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Northern Trust Annual Report, Year Ended Dec 31, 2005

Filing Date
Filed March 13, 2006
Period End
December 31, 2005
Securities
NTRSNTRSO
In the record · 2016–202610-K1110-Q338-K118

NTRS filed 11 annual reports (10-K), 33 quarterly reports (10-Q) and 118 current reports (8-K) between 2016 and 2026.

  1. Leadership change8-K · Feb ’19Feb ’19
  2. FY2020 annual report10-K · Feb ’21Feb ’21
  3. Leadership change8-K · Sep ’25Sep ’25

01—Abstract

Summary

Summary of the 10-K filed March 13, 2006. Cited figures are marked; the original filing is the authoritative source.

Northern Trust Corporation reported record 2005 net income of $584.4 milliona, or $2.64 diluted earnings per share, up 16% from the prior year, with the company stating that its earnings growth exceeded its long-term EPS growth goal of 10% or greater.

Total revenue reached record levels, increasing 15% to $2.69 billionb on a fully taxable equivalent basis, driven by trust, investment and other servicing fees of $1.56 billion, up 17%. The March 2005 acquisition of Baring Asset Management's Financial Services Group (FSG), for a final adjusted purchase price of 261.5 million British pounds Sterling, contributed $130.8 million in 2005 revenues and was described as neutral to full-year earnings. Assets under custody rose 15% to $2.93 trillion and assets under management rose 8% to $617.9 billion, while total assets reached $53.4 billion at December 31, 2005.

Credit quality and capital remained strong. Nonperforming loans totaled $31 millionc, or 0.15% of the $20.0 billion loan portfolio, and the provision for credit losses was $2.5 million. Stockholders' equity grew to $3.60 billion, and the Corporation's tier 1 capital ratio was 9.7% against a 6.0% well-capitalized minimum, with a total capital ratio of 12.3%.

The company repurchased 3,534,859 shares for $169.8 milliond and raised its quarterly dividend 10% to $.23 per share in November 2005. The filing also notes that the return on average common equity of 17.01% fell short of the company's 18%-20% long-term goal, and that the productivity ratio of 155% remained below its 160% goal. The filing discloses several risks.

The company is subject to an ongoing Enron-related ERISA class action in which trial is scheduled for fall 2006, and the IRS has challenged the tax treatment of thirteen structured leasing investments; the IRS Criminal Investigation Division has also opened an investigation into those transactions, which the company is cooperating with fully. Management believes these matters would not have a material adverse effect on consolidated financial position or liquidity, though they could affect operating results in a given period.

02—Key points

Key Highlights

  1. Record net income of $584.4 million and diluted EPS of $2.64, each up 16% from 2004.
  2. Total revenue rose 15% to $2.69 billion (FTE basis); trust, investment and other servicing fees rose 17% to $1.56 billion.
  3. FSG acquisition (closed March 31, 2005) contributed $130.8 million of 2005 revenue and was neutral to full-year earnings.
  4. Assets under custody reached a record $2.93 trillion (up 15%); assets under management reached $617.9 billion (up 8%).
  5. Nonperforming loans were $31 million, or 0.15% of total loans; provision for credit losses was $2.5 million.
  6. Tier 1 capital ratio of 9.7% and total capital ratio of 12.3%, both well above well-capitalized minimums; quarterly dividend raised 10% to $.23.
  7. Enron-related ERISA litigation (trial scheduled fall 2006) and IRS challenges to structured leasing transactions, including a criminal investigation, remain open.

03—Questions

Frequently Asked Questions

  1. How did Northern Trust perform financially in 2005?

    Northern Trust reported record net income of $584.4 million and diluted EPS of $2.64, each up 16% from 2004. Revenues rose 15% to $2.69 billion on a fully taxable equivalent basis, and noninterest expenses rose 13% to $1.73 billion.

  2. What drove revenue growth in 2005?

    Trust, investment and other servicing fees were the largest contributor, rising 17% to $1.56 billion on continued strong new business internationally. Net interest income on an FTE basis rose 17% to $722.3 million, driven by higher retail deposit spreads, an improved funding mix and 9% growth in earning assets.

  3. What was the FSG acquisition and how did it affect results?

    On March 31, 2005, Northern Trust acquired Baring Asset Management's Financial Services Group for a final adjusted price of 261.5 million British pounds Sterling. FSG contributed $130.8 million in 2005 revenues and $105.9 million of operating and integration expenses, and the filing states its after-tax impact was neutral to full-year 2005 results.

  4. What legal and tax risks does the company disclose?

    An Enron-related ERISA class action names the Bank as a defendant, with trial scheduled for fall 2006. The IRS disallowed deductions tied to thirteen structured leasing investments, and in October 2005 the IRS Criminal Investigation Division began an investigation into those transactions, which the company is cooperating with. Management does not believe these matters would have a material adverse effect on consolidated financial position or liquidity, though they could affect results for a particular period.

  5. How strong is the company's capital position?

    At December 31, 2005, the Corporation's tier 1 capital ratio was 9.7% and total capital ratio was 12.3%, against well-capitalized minimums of 6.0% and 10.0%. Stockholders' equity reached $3.60 billion. During 2005 the company repurchased 3,534,859 shares for $169.8 million and raised its quarterly dividend to $.23.

04—Continue

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