Northern Trust Corporation

Transcription

1 Northern Trust Corporation. Fourth Quarter 2017 Quarterly Earnings Review. January 24,

2 EXECUTIVE SUMMARY Net income of $356.6 million, earnings per common share of $1.51 and return on average common equity of 15.1% The fourth quarter included: $53.1 million tax benefit related to the Tax Cuts and Jobs Act $12.9 million expense related to a special one-time employee cash bonus $17.6 million charge associated with severance related and other charges Results also included $21.1 million in revenue and $24.2 million in expense related to the acquisition of UBS Asset Management s fund administration units in Luxembourg and Switzerland 2

3 SUMMARY RESULTS & KEY METRICS: FOURTH QUARTER 2017 $ in millions (except EPS and as noted) % Change Vs. 4Q Q Q 2017 Revenue (FTE 1 ) $1, % +6% Noninterest Expense 1, % +7% Provision for Credit Losses (13.0) -41% +86% Net Income $ % +19% Earnings per Share $ % +26% Return on Equity % 11.9% 12.2% Assets under Custody / Administration (in billions) $10, % +11% Assets under Custody (in billions) $8, % +4% Global Custody Assets (in billions) $4, % +5% Assets under Management (in billions) $1, % +3% 1 Revenue stated on a fully taxable equivalent (FTE) basis is a non-gaap financial measure. A reconciliation to reported revenue prepared in accordance with U.S. generally accepted accounting principles (GAAP) is included in the Appendix on page Actual numbers for all periods, not % change. 3

4 TOTAL REVENUE: FOURTH QUARTER 2017 $ in millions Total Revenue (FTE 1 ) +16% +6% $396 $350 $366 $329 $362 $72 $82 $74 $63 $65 $75 $50 $49 $58 $48 $794 $808 $848 $868 $910 Trust, Investment & Other Servicing Fees were up 15% year-over-year and 5% sequentially Foreign Exchange Trading Income increased 8% year-over-year and 28% sequentially Other Noninterest Income was up 11% year-over-year and down 3% sequentially Net Interest Income (FTE 1 ) was up 20% year-over-year and 8% sequentially 4Q Q Q Q Q 2017 Trust, Investment and Other Servicing Fees FX Trading Income Other Noninterest Income Net Interest Income (FTE 1 ) Categories may not sum due to rounding. 1 Net interest income and total revenue stated on an FTE basis are non-gaap financial measures. A reconciliation of these measures to reported results prepared in accordance with U.S. GAAP is included in the Appendix on page 14. 4

5 TRUST, INVESTMENT & OTHER SERVICING FEES: FOURTH QUARTER 2017 $ in millions (except as noted) % Change Vs. Trust, Investment & Other Servicing Fees 4Q Q Q 2017 Custody & Fund Administration $ % +9% Investment Management % +2% Securities Lending % +11% Other % -9% Total Corporate & Institutional Services $ % +6% Central $ % +3% East % +3% West % +2% Global Family Office % +3% Total Wealth Management $ % +3% Client Assets (in billions): C&IS AUC/A $10, % +11% C&IS AUC $7, % +4% Global Custody Assets $4, % +5% C&IS AUM $ % +4% Securities Lending Collateral $ % +3% Wealth Management AUC/A $ % +4% Wealth Management AUC $ % +4% Wealth Management AUM $ % +2% C&IS Trust, Investment & Other Servicing Fees were up 17% year-overyear and 6% sequentially Custody & Fund Administration fee growth year-over-year and sequentially was primarily due to revenue associated with the acquisition and integration of UBS Asset Management s fund administration services business in the current quarter, new business, favorable equity markets, and the favorable impact of movements in foreign exchange rates. Investment Management fee growth yearover-year was primarily due to favorable equity markets and new business. Other fees were lower sequentially primarily due to lower sub-advisory fees. Wealth Management Trust, Investment & Other Servicing Fees were up 12% year-over-year and 3% sequentially Year-over-year, the increase across all regions was primarily attributable to favorable equity markets and new business. Year-over-year and sequentially, the increase in Global Family Office fees were primarily attributable to new business and favorable markets. 5

6 NET INTEREST INCOME: FOURTH QUARTER 2017 NII (FTE 1 ) in millions Average Earning Assets ($ in billions) $109.0 $109.0 $ % 1.35% 1.28% $112.5 $ % 1.39% 4Q Q Q Q Q 2017 $329.3 $362.4 $350.4 $366.2 $396.0 Loans & Leases Securities NIM (FTE 1 ) Deposits w/ Banks Fed Deposits & Other Net Interest Income (FTE 1 ) was up 20% year-over-year and 8% sequentially and net interest margin (FTE 1 ) was 1.39% Average Earning Assets were up 4% year-over-year and 1% sequentially Net Interest Margin increased versus the prior-year quarter and the prior quarter primarily due to higher shortterm interest rates and lower premium amortization, partially offset by a balance sheet mix shift Premium amortization was $0 million in the fourth quarter, compared to $10 million one year ago, and $19 million in the third quarter 1 Net interest income and net interest margin stated on an FTE basis are non-gaap financial measures. A reconciliation of these measures to reported results prepared in accordance with U.S. generally accepted accounting principles (GAAP) is included in the Appendix on page 14. 6

7 NONINTEREST EXPENSE: FOURTH QUARTER 2017 $ in millions Total Noninterest Expense $874 $894 $78 $47 $121 $65 $45 $ % $937 $936 $82 $92 $46 $47 $134 $131 $153 $167 $173 $161 +7% $1,002 $92 $53 $133 $176 $468 $504 $508 $493 $549 4Q Q Q Q Q 2017 Compensation & Benefits Occupancy Outside Services Other Equipment & Software Expenses totaled $1.0 billion in the fourth quarter, up 15% year-over-year and 7% sequentially. The current quarter included the following items: $17.6 million charge associated with severance related and other charges $12.9 million charge related to a special onetime employee cash bonus $24.2 million in expense related to the acquisition of UBS Asset Management s fund administration units in Luxembourg and Switzerland The prior quarter included the following items: $7.0 million charge associated with severance related and other charges $2.4 million in expense related to the acquisition of UBS Asset Management s fund administration units in Luxembourg and Switzerland Excluding the items above, expenses were up 8% year-over-year and 2% sequentially Categories may not sum due to rounding. 7

8 RESULTS & KEY METRICS: FULL YEAR 2017 $ in millions (except EPS and as noted) % Change Vs. FY 2017 FY 2016 Revenue (FTE 1 ) $5, % Noninterest Expense 3, % Provision for Credit Losses (28.0) +8% Net Income $1, % Earnings per Share $ % Return on Equity % 11.9% Assets under Custody / Administration (in billions) $10, % Assets under Custody (in billions) $8, % Global Custody Assets (in billions) $4, % Assets under Management (in billions) $1, % The current year includes the following items: Tax benefit of $53.1 million related to the Tax Cuts and Jobs Act Tax benefit of $17.6 million related to Federal and State research tax credits Pre-tax charge of $47.4 million associated with severance related and other charges Pre-tax expense of $12.9 million related to a special one-time employee cash bonus The prior year included the following items: Pre-tax gain of $118.2 million on the sale of 1.1 million Visa Class B shares, net of the valuation adjustment to existing swap agreements Pre-tax charge of $46.5 million charge in connection with certain securities lending related litigation Pre-tax charge of $21.6 million associated with our loan and lease portfolio Pre-tax charge of $18.6 million related to contractual modifications associated with existing C&IS asset servicing clients Pre-tax charge of $17.5 million related to severance and personnel related costs 1 Revenue stated on an FTE basis is a non-gaap financial measure. A reconciliation of these measures to reported results prepared in accordance with U.S. generally accepted accounting principles (GAAP) is included in the Appendix on page Actual numbers for all periods, not % change. 8

9 REVENUE AND EXPENSE: ANNUAL TRENDS $ in millions Total Revenue (FTE 1 ) $4,728 $1,095 $4,987 $1,260 $390 $382 $262 $237 +5% +15% -2% -10% $5,421 $1,475 $302 $210 +9% +17% -21% -11% Total Noninterest Expense +9% $3,769 $3,471 +6% -9% $332 $3,281 +8% $ % $192 $328 $177 +2% +12% $524 $174 $467 +3% $455 $668 +7% $627 +5% $596 $2,981 $3,108 +4% $3, % $1,729 $1,834 +6% $2, % Trust, Investment and Other Servicing Fees FX Trading Income Other Noninterest Income Net Interest Income (FTE 1 ) Compensation & Benefits Outside Services Equipment & Software Occupancy Other 1 Net interest income and total revenue on an FTE basis are non-gaap financial measures. A reconciliation of these measures to reported results prepared in accordance with U.S. generally accepted accounting principles (GAAP) is included in the Appendix on page 14. 9

10 PROFITABILITY AND RETURNS Return on Equity 11.5% 11.9% 12.6% 8.6% 9.3% 9.5% 10.0% 31.0% We remain focused on sustainably improving profitability and returns 24.2% Ratio of expenses to trust & investment fees was 110% for % 110% Return on equity was 12.6%, which is within our target range of 10%-15% FY 2011 FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 FY 2017 Noninterest Expense as a % of Trust & Investment Fees Pre-tax Margin (FTE) 1 1 Pre-tax margin stated on an FTE basis is a non-gaap financial measure. A reconciliation to pre-tax margin prepared in accordance with U.S. GAAP is included in the Appendix on page

11 CAPITAL Northern Trust Corporation Capital Ratios Advanced Approach Common Equity Tier % Tier % Total 16.7% Supplementary Leverage 6.8% Standardized Approach Capital Return Declared $96.8 million in common stock dividends and repurchased $170.6 million of common stock in 4Q 2017 Capacity to repurchase up to $455 million of common stock through June 2018 under our 2017 capital plan Common Equity Tier % Tier % Total 15.8% Leverage 7.8% As of December 31, Capital ratios are considered preliminary until the Form 10-K is filed with the Securities and Exchange Commission. 11

12 MAXIMIZING VALUE FOR SPEND Creating capacity for investment in growth STRATEGIC SOURCING $250MM in estimated annualized pre-tax expense savings in 2020 ORGANIZATIONAL ALIGNMENT PROCESS OPTIMIZATION 12

13 Appendix 13

14 RECONCILIATION OF NON-GAAP FINANCIAL MEASURES The following table presents a reconciliation of total revenue, net interest income, net interest margin and pre-tax margin prepared in accordance with GAAP to such measures on a fully taxable equivalent (FTE) basis, which are non-gaap financial measures. Management believes this presentation provides a clearer indication of these financial measures for comparative purposes. Revenue 4Q17 3Q17 2Q17 1Q17 4Q16 FY 2017 FY 2016 FY 2015 Reported $ 1,424.5 $ 1,345.2 $ 1,321.2 $ 1,284.4 $ 1,241.4 $ 5,375.3 $ 4,961.8 $ 4,702.6 FTE Adj. $ 16.0 $ 12.0 $ 8.9 $ 8.9 $ 5.0 $ 45.8 $ 25.1 $ 25.3 FTE $ 1,440.5 $ 1,357.2 $ 1,330.1 $ 1,293.3 $ 1,246.4 $ 5,421.1 $ 4,986.9 $ 4,727.9 Net Interest Income 4Q17 3Q17 2Q17 1Q17 4Q16 FY 2017 FY 2016 FY 2015 Reported $ $ $ $ $ $ 1,429.2 $ 1,234.9 $ 1,070.1 FTE Adj. $ 16.0 $ 12.0 $ 8.9 $ 8.9 $ 5.0 $ 45.8 $ 25.1 $ 25.3 FTE $ $ $ $ $ $ 1,475.0 $ 1,260.0 $ 1,095.4 NIM - Reported 1.33% 1.25% 1.25% 1.32% 1.18% 1.29% 1.15% 1.05% NIM - FTE 1.39% 1.29% 1.28% 1.35% 1.20% 1.33% 1.18% 1.07% Pre-tax Margin FY 2017 FY 2016 FY 2015 FY 2014 FY 2013 FY 2012 FY 2011 Revenue - Reported $ 5,375.3 $ 4,961.8 $ 4,702.6 $ 4,331.2 $ 4,089.3 $ 3,896.1 $ 3,769.9 Pre-Tax Income - Reported $ 1,633.9 $ 1,517.1 $ 1,465.0 $ 1,190.2 $ 1,075.5 $ $ FTE Adj.* $ 45.8 $ 25.1 $ 25.3 $ 29.4 $ 32.5 $ 40.8 $ 40.2 Revenue - FTE $ 5,421.1 $ 4,986.9 $ 4,727.9 $ 4,360.6 $ 4,121.8 $ 3,936.9 $ 3,810.1 Pre-Tax Income - FTE $ 1,679.7 $ 1,542.2 $ 1,490.3 $ 1,219.6 $ 1,108.0 $ 1,033.1 $ Pre-Tax Margin - Reported 30.4% 30.6% 31.2% 27.5% 26.3% 25.5% 23.4% Pre-Tax Margin - FTE 31.0% 30.9% 31.5% 28.0% 26.9% 26.2% 24.2% * FTE Adjustment applies to both revenue and pre-tax income 14

15 FORWARD-LOOKING STATEMENTS This presentation may include statements which constitute forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of Forwardlooking statements are identified typically by words or phrases such as believe, expect, anticipate, intend, estimate, project, likely, plan, goal, target, strategy, and similar expressions or future or conditional verbs such as may, will, should, would, and could. Forward-looking statements include statements, other than those related to historical facts, that relate to Northern Trust s financial results and outlook, capital adequacy, dividend policy and share repurchase program, accounting estimates and assumptions, credit quality including allowance levels, future pension plan contributions, effective tax rate, anticipated expense levels including related to technology and regulatory initiatives, contingent liabilities, acquisitions, strategies, industry trends, and expectations regarding the impact of recent accounting pronouncements and legislation, including the Tax Cuts and Jobs Act. These statements are based on Northern Trust s current beliefs and expectations of future events or future results, and involve risks and uncertainties that are difficult to predict and subject to change. These statements are also based on assumptions about many important factors, including the factors discussed in Northern Trust s most recent annual report on Form 10-K and other filings with the U.S. Securities and Exchange Commission, all of which are available on Northern Trust s website. We caution you not to place undue reliance on any forward-looking statement as actual results may differ materially from those expressed or implied by forward-looking statements. Northern Trust assumes no obligation to update its forward-looking statements. This presentation should be reviewed together with Northern Trust Corporation s Fourth Quarter 2017 earnings press release, which is available at: 15