01—Abstract
Summary
Summary of the 10-K filed February 23, 2021. Cited figures are marked; the original filing is the authoritative source.
Northern Trust Corporation reported 2020 net income of $1.21 billiona, or $5.46 per diluted common share, down from $1.49 billion ($6.63 per diluted share) in 2019.
Return on average common equity fell to 11.2% from 14.9%. The decline was driven mainly by a 14% drop in net interest income to $1.44 billionb, as the net interest margin fell to 1.19% (FTE basis) from 1.60%, and by a higher provision for credit losses of $125.0 million versus a credit provision of $14.5 million in 2019. Noninterest expense rose 5% to $4.35 billion, including $55.0 million of severance charges and a $43.4 million charge tied to a corporate action processing error.
Total revenue was roughly flat at $6.10 billionc, with noninterest income up 6% to $4.66 billion, led by Trust, Investment and Other Servicing Fees of $4.00 billion (up 4%). Assets under custody/administration rose 21% to $14.53 trillion and assets under management rose 14% to $1.41 trillion, reflecting net inflows and favorable markets. Total assets grew to $170.0 billion from $136.8 billion, largely from higher deposits, which rose to $143.9 billion, and from higher Federal Reserve and central bank deposits.
Loans and leases grew to $33.8 billion, and nonaccrual assets increased to $132.4 milliond from $86.8 million. The company stated that all capital ratios exceeded well-capitalized levels, with a common equity tier 1 ratio of 12.8% (standardized approach). Share repurchases were suspended on March 16, 2020 under Federal Reserve capital distribution limits, and the company said it restarted repurchases in the first quarter of 2021 within those limits.
The filing also describes a regulatory backdrop shaped by COVID-19. The Federal Reserve restricted dividends and share repurchases based on recent income for the first quarter of 2021, and the Corporation's stress capital buffer for the 2020 cycle was set at 2.5%. The company also reported exposure to LIBOR transition, Brexit effects, and an ongoing French legal matter involving its Guernsey trust subsidiary, where a re-trial was ordered in January 2021.
02—Key points
Key Highlights
- Net income fell 19% to $1.21 billion in 2020 from $1.49 billion in 2019; diluted EPS was $5.46 versus $6.63.
- Net interest income fell 14% to $1.44 billion, and the FTE net interest margin declined to 1.19% from 1.60%, primarily due to lower interest rates.
- Provision for credit losses was $125.0 million in 2020, compared with a credit provision of $14.5 million in 2019, driven by a higher collective reserve tied to COVID-19 economic conditions.
- Noninterest income rose 6% to $4.66 billion, with Trust, Investment and Other Servicing Fees up 4% to $4.00 billion, partly offset by money market mutual fund fee waivers of $29.3 million.
- Client assets under custody/administration increased 21% to $14.53 trillion, and assets under management increased 14% to $1.41 trillion.
- Total assets rose to $170.0 billion from $136.8 billion, and total deposits rose to $143.9 billion from $109.1 billion.
- Share repurchases were suspended on March 16, 2020 and restarted in the first quarter of 2021 within Federal Reserve limits; quarterly common dividend held at $0.70 per share.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2020filed February 23, 2021Financial Statements
FY2020 against FY2019
| Line item | FY2020FY2019 | Change |
|---|---|---|
| Revenue | $6.10B$6.07B | +0.5% |
| Interest Expense | $200.30M$822.00M | −75.6% |
| Net Income | $1.21B$1.49B | −19.0% |
| EPS (Basic) | $5.48$6.66 | −17.7% |
| EPS (Diluted) | $5.46$6.63 | −17.6% |
| Shares Outstanding (Basic) | 208.32M214.53M | −2.9% |
| Shares Outstanding (Diluted) | 209.01M215.60M | −3.1% |
05—Questions
Frequently Asked Questions
Why did Northern Trust's earnings decline in 2020?
Net income fell $282.9 million, or 19%, mainly because net interest income dropped 14% to $1.44 billion as the net interest margin declined from lower interest rates. The provision for credit losses rose to $125.0 million from a credit provision of $14.5 million, and noninterest expense rose 5% to $4.35 billion.
How did fee-based business perform?
Trust, Investment and Other Servicing Fees increased 4% to $4.00 billion, driven by new business and favorable markets and partly offset by money market mutual fund fee waivers of $29.3 million. Foreign exchange trading income rose 16% to $290.4 million, and security commissions and trading income rose 29% to $133.2 million.
Is the company's capital position sound?
The filing states that all capital ratios exceeded the levels required for well-capitalized classification. The common equity tier 1 capital ratio was 12.8% under the standardized approach and 13.4% under the advanced approach, and total stockholders' equity was $11.7 billion at year-end 2020.
What limits are placed on dividends and share repurchases?
The Federal Reserve restricted capital distributions for large bank holding companies during COVID-19, including suspending repurchases and limiting dividends based on recent income. The restrictions were extended into the first quarter of 2021, and the company restarted its repurchase program in that quarter within those limits. The Corporation's stress capital buffer for the 2020 cycle was set at 2.5%.
What were the key credit quality trends?
Net charge-offs were $3.2 million in 2020, compared with net recoveries of $0.7 million in 2019. Nonaccrual assets rose to $132.4 million from $86.8 million, and the allowance assigned to loans and leases increased to $190.7 million, or 0.56% of total loans and leases, from 0.33%.
06—Continue