Northern Trust Corp. Reports Operating Results (10-Q)

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Oct 27, 2010
Northern Trust Corp. (NTRS, Financial) filed Quarterly Report for the period ended 2010-09-30.

Northern Trust Corp. has a market cap of $12.19 billion; its shares were traded at around $50.57 with a P/E ratio of 17.5 and P/S ratio of 3.2. The dividend yield of Northern Trust Corp. stocks is 2.2%. Northern Trust Corp. had an annual average earning growth of 1% over the past 10 years.NTRS is in the portfolios of Private Capital of Private Capital Management, John Rogers of ARIEL CAPITAL MANAGEMENT LLC, Pioneer Investments, Manning & Napier Advisors, Inc, Richard Aster Jr of Meridian Fund, Tom Gayner of Markel Gayner Asset Management Corp, John Paulson of Paulson & Co., Paul Tudor Jones of The Tudor Group, Chuck Royce of Royce& Associates, Mario Gabelli of GAMCO Investors, Jim Simons of Renaissance Technologies LLC, Steven Cohen of SAC Capital Advisors, Bruce Kovner of Caxton Associates, Kenneth Fisher of Fisher Asset Management, LLC, Murray Stahl of Horizon Asset Management, Tom Russo of Gardner Russo & Gardner, Tom Russo of Gardner Russo & Gardner, John Keeley of Keeley Fund Management, Dodge & Cox.

Highlight of Business Operations:

Operating earnings for the prior year quarter, which exclude a $17.8 million pre-tax benefit ($11.2 million after tax, or $.05 per common share) from the reduction of an indemnification liability related to Visa, Inc. (Visa), were $176.7 million, or $.72 per common share. Operating earnings is a non-GAAP financial measure. A reconciliation of operating earnings to reported earnings prepared in accordance with U.S. generally accepted accounting principles (GAAP) is provided on page 58.

Consolidated revenues stated on a fully taxable equivalent (FTE) basis totaled $899.0 million, down $28.6 million, or 3%, from $927.6 million in the prior years third quarter. Trust, investment and other servicing fees totaled $518.7 million, down $4.4 million, or 1%, from $523.1 million in the prior year quarter. Foreign exchange trading income decreased $4.0 million, or 4%, to $88.9 million from $92.9 million in the prior year quarter. Net interest income on an FTE basis totaled $243.0 million, a decrease of 2% from the prior year quarters $248.2 million. Noninterest expenses totaled $622.1 million in the current quarter and $599.2 million in the prior year quarter, a current quarter increase of 4% or $22.9 million.

Trust, investment and other servicing fees from Personal Financial Services (PFS) in the quarter totaled $225.5 million, increasing $12.6 million, or 6%, from $212.9 million in the prior year quarter. The increase in PFS fees was primarily the result of new business and improved markets, partially offset by waived fees in money market mutual funds which totaled $10.4 million in the current quarter, compared with $8.1 million in the prior year quarter, and are attributable to the continued low level of short-term interest rates.

Average earning assets of $67.0 billion were 4% higher than a year ago, driven by a 16% growth in average securities balances to $20.3 billion and a 5% growth in average money market assets to $19.2 billion, partially offset by a decrease in average loans and leases of 3% to $27.4 billion. The securities portfolio growth primarily reflects an increase in the average balance of government sponsored agency securities and certificates of deposit. Within the loan and lease portfolio, residential real estate loans averaged $10.9 billion in the quarter, up 1% from the prior years third quarter, and represented 40% of the average loan and lease portfolio. Commercial loans averaged $6.0 billion, down 18% from $7.3 billion last year, while personal loans averaged $5.1 billion, up 9% from last years third quarter. The net interest margin, stated on an FTE basis, was 1.44%, compared with 1.54% in the prior year quarter, primarily reflecting the continued compression of spreads between interest rates on short-term investments and overnight funding sources and the diminished value of non-interest bearing funds in the current low interest rate environment.

Northern Trust utilizes a diverse mix of funding sources. Total interest-bearing deposits averaged $46.7 billion, up $5.4 billion, or 13%, from the prior year third quarter average of $41.3 billion. The increase was attributable to higher levels of average non-U.S. office global custody related deposit balances and average domestic savings deposits as compared to the prior years third quarter. Other interest-related funds averaged $9.7 billion in the quarter, a decrease of $1.5 billion, or 14%, as compared to $11.2 billion in the prior year quarter, primarily due to lower levels of short-term borrowings. The balances within these classifications vary based on funding requirements and strategies, interest rate levels, changes in the volume of lower-cost deposit sources, and the availability of collateral to secure these borrowings. Net noninterest-related funds utilized to fund earning assets averaged $10.6 billion, a decrease of $1.0 billion, or 9%, compared with $11.6 billion in last years third quarter, the decrease resulting primarily from lower levels of U.S. office noninterest-bearing deposits.

The provision for credit losses was $30.0 million in the third quarter compared with $60.0 million in the prior year quarter. The reserve for credit losses at September 30, 2010 was $361.4 million compared with $361.6 million at June 30, 2010 and $333.0 million at September 30, 2009. Net charge-offs totaled $30.3 million for the current quarter. Net charge-offs in the prior year quarter totaled $46.1 million. The provision and charge-off levels, though reduced from the prior year quarters level, continue to reflect the prolonged weakness in the broader economic environment. For additional discussion of the provision and reserve for credit losses, refer to the Asset Quality section below.

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