Document and Entity Information
Document and Entity Information | |
3 Months Ended
Mar. 31, 2010 | |
Document Type | 10-Q |
Amendment Flag | false |
Document Period End Date | 2010-03-31 |
Document Fiscal Year Focus | 2,010 |
Document Fiscal Period Focus | Q1 |
Trading Symbol | NTRS |
Entity Registrant Name | NORTHERN TRUST CORP |
Entity Central Index Key | 0000073124 |
Current Fiscal Year End Date | --12-31 |
Entity Filer Category | Large Accelerated Filer |
Entity Common Stock, Shares Outstanding | 241,849,640 |
CONSOLIDATED BALANCE SHEET
CONSOLIDATED BALANCE SHEET (USD $) | |||
In Millions | Mar. 31, 2010
| Dec. 31, 2009
| Mar. 31, 2009
|
Assets | |||
Cash and Due from Banks | 2651.7 | 2491.8 | 2104.1 |
Federal Funds Sold and Securities Purchased under Agreements to Resell | 150.4 | 250 | 451.3 |
Time Deposits with Banks | 15939.3 | 12905.2 | 18334.9 |
Federal Reserve Deposits and Other Interest-Bearing | 6892.8 | 14,973 | 2989.8 |
Securities | |||
Available for Sale | 16640.8 | 17462.1 | 16671.5 |
Held to Maturity (Fair value - $1,246.0 at March 2010, $1,185.7 at December 2009, $1,148.8 at March 2009) | 1,226 | 1161.4 | 1131.7 |
Trading Account | 9.8 | 9.9 | 5.1 |
Total Securities | 17876.6 | 18633.4 | 17808.3 |
Loans and Leases | |||
Commercial and Other | 17,164 | 16,998 | 19822.9 |
Residential Mortgages | 10,798 | 10807.7 | 10,588 |
Total Loans and Leases (Net of unearned income - $489.1 at March 2010, $486.0 at Dec. 2009, $509.4 at March 2009) | 27,962 | 27805.7 | 30410.9 |
Reserve for Credit Losses Assigned to Loans and Leases | -320.5 | -309.2 | -286.2 |
Buildings and Equipment | 540.5 | 543.5 | 535.2 |
Client Security Settlement Receivables | 970.6 | 794.8 | 702.3 |
Goodwill | 394 | 401.6 | 387.4 |
Other Assets | 3261.1 | 3651.6 | 5026.6 |
Total Assets | 76318.6 | 82141.5 | 78464.6 |
Deposits | |||
Demand and Other Noninterest-Bearing | 8239.1 | 9177.5 | 9,019 |
Savings and Money Market | 13442.4 | 15,044 | 10940.8 |
Savings Certificates | 2198.2 | 2476.7 | 2838.3 |
Other Time | 1482.8 | 1524.5 | 984 |
Non U.S. Offices - Noninterest-Bearing | 2,947 | 2305.8 | 1,777 |
- Interest-Bearing | 29125.7 | 27752.8 | 27785.5 |
Total Deposits | 57435.2 | 58281.3 | 53344.6 |
Federal Funds Purchased | 3739.4 | 6649.8 | 7735.6 |
Securities Sold Under Agreements to Repurchase | 673 | 1037.5 | 1021.2 |
Other Borrowings | 1042.6 | 2078.3 | 2202.6 |
Senior Notes | 1,395 | 1551.8 | 1,049 |
Long-Term Debt | 2725.4 | 2837.8 | 3144.2 |
Floating Rate Capital Debt | 276.8 | 276.8 | 276.7 |
Other Liabilities | 2584.1 | 3116.1 | 3,166 |
Total Liabilities | 69871.5 | 75829.4 | 71939.9 |
Stockholders' Equity | |||
Preferred Stock - Series B (Net of discount - $71.4) | 1504.6 | ||
Common Stock, $1.66 2/3 Par Value; Authorized 560,000,000 shares; Outstanding 241,849,640 shares at March 2010, 241,679,942 shares at December 2009 and 223,669,263 shares at March 2009 | 408.6 | 408.6 | 379.8 |
Additional Paid-In Capital | 895.2 | 888.3 | 163 |
Retained Earnings | 5,665 | 5,576 | 5166.6 |
Accumulated Other Comprehensive Income (Loss) | -332.5 | -361.6 | -446.1 |
Treasury Stock - (at cost, 3,321,884 shares at March 2010, 3,491,582 shares at December 2009, and 4,252,261 shares at March 2009) | -189.2 | -199.2 | -243.2 |
Total Stockholders' Equity | 6447.1 | 6312.1 | 6524.7 |
Total Liabilities and Stockholders' Equity | 76318.6 | 82141.5 | 78464.6 |
CONSOLIDATED BALANCE SHEET (Par
CONSOLIDATED BALANCE SHEET (Parenthetical) (USD $) | |||
In Millions, except Share data | Mar. 31, 2010
| Dec. 31, 2009
| Mar. 31, 2009
|
Held to Maturity, Fair value | $1,246 | 1185.7 | 1148.8 |
Total Loans and Leases, unearned income | 489.1 | 486 | 509.4 |
Preferred Stock -Series B, discount | 71.4 | ||
Common Stock, Par Value | 1.67 | 1.67 | 1.67 |
Common Stock, Authorized | 560,000,000 | 560,000,000 | 560,000,000 |
Common Stock, Outstanding | 241,849,640 | 241,679,942 | 223,669,263 |
Treasury Stock, shares | 3,321,884 | 3,491,582 | 4,252,261 |
CONSOLIDATED STATEMENT OF INCOM
CONSOLIDATED STATEMENT OF INCOME (USD $) | ||
In Millions, except Share data | 3 Months Ended
Mar. 31, 2010 | 3 Months Ended
Mar. 31, 2009 |
Noninterest Income | ||
Trust, Investment and Other Servicing Fees | 515.1 | 410.7 |
Foreign Exchange Trading Income | 79.7 | 131.1 |
Security Commissions and Trading Income | 13.3 | 16.8 |
Treasury Management Fees | 20.1 | 20.4 |
Other Operating Income | 39 | 37.1 |
Security Gains (Losses), net | 0.3 | 0.4 |
Total Noninterest Income | 667.5 | 616.5 |
Net Interest Income | ||
Interest Income | 314.3 | 393.8 |
Interest Expense | 83.9 | 116.7 |
Net Interest Income | 230.4 | 277.1 |
Provision for Credit Losses | 40 | 55 |
Net Interest Income after Provision for Credit Losses | 190.4 | 222.1 |
Noninterest Expenses | ||
Compensation | 274.7 | 258.3 |
Employee Benefits | 63.1 | 65.8 |
Outside Services | 105.6 | 95.7 |
Equipment and Software Expense | 66.6 | 61.7 |
Occupancy Expense | 42.7 | 41.8 |
Other Operating Expenses | 67 | 70.2 |
Total Noninterest Expenses | 619.7 | 593.5 |
Income before Income Taxes | 238.2 | 245.1 |
Provision for Income Taxes | 81 | 83.3 |
Net Income | 157.2 | 161.8 |
Net Income Applicable to Common Stock | 157.2 | 138.8 |
Per Common Share | ||
Net Income - Basic | 0.65 | 0.62 |
- Diluted | 0.64 | 0.61 |
Cash Dividends Declared | 0.28 | 0.28 |
Average Number of Common Shares Outstanding - Basic | 241,724,178 | 223,357,446 |
- Diluted | 242,513,391 | 224,401,185 |
CONSOLIDATED STATEMENT OF COMPR
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (USD $) | ||
In Millions | 3 Months Ended
Mar. 31, 2010 | 3 Months Ended
Mar. 31, 2009 |
Net Income | 157.2 | 161.8 |
Other Comprehensive Income (Loss) (net of tax and reclassifications) | ||
Net Unrealized Gains on Securities Available for Sale | 12.7 | 42.3 |
Net Unrealized Gains on Cash Flow Hedge Designations | 21.6 | 6.8 |
Foreign Currency Translation Adjustments | -11.4 | -3.5 |
Pension and Other Postretirement Benefit Adjustments | 6.2 | 3.2 |
Other Comprehensive Income | 29.1 | 48.8 |
Comprehensive Income | 186.3 | 210.6 |
CONSOLIDATED STATEMENT OF CHANG
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (USD $) | |||||||
In Millions | Preferred Stock
| Common Stock
| Additional Paid-in Capital
| Retained Earnings
| Accumulated Other Comprehensive Income (Loss)
| Treasury Stock
| Total
|
Balance at January 1 at Dec. 31, 2008 | 1501.3 | 379.8 | 178.5 | 5091.2 | -494.9 | -266.5 | |
Net Income | 161.8 | 161.8 | |||||
Stock Options and Awards | -12.7 | 29.6 | |||||
Other Comprehensive Income | 48.8 | 48.8 | |||||
Dividends Declared - Common Stock | -63.2 | ||||||
Stock Options and Awards - Amortization | -5.1 | ||||||
Stock Purchased | -6.3 | ||||||
Dividends Declared - Preferred Stock | -19.9 | ||||||
Stock Options and Awards - Tax Benefits | 2.3 | ||||||
Discount Accretion - Preferred Stock | 3.3 | -3.3 | |||||
Balance at March 31 at Mar. 31, 2009 | 1504.6 | 379.8 | 163 | 5166.6 | -446.1 | -243.2 | 6524.7 |
Balance at January 1 at Dec. 31, 2009 | 408.6 | 888.3 | 5,576 | -361.6 | -199.2 | 6312.1 | |
Net Income | 157.2 | 157.2 | |||||
Stock Options and Awards | -10.8 | 13.8 | |||||
Other Comprehensive Income | 29.1 | 29.1 | |||||
Dividends Declared - Common Stock | -68.2 | ||||||
Stock Options and Awards - Amortization | 17.5 | ||||||
Stock Purchased | -3.8 | ||||||
Stock Options and Awards - Tax Benefits | 0.2 | ||||||
Balance at March 31 at Mar. 31, 2010 | 408.6 | 895.2 | $5,665 | -332.5 | -189.2 | 6447.1 |
CONSOLIDATED STATEMENT OF CASH
CONSOLIDATED STATEMENT OF CASH FLOWS (USD $) | ||
In Millions | 3 Months Ended
Mar. 31, 2010 | 3 Months Ended
Mar. 31, 2009 |
Cash Flows from Operating Activities: | ||
Net Income | 157.2 | 161.8 |
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: | ||
Provision for Credit Losses | 40 | 55 |
Depreciation on Buildings and Equipment | 22.4 | 21.5 |
Amortization of Computer Software | 32.8 | 29.9 |
Amortization of Intangibles | 4 | 3.9 |
Decrease in Receivables | 0.3 | 120.6 |
Decrease in Interest Payable | -18.4 | -31.7 |
Amortization and Accretion of Securities and Unearned Income, net | -13.6 | -6.5 |
Investment Security (Gains) Losses, net | -0.3 | -0.4 |
Qualified Pension Plan Contribution | (20) | |
Excess Tax Benefits from Stock Incentive Plans | -0.2 | -2.3 |
Net (Increase) Decrease in Trading Account Securities | 0.1 | -2.8 |
Other Operating Activities, net | -169.5 | 97.8 |
Net Cash Provided by Operating Activities | 34.8 | 446.8 |
Cash Flows from Investing Activities: | ||
Net (Increase) Decrease in Federal Funds Sold and Securities Purchased under Agreements to Resell | 99.6 | -282.3 |
Net Increase in Time Deposits with Banks | -3034.1 | -1613.9 |
Net Decrease in Federal Reserve Deposits and Other Interest-Bearing Assets | 8080.2 | 6,414 |
Purchases of Securities-Held to Maturity | -224.1 | -31.1 |
Proceeds from Maturity and Redemption of Securities-Held to Maturity | 215.8 | 54.7 |
Purchases of Securities-Available for Sale | -4100.4 | -4466.6 |
Proceeds from Sale, Maturity and Redemption of Securities-Available for Sale | 4338.5 | 2260.2 |
Net (Increase) Decrease in Loans and Leases | -195.5 | 349.5 |
Purchases of Buildings and Equipment, net | -19.4 | -50.2 |
Purchases and Development of Computer Software | (61) | -55.7 |
Net (Increase) Decrease in Client Security Settlement Receivables | -175.8 | 7 |
Other Investing Activities, net | 582.2 | -1163.2 |
Net Cash Provided by Investing Activities | 5,506 | 1422.4 |
Cash Flows from Financing Activities: | ||
Net Decrease in Deposits | -846.1 | -9061.8 |
Net Increase (Decrease) in Federal Funds Purchased | -2910.4 | 5952.1 |
Net Decrease in Securities Sold under Agreements to Repurchase | -364.5 | -507.9 |
Net Increase (Decrease) in Short-Term Other Borrowings | -459.6 | 1460.1 |
Proceeds from Term Federal Funds Purchased | 6,196 | 2,881 |
Repayments of Term Federal Funds Purchased | (6,772) | (2,875) |
Repayments of Senior Notes & Long-Term Debt | -256.5 | -132.1 |
Treasury Stock Purchased | -3.8 | -4.2 |
Net Proceeds from Stock Options | 4 | 14.8 |
Excess Tax Benefits from Stock Incentive Plans | 0.2 | 2.3 |
Cash Dividends Paid on Common Stock | -67.7 | -62.5 |
Cash Dividends Paid on Preferred Stock | -19.9 | |
Other Financing Activities, net | 114.5 | -13.6 |
Net Cash Used in Financing Activities | -5365.9 | -2366.7 |
Effect of Foreign Currency Exchange Rates on Cash | (15) | -46.6 |
Increase (Decrease) in Cash and Due from Banks | 159.9 | -544.1 |
Cash and Due from Banks at Beginning of Year | 2491.8 | 2648.2 |
Cash and Due from Banks at End of Period | 2651.7 | 2104.1 |
Supplemental Disclosures of Cash Flow Information: | ||
Interest Paid | 102.3 | 148.4 |
Income Taxes Paid (Refunded) | -58.5 | 106.9 |
Basis of Presentation
Basis of Presentation | |
3 Months Ended
Mar. 31, 2010 | |
Basis of Presentation | 1. Basis of Presentation The consolidated financial statements include the accounts of Northern Trust Corporation (Corporation) and its subsidiaries (collectively, Northern Trust), all of which are wholly-owned. Significant intercompany balances and transactions have been eliminated. The consolidated financial statements, as of and for the periods ended March31, 2010 and 2009, have not been audited by the Corporations independent registered public accounting firm. In the opinion of management, all accounting entries and adjustments, including normal recurring accruals, necessary for a fair presentation of the financial position and the results of operations for the interim periods have been made. For a description of Northern Trusts significant accounting policies, refer to Note 1 of the Notes to Consolidated Financial Statements in the 2009 Annual Report to Shareholders. |
Recent Accounting Pronouncement
Recent Accounting Pronouncements | |
3 Months Ended
Mar. 31, 2010 | |
Recent Accounting Pronouncements | 2. Recent Accounting Pronouncements In March 2010, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) Effect of a Loan Modification When It Is Part of a Pool That Is Accounted for as a Single Asset. This guidance states that a modified loan within a pool of purchased, credit-impaired loans which are accounted for as a single asset, should remain in the pool even if the modification would otherwise be considered a Troubled Debt Restructuring (TDR). A one-time election to terminate accounting for a group of loans in a pool, which may be made on a pool-by-pool basis, is allowed upon adoption of the ASU. The ASU does not require any additional recurring disclosures and will be effective for modifications of loans accounted for within a pool in interim or annual periods ending on or after July15, 2010. Adoption of this ASU is not expected to have a material impact on Northern Trusts consolidated financial position or results of operations. |
Fair Value Measurements
Fair Value Measurements | |
3 Months Ended
Mar. 31, 2010 | |
Fair Value Measurements | 3. Fair Value Measurements Fair Value Hierarchy. The following describes the hierarchy of valuation inputs (Levels 1, 2, and 3) used to measure fair value and the primary valuation methodologies used by Northern Trust for financial instruments measured at fair value on a recurring basis. Observable inputs reflect market data obtained from sources independent of the reporting entity; unobservable inputs reflect the entitys own assumptions about how market participants would value an asset or liability based on the best information available. The standard requires an entity measuring fair value to maximize the use of observable inputs and minimize the use of unobservable inputs and establishes a fair value hierarchy of inputs. Financial instruments are categorized within the hierarchy based on the lowest level input that is significant to their valuation. Level 1. Quoted, active market prices for identical assets or liabilities. Northern Trusts Level 1 assets and liabilities include available for sale investments in U.S. treasury securities, seed investments for the development of managed fund products consisting of common stock and securities sold but not yet purchased, and U.S. treasury securities held to fund employee benefit and deferred compensation obligations. Level 2. Observable inputs other than Level 1 prices, such as quoted active market prices for similar assets or liabilities, quoted prices for identical or similar assets in inactive markets, and model-derived valuations in which all significant inputs are observable in active markets. Northern Trusts Level 2 assets include available for sale and trading account investments. Their fair values are determined by external pricing vendors, or in limited cases internally, using widely accepted income-based (discounted cash flow) models that incorporate observable current market yield curves and assumptions regarding anticipated prepayments and defaults. Level 2 assets and liabilities also include derivative contracts which are valued using widely accepted income-based models that incorporate inputs readily observable in actively quoted markets and reflect the contractual terms of the contracts. Observable inputs include foreign exchange rates and interest rates for foreign exchange contracts; credit spreads, default probabilities, and recovery rates for credit default swap contracts; interest rates for interest rate swap contracts; and interest rates and volatility inputs for interest rate option contracts. Northern Trust evaluates the impact of counterparty credit risk and its own credit risk on the valuation of its derivative instruments. Factors considered include the likelihood of default by Northern Trust and its counterparties, the remaining maturities of the instruments, net exposures after giving effect to master netting agreements, available collateral, and other credit enhancements in determining the appropriate fair value of derivative instruments. The resulting valuation adjustments have not been considered material. Level 2 other assets represent investments in mutual funds and collective trust funds held to fund employee benefit and deferred compensation obl |
Securities
Securities | |
3 Months Ended
Mar. 31, 2010 | |
Securities | 4. Securities The following table summarizes the book and fair values of securities. March31, 2010 December31, 2009 March31, 2009 (In Millions) Book Value Fair Value Book Value Fair Value Book Value Fair Value Available for Sale U.S. Government $ 59.0 $ 59.0 $ 74.0 $ 74.0 $ 16.2 $ 16.2 Obligations of States and Political Subdivisions 43.1 43.1 47.0 47.0 31.5 31.5 Government Sponsored Agency 10,705.9 10,705.9 12,325.4 12,325.4 13,364.9 13,364.9 Non-U.S. Government 255.0 255.0 80.6 80.6 125.9 125.9 Corporate Debt 2,968.3 2,968.3 2,822.1 2,822.1 961.4 961.4 Residential Mortgage-Backed 304.9 304.9 314.0 314.0 377.3 377.3 Other Asset-Backed 1,464.2 1,464.2 1,181.3 1,181.3 1,143.8 1,143.8 Auction Rate 411.7 411.7 427.7 427.7 476.3 476.3 Other 428.7 428.7 190.0 190.0 174.2 174.2 Subtotal 16,640.8 16,640.8 17,462.1 17,462.1 16,671.5 16,671.5 Held to Maturity Obligations of States and Political Subdivisions 675.0 705.5 692.6 726.5 768.2 801.0 Government Sponsored Agency 142.8 145.3 114.6 116.8 55.9 57.6 Other 408.2 395.2 354.2 342.4 307.6 290.2 Subtotal 1,226.0 1,246.0 1,161.4 1,185.7 1,131.7 1,148.8 Trading Account 9.8 9.8 9.9 9.9 5.1 5.1 Total Securities $ 17,876.6 $ 17,896.6 $ 18,633.4 $ 18,657.7 $ 17,808.3 $ 17,825.4 Reconciliation of Amortized Cost to Fair Values of Securities Available for Sale March 31, 2010 (In Millions) Amortized Cost Gross Unrealized Fair Value Gains Losses U.S. Government $ 59.0 $ $ $ 59.0 Obligations of States and Political Subdivisions 41.1 2.0 43.1 Government Sponsored Agency 10,659.4 57.4 10.9 10,705.9 Non-U.S. Government 255.7 .7 255.0 Corporate Debt 2,962.9 7.2 1.8 2,968.3 Residential Mortgage-Backed 408.8 103.9 304.9 Other Asset-Backed 1,462.9 2.3 1.0 1,464.2 Auction Rate 401.6 12.2 2.1 411.7 Other 428.8 .1 428.7 Total $ 16,680.2 $ 81.1 $ 120.5 $ 16,640.8 Reconciliation of Amortized Cost to Fair Values of Securities Held to Maturity March 31, 2010 (In Millions) Book Value GrossUnrealized Fair Value Gains Losses Obligations of States and Political Subdivisions $ 675.0 $ 31.0 $ .5 $ 705. |
Loans and Leases
Loans and Leases | |
3 Months Ended
Mar. 31, 2010 | |
Loans and Leases | 5. Loans and Leases Amounts outstanding in selected loan categories are shown below. (In Millions) March31, 2010 December31, 2009 March31, 2009 U.S. Residential Real Estate $ 10,798.0 $ 10,807.7 $ 10,588.0 Commercial 6,363.4 6,312.1 7,826.8 Commercial Real Estate 3,265.2 3,213.2 3,144.8 Personal 4,873.8 4,965.8 4,625.3 Other 654.4 774.0 1,169.9 Lease Financing, net 1,040.7 1,004.4 986.3 Total U.S. 26,995.5 27,077.2 28,341.1 Non-U.S. 966.5 728.5 2,069.8 Total Loans and Leases 27,962.0 27,805.7 30,410.9 Reserve for Credit Losses Assigned to Loans and Leases (320.5 ) (309.2 ) (286.2 ) Net Loans and Leases $ 27,641.5 $ 27,496.5 $ 30,124.7 Other U.S. loans and non-U.S. loans included $1.0 billion at March31, 2010, $1.0 billion at December31, 2009, and $2.6 billion at March31, 2009 of short duration advances, primarily related to overdrafts associated with the timing of custody clients investments. The following table shows outstanding amounts of nonperforming and impaired loans as of March31, 2010,December31, 2009, and March31, 2009. (In Millions) March31, 2010 December31, 2009 March31, 2009 Nonperforming Loans $ 319.5 $ 278.5 $ 167.8 Nonperforming Loans Classified as Impaired: Impaired Loans with Reserves 120.5 94.5 85.7 Impaired Loans without Reserves* 141.6 133.6 66.0 Total Impaired Loans** $ 262.1 $ 228.1 $ 151.7 Reserves for Impaired Loans 52.6 43.8 42.7 Average Balance of Impaired Loans During the Period 212.5 193.8 116.7 * When an impaired loans discounted cash flows, collateral value, or market price equals or exceeds its carrying value (net of charge-offs), a reserve is not required. ** Included within total impaired loans as of March31, 2010 and December31, 2009 were $35.7 million and $24.3 million, respectively, of loans deemed troubled debt restructurings. At March31, 2010, residential real estate loans totaling $1.3 million were held for sale and carried at the lower of cost or market. Loan commitments for residential real estate loans that will be held for sale when funded are carried at fair value and had a total notional amount of $20.3 million at March31, 2010. All other loan commitments are carried at the amount of unamortized fees with a reserve for credit loss liability recognized for estimated probable losses. At March31, 2010, legally binding commitments to extend credit totaled $25.1 billion compared with $25.7 billion at December31, 2009, and $26.9 billion at March31, 2009. |
Reserve for Credit Losses
Reserve for Credit Losses | |
3 Months Ended
Mar. 31, 2010 | |
Reserve for Credit Losses | 6. Reserve for Credit Losses Changes in the reserve for credit losses were as follows: Three Months Ended March31, (In Millions) 2010 2009 Balance at Beginning of Period $ 340.6 $ 251.1 Charge-Offs (32.7 ) (5.4 ) Recoveries 2.1 2.7 Net Charge-Offs (30.6 ) (2.7 ) Provision for Credit Losses 40.0 55.0 Effect of Foreign Exchange Rates (.1 ) Balance at End of Period $ 350.0 $ 303.3 Reserve for Credit Losses Assigned to: Loans and Leases 320.5 286.2 Unfunded Commitments and Standby Letters of Credit 29.5 17.1 Total Reserve for Credit Losses $ 350.0 $ 303.3 The reserve for credit losses represents managements estimate of probable inherent losses that have occurred as of the date of the financial statements. The loan and lease portfolio and other credit exposures are regularly reviewed to evaluate the adequacy of the reserve for credit losses. In determining the level of the reserve, Northern Trust evaluates the reserve necessary for specific nonperforming loans and also estimates losses inherent in other credit exposures. |
Pledged Assets
Pledged Assets | |
3 Months Ended
Mar. 31, 2010 | |
Pledged Assets | 7. Pledged Assets Securities and loans pledged to secure public and trust deposits, repurchase agreements, and for other purposes as required or permitted by law were $22.9 billion on March31, 2010, $24.1 billion on December31, 2009, and $22.9 billion on March31, 2009. Included in the March31, 2010 pledged assets were securities available for sale of $703.5 million that were pledged as collateral for agreements to repurchase securities sold transactions. The secured parties to these transactions have the right to repledge or sell these securities. Northern Trust is permitted to repledge or sell collateral from agreements to resell securities purchased transactions. The total fair value of accepted collateral as of March31, 2010,December31, 2009, and March31, 2009 was $47.4 million, $227.9 million, and $48.9 million, respectively. There was no repledged collateral at March31, 2010,December31, 2009, or March31, 2009. |
Goodwill and Other Intangibles
Goodwill and Other Intangibles | |
3 Months Ended
Mar. 31, 2010 | |
Goodwill and Other Intangibles | 8. Goodwill and Other Intangibles The following table shows the carrying amounts of goodwill by business unit, which include the effect of foreign exchange rates on non-U.S. dollar denominated goodwill, at March31, 2010,December31, 2009, and March31, 2009. (In Millions) March31, 2010 December31, 2009 March31, 2009 Corporate and Institutional Services $ 327.2 $ 334.7 $ 320.7 Personal Financial Services 66.8 66.9 66.7 Total Goodwill $ 394.0 $ 401.6 $ 387.4 Other intangible assets are included in other assets in the consolidated balance sheet. The gross carrying amount and accumulated amortization of other intangible assets subject to amortization at March31, 2010,December31, 2009, and March31, 2009, which include the effect of foreign exchange rates on non-U.S. dollar denominated intangible assets, were as follows: (In Millions) March31, 2010 December31, 2009 March31, 2009 Gross Carrying Amount $ 155.0 $ 157.0 $ 152.8 Accumulated Amortization 100.3 96.3 84.1 Net Book Value $ 54.7 $ 60.7 $ 68.7 Other intangible assets consist primarily of the value of acquired client relationships. Amortization expense related to other intangible assets totaled $4.0 million and $3.9 million for the quarters ended March31, 2010 and 2009. Amortization for the remainder of 2010 and for the years 2011, 2012, 2013, and 2014 is estimated to be $10.9 million, $10.6 million, $10.4 million, $10.2 million and $10.0 million, respectively. |
Business Units
Business Units | |
3 Months Ended
Mar. 31, 2010 | |
Business Units | 9. Business Units The tables on page 39, reflecting the earnings contribution of Northern Trusts business units for the three month periods ended March31, 2010 and 2009, are incorporated by reference. |
Accumulated Other Comprehensive
Accumulated Other Comprehensive Income (Loss) | |
3 Months Ended
Mar. 31, 2010 | |
Accumulated Other Comprehensive Income (Loss) | 10. Accumulated Other Comprehensive Income (Loss) The following tables summarize the components of accumulated other comprehensive income (loss) at March31, 2010 and 2009, and changes during the three-month periods then ended. Period Change (In Millions) Beginning Balance (NetofTax) BeforeTax Amount Tax Effect Ending Balance (NetofTax) Three Months Ended March31, 2010 Noncredit-Related Unrealized Losses on Securities OTTI $ (42.0 ) $ 10.7 $ (4.0 ) $ (35.3 ) Other Unrealized Gains (Losses) on Securities Available for Sale, net .3 9.9 (3.7 ) 6.5 Less: Reclassification Adjustments .3 (.1 ) .2 Net Unrealized Gains (Losses) on Securities Available for Sale (41.7 ) 20.3 (7.6 ) (29.0 ) Unrealized Gains (Losses) on Cash Flow Hedge Designations (26.2 ) 32.0 (11.7 ) (5.9 ) Less: Reclassification Adjustments (2.1 ) .8 (1.3 ) Net Unrealized Gains (Losses) on Cash Flow Hedge Designations (26.2 ) 34.1 (12.5 ) (4.6 ) Foreign Currency Translation Adjustments 11.3 22.4 (33.8 ) (.1 ) Pension and Other Postretirement Benefit Adjustments (305.0 ) .7 (.3 ) (304.6 ) Less: Reclassification Adjustments (6.5 ) .7 (5.8 ) Total Pension and Other Postretirement Benefit Adjustments (305.0 ) 7.2 (1.0 ) (298.8 ) Accumulated Other Comprehensive Income (Loss) $ (361.6 ) $ 84.0 $ (54.9 ) $ (332.5 ) Three Months Ended March31, 2009 Unrealized Gains (Losses) on Securities Available for Sale $ (212.9 ) $ 67.0 $ (24.6 ) $ (170.5 ) Less: Reclassification Adjustments .2 (.1 ) .1 Net Unrealized Gains (Losses) on Securities Available for Sale (212.9 ) 66.8 (24.5 ) (170.6 ) Unrealized Gains (Losses) on Cash Flow Hedge Designations (20.7 ) 19.0 (7.1 ) (8.8 ) Less: Reclassification Adjustments 8.1 (3.0 ) 5.1 Net Unrealized Gains (Losses) on Cash Flow Hedge Designations (20.7 ) 10.9 (4.1 ) (13.9 ) Foreign Currency Translation Adjustments 12.8 13.2 (16.7 ) 9.3 Pension and Other Postretirement Benefit Adjustments (274.1 ) (274.1 ) Less: Reclassification Adjustments 4.9 (1.7 ) 3.2 Total Pension and Other Postretirement Benefit Adjustments (274.1 ) 4.9 (1.7 ) (270.9 ) Accumulated Other Comprehensive Income (Loss) $ (494.9 ) $ 95.8 $ (47.0 ) $ (446.1 ) |
Net Income Per Common Share Com
Net Income Per Common Share Computations | |
3 Months Ended
Mar. 31, 2010 | |
Net Income Per Common Share Computations | 11. Net Income Per Common Share Computations The computations of net income per common share are presented in the following table. Three Months Ended March31, (In Millions Except Per Share Information) 2010 2009 Basic Net Income Per Common Share Average Number of Common Shares Outstanding 241,724,178 223,357,446 Net Income $ 157.2 $ 161.8 Less: Dividends on Preferred Stock 23.0 Net Income Applicable to Common Stock 157.2 138.8 Less: Earnings Allocated to Participating Securities 1.3 1.2 Earnings Allocated to Common Shares Outstanding $ 155.9 $ 137.6 Basic Net Income Per Common Share $ .65 $ .62 Diluted Net Income Per Common Share Average Number of Common Shares Outstanding 241,724,178 223,357,446 Plus Stock Option Dilution 789,213 1,043,739 Average Common and Potential Common Shares 242,513,391 224,401,185 Earnings Allocated to Common and Potential Common Shares $ 155.9 $ 137.6 Diluted Net Income Per Common Share $ .64 $ .61 Note: Common stock equivalents totaling 10,218,983 and 6,070,031 for the three months ended March31, 2010 and March31, 2009, respectively, were not included in the computation of diluted net income per common share because their inclusion would have been antidilutive. |
Net Interest Income
Net Interest Income | |
3 Months Ended
Mar. 31, 2010 | |
Net Interest Income | 12. Net Interest Income The components of net interest income were as follows: ThreeMonthsEndedMarch31, (In Millions) 2010 2009 Interest Income Loans and Leases $ 224.3 $ 243.5 Securities Taxable 44.7 56.4 Non-Taxable 7.5 9.1 Time Deposits with Banks 33.5 81.2 Federal Funds Sold and Securities Purchased under Agreements to Resell and Other 4.3 3.6 Total Interest Income 314.3 393.8 Interest Expense Deposits 39.9 65.4 Federal Funds Purchased 1.3 1.4 Securities Sold Under Agreements to Repurchase .2 .4 Other Borrowings 1.1 1.0 Senior Notes 11.5 8.6 Long-Term Debt 29.5 38.4 Floating Rate Capital Debt .4 1.5 Total Interest Expense 83.9 116.7 Net Interest Income $ 230.4 $ 277.1 |
Visa Membership
Visa Membership | |
3 Months Ended
Mar. 31, 2010 | |
Visa Membership | 13. Visa Membership Northern Trust, in conjunction with other member banks of Visa U.S.A Inc. (Visa U.S.A.), is obligated to share in losses resulting from certain indemnified litigation involving Visa Inc. (Visa) and is also required to recognize the contingent obligation to indemnify Visa for potential losses arising from other indemnified litigation that has not yet settled at its estimated fair value in accordance with GAAP. Northern Trusts net Visa related indemnification liability, included within other liabilities in the consolidated balance sheet, totaled $56.1 million at March31, 2010 and December31, 2009, and $73.9 million at March31, 2009. Visa has established an escrow account to fund the settlements of, or judgments in, the indemnified litigation. The funding by Visa of its escrow account has resulted in reductions of Northern Trusts Visa related indemnification liability and of the future realization of the value of outstanding shares of Visa common stock held by Northern Trust as a member bank of Visa U.S.A. These shares are recorded at their original cost basis of zero and have restrictions as to their sale or transfer. It is expected that required additional contributions to the litigation escrow account will result in additional adjustments to the Visa related liability and to the future realization of the value of the outstanding shares. While the ultimate resolution of outstanding Visa related litigation is highly uncertain and the estimation of any potential losses is highly judgmental, Northern Trust anticipates that the value of its remaining shares of Visa stock will be more than adequate to offset any remaining indemnification liabilities related to Visa litigation. |
Income Taxes
Income Taxes | |
3 Months Ended
Mar. 31, 2010 | |
Income Taxes | 14. Income Taxes Income tax expense of $81.0 million was recorded in the current quarter and $83.3 million in the prior year quarter. The effective tax rate equaled 34.0% in both periods. As part of its audit of federal tax returns filed from 1997-2004, the Internal Revenue Service (IRS) challenged the Corporations tax position with respect to certain structured leasing transactions and proposed to disallow certain tax deductions and assess related interest and penalties. In September 2009, the Corporation reached a settlement agreement with the IRS with respect to certain of these transactions, resulting in the acceleration of $88.6 million in tax payments to the IRS. The acceleration of tax payments did not affect net income. The Corporation anticipates that the IRS will continue to disallow deductions relating to the remaining challenged leases and possibly include other lease transactions with similar characteristics as part of its audit of tax returns filed after 2004. The Corporation believes that these transactions are valid leases for U.S. tax purposes and that its tax treatment of these transactions is appropriate based on its interpretation of the tax regulations and legal precedents; a court or other judicial authority, however, could disagree. The Corporation believes it has appropriate reserves to cover its tax liabilities, including liabilities related to structured leasing transactions, and related interest and penalties. The Corporation will continue to defend its position on the tax treatment of its structured leasing transactions vigorously. Northern Trust has deposits with the IRS to mitigate interest that would become due should the IRS prevail on the remaining tax positions. There have been no changes to the December31, 2009 leveraged lease related uncertain tax position balance of $67.9 million. Management does not believe that future changes, if any, would have a material effect on the consolidated financial position or liquidity of Northern Trust; although they could have a material effect on operating results for a particular period. |
Pension and Other Postretiremen
Pension and Other Postretirement Plans | |
3 Months Ended
Mar. 31, 2010 | |
Pension and Other Postretirement Plans | 15. Pension and Other Postretirement Plans The following tables set forth the net periodic pension expense for Northern Trusts U.S. and non-U.S. pension plans, supplemental pension plan, and other postretirement plan for the three months ended March31, 2010 and 2009. Net Periodic Pension Expense U.S. Plan ThreeMonthsEnded March 31, (In Millions) 2010 2009 Service Cost $ 9.5 $ 8.3 Interest Cost 9.2 8.3 Expected Return on Plan Assets (18.3 ) (14.9 ) Amortization: Net Loss 5.0 3.0 Prior Service Cost .4 .3 Net Periodic Pension Expense $ 5.8 $ 5.0 Net Periodic Pension Expense Non U.S. Plans ThreeMonthsEnded March 31, (In Millions) 2010 2009 Service Cost $ 1.0 $ .9 Interest Cost 1.8 1.6 Expected Return on Plan Assets (2.1 ) (1.9 ) Net Loss Amortization .4 .3 Net Periodic Pension Expense $ 1.1 $ .9 Net Periodic Pension Expense Supplemental Plan ThreeMonthsEnded March 31, (In Millions) 2010 2009 Service Cost $ .8 $ .6 Interest Cost 1.2 1.0 Net Loss Amortization 1.5 1.0 Net Periodic Pension Expense $ 3.5 $ 2.6 Net Periodic Pension Expense Other Postretirement Plan ThreeMonthsEnded March 31, (In Millions) 2010 2009 Service Cost $ .2 $ .4 Interest Cost .7 .9 Amortization: Transition Obligation .2 Net Loss .5 .1 Prior Service Credit (1.3 ) Net Periodic Pension Expense $ .1 $ 1.6 |
Share-Based Compensation Plans
Share-Based Compensation Plans | |
3 Months Ended
Mar. 31, 2010 | |
Share-Based Compensation Plans | 16. Share-Based Compensation Plans The Amended and Restated Northern Trust Corporation 2002 Stock Plan provides for the grant of nonqualified stock options, incentive stock options, stock appreciation rights, stock awards, stock units, and performance shares. In the first quarter of 2010, the Corporation granted 2,100,142 nonqualified stock options with a total grant-date fair value of $30.4 million and 777,569 stock unit awards with a total grant-date fair value of $39.7 million. Compensation expense recorded in the first quarter of 2010 includes $6.8 million attributable to stock options granted to retirement-eligible employees that were expensed in their entirety on the grant date. Total share-based compensation expense for the three months ended March31, 2009 reflects the reversal of accruals related to performance stock units which were not expected to vest. Total compensation expense for share-based payment arrangements and the associated tax impacts were as follows: Three Months Ended March31, (In Millions) 2010 2009 Stock Options $ 11.8 $ 5.5 Stock and Stock Unit Awards 5.8 4.3 Performance Stock Units (14.9 ) Total Share-Based Compensation Expense 17.6 (5.1 ) Tax (Cost) Benefits Recognized $ 6.4 $ (1.9 ) |
Variable Interest Entities
Variable Interest Entities | |
3 Months Ended
Mar. 31, 2010 | |
Variable Interest Entities | 17. Variable Interest Entities Northern Trust acts as sponsor and/or asset manager to various funds in which clients of Northern Trust are investors. As asset manager of funds, the Corporation earns a competitively priced fee which is based on assets managed and which varies with each funds investment objective. Under GAAP, certain of these funds are considered variable interest entities (VIE). In June 2009, the FASB issued guidance which amends the criteria for determining whether the consolidation of a VIE is required. The guidance changes the approach for determining the primary beneficiary of a VIE from a quantitative risk and reward model to a qualitative model based on control and economics. In February 2010, the FASB issued a deferral of this guidance for asset managers, allowing asset managers to continue applying for money market funds and other funds that prepare financial statements in accordance with the AICPA Investment Company Guide (or funds having similar attributes). Northern Trusts adoption of the initial amended guidance and subsequent deferral did not impact its consolidated financial position or results of operations. Based on its analysis under existing consolidation accounting guidance, consistent with the deferral, Northern Trusts interests in funds considered VIEs, and for which it serves as asset manager, are not considered significant variable interests under GAAP. |
Contingent Liabilities
Contingent Liabilities | |
3 Months Ended
Mar. 31, 2010 | |
Contingent Liabilities | 18. Contingent Liabilities Standby letters of credit obligate Northern Trust to meet certain financial obligations of its clients, if, under the contractual terms of the agreement, the clients are unable to do so. These instruments are primarily issued to support public and private financial commitments, including commercial paper, bond financing, initial margin requirements on futures exchanges, and similar transactions. Certain standby letters of credit have been secured with cash deposits or participated to others and in certain cases Northern Trust is able to recover the amounts paid through recourse against these cash deposits or other participants. Standby letters of credit outstanding were $4.8 billion on March31, 2010, $4.8 billion on December31, 2009 and $4.4 billion on March31, 2009. Northern Trusts liability included within the consolidated balance sheet for standby letters of credit, measured as the amount of unamortized fees on these instruments, was $36.3 million at March31, 2010, $38.3 million at December31, 2009, and $35.0 million at March31, 2009. As part of its securities custody activities and at the direction of its clients, Northern Trust lends securities owned by clients to borrowers who are reviewed by the Northern Trust Senior Credit Committee. In connection with these activities, Northern Trust has issued indemnifications against certain losses resulting from the bankruptcy of the borrower of the securities. The borrowing party is required to fully collateralize securities received with cash, marketable securities, or irrevocable standby letters of credit. As securities are loaned, collateral is maintained at a minimum of 100% of the fair value of the securities plus accrued interest. The collateral is revalued on a daily basis. The amount of securities loaned subject to indemnification was $88.2 billion at March31, 2010, $82.3 billion at December31, 2009, and $71.9 billion at March31, 2010. Because of the credit quality of the borrowers and the requirement to fully collateralize securities borrowed, management believes that the exposure to credit loss from this activity is not significant and no liability was recorded at March31, 2010,December31, 2009, or March31, 2009 related to these indemnifications. As discussed in further detail in Note 13, Northern Trust, as a member bank of Visa U.S.A., and in conjunction with other member banks, is obligated to share in losses resulting from certain indemnified litigation involving Visa. The estimated fair value of the net Visa indemnification liability, recorded within other liabilities in the consolidated balance sheet, totaled $56.1 million at March31, 2010 and December31, 2009, and $73.9 million at March31, 2009. In the normal course of business, the Corporation and its subsidiaries are routinely defendants in or parties to a number of pending and threatened legal actions, including, but not limited to, actions brought on behalf of various claimants or classes of claimants, regulatory matters, employment matters, and challenges from tax authorities regarding the amount of taxes due. In certain of these actions and proceedings, claims for substantial monetary dam |
Derivative Financial Instrument
Derivative Financial Instruments | |
3 Months Ended
Mar. 31, 2010 | |
Derivative Financial Instruments | 19. Derivative Financial Instruments Northern Trust is a party to various derivative financial instruments that are used in the normal course of business to meet the needs of its clients; as part of its trading activity for its own account; and as part of its risk management activities. These instruments include foreign exchange contracts, interest rate contracts, and credit default swap contracts. Foreign exchange contracts are agreements to exchange specific amounts of currencies at a future date, at a specified rate of exchange. Foreign exchange contracts are entered into primarily to meet the foreign exchange needs of clients. Foreign exchange contracts are also used for trading purposes and risk management. For risk management purposes, Northern Trust currently uses foreign exchange contracts to reduce its exposure to changes in foreign exchange rates relating to certain forecasted non-U.S. dollar denominated revenue and expenditure transactions, non-U.S. dollar denominated assets and liabilities, and net investments in non-U.S. affiliates. Interest rate contracts include swap and option contracts. Interest rate swap contracts involve the exchange of fixed and floating rate interest payment obligations without the exchange of the underlying principal amounts. Northern Trust enters into interest rate swap contracts on behalf of its clients and also utilizes such contracts to reduce or eliminate the exposure to changes in the cash flows or value of hedged assets or liabilities due to changes in interest rates. Interest rate option contracts consist of caps, floors, and swaptions, and provide for the transfer or reduction of interest rate risk in exchange for a fee. Northern Trust enters into option contracts primarily as a seller of interest rate protection to clients. Northern Trust receives a fee at the outset of the agreement for the assumption of the risk of an unfavorable change in interest rates. This assumed interest rate risk is then mitigated by entering into an offsetting position with an outside counterparty. Northern Trust may also purchase option contracts for risk management purposes. Credit default swap contracts are agreements to transfer credit default risk from one party to another in exchange for a fee. Northern Trust enters into credit default swaps with outside counterparties where the counterparty agrees to assume the underlying credit exposure of a specific Northern Trust commercial loan or commitment. All derivative financial instruments, whether designated as hedges or not, are recorded on the consolidated balance sheet at fair value within other assets or other liabilities. The accounting for changes in the fair value of a derivative in the consolidated statement of income depends on whether the contract has been designated as a hedge and qualifies for hedge accounting in accordance with GAAP. Northern Trust has elected to net derivative assets and liabilities when legally enforceable master netting agreements exist between Northern Trust and the counterparty. As of March31, 2010 and December31, 2009, derivative assets and liabilities recorded on the consolidated balance sheet were reduced by $1,042.0 |