Grade: A — Strong Financial Health
Framework: Bank-specific credit quality analysis + Schilit principles (traditional manufacturing checks partially N/A for banks)
Data: SEC EDGAR 10-K (Filed 2026-02-24, FY ended December 31, 2025) + Yahoo Finance
Auditor: KPMG LLP — Unqualified opinion
One-line verdict: Northern Trust is a fortress custody and asset management bank with zero screening red flags. Total revenue was $8.09B, net income $1.74B, and ROE improved to 14.4%. The CET1 ratio of 12.6% (standardized) is well above regulatory minimums. Provision for credit losses was a net release of -$7.5M, reflecting exceptionally clean credit quality. CFFO/NI of 3.19x is elevated but reflects normal banking cash flow patterns. Goodwill and intangibles of $0.7B represent just 6% of equity — a clean balance sheet. AUC/A and AUM provide fee-based, recurring revenue that is less credit-sensitive than traditional banking. Net interest income grew 11% to $2.41B. The primary risk is fee compression from AUM-linked revenue during market downturns.
| Metric | Result |
|---|---|
| Red Flags | **0** |
| Watch Items | **0** |
| Checks Completed | **10/18** (8 N/A — standard checks inapplicable to banks) |
| Beneish M-Score | **N/A** (model does not apply to financial institutions) |
| F-Score (Fraud Probability) | **0.89** (0.33% probability — very low) |
| Altman Z-Score | **N/A** (not applicable to banks) |
| Auditor | KPMG LLP — Unqualified opinion |
| Fiscal Year | 2025 (ended December 31, 2025) |
| Report Date | 2026-04-05 |
A Fee-Based Trust and Custody Bank
Per the 10-K, Northern Trust provides asset servicing, asset management, and banking to institutional investors, high-net-worth individuals, and sovereign entities. Revenue is predominantly fee-based: noninterest income of $5.68B accounted for 70% of total revenue.
| Metric | 2022 | 2023 | 2024 | 2025 | Trend |
|---|---|---|---|---|---|
| Total Revenue | $6.76B | $6.77B | $8.29B | **$8.09B** | -2.4% |
| Net Income | $1.34B | $1.11B | $2.03B | **$1.74B** | -14.5% |
| Net Margin | 19.8% | 16.4% | 24.5% | **21.5%** | Normalizing |
| ROE | 11.9% | 9.3% | 15.9% | **14.4%** | Strong |
| Diluted EPS | — | $5.08 | $9.77 | **$8.74** | -10.5% |
| Provision for CL | — | $24.5M | -$3.0M | **-$7.5M** | Net release |
| NIM | — | — | — | **1.37%** | Typical custody bank |
| CET1 (Standardized) | — | — | — | **12.6%** | Well-capitalized |
Revenue declined 2.4% due to lower noninterest income (down 7%), partially offset by NII growth of 11%. The 10-K shows noninterest income of $5,675.4M (2025) vs $6,113.3M (2024) — the decline was driven by lower equity market levels affecting AUM-linked fees and reduced trading income.
Net income declined 14.5% from the elevated 2024 base. Earnings per share of $8.74 diluted vs $9.77 prior year.
Capital Position
Per the filing's capital ratio table:
| Ratio | Northern Trust Corp | Regulatory Minimum | Well-Capitalized |
|---|---|---|---|
| CET1 (Standardized) | **12.6%** | 4.5% | N/A |
| CET1 (Advanced) | **15.0%** | 4.5% | N/A |
| Tier 1 (Standardized) | **13.5%** | 6.0% | 6.0% |
| Total Capital (Standardized) | **16.1%** | 8.0% | 10.0% |
| Tier 1 Leverage | **7.8%** | 4.0% | N/A |
| SLR (Advanced) | **8.7%** | 3.0% | 3.0% |
All ratios significantly exceed regulatory requirements. The bank is well-capitalized by all measures.
The 18-Point Screening
| # | Check | Result | Detail |
|---|---|---|---|
| A1 | DSO Change | N/A | Bank |
| A2 | AR vs Revenue Growth | N/A | Bank |
| A3 | Revenue vs CFFO | PASS | CFFO recovered strongly |
| B1 | Inventory vs COGS | PASS | No inventory |
| B2 | CapEx vs Revenue | PASS | CapEx growth 3.8% |
| B3 | SG&A Ratio | N/A | Bank |
| B4 | Gross Margin | N/A | Bank |
| C1 | CFFO vs Net Income | PASS | CFFO/NI = 3.19 |
| C2 | Free Cash Flow | PASS | FCF $4.76B |
| C3 | Accruals Ratio | PASS | -2.1% — clean |
| C4 | Cash vs Debt | PASS | Cash $61.1B covers $14.0B debt |
| D1 | Goodwill + Intangibles | PASS | $0.7B = 6% of equity |
| D2 | Leverage | N/A | Bank |
| D3 | Soft Asset Growth | N/A | Bank |
| D4 | Asset Impairment | N/A | No data |
| E1 | Serial Acquirer FCF | PASS | Positive |
| E2 | Goodwill Surge | PASS | +3% YoY — minimal |
| F1 | Beneish M-Score | N/A | Bank |
Key Risks from the 10-K
1. AUM/AUC Fee Sensitivity to Markets
Northern Trust's fee income is directly tied to asset valuations. Per Item 1A, a sustained decline in equity or fixed income markets would reduce trust fees, investment management fees, and custody fees — the bulk of noninterest income.
2. Competitive Fee Pressure
The filing warns of intensifying competition from larger custodians and asset managers, including fee compression pressures in the custody and fund administration business.
3. Interest Rate Sensitivity
NIM of 1.37% is thin. While NII grew 11% as rates remained elevated, further rate cuts would compress this spread. The 10-K discusses NII sensitivity to rate changes.
4. Operational and Technology Risk
As a custody and asset servicing bank, Northern Trust handles trillions in client assets. Operational failures, cybersecurity incidents, or technology disruptions could result in significant losses and reputational damage.
Summary
Grade: A. Strong financial health. A high-quality fee-based bank with minimal credit risk, strong capital ratios, and no screening red flags.
Northern Trust passes every applicable screening check. The provision for credit losses was a net release of -$7.5M — essentially no credit losses. CET1 of 12.6%, goodwill at only 6% of equity, and cash of $61.1B covering $14.0B in debt. The primary risk is AUM-linked fee compression during market downturns, not credit or earnings quality concerns.
**Disclaimer**: This report is based on Northern Trust Corporation's fiscal year 2025 10-K filed with the SEC on February 24, 2026. This is NOT investment advice.
**About EarningsGrade**: We screen earnings reports for financial red flags using an 18-point forensic framework. Grade A means strong financial health with no significant concerns.