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Chairman David W. Fox delivered the following remarks on the highlights of 1993
and the first quarter of 1994 at the annual meeting.
In a moment I'm going to ask our President, Bill Osborn, to review with you
Northern's ongoing business strategies, but before doing so I want to comment
briefly on the highlights of 1993 and the first quarter of 1994.
All of Northern's vital signs continued to be strong last year, resulting in
the sixth straight year in which the quarterly dividend was increased. Net
income increased 12% to $168 million and earnings per share also rose 12% to
$2.95. Of equal importance, we strengthened our position in the personal and
corporate trust markets, with trust fees growing 10% to a new high of $405
million. As noted in the annual report, important new offices were opened in
Florida, Texas and California and the pending acquisition of the Beach Bank in
Vero Beach provides access to yet another growing area of Florida's East Coast.
The acquisition of Hazlehurst & Associates adds significantly to Northern's
capabilities for further penetration of the rapidly growing market for defined
contribution employee benefit plans. I'm happy to report that regulatory
approval for Hazlehurst has now been received, and we can proceed with our
joint marketing plans.
The momentum with which we ended 1993 has continued into the first quarter of
this year. Yesterday we reported net income of $45.4 million, a gain of 13%
from the first quarter of 1993, and earnings per share also increased 13% to
$.80. Trust fees grew almost 11%, loans increased 14%, and expenses were well-
controlled, rising only 5%. Reflecting strong new business results, trust
assets under administration, despite weakness in the stock market, were almost
$46 billion higher than a year ago, and totaled $480 billion, a gain of 11%.
We also inaugurated a new advertising campaign during the quarter directed
toward the personal financial services market. Copies of the ads are displayed
in the outer room and you may have seen them as you entered the meeting today.
The campaign features a number of Northern's personal clients and carries the
tag line "Trust Northern. I Do and You Should Too,"-- and it has been extremely
well-received. Other important developments include the forthcoming opening
next month of a new office in Highland Park, offering a full range of banking,
trust and investment services to serve that important market. I'm also happy to
report that today we completed the previously announced sale of our 21%
interest in Banque Scandinave en Suisse in Geneva, Switzerland, resulting in a
second quarter pre-tax gain to Northern of approximately $31 million.
The most important message in all of this, of course, is that we continue to
expand and direct resources to our core businesses, building on Northern's
present strengths and positioning us to capitalize on future opportunities as
we see them. And now Bill Osborn will comment further on what we see ahead.
The following remarks on Northern's ongoing business strategies for enhancing
shareholder value were delivered by President William A. Osborn.
Good morning. As Dave indicated, I'm going to review Northern's continuing
strategies for enhancing shareholder value and then focus on our commitments to
Northern's other main constituencies: our clients, the communities we serve,
and our employees.
Our business plans build upon Northern's well-focused and successful strategy
to provide the highest quality financial services to clients in targeted
markets where we command a competitive advantage. This proven strategy clearly
profiles Northern as a highly differentiated financial services enterprise,
providing shareholders a unique investment opportunity and offering clients a
trusted, high-performance financial partner.
Management's underlying objective is to achieve consistent, quality earnings
growth and a financial return to shareholders that represents a premium
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on their investment. During 1994 we are particularly focused on the successful
execution of four key business initiatives:
. Emphasize growth in our fee-based trust businesses.
. Accelerate growth of high margin investment management services.
. Intensify productivity gains and quality expectations.
. Strengthen our market-driven relationship approach to clients, with the
objective of expanding existing relationships.
Trust fees, generated from our leading competitive positions in both the
personal and corporate markets, offer significant growth potential, and each
year have represented an ever larger portion of Northern's revenues. Growth
prospects for our national personal financial services business are very
positive. Major trends, notably the aging of the baby boom generation and the
growing wealth in pension funds and financial asset holdings, bode well for
continued expansion of the affluent market. We are conscious that our ability
to differentiate service quality and client responsiveness is critical to
success in the personal marketplace.
Northern's highly successful operations in Florida will be further augmented
by our recent agreement to acquire Beach Bank, the largest independent bank in
Indian River County. This important strategic move further positions Northern
as a leading private bank and investment manager in this attractive growth
market.
In our other major trust business, Northern is well-positioned to strengthen
our global market leadership in securities custody, investment services and
related product offerings with an expanding corporate and institutional client
base. A major objective in this market is to grow fee-based revenue by
increasing client dependence on Northern for cost-effective, value-adding
service linkages.
Northern's investment management capabilities provide another avenue of
profitable revenue growth as we extend our well-established investment process
that has produced top tier performance using a proven, consistent investment
style. We currently manage $76 billion out of a total of $480 billion in trust
assets under administration and have put greater emphasis on initiatives to
increase our percentage of managed assets given our strong investment track
record.
Last Thursday, we launched a new family of proprietary mutual funds--the
Northern Funds--which are designed to present a more complete line of
investment products to the individual market. In addition, the recent
acquisition of Hazlehurst & Associates strengthens Northern as a full-service
provider to the investment driven 401k market. While we are still finalizing
integration plans of Hazlehurst, we are very enthused about the fee-based
revenue opportunities it affords the corporation in the fast-growing defined
contribution business.
Northern's distinguishing business strategies and financial performance
continue to be viewed very favorably by the market which accords our stock one
of the highest market to book valuations of any bank, currently over 220%.
Although 1993 was a disappointing year for the stock, over a five-year period
Northern's performance at a 21.7% compound annual rate of growth is
considerably better than both the S&P 500 and the banking industry. In November
1993, the common dividend was raised 19% reflecting the strong earnings growth
and last month we announced an expansion of an existing stock buyback program.
Northern's management team is dedicated to sustaining a consistent, quality
earnings per share growth rate in excess of 10% per year. We recognize that
success will be highly dependent upon securing profitable revenue growth
coupled with continued vigilance on improved productivity and expense control.
In all of Northern's targeted markets, the potential to provide value-added
service while expanding relationships within our client franchise is our best
prospect for revenue growth. Our goal is to develop comprehensive, long-term
partnerships in which the contribution made by a Northern relationship is
valued by the client. We recognize that customers in both the personal and
corporate markets are afforded numerous choices of high quality providers of
financial services. In the face of this increasingly competitive environment,
all Northern people are committed to providing unrivaled client satisfaction
through responsive service and the delivery of exemplary product quality. We
are diligent about building a culture in which Northern people can clearly see
that the quality of their daily work truly does make a difference in customer
satisfaction. This
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commitment to quality may well be our best advantage in addressing the external
unknowns, competitive pressures, and increasing client expectations for high
service levels and good value from Northern's products.
In all market segments, we are accelerating the development of a superior
knowledge of client requirements through a focused relationship management
strategy. For example, in our corporate and institutional markets, we have
formed relationship teams comprised of people from each of our businesses to
strengthen this comprehensive effort with key clients. These teams are
responsible for defining the customer's overall requirements and for
formulating strategies to increase value to the client through tailored
solutions and service that clearly exceed expectations.
Across the country in our personal market, Northern's distinctive national
franchise represents a network for reaching prospective clients and an
important opportunity for additional business. Relationship teams are active in
our personal markets, and in many subsidiary locations the entire office staff
functions as a client team. Our mission is to present to customers, in all
locations, convenient access to and reliable delivery of Northern's
competitively distinct fiduciary, investment management and private banking
services. We believe that consistent, excellent delivery by this comprehensive
team approach is key to expanding our unique national personal financial
services franchise.
The communities where we live and do business are clearly another important
constituency for our organization. While my comments will be directed toward
our Illinois activities, we are involved in similar community initiatives
throughout the Northern Trust network.
Northern people have contributed greatly to the community in terms of devoting
their time and talent to address many pressing social needs. We encourage and
expect our senior people to be involved in and enlightened about the issues of
the entire Chicago metropolitan area. Beyond our people commitment, I will
touch on some of the other investments we have made and continue to make as
part of our ongoing pledge to support our community partners.
Along with other major banks and insurance companies in Chicago, Northern
Trust in 1993 invested $1 million in the South Shore Bank, one of the country's
outstanding community development banks. This participation will enable South
Shore Bank to expand development activities on the South and West Sides of
Chicago. Further, Northern increased its commitment to the Community Investment
Corporation, a partnership of banks and corporations providing acquisition and
rehabilitation financing for multi-family buildings in low- and moderate-income
neighborhoods in Chicago and Cook County. Last year, we increased our
commitment to $9.5 million, with an intent to invest up to a total of $30
million through the end of this decade.
Northern has some 30 specific programs targeted to making home ownership
possible in low- and moderate-income and minority communities in Cook County.
For example, our First Time Home Buyers Club has been in existence since 1989
and offers downpayments as low as 5% with no application fee and no points.
Last year, we made the "American Dream" come true for 175 first time
homebuyers. Under this and other mortgage lending programs, in 1993 our
housing-related loans to minority applicants increased by more than 160%.
Northern intends to expand our presence in the community by locating a lending
facility on the South or West Side of the city, either by acquiring and
developing an existing institution or by establishing a new branch. This will
build on our past effort with the Walgreen Company where we installed automatic
teller machines in neighborhoods with otherwise limited banking facilities.
Our historical record of active involvement in all areas of our community is
substantial and includes direct personal contact with advisory groups from
neighborhood organizations to assure that our programs meet the specific needs
of the communities. In 1994, we have earmarked a minimum of $25 million for
housing-related loans to be available through a wide range of community
reinvestment programs that specifically function with these groups. There is no
question that the management and employees of this Corporation are devoted to
making the communities where we live and work better places for all of us.
Here at Northern, our people provide the key competitive advantage which
enables us to achieve our objective of delivering unrivaled client service
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and superior performance. In a business like ours, establishing rapport with
clients, developing an understanding of their needs, and responding to those
needs in a manner that exceeds their expectations are essential ingredients for
success. While many tools are brought to bear on that task, no successful
service is provided to a client without the energetic involvement and support
of many Northern people.
The quality of our staff which distinguishes us from our competitors is an
ongoing source of pride to us, but if we wish to continue to attract and retain
talented people, what kind of employer must we be?
Employees today want and deserve a workplace in which people are treated with
honesty, dignity, and fairness. They want an environment that fosters
inclusiveness and participation not divisiveness. For this climate to exist,
employees need the skills to communicate with each other in an atmosphere of
sincere understanding and respect.
During the past year, we have continued our training program on workplace
diversity, extending it from managers to all employees. Employees have
responded very favorably. Many have said that the program has added important
value to their jobs and their lives and that they have come to a new
appreciation of people different from themselves in a way that will have a
lasting impact on how they treat one another.
Northern also is sensitive to the challenge our people face in balancing work
and family issues. We were one of the first Chicago companies to create our own
corporate childcare center and, last fall, when the Chicago public schools were
not in session, Northern opened a cooperative learning center for 85 children
of employees. We provided meaningful classroom instruction, with qualified
teachers, and also relieved parents of the concern of caring for their children
during this stressful period. In addition, our family assistance program helps
our employees and their families through times of crisis, including a referral
network which employees can access for information not only about childcare
options, but also about elder care resources.
In summary, Northern's success in delivering absolute quality service to
clients, in being an active, responsible member of the communities in which we
do business, and in providing value to our shareholders depends on our people,
on their continued teamwork, and upon Northern's commitment to providing a
workplace in which all people contribute 100%--and then some. While we face a
lot of hard work to improve upon our past accomplishments, we are confident
that with the continued support of our employees, shareholders, and the
communities we serve, the future will be bright.