================================================================================
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, 1998
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 Number 0-5965
NORTHERN TRUST CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 36-2723087
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
50 SOUTH LA SALLE STREET
CHICAGO, ILLINOIS 60675
(Address of principal (Zip Code)
executive offices)
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 [_]
111,518,993 Shares - $1.66 2/3 Par Value
(Shares of Common Stock Outstanding on March 31, 1998)
================================================================================
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
CONSOLIDATED BALANCE SHEET NORTHERN TRUST CORPORATION
March 31 December 31 March 31
--------- ----------- ---------
($ In Millions) 1998 1997 1997
- ------------------------------------------ --------- ----------- ---------
Assets
Cash and Due from Banks $ 1,124.0 $ 1,738.9 $ 948.6
Federal Funds Sold and Securities
Purchased under Agreements to Resell 1,622.1 2,991.7 1,219.5
Time Deposits with Banks 1,844.3 2,283.2 2,354.9
Other Interest-Bearing 67.6 34.5 41.0
Securities
Available for Sale 4,652.0 3,733.3 5,328.8
Held to Maturity (Fair value - $500.0
at March 1998, $473.4 at December
1997, $499.3 at March 1997) 485.3 456.1 481.7
Trading Account 14.2 8.8 13.7
- ------------------------------------------ --------- --------- ---------
Total Securities 5,151.5 4,198.2 5,824.2
- ------------------------------------------ --------- --------- ---------
Loans and Leases
Commercial and Other 7,554.5 7,401.5 6,750.9
Residential Mortgages 5,397.7 5,186.7 4,666.4
- ------------------------------------------ --------- --------- ---------
Total Loans and Leases (Net of unearned
income - $147.1 at March 1998, $151.9
at December 1997, $113.4 at March 1997) 12,952.2 12,588.2 11,417.3
- ------------------------------------------ --------- --------- ---------
Reserve for Credit Losses (147.7) (147.6) (148.3)
Buildings and Equipment 327.8 316.4 291.7
Customers' Acceptance Liability 25.4 31.4 45.7
Trust Security Settlement Receivables 357.3 291.4 323.0
Other Assets 927.3 989.1 914.2
- ------------------------------------------ --------- --------- ---------
Total Assets $24,251.8 $25,315.4 $23,231.8
- ------------------------------------------ --------- --------- ---------
Liabilities
Deposits
Demand and Other Noninterest-Bearing $ 3,626.9 $ 3,510.1 $ 3,951.8
Savings and Money Market 4,305.2 4,278.9 3,597.9
Savings Certificates 2,125.9 2,092.6 2,003.8
Other Time 470.5 572.0 683.9
Foreign Offices - Demand 445.1 451.0 415.6
- Time 5,192.6 5,455.4 4,560.9
- ------------------------------------------ --------- --------- ---------
Total Deposits 16,166.2 16,360.0 15,213.9
Federal Funds Purchased 1,312.1 821.2 1,197.7
Securities Sold Under Agreements
to Repurchase 875.8 1,139.7 1,685.4
Commercial Paper 128.8 146.8 145.2
Other Borrowings 1,909.3 2,876.6 1,943.1
Senior Notes 680.0 785.0 205.0
Long-Term Debt 416.8 439.5 427.8
Floating Rate Capital Securities 267.4 267.4 148.5
Liability on Acceptances 25.4 31.4 45.7
Other Liabilities 669.5 708.8 626.3
- ------------------------------------------ --------- --------- ---------
Total Liabilities 22,451.3 23,576.4 21,638.6
- ------------------------------------------ --------- --------- ---------
Stockholders' Equity
Preferred Stock 120.0 120.0 120.0
Common Stock, $1.66 2/3 Par Value;
Authorized 280,000,000 shares
at March 1998 and December 1997 and
140,000,000 shares at March 1997;
Outstanding 111,518,993 at March 1998,
111,367,436 at December 1997 and
111,496,349 at March 1997 189.9 189.9 189.9
Capital Surplus 225.9 225.5 228.3
Retained Earnings 1,391.2 1,330.8 1,160.6
Net Unrealized Gain on Securities
Available for Sale 1.9 2.1 .2
Common Stock Issuable - Performance Plan 31.5 11.7 12.8
Deferred Compensation - ESOP and Other (50.8) (37.5) (38.3)
Treasury Stock - (at cost, 2,441,769
shares at March 1998, 2,593,326 shares
at December 1997, and 2,464,413 shares
at March 1997) (109.1) (103.5) (80.3)
- ------------------------------------------ --------- --------- ---------
Total Stockholders' Equity 1,800.5 1,739.0 1,593.2
- ------------------------------------------ --------- --------- ---------
Total Liabilities and Stockholders' Equity $24,251.8 $25,315.4 $23,231.8
- ------------------------------------------ --------- --------- ---------
CONSOLIDATED STATEMENT OF INCOME NORTHERN TRUST CORPORATION
First Quarter
Ended March 31
------------------------
($ In Millions Except Per Share Information) 1998 1997
- ----------------------------------------------------- ----------- -----------
Interest Income
Loans and Leases $211.0 $183.6
Securities
Available For Sale 91.5 72.1
Held to Maturity 7.2 7.9
Trading Account .2 .1
- ----------------------------------------------------- ----------- -----------
Total Securities 98.9 80.1
- ----------------------------------------------------- ----------- -----------
Time Deposits with Banks 34.1 27.2
Federal Funds Sold and Securities Purchased
under Agreements to Resell and Other 13.3 9.1
- ----------------------------------------------------- ----------- -----------
Total Interest Income 357.3 300.0
- ----------------------------------------------------- ----------- -----------
Interest Expense
Deposits 139.8 114.2
Federal Funds Purchased 36.3 19.6
Securities Sold under Agreements to Repurchase 20.9 21.7
Commercial Paper 2.0 1.9
Other Borrowings 21.8 22.9
Senior Notes 10.6 3.7
Long-Term Debt 8.1 8.0
Floating Rate Capital Securities 4.2 1.9
- ----------------------------------------------------- ----------- -----------
Total Interest Expense 243.7 193.9
- ----------------------------------------------------- ----------- -----------
Net Interest Income 113.6 106.1
Provision for Credit Losses 4.0 .5
- ----------------------------------------------------- ----------- -----------
Net Interest Income after Provision for Credit Losses 109.6 105.6
- ----------------------------------------------------- ----------- -----------
Noninterest Income
Trust Fees 193.7 158.3
Treasury Management Fees 15.9 14.6
Foreign Exchange Trading Profits 28.1 20.4
Security Commissions and Trading Income 7.2 5.9
Other Operating Income 11.0 9.5
Investment Security Gains .7 .6
- ----------------------------------------------------- ----------- -----------
Total Noninterest Income 256.6 209.3
- ----------------------------------------------------- ----------- -----------
Income before Noninterest Expenses 366.2 314.9
- ----------------------------------------------------- ----------- -----------
Noninterest Expenses
Salaries 121.7 101.4
Pension and Other Employee Benefits 23.5 21.1
Occupancy Expense 16.9 16.1
Equipment Expense 16.5 14.9
Other Operating Expenses 57.6 53.0
- ----------------------------------------------------- ----------- -----------
Total Noninterest Expenses 236.2 206.5
- ----------------------------------------------------- ----------- -----------
Income before Income Taxes 130.0 108.4
Provision for Income Taxes 45.1 36.7
- ----------------------------------------------------- ----------- -----------
Net Income $ 84.9 $ 71.7
- ----------------------------------------------------- ----------- -----------
Net Income Applicable to Common Stock $ 83.6 $ 70.5
- ----------------------------------------------------- ----------- -----------
Net Income Per Common Share - Basic $ .75 $ .64
- Diluted .73 .62
- ----------------------------------------------------- ----------- -----------
Average Number of Common Shares Outstanding - Basic 110,902,111 110,929,710
- Diluted 115,055,796 114,649,493
- ----------------------------------------------------- ----------- -----------
3
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME NORTHERN TRUST CORPORATION
First Quarter
Ended March 31
------------------------
($ In Millions) 1998 1997
- ----------------------------------------------------- ----------- -----------
Net Income $ 84.9 $ 71.7
Other Comprehensive Income (net of tax)
Unrealized Gains (Losses) on Securities Available
for Sale
Unrealized Holding Gains (Losses) Arising
During Period
(Net of tax (provision) benefit - $(.1)
million in 1998 and $.6 million in 1997) .2 (1.0)
Less: Reclassification Adjustments for Gains
Included in Net Income
(Net of tax - $.2 million in 1998 and $.2
million in 1997) (.4) (.4)
- ----------------------------------------------------- ----------- -----------
Other Comprehensive Income (.2) (1.4)
- ----------------------------------------------------- ----------- -----------
Comprehensive Income $ 84.7 $ 70.3
- ----------------------------------------------------- ----------- -----------
4
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY NORTHERN TRUST
CORPORATION
First Quarter
Ended March 31
---------------------
(In Millions) 1998 1997
- ----------------------------------------------------------------- ---------------------
Preferred Stock
Balance at January 1 and March 31 $ 120.0 $ 120.0
- ----------------------------------------------------------------- ---------------------
Common Stock
Balance at January 1 and March 31 189.9 189.9
- ----------------------------------------------------------------- ---------------------
Capital Surplus
Balance at January 1 225.5 231.7
Stock Issued - Incentive Plan and Awards .4 (3.4)
- ----------------------------------------------------------------- ---------------------
Balance at March 31 225.9 228.3
- ----------------------------------------------------------------- ---------------------
Retained Earnings
Balance at January 1 1,330.8 1,110.2
Net Income 84.9 71.7
Dividend Declared - Common Stock (23.4) (20.1)
Dividends Declared - Preferred Stock (1.1) (1.2)
- ----------------------------------------------------------------- ---------------------
Balance at March 31 1,391.2 1,160.6
- ----------------------------------------------------------------- ---------------------
Net Unrealized Gain on Securities Available for Sale
Balance at January 1 2.1 1.6
Unrealized Loss, net (.2) (1.4)
- ----------------------------------------------------------------- ---------------------
Balance at March 31 1.9 .2
- ----------------------------------------------------------------- ---------------------
Common Stock Issuable - Performance Plan
Balance at January 1 11.7 10.4
Stock Issuable, net of Stock Issued 19.8 2.4
- ----------------------------------------------------------------- ---------------------
Balance at March 31 31.5 12.8
- ----------------------------------------------------------------- ---------------------
Deferred Compensation - ESOP and Other
Balance at January 1 (37.5) (35.5)
Compensation Deferred (15.4) (3.9)
Compensation Amortized 2.1 1.1
- ----------------------------------------------------------------- ---------------------
Balance at March 31 (50.8) (38.3)
- ----------------------------------------------------------------- ---------------------
Treasury Stock
Balance at January 1 (103.5) (84.2)
Stock Options and Awards 22.7 21.8
Stock Purchased (28.3) (17.9)
- ----------------------------------------------------------------- ---------------------
Balance at March 31 (109.1) (80.3)
- ----------------------------------------------------------------- ---------------------
Total Stockholders' Equity at March 31 $1,800.5 $1,593.2
- ----------------------------------------------------------------- ---------------------
5
CONSOLIDATED STATEMENT OF CASH FLOWS NORTHERN TRUST CORPORATION
First Quarter
Ended March 31
------------- -----------
(In Millions) 1998 1997
- --------------------------------------------------------------------------------------------------- ------------- -----------
Cash Flows from Operating Activities:
Net Income $ 84.9 $ 71.7
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:
Provision for Credit Losses 4.0 .5
Depreciation on Buildings and Equipment 13.3 12.3
Decrease in Interest Receivable 8.9 6.7
Decrease in Interest Payable (4.9) (1.7)
Amortization and Accretion of Securities and Unearned Income (75.8) (38.6)
Amortization of Software, Goodwill and Other Intangibles 13.3 11.7
Net Increase in Trading Account Securities (5.4) (8.9)
Other Noncash, net 23.9 (51.9)
- --------------------------------------------------------------------------------------------------- ------------- -----------
Net Cash Provided by Operating Activities 62.2 1.8
- --------------------------------------------------------------------------------------------------- ------------- -----------
Cash Flows from Investing Activities:
Net (Increase) Decrease in Federal Funds Sold and Securities Purchased under Agreements to Resell 1,369.6 (196.9)
Net (Increase) Decrease in Time Deposits with Banks 438.9 (294.9)
Net (Increase) Decrease in Other Interest-Bearing Assets (33.1) 73.3
Purchases of Securities-Held to Maturity (106.0) (46.2)
Proceeds from Maturity and Redemption of Securities-Held to Maturity 82.7 64.6
Purchases of Securities-Available for Sale (22,089.6) (10,567.5)
Proceeds from Sale, Maturity and Redemption of Securities-Available for Sale 21,242.3 9,586.1
Net Increase in Loans and Leases (363.9) (486.3)
Purchases of Buildings and Equipment (24.7) (12.5)
Net (Increase) Decrease in Trust Security Settlement Receivables (65.9) 39.3
Other, net (2.4) (2.0)
- --------------------------------------------------------------------------------------------------- ------------- -----------
Net Cash (Used in) Provided by Investing Activities 447.9 (1,843.0)
- --------------------------------------------------------------------------------------------------- ------------- -----------
Cash Flows from Financing Activities:
Net Increase (Decrease) in Deposits (193.8) 1,417.7
Net Increase in Federal Funds Purchased 490.9 544.7
Net Increase (Decrease) in Securities Sold under Agreements to Repurchase (263.9) 719.3
Net Decrease in Commercial Paper (18.0) (3.8)
Net Decrease in Short-Term Other Borrowings (939.4) (1,203.3)
Proceeds from Term Federal Funds Purchased 184.0 254.2
Repayments of Term Federal Funds Purchased (211.9) (249.9)
Proceeds from Senior Notes & Long-Term Debt - 250.0
Repayments on Senior Notes & Long-Term Debt (128.0) (201.5)
Treasury Stock Purchased (28.3) (15.0)
Net Proceeds from Stock Options 4.9 3.5
Cash Dividends Paid on Common and Preferred Stock (24.4) (21.3)
Other, net 2.9 2.7
- --------------------------------------------------------------------------------------------------- ------------- -----------
Net Cash Provided by (Used in) Financing Activities (1,125.0) 1,497.3
- --------------------------------------------------------------------------------------------------- ------------- -----------
Decrease in Cash and Due from Banks (614.9) (343.9)
Cash and Due from Banks at Beginning of Year 1,738.9 1,292.5
- --------------------------------------------------------------------------------------------------- ------------- -----------
Cash and Due from Banks at March 31 $ 1,124.0 $ 948.6
- --------------------------------------------------------------------------------------------------- ------------- -----------
Supplemental Disclosures of Cash Flow Information:
Interest Paid $ 248.6 $ 195.6
Income Taxes Received (3.1) (3.1)
- --------------------------------------------------------------------------------------------------- ------------- -----------
6
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, 1998 and 1997 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 the Notes to
Consolidated Financial Statements in the 1997 Annual Report to Stockholders.
2. Securities - The following table summarizes the book and fair values of
securities:
March 31, 1998 December 31, 1997 March 31, 1997
------------------------------------------------------------------------------------
Book Fair Book Fair Book Fair
(In Millions) Value Value Value Value Value Value
- ----------------------------------------------------------------------------------------------------------------
Held to Maturity
U.S. Government $ 83.1 $ 83.1 $ 72.0 $ 72.0 $ 68.2 $ 68.1
Obligations of States
and Political Subdivisions 263.9 280.5 276.7 295.1 303.6 321.3
Federal Agency 8.0 8.0 14.3 14.3 18.2 18.2
Other 130.3 128.4 93.1 92.0 91.7 91.7
- ----------------------------------------------------------------------------------------------------------------
Subtotal 485.3 500.0 456.1 473.4 481.7 499.3
- ----------------------------------------------------------------------------------------------------------------
Available for Sale
U.S. Government 312.6 312.6 470.0 470.0 841.0 841.0
Obligations of States
and Political Subdivisions 169.7 169.7 130.2 130.2 115.9 115.9
Federal Agency 4,027.3 4,027.3 2,969.8 2,969.8 4,255.8 4,255.8
Preferred Stock 112.5 112.5 128.8 128.8 74.8 74.8
Other 29.9 29.9 34.5 34.5 41.3 41.3
- ----------------------------------------------------------------------------------------------------------------
Subtotal 4,652.0 4,652.0 3,733.3 3,733.3 5,328.8 5,328.8
- ----------------------------------------------------------------------------------------------------------------
Trading Account 14.2 14.2 8.8 8.8 13.7 13.7
- ----------------------------------------------------------------------------------------------------------------
Total Securities $5,151.5 $5,166.2 $4,198.2 $4,215.5 $5,824.2 $5,841.8
- ----------------------------------------------------------------------------------------------------------------
7
Reconciliation of Book Values to Fair Values of
Securities Held to Maturity March 31, 1998
- ----------------------------------------------------------------------------------------------------------------
Gross Unrealized
Book ------------------------- Fair
(In Millions) Value Gains Losses Value
- ----------------------------------------------------------------------------------------------------------------
U.S. Government $ 83.1 $ -- $ -- $ 83.1
Obligations of States and Political Subdivisions 263.9 16.7 .1 280.5
Federal Agency 8.0 -- -- 8.0
Other 130.3 -- 1.9 128.4
- ----------------------------------------------------------------------------------------------------------------
Total $485.3 $16.7 $2.0 $500.0
- ----------------------------------------------------------------------------------------------------------------
Reconciliation of Amortized Cost to Fair Values of
Securities Available for Sale March 31, 1998
- ----------------------------------------------------------------------------------------------------------------
Gross Unrealized
Amortized ------------------------ Fair
(In Millions) Cost Gains Losses Value
- --------------------------------------------------------------------------------------------------------------
U.S. Government $ 311.8 $ .9 $.1 $ 312.6
Obligations of States and Political Subdivisions 163.9 5.8 -- 169.7
Federal Agency 4,026.3 1.3 .3 4,027.3
Preferred Stock 112.1 .4 -- 112.5
Other 30.4 -- .5 29.9
- --------------------------------------------------------------------------------------------------------------
Total $4,644.5 $8.4 $.9 $4,652.0
- --------------------------------------------------------------------------------------------------------------
Unrealized gains and losses on off-balance sheet financial instruments used to
hedge available for sale securities totaled $.2 million and $4.7 million,
respectively, as of March 31, 1998. At March 31, 1998, stockholders' equity
included a credit of $1.9 million, net of tax, to recognize the appreciation on
securities available for sale and the related hedges.
3. Pledged Assets - Securities and loans pledged to secure public and trust
deposits, repurchase agreements and for other purposes as required or permitted
by law were $5.2 billion on March 31, 1998, $6.2 billion on December 31, 1997
and $5.3 billion on March 31, 1997.
4. Contingent Liabilities - Standby letters of credit outstanding were $1.6
billion on March 31, 1998, $1.5 billion on December 31, 1997 and $1.3 billion on
March 31, 1997.
8
5. Loans and Leases - Amounts outstanding in selected loan categories are shown
below:
(In Millions) March 31, 1998 December 31, 1997 March 31, 1997
- -------------------------------------------------------------------------------------------------
Domestic
Residential Real Estate $ 5,397.7 $ 5,186.7 $ 4,666.4
Commercial 3,750.7 3,734.8 3,335.3
Broker 238.2 170.1 395.0
Commercial Real Estate 588.1 582.1 592.9
Personal 1,183.5 1,207.2 972.5
Other 802.7 890.1 744.0
Lease Financing 342.5 347.0 267.6
- -------------------------------------------------------------------------------------------------
Total Domestic 12,303.4 12,118.0 10,973.7
International 648.8 470.2 443.6
- -------------------------------------------------------------------------------------------------
Total Loans and Leases $12,952.2 $12,588.2 $11,417.3
- -------------------------------------------------------------------------------------------------
At March 31, 1998, other domestic and international loans included $946.8
million of overnight trust-related advances primarily in connection with next
day security settlements, compared with $924.5 million at December 31, 1997 and
$883.4 million at March 31, 1997.
At March 31, 1998, nonperforming loans totaled $36.2 million. Included in this
amount were loans with a recorded investment of $32.7 million which were also
classified as impaired. A loan is impaired when, based on current information
and events, it is probable that a creditor will be unable to collect all amounts
due according to the contractual terms of the loan agreement. Impaired loans
totaling $6.5 million had no portion of the reserve for credit losses allocated
to them, while $26.2 million had an allocated reserve of $4.4 million. For the
first quarter of 1998, the total recorded investment in impaired loans averaged
$36.9 million. Total interest income recorded on impaired loans for the quarter
ended March 31, 1998 was $25 thousand.
At March 31, 1997, nonperforming loans totaled $21.7 million and included $19.8
million of impaired loans. Of these impaired loans, $16.9 million had no reserve
allocation while $2.9 million had an allocated reserve of $.2 million. Impaired
loans for the first quarter of 1997 averaged $19.7 million with $96 thousand of
interest income recognized.
9
6. Reserve for Credit Losses - Changes in the reserve for credit losses were as
follows:
Three Months
Ended March 31
-------------------------------------
(In Millions) 1998 1997
- -------------------------------------------------------------------------------------------------------
Balance at Beginning of Period $147.6 $148.3
Charge-Offs
Commercial Real Estate (.2)
Other (4.5) (2.2)
International
- -------------------------------------------------------------------------------------------------------
Total Charge-Offs (4.7) (2.2)
- -------------------------------------------------------------------------------------------------------
Recoveries .8 1.7
- -------------------------------------------------------------------------------------------------------
Net Charge-Offs (3.9) ( .5)
Provision for Credit Losses 4.0 .5
- -------------------------------------------------------------------------------------------------------
Balance at End of Period $147.7 $148.3
- -------------------------------------------------------------------------------------------------------
7. Floating Rate Capital Securities - The following table summarizes the book
value of Floating Rate Capital Securities outstanding:
March 31 December 31 March 31
------------------------------------------------------------
(In Millions) 1998 1997 1997
- ----------------------------------------------------------------------------------------------------------
$150 Million Series A due January 15, 2027 $148.6 $148.6 $148.5
$120 Million Series B due April 15, 2027 118.8 118.8 --
- ----------------------------------------------------------------------------------------------------------
Total $267.4 $267.4 $148.5
- ----------------------------------------------------------------------------------------------------------
The Floating Rate Capital Securities were issued through wholly-owned statutory
business trusts. The sole asset of the trusts are Subordinated Debentures of
Northern Trust Corporation which have the same interest rates and maturity dates
as the corresponding distribution rates and redemption dates of the Floating
Rate Capital Securities. The Series A Securities were issued at a discount to
yield 60.5 basis points above the three-month London Interbank Offered Rate
(LIBOR), while the Series B Securities were issued at a discount to yield 67.9
basis points above the three-month LIBOR. Both Series A and B Securities
qualify as tier 1 capital for regulatory purposes.
10
8. Net Income Per Common Share Computations - The computation of net income per
common share is presented in the following table:
First Quarter
Ended March 31
--------------------------------------------------
($ In Millions Except Per Share Information) 1998 1997
- ------------------------------------------------------------------------------------------------------------
Basic Net Income Per Common Share:
Net Income $ 84.9 $ 71.7
Less Dividends on Preferred Stock (1.3) (1.2)
- ------------------------------------------------------------------------------------------------------------
Net Income Applicable to Common Stock $ 83.6 $ 70.5
Average Number of Common Shares Outstanding 110,902,111 110,929,710
Basic Net Income Per Common Share $ 0.75 $ 0.64
Diluted Net Income Per Common Share:
Net Income Applicable to Common Stock $ 83.6 $ 70.5
Average Number of Common Shares Outstanding 110,902,111 110,929,710
Plus Dilutive Potential Common Shares:
Stock Options 3,305,992 2,851,558
Performance Shares 537,505 622,522
Other 310,188 245,703
- ------------------------------------------------------------------------------------------------------------
Average Common and Potential Common Shares 115,055,796 114,649,493
Diluted Net Income Per Common Share $ 0.73 $ 0.62
- ------------------------------------------------------------------------------------------------------------
9. Accounting Standards Pronouncements - Statement of Financial Accounting
Standards (SFAS) No. 130, "Reporting Comprehensive Income," was implemented as
of January 1, 1998. SFAS No. 130 established the requirements for reporting
comprehensive income in the financial statements. Because it imposes only
additional reporting requirements, SFAS No. 130 did not affect Northern Trust's
financial condition or net income. Comprehensive income includes net income plus
"other comprehensive income", which in the first quarter consists of after-tax
unrealized gains and losses on available for sale securities. Northern Trust's
consolidated statement of comprehensive income is included on page 4 of this
report.
In March, 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued Statement of Position 98-1,
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use" (SOP 98-1). SOP 98-1 requires the capitalization of certain
external and internal costs of computer software developed or obtained for
internal use. SOP 98-1 is effective for financial statements for fiscal years
beginning after December 15, 1998, with early adoption permitted.
11
Northern Trust's current accounting policy is to expense internal costs of
computer software developed for internal use as incurred. Northern Trust is in
the process of identifying the amount of salary and related costs which would be
eligible for capitalization in 1998 based on SOP 98-1, however, it is not
expected that the amount would be material to Northern Trust's results of
operations.
In April, 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued Statement of Position 98-5,
"Reporting on the Costs of Start-Up Activities" (SOP 98-5). SOP 98-5 requires
all nongovernmental entities to expense costs of start-up activities as those
costs are incurred. The term "start-up" is broadly defined and includes pre-
operating, pre-opening and organization activities. SOP 98-5 is effective for
financial statements for fiscal years beginning after December 15, 1998, with
early adoption permitted.
Northern Trust will adopt SOP 98-5 effective January 1, 1999. Northern Trust has
typically expensed such costs as incurred and, therefore, adoption of this SOP
is not expected to have a material effect on Northern Trust's results of
operations.
10. Acquisition - In February, 1998, Northern Trust entered into an agreement
to acquire Trustbank Financial Corp., parent company of Trust Bank of Colorado,
for approximately $15 million in cash. Trust Bank of Colorado, located in
Denver, reported $37 million in assets at year-end 1997 and stockholders' equity
of $5.2 million. The transaction will be accounted for as a purchase and is
expected to close in the second quarter of 1998.
12
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FIRST QUARTER EARNINGS HIGHLIGHTS
Net income per common share on a diluted basis increased 18% to a record $.73
for the first quarter, up from $.62 earned a year ago. Net income also increased
18% to a record $84.9 million from the $71.7 million earned in the first quarter
of last year. This earnings performance produced an annualized return on average
common equity (ROE) of 20.73% versus 19.91% reported last year, and an
annualized return on average assets (ROA) of 1.32% versus 1.30% in 1997. Total
revenues stated on a fully taxable equivalent basis increased 17% in the
quarter, driven by record corporate trust fees, personal trust fees, and net
interest income, along with continued strong results from foreign exchange. The
quarter also highlighted Northern Trust's continued success in generating
positive operating leverage as the 17% growth in revenues was well above the 14%
increase in noninterest expenses.
The 18% earnings per share growth for the quarter, a 20.73% ROE and a
productivity ratio of 160% met or exceeded each of Northern Trust's strategic
financial targets.
Noninterest Income
Noninterest income increased 23% and totaled $256.6 million for the quarter,
accounting for 68% of total taxable equivalent revenue. Trust fees of $193.7
million increased 22% or $35.4 million over the like period of 1997, and
represented 75% of noninterest income and 51% of total taxable equivalent
revenue. This fee growth was driven by new business, increased transaction
volumes and higher market values of trust assets administered. Trust assets
under administration increased 41% or $339.0 billion from a year ago and totaled
$1.16 trillion at March 31, 1998. Trust assets under the management of Northern
Trust grew 51% to $216.5 billion from March 31, 1997. At December 31, 1997,
trust assets under administration totaled $1.08 trillion with $196.6 billion
under management.
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 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 fee income. 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.
13
Noninterest Income (continued)
Effective January 1, 1998, the trust activities for Middle Market clients
transferred to C&IS from Personal Financial Services business unit (PFS). Trust
assets and fees for all periods presented have been restated.
Trust fees from PFS increased 22% from the prior year level of $75.5 million and
totaled $91.8 million for the first quarter, reflecting strong growth in new
business throughout Northern Trust's five-state network of PFS offices and
favorable equity markets. Trust fees in each state increased 15% or more with
growth especially strong in Florida, Arizona and Texas. The PFS Wealth
Management Group, which administers significant family-asset pools nationwide,
continued to achieve excellent performance, with trust fees increasing 22% to
$8.5 million. The Group now administers $31.1 billion of trust assets. Total
personal trust assets under administration increased $26.1 billion from the
prior year and $9.6 billion since December 31, 1997, and totaled $105.5 billion
at March 31, 1998. Of this amount, $64.9 billion was under management compared
to $48.8 billion one year ago and $58.5 billion at December 31, 1997. Net
recurring new business sold for the quarter was $9.8 million in annualized fees,
up 31% from the first quarter of 1997.
Northern Trust expects to close the acquisition of Trust Bank of Colorado for
$15.0 million in cash during the second quarter. With the addition of this new
office, which marks Northern Trust's entry into Colorado, Northern Trust's
national network of Personal Financial Services offices will include 63
locations in six states.
Trust fees from C&IS increased 23% to $101.9 million from $82.8 million in the
year-ago quarter, reflecting strong new business. Excluding $3.5 million in fees
generated by Northern Trust Quantitative Advisors, Inc. (NTQA), a December, 1997
acquisition, C&IS trust fees increased 19% from the prior year. These 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, and all of these services contributed to the first quarter fee
growth. Securities lending continued to achieve excellent results, with fees
increasing 24% or $3.5 million from the prior year quarter to $17.9 million.
Investment management revenues were very strong and contributed approximately
40% of the growth in C&IS trust fees, excluding the fees generated by NTQA. C&IS
trust assets under administration increased 42% or $312.9 billion from the prior
year and now total $1.06 trillion, of which $151.6 billion is managed by
Northern Trust. Trust assets under administration included approximately $173
billion of global custody assets. For the quarter, net new annualized fees sold
were $9.4 million, a 7% increase over the same period last year.
Foreign exchange trading profits continued to be outstanding, increasing 37% to
$28.1 million from $20.4 million in the same quarter last year. The strong
performance compared to last year reflects both increased trade volumes as
global custody assets continue to grow and volatility in the currency markets,
especially early in the quarter.
14
Noninterest Income (continued)
Foreign exchange trading profits for the first quarter were second only to the
record $33.5 million in the third quarter of 1997, when volatility in the
southeastern Asia currency markets and transaction levels involving those
currencies were particularly high. Total treasury management revenues from both
fees and the computed value of compensating deposit balances increased 5% from
the first quarter of 1997 to $23.5 million, reflecting the continued growth in
business from both new and existing clients. The fee portion of these revenues
accrued in the quarter was $15.9 million, up from $14.6 million in the
comparable quarter last year.
Security commissions and trading income totaled $7.2 million compared with $5.9
million reported in the first quarter of 1997. The increase primarily reflects
growth in security brokerage activities resulting from the continued strength in
the equity markets.
Other operating income primarily includes loan, letter of credit and deposit-
related service fees, and totaled $11.0 million for the quarter compared with
$9.5 million reported in the first quarter of 1997. The increase over last year
was primarily the result of higher banking and trust deposit-related fees.
Net Interest Income
Net interest income for the quarter totaled $113.6 million, 7% higher than the
$106.1 million reported in the first quarter of 1997. 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 $122.0 million, up 7% from the $114.1 million reported in 1997. The increase
in net interest income reflects growth in earning assets and higher levels of
noninterest-related funds, driven by increases in both demand and noninterest-
bearing deposits and common equity. The net interest margin declined to 2.11%
from 2.33% reported in the year-ago quarter. The decline in the net interest
margin is attributable to the flattening yield curve which has compressed
interest rate spreads and a higher proportion of lower spread short-term
securities and money market assets.
Earning assets for the first quarter averaged $23.4 billion, up 18% from the
$19.9 billion average for the same quarter of 1997. The $3.5 billion growth in
average earning assets was concentrated in the loan portfolio which increased
15% to average $12.7 billion, in securities which increased 22% to $7.2 billion,
and in money market assets which increased 21% to $3.5 billion on average from
the prior year level.
15
Net Interest Income (continued)
The loan growth was concentrated predominantly in the domestic portfolio which
increased $1.4 billion to average $12.1 billion. Residential mortgage loans
accounted for nearly one-half of the domestic growth, increasing 14% to average
$5.3 billion for the quarter, comprising 41% of the total loan portfolio.
Commercial and industrial loans averaged $3.9 billion during the first quarter
compared to $3.3 billion in the prior year quarter. The securities portfolio
increased $1.3 billion or 22% reflecting a higher level of investments in short-
term U.S. agency securities. The increase in money market assets of 21% to $3.5
billion on average was principally the result of growth in global custody
activities and the more active short-term investment of noninterest-bearing
balances previously held with global subcustodians.
Funding for the growth in earning assets came from several sources. Total
interest-bearing deposits averaged $12.4 billion, up 16% or $1.7 billion from
the first quarter of 1997. This growth came principally from foreign office time
deposits (up $1.5 billion), and savings and money market deposits (up $307
million). The increase in foreign office time deposits resulted primarily from
growth in global custody activity. Other interest-related funds grew 26% or $1.5
billion resulting from higher levels of federal funds purchased, the issuance of
senior bank notes and $120 million of Floating Rate Capital Securities.
Noninterest-related funds increased 10% to average $3.6 billion, due to strong
demand and noninterest-bearing deposit growth and a $199 million increase in
common stockholders' equity resulting from retained earnings.
Provision for Credit Losses
The provision for credit losses of $4.0 million increased $3.5 million from the
first quarter of 1997 and essentially maintained the reserve for credit losses
at the year-end 1997 level. For a discussion of the provision and reserve for
credit losses, refer to the Asset Quality section.
Noninterest Expenses
Noninterest expenses totaled $236.2 million for the quarter, an increase of 14%
or $29.7 million from the $206.5 million in the year-ago quarter. Approximately
75% of this increase is related to salaries and employee benefits resulting from
staff growth, merit increases and higher performance-based compensation. In
addition, the noninterest expense increase in the first quarter reflects $3.1
million of incremental expenses resulting from the NTQA acquisition, new private
banking and trust offices, and continuing investments in technology.
16
Noninterest Expenses (continued)
Salaries and benefits, which represent 61% of total noninterest expenses,
increased to $145.2 million from $122.5 million in the year-ago quarter. The
increase was primarily attributable to staff growth, merit increases and higher
performance-based compensation. Staff levels increased from one year ago to
support new business in both PFS and C&IS. Staff on a full-time equivalent basis
at March 31, 1998 totaled 7,672, up 8% from 7,081 at March 31, 1997. Excellent
new business results, higher foreign exchange profits, strong corporate earnings
and the price increase in Northern Trust Corporation stock increased
performance-based compensation expenses by $8.8 million from the first quarter
of last year.
Net occupancy expense totaled $16.9 million, up 4% from $16.1 million in the
first quarter of 1997, due in large part to the opening of additional private
banking and trust offices over the past twelve months, as well as additional
space leased to support business growth. The principal components of the
increase were higher net rental costs and lease operating expenses, building
maintenance and depreciation.
Equipment expense, comprised of depreciation, rental and maintenance costs,
totaled $16.5 million, up $1.6 million or 11% from the first quarter of 1997.
The principal components of the increase were higher levels of depreciation and
maintenance for computer hardware, personal computers and equipment.
Other operating expenses in the quarter totaled $57.6 million compared to $53.0
million last year. The increase in the 1998 expense level was primarily the
result of continued investment in technology, expansion of the personal trust
and banking office network, and the higher operating expenses necessary to
support business growth. The expense categories most affected were computer
software amortization, technical and consulting services, and business
promotional expenses, partially offset by lower costs associated with processing
errors and legal claims.
The components of other operating expenses were as follows:
First Quarter
Ended March 31
--------------
(In Millions) 1998 1997
- -------------------------------------------------------------------------------
Business Development $ 8.1 $ 7.0
Purchased Professional Services 20.2 18.2
Telecommunications 3.4 3.0
Postage and Supplies 6.1 5.7
Software Amortization 10.0 9.3
Goodwill and Other Intangibles Amortization 3.3 2.4
Other Expense 6.5 7.4
- -------------------------------------------------------------------------------
Total Other Operating Expenses $57.6 $53.0
- -------------------------------------------------------------------------------
17
Noninterest Expenses (continued)
During the quarter Northern Trust made a strategic decision to exit the futures
brokerage business by June 30, 1998 with the transfer of the business of
Northern Futures Corporation (NFC) to Spear, Leeds & Kellogg. This decision will
allow Northern Trust to focus on its core businesses of trust, investments and
banking for individuals, corporations and institutions. It is expected that most
NFC employees will join Spear, Leeds and Kellogg or find other positions within
Northern Trust. Severance costs of $.2 million associated with this decision
were recorded in the quarter. The transfer of this business will not have a
material effect on Northern Trust's operating results.
Year 2000 Projects
Northern Trust's Year 2000 renovation and risk mitigation program which is fully
described in the Capital Expenditures section of the Management's Discussion and
Analysis included in the 1997 Annual Report to Shareholders, has proceeded on
schedule during the first quarter of 1998. During the quarter, Northern Trust
expensed $3.2 million in costs associated with this project. To date, $13.3
million of the $25 million estimated project costs have been incurred. This
estimate includes the costs of purchasing licenses for software programming
tools and the costs of the time of internal staff in Worldwide Technology and
outside consultants. This estimate does not include the time that internal staff
in user departments will devote to testing programming changes, although this
testing is not expected to add significant incremental costs.
Northern Trust's 1997 Annual Report also describes the Year 2000 Business Issues
task force, part of whose work includes monitoring programs to contact vendors,
suppliers, utilities, federal and state agencies and others with which Northern
Trust's systems interact in areas important to its businesses to determine their
Year 2000 readiness. This program will involve some additional expense that is
not reflected in the above estimate but is not expected to be material.
Provision for Income taxes
The provision for income taxes was $45.1 million for the first quarter compared
with $36.7 million in the year-ago quarter. The higher tax provision in 1998
resulted primarily from the growth in taxable earnings for both federal and
state income tax purposes. The effective tax rate was 35% for 1998 versus 34% in
1997.
BALANCE SHEET
Total assets at March 31, 1998 were $24.3 billion and averaged $26.0 billion for
the first quarter, up 16% from last year's average of $22.4 billion. Due to
continued strong demand for credit, loans and leases grew to $13.0 billion at
March 31, 1998, and averaged $12.7 billion for the quarter. This compares with
$11.4 billion in total loans and leases at March 31, 1997 and $11.1 billion on
average for the first quarter of last year.
18
BALANCE SHEET (continued)
Driven by continued strong earnings growth, offset in part by Northern Trust's
stock buyback program, common stockholders' equity increased to $1.7 billion at
March 31, 1998 and averaged $1.6 billion for the quarter, up 14% from the $1.4
billion average in last year's first quarter. Total stockholders' equity
averaged $1.8 billion for the first quarter compared with $1.6 billion in 1997.
During the quarter, Northern Trust acquired a total of 397,888 of its common
shares at a cost of $28.3 million pursuant to the stock buyback program
authorized by the Board of Directors. An additional 2.8 million shares may be
purchased after March 31, 1998 under the buyback program.
Northern Trust's risk-based capital ratios remained strong at 9.8% for tier 1
capital and 13.0% for total capital at March 31, 1998. These capital ratios
are well above the minimum regulatory requirements of 4% for tier 1 and 8% for
total risk-based capital ratios. The leverage ratio (tier 1 capital to first
quarter average assets) of 7.0% at March 31, 1998, also exceeded the minimum
regulatory requirement of 3%. In addition, each of Northern Trust's subsidiary
banks had a ratio above 8.4% for tier 1 capital, 11.1% for total risk-based
capital, and 6.0% for the leverage ratio.
ASSET QUALITY
Nonperforming assets consist of nonaccrual loans, restructured loans and other
real estate owned (OREO). Nonperforming assets at March 31, 1998 totaled $39.2
million, compared with $43.3 million at December 31, 1997 and $23.9 million at
March 31, 1997. Domestic nonaccrual loans and leases, consisting primarily of
commercial loans, totaled $33.7 million, or .27% of total domestic loans and
leases at March 31, 1998. At December 31, 1997 and March 31, 1997, domestic
nonaccrual loans and leases totaled $38.9 million and $19.1 million,
respectively.
The following Nonperforming Asset table presents the outstanding amounts of
nonaccrual loans and leases, restructured loans and OREO. Also shown are loans
that have interest or principal payments that are delinquent 90 days or more and
are still accruing interest. The balance in this category at any quarter end
can fluctuate widely based on the timing of cash collections, renegotiations and
renewals.
19
ASSET QUALITY (continued)
March 31 December 31 March 31
---------------------------------------------------
(In Millions) 1998 1997 1997
- ------------------------------------------------------------------------------------------------
Nonaccrual Loans
Domestic
Residential Real Estate $ 4.1 $ 5.3 $ 5.3
Commercial 22.4 26.3 6.0
Commercial Real Estate 6.8 7.1 7.6
Personal .4 .2 .2
- ------------------------------------------------------------------------------------------------
Total Domestic 33.7 38.9 19.1
International - - -
- ------------------------------------------------------------------------------------------------
Total Nonaccrual Loans 33.7 38.9 19.1
Restructured Loans 2.5 2.5 2.6
Other Real Estate Owned 3.0 1.9 2.2
- ------------------------------------------------------------------------------------------------
Total Nonperforming Assets $39.2 $43.3 $23.9
- ------------------------------------------------------------------------------------------------
Total 90 Day Past Due Loans (still accruing) $16.1 $13.9 $28.1
- ------------------------------------------------------------------------------------------------
Provision and Reserve for Credit Losses
The provision for credit losses is the charge against current earnings that is
determined by management, through a disciplined credit review process, as the
amount needed to maintain a reserve that is sufficient to absorb credit losses
inherent in Northern Trust's loan and lease portfolios and other credit
undertakings. While the largest portion of this reserve is intended to cover
loan and lease losses, it is considered a general reserve that is available to
cover all credit-related exposures.
The 1998 first quarter provision for credit losses was $4.0 million, compared
with $.5 million in the first quarter of 1997. Net charge-offs totaled $3.9
million in the first quarter of 1998, versus $.5 million last year. The reserve
for credit losses was $147.7 million or 1.14% of outstanding loans at March 31,
1998. This compares with $147.6 million or 1.17% of outstanding loans at
December 31, 1997 and $148.3 million or 1.30% of outstanding loans at March 31,
1997. The lower reserve to outstanding loans ratio at March 31, 1998 is
attributable to loan growth, a significant portion of which was in low-risk
residential mortgage lending.
The overall quality of the loan portfolio remains strong. Management continues
to monitor closely the financial condition of borrowers currently experiencing
financial difficulty. Worsening operating results of these borrowers and other
economic conditions could unfavorably impact the level of future charge-offs and
the related provision for credit losses.
20
MARKET RISK MANAGEMENT
As described in the 1997 Annual Report to Shareholders, Northern 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, the Corporation's interest rate
risk position and the value-at-risk associated with the foreign exchange trading
portfolio have not changed significantly since December 31, 1997.
FORWARD-LOOKING INFORMATION
This report contains statements that may be considered forward-looking, such as
the discussion of Northern Trust's pricing trends, credit quality and outlook,
new business results, expansion plans and anticipated expenses for Year 2000
systems renovation and readiness evaluations. These statements speak of Northern
Trust's plans, goals 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 and the level of volatility in certain markets
such as foreign exchange.
. Regulatory developments 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, regulatory change and other factors, as well as actions taken
by particular competitors.
. Northern Trust's success in identifying and penetrating targeted markets,
through acquisitions or otherwise, and generating a profit in those markets
in a reasonable time.
. Northern Trust's ability to continue to fund and accomplish technological
innovation, improve processes and controls and attract and retain capable
staff in order to deal with increasing volume and complexity in many of its
businesses and technology challenges, such as Year 2000 renovation and the
introduction of the Euro.
21
FORWARD-LOOKING INFORMATION (continued)
. The ability of various vendors and clients to complete Year 2000 systems
renovation efforts on a timely basis and in a manner that allows them to
continue normal business operations and furnish products, services or data to
Northern Trust without disruption, as well as Northern Trust's ability to
accurately evaluate their readiness in this regard.
. 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 that could affect Northern Trust's
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 1997
Annual Report to Stockholders (pp. 32-39) and in the sections of "Item 1 -
Business" of the 1997 Annual Report on Form 10-K captioned "Government
Policies", "Competition" and "Regulation and Supervision" (pp. 6-9). All
forward-looking statements included in this document are based upon information
presently available, and Northern Trust assumes no obligation to update any
forward-looking statement.
22
The following schedule should be read in conjunction with the Net Interest
Income section of Management's Discussion and Analysis of Financial Condition
and Results of Operations.
CONSOLIDATED ANALYSIS OF NET INTEREST INCOME NORTHERN TRUST CORPORATION
First Quarter
----------------------------------------------------------------------------
(Interest and rate on a taxable equivalent basis) 1998 1997
-------------------------------------- -----------------------------------
($ in Millions) Interest Volume Rate Interest Volume Rate
- ------------------------------------------------------- ---------- ----------- ----------- ---------- ---------- ---------
Average Earning Assets
Money Market Assets
Federal Funds Sold and Resell Agreements $ 12.5 $ 897.9 5.66% $ 8.5 $ 639.6 5.41%
Time Deposits with Banks 34.1 2,562.9 5.40 27.2 2,215.5 4.99
Other Interest-Bearing .8 45.6 6.81 .6 40.0 5.67
- ------------------------------------------------------- ---------- ----------- ----------- ----------- ------------ --------
Total Money Market Assets 47.4 3,506.4 5.49 36.3 2,895.1 5.09
- ------------------------------------------------------- ---------- ----------- ----------- ----------- ------------ --------
Securities
U.S. Government 7.0 465.3 6.06 13.3 931.1 5.80
Obligations of States and Political Subdivisions 9.0 398.2 9.04 10.0 420.7 9.52
Federal Agency 86.5 6,081.7 5.77 59.6 4,260.5 5.67
Other 3.2 223.4 5.87 3.7 241.7 6.19
Trading Account .2 8.9 7.17 .1 7.1 7.29
- ------------------------------------------------------- ---------- ----------- ----------- ----------- ------------ --------
Total Securities 105.9 7,177.5 5.98 86.7 5,861.1 5.99
- ------------------------------------------------------- ---------- ----------- ----------- ----------- ------------ --------
Loans and Leases 212.4 12,735.0 6.76 185.0 11,120.5 6.75
- ------------------------------------------------------- ---------- ----------- ----------- ----------- ------------ --------
Total Earning Assets $365.7 $23,418.9 6.33% $308.0 $19,876.7 6.28%
- ------------------------------------------------------- ---------- ----------- ----------- ----------- ------------ --------
Average Source of Funds
Deposits
Savings and Money Market $ 33.7 $ 4,155.7 3.29% $ 30.7 $ 3,951.4 3.15%
Savings Certificates 30.3 2,124.4 5.79 28.4 2,021.8 5.70
Other Time 7.1 525.6 5.47 8.1 614.6 5.35
Foreign Offices Time 68.7 5,553.1 5.02 47.0 4,081.9 4.67
- ------------------------------------------------------- ---------- ----------- ----------- ----------- ------------ --------
Total Deposits 139.8 12,358.8 4.59 114.2 10,669.7 4.34
Federal Funds Purchased 36.3 2,673.6 5.50 19.6 1,517.4 5.24
Repurchase Agreements 20.9 1,538.9 5.51 21.7 1,681.5 5.24
Commercial Paper 2.0 144.9 5.64 1.9 145.7 5.40
Other Borrowings 21.8 1,685.0 5.25 22.9 1,808.7 5.13
Senior Notes 10.6 750.0 5.68 3.7 265.0 5.54
Long-Term Debt 8.1 434.5 7.44 8.0 427.8 7.47
Floating Rate Capital Securities 4.2 267.4 6.26 1.9 123.8 6.21
- ------------------------------------------------------- ---------- ----------- ----------- ----------- ------------ --------
Total Interest-Related Funds 243.7 19,853.1 4.97 193.9 16,639.6 4.72
- ------------------------------------------------------- ---------- ----------- ----------- ----------- ------------ --------
Interest Rate Spread - - 1.36% - - 1.56%
- ------------------------------------------------------- ---------- ----------- ----------- ----------- ------------ --------
Noninterest-Related Funds - 3,565.8 - - 3,237.1 -
- ------------------------------------------------------- ---------- ----------- ----------- ----------- ------------ --------
Total Source of Funds $243.7 $23,418.9 4.22% $193.9 $19,876.7 3.95%
- ------------------------------------------------------- ---------- ----------- ----------- ----------- ------------ --------
Net Interest Income/Margin $122.0 - 2.11% $114.1 - 2.33%
- ------------------------------------------------------- ---------- ----------- ----------- ----------- ------------ --------
ANALYSIS OF NET INTEREST INCOME CHANGES
DUE TO VOLUME AND RATE
First Quarter 1998/97
-------------------------------------
Change Due To
--------------------------
(In Millions) Volume Rate Total
- ---------------------------------------------------------------------------------------------- ----------- ------------ ---------
Earning Assets $52.5 $ 5.2 $57.7
Interest-Related Funds 41.5 8.3 49.8
- ---------------------------------------------------------------------------------------------- ----------- ------------ ---------
Net Interest Income $11.0 $ (3.1) $ 7.9
- ---------------------------------------------------------------------------------------------- ----------- ------------ ---------
23
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Securities Holders
The annual meeting of the stockholders of Northern Trust Corporation was held
on April 21, 1998 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 Directors as listed in the proxy statement were
elected by the following votes set forth below. There were no broker non-votes
for any candidates.
Candidates "FOR" "WITHHELD"
---------- ---------- ----------
Duane L. Burnham 96,829,717 445,613
Dolores E. Cross 97,051,259 445,613
Susan Crown 96,973,189 445,613
Robert S. Hamada 97,115,219 445,613
Barry G. Hastings 97,100,087 445,613
Robert A. Helman 97,067,323 445,613
Arthur L. Kelly 97,104,857 445,613
Frederick A. Krehbiel 96,288,198 445,613
William G. Mitchell 97,012,653 445,613
Edward J. Mooney 97,109,439 445,613
William A. Osborn 97,141,525 445,613
Harold B. Smith 97,127,401 445,613
William D. Smithburg 96,777,949 445,613
Bide L. Thomas 97,030,907 445,613
24
Item 6. Exhibits and Reports on Form 8-K
(a.) Exhibits
--------
Exhibit (10) Material Contracts:
(i) Northern Trust Corporation (1998) Annual Performance Plan.
(ii) Amendment dated January 2, 1998 to Trust Agreement between
The Northern Trust Company and Citizens and Southern Trust
Company (Georgia), N.A., (predecessor of NationsBank which,
effective January 1, 1998, was succeeded as trustee by U.S.
Trust Company of California, N.A.) dated January 26, 1989,
as amended.
(iii) Amendment dated March 25, 1998 to the Northern Trust
Employee Stock Ownership Plan (Section 5 of the Amendment
supersedes Exhibit (10)(v) filed with the Quarterly Report
on Form 10-Q for the quarter ended March 31, 1997).
(iv) Seventh Amendment dated February 24, 1998 to Lease dated
August 27, 1985 between American National Bank & Trust
Company of Chicago as Trustee under Trust Agreement dated
April 5, 1990 and known as Trust No. 110513-07 (Landlord)
and The Northern Trust Company (Tenant), as amended.
(v) Second Amendment dated January 16, 1998 to Lease dated July
8, 1987 between American National Bank & Trust Company of
Chicago as Trustee under Trust Agreement dated July 12,
1984 and known as Trust No. 61523 (Landlord) and The
Northern Trust Company (Tenant), as amended.
Exhibit (27) Financial Data Schedule.
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 21, 1998.
(b.) Reports on Form 8-K
-------------------
In a report on Form 8-K, Northern Trust Corporation incorporated in
Item 5 its January 20, 1998 press release, reporting on its earnings
for the fourth quarter of 1997 and for its 1997 fiscal year. The press
release, with summary financial information, was filed pursuant to
Item 7.
25
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 14, 1998 By: Perry R. Pero
-------------
Perry R. Pero
Senior Executive Vice President
and Chief Financial Officer
Date: May 14, 1998 By: Harry W. Short
--------------
Harry W. Short
Senior Vice President and
Controller
(Chief Accounting Officer)
26
EXHIBIT INDEX
The following exhibits have been filed herewith.
Exhibit
Number Description
- ------ -----------
(10) Material Contracts:
(i) Northern Trust Corporation (1998) Annual Performance Plan.
(ii) Amendment dated January 2, 1998 to Trust Agreement between The
Northern Trust Company and Citizens and Southern Trust Company
(Georgia), N.A., (predecessor of NationsBank which, effective
January 1, 1998, was succeeded as trustee by U.S. Trust Company
of California, N.A.) dated January 26, 1989, as amended.
(iii) Amendment dated March 25, 1998 to the Northern Trust Employee
Stock Ownership Plan (Section 5 of the Amendment supersedes
Exhibit (10)(v) filed with the Quarterly Report on Form 10-Q for
the quarter ended March 31, 1997).
(iv) Seventh Amendment dated February 24, 1998 to Lease dated August
27, 1985 between American National Bank & Trust Company of
Chicago as Trustee under Trust Agreement dated April 5, 1990 and
known as Trust No. 110513-07 (Landlord) and The Northern Trust
Company (Tenant), as amended.
(v) Second Amendment dated January 16, 1998 to Lease dated July 8,
1987 between American National Bank & Trust Company of Chicago
as Trustee under Trust Agreement dated July 12, 1984 and known
as Trust No. 61523 (Landlord) and The Northern Trust Company
(Tenant), as amended.
(27) Financial Data Schedule
(99) Edited version of remarks delivered by Mr. William A. Osborn at the
Annual Meeting of Stockholders of Northern Trust Corporation held on
April 21, 1998.
27