01—Abstract
Summary
Summary of the 10-K filed March 12, 2004. Cited figures are marked; the original filing is the authoritative source.
Northern Trust Corporation's 2003 Form 10-K, filed March 12, 2004, reports a year of lower earnings driven by a low-rate environment and strategic restructuring.
Net income for 2003 was $404.8 milliona, down 9% from $447.1 million in 2002, and diluted EPS was $1.80 versus $1.97. Net interest income fell 9% to $548.2 million as mortgage refinancing compressed yields, and the net interest margin declined to 1.73% from 1.93%. Trust fees rose 2% to $1.19 billion, and noninterest income represented 72% of total taxable equivalent revenue.
Total assets were $41.5 billionb and stockholders' equity was $3.06 billion at December 31, 2003. Management took strategic actions in 2003, including a restructuring with pre-tax charges of $56.3 million, a targeted reduction of $75 million in annualized operating costs by June 2004, and the sale of its retirement consulting and recordkeeping business (NTRC) to Hewitt Associates, which produced a $20.2 million pre-tax loss on sale and an $18.5 million net loss from discontinued operations. Growth came from acquisitions, including Deutsche Bank AG's passive equity and fixed income management businesses, which added approximately $75 billion in assets under management, and Legacy South in Atlanta.
Trust assets under administration reached a record $2.2 trillionc, up 43%, and managed trust assets were $478.6 billion, up 58%. Credit quality improved, with the provision for credit losses falling to $2.5 million from $37.5 million, and net charge-offs of $13.8 million. Nonaccrual loans were $80.0 million, or .45% of the loan portfolio.
The company reported a Tier 1 capital ratio of 11.1% and a total capital ratio of 14.0%, both well above the well-capitalized thresholds. Common dividends were increased 12% to $.19 per quarter in November 2003, and the company redeemed all $120 milliond of its preferred stock during 2003.
02—Key points
Key Highlights
- Net income of $404.8 million for 2003, down 9% from $447.1 million; diluted EPS of $1.80 versus $1.97 in 2002
- Net interest income declined 9% to $548.2 million, with the net interest margin falling to 1.73% from 1.93% amid mortgage refinancing and a low-rate environment
- Trust fees rose 2% to $1.19 billion; trust assets under administration hit a record $2.2 trillion, up 43%, and managed assets reached $478.6 billion, up 58%
- Strategic restructuring incurred $56.3 million in pre-tax charges, targeting $75 million in annualized cost reductions by June 2004; NTRC was sold to Hewitt Associates with a $20.2 million pre-tax loss
- Credit quality improved: provision for credit losses fell to $2.5 million from $37.5 million, and nonaccrual loans were $80.0 million, or .45% of total loans
- Acquired Deutsche Bank AG's passive equity, enhanced equity and passive fixed income businesses, adding approximately $75 billion in assets under management, and Legacy South in Atlanta
- Capital remained strong, with a Tier 1 risk-based ratio of 11.1% and total capital ratio of 14.0%; the quarterly dividend was raised 12% to $.19 and all $120 million of preferred stock was redeemed
03—Questions
Frequently Asked Questions
Why did Northern Trust's earnings decline in 2003?
Net income fell 9% to $404.8 million. Net interest income dropped 9% to $548.2 million because mortgage refinancing reduced yields on the residential loan portfolio, and the low interest rate environment compressed spreads and the net interest margin, which fell to 1.73% from 1.93%. Results were also affected by $56.3 million in restructuring charges and an $18.5 million net loss from discontinued operations, partly offset by higher trust fees and a much lower provision for credit losses.
How did the company's fee-based business perform?
Trust fees rose 2% to $1.19 billion, reversing a decline in the prior year. Improved equity markets in the second half of 2003, acquisitions and net new business drove the increase. Noninterest income represented 72% of total taxable equivalent revenue in 2003, and trust assets under administration reached a record $2.2 trillion, up 43% from a year earlier.
What were the major strategic actions taken in 2003?
Management implemented a strategic business review that included eliminating about 700 positions, reducing office space, and retiring software, with pre-tax charges of $56.3 million and a goal of reducing annualized operating costs by $75 million by June 2004. The company sold the retirement consulting and recordkeeping business NTRC to Hewitt Associates, closed or sold five PFS branches, and completed acquisitions including Deutsche Bank AG's passive asset management businesses and Legacy South.
How strong is the company's capital and credit position?
At December 31, 2003, Northern Trust had total assets of about $41.5 billion and stockholders' equity of $3.06 billion. The Tier 1 risk-based capital ratio was 11.1%, the total capital ratio was 14.0%, and the leverage ratio was 7.6%, all well above regulatory minimums. Nonaccrual loans were $80.0 million, or .45% of the $17.8 billion loan portfolio, and the provision for credit losses fell to $2.5 million from $37.5 million in 2002.
What did the company do for shareholders in 2003?
The Board increased the quarterly common dividend 12% to $.19 in November 2003, and total cash dividends declared for the year were $.70 per share. The company repurchased 2,813,469 common shares at a cost of $113.0 million under its buyback program and redeemed all $120 million of its Series C and Series D preferred stock.
04—Continue