01—Abstract
Summary
Summary of the 10-K filed February 25, 2020. Cited figures are marked; the original filing is the authoritative source.
Northern Trust Corporation reported net income of $1.49 billiona for 2019, down $64.2 million, or 4%, from $1.56 billion in 2018, with diluted earnings per share of $6.63 versus $6.64 a year earlier.
Return on average common equity fell to 14.9% from 16.2%. Revenue rose 2% to $6.07 billionb, led by trust, investment and other servicing fees of $3.85 billion (up 3%), while net interest income increased 3% and foreign exchange trading income fell 18% to $250.9 million. Noninterest expense rose 3% to $4.14 billion, mainly on higher compensation, outside services, and equipment and software costs.
Client assets grew strongly during the year. Assets under custody/administration increased 19% to $12.05 trillionc and assets under custody rose 22% to $9.23 trillion, both reflecting favorable markets and net client inflows. Assets under management reached $1.23 trillion, up 15%.
The company repurchased 11.8 million common shares for $1.1 billiond and, together with dividends, returned $1.7 billion to common stockholders. The quarterly common dividend was raised to $0.70 per share. Capital remained strong, with the standardized common equity Tier 1 ratio at 12.7% and all capital ratios above the well-capitalized thresholds.
Nonperforming assets declined 26% to $86.8 million, and the company issued $391.4 million of Series E preferred stock, the proceeds of which were used to redeem the Series C preferred stock on January 2, 2020. The filing also flags ongoing risks from Brexit, LIBOR transition, cybersecurity, and regulatory change.
02—Key points
Key Highlights
- Net income of $1.49 billion in 2019, down 4% from $1.56 billion; diluted EPS of $6.63 versus $6.64 in 2018
- Revenue rose 2% to $6.07 billion, driven by trust, investment and other servicing fees of $3.85 billion (up 3%) and net interest income up 3%
- Assets under custody/administration grew 19% to $12.05 trillion; assets under management grew 15% to $1.23 trillion
- Foreign exchange trading income fell 18% to $250.9 million, primarily from lower foreign exchange swap activity in Treasury
- Noninterest expense increased 3% to $4.14 billion, reflecting higher compensation, outside services, and equipment and software costs
- Returned $1.7 billion to common stockholders through $1.1 billion of share repurchases (11.8 million shares) and dividends; quarterly dividend raised to $0.70
- Standardized CET1 ratio of 12.7% at year-end 2019; nonperforming assets decreased 26% to $86.8 million
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2019filed February 25, 2020Financial Statements
FY2019 against FY2018
| Line item | FY2019FY2018 | Change |
|---|---|---|
| Revenue | $6.07B$5.96B | +1.9% |
| Interest Expense | $822.00M$698.70M | +17.6% |
| Net Income | $1.49B$1.56B | −4.1% |
| EPS (Basic) | $6.66$6.68 | −0.3% |
| EPS (Diluted) | $6.63$6.64 | −0.2% |
| Shares Outstanding (Basic) | 214.53M223.15M | −3.9% |
| Shares Outstanding (Diluted) | 215.60M224.49M | −4.0% |
05—Questions
Frequently Asked Questions
How did Northern Trust's profitability change in 2019?
Net income fell $64.2 million, or 4%, to $1.49 billion, and diluted EPS was $6.63 compared with $6.64 in 2018. Return on average common equity declined to 14.9% from 16.2%. Higher noninterest expense of $4.14 billion, up $126.6 million, offset revenue growth of 2% to $6.07 billion.
What drove growth in client assets?
Assets under custody/administration increased 19% to $12.05 trillion, and assets under custody rose 22% to $9.23 trillion. The filing attributes these increases primarily to favorable markets and net client inflows. Assets under management increased 15% to $1.23 trillion, reflecting favorable markets and net inflows.
How did the company return capital to shareholders in 2019?
Northern Trust repurchased 11.8 million common shares, returning $1.7 billion to common stockholders including dividends, compared with $1.4 billion in 2018. It increased its quarterly common dividend to $0.70 per share. Under its 2019 capital plan, it may repurchase up to $828.5 million of common stock after December 31, 2019, through June 30, 2020.
What were the main risks highlighted in the filing?
The filing highlights risks from dependence on fee-based business and market volatility, interest rate changes, the UK's withdrawal from the EU, LIBOR replacement after 2021, cyber-attacks and operational failures, counterparty exposure, and evolving regulation. It also notes that the company's earnings depend in part on dividends from its principal subsidiary, The Northern Trust Company.
How strong is Northern Trust's capital position?
At December 31, 2019, the standardized common equity Tier 1 ratio was 12.7% and the advanced approach ratio was 13.2%. All capital ratios exceeded the requirements for well-capitalized classification. Total stockholders' equity was $11.1 billion, up 6% from $10.5 billion a year earlier.
06—Continue