Northern Trust Corporation — 2009 Form 10-K Summary
Business context and reporting period
This is Northern Trust Corporation’s annual report for the fiscal year ended December 31, 2009, not a standalone fourth-quarter report. Northern Trust provides asset servicing, fund administration, investment management, banking and fiduciary services. The filing incorporates the corporation’s audited consolidated financial statements and full MD&A by reference; the supplied text does not include the consolidated income statement or cash-flow statement.
At year-end, consolidated assets were $82.1 billion and stockholders’ equity was $6.3 billion. The principal subsidiary, The Northern Trust Company (the Bank), reported assets of $68.8 billion and equity of $4.8 billion. C&IS had $3.3 trillion in assets under custody and $482.0 billion under management; PFS had $331.1 billion in custody and $145.2 billion under management.
Key financial metrics and changes
| Metric | 2009 | Prior comparable period |
|---|---|---|
| Consolidated assets at year-end | $82.1 billion | Not stated in the supplied text |
| Consolidated stockholders’ equity at year-end | $6.3 billion | Not stated in the supplied text |
| Total loans and leases at year-end | $27.8 billion | $30.8 billion in 2008 |
| Total securities at year-end | $18.6 billion | $15.6 billion in 2008 |
| Average deposits | $53.2 billion | $55.3 billion in 2008 |
| Credit-loss reserve at year-end | $340.6 million | $251.1 million in 2008 |
| Net charge-offs | $125.8 million | $23.2 million in 2008 |
| Provision for credit losses | $215.0 million | $115.0 million in 2008 |
| Corporation Tier 1 / total capital / leverage ratios | 13.4% / 15.8% / 8.8% | Not stated in the supplied text |
The reserve assigned to loans and leases was 1.11% of year-end loans, up from 0.75% in 2008. The filing attributes the higher provision to continued economic weakness. Taxable-equivalent net interest income declined by $88.9 million in 2009 versus 2008.
Bank subsidiary results—not consolidated Corporation results: The unaudited Bank-only statement reports 2009 net income of $694.8 million versus $808.3 million in 2008; net interest income of $675.7 million versus $755.3 million; noninterest income of $2.306 billion versus $2.656 billion; and income before taxes of $984.5 million versus $1.330 billion. The Bank’s provision for credit losses rose to $116.5 million from $65.9 million. These figures should not be treated as Northern Trust Corporation’s consolidated results.
The Bank’s year-end deposits were $48.6 billion, down from $55.1 billion, while federal funds purchased rose to $7.4 billion from $1.9 billion. The Bank reported cash and due from banks of $2.4 billion, Federal Reserve deposits and other interest-bearing balances of $15.0 billion, and available-for-sale securities of $17.2 billion. The supplied text does not provide a clear consolidated cash-flow or liquidity measure.
Outlook, risks, contingencies and unusual items
- Management describes a strategy focused on targeted markets, client service, recurring fee-based revenue and conservative credit practices. No quantified earnings, revenue or capital guidance is provided in the supplied text.
- The Corporation repurchased its $1.576 billion of TARP preferred stock in June 2009 and repurchased the Treasury warrant in August 2009, ending its CPP participation.
- FDIC special assessment expense was $20.2 million in the second quarter. The Corporation prepaid $104.9 million of FDIC assessments in December 2009 for the fourth quarter of 2009 and 2010–2012; the prepayment is amortized over the assessment period.
- A September 2009 IRS settlement concerning certain structured leases accelerated $88.6 million of tax payments. The IRS may continue to challenge deductions for other leases; management says it believes reserves are appropriate and intends to defend its tax treatment.
- Pending matters include an ERISA putative class action concerning the company stock investment option in the employee plan and individual or putative class actions concerning securities-lending collateral investments. Management says loss estimates are not currently possible for some matters; it does not believe aggregate outcomes beyond recorded reserves would materially affect consolidated financial position or liquidity, though they could materially affect a particular period’s operating results.
- Principal risks include economic weakness, falling asset values and fee income, low interest rates and money-market fee waivers, foreign-exchange volatility, securities-lending losses and client withdrawals, rising credit losses, counterparty exposure, operational and technology failures, regulatory change, litigation, and reputational damage.
Important facts for investors to verify
- Review the incorporated consolidated financial statements and MD&A for Corporation-level revenue, net income, margins, cash flows, debt maturities and liquidity; those details are not included in the supplied filing text.
- Assess whether credit deterioration continued after 2009, particularly charge-offs, nonperforming loans, commercial real estate exposure and reserve adequacy.
- Verify the earnings and client impact of securities-lending programs, foreign-exchange revenue and low-rate money-market fee waivers.
- Track resolution and potential financial exposure from the structured-lease tax disputes and securities-lending and ERISA litigation.
- Confirm the treatment and timing of FDIC prepayment amortization and the effects of the Corporation’s completed TARP repayment.