01—Abstract
Summary
Summary of the 10-K filed February 28, 2007. Cited figures are marked; the original filing is the authoritative source.
Northern Trust Corporation's 2006 annual report, filed February 28, 2007, describes a financial holding company that is a leading provider of investment management, asset and fund administration, fiduciary, and banking solutions to corporations, institutions, and affluent individuals.
At December 31, 2006, the Corporation had consolidated total assets of $60.7 billiona and stockholders' equity of $3.9 billion. Its two principal business units are Corporate and Institutional Services (C&IS), with $3.26 trillion in assets under custody and $562.5 billion under management, and Personal Financial Services (PFS), with $281.9 billion under custody and $134.7 billion under management. The Financial Annual Report reports record 2006 net income of $665.4 million and diluted earnings per share of $3.00, each up 14% from 2005.
Revenues on a fully taxable equivalent basis reached $3.06 billionb, up 14%, with trust, investment and other servicing fees of $1.79 billion, up 15%, as the largest contributor. Net interest margin declined to 1.73% from 1.79% as global custody deposits were invested in short-term money market assets and agency securities. Nonperforming loans were $35.7 million, or 0.16% of total loans.
The filing also flags material risk items. The IRS has challenged the Corporation's structured leasing tax positions, and in February 2007 the Corporation was informed that the matter was referred to the U.S. Attorney's Office for the Northern District of Illinois for further investigation through the grand jury process; the Corporation says it is not a target.
Adoption of FSP 13-2 on January 1, 2007 is expected to reduce stockholders' equity by approximately $75 millionc. Management stated that pending legal matters would not be expected to have a material adverse effect on consolidated financial position, although they could affect operating results in a given period.
02—Key points
Key Highlights
- Record 2006 net income of $665.4 million and diluted EPS of $3.00, each up 14% from 2005
- Total revenues (FTE) of $3.06 billion, up 14%; trust, investment and other servicing fees of $1.79 billion, up 15%
- Total assets under custody reached $3.55 trillion, up 21%; assets under management reached $697.2 billion, up 13%
- Net interest margin (FTE) was 1.73%, down from 1.79% in 2005, reflecting growth in lower-yielding short-term money market assets and agency securities
- Nonperforming loans of $35.7 million, or 0.16% of total loans; net charge-offs were $0.2 million in 2006
- Tier 1 capital ratio of 9.8% and total capital ratio of 11.9%, above the 6.0% and 10.0% well-capitalized minimums
- IRS structured leasing matter referred in February 2007 to the U.S. Attorney's Office for grand jury review; the Corporation states it is not a target, and FSP 13-2 adoption is expected to reduce equity by about $75 million
03—Questions
Frequently Asked Questions
How did Northern Trust perform financially in 2006?
The filing reports record net income of $665.4 million, up from $584.4 million in 2005, and diluted EPS of $3.00, up from $2.64. Revenues on a fully taxable equivalent basis reached $3.06 billion, an increase of 14%. Noninterest expenses rose 13% to $1.96 billion, so the company reports positive operating leverage.
What drives Northern Trust's revenue?
Noninterest income represented 74% of total taxable equivalent revenue in 2006. Trust, investment and other servicing fees of $1.79 billion were the largest contributor, up 15%, reflecting new business internationally and higher equity markets. Fees are generally based on the market value of assets custodied, managed and serviced.
What legal and tax risks does the filing disclose?
The IRS challenged the Corporation's tax treatment of thirteen structured leasing investments and proposed disallowing certain deductions. In February 2007 the Corporation was informed that the IRS referred the matter to the U.S. Attorney's Office for further grand jury investigation; the Corporation says it has been advised it is not a target and is cooperating fully. The filing also describes the Enron commercial paper bankruptcy suits, in which the Bank is among many defendants. 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.
How strong is Northern Trust's capital position?
At December 31, 2006, Tier 1 capital was 9.8% and total capital was 11.9% of risk-weighted assets, against well-capitalized minimums of 6.0% and 10.0%. The leverage ratio was 6.7%, against a 5.0% well-capitalized minimum. Stockholders' equity grew to $3.94 billion, and the quarterly dividend was raised 8.7% to $.25 in October 2006.
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