01—Abstract
Summary
Summary of the 10-K filed February 29, 2016. Cited figures are marked; the original filing is the authoritative source.
Northern Trust Corporation reported 2015 net income of $973.8 milliona, up 20% from $811.8 million in 2014, with diluted earnings per share of $3.99 compared with $3.32 in 2014.
Return on average common equity improved to 11.5% from 10.0%. The filing states that 2015 results include a pre-tax gain of $99.9 millionb on the sale of 1.0 million Visa Class B common shares, voluntary cash contributions of $45.8 million to certain constant dollar NAV funds, and a $17.8 million impairment of aircraft residual values under leveraged leases. Excluding these items, net income was $951.4 million and diluted EPS was $3.90.
Total revenue rose 9% to $4.70 billionc, driven by a 5% increase in trust, investment and other servicing fees to $2.98 billion and a 6% increase in net interest income. Client assets remained the core driver of the business. Assets under custody were $6.07 trillion, up 2%, and assets under management were $875.3 billion, down 6% from $934.1 billion, reflecting net outflows including equity outflows from certain sovereign wealth fund clients.
Noninterest expense rose 5% to $3.28 billiond. Total assets were $116.7 billion and stockholders' equity was $8.7 billion at year-end. The Common Equity Tier 1 ratio under the advanced approach was 11.9%, and the Corporation stated that all its capital ratios exceeded the well-capitalized thresholds.
The filing also highlights regulatory matters that investors should weigh. The Corporation and the Bank submitted resolution plans in December 2015, and the filing warns that a deficiency finding could lead to stricter capital, liquidity or growth restrictions. The 2016 capital plan is due to the Federal Reserve by April 5, 2016, and the company's dividend payout ratio was 35.3% in 2015.
The provision for credit losses was a credit of $43.0 million, and nonperforming assets fell 19% to $188.3 million. The filing also discloses an SEC investigation related to securities lending activities and a French criminal charge against a subsidiary, NTFS, in connection with estate tax fraud.
02—Key points
Key Highlights
- Net income rose 20% to $973.8 million, and diluted EPS reached $3.99 versus $3.32 in 2014; excluding 2015 items, net income was $951.4 million and diluted EPS was $3.90.
- Revenue increased 9% to $4.70 billion, led by a 5% rise in trust, investment and other servicing fees to $2.98 billion and a 6% rise in net interest income.
- A $99.9 million pre-tax gain on the sale of 1.0 million Visa Class B shares boosted 2015 results, partly offset by $45.8 million of NAV fund contributions and a $17.8 million aircraft lease impairment.
- Assets under custody reached $6.07 trillion (up 2%), while assets under management fell 6% to $875.3 billion on net outflows of $44.4 billion.
- Nonperforming assets declined 19% to $188.3 million, and the provision for credit losses was a $43.0 million credit.
- Capital remained strong: total stockholders' equity was $8.7 billion, the common dividend was raised to $0.36 per quarter, and $829.9 million was returned to common stockholders through dividends and buybacks.
- Regulatory risk remains significant, including resolution plan feedback risk, the 2016 CCAR submission, the Volcker Rule and Basel III phase-in, along with an open SEC securities lending investigation and a French criminal charge against subsidiary NTFS.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2015filed February 29, 2016Financial Statements
FY2015 against FY2014
| Line item | FY2015FY2014 | Change |
|---|---|---|
| Revenue | $4.70B$4.33B | +8.6% |
| Interest Expense | $153.90M$181.40M | −15.2% |
| Net Income | $973.80M$811.80M | +20.0% |
| EPS (Basic) | $4.03$3.34 | +20.7% |
| EPS (Diluted) | $3.99$3.32 | +20.2% |
| Shares Outstanding (Basic) | 232.28M235.83M | −1.5% |
| Shares Outstanding (Diluted) | 234.22M237.72M | −1.5% |
05—Questions
Frequently Asked Questions
What drove the increase in Northern Trust's 2015 earnings?
Net income rose to $973.8 million from $811.8 million, driven by 9% higher revenue to $4.70 billion. Trust, investment and other servicing fees grew 5%, foreign exchange trading income rose 25%, and other operating income included the $99.9 million Visa share sale gain. Noninterest expense increased 5% to $3.28 billion.
How did client asset levels change in 2015?
Assets under custody increased 2% to $6.07 trillion, including $3.53 trillion of global custody assets. Assets under management decreased 6% to $875.3 billion, reflecting net outflows of $44.4 billion, including equity outflows from certain sovereign wealth fund clients and a significant outflow from one fixed income mandate.
Are there risks to the capital return program?
Yes. Capital distributions require a capital plan that the Federal Reserve has not objected to. The 2016 plan is due by April 5, 2016, with a Federal Reserve response expected by June 30, 2016. The filing also notes the company's dividend payout ratio was 35.3% in 2015, and that plans with payout ratios above 30% of projected after-tax net income receive particularly close scrutiny.
What legal and regulatory matters are disclosed?
The filing discloses an SEC investigation related to securities lending activities and lawsuits from securities lending program participants. It also reports that in April 2015 a French investigating magistrate charged NTFS, an indirect subsidiary, with complicity in estate tax fraud, and that the trial was postponed in January 2016. The Corporation estimated the upper end of the range of reasonably possible losses for certain matters at approximately $125 million in aggregate.
How strong is the Corporation's capital position?
Under the advanced approach at December 31, 2015, the Common Equity Tier 1 ratio was 11.9%, the Tier 1 ratio was 12.5%, and the total capital ratio was 14.2%. Under the standardized approach, the corresponding ratios were 10.8%, 11.4% and 13.2%. All capital ratios exceeded the well-capitalized requirements, and the supplementary leverage ratio was 6.2%.
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