01—Abstract
Summary
Summary of the 10-K filed February 27, 2018. Cited figures are marked; the original filing is the authoritative source.
Northern Trust Corporation reported net income of $1.20 billiona for 2017, up $166.5 million or 16% from $1.03 billion in 2016, with diluted earnings per common share of $4.92 compared with $4.32 in 2016.
Return on average common equity improved to 12.6% from 11.9%. Revenue rose 8% to $5.38 billionb, driven by a 10% increase in trust, investment and other servicing fees to $3.43 billion and a 16% increase in net interest income, partially offset by a 35% decline in other operating income, which reflected a prior-year gain on the sale of Visa Class B shares. Client assets grew strongly.
Assets under custody/administration reached $10.72 trillionc, up 26%, including $568.1 billion tied to the acquisition of UBS Asset Management's fund administration units in Luxembourg and Switzerland. Assets under management rose 23% to $1.16 trillion. Noninterest expense increased 9% to $3.77 billion, including severance charges and UBS acquisition costs.
The effective tax rate fell to 26.6% from 31.9%, helped by a $53.1 milliond net benefit from the Tax Cuts and Jobs Act, which also created a $150.0 million repatriation tax payable over eight years. Capital returns and regulatory standing were key themes. Common stock repurchases totaled $523.1 million, and total common dividends were $372.5 million, with the quarterly dividend raised 11% to $0.42 per share.
Stockholders' equity was $10.2 billion. All capital ratios exceeded the well-capitalized thresholds. The filing also notes that the Federal Reserve and FDIC identified "shortcomings" in the Corporation's 2015 resolution plan, which the Corporation resubmitted in December 2017.
02—Key points
Key Highlights
- Net income of $1.20 billion (up 16%); diluted EPS of $4.92 versus $4.32 in 2016
- Revenue up 8% to $5.38 billion; trust, investment and other servicing fees up 10% to $3.43 billion
- Net interest margin on an FTE basis rose to 1.33% from 1.18%; net interest income up 16%
- Assets under custody/administration of $10.72 trillion (up 26%); assets under management of $1.16 trillion (up 23%)
- Capital returned to common stockholders of $895.6 million, including $523.1 million of buybacks; quarterly dividend raised to $0.42
- Effective tax rate of 26.6%, including a $53.1 million net benefit from the Tax Cuts and Jobs Act; 2018 rate guided to 23% to 24%
- Total assets of $138.6 billion; stockholders' equity of $10.2 billion; all capital ratios above well-capitalized minimums
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2017filed February 27, 2018Financial Statements
FY2017 against FY2016
| Line item | FY2017FY2016 | Change |
|---|---|---|
| Revenue | $5.38B$4.96B | +8.3% |
| Interest Expense | $340.20M$182.00M | +86.9% |
| Net Income | $1.20B$1.03B | +16.1% |
| EPS (Basic) | $4.95$4.35 | +13.8% |
| EPS (Diluted) | $4.92$4.32 | +13.9% |
| Shares Outstanding (Basic) | 228.26M227.58M | +0.3% |
| Shares Outstanding (Diluted) | 229.65M229.15M | +0.2% |
05—Questions
Frequently Asked Questions
What drove the increase in Northern Trust's 2017 earnings?
Net income rose 16% to $1.20 billion. Trust, investment and other servicing fees increased 10% to $3.43 billion, reflecting favorable markets, new business and revenue from the UBS acquisition. Net interest income rose 16%, driven by higher average earning assets and a higher net interest margin.
How did the Tax Cuts and Jobs Act affect the company?
The Act produced a net tax benefit of $53.1 million in 2017, which included a $210.0 million reduction from federal deferred taxes, partly offset by a $150.0 million federal tax on mandatory deemed repatriation. The repatriation tax will be paid in installments over eight years. Northern Trust expects its 2018 effective tax rate to be approximately 23% to 24%.
What regulatory risk did the company disclose?
On March 24, 2017, the Federal Reserve Board and FDIC jointly identified "shortcomings" in the Corporation's December 2015 resolution plan. The Corporation submitted its 2017 plan on December 19, 2017. If regulators determine the plan does not address the shortcomings satisfactorily, they could require more stringent capital, leverage or liquidity requirements, restrict growth or activities, or require divestitures.
How much did the company return to shareholders in 2017?
Northern Trust repurchased 5.8 million common shares for $523.1 million and paid $372.5 million in declared common dividends, returning $895.6 million in total to common stockholders. The quarterly dividend was increased 11% to $0.42 per share. Preferred dividends totaled $49.8 million.
What were the main sources of revenue and growth in client assets?
Trust, investment and other servicing fees made up 64% of 2017 total revenue, and net interest income made up 27%. Assets under custody rose 20% to $8.08 trillion, and global custody assets rose 24% to $4.94 trillion. Growth reflected favorable markets, net inflows and the UBS acquisition.
06—Continue