Strong Results Moderated by Lease Related Charges CHICAGO, July 16
CHICAGO, July 16 /PRNewswire-FirstCall/ -- Northern Trust Corporation
(Nasdaq: NTRS) today reported second quarter net income per common share of
$.96 compared with $.92 reported in the second quarter of 2007. Net income
was $215.6 million compared with $206.9 million in the second quarter of last
year. The current quarter's results include accounting charges of
$87.3 million, or $.39 per common share, associated with previously disclosed
lease transactions.
Frederick H. Waddell, President and Chief Executive Officer, commented,
"Northern Trust reported very strong core results in the second quarter --
including 24% revenue growth -- against the continued backdrop of challenging
market conditions. Our revenue growth was driven by trust, investment and
other servicing fees; foreign exchange trading income; and net interest
income. We achieved strong positive operating leverage in the second quarter
with revenue growth of 24% compared to a 16% growth in expenses. Reported
results were moderated by non-cash accounting charges associated with the tax
treatment of certain lease transactions. Northern Trust's success in this
difficult market environment reflects our longstanding client-focused business
strategy, position of capital strength, and conservative management
philosophy."
SECOND QUARTER PERFORMANCE HIGHLIGHTS
Northern Trust's second quarter consolidated revenues reached
$1.09 billion, up 24% from last year's second quarter. Trust, investment and
other servicing fees increased 21% from last year to $645.1 million and
represented 59% of second quarter revenues. Total fee-related income
increased 26% to $845.3 million and represented 77% of revenues.
As previously disclosed, the IRS has challenged the Corporation's tax
position with respect to certain structured leasing transactions and proposed
to disallow certain tax deductions and assess related interest and penalties.
After evaluating recent court cases involving other taxpayers that were
decided in favor of the IRS, Northern Trust revised its assumptions regarding
the timing of income tax cash flows related to its disputed lease transactions
with the IRS and increased its tax reserves for this matter. FASB Staff
Position No. FAS 13-2, "Accounting for a Change or Projected Change in the
Timing of Cash Flows Relating to Income Taxes Generated by a Leveraged Lease
Transaction" (FSP 13-2) requires a reallocation of lease income from the
inception of the leveraged lease if, during the lease term, the expected
timing of income tax cash flows are revised. As a result of the reallocation
of lease income under the revised assumptions, Northern Trust recorded a
$29.4 million charge against interest income in the current quarter. In
addition, the provision for income taxes was increased by $57.9 million for
interest and penalties, net of tax benefits related to the interest
adjustment. The continuing impact of leasing related revisions is expected to
reduce net interest income by approximately $6 million and increase the
provision for income taxes by approximately $9 million for the remainder of
2008. The reductions of interest income will be recognized into income over
the remaining terms of the affected leveraged leases.
Trust, investment and other servicing fees from Corporate & Institutional
Services (C&IS) increased 32% from the year-ago quarter to $409.2 million,
primarily reflecting strong securities lending fees and new business,
partially offset by lower market valuations. The largest component of C&IS
fees is custody and fund administration fees, which increased 17% to
$172.4 million. Securities lending fees totaled a record $149.9 million, up
104% compared with the second quarter last year, primarily reflecting improved
spreads on the investment of cash collateral and an approximate $25 million
partial recovery of prior period unrealized losses in one mark-to-market
investment fund used in our securities lending activities. Fees from asset
management in the quarter totaled $71.8 million, up 1%, which compares
favorably with the decline experienced in the equity markets. Trust,
investment and other servicing fees from Personal Financial Services (PFS) in
the quarter increased 5% and totaled $235.9 million compared with
$223.7 million a year ago. The increase in PFS fees resulted primarily from
strong new business, partially offset by lower market valuations. Revenue
growth continued to be broad-based, with all regions and the Wealth Management
Group reporting year-over-year increases in fees.
C&IS assets under custody totaled $3.6 trillion, down 1% from a year ago,
and included $2.0 trillion of global custody assets, a 5% increase compared
with a year ago. C&IS assets under management totaled $608.6 billion, a 2%
decrease from the prior year. PFS assets under custody totaled $325.9
billion, a 2% increase from $319.2 billion in the prior year quarter. PFS
assets under management totaled $142.8 billion, a 1% decrease from
$144.4 billion last year. The above are in comparison to the twelve month
decline in the S&P 500 index of approximately 15% and in the EAFE index (USD)
of approximately 13%.
Foreign exchange trading income reached a record $126.6 million, up 56% or
$45.6 million from the performance in last year's second quarter. The results
reflect continued strong client volumes and higher currency volatility.
Revenues from security commissions and trading income equaled
$20.4 million, up 36% from the prior year, driven by increased revenue from
brokerage, interest rate protection products, and transition management
services. Other operating income equaled $34.8 million, an increase of 23%
compared with $28.3 million in the same period last year. The current quarter
results include $2.8 million of valuation gains recorded on certain credit
default swap contracts with outside counterparties used to mitigate credit
risk associated with specific commercial credits, a gain on the redemption of
an equity investment, and higher custody-related deposit revenue.
Net interest income for the quarter, stated on a fully taxable equivalent
basis, totaled $248.8 million, up 19% from $209.0 million reported in the
prior year quarter. The current quarter includes the $29.4 million reduction
from the leasing related adjustment. Absent this adjustment, net interest
income for the current quarter would have increased 33% from the prior year
quarter, reflecting higher levels of average earning assets. Average earning
assets of $62.9 billion were 19% higher than a year ago, driven by growth in
short term money market assets and loans. The net interest margin equaled
1.59%, unchanged from the prior year quarter. The net interest margin absent
the leasing related adjustment would have been 1.78%, reflecting a widening of
the spread between interest rates on short term investments and on overnight
funding sources, including the impact of Federal Reserve Bank rate reductions.
The reserve for credit losses at June 30, 2008 of $183.1 million increased
$5.3 million from the March 31, 2008 balance. The provision for credit losses
was $10.0 million in the current quarter and net charge-offs totaled
$4.7 million. The current quarter provision primarily reflects loan growth
and the continued weakness in the broader economic environment. A
$4.0 million provision was recorded in the prior year second quarter and net
charge-offs totaled $2.3 million. Nonperforming loans totaled $30.1 million
at June 30, 2008, compared with $27.7 million at March 31, 2008 and
$26.8 million at June 30, 2007. The reserve for credit losses of
$183.1 million included $10.6 million allocated to loan commitments and other
off-balance sheet exposures. The remaining $172.5 million reserve assigned to
loans and leases at June 30, 2008 represented a reserve to loan and lease
ratio of .60%, compared with .62% at March 31, 2008 and .58% a year ago.
Nonperforming loans of $30.1 million at quarter-end represented .10% of total
loans and leases and were covered 5.7 times by the assigned reserve.
Noninterest expenses totaled $643.3 million for the quarter, up 16% from
$555.3 million in the year-ago quarter.
Compensation and employee benefit expenses totaled $368.7 million, up
$58.6 million or 19% compared with the prior year quarter. The current
quarter increase was driven by higher staff levels, higher performance-based
compensation, annual salary increases, and higher employment taxes and
health-care costs. Staff on a full-time equivalent basis at June 30, 2008
totaled 11,797, up 15% from a year ago.
The expenses associated with outside services totaled $106.2 million, up
$12.5 million or 13% from $93.7 million last year. The current quarter
increase primarily reflects higher expenses for technical and consulting
services.
The remaining expense categories totaled $168.4 million, an increase of
$16.9 million or 11% from the prior year quarter. The increase is primarily
the result of significantly higher charges from account servicing activities,
higher business promotion expenses, and a valuation adjustment of the
liability established in this year's first quarter in connection with the
previously disclosed capital support agreements with eight Northern Trust
investment vehicles. An additional charge of $1.2 million was recorded in the
current quarter to bring the Corporation's contingent liability under the
agreements to the June 30, 2008 estimated fair value of $9.9 million. As of
June 30, 2008, no capital contributions have been made under the agreements.
On July 15, 2008, the Corporation extended the termination dates of the
capital support agreements through February 28, 2009 with all other
significant terms, including the maximum contribution limits, remaining
unchanged.
The provision for income taxes of $212.5 million includes the
$57.9 million increase resulting from the leasing related adjustments and
represents an effective tax rate of 49.6%. In the prior year quarter, the
provision for income taxes was $102.8 million and the effective tax rate was
33.2%. The effective tax rate for the current quarter, excluding the impact
of the leasing adjustments, was 33.8%.
SIX-MONTH PERFORMANCE HIGHLIGHTS
Net income per common share of $2.67 for the six months ended June 30,
2008 was 52% higher than the $1.76 reported in 2007. Net income was
$600.8 million compared with $393.6 million earned in the prior year period
and resulted in a return on average common equity of 25.45% and a return on
average assets of 1.73%. The first quarter of 2008 included an after-tax
benefit totaling $153.5 million ($.68 per share) realized in connection with
the March 2008 initial public offering of Visa Inc. (Visa) common stock. The
benefit reflects a pre-tax gain of $167.9 million on the partial redemption of
Northern Trust's Visa shares in the initial public offering and a
$76.1 million offset to previously established Visa indemnification accruals
and related charges.
Six Months Ended Six Months Ended
($ In Millions Except June 30, 2008 June 30, 2007
Per Share Data)Amount Per Share Amount Per Share
Reported Earnings $600.8$2.67 $393.6$1.76
Visa Initial Public
Offering (net of
$90.5 tax effect) 153.5 .68 --
Operating Earnings $447.3$1.99 $393.6$1.76
Northern Trust is providing operating earnings in addition to its reported
results prepared in accordance with generally accepted accounting principles
in order to provide investors and others with a clearer indication of the
results and trends in Northern Trust's core businesses.
Absent the first quarter Visa transaction, operating earnings per share
for the six months ended June 30, 2008 totaled $1.99, an increase of 13% from
$1.76 reported last year. Operating earnings were up 14% to $447.3 million
compared with $393.6 million last year. The current period's results were
negatively impacted by the leasing related adjustments totaling $87.3 million
($.39 per common share).
Revenues exclusive of the first quarter Visa transaction totaled
$2.07 billion, up 21% from $1.71 billion last year. Trust, investment and
other servicing fees were $1.17 billion for the period, up 15% compared with
$1.02 billion last year. Trust, investment and other servicing fees
represented 57% of revenues adjusted to exclude Visa, and total fee-related
income represented 75% of total revenues on an adjusted basis.
Trust, investment and other servicing fees from C&IS increased 21% to
$707.6 million from $583.2 million a year ago, primarily reflecting strong new
business, partially offset by lower market valuations. Custody and fund
administration fees increased 20% to $347.1 million, reflecting strong growth
in global fees. Securities lending fees totaled $181.8 million compared with
$119.0 million last year, while fees from asset management grew 2% to
$146.4 million. Securities lending fees increased primarily due to improved
spreads on the investment of cash collateral, partially offset by net
unrealized asset valuation losses in one mark-to-market investment fund used
in our securities lending activities.
Trust, investment and other servicing fees from PFS increased 6% and
totaled $464.3 million compared with $438.4 million a year ago. The increase
resulted primarily from strong new business, offset in part by lower equity
markets. Revenue growth continued to be broad-based, with all regions and the
Wealth Management Group reporting year-over-year increases in fees.
Foreign exchange trading income increased 62% and totaled $239.8 million
in the period compared with $148.2 million last year. The increase reflects
strong client volumes year-to-date as well as higher currency volatility.
Revenues from security commissions and trading income were $38.2 million
compared with $29.0 million in the prior year. Other operating income was
$66.6 million for the period, compared with $51.3 million last year. The
current period results include $7.6 million of valuation gains recorded on
certain credit default swap contracts with outside counterparties used to
mitigate credit risk associated with specific commercial credits, a gain on
the redemption of an equity investment, and higher custody-related deposit
revenue.
Net interest income, stated on a fully taxable equivalent basis, totaled
$514.9 million, an increase of 22% from $423.4 million reported in the prior
year period. The current period includes the leasing related adjustment that
reduced net interest income by $29.4 million. The current period increase
reflects higher levels of average earning assets, and an increase in the net
interest margin. Total average earning assets of $61.3 billion were 18%
higher than a year ago. The net interest margin of 1.69% was up from 1.65% in
the prior period. Excluding the impact of the second quarter 2008 leasing
adjustment, the net interest margin would have been 1.79%, reflecting a
widening of the spread between interest rates on short term investments and on
overnight funding sources, including the impact of Federal Reserve Bank rate
reductions.
The provision for credit losses was $30.0 million for the first six months
compared with $4.0 million in 2007. The current period provision primarily
reflects loan growth and weakness in the broader economic environment. Net
charge-offs totaled $7.1 million in 2008 and $4.5 million in 2007.
Noninterest expenses totaled $1.18 billion for the period, up 9% from
$1.08 billion a year-ago. Absent the first quarter Visa transaction,
noninterest expenses totaled $1.25 billion, up 16% from the prior year period.
Compensation and employee benefit expenses of $712.2 million represented 57%
of total adjusted operating expenses. The current period expense increase
reflects the impact of higher staff levels, higher performance-based
compensation, annual salary increases, and higher employment taxes and health
care costs.
Expenses associated with outside services totaled $200.1 million, up
$22.3 million or 13% from last year, reflecting higher expenses for technical
and consulting services and volume-driven growth in global subcustody and
investment manager sub-advisor expenses.
The remaining expense categories, exclusive of the first quarter Visa
reserve reduction, totaled $342.4 million, up 17% from $292.0 million in 2007.
The increase reflects significantly higher charges related to account
servicing activities, higher business promotion and advertising expenses, the
valuation adjustment of the liability established in connection with the
previously disclosed capital support agreements, increased hiring and employee
relocation costs, and increases in computer software expense.
Total income tax expense was $405.4 million for the six months ended
June 30, 2008, representing an effective rate of 40.3%. This compares with
$198.4 million in income tax expense and an effective rate of 33.5% for 2007.
The effective tax rate for the six months ended June 30, 2008, excluding the
impact of the leasing adjustments, was 33.6%.
SECOND QUARTER PERFORMANCE VS. FIRST QUARTER
Net income per common share of $.96 for the second quarter decreased from
$1.71 per share reported in the first quarter of 2008. Net income decreased
to $215.6 million from $385.2 million reported in the first quarter. Net
income per common share of $.96 for the second quarter decreased 7% from
operating earnings per common share of $1.03 in the first quarter, which
excludes the effect of the Visa related transaction. Net income totaled
$215.6 million in the second quarter, a decrease of $16.1 million or 7%
compared with operating earnings of $231.7 million in the first quarter. The
current quarter's results were negatively impacted by the leasing related
adjustments.
Three Months EndedThree Months Ended
($ In Millions Except June 30, 2008 March 31, 2008
Per Share Data)Amount Per Share Amount Per Share
Reported Earnings $215.6$ .96 $385.2$1.71
Visa Initial Public
Offering (net of
$90.5 tax effect) -- 153.5 .68
Operating Earnings $215.6$ .96 $231.7$1.03
Northern Trust is providing operating earnings in addition to its reported
results prepared in accordance with generally accepted accounting principles
in order to provide investors and others with a clearer indication of the
results and trends in Northern Trust's core businesses.
Consolidated revenues increased 12% or $116.0 million to $1.09 billion
after excluding the first quarter Visa related items. Trust, investment and
other servicing fees increased $118.3 million or 22% in the quarter, with C&IS
fees increasing $110.8 million or 37% and PFS fees increasing $7.5 million or
3%. C&IS fees increased due to higher securities lending fees. Securities
lending fees totaled $149.9 million in the current quarter and included an
approximate $25 million partial recovery of prior period unrealized asset
valuation losses recorded in one mark-to-market investment fund used in our
securities lending activities. First quarter securities lending fees totaled
$31.9 million and included approximately $98 million of unrealized asset
valuation losses recorded in the mark-to-market investment fund. The increase
in PFS fees primarily reflects new business. Net interest income decreased
$17.3 million or 7% in the second quarter, primarily due to the $29.4 million
leasing adjustment. Absent this adjustment, net interest income would have
increased $12.1 million or 5%, primarily reflecting higher levels of average
earning assets. Foreign exchange trading income increased $13.4 million or
12%.
The provision for credit losses totaled $10.0 million in the current
quarter, compared with $20.0 million in the first quarter of 2008.
Noninterest expense totaled $643.3 million in the second quarter, an
increase of $108.0 million or 20% from the first quarter. Excluding the
impact of the Visa related adjustment in the first quarter, expenses increased
$31.9 million or 5%.
Compensation and employee benefits increased $25.2 million, primarily the
result of higher performance-based compensation, annual salary increases,
increased staff levels and higher retirement related and employment tax
expense, partially offset by lower expenses associated with stock options.
Northern Trust's primary grant of stock options occurs in the first fiscal
quarter. Consequently, the first quarter expense for stock options is
typically higher due to the requirement to expense on the date of grant the
entire value of options granted to retirement-eligible employees. The first
quarter expense for stock options included $4.4 million attributable to this
immediate expensing requirement.
Outside services totaled $106.2 million compared with $93.9 million in the
first quarter, reflecting higher expenses for global subcustody and other
depository related services, consulting and other technical expenses.
Other noninterest expense categories for the current quarter totaled
$168.4 million, compared with prior quarter expenses, excluding the Visa
related adjustment, of $174.0 million. The lower expense level in the current
quarter is attributable to the first quarter expenses related to the
sponsorship of the Northern Trust Open golf tournament and the first quarter
charge related to the capital support agreements, partially offset by higher
current quarter expenses associated with asset servicing activities.
The provision for income taxes was $212.5 million in the current quarter
resulting in an effective tax rate of 49.6%. This compares with a provision
of $192.9 million in the first quarter and an effective tax rate of 33.4%.
The effective tax rate for the current quarter, excluding the impact of the
leasing adjustments, was 33.8%.
BALANCE SHEET
Assets averaged $71.3 billion for the quarter, up 20% from last year's
second quarter average of $59.2 billion. The securities portfolio averaged
$11.8 billion, down 10% from last year, primarily reflecting a decrease in the
average balance of government sponsored agency securities partially offset by
higher levels of asset-backed securities. Loans and leases averaged
$26.9 billion, up 19%. Money market assets averaged $24.2 billion for the
quarter, an increase of 41% from the prior year. The increase in earning
assets was primarily funded by growth in non-U.S. office deposits.
Residential mortgages averaged $9.5 billion in the quarter, up 8% from the
prior year's second quarter, and represented 35% of the total average loan and
lease portfolio. Commercial loans averaged $6.8 billion, up 39% from
$4.9 billion last year, while personal loans averaged $4.1 billion, up 31%
from last year's second quarter. Loans outside the U.S. decreased
$61.1 million on average from the prior year quarter to $1.8 billion.
Stockholders' equity averaged $4.9 billion, up 19% from last year's second
quarter. The increase primarily reflects the retention of earnings, offset in
part by the repurchase of common stock pursuant to the Corporation's share
buyback program. During the second quarter of 2008, the Corporation
repurchased 39,782 shares at a cost of $2.9 million ($73.57 average price per
share). An additional 7.7 million shares are authorized for repurchase after
June 30, 2008 under the current share buyback program.
FORWARD-LOOKING STATEMENTS
This news release may be deemed to include forward-looking statements,
such as statements that relate to Northern Trust's financial goals, dividend
policy, expansion and business development plans, anticipated expense levels
and projected profit improvements, business prospects and positioning with
respect to market, demographic and pricing trends, strategic initiatives,
re-engineering and outsourcing activities, new business results and outlook,
changes in securities market prices, credit quality including reserve levels,
planned capital expenditures and technology spending, anticipated tax benefits
and expenses, and the effects of any extraordinary events and various other
matters (including developments with respect to litigation, other contingent
liabilities and obligations, and regulation involving Northern Trust and
changes in accounting policies, standards and interpretations) on Northern
Trust's business and results. Forward-looking statements are typically
identified by words or phrases, such as "believe," "expect," "anticipate,"
"intend," "estimate," "may increase," "may fluctuate," "plan," "goal,"
"target," "strategy," and similar expressions or future or conditional verbs
such as "may," "will," "should," "would," and "could." Forward-looking
statements are Northern Trust's current estimates or expectations of future
events or future results. Actual results could differ materially from those
indicated by these statements because the realization of those results is
subject to many risks and uncertainties. Northern Trust Corporation's 2007
Financial Annual Report to Shareholders, including the section of Management's
Discussion and Analysis captioned "Factors Affecting Future Results," and
periodic reports to the Securities and Exchange Commission, including the
section captioned "Risk Factors," contain additional information about factors
that could affect actual results, including: economic, market, and monetary
policy risks; operational risks; investment performance, fiduciary, and asset
servicing risks; credit risks; liquidity risks; holding company risks;
regulation risks; litigation risks; tax and accounting risks; strategic and
competitive risks; and reputation risks. All forward-looking statements
included in this news release are based on information available at the time
of the release, and Northern Trust Corporation assumes no obligation to update
any forward-looking statement.
WEBCAST OF SECOND QUARTER EARNINGS CONFERENCE CALL
Northern Trust's second quarter earnings conference call will be webcast
live on July 16, 2008. The Internet webcast opens the call to all investors,
allowing them to listen to the Chief Financial Officer's comments. The live
call will be conducted at 11:00 a.m. CDT and is accessible on Northern Trust's
web site at:
http://www.northerntrust.com/financialreleases
The only authorized rebroadcasts of the live call will be available on
Northern Trust's web site from 2:00 p.m. CDT on July 16, 2008 through
5:00 p.m. CDT on July 23, 2008. Participants will need Windows Media(TM)
software, which can be downloaded free through Northern's web site. This
earnings release can also be accessed at the above web address.
Page 1
NORTHERN TRUST CORPORATION
(Supplemental Consolidated Financial Information)
STATEMENT OF INCOME DATA
($ In Millions Except Per Share Data) SECOND QUARTER
2008 2007 % Change(*)
Noninterest Income
Trust, Investment and Other
Servicing Fees $645.1$532.721%
Foreign Exchange Trading Income 126.6 81.056
Treasury Management Fees 18.4 16.412
Security Commissions & Trading
Income20.4 15.036
Other Operating Income 34.8 28.323
Investment Security Gains, net - - -
Total Noninterest Income 845.3 673.426
Interest Income (Taxable Equivalent) 601.6 691.5 (13)
Interest Expense 352.8 482.5 (27)
Net Interest Income (Taxable Equivalent) 248.8 209.019
Total Revenue (Taxable Equivalent) 1,094.1 882.424
Noninterest Expenses
Compensation 306.0 251.422
Employee Benefits 62.7 58.7 7
Outside Services 106.2 93.713
Equipment and Software Expense 56.9 55.6 2
Occupancy Expense 39.7 42.1(6)
Other Operating Expenses 71.8 53.834
Total Noninterest Expenses 643.3 555.316
Provision for Credit Losses 10.0 4.0 150
Taxable Equivalent Adjustment 12.7 13.4(6)
Income before Income Taxes 428.1 309.738
Provision for Income Taxes 212.5 102.8 107
NET INCOME$215.6$206.9 4%
Per Common Share
Net Income
Basic $0.98 $0.94 4%
Diluted0.96 0.92 4
Return on Average Common Equity17.75%20.23%
Average Common Equity $4,886.9 $4,102.019%
Return on Average Assets1.22% 1.40%
Common Dividend Declared per Share $0.28 $0.2512%
Average Common Shares Outstanding (000s)
Basic 220,604 219,633
Diluted 225,281 224,187
Common Shares Outstanding (EOP) 221,047 220,093
(*) Percentage calculations are based on actual balances rather than the
rounded amounts presented in the Supplemental Consolidated Financial
Information.
(N/M) Percentage change is either not meaningful or not applicable.
Certain custody related deposit and overdraft amounts, previously included
within other operating income, are now included within net interest income
in order to better align the classifications of these income and expense
amounts with the related balance sheet presentation. Prior period amounts
have been reclassified to place them on a comparable basis.
Page 2
NORTHERN TRUST CORPORATION
(Supplemental Consolidated Financial Information)
STATEMENT OF INCOME DATA
($ In Millions Except Per Share Data) SIX MONTHS
2008 2007% Change(*)
Noninterest Income
Trust, Investment and Other
Servicing Fees $1,171.9 $1,021.6 15%
Foreign Exchange Trading Income 239.8148.2 62
Treasury Management Fees 35.8 32.6 10
Security Commissions & Trading
Income 38.2 29.0 32
Gain on Visa Share Redemption167.9 - N/M
Other Operating Income66.6 51.3 30
Investment Security Gains, net 5.0 0.1 N/M
Total Noninterest Income1,725.2 1,282.8 34
Interest Income (Taxable Equivalent)1,291.3 1,358.3 (5)
Interest Expense 776.4934.9 (17)
Net Interest Income (Taxable Equivalent) 514.9423.4 22
Total Revenue (Taxable Equivalent) 2,240.1 1,706.2 31
Noninterest Expenses
Compensation 592.2496.1 19
Employee Benefits120.0115.3 4
Outside Services 200.1177.8 13
Equipment and Software Expense 111.1106.5 4
Occupancy Expense 81.1 80.1 1
Visa Indemnification Charges (76.1) - N/M
Other Operating Expenses 150.2105.4 42
Total Noninterest Expenses 1,178.6 1,081.2 9
Provision for Credit Losses30.0 4.0 650
Taxable Equivalent Adjustment 25.3 29.0 (13)
Income before Income Taxes 1,006.2592.0 70
Provision for Income Taxes405.4198.4 104
NET INCOME $600.8 $393.6 53%
Per Common Share
Net Income
Basic$2.73$1.80 52%
Diluted 2.67 1.76 52
Return on Average Common Equity 25.45% 19.73%
Average Common Equity $4,746.8 $4,021.7 18%
Return on Average Assets 1.73%1.37%
Common Dividends Declared per Share $0.56$0.50 12%
Average Common Shares Outstanding (000s)
Basic 220,462 219,219
Diluted225,051 223,692
Common Shares Outstanding (EOP) 221,047 220,093
Page 3
NORTHERN TRUST CORPORATION
(Supplemental Consolidated Financial Information)
STATEMENT OF INCOME DATA SECOND FIRST
($ In Millions Except Per Share Data)QUARTER QUARTER
2008 2008 % Change
Noninterest Income
Trust, Investment and Other
Servicing Fees $645.1$526.822%
Foreign Exchange Trading Income 126.6 113.212
Treasury Management Fees 18.4 17.4 6
Security Commissions & Trading
Income20.4 17.815
Gain on Visa Share Redemption- 167.9 N/M
Other Operating Income 34.8 31.810
Investment Security Gains, net -5.0 N/M
Total Noninterest Income 845.3 879.9(4)
Interest Income (Taxable Equivalent) 601.6 689.7 (13)
Interest Expense 352.8 423.6 (17)
Net Interest Income (Taxable Equivalent) 248.8 266.1(7)
Total Revenue (Taxable Equivalent) 1,094.1 1,146.0(5)
Noninterest Expenses
Compensation 306.0 286.2 7
Employee Benefits 62.7 57.3 9
Outside Services 106.2 93.913
Equipment and Software Expense 56.9 54.2 5
Occupancy Expense 39.7 41.4(4)
Visa Indemnification Charges - (76.1) N/M
Other Operating Expenses 71.8 78.4(8)
Total Noninterest Expenses 643.3 535.320
Provision for Credit Losses 10.0 20.0 (50)
Taxable Equivalent Adjustment 12.7 12.6 1
Income before Income Taxes 428.1 578.1 (26)
Provision for Income Taxes 212.5 192.910
NET INCOME$215.6$385.2 (44)%
Per Common Share
Net Income
Basic $0.98 $1.75 (44)%
Diluted0.96 1.71 (44)
Return on Average Common Equity17.75%33.63%
Average Common Equity $4,886.9 $4,606.7 6%
Return on Average Assets1.22% 2.28%
Common Dividend Declared per Share $0.28 $0.28 -%
Average Common Shares Outstanding (000s)
Basic 220,604 220,320
Diluted 225,281 224,820
Common Shares Outstanding (EOP) 221,047 220,136
Page 4
NORTHERN TRUST CORPORATION
(Supplemental Consolidated Financial Information)
BALANCE SHEET ($ IN MILLIONS)
JUNE 30
2008 2007 % Change(*)
Assets
Money Market Assets $23,806.6$15,598.8 53%
Securities
U.S. Government 20.2 5.1 294
Government Sponsored Agency and
Other10,868.2 11,709.3 (7)
Municipal836.6883.7 (5)
Trading Account 11.7 7.1 65
Total Securities 11,736.7 12,605.2 (7)
Loans and Leases 28,677.9 24,044.9 19
Total Earning Assets 64,221.2 52,248.9 23
Reserve for Credit Losses Assigned
to Loans & Leases (172.5) (139.3) 24
Cash and Due from Banks5,651.6 3,519.0 61
Trust Security Settlement Receivables935.4515.5 81
Buildings and Equipment, net 493.0486.1 1
Other Nonearning Assets3,678.2 2,979.5 23
Total Assets $74,806.9$59,609.7 25%
Liabilities and Stockholders' Equity
Interest-Bearing Deposits
Savings $9,833.2 $9,555.6 3%
Other Time 573.3630.2 (9)
Non-U.S. Offices - Interest-
Bearing 35,863.7 27,450.3 31
Total Interest-Bearing Deposits 46,270.2 37,636.1 23
Short-Term Borrowings 2,856.3 3,935.9 (27)
Senior Notes and Long-Term Debt3,718.7 3,060.8 21
Total Interest-Related Funds 52,845.2 44,632.8 18
Demand & Other Noninterest-Bearing
Deposits 14,004.1 8,225.9 70
Other Liabilities 2,993.5 2,523.8 19
Total Liabilities 69,842.8 55,382.5 26
Common Equity 4,964.1 4,227.2 17
Total Liabilities and Stockholders'
Equity $74,806.9$59,609.7 25%
Page 5
NORTHERN TRUST CORPORATION
(Supplemental Consolidated Financial Information)
BALANCE SHEET ($ IN MILLIONS)JUNE 30 MARCH 31
2008 2008 % Change
Assets
Money Market Assets $23,806.6$30,429.3 (22)%
Securities
U.S. Government 20.2 20.3 N/M
Government Sponsored Agency and
Other10,868.2 10,362.6 5
Municipal836.6851.6 (2)
Trading Account 11.7 11.4 3
Total Securities 11,736.7 11,245.9 4
Loans and Leases 28,677.9 26,760.5 7
Total Earning Assets 64,221.2 68,435.7 (6)
Reserve for Credit Losses Assigned
to Loans & Leases (172.5) (165.4) 4
Cash and Due from Banks5,651.6 4,061.5 39
Trust Security Settlement Receivables935.4552.7 69
Buildings and Equipment, net 493.0492.8 N/M
Other Nonearning Assets3,678.2 4,103.0 (10)
Total Assets $74,806.9$77,480.3 (3)%
Liabilities and Stockholders' Equity
Interest-Bearing Deposits
Savings $9,833.2$10,209.4 (4)%
Other Time 573.3540.2 6
Non-U.S. Offices - Interest-
Bearing 35,863.7 37,262.7 (4)
Total Interest-Bearing Deposits 46,270.2 48,012.3 (4)
Short-Term Borrowings 2,856.3 6,529.0 (56)
Senior Notes and Long-Term Debt3,718.7 3,618.2 3
Total Interest-Related Funds 52,845.2 58,159.5 (9)
Demand & Other Noninterest-Bearing
Deposits 14,004.1 10,380.2 35
Other Liabilities 2,993.5 4,182.2 (28)
Total Liabilities 69,842.8 72,721.9 (4)
Common Equity 4,964.1 4,758.4 4
Total Liabilities and Stockholders'
Equity $74,806.9$77,480.3 (3)%
Page 6
NORTHERN TRUST CORPORATION
(Supplemental Consolidated Financial Information)
AVERAGE BALANCE SHEET ($ IN MILLIONS)
SECOND QUARTER
20082007 % Change(*)
Assets
Money Market Assets $24,238.5 $17,183.441%
Securities
U.S. Government 20.2 389.9 (95)
Government Sponsored Agency and
Other 10,901.411,868.7(8)
Municipal 833.9 884.5(6)
Trading Account 14.7 6.6 124
Total Securities 11,770.213,149.7 (10)
Loans and Leases 26,866.222,517.919
Total Earning Assets 62,874.952,851.019
Reserve for Credit Losses Assigned
to Loans & Leases (164.7) (137.8) 20
Nonearning Assets 8,566.4 6,444.933
Total Assets $71,276.6 $59,158.120%
Liabilities and Stockholders' Equity
Interest-Bearing Deposits
Savings $9,795.1$8,979.6 9%
Other Time 557.3 517.8 8
Non-U.S. Offices - Interest-
Bearing 35,892.327,762.129
Total Interest-Bearing Deposits 46,244.737,259.524
Short-Term Borrowings 4,682.2 4,746.9(1)
Senior Notes and Long-Term Debt 3,694.7 3,159.217
Total Interest-Related Funds 54,621.645,165.621
Demand & Other Noninterest-Bearing
Deposits 8,998.5 7,059.027
Other Liabilities 2,769.6 2,831.5(2)
Total Liabilities66,389.755,056.121
Common Equity 4,886.9 4,102.019
Total Liabilities and Stockholders'
Equity $71,276.6 $59,158.120%
Page 7
NORTHERN TRUST CORPORATION
(Supplemental Consolidated Financial Information)
QUARTERLY TREND DATA
($ In Millions Except 2008 2007
Per Share Data)Quarters Quarters
SecondFirst Fourth Third Second
Net Income Summary
Trust,
Investment
and Other
Servicing
Fees $645.1 $526.8 $547.2 $508.8 $532.7
Other
Noninterest
Income 200.2353.1173.1 151.7 140.7
Net Interest
Income
(Taxable
Equivalent) 248.8266.1252.5 232.0 209.0
Total Revenue
(Taxable
Equivalent) 1,094.1 1,146.0972.8 892.5 882.4
Provision for
Credit Losses10.0 20.0 8.0 6.04.0
Noninterest
Expenses643.3535.3782.4 566.6 555.3
Pretax Income
(Taxable
Equivalent) 440.8590.7182.4 319.9 323.1
Taxable
Equivalent
Adjustment 12.7 12.6 14.718.8 13.4
Provision for
Income Taxes212.5192.9 42.792.8 102.8
Net Income$215.6 $385.2 $125.0 $208.3 $206.9
Per Common Share
Net Income
- Basic $0.98$1.75$0.57 $0.95 $0.94
- Diluted 0.96 1.71 0.550.93 0.92
Dividend
Declared 0.28 0.28 0.280.25 0.25
Book Value (EOP) 22.4621.6220.44 19.82 19.21
Market Value
(EOP) 68.5766.4776.58 66.27 64.24
Ratios
Return on
Average Common
Equity 17.75% 33.63% 11.34% 19.51% 20.23%
Return on
Average Assets 1.22 2.28 0.771.35 1.40
Net Interest
Margin 1.59 1.79 1.791.71 1.59
Risk-based Capital
Ratios
Tier 1 9.8% 9.6% 9.7%9.8% 10.0%
Total (Tier 1 +
Tier 2)11.7 11.5 11.911.6 12.0
Leverage 6.9 6.9 6.8 7.07.0
Assets Under Custody
($ in Billions) -
EOP
Corporate $3,635.7 $3,659.9 $3,802.9$3,787.6 $3,670.1
Personal 325.9322.2332.3 329.2 319.2
Total Assets
Under
Custody$3,961.6 $3,982.1 $4,135.2$4,116.8 $3,989.3
Managed Assets$751.4 $778.6 $757.2 $761.4 $766.5
Asset Quality
($ in Millions) -
EOP
Nonperforming
Loans $30.1$27.7$23.2 $23.4 $26.8
Other Real
Estate Owned
(OREO)4.3 8.0 6.1 5.95.6
Total
Nonperforming
Assets$34.4$35.7$29.3 $29.3 $32.4
Nonperforming
Assets / Loans
& OREO 0.12%0.13%0.12% 0.12% 0.13%
Gross Charge-offs $4.9 $2.7 $2.4$2.6 $2.4
Less: Gross
Recoveries &
Foreign
Translation 0.2 0.3 0.1 0.60.1
Net Charge-offs
(Recoveries &
Translation) $4.7 $2.4 $2.3$2.0 $2.3
Net Charge-offs
(Annualized) to
Average Loans 0.07%0.04%0.04% 0.03% 0.04%
Reserve for Credit
Losses Assigned
to Loans $172.5 $165.4 $148.1 $143.2 $139.3
Reserve to
Nonaccrual Loans 573% 597% 638%612% 520%
Reserve for Other
Credit-Related
Exposures $10.6$12.4$12.1 $11.3 $11.2
SOURCE Northern Trust Corporation
