01—Abstract
Summary
Summary of the 10-K filed February 26, 2019. Cited figures are marked; the original filing is the authoritative source.
Northern Trust Corporation is a financial holding company providing wealth management, asset servicing, asset management and banking solutions.
At December 31, 2018, it reported consolidated total assets of $132.2 billiona and stockholders' equity of $10.5 billion. Net income for 2018 totaled $1.56 billion, up from $1.20 billion in 2017, and diluted earnings per common share were $6.64 versus $4.92. Return on average common equity improved to 16.2% from 12.6%.
Total revenue rose 11% to $5.96 billionb, driven by a 9% increase in trust, investment and other servicing fees, a 14% increase in net interest income and a 46% increase in foreign exchange trading income. Client asset levels declined during 2018. Assets under custody/administration fell 6% to $10.13 trillion and assets under management fell 8% to $1.07 trillion, which the company attributed to unfavorable markets and net outflows.
Noninterest expense rose 7% to $4.02 billionc, reflecting higher compensation, outside services, equipment and software costs, and expenses tied to the UBS fund administration acquisition. The provision for credit losses was a credit of $14.5 million, and nonperforming assets declined 24% to $117.7 million. Capital returns increased.
The quarterly common dividend was raised to $0.55d per share, and the company repurchased 9.0 million shares, returning $1.36 billion to common stockholders compared with $895.6 million in 2017. All capital ratios exceeded the requirements for well-capitalized status. The filing also flags ongoing regulatory items, including resolution plan shortcomings identified in 2017, the pending outcome of the Federal Reserve's capital and stress test proposals, Brexit uncertainty and the Visa Class B share litigation.
02—Key points
Key Highlights
- Net income rose 30% to $1.56 billion in 2018, and diluted EPS was $6.64 versus $4.92 in 2017.
- Total revenue grew 11% to $5.96 billion, with foreign exchange trading income up 46% to $307.2 million.
- Assets under custody/administration fell 6% to $10.13 trillion and assets under management fell 8% to $1.07 trillion, reflecting unfavorable markets and net outflows.
- Noninterest expense increased 7% to $4.02 billion, while the effective tax rate fell to 20.5% from 26.6%.
- Common stock repurchases totaled 9.0 million shares, returning $1.36 billion to common stockholders; the quarterly dividend was increased 31% to $0.55 per share.
- Net interest margin on an FTE basis rose to 1.46% from 1.33%, primarily due to higher short-term interest rates.
- Nonperforming assets declined 24% to $117.7 million, and the company recorded a $14.5 million credit to the provision for credit losses.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2018filed February 26, 2019Financial Statements
FY2018 against FY2017
| Line item | FY2018FY2017 | Change |
|---|---|---|
| Revenue | $5.96B$5.38B | +10.9% |
| Interest Expense | $698.70M$340.20M | +105.4% |
| Net Income | $1.56B$1.20B | +29.8% |
| EPS (Basic) | $6.68$4.95 | +34.9% |
| EPS (Diluted) | $6.64$4.92 | +35.0% |
| Shares Outstanding (Basic) | 223.15M228.26M | −2.2% |
| Shares Outstanding (Diluted) | 224.49M229.65M | −2.2% |
05—Questions
Frequently Asked Questions
How did Northern Trust perform financially in 2018?
Net income was $1.56 billion, up 30% from $1.20 billion in 2017, and diluted EPS was $6.64 compared with $4.92. Return on average common equity improved to 16.2% from 12.6%, and revenue reached $5.96 billion, up 11%.
Why did assets under custody and management decline in 2018?
The filing attributes the decline primarily to unfavorable markets, unfavorable foreign exchange rate movements and net outflows. Assets under custody/administration decreased to $10.13 trillion from $10.72 trillion, and assets under management decreased to $1.07 trillion from $1.16 trillion.
How much capital did Northern Trust return to shareholders?
The company repurchased 9.0 million common shares and returned $1.36 billion to common stockholders in 2018, compared with $895.6 million in 2017. It also increased its quarterly common dividend to $0.55 per share.
What regulatory issues does the filing highlight?
The Federal Reserve Board and FDIC identified shortcomings in the company's December 2015 resolution plan, and the company has not yet received formal feedback on its December 2017 plan. The filing also notes pending Federal Reserve proposals affecting capital planning and stress testing, and that the company expects to be a Category II institution if the October 2018 proposal is finalized without modification.
What drove the increase in net interest income?
Net interest income on a fully taxable equivalent basis rose 13% to $1.66 billion, due to an increased net interest margin, which rose to 1.46% from 1.33%, primarily from higher short-term interest rates, and higher average earning assets.
06—Continue