01—Abstract
Summary
Summary of the 10-K filed February 26, 2010. Cited figures are marked; the original filing is the authoritative source.
Northern Trust Corporation reported record 2009 net income of $864.2 milliona, or $3.16 per diluted common share, compared with $794.8 million and $3.47 per share in 2008.
The filing states that results were affected by Visa-related adjustments and by $111.1 millionb (or $.47 per share) of preferred stock dividends and discount accretion tied to the U.S. Treasury Capital Purchase Program, which the company fully repaid in June 2009. Excluding Visa items, operating earnings were $853.0 million, or $3.11 per diluted share. Total revenue on a fully taxable equivalent basis was $3.83 billion, down 12% from $4.33 billion in 2008, driven mainly by a 28% decline in foreign exchange trading income and an 8% decline in net interest income as the net interest margin fell to 1.56% from 1.76%.
Credit costs rose sharply. The provision for credit losses was $215.0 millionc, up from $115.0 million, and nonaccrual loans increased to $278.5 million from $96.7 million. Net charge-offs totaled $125.8 million.
Noninterest expenses fell to $2.32 billiond from $2.89 billion, largely because 2008 included $536.3 million of client support charges, including $314.1 million for capital support agreements that expired in 2009. The balance sheet remained large and liquid at $82.1 billion in total assets, with client assets under custody of $3.66 trillion and assets under management of $627.2 billion, both up year over year.
Tier 1 capital ratio was 13.4% and total capital ratio was 15.8%, both above well-capitalized minimums. The company raised $834.1 million of common equity in May 2009 and repurchased its TARP preferred stock and warrant.
02—Key points
Key Highlights
- Record reported net income of $864.2 million; diluted EPS of $3.16 versus $3.47 in 2008, with operating earnings (excluding Visa items) of $853.0 million, or $3.11 per diluted share.
- Total revenue (FTE) fell 12% to $3.83 billion; foreign exchange trading income dropped 28% to $445.7 million and net interest margin declined to 1.56% from 1.76%.
- Provision for credit losses more than doubled to $215.0 million; nonaccrual loans rose to $278.5 million (1.00% of loans) from $96.7 million.
- Noninterest expenses fell 20% to $2.32 billion, reflecting the absence of 2008 client support charges of $536.3 million.
- Client assets under custody reached $3.66 trillion (up 22%) and assets under management reached $627.2 billion (up 12%).
- Repaid the $1.576 billion U.S. Treasury preferred stock in June 2009 and repurchased the warrant for $87 million in August 2009, completing participation in the Capital Purchase Program.
- Tier 1 capital ratio of 13.4% and total capital ratio of 15.8% at year-end, both above well-capitalized minimums; ongoing IRS dispute over structured leasing transactions with $88.6 million of tax payments accelerated after a September 2009 settlement.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2009filed February 26, 2010Financial Statements
FY2009 against FY2008
| Line item | FY2009FY2008 | Change |
|---|---|---|
| Revenue | $3.79B$4.28B | −11.5% |
| Interest Expense | $406.20M$1.40B | −71.0% |
| Net Income | $864.20M$794.80M | +8.7% |
| EPS (Basic) | $3.18$3.51 | −9.4% |
| EPS (Diluted) | $3.16$3.47 | −8.9% |
| Shares Outstanding (Basic) | 235.51M221446.38B | −100.0% |
| Shares Outstanding (Diluted) | 236.42M224053.43B | −100.0% |
05—Questions
Frequently Asked Questions
How did Northern Trust perform in 2009 compared with 2008?
Reported net income rose to a record $864.2 million from $794.8 million, but diluted earnings per share fell to $3.16 from $3.47 because of $111.1 million in preferred stock dividends and discount accretion. Revenue declined 12% to $3.83 billion (FTE), mainly from lower foreign exchange trading income and a narrower net interest margin.
What drove the increase in credit losses?
The provision for credit losses was $215.0 million in 2009 versus $115.0 million in 2008, which the company attributes to continued weakness in the broader economic environment. Nonaccrual loans increased to $278.5 million from $96.7 million, with growth concentrated in residential and commercial real estate, and net charge-offs were $125.8 million.
Why did noninterest expenses decline so sharply?
Noninterest expenses totaled $2.32 billion, down from $2.89 billion. The 2008 figure included $536.3 million of client support related charges, including $314.1 million for capital support agreements with certain investment funds. The 2009 results included a net $109.3 million expense reduction from the final support payments and expiration of those agreements.
Is Northern Trust's capital position sound?
At December 31, 2009, the Tier 1 capital ratio was 13.4% and the total capital ratio was 15.8%, both well above the 6.0% and 10.0% well-capitalized minimums. The leverage ratio was 8.8%. Total stockholders' equity was $6.31 billion, and the company issued $834.1 million of common stock in May 2009.
What are the main regulatory and legal risks disclosed?
The filing discloses an ongoing IRS audit of structured leasing transactions, with a September 2009 settlement that accelerated $88.6 million of tax payments and further disallowances expected for remaining leases. It also describes an ERISA class action over Company stock in the Thrift-Incentive Plan and lawsuits by securities lending program participants over collateral management. Management does not expect these to have a material adverse effect on consolidated financial position or liquidity.
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