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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, 2001
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to __________
Commission File No. 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 [_]
222,636,056 Shares - $1.66 2/3 Par Value
(Shares of Common Stock Outstanding on March 31, 2001)
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
CONSOLIDATED BALANCE SHEET NORTHERN TRUST CORPORATION
March 31 December 31 March 31
---------- ------------ -----------
($ In Millions Except Share Information) 2001 2000 2000
- ----------------------------------------------------------------------------------------- ---------- ------------ -----------
Assets
Cash and Due from Banks $ 1,545.3 $ 2,287.8 $ 1,592.7
Federal Funds Sold and Securities Purchased under Agreements to Resell 293.2 549.8 608.9
Time Deposits with Banks 3,534.1 5,193.8 3,744.3
Other Interest-Bearing 28.3 121.3 31.8
Securities
Available for Sale 12,026.4 6,477.8 8,026.7
Held to Maturity (Fair value - $629.0 at March 2001, $782.1 at December
2000, $748.2 at March 2000) 614.7 778.4 758.0
Trading Account 16.8 13.4 7.7
- ----------------------------------------------------------------------------------------- ---------- ------------ -----------
Total Securities 12,657.9 7,269.6 8,792.4
- ----------------------------------------------------------------------------------------- ---------- ------------ -----------
Loans and Leases
Commercial and Other 11,013.1 11,321.8 10,131.2
Residential Mortgages 6,855.5 6,822.8 6,347.6
- ----------------------------------------------------------------------------------------- ---------- ------------ -----------
Total Loans and Leases (Net of unearned income - $365.1 at March 2001,
$365.3 at December 2000, $322.7 at March 2000) 17,868.6 18,144.6 16,478.8
- ----------------------------------------------------------------------------------------- ---------- ------------ -----------
Reserve for Credit Losses (167.9) (162.9) (154.7)
Buildings and Equipment 466.4 448.1 384.9
Customers' Acceptance Liability 16.5 9.3 33.1
Trust Security Settlement Receivables 458.0 615.2 519.2
Other Assets 1,497.4 1,545.7 1,188.0
- ----------------------------------------------------------------------------------------- ---------- ------------ -----------
Total Assets $38,197.8 $36,022.3 $33,219.4
- ----------------------------------------------------------------------------------------- ---------- ------------ -----------
Liabilities
Deposits
Demand and Other Noninterest-Bearing $ 4,472.3 $ 4,547.7 $ 4,531.8
Savings and Money Market 5,674.5 5,521.7 5,304.6
Savings Certificates 2,326.1 2,331.2 2,239.6
Other Time 1,835.1 427.3 830.0
Foreign Offices - Demand 724.6 827.5 690.1
- Time 8,559.3 9,172.5 7,858.6
- ----------------------------------------------------------------------------------------- ---------- ------------ -----------
Total Deposits 23,591.9 22,827.9 21,454.7
Federal Funds Purchased 4,502.6 3,615.0 2,022.4
Securities Sold Under Agreements to Repurchase 892.4 1,577.1 799.1
Commercial Paper 134.5 142.4 143.4
Other Borrowings 3,632.6 2,629.5 4,148.6
Senior Notes 500.0 500.0 500.0
Long-Term Debt 792.4 638.1 638.4
Debt - Floating Rate Capital Securities 267.7 267.6 267.6
Liability on Acceptances 16.5 9.3 33.1
Other Liabilities 1,294.6 1,353.2 960.5
- ----------------------------------------------------------------------------------------- ---------- ------------ -----------
Total Liabilities 35,625.2 33,560.1 30,967.8
- ----------------------------------------------------------------------------------------- ---------- ------------ -----------
Stockholders' Equity
Preferred Stock 120.0 120.0 120.0
Common Stock, $1.66 2/3 Par Value; Authorized 560,000,000 shares at March 2001 and
December 2000 and 280,000,000 at March 2000; Outstanding 222,636,056 at March 2001,
222,232,395 at December 2000 and 222,299,865 at March 2000 379.8 379.8 379.8
Capital Surplus - - -
Retained Earnings 2,287.7 2,200.0 1,945.3
Accumulated Other Comprehensive Income (13.1) (13.2) (13.2)
Common Stock Issuable - Stock Incentive Plans 138.5 110.2 80.9
Deferred Compensation - ESOP and Other (72.1) (57.9) (46.2)
Treasury Stock - (at cost, 5,285,468 shares at March 2001, 5,689,129 shares at
December 2000, and 5,621,659 shares at March 2000) (268.2) (276.7) (215.0)
- ----------------------------------------------------------------------------------------- ---------- ------------ -----------
Total Stockholders' Equity 2,572.6 2,462.2 2,251.6
========================================================================================= ========== ============ ===========
Total Liabilities and Stockholders' Equity $38,197.8 $36,022.3 $33,219.4
========================================================================================= ========== ============ ===========
2
CONSOLIDATED STATEMENT OF INCOME NORTHERN TRUST CORPORATION
First Quarter
Ended March 31
-------------------- -------------------
($ In Millions Except Per Share Information) 2001 2000
- -------------------------------------------------------------------------- -------------------- -------------------
Noninterest Income
Trust Fees $ 305.2 $ 286.0
Foreign Exchange Trading Profits 34.9 34.0
Treasury Management Fees 20.1 17.1
Security Commissions and Trading Income 9.6 9.6
Other Operating Income 19.7 15.7
Investment Security Gains - -
- -------------------------------------------------------------------------- -------------------- -------------------
Total Noninterest Income 389.5 362.4
- -------------------------------------------------------------------------- -------------------- -------------------
Net Interest Income
Interest Income 493.4 435.8
Interest Expense 345.3 296.4
- -------------------------------------------------------------------------- -------------------- -------------------
Net Interest Income 148.1 139.4
Provision for Credit Losses 5.0 4.0
- -------------------------------------------------------------------------- -------------------- -------------------
Net Interest Income after Provision for Credit Losses 143.1 135.4
- -------------------------------------------------------------------------- -------------------- -------------------
Noninterest Expenses
Compensation 170.4 164.8
Employee Benefits 33.8 29.2
Occupancy Expense 24.7 20.8
Equipment Expense 21.2 17.9
Other Operating Expenses 91.5 93.4
- -------------------------------------------------------------------------- -------------------- -------------------
Total Noninterest Expenses 341.6 326.1
- -------------------------------------------------------------------------- -------------------- -------------------
Income before Income Taxes 191.0 171.7
Provision for Income Taxes 63.8 58.4
- -------------------------------------------------------------------------- -------------------- -------------------
Net Income $ 127.2 $ 113.3
- -------------------------------------------------------------------------- -------------------- -------------------
Net Income Applicable to Common Stock $ 125.8 $ 112.0
- -------------------------------------------------------------------------- -------------------- -------------------
Net Income Per Common Share - Basic $ .57 $ .51
- Diluted .55 .49
- -------------------------------------------------------------------------- -------------------- -------------------
Average Number of Common Shares Outstanding - Basic 221,567,912 221,199,338
- Diluted 229,821,275 230,120,655
- -------------------------------------------------------------------------- -------------------- -------------------
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME NORTHERN TRUST CORPORATION
First Quarter
Ended March 31
------------------- -------------------
($ In Millions) 2001 2000
- --------------------------------------------------------------------------------------- -------------------- -------------------
Net Income $127.2 $113.3
Other Comprehensive Income (net of tax)
Unrealized Gains (Losses) on Securities Available for Sale
Unrealized Holding Gains Arising during the Period (net of tax
provision of $1.0 million) 1.5 -
Less: Reclassification Adjustments for Gains Included in Net Income - -
Unrealized Gains (Losses) on Cash Flow Hedge Designations
Cumulative-Effect of Adopting SFAS No. 133 (net of tax benefit of $.1 million) (.2) -
Unrealized Losses Arising During the Period (net of tax benefit of $.7 million) (1.9)
Less: Reclassification Adjustments of Losses Included in Net Income (net of
tax benefit of $.4 million) .7 -
- --------------------------------------------------------------------------------------- -------------------- -------------------
Other Comprehensive Income .1 -
- --------------------------------------------------------------------------------------- -------------------- -------------------
Comprehensive Income $ 127.3 $113.3
- --------------------------------------------------------------------------------------- -------------------- -------------------
3
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY NORTHERN TRUST CORPORATION
First Quarter
Ended March 31
-----------------------------------------
(In Millions) 2001 2000
- ------------------------------------------------------------- ---------------------- -----------------
Preferred Stock
Balance at January 1 and March 31 $120.0 $ 120.0
- ------------------------------------------------------------- ---------------------- -----------------
Common Stock
Balance at January 1 and March 31 379.8 379.8
- ------------------------------------------------------------- ---------------------- -----------------
Retained Earnings
Balance at January 1 2,200.0 1,870.7
Net Income 127.2 113.3
Dividend Declared - Common Stock (34.5) (30.0)
Dividends Declared - Preferred Stock (1.4) (1.4)
Stock Issued - Incentive Plan and Awards (3.6) (7.3)
- ------------------------------------------------------------- ---------------------- -----------------
Balance at March 31 2,287.7 1,945.3
- ------------------------------------------------------------- ---------------------- -----------------
Accumulated Other Comprehensive Income
Balance at January 1 (13.2) (13.2)
Other Comprehensive Income .1 -
- ------------------------------------------------------------- ---------------------- -----------------
Balance at March 31 (13.1) (13.2)
- ------------------------------------------------------------- ---------------------- -----------------
Common Stock Issuable - Stock Incentive Plans
Balance at January 1 110.2 55.0
Stock Issuable, net of Stock Issued 28.3 25.9
- ------------------------------------------------------------- ---------------------- -----------------
Balance at March 31 138.5 80.9
- ------------------------------------------------------------- ---------------------- -----------------
Deferred Compensation - ESOP and Other
Balance at January 1 (57.9) (33.4)
Compensation Deferred (19.6) (17.2)
Compensation Amortized 5.4 4.4
- ------------------------------------------------------------- ---------------------- -----------------
Balance at March 31 (72.1) (46.2)
- ------------------------------------------------------------- ---------------------- -----------------
Treasury Stock
Balance at January 1 (276.7) (204.2)
Stock Options and Awards 42.9 34.8
Stock Purchased (34.4) (45.6)
- ------------------------------------------------------------- ---------------------- -----------------
Balance at March 31 (268.2) (215.0)
- ------------------------------------------------------------- ---------------------- -----------------
Total Stockholders' Equity at March 31 $2,572.6 $2,251.6
- ------------------------------------------------------------- ---------------------- -----------------
4
CONSOLIDATED STATEMENT OF CASH FLOWS NORTHERN TRUST CORPORATION
First Quarter
Ended March 31
--------------------------------
(In Millions) 2001 2000
- ---------------------------------------------------------------------------------------------- ---------------- --------------
Cash Flows from Operating Activities:
Net Income $ 127.2 $ 113.3
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:
Provision for Credit Losses 5.0 4.0
Depreciation on Buildings and Equipment 20.0 17.0
(Increase) Decrease in Interest Receivable 36.4 (8.0)
Increase (Decrease) in Interest Payable 14.6 (16.0)
Amortization and Accretion of Securities and Unearned Income (72.5) (40.6)
Amortization of Software, Goodwill and Other Intangibles 22.8 18.9
Net (Increase) Decrease in Trading Account Securities (3.4) 3.3
Other Noncash, net (35.1) (109.9)
- ---------------------------------------------------------------------------------------------- ---------------- --------------
Net Cash Provided by (Used In) Operating Activities 115.0 (18.0)
- ---------------------------------------------------------------------------------------------- ---------------- --------------
Cash Flows from Investing Activities:
Net Decrease in Federal Funds Sold and Securities Purchased under Agreements to Resell 256.6 474.9
Net (Increase) Decrease in Time Deposits with Banks 1,659.7 (1,452.1)
Net Decrease in Other Interest-Bearing Assets 93.0 31.4
Purchases of Securities-Held to Maturity (27.7) (37.9)
Proceeds from Maturity and Redemption of Securities-Held to Maturity 40.4 32.8
Purchases of Securities-Available for Sale (27,583.0) (8,289.0)
Proceeds from Sale, Maturity and Redemption of Securities-Available for Sale 22,276.2 5,784.7
Net (Increase) Decrease in Loans and Leases 275.6 (1,106.0)
Purchases of Buildings and Equipment (38.2) (21.5)
Purchases and Development of Computer Software (40.3) (29.5)
Net (Increase) Decrease in Trust Security Settlement Receivables 157.2 (196.1)
Decrease in Cash Due to Acquisitions (1.0) -
Other, net 16.7 .5
- ---------------------------------------------------------------------------------------------- ---------------- --------------
Net Cash Used in Investing Activities (2,914.8) (4,807.8)
- ---------------------------------------------------------------------------------------------- ---------------- --------------
Cash Flows from Financing Activities:
Net Increase in Deposits 764.0 83.7
Net Increase in Federal Funds Purchased 887.6 1,652.2
Net Decrease in Securities Sold under Agreements to Repurchase (684.7) (198.7)
Net Decrease in Commercial Paper (7.9) (1.7)
Net Increase in Short-Term Other Borrowings 533.1 3,576.8
Proceeds from Term Federal Funds Purchased 1,856.0 831.5
Repayments of Term Federal Funds Purchased (1,386.0) (1,415.0)
Proceeds from Senior Notes & Long-Term Debt 154.5 102.6
Repayments of Senior Notes & Long-Term Debt (.2) (123.6)
Treasury Stock Purchased (33.3) (45.1)
Net Proceeds from Stock Options 5.0 6.7
Cash Dividends Paid on Common and Preferred Stock (36.0) (31.6)
Other, net 5.2 2.8
- ---------------------------------------------------------------------------------------------- ---------------- --------------
Net Cash Provided by Financing Activities 2,057.3 4,440.6
- ---------------------------------------------------------------------------------------------- ---------------- --------------
Decrease in Cash and Due from Banks (742.5) (385.2)
Cash and Due from Banks at Beginning of Year 2,287.8 1,977.9
- ---------------------------------------------------------------------------------------------- ---------------- --------------
Cash and Due from Banks at End of Year $ 1,545.3 $ 1,592.7
- ---------------------------------------------------------------------------------------------- ---------------- --------------
Schedule of Noncash Investing Activities:
Transfer of Securities from Held to Maturity to Available for Sale $ 167.0 $ -
Supplemental Disclosures of Cash Flow Information:
Interest Paid $ 330.6 $ 312.4
Income Taxes Received 17.7 8.8
- ---------------------------------------------------------------------------------------------- ---------------- --------------
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, 2001 and 2000 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. Certain reclassifications
have been made to prior periods' consolidated financial statements to place
them on a basis comparable with the current period's consolidated financial
statements. For a description of Northern Trust's significant accounting
policies, refer to Note 1 of the Notes to Consolidated Financial Statements
in the 2000 Annual Report to Shareholders.
2. Securities - The following table summarizes the book and fair values of
securities.
- -------------------------------------------------------------------------------------------------------------------
March 31, 2001 December 31, 2000 March 31, 2000
--------------------------------------------------------------------------------------
Book Fair Book Fair Book Fair
(In Millions) Value Value Value Value Value Value
- -------------------------------------------------------------------------------------------------------------------
Held to Maturity
U.S. Government $ 25.0 $ 25.1 $ 55.0 $ 55.0 $ 54.9 $ 54.8
Obligations of States and
Political Subdivisions 469.2 488.4 435.7 445.1 470.6 464.9
Federal Agency 5.6 5.6 5.5 5.5 .9 .7
Other 114.9 109.9 282.2 276.5 231.6 227.8
- -------------------------------------------------------------------------------------------------------------------
Subtotal 614.7 629.0 778.4 782.1 758.0 748.2
- -------------------------------------------------------------------------------------------------------------------
Available for Sale
U.S. Government 164.9 164.9 174.6 174.6 182.0 182.0
Obligations of States and
Political Subdivisions 16.5 16.5 15.7 15.7 15.3 15.3
Federal Agency 11,569.8 11,569.8 6,172.1 6,172.1 7,659.8 7,659.8
Preferred Stock 90.8 90.8 101.2 101.2 104.8 104.8
Other 184.4 184.4 14.2 14.2 64.8 64.8
- -------------------------------------------------------------------------------------------------------------------
Subtotal 12,026.4 12,026.4 6,477.8 6,477.8 8,026.7 8,026.7
- -------------------------------------------------------------------------------------------------------------------
Trading Account 16.8 16.8 13.4 13.4 7.7 7.7
- -------------------------------------------------------------------------------------------------------------------
Total Securities $12,657.9 $12,672.2 $7,269.6 $7,273.3 $8,792.4 $8,782.6
- -------------------------------------------------------------------------------------------------------------------
6
- -----------------------------------------------------------------------------------------------------------------
Reconciliation of Book Values to Fair Values of
Securities Held to Maturity March 31, 2001
- -----------------------------------------------------------------------------------------------------------------
Book Gross Unrealized Fair
-----------------------
(In Millions) Value Gains Losses Value
- -----------------------------------------------------------------------------------------------------------------
U.S. Government $ 25.0 $ .1 $ - $ 25.1
Obligations of States and Political Subdivisions 469.2 19.2 - 488.4
Federal Agency 5.6 .1 .1 5.6
Other 114.9 - 5.0 109.9
- -----------------------------------------------------------------------------------------------------------------
Total $614.7 $19.4 $5.1 $629.0
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
Reconciliation of Amortized Cost to Fair Values of
Securities Available for Sale March 31, 2001
- -----------------------------------------------------------------------------------------------------------------
Amortized Gross Unrealized Fair
--------------------------
(In Millions) Cost Gains Losses Value
- -----------------------------------------------------------------------------------------------------------------
U.S. Government $ 163.9 $1.0 $ - $ 164.9
Obligations of States and Political Subdivisions 16.7 .2 .4 16.5
Federal Agency 11,567.6 2.3 .1 11,569.8
Preferred Stock 90.9 .2 .3 90.8
Other 184.5 - .1 184.4
- -----------------------------------------------------------------------------------------------------------------
Total $12,023.6 $3.7 $.9 $12,026.4
- -----------------------------------------------------------------------------------------------------------------
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 $11.1 billion on March 31, 2001, $10.5 billion on December 31, 2000
and $8.7 billion on March 31, 2000. Included in the March 31, 2001 pledged
assets were securities available for sale of $711.3 million, which were pledged
as collateral for repurchase agreement transactions. The secured parties to
these transactions have the right to repledge or sell these securities.
Northern Trust is permitted to repledge collateral accepted from reverse
repurchase agreement transactions. The total fair value of accepted collateral
as of March 31, 2001, December 31, 2000 and March 31, 2000 was $269.3 million,
$296.4 million and $305.6 million, respectively. The fair value of repledged
collateral as of March 31, 2001, December 31, 2000 and March 31, 2000 was $88.8
million, $125.6 million and $77.2 million, respectively. Repledged collateral
was used in other repurchase agreement transactions.
4. Contingent Liabilities - Standby letters of credit outstanding were $2.1
billion on March 31, 2001, $2.0 billion on December 31, 2000 and $1.9 billion on
March 31, 2000.
7
5. Loans and Leases - Amounts outstanding in selected loan categories are shown
below.
- ---------------------------------------------------------------------------------------------------------
(In Millions) March 31, 2001 December 31, 2000 March 31, 2000
- ---------------------------------------------------------------------------------------------------------
Domestic
Residential Real Estate $ 6,855.5 $ 6,822.8 $ 6,347.6
Commercial 5,118.3 4,796.8 4,700.0
Broker 147.9 126.4 232.8
Commercial Real Estate 934.0 911.0 809.1
Personal 2,111.0 2,289.3 1,906.0
Other 795.8 1,207.1 970.3
Lease Financing 1,030.3 1,034.4 711.5
- ---------------------------------------------------------------------------------------------------------
Total Domestic 16,992.8 17,187.8 15,677.3
International 875.8 956.8 801.5
--------------------------------------------------------------------------------------------------------
Total Loans and Leases $17,868.6 $18,144.6 $16,478.8
- ---------------------------------------------------------------------------------------------------------
At March 31, 2001, other domestic and international loans included $1.0 billion
of overnight trust-related advances, primarily in connection with next day
security settlements, compared with $1.4 billion at December 31, 2000 and $1.2
billion at March 31, 2000.
At March 31, 2001, nonperforming loans totaled $111.1 million. Included in this
amount were loans with a recorded investment of $107.7 million, which were also
classified as impaired. A loan is impaired when, based on current information,
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 $10.6 million had no portion of the reserve for credit losses allocated
to them while impaired loans totaling $97.1 million had an allocated reserve of
$29.0 million. For the first quarter of 2001, the total recorded investment in
impaired loans averaged $82.5 million. There was no interest income recorded on
impaired loans for the quarter ended March 31, 2001.
At March 31, 2000, nonperforming loans totaled $56.5 million and included $55.0
million of impaired loans. Of these impaired loans, $7.1 million had no portion
of the reserve for credit losses allocated to them while $47.9 million had an
allocated reserve of $19.0 million. Total recorded investment in impaired loans
for the first quarter of 2000 averaged $56.2 million with $26 thousand of
interest income recognized on such loans.
8
6. Reserve for Credit Losses - Changes in the reserve for credit losses were
as follows:
- ------------------------------------------------------------------------------------------
Three Months
Ended March 31
- ------------------------------------------------------------------------------------------
(In Millions) 2001 2000
- ------------------------------------------------------------------------------------------
Balance at Beginning of Period $162.9 $150.9
Charge-Offs (.7) (.3)
Recoveries .7 .1
- ------------------------------------------------------------------------------------------
Net Charge-Offs - (.2)
Provision for Credit Losses 5.0 4.0
- ------------------------------------------------------------------------------------------
Balance at End of Period $167.9 $154.7
- ------------------------------------------------------------------------------------------
The reserve for credit losses represents management's estimate of probable
inherent losses that have occurred as of the date of the financial statements.
The loan and lease portfolio and other credit exposures are regularly reviewed
to evaluate the adequacy of the reserve for credit losses. In determining the
level of the reserve, Northern Trust evaluates the reserve necessary for
specific nonperforming loans and also estimates losses inherent in other credit
exposures.
The result is a reserve with the following components:
Specific Reserve. The amount of specific reserve is determined through a loan-
by-loan analysis of nonperforming loans that considers expected future cash
flows, the value of collateral and other factors that may impact the borrower's
ability to pay.
Allocated Inherent Reserve. The amount of the allocated portion of the inherent
loss reserve is based on loss factors assigned to Northern Trust's credit
exposures, which depend upon internal credit ratings. These loss factors
primarily include management's judgment concerning the effect of the business
cycle on the creditworthiness of Northern Trust's borrowers as well as
historical charge-off experience.
Unallocated Inherent Reserve. Management determines the unallocated portion of
the inherent reserve based on factors that cannot be associated with a specific
credit or loan category. These factors include management's subjective
evaluation of local and national economic and business conditions, portfolio
concentration and changes in the character and size of the loan portfolio. The
unallocated portion of the inherent reserve reflects management's attempt to
ensure that the overall reserve appropriately reflects a margin for the
imprecision necessarily inherent in estimates of expected credit losses.
9
7. Net Income Per Common Share Computations - The computation of net income
per common share is presented in the following table.
- ---------------------------------------------------------------------------------------------
First Quarter
Ended March 31
- ---------------------------------------------------------------------------------------------
($ In Millions Except Per Share Information) 2001 2000
- ---------------------------------------------------------------------------------------------
Basic Net Income Per Common Share
Net Income $127.2 $113.3
Less: Dividends on Preferred Stock (1.4) (1.3)
- ---------------------------------------------------------------------------------------------
Net Income Applicable to Common Stock $125.8 $112.0
Average Number of Common Shares Outstanding 221,567,912 221,199,338
Basic Net Income Per Common Share $ .57 $ .51
- ---------------------------------------------------------------------------------------------
Diluted Net Income Per Common Share
Net Income Applicable to Common Stock $125.8 $112.0
Average Number of Common Shares Outstanding 221,567,912 221,199,338
Plus Dilutive Potential Common Shares:
Stock Options 6,111,385 6,623,114
Stock Incentive Plans 2,141,978 2,298,203
- ---------------------------------------------------------------------------------------------
Average Common and Potential Common Shares 229,821,275 230,120,655
Diluted Net Income Per Common Share $ .55 $ .49
- ---------------------------------------------------------------------------------------------
8. Bank Subordinated Notes - On February 28, 2001, The Northern Trust Company
(the Bank) issued $150 million of 6.30% fixed rate subordinated notes due March
7, 2011 at a discount to yield 6.344%. Under the terms of the current offering
circular and after giving effect to the February 2001 issuance, the Bank has the
ability to offer up to an additional $150 million of subordinated notes and may
offer senior notes from time to time, as long as there is never more than $3.7
billion of senior notes outstanding at any time.
9. Accumulated Other Comprehensive Income
- -----------------------------------------------------------------------------------------------------------------------------------
March 31, 2001
- -----------------------------------------------------------------------------------------------------------------------------------
Unrealized Gains Minimum Gains (Losses) Accumulated
(Losses) on Pension on Cash Flow Other
Securities Available Liability Hedge Designations Comprehensive
(In Millions) For Sale (net of tax) (net of tax) (net of tax) Income
- -----------------------------------------------------------------------------------------------------------------------------------
Beginning Balance $(.9) $(12.3) $ - $(13.2)
Cumulative-effect of adopting
SFAS 133 (.2) (.2)
Current-Period Change 1.5 - (1.2) .3
- -----------------------------------------------------------------------------------------------------------------------------------
Ending Balance $ .6 $(12.3) $(1.4) $(13.1)
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
March 31, 2000
- -----------------------------------------------------------------------------------------------------------------------------------
Unrealized Gains Minimum Gains (Losses) Accumulated
(Losses) on Pension on Cash Flow Other
Securities Available Liability Hedge Designations Comprehensive
(In Millions) For Sale (net of tax) (net of tax) (net of tax) Income
- -----------------------------------------------------------------------------------------------------------------------------------
Beginning Balance $(2.4) $(10.8) $ - $(13.2)
Current-Period Change - - - -
- -----------------------------------------------------------------------------------------------------------------------------------
Ending Balance $(2.4) $(10.8) $ - $(13.2)
- -----------------------------------------------------------------------------------------------------------------------------------
10
10. Accounting Standards Pronouncements - In June 1998, the Financial
Accounting Standards Board (FASB) issued Statement of Financial Accounting
Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging
Activities." SFAS No. 133 establishes accounting and reporting standards
requiring that every derivative instrument (including certain derivative
instruments embedded in other contracts) be recorded on the balance sheet as
either an asset or liability measured at its fair value. SFAS No. 133 requires
that changes in the derivative's fair value be recognized currently in earnings
unless hedge accounting criteria are met. Accounting for qualifying hedges
allows a derivative's gains and losses to offset related results on the hedged
item in the income statement, and requires that a company formally document,
designate, and assess the effectiveness of transactions that receive hedge
accounting.
In July 1999, the FASB issued SFAS No. 137 which amended SFAS No. 133 by
deferring the effective date by one year to January 1, 2001 from January 1, 2000
for calendar year-end entities. Northern Trust adopted the new statement on
January 1, 2001.
In June 2000, the FASB issued SFAS No. 138, which further amended SFAS No. 133
by addressing a limited number of issues that have caused implementation
difficulties. The accounting requirements of these statements are complex and
the FASB continues to receive and respond to interpretation requests. The FASB's
response to these interpretation requests may have an impact on Northern Trust's
current and future hedge strategies. Based on the existing guidance, the January
1, 2001 adoption of these statements increased earnings by approximately $10
thousand and reduced other comprehensive income, a component of capital, by $.2
million. It is estimated that the entire January 1, 2001 balance in other
comprehensive income will be reclassified into earnings within twelve months.
In addition, Northern Trust concluded that certain previous hedge strategies
used to manage fixed interest rate risk in its loan portfolio would not qualify
for the special hedge accounting treatment allowed by SFAS No. 133. Accordingly,
management implemented alternative strategies for managing interest rate risk
which included the termination and run-off of certain swap contracts used to
hedge fixed rate loans and increased utilization of longer-term fixed rate
liabilities. Management estimates that utilization of these alternative
strategies to manage interest rate risk will reduce net interest income by
approximately $750 thousand on an annualized basis.
In September 2000, the FASB issued SFAS No. 140, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishment of Liabilities." SFAS No. 140
replaces SFAS No. 125, the previous standard of the same title. It revises the
standards for accounting for securitizations and other transfers of financial
assets and collateral and requires certain disclosures, but it retains most of
the accounting requirements of SFAS No. 125. The accounting requirements of the
Statement are effective for transactions occurring after March 31, 2001 and the
disclosure requirements of the Statement are effective for fiscal years ending
after December 15, 2000. It is not anticipated that the adoption of SFAS No. 140
will have a material effect on Northern Trust's results of operations.
11
11. Business Segments
The tables on page 19, reflecting the earnings contribution of Northern Trust's
business segments for the first quarter ended March 31, 2001, are incorporated
by reference.
12. Risk Management Instruments
Risk management instruments utilized by Northern Trust include the following
types of derivative contracts:
Foreign Exchange Contracts are agreements to exchange specific amounts of
currencies at a future date, at a specified rate of exchange. Foreign exchange
contracts are entered into primarily to meet the foreign exchange risk
management needs of clients. Foreign exchange contracts are also used for
trading purposes and asset/liability management.
Interest Rate Protection Contracts are agreements that enable clients to
transfer, modify or reduce their interest rate risk. As a seller of interest
rate protection, Northern Trust receives a fee at the outset of the agreement
and then assumes the risk of an unfavorable change in interest rates. Northern
Trust also purchases interest rate protection contracts for asset/liability
management.
Interest Rate Swap Contracts involve the exchange of fixed and floating rate
interest payment obligations without the exchange of the underlying principal
amounts.
Forward Sale Contracts represent commitments to sell a specified amount of
securities at an agreed upon date and price. Northern Trust utilizes forward
sale contracts principally in connection with its sale of mortgage loans.
The major risk associated with these instruments is that interest or foreign
exchange rates could change in an unanticipated manner, resulting in higher
interest costs or a loss in the underlying value of the instrument. These risks
are mitigated by establishing limits for risk management positions, monitoring
the level of actual positions taken against such established limits, monitoring
the level of any interest rate sensitivity gaps created by such positions, and
by using hedging techniques. When establishing position limits, market liquidity
and volatility, as well as experience in each market, are all taken into
account.
The estimated credit risk associated with these instruments relates to the
failure of the counterparty to pay based on the contractual terms of the
agreement, and is generally limited to the gross unrealized market value gains
on these instruments. The amount of credit risk will increase or decrease during
the lives of the instruments as interest or foreign exchange rates fluctuate.
This risk is controlled by limiting such activity to an approved list of
counterparties and by subjecting such activity to the same credit and quality
controls as are followed in lending and investment activities.
12
Derivatives Used for Asset/Liability Management
Fair Value Hedge Designations. Northern Trust may designate certain derivatives
as hedges of specific fixed rate assets or liabilities on its balance sheet. The
risk management policy for such hedges is to reduce or eliminate the exposure to
overall changes in the value of the hedged assets or liabilities. As of March
31, 2001, one interest rate swap was designated and qualified as a hedge against
the overall change in value for a specific fixed rate commercial loan. A gain of
$149 thousand was recognized in earnings through March 31, 2001 to reflect the
extent to which the hedge was not effective in achieving an offsetting change in
the fair value of the loan. Unrealized gains and losses on such swaps are
recognized as a component of interest income or expense of the hedged item.
Cash Flow Hedge Designations. Certain derivatives may be designated as hedges
against exposure to variability in expected future cash flows attributable to
particular risks, such as fluctuations in foreign exchange or interest rates.
Northern Trust currently uses cash flow hedges to reduce or eliminate the
exposure to changes in foreign exchange rates. As of March 31, 2001, certain
forward foreign exchange contracts were designated and qualified as hedges
against changes in certain forecasted transactions denominated in foreign
currencies. A net loss of $1.4 million related to these instruments was
recognized in other comprehensive income. It is estimated that essentially all
of the net loss at March 31, 2001 will be reclassified into earnings within the
next twelve months. Reclassifications into earnings will occur in the same
periods that the hedged cash flows impact revenues or expenses. The maximum
length of time over which these hedges will exist is sixteen months. There was
no earnings impact due to hedge ineffectiveness through March 31, 2001.
Other Derivatives not Designated as Hedges. Forward foreign exchange contracts
were used to reduce exposure to fluctuations in the dollar value of capital
investments in foreign subsidiaries and from foreign currency assets and
obligations. Realized and unrealized gains and losses on such contracts are
recognized as a component of foreign exchange trading profits.
Client and Trading-Related Risk Management Instruments
Northern Trust is a party to various risk management instruments that are used
in the normal course of business to meet the risk management needs of its
clients and as part of its trading activity for its own account. Realized and
unrealized gains and losses from interest risk management instruments are
included in security commissions and trading income. Foreign exchange trading
gains and losses are recognized currently in foreign exchange trading profits.
13
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FIRST QUARTER EARNINGS HIGHLIGHTS
Net income increased 12% to a record $127.2 million from the $113.3 million
earned in the first quarter of last year. Net income per common share on a
diluted basis also increased 12% to $.55 for the first quarter, up from $.49
earned a year ago. This earnings performance produced an annualized return on
average common equity (ROE) of 21.53% versus 21.70% reported last year, and an
annualized return on average assets (ROA) of 1.45% versus 1.46% in 2000.
Although revenues increased 7%, Northern Trust was able to achieve earnings
growth of 12% by aggressively managing expenses, which rose only 5%, resulting
in the attainment of positive operating leverage. Trust fee growth of 7%,
complemented by an 11% increase in treasury management revenues and a 7%
increase in net interest income, combined to increase total revenues to a record
$551.5 million (stated on a fully taxable equivalent basis).
The 12% earnings per share growth exceeded Northern Trust's minimum goal of 10%,
and the ROE surpassed 20% for the sixteenth consecutive quarter. The
productivity ratio of 161% also exceeded the corporate goal of 160%.
Noninterest Income
Noninterest income increased 7% and totaled $389.5 million for the quarter,
accounting for 71% of total taxable equivalent revenue. Trust fees of $305.2
million increased 7% or $19.2 million over the like period of 2000 and
represented 78% of noninterest income and 55% of total taxable equivalent
revenue. Trust fee growth resulted from strong new business, offset in part by
lower equity markets. Trust fees in the quarter attributable to 2000
acquisitions totaled $3.3 million. Trust assets under administration grew to
$1.65 trillion, up 3% since March 31, 2000, but declined 2% since December 31,
2000 as a result of lower equity markets. Trust assets under the management of
Northern Trust grew $13.5 billion since last year to $336.6 billion and were
down just $1.4 billion from December 31, 2000.
Trust fees are based on the market value of assets managed and administered, the
volume of transactions, securities lending volume and spreads, and fees for
other services rendered. Asset-based trust fees are typically determined on a
sliding scale so that as the value of a client portfolio grows in size, Northern
Trust receives a smaller percentage of the increasing value as trust fee income.
In addition, certain accounts may be on a fixed annual fee. Therefore, market
value or other changes in a portfolio's size do not typically have a
proportionate impact on the level of trust fees. In addition, Corporate and
Institutional Services (C&IS) trust relationships are increasingly priced to
reflect earnings from activities such as custody-related deposits and foreign
exchange trading which are not included in trust fees.
14
Noninterest Income (continued)
Trust fees from Personal Financial Services (PFS) increased 7% from the prior
year level of $145.5 million and totaled $156.1 million for the first quarter.
This performance reflects continued strong new business throughout Northern
Trust's national PFS network, offset in part by lower equity markets. All twelve
states in the PFS network recorded increases in trust fees, with the largest
states ranging from 1% in Florida to 14% in Texas. The Wealth Management Group
continued to show strong performance with trust fees increasing 11%, and now
administers $59.6 billion for significant family asset pools worldwide, up 5%
from March 31, 2000. Total personal trust assets under administration totaled
$160.0 billion at March 31, 2001, compared to $162.1 billion at March 31, 2000
and $168.8 billion at December 31, 2000. Of these assets under administration,
$93.3 billion is managed by Northern Trust, compared to $97.3 billion one year
ago and $98.1 billion at December 31, 2000. At March 31, 2001, approximately 53%
of the personal trust assets under administration and 49% of assets under
management were invested in equity securities. Net new recurring PFS trust
business sold during the first quarter totaled approximately $15 million in
annualized fees.
Northern Trust continued the expansion of the PFS network of offices with the
April 2001 opening of a full service office in Weston, Florida. Northern Trust
now has Personal Financial Services offices in 82 locations in twelve states, up
from 76 offices in ten states at the end of last year's first quarter.
Trust fees from Corporate & Institutional Services (C&IS) in the quarter
increased 6% and totaled $149.1 million compared to $140.5 million in the year-
ago quarter, reflecting strong new business growth, offset in part by lower
equity markets. C&IS trust fees are derived from a full range of custody,
investment and advisory services rendered to retirement and other asset pools of
corporate and institutional clients worldwide. Custody fees increased to $50.7
million, up 16%, reflecting strong new business and fees associated with the May
2000 acquisition of Northern Trust (Ireland) Limited. Fees from asset management
increased 3% to $43.8 million. Securities lending fees of $29.9 million were
$2.3 million below the year-ago quarter, which benefited from the carryover
effect of higher Year 2000-related spreads. Strong new business results
increased fees generated by Northern Trust Retirement Consulting, L.L.C., to
$15.3 million, up 17% from last year's first quarter.
Total C&IS trust assets under administration totaled $1.49 trillion at March 31,
2001, compared to $1.44 trillion at March 31, 2000 and $1.51 trillion at
December 31, 2000. Of the C&IS trust assets under administration, $243.3 billion
is managed by Northern Trust, up 8% from March 31, 2000 and 1% higher than at
year-end. At March 31, 2001, approximately 37% of assets under administration
and 25% of assets under management were invested in domestic equity securities.
Trust assets under administration included approximately $418 billion of global
custody assets. Net new recurring C&IS trust business sold during the quarter
totaled approximately $19 million in annualized fees.
Foreign exchange trading profits were $34.9 million for the quarter, up 3% from
the first quarter of 2000. The current year quarter benefited from market
volatility in the yen and a higher level of client transaction volume.
15
Noninterest Income (continued)
Total treasury management revenues, which include both fees and the computed
value of compensating deposit balances, totaled $28.7 million, up 11% from last
year's first quarter, due to new business and higher transaction volumes from
existing clients. The fee portion of these revenues accrued in the quarter was
$20.1 million, up 18% from $17.1 million in the comparable quarter last year,
partly as a result of more clients electing to pay for services in fees rather
than in compensating deposit balances.
Revenues from security commissions and trading income totaled $9.6 million,
unchanged from the first quarter of 2000. Other operating income was $19.7
million for the first quarter compared with $15.7 million in the same period of
last year. The increase in other operating income resulted primarily from higher
trust deposit-related revenues and loan service fees.
Net Interest Income
Net interest income for the quarter totaled a record $148.1 million, 6% higher
than the $139.4 million reported in the first quarter of 2000. 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 quarter was a record $162.0 million, up 7% from the $150.8 million
reported in the first quarter of 2000. The increase in net interest income
reflects 14% growth in average earning asset levels and a 10% increase in
noninterest-related funding sources, primarily demand deposits and equity. The
net interest margin narrowed to 2.05% versus 2.16% reported in the year-ago
quarter, but improved from 1.96% in the fourth quarter of 2000. The decrease
from a year ago is due primarily to the increase in short-term, lower-margin
federal agency securities and a greater reliance on interest-related funding
sources. The improvement from the fourth quarter reflects the benefit of lower
interest rates, growth in equity and higher loan volume.
Earning assets for the first quarter averaged $32.1 billion, up 14% from the
$28.1 billion average for the same quarter of 2000. The $4.0 billion growth in
average earning assets was comprised of a $2.1 billion or 14% increase in loans
and leases and a 23% or $1.9 billion increase in securities. Money market assets
averaged $4.5 billion for the quarter, unchanged from last year.
The loan growth was concentrated predominantly in the domestic portfolio, which
increased $2.0 billion to average $17.0 billion, while international loans
increased by $138 million to $721 million from a year ago. Reflecting strong
growth in lending to Wealth Management and private banking clients, personal
loans increased $554 million or 33% to average $2.3 billion on average for the
quarter. Residential mortgage loans, which represent 39% of the total average
loan portfolio, increased $559 million or 9% to average $6.8 billion for the
quarter. Commercial and industrial loans increased 9% to average $5.0 billion
compared to $4.6 billion in last year's first quarter, while lease financing
increased 49% to average $1.0 billion.
16
Net Interest Income (continued)
Funding for the growth in earning assets came from several sources. Total
interest-related deposits averaged $17.9 billion, up 11% or $1.8 billion from
the first quarter of 2000. This growth was concentrated primarily in foreign
office time deposits, up $775 million as a result of increased global custody
activity, non-personal time deposits, up $504 million, and savings, money market
deposits and savings certificates, up $532 million. Other interest-related funds
averaged $9.3 billion, up $1.7 billion or 23% compared to a year ago, due
predominantly to higher levels of borrowings from the Federal Home Loan Bank and
securities sold under agreements to repurchase. Partially offsetting these
increases were lower levels of federal funds purchased. The balances within
these classifications vary based on funding requirements and strategies,
interest rate levels, growth in lower cost deposit sources, and the availability
of collateral to secure these borrowings. Noninterest-related funds increased
10% to average $4.9 billion due to growth in common stockholders' equity
resulting from retained earnings, and to higher levels of demand deposits.
Provision for Credit Losses
The provision for credit losses was $5.0 million in the first quarter compared
to $4.0 million for the same quarter last year and $5.0 million in the fourth
quarter of 2000. For a discussion of the provision and reserve for credit
losses, refer to the Asset Quality section beginning on page 22.
Noninterest Expenses
Noninterest expenses totaled $341.6 million for the quarter, an increase of 5%
or $15.5 million from the $326.1 million in the year-ago quarter. Expense growth
has been reduced from the rate experienced in recent quarters partially as a
result of initiatives implemented by management to reduce certain discretionary
expenses. These initiatives include closely monitoring staffing levels, limiting
staff-related and other discretionary expenses, and modifying some cash
incentive plans for 2001 to include a stock option grant component. This last
initiative resulted in a $5.7 million expense savings in the quarter when
compared to programs in place prior to this initiative. Approximately two-thirds
of the increase in noninterest expenses related to compensation and employee
benefits and was primarily attributable to staff growth and merit increases,
partially offset by lower performance-based pay. The balance of the expense
growth reflects increased costs associated with technology investments
(including e-business initiatives), business promotion, office expansion, and
operating costs relating to the significant growth in transaction volumes.
Noninterest expenses resulting from the two second quarter 2000 acquisitions
totaled $3.9 million in the current quarter.
Compensation and employee benefits, which represent approximately 60% of total
noninterest expenses, increased to $204.2 million from $194.0 million in the
year-ago quarter. The increase was primarily attributable to staff growth and
merit increases, partially offset by lower performance-based pay. Performance-
based pay in the prior year quarter was impacted by the significant increase in
the price of Northern Trust Corporation common stock during that quarter.
Current quarter performance-based
17
Noninterest Expenses (continued)
compensation levels reflect the impact of slower revenue growth, lower
investment portfolio performance and the modifications made to incentive plans.
Staff levels increased from one year ago to support growth initiatives and
strong new business in both PFS and C&IS. Staff on a full-time equivalent basis
at March 31, 2001 totaled 9,537, up 837 or 10% from March 31, 2000. Since
December 31, 2000, staff has increased by only 71 positions, or less than 1%.
Net occupancy expense totaled $24.7 million, up 19% from $20.8 million in the
first quarter of 2000, due primarily to the opening of additional PFS offices
over the past twelve months and additional space leased to support business
growth. The principal components of the increase in occupancy expense were
higher net rental, operating and maintenance costs, building depreciation and
amortization expense of leasehold improvements.
Equipment expense, comprised of depreciation, rental and maintenance costs,
totaled $21.2 million, up 18% from the $17.9 million reported in the first
quarter of 2000. The increases were primarily in depreciation of computer
hardware and office furniture, higher maintenance costs for computers and
equipment, and increased costs for data line leases.
Other operating expenses in the quarter totaled $91.5 million compared to $93.4
million last year. The decline in other operating expenses reflect the net
impact of several factors. Among other things, expenses were reduced as a result
of lower stock-related director compensation, a decrease in subcustodian and
sub-advisor costs, and a reduction in charges associated with processing errors
incurred in servicing and managing financial assets and performing banking
activities. These lower expenses more than offset higher costs associated with
continued investment in technology, expansion of the PFS office network and
other expenditures to support business growth. The following table shows the
components of other operating expenses.
- ------------------------------------------------------------------------------------------
First Quarter
Other Operating Expenses Ended March 31
- ------------------------------------------------------------------------------------------
(In Millions) 2001 2000
- ------------------------------------------------------------------------------------------
Business Development $13.7 $12.9
Purchased Professional Services 31.4 30.5
Telecommunications 4.8 4.6
Postage and Supplies 7.0 7.1
Software Amortization 18.7 15.4
Goodwill and Other Intangibles Amortization 4.1 3.5
Other Expenses 11.8 19.4
- ------------------------------------------------------------------------------------------
Total Other Operating Expenses $91.5 $93.4
- ------------------------------------------------------------------------------------------
18
Provision for Income Taxes
The provision for income taxes was $63.8 million for the first quarter compared
with $58.4 million in the year-ago quarter. The higher tax provision in 2001
resulted primarily from the growth in taxable earnings for federal income tax
purposes. The effective tax rate for the first quarter was 33.4% compared to
34.0% for the first quarter of 2000.
BUSINESS SEGMENTS
The following table reflects the earnings contribution and average assets of
Northern Trust's business segments for the first quarter ended March 31, 2001
and 2000.
Corporate and
Instititional Personal Financial Treasury and Total
First Quarter Services Services Other Consolidated
- ------------------------------------------------------------------------------------------------------------------------------------
($ In Millions) 2001 2000 2001 2000 2001 2000 2001 2000
- ------------------------------------------------------------------------------------------------------------------------------------
Noninterest Income
Trust Fees $ 149.1 $ 140.5 $ 156.1 $ 145.5 $ - $ - $ 305.2 $ 286.0
Other 65.2 60.0 18.0 17.3 1.1 (.9) 84.3 76.4
Net Interest Income after
Provision for Credit Losses* 46.5 42.1 106.8 102.6 3.7 2.1 157.0 146.8
Noninterest Expenses 167.3 148.9 169.9 154.6 4.4 22.6 341.6 326.1
- ------------------------------------------------------------------------------------------------------------------------------------
Income before Income Taxes* 93.5 93.7 111.0 110.8 .4 (21.4) 204.9 183.1
Provision for Income Taxes* 36.3 36.4 43.0 43.1 (1.6) (9.7) 77.7 69.8
Net Income $ 57.2 $ 57.3 $ 68.0 $ 67.7 $ 2.0 $ (11.7) $ 127.2 $ 113.3
- ------------------------------------------------------------------------------------------------------------------------------------
Percentage Net Income
Contribution 45% 51% 53% 60% 2% (11)% 100% 100%
- ------------------------------------------------------------------------------------------------------------------------------------
Average Assets $18,234.4 $15,662.9 $14,578.1 $12,548.3 $2,842.5 $3,048.8 $35,655.0 $31,260.0
- ------------------------------------------------------------------------------------------------------------------------------------
*Stated on a fully taxable equivalent basis (FTE). Total includes FTE
adjustments of $13.9 million for 2001 and $11.4 million for
2000.
Note: Certain reclassifications have been made to 2000 financial information to
conform to the current year presentation.
Corporate and Institutional Services
C&IS net income for the quarter totaled $57.2 million, virtually unchanged from
the first quarter of 2000. Noninterest income increased 7% to $214.3 million in
the first quarter of 2001 from $200.5 million in last year's first quarter.
Trust fees, reflecting strong new business growth, offset in part by lower
equity markets, increased 6% to $149.1 million in the current quarter compared
to $140.5 million in the year-ago quarter. Other income was $65.2 million, up
9% from $60.0 million in last year's first quarter. Approximately one-third of
the increase in other operating income was due to higher fees accrued for
treasury management services due to new business, higher transaction volumes
from existing clients and clients electing to pay for services in fees rather
than in compensating deposit balances. The remainder of the increase in other
income was due primarily to higher trust deposit-related revenues and loan
service fees.
Net interest income after the provision for credit losses, stated on a FTE
basis, increased 11% to $46.5 million in the current quarter, from $42.1 million
in last year's first quarter. Contributing to the improvement was a 17%
increase in average earning assets, combined with a 12% increase in noninterest-
related funds. The net interest margin declined from 1.43% last year to 1.34% in
the current quarter.
Noninterest expenses increased 12% to $167.3 million in the current quarter due
primarily to staff growth, merit increases, higher occupancy costs and expense
allocations for product and operations support.
19
Personal Financial Services
PFS net income for the quarter was $68.0 million, virtually unchanged from a
year ago. Noninterest income increased 7% to $174.1 million in the current
quarter from $162.8 million in last year's first quarter. The increase was due
primarily to a 7% increase in trust fees, which totaled $156.1 million in the
current quarter, resulting from strong new business throughout Northern Trust's
national PFS network, offset in part by lower equity markets. Other income
increased 4% from $17.3 million in last year's first quarter to $18.0 million in
the current quarter, due primarily to a 23% increase in treasury management fees
and higher loan-related and letter of credit fees.
Net interest income after the provision for credit losses, stated on a FTE
basis, increased 4% to $106.8 million in the current quarter. The increase was
due primarily to a $1.6 billion or 14% increase in average loan volume, offset
in part by a reduction in the net interest margin from 3.34% last year to 3.04%
in 2001.
Noninterest expenses increased 10% to $169.9 million in the current quarter from
$154.6 million in last year's first quarter. Approximately $3.0 million or 20%
of the total increase related to salaries and employee benefits, driven by staff
growth and merit increases. An additional $11.1 million of the overall increase
resulted from higher expense allocations for product and operations support. In
addition, occupancy costs were $.8 million or 11% higher as a result of opening
new PFS offices and the expansion of existing locations.
Treasury and Other
The Treasury Department is responsible for managing The Northern Trust Company's
(Bank) wholesale funding, capital position and interest rate risk, as well as
the portfolio of interest rate risk management instruments. It is also
responsible for the investment portfolios of the Corporation and the Bank.
"Other" corporate income and noninterest expenses represent items that are not
allocated to the business units and generally represent certain nonrecurring
items and certain executive level compensation. Net interest income for the
first quarter was up slightly from a year ago resulting primarily from the
impact of falling interest rates in 2001. Noninterest expenses totaled $4.4
million for the quarter compared with $22.6 million in last year's first
quarter. Approximately 60% of the decline in other operating expenses relates
to lower accruals for certain corporate-based incentive plans for officers and
directors, which were impacted by changes in Northern Trust Corporation's stock
price and slower revenue growth. In addition, the prior year quarter included
accruals for incentive and other expenses associated with the earlier than
anticipated retirement of certain Bank officers. Treasury and other expenses
were also reduced as more occupancy related costs were allocated to the business
units as a result of the technology center, purchased in January 2000, becoming
fully utilized.
20
BALANCE SHEET
Total assets at March 31, 2001 were $38.2 billion and averaged $35.7 billion for
the first quarter, up 14% from last year's average of $31.3 billion. Due to
continued strong credit demand, loans and leases grew to $17.9 billion at March
31, 2001 and averaged $17.7 billion for the quarter. This compares with $16.5
billion in total loans and leases at March 31, 2000 and $15.6 billion on average
for the first quarter of last year. Securities totaled $12.7 billion at March
31, 2001 and averaged $9.9 billion for the first quarter, compared to $8.8
billion at March 31, 2000 and $8.0 billion on average in the first quarter of
2000. The increase was primarily in short-term federal agency securities. Money
market assets totaled $3.9 billion at March 31, 2001 and averaged $4.5 billion
in the first quarter, unchanged from the year-ago quarter.
Driven by continued strong earnings growth, offset in part by stock repurchases
under Northern Trust's ongoing stock buyback program, common stockholders'
equity increased to $2.45 billion at March 31, 2001 and averaged $2.37 billion
for the quarter, up 14% from the $2.08 billion average in last year's first
quarter. Total stockholders' equity averaged $2.49 billion compared with $2.20
billion in the first quarter of 2000.
During the quarter, the Corporation acquired a total of 463,395 shares at a cost
of $34.4 million. An additional 6.7 million shares may be purchased after March
31, 2001 under the current stock buyback program.
Northern Trust's risk-based capital ratios remained strong at 10.1% for tier 1
capital and 13.7% for total capital at March 31, 2001. These 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 first quarter
average assets) of 7.3% at March 31, 2001, also exceeded the minimum regulatory
requirement of 3%. The Bank's risk-based capital ratios at March 31, 2001 were
8.6% for tier 1 capital, 12.3% for total capital and 6.2% for the leverage
ratio. Each of Northern Trust's other subsidiary banks had a ratio of 10.3% or
higher for tier 1 capital, 11.2% for total risk-based capital, and 6.7% for the
leverage ratio.
21
ASSET QUALITY
Nonperforming assets consist of nonaccrual loans and other real estate owned
(OREO). Nonperforming assets at March 31, 2001 totaled $112.7 million, compared
with $78.5 million at December 31, 2000 and $58.6 million at March 31, 2000.
Domestic nonaccrual loans and leases, consisting primarily of commercial loans,
totaled $111.1 million, or .65% of total domestic loans and leases at March 31,
2001. At December 31, 2000 and March 31, 2000, domestic nonaccrual loans and
leases totaled $76.3 million and $56.5 million, respectively. The increase
during the quarter primarily reflects the impact of one large commercial loan to
a manufacturing company that filed for Chapter 11 reorganization at the
beginning of April 2001.
The following table presents the outstanding amounts of nonaccrual 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.
(In Millions) March 31, 2001 December 31, 2000 March 31, 2000
- -----------------------------------------------------------------------------------------------------------
Nonaccrual Loans
Domestic
Residential Real Estate $ 4.2 $ 2.9 $ 5.6
Commercial 104.8 71.2 48.2
Commercial Real Estate 1.4 1.8 2.0
Personal .7 .4 .7
- -----------------------------------------------------------------------------------------------------------
Total Domestic 111.1 76.3 56.5
International - - -
- -----------------------------------------------------------------------------------------------------------
Total Nonaccrual Loans 111.1 76.3 56.5
Other Real Estate Owned 1.6 2.2 2.1
- -----------------------------------------------------------------------------------------------------------
Total Nonperforming Assets $112.7 $78.5 $58.6
Total 90 Day Past Due Loans (still accruing) $ 31.1 $30.5 $25.2
- -----------------------------------------------------------------------------------------------------------
Provision and Reserve for Credit Losses
The provision for credit losses is the charge against current earnings that is
determined by management, through a disciplined credit review process, as the
amount needed to maintain a reserve that is sufficient to absorb credit losses
inherent in Northern Trust's loan and lease portfolios and other credit
undertakings. The reserve provides for probable losses that have been
identified with specific borrower relationships (specific loss component) and
for probable losses that are believed to be inherent in the loan and lease
portfolios and other credit undertakings but that have not yet been specifically
identified (inherent loss component).
Note 6 to the Consolidated Financial Statements includes a table that analyzes
the reserve for credit losses for the three months ended March 31, 2001 and
March 31, 2000 and identifies the charge-offs, recoveries and the provision for
credit losses during the respective periods. The table on the following page
shows (i) the specific reserve, (ii) the allocated portion of the inherent
reserve and its components by loan category and (iii) the unallocated portion of
the inherent reserve at March 31, 2001, December 31, 2000 and March 31, 2000.
22
Provision and Reserve for Credit Losses (continued)
- ----------------------------------------------------------------------------------------------------------------------------------
ALLOCATION OF THE RESERVE FOR CREDIT LOSSES
- ----------------------------------------------------------------------------------------------------------------------------------
March 31, 2001 December 31, 2000 March 31, 2000
----------------------------------------------------------------------------------------
Percent of Percent of Percent of
Reserve Loans to Reserve Loans to Reserve Loans to
($ in millions) Amount Total Loans Amount Total Loans Amount Total Loans
- ---------------------------------------------------------------------------------------------------------------------------
Specific Reserve $ 29.0 - % $ 24.3 - % $ 19.0 - %
- --------------------------------------------------------------------------------------------------------------------------
Inherent Reserve
Residential Real Estate 9.5 38 9.6 38 11.3 39
Commercial 80.4 29 79.1 27 73.0 29
Commercial Real Estate 13.1 5 13.2 5 12.6 5
Personal 4.2 12 4.3 13 3.3 12
Other - 5 - 6 - 6
Lease Financing 2.9 6 2.9 6 2.9 4
International 3.9 5 3.4 5 4.2 5
Unallocated 24.9 - 26.1 - 28.4 -
- ------------------------------------------------------------------------------------------------------------------------
Total Inherent Reserve $138.9 100% $138.6 100% $135.7 100%
- ------------------------------------------------------------------------------------------------------------------------
Total Reserve $167.9 100% $162.9 100% $154.7 100%
- ------------------------------------------------------------------------------------------------------------------------
Specific Reserve. At March 31, 2001, the specific component of the reserve
stood at $29.0 million, compared to $24.3 million at December 31, 2000 and $19.0
million at March 31, 2000. The $4.7 million increase from year-end 2000
primarily relates to the loss estimated on a large commercial loan to a
manufacturing company that filed for Chapter 11 reorganization at the beginning
of April 2001.
Allocated Inherent Reserve. The allocated inherent portion of the reserve
increased by $1.5 million during the quarter to $114.0 million at March 31,
2001, primarily reflecting the impact of lowering the credit ratings on several
commercial loans during the quarter. This increase was partially offset by a
reduction in reserves allocated to off-balance sheet instruments, as certain
loss factors were lowered to reflect current exposure in unused commercial loan
commitments and standby letters of credit, while counterparty risk associated
with derivative products continued to increase.
Unallocated Inherent Reserve. The unallocated portion of the inherent reserve
is based on management's review of overall factors affecting the determination
of probable losses inherent in the portfolio, which are not necessarily captured
by the application of historical loss ratios. This portion of the reserve
analysis involves the exercise of judgment and reflects considerations such as
management's view that the reserve should have a margin that recognizes the
imprecision inherent in the process of estimating expected credit losses. The
unallocated inherent portion of the reserve was $24.9 million, a decrease of
$1.2 million from December 31, 2000, reflecting management's judgment that there
have been only minor changes in the factors affecting this component of the
reserve.
23
Provision and Reserve for Credit Losses (continued)
Other Factors. During the quarter ended March 31, 2001, there were no
significant changes in concentration of credits that impacted asset quality at
the time reserve determinations were made for the quarter. At that time, the
total amount of the two highest risk loan groupings, those rated "7" and "8"
(based on Northern Trust's internal rating scale, which closely parallels that
of the banking regulators), was $171 million, of which $107.7 million was
classified as impaired, up from $153 million at December 31, 2000 when $74.7
million was impaired, and $81 million at March 31, 2000 when $55.0 million was
impaired. These increases primarily reflect rating changes on certain loans,
with the most significant rating changes caused by two commercial clients that
filed for protection under Chapter 11 bankruptcy laws.
Total Reserve. Management's evaluation of the factors above resulted in a
reserve for credit losses of $167.9 million at March 31, 2001 compared to $162.9
million at December 31, 2000. The reserve as a percentage of total loans
increased to .94% at March 31, 2001 from .90% at December 31, 2000.
Provision. The resulting provision for credit losses was $5.0 million during
the first quarter of 2001.
MARKET RISK MANAGEMENT
As described in the 2000 Annual Report to Shareholders, Northern Trust manages
its interest rate risk through measurement techniques which include simulation
of earnings, simulation of the economic value of equity, and gap analysis. Also,
as part of its risk management activities, it regularly measures the risk of
loss associated with foreign currency positions using a value at risk model.
Based on this continuing evaluation process, Northern Trust's interest rate risk
position and the value at risk associated with the foreign exchange trading
portfolio have not changed significantly since December 31, 2000.
24
FORWARD-LOOKING INFORMATION
This report contains statements that may be considered forward-looking, such as
the discussion of Northern Trust's financial goals, dividend policy, expansion
and business development plans, business prospects and positioning with respect
to market and pricing trends, new business results and outlook, changes in
securities market prices, credit quality, planned capital expenditures and
technology spending, and the effect of various matters (including changes in
accounting standards and interpretations) on Northern Trust's business and
results. These statements speak of Northern Trust's plans, goals, beliefs or
expectations, refer to estimates or use similar terms. Actual results could
differ materially from the results indicated by these statements because the
realization of those results is subject to many uncertainties including:
. The future health of the U.S. and international economies and other economic
factors that affect wealth creation, investment and savings patterns, and
Northern Trust's interest rate risk exposure and credit risk.
. Changes in U.S. and worldwide securities markets, with respect to the market
values of financial assets, the stability of particular securities markets and
the level of volatility in certain markets such as foreign exchange.
. Changes in the level of cross-border investing by clients resulting from
changing economic factors, political conditions or currency markets.
. Regulatory developments and changes in accounting requirements or
interpretations in the U.S. and other countries where Northern Trust has
significant business.
. Changes in the nature of Northern Trust's competition resulting from industry
consolidation, enactment of the Gramm-Leach-Bliley Act of 1999, and other
regulatory changes and other factors, as well as actions taken by particular
competitors.
. Northern Trust's success in continuing to generate new business in its
existing markets, as well as its success in identifying and penetrating
targeted markets, through acquisition or otherwise, and generating a profit in
those markets in a reasonable time.
. Northern Trust's ability to continue to generate strong investment results for
clients and continue to develop its array of investment products, internally
or through acquisition, in a manner that meets clients' needs.
. Northern Trust's success in further developing and executing on implementing
initiatives that integrate the Internet into methods of product distribution,
new business development and client service.
. Northern Trust's ability to continue to fund and accomplish technological
innovation, improve processes and controls, address technology risks,
including material systems interruptions or errors, and attract and retain
capable staff in order to deal with technology challenges and increasing
volume and complexity in many of its businesses.
25
FORWARD-LOOKING INFORMATION (continued)
. Northern Trust's success in integrating recent and future acquisitions and
using the acquired businesses to execute its business strategy.
. The ability of each of Northern Trust's principal businesses to maintain a
product mix that achieves satisfactory margins.
. Changes in tax laws or other legislation in the U.S. or other countries that
could affect Northern Trust or clients of its personal and institutional asset
administration businesses.
Some of these uncertainties that may affect future results are discussed in more
detail in the section of "Management's Discussion and Analysis of Financial
Condition and Results of Operations" captioned "Risk Management" in the 2000
Annual Report to Shareholders (pp. 38-48) and in the sections of "Item 1 -
Business" of the 2000 Annual Report on Form 10-K captioned "Government
Policies", "Competition" and "Regulation and Supervision" (pp. 7-12). All
forward-looking statements included in this report are based upon information
presently available, and Northern Trust assumes no obligation to update any
forward-looking statement.
26
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 AVERAGE STATEMENT OF CONDITION NORTHERN TRUST CORPORATION
WITH ANALYSIS OF NET INTEREST INCOME
First Quarter
-------------------------------------------------------------------------------
(Interest and rate on a taxable equivalent basis) 2001 2000
--------------------------------------- -------------------------------------
($ in Millions) Interest Volume Rate Interest Volume Rate
- ---------------------------------------------------- ------------------------ ------------- ---------- ------------- ----------
Average Earning Assets
Money Market Assets
Federal Funds Sold and Resell Agreements $ 10.8 $ 741.9 5.89% $ 11.0 $ 770.4 5.77%
Time Deposits with Banks 47.5 3,763.9 5.12 47.2 3,708.8 5.11
Other Interest-Bearing .4 24.3 6.73 1.0 58.3 6.90
- ---------------------------------------------------- ------- -------------- ------------- ------- ---------- ----------
Total Money Market Assets 58.7 4,530.1 5.25 59.2 4,537.5 5.25
- ---------------------------------------------------- ------- -------------- ------------- ------- ---------- ----------
Securities
U.S. Government 3.4 208.8 6.66 3.6 250.2 5.74
Obligations of States and Political Subdivisions 9.1 453.9 8.03 10.0 487.3 8.24
Federal Agency 128.4 8,803.2 5.91 103.9 6,877.3 6.08
Other 7.4 397.7 7.47 7.6 391.4 7.77
Trading Account .2 14.8 6.06 .2 11.7 7.70
- ---------------------------------------------------- ------- -------------- ------------- ------- ---------- ----------
Total Securities 148.5 9,878.4 6.09 125.3 8,017.9 6.28
- ---------------------------------------------------- ------- -------------- ------------- ------- ---------- ----------
Loans and Leases 300.1 17,713.9 6.87 262.7 15,577.2 6.78
- ---------------------------------------------------- ------- -------------- ------------- ------- ---------- ----------
Total Earning Assets $507.3 32,122.4 6.40% $447.2 28,132.6 6.39%
- ---------------------------------------------------- ------- -------------- ------------- ------- ---------- ----------
Reserve for Credit Losses - (165.4) - - (152.8) -
Cash and Due from Banks - 1,448.6 - - 1,401.2 -
Other Assets - 2,249.4 - - 1,879.0 -
- ---------------------------------------------------- ------- -------------- ------------- ------- ---------- ----------
Total Assets - $ 35,655.0 - - $31,260.0 -
- ---------------------------------------------------- ------- -------------- ------------- ------- ---------- ----------
Average Source of Funds
Deposits
Savings and Money Market $ 54.8 $ 5,620.6 3.96% $ 45.3 $ 5,166.3 3.53%
Savings Certificates 34.7 2,351.3 5.98 31.4 2,273.5 5.56
Other Time 17.8 1,293.0 5.57 11.1 789.2 5.65
Foreign Offices Time 102.9 8,642.1 4.83 96.7 7,866.8 4.94
- ---------------------------------------------------- ------- -------------- ------------- ------- ---------- ----------
Total Deposits 210.2 17,907.0 4.76 184.5 16,095.8 4.61
Federal Funds Purchased 34.0 2,492.4 5.54 38.9 2,689.5 5.81
Repurchase Agreements 23.3 1,726.3 5.47 17.2 1,244.3 5.57
Commercial Paper 2.0 140.1 5.72 2.1 138.9 6.02
Other Borrowings 50.9 3,469.6 5.95 29.3 2,048.4 5.76
Senior Notes 8.6 500.0 6.86 8.6 512.1 6.71
Long-Term Debt 11.9 684.5 6.97 11.3 644.7 7.04
Debt - Floating Rate Capital Securities 4.4 267.7 6.51 4.5 267.6 6.71
- ---------------------------------------------------- ------- -------------- ------------- ------- ---------- ----------
Total Interest-Related Funds 345.3 27,187.6 5.15 296.4 23,641.3 5.04
Interest Rate Spread - - 1.25% - - 1.35%
Noninterest-Related Deposits - 4,750.9 - - 4,411.7 -
Other Liabilities - 1,225.7 - - 1,011.6 -
Stockholders' Equity - 2,490.8 - - 2,195.4 -
- ---------------------------------------------------- ------- -------------- ------------- ------- ---------- ----------
Total Liabilities and Stockholders' Equity - $ 35,655.0 - - $31,260.0 -
- ---------------------------------------------------- ------- -------------- ------------- ------- ---------- ----------
Net Interest Income/Margin $162.0 - 2.05% $150.8 - 2.16%
- ---------------------------------------------------- ------- -------------- ------------- ------- ---------- ----------
ANALYSIS OF NET INTEREST INCOME CHANGES
DUE TO VOLUME AND RATE
First Quarter 2001/2000
-------------------------------------
Change Due To
-------------------------
(In Millions) Volume Rate Total
- -------------------------------------------------------------------------------------------- ---------- ------------- ----------
Earning Assets $62.5 $(2.4) $60.1
Interest-Related Funds 46.9 2.0 48.9
- -------------------------------------------------------------------------------------------- --------- ------------- ----------
Net Interest Income $15.6 $(4.4) $11.2
- -------------------------------------------------------------------------------------------- --------- ------------- ----------
27
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
The information called for by this item is incorporated herein by reference to
"Management's Discussion and Analysis of Financial Condition and Results of
Operations-Market Risk Management" on page 24 and footnote 12 on pages 12 and 13
of this document.
28
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
The annual meeting of the stockholders of Northern Trust Corporation
was held on April 17, 2001 for the purpose 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 the management's nominees
for Director as listed in the proxy statement were elected by the votes
set forth below. As contemplated by the description of cumulative
voting procedures in the Corporation's Proxy Statement, votes withheld
from some (but less than all) of the candidates were distributed by the
proxies among candidates with respect to whom authority was not
withheld. There were no broker non-votes with respect to any
candidates.
NOMINEES FOR WITHHELD
-------- --- --------
Duane L. Burnham 196,958,842 904,650
Dolores E. Cross 196,905,278 904,650
Susan Crown 196,952,799 904,650
Robert S. Hamada 197,003,110 904,650
Barry G. Hastings 196,930,473 904,650
Robert A. Helman 195,541,608 904,650
Arthur L. Kelly 196,764,092 904,650
Frederick A. Krehbiel 196,980,594 904,650
Robert C. McCormack 196,999,146 904,650
Edward J. Mooney 196,960,400 904,650
William A. Osborn 196,938,662 904,650
Harold B. Smith 196,964,701 904,650
William D. Smithburg 196,166,779 904,650
Bide L. Thomas 196,771,984 904,650
29
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
--------
Exhibit (99) Edited version of remarks delivered by Mr. William A.
Osborn at the Annual Meeting of Stockholders of Northern Trust
Corporation held on April 17, 2001.
(b) Reports on Form 8-K
-------------------
In a report on Form 8-K filed January 16, 2001, Northern Trust
Corporation incorporated in Item 5 its January 16, 2001 press
release, reporting on its earnings for the fourth quarter of 2000.
The press release, with summary financial information, was filed
pursuant to Item 7.
In a report on Form 8-K filed February 23, 2001, Northern Trust
Corporation incorporated in Item 5 the Registrant's consolidated
financial statements (including the notes thereto) for the year
ended December 31, 2000, and the related Management's Discussion and
Analysis of Financial Condition and Results of Operations.
30
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act 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 11, 2001 By: Perry R. Pero
-------------
Perry R. Pero
Vice Chairman
and Chief Financial Officer
Date: May 11, 2001 By: Harry W. Short
--------------
Harry W. Short
Executive Vice President and Controller
(Chief Accounting Officer)
31
EXHIBIT INDEX
The following exhibits have been filed with the Securities and Exchange
Commission with Northern Trust Corporation's Quarterly Report on Form 10-Q for
the quarter ended March 31, 2001. Stockholders may obtain copies of such
exhibits by writing Rose A. Ellis, Secretary, Northern Trust Corporation, 50
South LaSalle Street, Chicago, Illinois 60675.
Exhibit
Number Description
- ------ -----------
Exhibit (99) Edited version of remarks delivered by Mr. William A. Osborn at
the Annual Meeting of Stockholders of Northern Trust Corporation
held on April 17, 2001.
32