01—Abstract
Summary
Summary of the 10-K filed March 14, 2005. Cited figures are marked; the original filing is the authoritative source.
Northern Trust Corporation's 10-K for fiscal 2004, filed March 14, 2005, reports record net income of $505.6 milliona, up 25% from $404.8 million in 2003, with diluted earnings per share of $2.27 versus $1.80.
Total assets were $45.28 billionb at December 31, 2004 and stockholders' equity was $3.30 billion. Trust fees rose 12% to $1.33 billion, and total assets under administration reached a record $2.6 trillion, up 23%. Net interest income was $561.1 million, and the net interest margin declined to 1.66% from 1.73% as growth concentrated in lower-margin short-term money market assets.
Noninterest expenses rose 5% to $1.53 billionc, and the provision for credit losses was a negative $15.0 million, reflecting continued credit quality improvement and a 50%-plus reduction in nonperforming assets. The company agreed on November 22, 2004 to acquire the Financial Services Group from Baring Asset Management Holdings Limited and ING Bank NV for about 260 million British pounds (approximately $500 million), with closing expected around March 31, 2005. Management estimated the deal would be modestly dilutive to 2005 earnings and modestly accretive in 2006.
Return on average common equity was 16.07%d, below the company's stated 18%-20% long-term goal. The quarterly dividend was raised 11% to $.21 in November 2004.
All of the company's capital ratios exceeded the levels required to be classified as well capitalized, with a tier 1 risk-based ratio of 11.0% and a total risk-based ratio of 13.3% at year-end. Much of the financial detail in this filing is incorporated by reference from the 2004 Annual Report to Shareholders (Exhibit 13).
02—Key points
Key Highlights
- Record 2004 net income of $505.6 million, up 25% from $404.8 million; diluted EPS of $2.27 versus $1.80 in 2003
- Trust fees increased 12% to $1.33 billion; total assets under administration reached a record $2.6 trillion, up 23%
- Net interest margin fell to 1.66% from 1.73%, mainly from growth in lower-margin short-term money market assets
- Pending acquisition of Baring's Financial Services Group for about $500 million, expected to close around March 31, 2005
- Nonperforming assets fell over 50%; provision for credit losses was a negative $15.0 million in 2004
- Return on average common equity of 16.07%, below the 18%-20% long-term goal; quarterly dividend raised 11% to $.21
- Tier 1 risk-based capital ratio of 11.0% and total risk-based capital ratio of 13.3%, both well above well-capitalized minimums
03—Questions
Frequently Asked Questions
How did Northern Trust perform financially in 2004?
Net income reached a record $505.6 million, up 25% from $404.8 million in 2003. Diluted EPS rose 26% to $2.27. Revenues increased 9% to $2.33 billion on a fully taxable equivalent basis, and expenses rose 5% to $1.53 billion.
What is the Financial Services Group acquisition?
On November 22, 2004, Northern Trust agreed to buy Baring Asset Management's Financial Services Group for about 260 million British pounds (approximately $500 million). FSG offers fund administration, custody and trust services with approximately $68 billion in funds under administration, $31 billion in custody and $34 billion in trust assets. The deal is expected to close around March 31, 2005, and management expects it to be modestly dilutive to 2005 earnings and modestly accretive in 2006.
Is the company's credit quality improving?
Yes. The company recorded a negative $15.0 million provision for credit losses in 2004, versus a $2.5 million provision in 2003, and net charge-offs fell to $2.9 million from $13.8 million. Nonaccrual loans fell to $32.9 million from $80.0 million, and the filing describes a reduction of over 50% in nonperforming assets.
Is the company adequately capitalized?
Yes. At December 31, 2004, tier 1 capital was 11.0% and total capital was 13.3% of risk-weighted assets, well above the 4.0% and 8.0% minimums. The leverage ratio was 7.6%, above the 3.0% requirement. Each subsidiary bank also exceeded the well-capitalized thresholds.
Why did the net interest margin decline?
The net interest margin fell to 1.66% from 1.73% mainly because of growth in lower-margin short-term money market assets. Net interest income on a fully taxable equivalent basis rose 2% to $615.5 million, as average earning assets grew 6% to $37.0 billion.
04—Continue