01—Abstract
Summary
Summary of the 10-K filed February 28, 2008. Cited figures are marked; the original filing is the authoritative source.
Northern Trust Corporation reported record 2007 results, with net income of $726.9 milliona and diluted earnings per share of $3.24, up 9% and 8% from 2006.
Results were reduced by $150 millionb of pre-tax Visa indemnification charges, which reduced net income by $94.2 million, or $.42 per diluted share. Excluding those charges, operating earnings were $821.1 million, or $3.66 per diluted share. Revenue (FTE) rose to $3.57 billion, up 17% from $3.06 billion, driven by trust, investment and other servicing fees of $2.08 billion, up 16%, and record foreign exchange trading income of $351.3 million.
Total assets were $67.6 billionc and stockholders' equity was $4.5 billion at December 31, 2007. Assets under custody reached a record $4.14 trillion, up 17%, and assets under management reached $757.2 billion, up 9%. The net interest margin declined to 1.67% from 1.73%, reflecting the narrowing interest rate spread and growth in lower-yielding money market assets.
Credit quality remained strong, with nonperforming assets of $29.3 milliond, or .12% of total loans and other real estate owned, down 21% from the prior year. Tier 1 capital was 9.7% of risk-weighted assets and total capital was 11.9%, both well above the well-capitalized minimums. The filing also discloses an ongoing IRS challenge to structured leasing transactions and a federal criminal investigation, which the company says it is cooperating with and is not a target of.
Management believes Northern Trust's proportionate share of Visa's planned initial public offering will more than offset its Visa indemnification liabilities. Frederick H.
Waddell became Chief Executive Officer effective January 1, 2008, succeeding William A. Osborn, who remains Chairman.
02—Key points
Key Highlights
- Record net income of $726.9 million and diluted EPS of $3.24, up 9% and 8% from 2006.
- Operating earnings excluding $150 million of pre-tax Visa indemnification charges were $821.1 million, or $3.66 per diluted share, up 22% per share.
- Total revenue (FTE) was $3.57 billion, up 17%, with trust, investment and other servicing fees of $2.08 billion, up 16%.
- Assets under custody rose 17% to a record $4.14 trillion; assets under management rose 9% to $757.2 billion.
- Net interest margin fell to 1.67% from 1.73%, while average earning assets grew 16% to $53.4 billion.
- Nonperforming assets were $29.3 million, or .12% of total loans and other real estate owned, down 21% from the prior year.
- Tier 1 capital ratio of 9.7% and total capital ratio of 11.9%, well above the 'well capitalized' minimums.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2007filed February 28, 2008Financial Statements
| Interest Expense | $1.94B |
| Net Income | $726.90M |
| EPS (Basic) | $3.28 |
| EPS (Diluted) | $3.23 |
| Shares Outstanding (Basic) | 219.68M |
| Shares Outstanding (Diluted) | 223.08M |
05—Questions
Frequently Asked Questions
What drove the 2007 earnings, and how much did the Visa charges affect results?
Record revenue growth in trust, investment and other servicing fees and foreign exchange trading income drove results. Reported net income of $726.9 million included $150 million of pre-tax Visa indemnification charges, which reduced net income by $94.2 million, or $.42 per diluted share. Excluding these charges, operating earnings were $821.1 million, or $3.66 per diluted share.
How strong was the company's client asset growth?
Total assets under custody increased 17% to $4.14 trillion at December 31, 2007, including $2.09 trillion of global custody assets. Managed assets increased 9% to $757.2 billion, up from $697.2 billion at year-end 2006.
What risks does the filing highlight?
The filing discloses an IRS challenge to tax deductions from structured leasing transactions for tax years 1997 to 2000, along with a related criminal investigation referred to the U.S. Attorney's Office, which the company says it is cooperating with. The net interest margin also declined to 1.67%, and the company faces the Visa litigation indemnification liabilities, which it expects its proportionate share of Visa's IPO proceeds to more than offset.
Is the bank adequately capitalized?
Yes. At December 31, 2007, the Corporation's tier 1 capital ratio was 9.7% and total capital ratio was 11.9%, compared with well-capitalized minimums of 6.0% and 10.0%. The leverage ratio was 6.8%, above the 5.0% well-capitalized minimum, and all U.S. subsidiary banks also exceeded the well-capitalized requirements.
Who leads the company, and did leadership change?
Frederick H. Waddell became Chief Executive Officer effective January 1, 2008, succeeding William A. Osborn, who resigned as CEO that day and continues to serve as Chairman of the Corporation.
06—Continue