01—Abstract
Summary
Summary of the 10-K filed February 25, 2011. Cited figures are marked; the original filing is the authoritative source.
Northern Trust Corporation, a financial holding company, reported net income of $669.5 milliona and earnings per common share of $2.74 for 2010, down from $864.2 million and $3.16 per diluted share in 2009.
The company describes itself as a leading provider of asset servicing, fund administration, asset management, fiduciary and banking solutions, with total consolidated assets of $83.8 billionb and stockholders' equity of $6.8 billion at December 31, 2010. Client assets under custody rose 12% to $4.1 trillion and assets under management rose 3% to $643.6 billion, while the net interest margin declined to 1.41% from 1.56% amid the persistently low interest rate environment. The filing states that revenue on a fully taxable equivalent basis was $3.69 billion, a 4% decline from 2009, with net interest income down 8% and foreign exchange trading income down 14% to $382.2 million on reduced currency volatility.
Trust, investment and other servicing fees, the largest revenue component, held steady at $2.08 billionc, as higher market valuations and new business offset lower securities lending revenue. Provisions for credit losses fell to $160.0 million from $215.0 million, though nonperforming loans rose to $333.0 million, or 1.18% of total loans. The company stated it did not achieve its four long-term strategic financial targets in 2010.
The filing also discusses regulatory developments under the Dodd-Frank Act and Basel III, which the company says could lead to significantly higher capital requirements, though it believes it is well positioned. Tier 1 capital ratio stood at 13.6%d and total capital ratio at 15.6% at year end, both above well-capitalized levels. Pending litigation includes a securities class action, an ERISA class action, a shareholder derivative suit, and lawsuits related to the securities lending program, which the company says it operated prudently.
02—Key points
Key Highlights
- Net income of $669.5 million for 2010, versus $864.2 million in 2009; basic earnings per share of $2.74.
- Client assets under custody of $4.1 trillion (up 12%) and client assets under management of $643.6 billion (up 3%) at year end 2010.
- Total revenue (FTE) of $3.69 billion, down 4%; net interest margin fell to 1.41% from 1.56%.
- Trust, investment and other servicing fees of $2.08 billion, flat year over year, as securities lending revenue declined to $195.2 million from $336.7 million.
- Provision for credit losses decreased to $160.0 million from $215.0 million, while nonperforming loans rose to $333.0 million (1.18% of total loans).
- Capital remained strong, with a Tier 1 capital ratio of 13.6% and total capital ratio of 15.6%, both well above well-capitalized minimums.
- The company did not achieve its four long-term strategic financial targets in 2010, including its return on common equity target of 16-18%, which it reported as 10%.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2010filed February 25, 2011Financial Statements
FY2010 against FY2009
| Line item | FY2010FY2009 | Change |
|---|---|---|
| Revenue | $3.65B$3.79B | −3.7% |
| Interest Expense | $378.00M$406.20M | −6.9% |
| Net Income | $669.50M$864.20M | −22.5% |
| EPS (Basic) | $2.74$3.18 | −13.8% |
| EPS (Diluted) | $2.74$3.16 | −13.3% |
| Shares Outstanding (Basic) | 242.03M235.51M | +2.8% |
| Shares Outstanding (Diluted) | 242.50M236.42M | +2.6% |
05—Questions
Frequently Asked Questions
How did Northern Trust perform financially in 2010?
Net income was $669.5 million, or $2.74 per basic common share, compared with $864.2 million in 2009. Total revenue on a fully taxable equivalent basis declined 4% to $3.69 billion, driven mainly by lower net interest income and foreign exchange trading income.
What drove the decline in net interest income?
The filing attributes the decline to the persistently low interest rate environment, which reduced the net interest margin to 1.41% from 1.56%. Yields on the securities portfolio fell as maturing investments were replaced with lower-yielding assets, and loan demand remained weak.
How large is Northern Trust's business in custody and asset management?
At December 31, 2010, client assets under custody totaled $4.1 trillion, up 12% from $3.7 trillion, and client assets under management totaled $643.6 billion, up 3%. Corporate and Institutional Services held $3.7 trillion under custody, and Personal Financial Services held $370.2 billion.
What regulatory risks does the filing highlight?
The filing says the Dodd-Frank Act imposes heightened prudential requirements on bank holding companies with at least $50 billion in assets, including Northern Trust. It also notes that Basel III could lead to significantly higher capital requirements and more restrictive leverage and liquidity ratios, though the company believes it is well positioned.
What litigation is the company facing?
The filing describes a putative ERISA class action related to company stock in the Thrift-Incentive Plan, a securities class action filed in August 2010 alleging insufficient credit loss provisions and inadequate disclosure of securities lending, and a shareholder derivative suit. It also notes lawsuits from securities lending program participants and a cooperating SEC investigation. Management says it cannot assess the probability of material loss for the pending cases.
06—Continue