adjustments for 2020, 2019, and 2018, respectively.

Further discussion of reporting segment results is provided within the “Reporting Segments and Related Information” section of Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Geographic Area Information. Northern Trust’s non-U.S. activities are primarily related to its asset servicing, asset management, foreign exchange, cash management, and commercial banking businesses. The operations of Northern Trust are managed on a reporting segment basis and include components of both U.S and non-U.S. source income and assets. Non-U.S. source income and assets are not separately identified in Northern Trust’s internal management reporting system. However, Northern Trust is required to disclose non-U.S. activities based on the domicile of the customer. Due to the complex and integrated nature of Northern Trust’s activities, it is difficult to segregate with precision revenues, expenses and assets between U.S. and non-U.S.-domiciled customers. Therefore, certain subjective estimates and assumptions have been made to allocate revenues, expenses and assets between U.S. and non-U.S. operations.

For purposes of this disclosure, all foreign exchange trading income has been allocated to non-U.S. operations. Interest expense is allocated to non-U.S. operations based on specifically matched or pooled funding. Allocations of indirect noninterest expenses, when made, are based on various methods such as time, space, and number of employees.

The following table summarizes Northern Trust’s performance based on the allocation process described above without regard to guarantors or the location of collateral.

TABLE 142: DISTRIBUTION OF TOTAL ASSETS AND OPERATING PERFORMANCE

(In Millions)	TOTAL ASSETS		TOTAL REVENUE(1)		INCOME BEFORE INCOME TAXES		NET INCOME
2020
Non-U.S.	$	38,393.8	$	1,737.6	$	404.0	$	302.6
U.S.	131,610.1		4,363.2		1,223.6		906.7
Total	$	170,003.9	$	6,100.8	$	1,627.6	$	1,209.3
2019
Non-U.S.	$	27,888.6	$	1,889.5	$	600.0	$	451.0
U.S.	108,939.8		4,183.6		1,344.1		1,041.2
Total	$	136,828.4	$	6,073.1	$	1,944.1	$	1,492.2
2018
Non-U.S.	$	32,712.9	$	2,018.1	$	786.4	$	625.7
U.S.	99,499.6		3,942.1		1,171.4		930.7
Total	$	132,212.5	$	5,960.2	$	1,957.8	$	1,556.4

(1) Total revenue is comprised of net interest income and noninterest income.