===============================================================================================================================================================
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------------------------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31,June 30, 1996
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________from_____________to_____________
Commission File Number 0-5965
NORTHERN TRUST CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 36-2723087
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
50 SOUTH LA SALLE STREET
CHICAGO, ILLINOIS 60675
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (312)630-6000
---------------------------------------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [_]
56,648,04456,272,053 Shares - $1.66 2/3 Par Value
(Shares of Common Stock Outstanding on March 31,June 30, 1996)
===============================================================================================================================================================
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
CONSOLIDATED BALANCE SHEET NORTHERN TRUST CORPORATION
March 31June 30 December 31 March 31
------------June 30
-------------- ------------ ------------
($ In Millions) 1996 1995 1995
- ---------------------------------------------------------------------------- ----------------------------------------------------------------------------------- -------------- ------------ ------------
Assets
Cash and Due from Banks $ 1,125.71,232.9 $ 1,308.9 $ 1,180.81,092.8
Money Market Assets
Federal Funds Sold and Securities Purchased under Agreements to Resell 118.8361.3 162.1 176.3404.0
Time Deposits with Banks 1,828.91,905.4 1,567.6 1,767.71,654.5
Other 54.478.5 54.5 14.3
--------------------------------------------------------------------------- ------------- ------------- -------------12.6
- ----------------------------------------------------------------------- -------------- ------------ ------------
Total 2,002.12,345.2 1,784.2 1,958.3
---------------------------------------------------------------------------2,071.1
- ----------------------------------------------------------------------- -------------- ------------ ------------- -------------------------
Securities (Fair value $6,110.5$6,323.1 at MarchJune 1996, $5,787.8 at December 1995
and $5,523.3$5,656.0 at MarchJune 1995) 6,087.36,303.3 5,760.3 5,495.15,624.6
Loans and Leases (Net of unearned income of $89.6$91.1 at MarchJune 1996, $89.6
at December 1995, and $71.2$75.6 at MarchJune 1995) 10,025.610,405.2 9,906.0 8,875.79,421.8
Reserve for Credit Losses (147.2)(147.4) (147.1) (145.8)(145.9)
Buildings and Equipment 287.9289.2 281.5 280.8278.2
Customers' Acceptance Liability 28.934.0 35.8 52.647.1
Trust Security Settlement Receivables 215.8382.8 327.1 232.2287.0
Other Assets 675.6906.0 676.8 806.4
--------------------------------------------------------------------------- ------------- ------------- -------------624.4
- ----------------------------------------------------------------------- -------------- ------------ ------------
Total Assets $ 20,301.721,751.2 $ 19,933.5 $ 18,736.1
--------------------------------------------------------------------------- ------------- -------------19,301.1
- ----------------------------------------------------------------------- -------------- ------------ ------------
Liabilities
Deposits
Demand and Other Noninterest-Bearing $ 2,609.82,892.6 $ 2,853.1 $ 2,475.12,543.5
Savings and Money Market Deposits 3,598.43,689.6 3,385.3 3,050.13,008.2
Savings Certificates 2,077.92,063.6 2,158.8 1,974.62,028.5
Other Time 451.2456.7 384.3 334.9367.0
Foreign Offices - Demand 309.2382.4 459.8 264.5327.8
- Time 3,053.93,782.9 3,246.9 3,510.7
--------------------------------------------------------------------------- ------------- ------------- -------------2,972.3
- ----------------------------------------------------------------------- -------------- ------------ ------------
Total Deposits 12,100.413,267.8 12,488.2 11,609.911,247.3
Federal Funds Purchased 2,715.21,096.0 2,300.1 1,471.11,063.9
Securities Sold Under Agreements to Repurchase 1,911.51,699.0 1,858.7 2,283.01,066.3
Commercial Paper 144.3144.2 146.7 134.4147.3
Other Borrowings 914.83,077.2 875.9 623.93,415.9
Senior Notes 305.0205.0 17.0 392.0317.0
Notes Payable 336.1332.1 334.6 244.8241.1
Liability on Acceptances 28.934.0 35.8 52.647.1
Other Liabilities 376.9402.2 423.9 576.3
--------------------------------------------------------------------------- ------------- ------------- -------------364.9
- ----------------------------------------------------------------------- -------------- ------------ ------------
Total Liabilities 18,833.120,257.5 18,480.9 17,388.0
---------------------------------------------------------------------------17,910.8
- ----------------------------------------------------------------------- -------------- ------------ ------------- ------------
Stockholders' Equity
Preferred Stock 120.0 170.0 170.0
Common Stock - $1.66 2/3 Par Value 95.0 93.6 93.3
March93.4
June 1996 December 1995 MarchJune 1995
---------------------------------------------------------------------------- -------------------------------------------------------------------
Shares authorized 140,000,000 140,000,000 140,000,000
Shares issued 56,979,579 56,158,064 55,994,35256,035,628
Shares outstanding 56,648,04456,272,053 55,664,412 55,980,30955,870,628
Capital Surplus 332.7329.5 306.1 306.7307.2
Retained Earnings 971.71,016.4 928.8 810.7847.0
Net Unrealized Gain (Loss) on Securities (3.0)(1.1) 2.6 (9.2)(2.1)
Common Stock Issuable - Performance Plan 10.4 14.7 16.7
Deferred Compensation - ESOP and Other (40.3)(37.7) (39.4) (39.6)(35.3)
Treasury Stock - (at cost, 331,535707,526 shares at MarchJune 1996, 493,652 shares at
December 1995, and 14,043165,000 shares at MarchJune 1995) (17.9)(38.8) (23.8) (.5)
---------------------------------------------------------------------------(6.6)
- ----------------------------------------------------------------------- -------------- ------------ ------------- ------------
Total Stockholders' Equity 1,468.61,493.7 1,452.6 1,348.1
---------------------------------------------------------------------------1,390.3
- ----------------------------------------------------------------------- -------------- ------------ ------------ -------------
Total Liabilities and Stockholders' Equity $ 20,301.721,751.2 $ 19,933.5 $ 18,736.1
---------------------------------------------------------------------------19,301.1
- ----------------------------------------------------------------------- -------------- ------------ ------------
------------2
2
CONSOLIDATED STATEMENT OF INCOME NORTHERN TRUST CORPORATION
FirstSecond Quarter
Ended March 31
------------------------June 30 Six Months Ended June 30
---------------------------- ----------------------------
($ In Millions Except Per Share Information) 1996 1995 1996 1995
- -------------------------------------------------------------------------- ----------- ----------------------------------------------------------------------- ------------ ------------ ------------ ------------
Interest Income
Money Market Assets
Federal Funds Sold and Securities Purchased
under Agreements to Resell $ 3.83.4 $ 3.53.9 $ 7.2 $ 7.4
Time Deposits with Banks 22.8 26.720.9 20.8 43.7 47.5
Other .8 .2.3 1.6 .5
- -------------------------------------------------------------------------- ----------- ----------------------------------------------------------------------- ------------ ------------ ------------ ------------
Total 27.4 30.425.1 25.0 52.5 55.4
- -------------------------------------------------------------------------- ----------- ----------------------------------------------------------------------- ------------ ------------ ------------ ------------
Securities 93.6 85.191.7 89.1 185.3 174.2
Loans and Leases 163.9 145.7169.3 157.0 333.2 302.7
- -------------------------------------------------------------------------- ----------- ----------------------------------------------------------------------- ------------ ------------ ------------ ------------
Total Interest Income 284.9 261.2286.1 271.1 571.0 532.3
- -------------------------------------------------------------------------- ----------- ----------------------------------------------------------------------- ------------ ------------ ------------ ------------
Interest Expense
Deposits - Savings and Money Market Deposits 28.1 26.628.6 27.4 56.7 54.0
- Savings Certificates 30.9 24.529.3 30.6 60.2 55.1
- Other Time 8.4 6.46.2 8.0 14.6 14.4
- Foreign Offices 44.1 50.645.5 47.2 89.6 97.8
Federal Funds Purchased 28.722.5 16.1 51.2 32.2
Securities Sold under Agreements to Repurchase 26.1 24.128.0 25.0 54.1 49.1
Commercial Paper 1.9 2.12.0 2.2 3.9 4.3
Other Borrowings 12.8 10.518.7 15.9 31.5 26.4
Senior Notes 4.1 6.93.4 5.8 7.5 12.7
Notes Payable 6.4 4.9 12.8 9.8
- -------------------------------------------------------------------------- ----------- ----------------------------------------------------------------------- ------------ ------------ ------------ ------------
Total Interest Expense 191.5 172.7190.6 183.1 382.1 355.8
- -------------------------------------------------------------------------- ----------- ----------------------------------------------------------------------- ------------ ------------ ------------ ------------
Net Interest Income 93.4 88.595.5 88.0 188.9 176.5
Provision for Credit Losses 5.04.0 1.5 9.0 3.0
- -------------------------------------------------------------------------- ----------- ----------------------------------------------------------------------- ------------ ------------ ------------ ------------
Net Interest Income after Provision for Credit Losses 88.4 87.091.5 86.5 179.9 173.5
- -------------------------------------------------------------------------- ----------- ----------------------------------------------------------------------- ------------ ------------ ------------ ------------
Noninterest Income
Trust Fees 143.9 120.8148.7 123.3 292.6 244.1
Security Commissions and Trading Income 6.3 5.96.4 5.2 12.7 11.1
Other Operating Income 37.2 34.840.0 39.9 77.2 74.7
Investment Security Gains .3 .1 .1 .4 .2
- -------------------------------------------------------------------------- ----------- ----------------------------------------------------------------------- ------------ ------------ ------------ ------------
Total Noninterest Income 187.7 161.6195.2 168.5 382.9 330.1
- -------------------------------------------------------------------------- ----------- ----------------------------------------------------------------------- ------------ ------------ ------------ ------------
Income before Noninterest Expenses 276.1 248.6286.7 255.0 562.8 503.6
- -------------------------------------------------------------------------- ----------- ----------------------------------------------------------------------- ------------ ------------ ------------ ------------
Noninterest Expenses
Salaries 87.7 82.590.0 84.4 177.7 166.9
Pension and Other Employee Benefits 20.4 21.518.4 20.8 38.8 42.3
Occupancy Expense 15.8 14.215.6 15.3 31.4 29.5
Equipment Expense 13.6 12.613.8 12.0 27.4 24.6
Other Operating Expenses 46.5 46.553.8 45.4 100.3 91.9
- -------------------------------------------------------------------------- ----------- ----------------------------------------------------------------------- ------------ ------------ ------------ ------------
Total Noninterest Expenses 184.0 177.3191.6 177.9 375.6 355.2
- -------------------------------------------------------------------------- ----------- ----------------------------------------------------------------------- ------------ ------------ ------------ ------------
Income before Income Taxes 92.1 71.395.1 77.1 187.2 148.4
Provision for Income Taxes 30.6 22.031.7 24.0 62.3 46.0
- -------------------------------------------------------------------------- ----------- ----------------------------------------------------------------------- ------------ ------------ ------------ ------------
Net Income $ 61.563.4 $ 49.353.1 $ 124.9 $ 102.4
- -------------------------------------------------------------------------- ----------- ----------------------------------------------------------------------- ------------ ------------ ------------ ------------
Net Income Applicable to Common Stock $ 60.262.2 $ 47.250.9 $ 122.4 $ 98.1
- -------------------------------------------------------------------------- ----------- ----------------------------------------------------------------------- ------------ ------------ ------------ ------------
Net Income Per Common Share - Primary $ 1.051.08 $ .86.90 $ 2.13 $ 1.75
- Fully Diluted 1.04 .851.08 .89 2.12 1.74
- -------------------------------------------------------------------------- ----------- ----------------------------------------------------------------------- ------------ ------------ ------------ ------------
Average Number of Common Shares Outstanding - Primary 57,490,937 55,168,31957,444,717 56,878,030 57,467,827 56,027,938
- Fully Diluted 57,922,410 56,394,81557,585,575 58,178,442 57,804,774 57,340,009
- -------------------------------------------------------------------------- ----------- ----------------------------------------------------------------------- ------------ ------------ ------------ ------------
3
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY NORTHERN TRUST CORPORATION
First QuarterSix Months
Ended March 31
--------------------June 30
-----------------------
(In Millions) 1996 1995
- -------------------------------------------------------- --------- ------------------------------------------------------------------------- ---------- ----------
Preferred Stock
Balance at January 1 $ 170.0 $ 170.0
Conversion of Preferred Stock, Series E (50.0) -
- -------------------------------------------------------- --------- ------------------------------------------------------------------------- -----------------------
Balance at March 31June 30 120.0 170.0
- -------------------------------------------------------- --------- ------------------------------------------------------------------------- -----------------------
Common Stock
Balance at January 1 93.6 90.6
Stock Issued - Incentive Plan and Awards .1
Stock Issued in Acquisitions - 2.7
Conversion of Preferred Stock, Series E 1.4 -
- -------------------------------------------------------- --------- ------------------------------------------------------------------------- -----------------------
Balance at March 31June 30 95.0 93.393.4
- -------------------------------------------------------- --------- ------------------------------------------------------------------------- -----------------------
Capital Surplus
Balance at January 1 306.1 302.2
Stock Issued - Incentive Plan and Awards (2.6) (2.4)(5.8) (1.9)
Stock Issued in Acquisitions - 6.9
Conversion of Preferred Stock, Series E 29.2 -
- -------------------------------------------------------- --------- ------------------------------------------------------------------------- -----------------------
Balance at March 31 332.7 306.7June 30 329.5 307.2
- -------------------------------------------------------- --------- ------------------------------------------------------------------------- -----------------------
Retained Earnings
Balance at January 1 928.8 762.7
Net Income 61.5 49.3
Dividend124.9 102.4
Dividends Declared on Common Stock (17.6) (14.1)(35.0) (28.7)
Dividends Declared on Preferred Stock (1.0) (2.3) (4.5)
Pooled Affiliates - 15.1
- -------------------------------------------------------- --------- ------------------------------------------------------------------------- -----------------------
Balance at March 31 971.7 810.7June 30 1,016.4 847.0
- -------------------------------------------------------- --------- ------------------------------------------------------------------------- -----------------------
Net Unrealized Gain (Loss) on Securities
Balance at January 1 2.6 (15.8)
Unrealized Gain (Loss), net (5.6) 6.6(3.7) 13.7
- -------------------------------------------------------- --------- ------------------------------------------------------------------------- -----------------------
Balance at March 31 (3.0) (9.2)June 30 (1.1) (2.1)
- -------------------------------------------------------- --------- ------------------------------------------------------------------------- -----------------------
Common Stock Issuable - Performance Plan
Balance at January 1 14.7 17.9
Stock Issuable, net of Stock Issued (4.3) (1.2)
- -------------------------------------------------------- --------- ------------------------------------------------------------------------- -----------------------
Balance at March 31June 30 10.4 16.7
- -------------------------------------------------------- --------- ------------------------------------------------------------------------- -----------------------
Deferred Compensation - ESOP and Other
Balance at January 1 (39.4) (38.8)
Compensation Deferred (1.8) (1.5)(1.9) (1.4)
Compensation Amortized .9 .73.6 4.9
- -------------------------------------------------------- --------- ------------------------------------------------------------------------- -----------------------
Balance at March 31 (40.3) (39.6)June 30 (37.7) (35.3)
- -------------------------------------------------------- --------- ------------------------------------------------------------------------- -----------------------
Treasury Stock
Balance at January 1 (23.8) (8.1)
Stock Options and Awards 17.2 10.428.9 11.0
Stock Purchased (30.5) (2.8)(63.1) (9.5)
Conversion of Preferred Stock, Series E 19.2 -
- -------------------------------------------------------- --------- ------------------------------------------------------------------------- -----------------------
Balance at March 31 (17.9) (.5)June 30 (38.8) (6.6)
- -------------------------------------------------------- --------- ------------------------------------------------------------------------- -----------------------
Total Stockholders' Equity at March 31 $1,468.6 $1,348.1June 30 $1,493.7 $1,390.3
- -------------------------------------------------------- --------- ------------------------------------------------------------------------- -----------------------
4
CONSOLIDATED STATEMENT OF CASH FLOWS Northern Trust Corporation
First QuarterCONSOLIDATED STATEMENT OF CASH FLOWS NORTHERN TRUST CORPORATION
Six Months
Ended March 31
--------------------------June 30
-----------------------
(In Millions) 1996 1995
- --------------------------------------------------------------------------------- ----------- ------------------------------------------------------------------------------------- ------------ ----------
Cash Flows from Operating Activities:
Net Income $ 61.5124.9 $ 49.3102.4
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:
Provision for Credit Losses 5.0 1.59.0 3.0
Depreciation on Buildings and Equipment 11.8 10.823.7 21.3
Increase in Interest Receivable (2.7) (18.5)(7.9)
Increase (Decrease) in Interest Payable (.7) 5.63.0 9.7
Amortization and Accretion of Securities and Unearned Income (29.7) (45.6)(55.7) (88.6)
Amortization of Software, Goodwill and Other Intangibles 11.0 9.121.9 18.1
Net (Increase) Decrease in Trading Account Securities 82.0 (53.9)85.6 (51.9)
Other Noncash, net (22.9) 57.6(237.9) 2.6
- ----------------------------------------------------------------------------------------------------------------------------------------------------------- ------------ ---------- -----------
Net Cash Flows fromProvided by (Used in) Operating Activities 115.3 15.9(25.5) 8.7
- ----------------------------------------------------------------------------------------------------------------------------------------------------------- ------------ ---------- -----------
Cash Flows from Investing Activities:
Net (Increase) Decrease in Federal Funds Sold and Securities Purchased under Agreements to Resell 43.3 613.8(199.2) 386.1
Net (Increase) Decrease in Time Deposits with Banks (261.3) 97.0(337.8) 210.2
Net (Increase) DecreaseIncrease in Other Money Market Assets .1 (4.8)(24.0) (3.1)
Purchases of Securities--HeldSecurities-Held to Maturity (62.7) (179.4)(6,400.3) (501.0)
Proceeds from Maturity and Redemption of Securities--HeldSecurities-Held to Maturity 108.5 238.96,434.7 594.3
Purchases of Securities--AvailableSecurities-Available for Sale (7,198.0) (3,724.4)(20,273.3) (15,315.8)
Proceeds from Sale, Maturity and Redemption of Securities--AvailableSecurities-Available for Sale 6,754.9 3,404.419,648.2 14,889.6
Net Increase in Loans and Leases (125.4) (183.9)(510.5) (737.3)
Net Purchases of Buildings and Equipment (16.7) (12.3)(31.4) (20.2)
Net (Increase) Decrease in Trust Security Settlement Receivables 111.3 73.5(55.7) 18.7
Other, net (13.2) .4(13.4) 2.4
- ----------------------------------------------------------------------------------------------------------------------------------------------------------- ------------ ---------- -----------
Net Cash Flows fromUsed in Investing Activities (659.2) 323.2(1,762.7) (476.1)
- ----------------------------------------------------------------------------------------------------------------------------------------------------------- ------------ ---------- -----------
Cash Flows from Financing Activities:
Net DecreaseIncrease (Decrease) in Deposits (387.7) (303.9)779.6 (666.5)
Net Increase (Decrease) in Federal Funds Purchased 415.1 499.1(1,204.1) 91.9
Net IncreaseDecrease in Securities Sold under Agreement to Repurchase 52.8 66.1(159.7) (1,150.6)
Net Increase (Decrease) in Commercial Paper (2.4) 10.6(2.5) 23.5
Net Increase (Decrease) in Short-Term Other Borrowings 135.3 (262.0)2,358.2 2,346.0
Proceeds from Term Federal Funds Purchased 902.4 437.91,340.9 1,341.3
Repayments of Term Federal Funds Purchased (998.8) (629.9)(1,497.8) (1,349.3)
Proceeds from Senior Notes 700.0 --& Notes Payable 701.5 -
Repayments of Senior Notes (412.0) (155.0)& Notes Payable (516.0) (233.7)
Treasury Stock Purchased (29.2) (1.9)(58.8) (8.5)
Net Proceeds from Stock Options 2.1 1.15.2 1.7
Cash Dividends Paid on Common and Preferred Stock (18.4) (16.3)(37.3) (32.7)
Other, net 1.5 3.43.0 4.6
- ----------------------------------------------------------------------------------------------------------------------------------------------------------- ------------ ---------- -----------
Net Cash Flows fromProvided by Financing Activities 360.7 (350.8)1,712.2 367.7
- ----------------------------------------------------------------------------------------------------------------------------------------------------------- ------------ ---------- -----------
Decrease in Cash and Due from Banks (183.2) (11.7)(76.0) (99.7)
Cash and Due from Banks at Beginning of Year 1,308.9 1,192.5
- ----------------------------------------------------------------------------------------------------------------------------------------------------------- ------------ ---------- -----------
Cash and Due from Banks at March 31June 30 $ 1,125.71,232.9 $ 1,180.81,092.8
- ----------------------------------------------------------------------------------------------------------------------------------------------------------- ------------ ---------- -----------
Schedule of Noncash Investing and Financing Activities:
Conversion of Preferred Stock, Series E to Common Stock $ 49.7 $ ---
Acquisition of Affiliate for Stock -- 24.7
Supplemental Disclosures of Cash Flow Information:
Interest Paid on Deposits and Short- and Long-Term Borrowings $ 192.2379.1 $ 166.7345.7
Income Taxes Received (1.9) (5.3)Paid 34.9 31.3
- ----------------------------------------------------------------------------------------------------------------------------------------------------------- ------------ ---------- -----------
5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION - The consolidated financial statements include
the accounts of Northern Trust Corporation and its subsidiaries ("Northern
Trust"), all of which are wholly owned. Significant intercompany balances and
transactions have been eliminated. The consolidated financial statements as of
March 31,June 30, 1996 and 1995 have not been audited by independent public accountants.
In the opinion of management, all adjustments necessary for a fair presentation
of the financial position and the results of operations for the interim periods
have been made. All such adjustments are of a normal recurring nature. For a
description of Northern Trust's significant accounting principles, refer to the
Notes to Consolidated Financial Statements in the 1995 Annual Report to
Stockholders.
2. SECURITIES - The following table summarizes the book and fair values of
securities.
March 31,June 30, 1996 December 31, 1995 March 31,June 30, 1995
--------------------------------------------------------------------------------------------------------------------------------------------
Book Fair Book Fair Book Fair
(In Millions) Value Value Value Value Value Value
- ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Held to Maturity
U.S. Government $ 93.4114.2 $ 93.3114.1 $ 116.1 $ 116.3 $ 117.888.1 $ 117.688.2
Obligations of States and
Political Subdivisions 348.9 372.2341.3 361.2 366.9 394.0 445.8 474.8434.7 466.2
Federal Agency 18.2 18.2 22.2 22.4 22.4 21.822.7 22.6
Other 29.4 29.430.4 30.4 29.9 29.9 29.3 29.329.2 29.1
- ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Subtotal 489.9 513.1504.1 523.9 535.1 562.6 615.3 643.5574.7 606.1
- ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Available for Sale
U.S. Government 2,160.5 2,160.51,763.9 1,763.9 1,667.7 1,667.7 854.0 854.0729.3 729.3
Obligations of States and
Political Subdivisions 73.2 73.279.5 79.5 70.2 70.2 - -
Federal Agency 3,167.6 3,167.63,779.9 3,779.9 3,152.8 3,152.8 3,619.1 3,619.13,936.4 3,936.4
Preferred Stock 112.4 112.4110.7 110.7 147.8 147.8 196.4 196.4188.0 188.0
Other 76.8 76.861.9 61.9 97.8 97.8 152.4 152.4140.3 140.3
- ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Subtotal 5,590.5 5,590.55,795.9 5,795.9 5,136.3 5,136.3 4,821.9 4,821.94,994.0 4,994.0
- ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Trading Account 6.9 6.93.3 3.3 88.9 88.9 57.9 57.955.9 55.9
- ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Total Securities $6,087.3 $6,110.5$6,303.3 $6,323.1 $5,760.3 $5,787.8 $5,495.1 $5,523.3$5,624.6 $5,656.0
- ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Reconciliation of Book Values to Fair Values of
Securities Held to Maturity March 31,June 30, 1996
- ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Gross Unrealized
Book ---------------- Fair
(In Millions) Value Gains Losses Value
- --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Held to Maturity
U.S. Government $ 93.4$114.2 $ - $.1 $ 93.3.1 $114.1
Obligations of States and
Political Subdivisions 348.9 23.5 .2 372.2341.3 20.3 .4 361.2
Federal Agency 18.2 .2 .2.1 .1 18.2
Other 29.430.4 - - 29.430.4
- -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Total $489.9 $23.7 $.5 $513.1$504.1 $20.4 $ .6 $523.9
- -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
6
Reconciliation of Amortized Cost to Fair Values of
Securities Available for Sale March 31,June 30, 1996
- ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Gross Unrealized
Amortized --------------------------------- Fair
(In Millions) Cost Gains Losses Value
- ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Available for Sale
U.S. Government $2,162.4$1,766.1 $ 2.31.7 $ 4.2 $2,160.53.9 $1,763.9
Obligations of States and
Political Subdivisions 72.379.3 1.9 1.0 73.21.7 79.5
Federal Agency 3,167.1 4.4 3.9 3,167.63,780.0 2.6 2.7 3,779.9
Preferred Stock 112.7111.0 - .3 112.4110.7
Other 77.862.7 .8 1.8 76.81.6 61.9
- ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Total $5,592.3$5,799.1 $ 9.4 $ 11.2 $5,590.57.0 $10.2 $5,795.9
- ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Unrealized gains and losses on off-balance sheet financial instruments used to
hedge available for sale securities totaled $3.3$4.6 million and $6.3$3.1 million,
respectively, as of March 31,June 30, 1996. Unrealized gains on these hedges are
reported as other assets in the consolidated balance sheet; unrealized losses
are reported as other liabilities. As of March 31,June 30, 1996, stockholders' equity
included a charge of $3.0$1.1 million, net of tax, to recognize the depreciation on
securities available for sale and the related hedges.
3. 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 $4.4$6.3 billion on March 31,June 30, 1996, $3.9 billion on December 31, 1995 and
$3.7$5.2 billion on March 31,June 30, 1995.
4. CONTINGENT LIABILITIES - Standby letters of credit outstanding were $1.1$1.3
billion on March 31,June 30, 1996, $1.0 billion on December 31, 1995 and $833.7$848.0 million
on March 31,June 30, 1995.
5. LOANS AND LEASES - Amounts outstanding in selected loan categories are
shown below:
March 31June 30 December 31 March 31
---------------------------------June 30
-------------------------------------------------------
(In Millions) 1996 1995 1995
- ------------------------------------------------------------------------------------------------------------------------------------------------------------
Domestic
Commercial $ 3,052.13,293.8 $3,202.1 $2,990.3$3,185.6
Residential Real Estate 4,048.14,300.8 3,896.4 3,429.53,550.2
Commercial Real Estate 537.0577.9 512.6 505.6471.1
Broker 383.3284.2 304.0 169.9241.8
Consumer 748.1803.4 758.9 633.5734.2
Other 560.7468.0 625.5 614.8673.3
Lease Financing 198.9209.3 202.3 154.6163.4
- ------------------------------------------------------------------------------------------------------------------------------------------------------------
Total Domestic 9,528.29,937.4 9,501.8 8,498.29,019.6
International 497.4467.8 404.2 377.5402.2
- ------------------------------------------------------------------------------------------------------------------------------------------------------------
Total Loans and Leases $10,025.6$10,405.2 $9,906.0 $8,875.7$9,421.8
- ------------------------------------------------------------------------------------------------------------------------------------------------------------
7
At March 31,June 30, 1996, other domestic and international loans include $612.3$588.6 million
of overnight trust-related advances in connection with next day security
settlements, compared with $810.4 million at December 31, 1995 and $732.9$842.1
million at March 31,June 30, 1995.
At March 31,June 30, 1996, nonperforming assetsloans totaled $32.1$38.9 million. Included in this
amount were loans with a recorded investment of $27.6$35.4 million which were also
classified as impaired. A loan is impaired when, based on current information
and events, it is probable that a creditor will be unable to collect all amounts
due according to the contractual terms of the loan agreement. Impaired loans
totaling $16.0$14.6 million had no portion of the reserve for credit losses allocated
to them, while $11.6$20.8 million had an allocated reserve of $3.8$1.0 million. For the
firstsecond quarter of 1996, the total recorded investment in impaired loans averaged
$24.4$27.8 million. Total interest income recognizedrecorded on impaired loans for the quarter
ended March 31,June 30, 1996 was $53$166 thousand, most of which was recognized usingprincipally on the cash-basis
method of accounting.
At March 31,June 30, 1995, nonperforming assetsloans totaled $25.4$33.3 million and included $21.0$30.0
million of impaired loans. $16.6$26.0 million of these impaired loans had no reserve
allocation while $4.4$4.0 million had an allocated reserve of $1.1$.7 million. Impaired
loans for the firstsecond quarter of 1995 averaged $26.5$26.4 million with $148$230 thousand
of interest income recognized principally on the cash-basis method.
6. RESERVE FOR CREDIT LOSSES - Changes in the reserve for credit losses were as
follows:
ThreeSix Months Ended March 31
------------------------------June 30
- ------------------------------------------------------------------
(In Millions) 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------------
Balance at Beginning of Period $147.1 $144.8
Charge-Offs (5.7) (2.7)(9.8) (5.6)
Recoveries 0.8 1.1 2.6
- ----------------------------------------------------------------------------------------------------------------------------------
Net Charge-Offs (4.9) (1.6)(8.7) (3.0)
- ----------------------------------------------------------------------------------------------------------------------------------
Provision for Credit Losses 5.0 1.59.0 3.0
Reserve Related to Acquisition - 1.1
- ---------------------------------------------------------------------------------------------------------------------------------
Balance at End of Period $147.2 $145.8$147.4 $145.9
- ---------------------------------------------------------------------------------------------------------------------------------
7. ACQUISITIONS - In August 1996, Northern Trust Corporation entered into a
definitive agreement to acquire Metroplex Bancshares, Inc., parent company of
Bent Tree National Bank in Dallas, Texas for approximately $14.6 million in
cash. Bent Tree's assets totaled $80.4 million at June 30, 1996 and net income
totaled $1.1 million for the first six months of the year. The agreement is
subject to the approval of Metroplex shareholders and to various regulatory
approvals, and is expected to close in the the fourth quarter of 1996.
8
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FIRSTSECOND QUARTER EARNINGS HIGHLIGHTS
Net income for the firstsecond quarter totaled a record $61.5$63.4 million, an increase of
25%19% from the $49.3$53.1 million reported in the firstsecond quarter of 1995. Net income
per common share on a fully diluted basis increased 22%21% to $1.04$1.08 from $.85$.89 in
1995. This earnings performance produced an annualized return on average common
equity (ROE) of 18.35%18.47% versus 16.84%17.09% reported last year, and an annualized
return on average assets (ROA) of 1.19%1.21% versus 1.09%1.13% in 1995. The quarter's performance reflectsTotal revenues on
a taxable equivalent basis in the leverage of a 12% increase in total revenues, driven byquarter increased 13% to $299.5 million with
trust fees and net interest income at record levels, of
trust fees, coupled with a modest 4% increase in operating expenses.while noninterest expenses
increased 8%.
NONINTEREST INCOME
Noninterest income increased 16% and totaled $187.7$195.2 million for the quarter,
accounting for 65% of total taxable equivalent revenue. Trust fees which represented 77%of $148.7
million increased 21% or $25.4 million over the like period of 1995, and now
represent 76% of noninterest income and 50% of total taxable equivalent revenue, grew 19% or $23.1 million over the like period of 1995
reaching $143.9 million. Fees generated by businesses acquired after the
first quarter of 1995 accounted for $6.9 million of the trust fee growth.
Exclusive of these fees, trust fees increased 13% compared to the first
quarter of last year. Trust assets under administration at March 31, 1996
totaled $641.2 billion compared to $519.9 billion a year ago.
Trust fees from Corporate and Institutional Services (C&IS) increased $14.6
million to $72.8 million.revenue.
Fees generated by RCB International, Inc. (RCB), an October 31, 1995
acquisition, accounted for $6.0$6.5 million of the trust fee growth. Exclusive of
these fees, trust fees increased 15% compared to the second quarter of last
year, driven by record new business, increased transaction volumes and higher
market values of trust assets. Trust assets under administration at June 30,
1996 increased 26% and totaled $692.9 billion compared to $549.3 billion a year
ago.
Trust fees from Corporate and Institutional Services (C&IS) increased $17.2
million to $76.4 million. Exclusive of the RCB contribution, C&IS trust fees
increased $8.6$10.7 million or 15%18% from the year agoyear-ago quarter. The increase in fees
reflects substantial new business, record securities lending results and strong
revenue growth acrossin global custody, investment management and retirement services.
Net new business sold in the first half of the year has been strong and is
equivalent to all product
lines, particularly custody, securities lending, retirement services and
investment management.of the new business sold in 1995. The transition of this new
business sold to date is expected to continue through the third quarter of 1996.
Custody fees increased $2.7$3.4 million or 10%13% and totaled $30.2$30.4 million for the
quarter. The growth was particularly strong in both domestic and global custody which was driven
by increased transaction-based fees and new business. Domestic securities
lending fees, up 30%63% versus last year, reflect a 25%46% increase in the volume of
securities loaned as well as a modest increase in the spread earned from the
investment of the cash collateral. International securities lending fees
increased 48%62% during the quarter, driven by a 79%58% increase in the volume of
securities loaned partially offset by narrowing spreadsand an improved spread earned on the investment of the cash
collateral. Fees from retirement services generated by Hazlehurst & Associates,
Inc. increased 22%19%, principally from new business. Investment management fees
primarily related to institutional funds and enhanced cash
products, increased 61%41% driven by new business and growth in customized products tailored
to client needs.
9
C&IS trust assets under administration grew 24%27% or $108.1$131.3 billion over last year
and now total $567.1$616.2 billion. C&IS trust assets under the management of Northern
Trust total $70.3$74.8 billion, up 39%43% from a year ago.
Trust fees from Personal Financial Services (PFS) grew 14%increased 13% from the prior
year level of $62.6$64.1 million and totaled $71.1$72.3 million for the first
quarter.second quarter,
reflecting strong growth throughout Northern Trust's five-state network of PFS
offices. PFS trust fee growth resulted primarily
9
from new business and higher
market values of the assets administered. The
principal contributors to this fee growth wereNet new recurring business sold
through the Wealth Management Group and
PFS offices in Chicago, Florida, Arizona and Texas. The increase in fees also
reflectsfirst six months is up 25% from the contribution of $.9 million in fees from Beach Bank, a March 31,
1995 acquisition.year-ago period. During the
firstsecond quarter of 1996, Northern Trust expanded its distribution capabilities
for personal trust and private banking services with the opening of new offices
were opened in Bonita SpringsSun City West, Arizona, Stuart, Florida and Delray Beach, bringing to 21 the total number of offices in
the high-growth Florida market.Barrington, Illinois. At March 31,June 30,
1996, Northern Trust's network of PFS offices totaled 5255 locations throughout
Illinois, Florida, California, Arizona and Texas. Trust fees from the four
states outside of Illinois now comprise about one-half of total PFS trust fees.
Total personal trust assets under administration increased $13.2$12.3 billion from
the prior year and totaled $74.1$76.7 billion at March 31,June 30, 1996, with $44.2$45.1 billion
under management.
Security commissions and trading income totaled $6.3$6.4 million compared with $5.9$5.2
million reported in the firstsecond quarter of 1995. The1995 due to higher brokerage
commission revenue at Northern Trust Securities, Inc. This increase resulted
primarily from a higher volume of trading activity by individual investors.
Other operating income totaled $37.2$40.0 million in the quarter, compared to
$34.8 million inessentially
unchanged from the like quarter of 1995. The principal items included in other
operating income are foreign exchange trading profits and treasury management
fees. Foreign exchange trading profits were $15.1 million, an increase of $12.5 million
increased 12%20%
from the year ago quarter.first quarter of 1996 but down 3% from the strong performance in the
second quarter of 1995. Foreign exchange trading profits, generated in both
Chicago and London, continue to benefit fromare impacted by the increase
inlevel of cross-border investment
activities of Master Trust/Master Custody clients although they are also impacted byand market volatility. The fee
component of treasury management revenues rose 5%20% to $13.0$14.5 million compared to
the prior year. Total treasury management revenues, including both fees and earnings onthe
computed value of compensating deposit balances, were $20.5$22.0 million,
representing a 6%13% increase from the firstsecond quarter of 1995. ThisThe compensating
deposit balances contributed to the increase in net interest income. The
improvement in treasury management revenues resulted from new business growth in
all treasury management products,
particularly electronic services.both paper- and electronic-based products. The year to year comparison of
treasury management revenues was also impacted by a $.7 million decrease in the
amount of FDIC insurance premiums that were previously passed through to clients in 1995.1995
and included in treasury management results. Other operating income in the
second quarter of 1995 benefited by $1.3 million in gains from the sale of lease
residuals compared to nominal gains in the current quarter. In addition, other
operating income in the quarter reflected the elimination of float-related
compensation as a result of the Depository Trust Company's first quarter also benefited from higher levels of
the trust-related overnight advances on which fees are charged.1996
conversion to a same-day settlement basis for security transactions.
10
NET INTEREST INCOME
Net interest income for the firstsecond quarter totaled a record $93.4$95.5 million, 5%9%
higher than the $88.5$88.0 million reported in the firstsecond quarter of 1995. Net
interest income is defined as the total of interest income and amortized fees on
earning assets, less interest expense on deposits and borrowed funds, adjusted
for the impact of off-balance sheet hedging activity. When net interest income
is adjusted to a fully taxable equivalent (FTE) basis, yields on taxable,
nontaxable and partially taxable assets are comparable, although the adjustment
to a FTE basis has no impact on net income. Net interest income on a FTE basis
for the firstsecond quarter was $102.0$104.3 million, up 4%7% from the $98.1$97.5 million reported
in 1995. The increase in net interest income reflects the positive impact of 1995 acquisitionsgrowth in noninterest-
related funds and higher levels of earning assets, offsetprimarily in partresidential
mortgages, commercial and industrial loans and short-term U.S. Government and
federal agency securities. These factors were partially offset by a decline in
the net interest margin to 2.21%2.22% from 2.43%2.35% reported in the firstsecond quarter of
1995.
Earning assets for the firstsecond quarter averaged $18.6$18.9 billion, up 13%14% from the
$16.4$16.7 billion average for the firstsecond quarter of 1995. The $2.2 billion growth in
average earning assets reflectsreflected a 15%13% or
10
$1.2 billion increase in average
loans, and a $1.0$.8 billion or 17%14% growth in average security holdings. Money
market assets totaled $2.1$2.0 billion on average for the quarter, down 2%up 13% from the
like period of 1995.
The overall loan growth was concentrated primarily in the domestic portfolio as
international loans were essentially unchanged from the prior year level.
Approximately one-half of the domestic growth was centered in residential
mortgage loans, whichportfolio.
Residential mortgages increased 20% to $3.9average $4.2 billion on average and comprised
40%now comprise 41%
of the total average loan portfolio. Commercial and industrial loans grew $220 million to average $3.1averaged
$3.3 billion during the firstsecond quarter of 1996.1996 compared to $3.1 billion last
year. Securities for the quarter averagedincreased $.8 billion on average to $6.7
billion, up 17% from the $5.7
billion reported last year, due primarily to a $1.1 billion21% increase in short-term U.S. Government and
federal agency securities.
TheFunding for the growth in average earning assets was funded primarily by increased
levels of interest-bearing deposits, federal funds purchased, repurchase
agreements, and noninterest-related funds.came from several sources. Total
interest-bearing deposits averaged $9.9$10.0 billion, up $528$575 million from the
firstsecond quarter of 1995. This growth came principally from savings certificates (up $393 million),
savings and money
market deposits (up $314$371 million), and other time
deposits (up $155 million), offset by a decline in foreign office time deposits of $334 million,(up $228
million). Short-term funds were also raised utilizing federal funds purchased,
repurchase agreements, and other borrowings. The growth in other borrowings was
concentrated primarily in the London Branch.higher treasury tax and loan account balances.
Noninterest-related funds increased $272$257 million and averaged $2.8 billion due
in large part to growth in common stockholders' equity. Stockholders'Common stockholders'
equity increased $150$159 million or 11%13% and averaged $1.46$1.35 billion due primarily to
growth in retained earnings. The remaining increase in average
noninterest-related funds
came from higher levels ofwas concentrated in foreign demand deposit
accounts resulting from acquisitions and growth from new and existing
relationships.trust-related deposits. The net interest
margin decreased 13 basis points to 2.21%2.22% compared with 2.43%2.35% last year.
The flat yield curve experienced throughout muchyear due
primarily to lower spreads earned on the higher volume of the first quarter of
1996 narrowed spreads between returns on short-term assetsU.S. Government and
rates paid
on retail deposits and various short-term funding sources.federal agency securities.
11
PROVISION FOR CREDIT LOSSES
The provision for credit losses of $5.0$4.0 million compares to $1.5was up $2.5 million from the low
level reported in the firstsecond quarter of 1995. For a discussion of the provision
and reserve for credit losses, refer to the Asset Quality section on pages 13 through 15.section.
NONINTEREST EXPENSES
Noninterest expenses totaled $184.0$191.6 million for the quarter, up $6.7$13.7 million or
4%8% from $177.3$177.9 million in the firstsecond quarter of 1995. Operating expenses of the
threetwo businesses acquired in the second half of 1995 accounted for approximately
$8.6$7.5 million of total expenses in the quarter,this increase, while the reduction in FDIC insurance premiums
that began induring the second half of 1995 lowered expenses by $4.2 million. Expenses for
the current quarter were adversely affected by $4.1 million in costs
attributable to errors in the first quarterprocessing of 1996three transactions by $4.0 million. Northern
Trust continuesthe capital
structures unit of global custody operations. Excluding the increases
attributable to invest in technologyacquisitions and inthese processing costs and the expansion of its network
of personal trust and banking offices. The incremental costs of these
strategic programs in the first quarterdecline due to
lower FDIC premiums, expense growth would have been largely offset by savings
obtained through Northern Trust's stringent expense control initiatives.
11
4%. The increase in
noninterest expenses also reflects the support necessary for higher levels of
trust new business and treasury management and global custody volumes, as well
as costs associated with PFS office expansion.
Salaries and benefits, which represent 59%57% of total noninterest expenses,
increased a modest 4% compared to $108.4 million from $105.2 million in the year ago quarter to $108.1 million.year-ago quarter. The
principal items contributing to the change were merit increases, incentive
compensation, and staff additions resulting from 1995 acquisitions and to
support Northern Trust's growing retirement servicestrust activities. These increases were
partially offset by a decline in staff levels in other areas of
Northern Trust and cost savings
from changes in several benefit plans effective January 1, 1996. Staff on a
full-time equivalent basis at March 31,June 30, 1996 totaled 6,536 which is essentially unchanged6,698, up 3% from year-end 1995, but down 197
staff from March 31, 1995 (exclusive6,531 at
the end of 179 employees added through
acquisitions).1995.
Net occupancy expense totaled $15.8$15.6 million, up 11% or $1.6 million2% from $14.2$15.3 million in the
firstsecond quarter of 1995, due in part to acquisitions and the opening of new
offices. The principal components of the increase were higher rent, real estate
taxes, and utility costs, and amortization and depreciation of leasehold improvements and
buildings, offset in part by lower levels of lease operating and building
maintenance costs.
Equipment expense, which includes depreciation, rental and maintenance costs,
totaled $13.6$13.8 million, up $1.0$1.8 million or 8%15% from the firstsecond quarter of 1995.
The principal components of the increase were higher levels of depreciation primarily related to personal computers and computer hardware,
and higher rental costs associated with computer
equipment depreciation, maintenance and data
communication lines.rental expenses.
Other operating expenses in the quarter totaled $46.5$53.8 million unchanged from the prior
year level.compared to $45.4
million last year. The $4.2 million reduction in FDIC insurance premiums which took
effect in the second half of 1995 was offset by the $4.1 million in costs
attributable to processing errors within
12
global custody operations. Other operating expenses were also impacted by the
addition of professional service fees paid to RCB's network of investment
managers, and higher levels of software amortization, contract data processing costs, transaction-based
depository fees, and amortization expense of goodwill and other intangibles.
The components of other operating expenses were as follows:
Three MonthsQuarter Ended March 31
---------------------------June 30
---------------------
(In Millions) 1996 1995
--------- ------------- ----
Business Development $ 6.06.7 $ 5.96.1
Purchased Professional Services 16.818.3 14.0
Telecommunications 2.7 2.63.0 2.8
Postage and Supplies 5.8 5.55.3 5.3
FDIC Premium -- 4.04.2
Software Amortization 8.6 7.4
Goodwill and Other Intangibles Amortization
Amortization 2.4 1.71.6
Other Expense 4.2 5.4
----------- ---------9.5 4.0
_____ _____
Total Other Operating Expenses $ 46.5 $ 46.5
=========== =========$53.8 $45.4
----- -----
12
PROVISION FOR INCOME TAXES
The provision for income taxes was $30.6$31.7 million for the firstsecond quarter compared
with $22.0$24.0 million in the year agoyear-ago quarter. The higher tax provision in 1996
resulted from the growth in taxable earnings for both federal and state income
tax purposes and a decline in tax-exempt income from the prior year. The
effective tax rate was 33% for 1996 versus 31% in 1995.
BALANCE SHEET
In January,SIX MONTHS EARNINGS HIGHLIGHTS
Net income totaled $124.9 million for the six months ended June 30, 1996
the Corporation issued 1,198,372 sharescompared to $102.4 million last year, an increase of common stock
upon conversion of its $50 million stated value Series E convertible
preferred stock, which on January 5, 1996 had been called for redemption.
The conversion has no impact on22%. On a fully diluted
basis, net income per common share sincealso increased 22% to $2.12. The ROE for the
shares issued upon conversion were already reflectedsix month period was 18.41% versus 16.97% one year ago, while the ROA improved
to 1.20% from 1.11% in the Corporation'ssame period of last year.
Noninterest income increased 16% to $382.9 million from $330.1 million in the
like period of 1995. Noninterest income comprised 65% of total taxable
equivalent revenue. Trust fees totaled $292.6 million, up 20% from $244.1
million last year. Security commissions and trading income totaled $12.7
million, up $1.6 million or 15% from the $11.1 million earned last year. Foreign
exchange trading profits were at record levels and totaled $27.6 million. The
fee portion of treasury management revenues totaled $27.5 million, up 12% from
the $24.4 million reported in 1995. Total treasury management revenues, which,
in addition to fees, include the computed value of compensating deposit
balances, increased
13
10% and totaled $42.5 million. These compensating deposit balances also
contributed to the improvement in net interest income.
Net interest income stated on a fully diluted shares.taxable equivalent basis totaled $206.3
million, up 5% from the $195.6 million in the like period of 1995. The provision
for credit losses increased $6.0 million to $9.0 million in 1996. Net loan
charge-offs increased to $8.7 million from $3.0 million in the prior year.
Noninterest expenses totaled $375.6 million, up 6% from $355.2 million in 1995.
BALANCE SHEET
Total assets as of March 31,at June 30, 1996 were $20.3$21.8 billion and averaged $20.9 billion for
the first quarter,six months, up 14%13% from last year's average of $18.4$18.6 billion. Due to
increased lending activity, in addition to the Beach Bank
andJuly 31, 1995 acquisition of
Tanglewood Bank, acquisitions, loans and leases totaled $10.0grew to $10.4 billion at March 31,June 30, 1996, and
averaged $9.8$10.0 billion for the first quarter.six months. This compares with $8.9$9.4 billion
in total loans at March 31,June 30, 1995 and $8.5$8.8 billion on average for the first quartersix
months of last year.
Driven primarily by continued strong earnings growth and the first quarter 1996
conversion of the Series E convertible preferred stock, and stock issued in connection with
the March 31, 1995 acquisition of Beach Bank, common stockholders'
equity increased 16% and averaged $1.3215% to average $1.34 billion for the first quarter,six months, versus
$1.14$1.17 billion last year. Total stockholders' equity for the quarter also
increased and averaged $1.46$1.47 billion
compared with $1.31$1.34 billion last year.in 1995.
During the quarter, the Northern Trust Corporation purchased 566,306acquired 590,211 of its own
shares at a total cost of $30.5$32.6 million pursuant to the 4 million share buyback
program authorized by the Board of Directors in 1994. At March 31,This brought the total
number of shares acquired in 1996 to 1,156,517 leaving an additional 1.71.1 million
shares remainremaining to be purchasedacquired under this program. Northern Trust's risk-based
capital ratios remained strong at 9.1%8.4% for tier 1 and 12.7%11.7% for total capital at
March 31,June 30, 1996. These capital ratios are well above the minimum regulatory
requirements of 4% for tier 1 and 8% for total risk-based capital ratios. The
leverage ratio (tier 1 capital to firstsecond quarter average assets) of 6.1%6.2% at March 31,June
30, 1996, also exceeded the regulatory requirement of 3%.
ASSET QUALITY
Nonperforming assets consist of nonaccrual loans, restructured loans and other
real estate owned (OREO). Nonperforming assets at March 31,June 30, 1996 totaled $32.1$40.5
million, compared with $33.7 million at December 31, 1995 and $25.4$34.5 million at
March 31,June 30, 1995. Domestic nonaccrualNonaccrual and restructured loans and leases, consisting
primarily of commercial loans, totaled $27.9$38.9 million, or .29%.37% of total domestic loans and
leases at March 31,June 30, 1996. Included in this total are commercial real estate loans
of $16.3$29.0 million. At December 31, 1995 and March 31,June 30, 1995, domestic nonaccrual and
restructured loans and leases totaled $29.0$31.9 million and $19.7$33.3 million,
respectively.
1314
The following Nonperforming Asset table presents the outstanding amounts of
nonaccrual loans and leases, restructured loans and OREO. Also shown are
loans that have interest or principal payments that are delinquent 90 days
or more and are still accruing interest. The balance in this category at
any quarter end can fluctuate widely based on the timing of cash
collections, renegotiations and renewals.
Nonperforming Assets and 90 Day Past Due Loans and Leases
June 30 March 31 December 31 March 31June 30
(In Millions) 1996 1996 1995 1995
- ------------------------------------------------------------------------------------------------------------------
Nonaccrual Loans and Leases
Domestic $36.2 $27.9 $29.0 $19.7$29.8
International - - .2 1.3.7
- ------------------------------------------------------------------------------------------------------------------
Total Nonaccrual Loans and Leases 36.2 27.9 29.2 21.030.5
Restructured Loans 2.7 2.7 2.7 2.8
OREO 1.6 1.5 1.8 1.61.2
- ------------------------------------------------------------------------------------------------------------------
Total Nonperforming Assets $40.5 $32.1 $33.7 $25.4$34.5
- ------------------------------------------------------------------------------------------------------------------
Total 90 Day Past Due Loans
(still accruing) $14.6 $36.9 $22.0 $11.6$14.1
- ------------------------------------------------------------------------------------------------------------------
PROVISION AND RESERVE FOR CREDIT LOSSES. The provision for credit losses
is the charge against current earnings that is determined by management
through a disciplined credit review process as the amount needed to
maintain a reserve that is sufficient to absorb credit losses inherent in
Northern Trust'sthe loan and lease portfolios and other credit undertakings. While the
largest portion of this reserve is intended to cover loan and lease losses,
it is considered a general reserve that is available to cover all credit-relatedcredit-
related exposures.
The 1996 firstsecond quarter provision for credit losses was $5.0$4.0 million,
compared with $1.5 million in the firstsecond quarter of 1995. Net charge-offs
totaled $4.9$3.8 million in the firstsecond quarter of 1996, versus net charge-offs
of $1.6$1.4 million
last year. The reserve for credit losses was $147.2$147.4 million or 1.47%1.42% of
outstanding loans at March 31,June 30, 1996. This compares with $147.1 million or
1.49% of outstanding loans at December 31, 1995 and $145.8$145.9 million or 1.64%1.55%
of outstanding loans at March 31,June 30, 1995. The lower reserve to outstanding
loans ratio at March 31,June 30, 1996 is attributable to loan growth, a significant
portion of which is in low-risk residential mortgage lending.
The overall credit quality of the domestic portfolio has remained good as
evidenced by the low level of nonperforming loans and relatively moderate
level of net charge-offs. Management's assessment of the current U.S.
economy and the financial condition of certain clients facing financial
difficulties together with the types of loans creating portfolio growth
were primary factors impacting management's decision to maintain the
reserve for credit losses at $147.2$147.4 million at March 31,June 30, 1996, essentially
unchanged from
15
December 31, 1995 and slightly higher 14
than March 31,June 30, 1995. Although difficult to
predict, management presently expects that the provision for credit losses for
the balance of 1996 will be somewhat above the very low level experienced in the
comparable period of 1995.
Northern TrustManagement continues to monitor closely several credits, but the overall quality
of its loan portfolio remains sound and the reserve for credit losses is
adequate to cover credit-related uncertainties as they exist today. Established
credit review procedures ensure that close attention is given to commercial real
estate-related loans and other commercial loans, as well as other credit
exposures that might be adversely affected by significant increases in interest
rates or unexpected downturns in segments of the economies of the United States
or other countries.
1516
The following schedule should be read in conjunction with the Net Interest
Income section of Management's Discussion and Analysis of Financial Condition
and Results of Operations.
CONSOLIDATED ANALYSIS OF NET INTEREST INCOME
NORTHERN TRUST CORPORATION
FirstSecond Quarter
-----------------------------------------------------------------------------------------------------------------------------------------------
(Interest and rate on a taxable equivalent basis) 1996 1995
------------------------------------ ----------------------------------------------------------------------- -----------------------------
($ in Millions) Interest Volume Rate Interest Volume Rate
- ------------------------------------------------------------------------------------------------------- ---------- ------------ ------ -------- --------------------- ------ --------- ----------- -----
Average Earning Assets
Money Market Assets
Federal Funds Sold and RepurchaseSecurities Purchased
under Agreements to Resell $ 3.83.4 $ 267.1 5.66 %254.4 5.51% $ 3.53.9 $ 233.6 5.99 %258.2 6.21%
Time Deposits with Banks 22.8 1,745.3 5.26 26.7 1,856.4 5.8320.9 1,678.2 4.99 20.8 1,483.8 5.62
Other .8 53.5 6.06 .2 14.1 6.2654.6 5.80 .3 13.9 6.68
- -------------------------------------------------- -------- ---------------------------------------------------------------- ------ --------- ---------------- ------ --------- -----
Total Money Market Assets 27.4 2,065.9 5.33 30.4 2,104.1 5.8525.1 1,987.2 5.08 25.0 1,755.9 5.72
- -------------------------------------------------- -------- ---------------------------------------------------------------- ------ --------- ---------------- ------ --------- -----
Securities
U.S. Government 29.6 2,084.5 5.71 13.0 992.4 5.3229.8 2,123.9 5.64 12.8 915.4 5.59
Obligations of States and Political Subdivision 10.5 422.1 9.99 12.5 453.0 11.04Subdivisions 10.4 419.7 9.88 12.0 440.4 10.95
Federal Agency 57.2 3,956.5 5.81 61.7 3,878.3 6.4555.5 3,975.4 5.62 65.9 4,115.6 6.42
Other 3.9 262.3 6.02 6.0 382.2 6.353.4 227.6 5.93 5.9 376.8 6.25
Trading Account .2 9.5 7.25 .5 26.4 8.23.1 9.1 7.60 1.0 57.5 6.77
- -------------------------------------------------- -------- ---------------------------------------------------------------- ------ --------- ---------------- ------ --------- -----
Total Securities 101.4 6,734.9 6.05 93.7 5,732.399.2 6,755.7 5.90 97.6 5,905.7 6.62
- -------------------------------------------------- -------- ---------------------------------------------------------------- ------ --------- ---------------- ------ --------- -----
Loans and Leases 164.7 9,777.3 6.78 146.7 8,535.9 6.97170.6 10,176.7 6.74 158.0 8,973.7 7.06
- -------------------------------------------------- -------- ---------------------------------------------------------------- ------ --------- ---------------- ------ --------- -----
Total Earning Assets $ 293.5 $ 18,578.1 6.35 % $ 270.8 $ 16,372.3 6.71 %$294.9 $18,919.6 6.27% $280.6 $16,635.3 6.76%
- -------------------------------------------------- -------- ---------------------------------------------------------------- ------ --------- ---------------- ------ --------- -----
Average Source of Funds
Deposits
Savings and Money Market Deposits $ 28.128.6 $ 3,577.7 3.16 %3,659.6 3.14% $ 26.627.4 $ 3,263.1 3.31 %3,289.0 3.34%
Savings Certificates 30.9 2,110.1 5.89 24.5 1,717.5 5.7929.3 2,053.6 5.75 30.6 2,000.9 6.12
Other Time 8.4 611.4 5.53 6.4 456.6 5.676.2 462.6 5.40 8.0 539.5 5.95
Foreign Offices Time 44.1 3,577.4 4.96 50.6 3,911.9 5.2445.5 3,807.2 4.81 47.2 3,579.0 5.30
- -------------------------------------------------- -------- ---------------------------------------------------------------- ------ --------- ---------------- ------ --------- -----
Total Deposits 111.5 9,876.6 4.54 108.1 9,349.1 4.69109.6 9,983.0 4.42 113.2 9,408.4 4.83
Federal Funds Purchased 28.7 2,143.3 5.3922.5 1,717.9 5.27 16.1 1,122.6 5.811,068.6 6.04
Securities Sold Under Agreements to Repurchase Agreements 26.1 1,977.1 5.31 24.1 1,697.0 5.7728.0 2,153.1 5.23 25.0 1,666.5 6.02
Commercial Paper 1.9 143.8 5.45 2.1 143.8 5.842.0 142.9 5.38 2.2 146.3 5.96
Other Borrowings 12.8 978.2 5.25 10.5 807.8 5.2518.7 1,516.3 4.97 15.9 1,162.1 5.51
Senior Notes 4.1 314.4 5.25 6.9 469.6 5.923.4 254.5 5.26 5.8 379.7 6.04
Notes Payable 6.4 334.8 7.68335.9 7.67 4.9 244.8 8.13244.7 8.04
- -------------------------------------------------- -------- ---------------------------------------------------------------- ------ --------- ---------------- ------ --------- -----
Total Interest-Related Funds 191.5 15,768.2 4.88 172.7 13,834.7 5.06190.6 16,103.6 4.76 183.1 14,076.3 5.22
- -------------------------------------------------- -------- ---------------------------------------------------------------- ------ --------- ---------------- ------ --------- -----
Interest Rate Spread - - 1.47 %1.51% - - 1.65 %1.54%
- -------------------------------------------------- -------- ---------------------------------------------------------------- ------ --------- ---------------- ------ --------- -----
Noninterest-Related Funds - 2,809.92,816.0 - - 2,537.62,559.0 -
- -------------------------------------------------- -------- ---------------------------------------------------------------- ------ --------- ----------------- ------ --------- -----
Total Source of Funds $ 191.5 $ 18,578.1 4.14 % $ 172.7 $ 16,372.3 4.28 %$190.6 $18,919.6 4.05% $183.1 $16,635.3 4.41%
- -------------------------------------------------- -------- ---------------------------------------------------------------- ------ --------- ---------------- ------ --------- -----
Net Interest Income/Margin $104.3 - 2.22% $ 102.097.5 - 2.21 % $ 98.12.35%
- 2.43 %
- -------------------------------------------------- -------- ---------------------------------------------------------------- ------ --------- ---------------- ------ -------- -----
ANALYSIS OF NET INTEREST INCOME CHANGES
DUE TO VOLUME AND RATE
FirstSecond Quarter 1996/95 ------------------------------Six Months 1996/95
--------------------------------- -----------------------------
Change Due To Change Due To
----------------------- --------------------
(In Millions) Volume Rate Total Volume Rate Total
- -------------------------------------------------------------------------------------------------------------------------------- --------- ------------ ------ -------- --------
--------- ------
Earning Assets $ 34.3 $ (11.6)(20.0) $14.3 $ 22.768.6 $ (31.6) $37.0
Interest-Related Funds 25.4 (6.6) 18.824.6 (17.1) 7.5 50.0 (23.7) 26.3
- -------------------------------------------------------------------------------------------------------------------------------- ------ --------- ----- ------- -------- --------- --------------
Net Interest Income $ 8.99.7 $ (5.0)(2.9) $ 3.96.8 $ 18.6 $ (7.9) $10.7
- -------------------------------------------------------------------------------------------------------------------------------- ------ --------- ----- ------- -------- -----
17
NORTHERN TRUST CORPORATION
Six Months
- -------------------------------------------------------------------
1996 1995
- ---------------------------------- -----------------------------
Interest Volume Rate Interest Volume Rate
- --------- ------------ ------ -------- --------- ------
$ 7.2 $ 260.8 5.59% $ 7.4 $ 245.9 6.11%
43.7 1,711.7 5.13 47.5 1,669.1 5.74
1.6 54.0 5.93 .5 14.1 6.47
- --------- ------------ ------ -------- --------- ------
52.5 2,026.5 5.21 55.4 1,929.1 5.79
- --------- ------------ ------ -------- --------- ------
59.4 2,104.2 5.67 25.8 953.7 5.45
20.9 420.9 9.94 24.5 446.7 11.00
112.7 3,966.0 5.71 127.6 3,997.6 6.44
7.3 245.0 5.98 11.9 379.5 6.30
.3 9.3 7.42 1.5 42.0 7.22
- --------- ------------ ------ -------- --------- ------
200.6 6,745.4 5.98 191.3 5,819.5 6.62
- --------- ------------ ------ -------- --------- ------
335.3 9,977.0 6.76 304.7 8,756.0 7.02
- --------- ------------ ------ -------- --------- ------
$588.4 $18,748.9 6.31% $551.4 $16,504.6 6.74%
- --------- ------------ ------ -------- --------- ------
$ 56.7 $ 3,618.6 3.15% $ 54.0 $ 3,276.1 3.32%
60.2 2,081.9 5.82 55.1 1,860.0 5.97
14.6 537.0 5.47 14.4 498.3 5.82
89.6 3,692.3 4.88 97.8 3,744.5 5.27
- --------- ------------ ------ -------- --------- ------
221.1 9,929.8 4.48 221.3 9,378.9 4.76
51.2 1,930.7 5.34 32.2 1,095.4 5.92
54.1 2,065.1 5.27 49.1 1,681.6 5.89
3.9 143.3 5.42 4.3 145.1 5.90
31.5 1,247.2 5.08 26.4 986.0 5.41
7.5 284.4 5.25 12.7 424.4 5.97
12.8 335.4 7.65 9.8 244.8 8.09
- --------- ------------ ------ -------- --------- ------
382.1 15,935.9 4.82 355.8 13,956.2 5.14
- --------- ------------ ------ -------- --------- ------
- - 1.49% - - 1.60%
- --------- ------------ ------ -------- --------- ------
- 2,813.0 - - 2,548.4 -
- --------- ------------ ------ -------- --------- ------
$382.1 $18,748.9 4.10% $355.8 $16,504.6 4.35%
- --------- ------------ ------ -------- --------- ------
$206.3 - 2.21% $195.6 - 2.39%
- --------- ------------ ------ -------- --------- ------
1618
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Securities Holders
The annual meeting of stockholders of Northern Trust Corporation was
held on April 16, 1996 for the purposes of electing fourteen Directors
to hold office until the next annual meeting of stockholders. Proxies
for the meeting were solicited pursuant to Section 14(a) of the
Securities Exchange Act of 1934 and there was no solicitation in
opposition to management's nominees. All of management's nominees for
Directors as listed in the proxy statement were elected by the
following votes set forth below. There were no broker non-votes for
any candidate.
Candidates "FOR" "WITHHELD"
----------------------- ---------- ----------
Dolores E. Cross 51,209,909 162,420
Robert S. Hamada 51,236,472 162,420
Barry G. Hastings 51,325,451 162,420
Robert A. Helman 51,234,438 162,420
Arthur L. Kelly 51,229,042 162,420
Ardis Krainik 50,672,814 162,420
Robert D. Krebs 51,234,518 162,420
Frederick A. Krehbiel 50,753,093 162,420
William G. Mitchell 50,735,163 162,420
Edward J. Mooney 51,226,140 162,420
William A. Osborn 51,248,198 162,420
Harold B. Smith 51,235,715 162,420
William D. Smithburg 51,186,113 162,420
Bide L. Thomas 51,208,166 162,420
17
Item 6. Exhibits and Reports on Form 8-K
(a.) Exhibits
--------
Exhibit (3) Amendment(10) (i) Form of Employment Security Agreement dated
March 1, 1996 entered or to By-laws of the Corporation
and By-laws as amended.
Exhibit (10) Material Contracts:
(i)be entered into
between Northern Trust Corporation (1996)
Annual Performance Plan.and each of
7 officers - as amended.
(ii) Form of Employment Security Agreement dated
May 21, 1996 entered or to be entered into
between Northern Trust Corporation (1996)
Management Performance Plan.and each of
30 officers - supersedes Form of Agreement
dated March 23, 1986.
(iii) Form of Employment Security Agreement dated
May 21, 1996 entered or to be entered into
between Northern Trust Corporation and each of
8 officers.
(iv) Form of Employment Security Agreement dated
May 21, 1996 entered or to be entered into
between Northern Trust Corporation and each of
16 officers -supersedes Form of Agreement
dated March 23, 1986.
(v) Implementation Agreement dated June 26, 1996
between the Registrant, The Northern Trust
Company, the ESOP Trust and NationsBank
(South) N.A. as Trustee.
(vi) Term Loan Agreement between the ESOP Trust
and the Registrant dated June 28, 1996.
Exhibit (11) Computation of Per Share Earnings.Earnings
Exhibit (27) Financial Data Schedule.
Exhibit (99) Remarks delivered by William A. Osborn at the
Annual Meeting of Stockholders of Northern Trust
Corporation held on April 16, 1996.Schedule
(b.) Reports on Form 8-K
-------------------
In a report on Form 8-K dated January 5,April 17, 1996, Northern Trust
incorporated by reference in Item 5 its January 5, 1996 press
release, reporting on its announced call for redemption on January
26, 1996 all of its outstanding 6.25% Series E Preferred Stock
Depository Shares.
In a report on Form 8-K dated January 16, 1996, Northern Trust
incorporated by reference in Item 5 its JanuaryApril 16, 1996 press
release, reporting on its earnings for the fourthfirst quarter of 1995
and for its 1995 fiscal year.1996. The
press release, with summary financial information, was filed
pursuant to Item 7.
1819
SIGNATURES
Pursuant to the requirements of the Securities Exchange Actact of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NORTHERN TRUST CORPORATION
--------------------------
(Registrant)
Date: May 14,August 12, 1996 By: PERRYPerry R. PERO
-------------------------------
PERRYPero
-----------------
Perry R. PEROPero
Senior Executive Vice President
and Chief Financial Officer
Date: May 14,August 12, 1996 By: HARRYHarry W. SHORT
------------------------------------
HARRYShort
------------------
Harry W. SHORTShort
Senior Vice President and Controller
(Chief Accounting Officer)
1920
EXHIBIT INDEX
-------------
The following exhibits have been filed herewith:
Exhibit
Number Description
- ------ -----------
(10) (i) Form of Employment Security Agreement dated March 1, 1996
entered or to be entered into between Northern Trust Corporation
and each of 7 officers - as amended.
(ii) Form of Employment Security Agreement dated May 21, 1996 entered
or to be entered into between Northern Trust Corporation and
each of 30 officers - supersedes Form of Agreement dated March
23, 1986.
(iii) Form of Employment Security Agreement dated May 21, 1996 entered
or to be entered into between Northern Trust Corporation and
each of 8 officers.
(iv) Form of Employment Security Agreement dated May 21, 1996 entered
or to be entered into between Northern Trust Corporation and
each of 16 officers -supersedes Form of Agreement dated March
23, 1986.
(v) Implementation Agreement dated June 26, 1996 between the
Registrant, The Northern Trust Company, the ESOP Trust and
NationsBank (South) N.A. as Trustee.
(vi) Term Loan Agreement between the ESOP Trust and the Registrant
dated June 28, 1996.
(11) Computation of Per Share Earnings
(27) Financial Data Schedule
21