NTRS » Topics » FIRST QUARTER PERFORMANCE HIGHLIGHTS

This excerpt taken from the NTRS 8-K filed Oct 21, 2009.

THIRD QUARTER PERFORMANCE HIGHLIGHTS

Northern Trust’s third quarter consolidated revenues totaled $927.6 million, a decrease of 1% from last year’s third quarter. Trust, investment and other servicing fees increased 10% from last year to $523.1 million and represented 56% of third quarter revenues. Foreign exchange trading income decreased $48.9 million or 34% to $92.9 million. Net interest income totaled $248.2 million, a decrease of 7%. Total fee-related income increased 1% to $679.4 million and represented 73% of revenues.

Trust, investment and other servicing fees from Corporate & Institutional Services (C&IS) increased 27% from the year-ago quarter to $310.2 million, primarily reflecting higher securities lending revenues, partially offset by the impact of lower market valuations on fees. The largest component of C&IS fees is custody and fund administration fees, which decreased 9% to $150.4 million, driven primarily by lower market valuations as compared to the prior year quarter and the adverse impact of currency translation. Securities lending revenues totaled $82.0 million compared with a negative $4.6 million in the third quarter of last year. The current quarter increase was mainly due to a positive mark-to-market adjustment of approximately $57 million relating to previously unrealized asset valuation losses in a mark-to-market investment fund used in our securities lending activities. The prior year quarter included a negative mark-to-market adjustment of approximately $96 million. Excluding the impact of the mark-to-market adjustments, the current quarter decrease in securities lending fees of approximately $66 million reflects significantly reduced volumes and lower spreads on the investment of cash collateral. Fees from institutional asset management in the quarter totaled $61.0 million, down 11% from the prior year quarter.

Trust, investment and other servicing fees from Personal Financial Services (PFS) in the quarter decreased 8% and totaled $212.9 million. The decrease in PFS fees resulted primarily from the impact of lower market valuations and the waiver of certain fees associated with money market funds due to the low level of short-term interest rates.


This excerpt taken from the NTRS 8-K filed Jul 22, 2009.

SECOND QUARTER PERFORMANCE HIGHLIGHTS

Net income per common share was $.95 for the second quarter compared to $.96 per share reported in the second quarter of 2008. The current quarter’s earnings per share were reduced by $.37 in connection with Northern Trust’s participation in the U.S. Department of the Treasury’s Capital Purchase Program. The reduction was comprised of $68.6 million, or $.29 per share, attributable to the acceleration of the remaining difference between the carrying value of the preferred shares and their liquidation preference recognized upon the repayment in full of the $1.576 billion preferred share investment made by the U.S. Department of the Treasury under the Capital Purchase Program, and $19.5 million, or $.08 per share, attributable to dividends on the preferred shares that were recorded in the current quarter through the redemption date. The prior year quarter’s results included non-cash accounting charges of $87.3 million, or $.39 per common share, associated with lease transactions.

Northern Trust’s second quarter consolidated revenues totaled $1.05 billion, down 4% from last year’s second quarter. Trust, investment and other servicing fees decreased 7% from last year to $601.4 million and represented 58% of second quarter revenues. Foreign exchange trading income was strong for the quarter and totaled $134.3 million, an increase of 6% from last year’s second quarter. Net interest income totaled $260.1 million, an increase of 5%. Total fee-related income decreased 7% to $785.0 million and represented 75% of revenues.

Trust, investment and other servicing fees from Corporate & Institutional Services (C&IS) decreased 4% from the year-ago quarter to $390.9 million, reflecting significantly lower market valuations, partially offset by securities lending results and new business. The largest component of C&IS fees is custody and fund administration fees, which decreased 19% to $140.5 million, driven primarily by declines in the equity markets. Securities lending fees totaled $172.5 million compared with $149.9 million in the second quarter last year. The current quarter included a positive mark-to-market adjustment of approximately $129 million relating to prior period unrealized asset valuation losses recorded in one mark-to-market investment fund used in our securities lending activities. This compares to a positive mark-to-market adjustment of previous unrealized asset valuation losses of approximately $25 million in the prior year quarter. Excluding the impact of the mark-to-market adjustments, the current quarter decrease in securities lending fees reflects significantly reduced volumes. Fees from asset management in

 

This excerpt taken from the NTRS 8-K filed Apr 21, 2009.

FIRST QUARTER PERFORMANCE HIGHLIGHTS

Northern Trust’s first quarter consolidated revenues totaled $904.2 million, down 8% from last year’s first quarter operating revenues. Trust, investment and other servicing fees decreased 22% from last year to $410.7 million and represented 45% of first quarter revenues. Foreign exchange trading income and net interest income were each strong for the quarter, increasing 16% and 8%, respectively, from last year’s first quarter. Total fee-related income represented 68% of revenues.

Trust, investment and other servicing fees from Corporate & Institutional Services (C&IS) decreased 31% from the year-ago quarter to $207.0 million, reflecting negative securities lending fees and significantly lower market valuations, partially offset by new business. The largest component of C&IS fees is custody and fund administration fees, which decreased 22% to $136.3 million, driven primarily by declines in the equity markets. Securities lending fees totaled a negative $7.9 million compared with $31.9 million in the first quarter last year, reflecting reduced volumes and lower spreads on the investment of cash collateral. Asset valuation losses in one mark-to-market investment fund used in our securities lending activities also reduced fees by approximately $52 million in the current quarter compared with a reduction of approximately $98 million in the prior year quarter. Fees from asset management in the quarter totaled $60.4 million, down 19%, reflecting lower market valuations. Trust, investment and other servicing fees from Personal Financial Services (PFS) in the quarter decreased 11% and totaled $203.7 million compared with $228.4 million a year ago. The decrease in PFS fees resulted primarily from significantly lower market valuations, offset in part by new business.

Northern Trust’s total assets under custody were $2.8 trillion and total managed assets were $522.3 billion. C&IS assets under custody totaled $2.6 trillion, down 30% from a year ago, and included $1.4 trillion of global custody assets, 33% lower than a year ago. C&IS assets under management totaled $392.0 billion, a 38% decrease from the prior year. C&IS assets under management for the quarter included $95.2 billion of securities lending related collateral, a 64% decrease from the prior year quarter. Excluding securities lending collateral, C&IS assets under management totaled $296.8 billion as compared with $365.2 billion in the prior year quarter, a $68.4 billion, or 19%, decrease. PFS assets under custody totaled $281.7 billion, a 13% decrease from $322.2 billion in the prior year quarter. PFS assets under management totaled

 

This excerpt taken from the NTRS 8-K filed Jan 21, 2009.

FOURTH QUARTER PERFORMANCE HIGHLIGHTS

Northern Trust’s fourth quarter consolidated revenues reached $1.15 billion, up 18% from last year’s fourth quarter, driven by record foreign exchange trading income and record net interest income. Trust, investment and other servicing fees decreased 11% from last year to $488.1 million and represented 42% of fourth quarter revenues. Total fee-related income increased 11% to $801.4 million and represented 70% of revenues. The current quarter included a $44.4 million charge to reflect the other-than-temporary impairment of four asset-backed securities held within Northern Trust’s balance sheet investment portfolio.

Trust, investment and other servicing fees from Corporate & Institutional Services (C&IS) decreased 13% from the year-ago quarter to $273.8 million, primarily reflecting lower market valuations, partially offset by new business. The largest component of C&IS fees is custody and

 

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FOURTH QUARTER PERFORMANCE HIGHLIGHTS (continued)

 

fund administration fees, which decreased 10% to $150.1 million. Securities lending fees totaled $44.2 million compared with $55.1 million in the fourth quarter last year, primarily reflecting lower volumes. Asset valuation losses in one mark-to-market investment fund used in our securities lending activities reduced fees by approximately $44 million in the current quarter compared to approximately $50 million in the prior year quarter. Fees from asset management in the quarter totaled $62.5 million, down 17%, reflecting lower market valuations. Trust, investment and other servicing fees from Personal Financial Services (PFS) in the quarter decreased 8% and totaled $214.3 million compared with $232.6 million a year ago. The decrease in PFS fees resulted primarily from lower market valuations, offset in part by strong new business.

Northern Trust’s total assets under custody were $3.0 trillion and total managed assets were $575.5 billion. C&IS assets under custody totaled $2.7 trillion, down 28% from a year ago, and included $1.4 trillion of global custody assets, 32% lower than a year ago. C&IS assets under management totaled $443.1 billion, a 27% decrease from the prior year. PFS assets under custody totaled $288.3 billion, a 13% decrease from $332.4 billion in the prior year quarter. PFS assets under management totaled $132.4 billion, an 11% decrease from $148.3 billion last year. The above are in comparison to the twelve month decline in the S&P 500 index of approximately 38% and in the EAFE index (USD) of approximately 45%.

Foreign exchange trading income reached a record $234.6 million, up 111% or $123.4 million from the performance in last year’s fourth quarter, reflecting exceptionally high levels of currency volatility. Revenues from security commissions and trading income totaled $19.6 million.

Other operating income equaled $84.1 million compared with $24.8 million in the same period last year. The current quarter increase primarily reflects a $33.3 million increase in non-trading foreign exchange gains, $20.6 million of valuation gains recorded on credit default swap contracts, and a $5.4 million increase in commercial loan-related commitment fees.

 

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FOURTH QUARTER PERFORMANCE HIGHLIGHTS (continued)

 

Included in investment security gains (losses) is a $44.4 million charge recorded to adjust the book values of four asset-backed securities to their estimated fair values at December 31, 2008, as management determined the securities to be other-than-temporarily impaired given their significantly depressed market values and the uncertainty as to their future performance under expected economic conditions.

Net interest income for the quarter, stated on a fully taxable equivalent basis, totaled $348.3 million, up 38% from $252.5 million reported in the prior year quarter, primarily reflecting higher levels of average earning assets and an increase in the net interest margin. Average earning assets of $69.4 billion were 23% higher than a year ago, driven by growth in loans, securities and money market assets. The net interest margin was 2.00%, up from 1.79% in the prior year quarter, reflecting a widening of the spread between interest rates on short term investments and on overnight funding sources, including the impact of the Federal Reserve Bank rate reductions.

The reserve for credit losses at December 31, 2008 of $251.1 million increased $43.6 million from the September 30, 2008 balance. The provision for credit losses was $60.0 million in the current quarter and net charge-offs totaled $15.8 million. The current quarter provision primarily reflects loan growth and the continued weakening in the broader economic environment. An $8.0 million provision was recorded in the prior year fourth quarter and net charge-offs totaled $2.3 million. Nonperforming loans totaled $96.7 million at December 31, 2008, compared with $58.8 million at September 30, 2008 and $23.2 million at December 31, 2007. The increase from the prior quarter primarily reflects the addition of two loans to nonperforming status. The reserve for credit losses of $251.1 million included $22.0 million allocated to loan commitments and other off-balance sheet exposures compared with $12.1 million in the prior year. The remaining $229.1 million reserve assigned to loans and leases at December 31, 2008 represented a reserve to loan and lease ratio of .75%, compared with .65% at September 30, 2008 and .58% a year ago. Nonperforming loans of $96.7 million at quarter-end represented .31% of total loans and leases and were covered 2.4 times by the assigned reserve.

 

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FOURTH QUARTER PERFORMANCE HIGHLIGHTS (continued)

 

Noninterest expenses totaled $555.2 million for the quarter, down 29% from $782.4 million in the year-ago quarter. The current quarter includes a $30.0 million benefit from the reversal of a Visa related indemnification accrual established in the third quarter of 2008, as the settlement of the Visa litigation involving Discover Financial Services, which led to the accrual, was funded by Visa through an escrow account. The prior year quarter included a $150.0 million charge for other Visa indemnification accruals. Absent the current and prior year quarter Visa related adjustments, expenses would have totaled $585.2 million, down 7% from the prior year quarter.

Compensation and employee benefit expenses totaled $361.6 million, up $16.5 million or 5% compared with the prior year quarter. The current quarter includes a $17.0 million charge in connection with the previously announced plan to reduce staff expense levels. Staff on a full-time equivalent basis at December 31, 2008 totaled 12,200, up 12% from a year ago. The impact on the current quarter of higher staff levels and annual salary increases was partially offset by lower performance-based compensation and lower defined contribution plan expense.

The expenses associated with outside services totaled $107.2 million, down $1.9 million or 2% from $109.1 million last year. The current quarter decrease primarily reflects lower expenses for consulting services, global subcustody, and investment manager sub-advisory, offset by higher expenses for technical and legal services.

Excluding Visa, the remaining expense categories totaled $116.4 million, down from $178.2 million in the prior year quarter. The current quarter decrease primarily reflects a $25.4 million reduction of previously established accruals for the purchase of certain illiquid auction rate securities from Northern Trust clients, a $20.1 million currency translation related benefit associated with Lehman Brothers bankruptcy matters, and a $9.7 million expense decrease associated with a valuation adjustment of the liability established in connection with the previously disclosed capital support agreements with certain Northern Trust investment vehicles. As of December 31, 2008, no capital contributions have been made under the agreements.

 

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FOURTH QUARTER PERFORMANCE HIGHLIGHTS (continued)

 

Income tax expense of $180.0 million was recorded in the current quarter and resulted in an effective tax rate of 34.5%. The prior year quarter provision for income taxes was $42.7 million, representing an effective tax rate of 25.5%. The lower effective rate for the prior year quarter resulted from a lower level of taxable earnings, lower U.S. federal and state income tax due to a higher proportion of income generated in jurisdictions with more favorable tax rates than the U.S. and a net reduction in state income tax reserves.

This excerpt taken from the NTRS 8-K filed Oct 22, 2008.

THIRD QUARTER PERFORMANCE HIGHLIGHTS

Northern Trust’s third quarter 2008 results were negatively impacted by the following charges, some of which were previously provided as estimates.

Previously Announced Charges

 

   

A pre-tax charge of $313.9 million ($197.5 million after tax, or $.89 per common share) in connection with an increase in support provided to cash investment funds under existing capital support agreements and the establishment of a capital support agreement for one additional fund.

 

   

Pre-tax charges totaling $167.6 million ($105.4 million after tax, or $.47 per common share) in connection with actions taken to provide support for Northern Trust’s securities lending clients.

 

   

An $80 million pre-tax charge ($50.3 million after tax, or $.23 per common share) related to the establishment of a program to purchase certain illiquid auction rate securities that were purchased by a limited number of Northern Trust clients.

Additional Charges

 

   

A $9.5 million pre-tax charge ($12.9 million after tax, or $.06 per common share) reducing net interest income and increasing income taxes related to revised estimates regarding the outcome of the Corporation’s tax position with respect to certain structured leasing transactions.

 

   

A $16.9 million pre-tax charge ($10.6 million after tax, or $.05 per common share) to reflect the other-than-temporary impairment of two asset-backed securities held within Northern Trust’s balance sheet investment portfolio.

Partially offsetting these charges were reductions in performance-based compensation and certain defined contribution benefit expense, primarily reflecting the impact of the above charges on projected full year performance.

 

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THIRD QUARTER PERFORMANCE HIGHLIGHTS (continued)

 

Northern Trust’s third quarter consolidated revenues reached $938.5 million, up 5% from last year’s third quarter. Trust, investment and other servicing fees decreased 7% from last year to $474.9 million and represented 51% of third quarter revenues. Total fee-related income increased 2% to $672.8 million and represented 72% of revenues.

Trust, investment and other servicing fees from Corporate & Institutional Services (C&IS) decreased 13% from the year-ago quarter to $244.5 million, primarily reflecting a decline in securities lending fees and lower market valuations, partially offset by new business. The largest component of C&IS fees is custody and fund administration fees, which increased 3% to $164.4 million. Securities lending fees totaled a negative $4.6 million compared with $33.0 million in the third quarter last year, primarily reflecting asset valuation losses in one mark-to-market investment fund used in our securities lending activities. These valuation losses reduced fees by approximately $96 million in the current quarter and approximately $36 million in the prior year quarter. Fees from asset management in the quarter totaled $68.2 million, down 6%. Trust, investment and other servicing fees from Personal Financial Services (PFS) in the quarter increased 2% and totaled $230.4 million compared with $226.8 million a year ago. The increase in PFS fees resulted primarily from strong new business, partially offset by lower market valuations.

C&IS assets under custody totaled $3.2 trillion, down 15% from a year ago, and included $1.7 trillion of global custody assets, 15% lower than a year ago. C&IS assets under management totaled $511.4 billion, a 17% decrease from the prior year. PFS assets under custody totaled $314.2 billion, a 5% decrease from $329.2 billion in the prior year quarter. PFS assets under management totaled $141.0 billion, a 4% decrease from $146.9 billion last year. The above are in comparison to the twelve month decline in the S&P 500 index of approximately 24% and in the EAFE index (USD) of approximately 32%.

Foreign exchange trading income reached a record $141.8 million, up 54% or $49.9 million from the performance in last year’s third quarter. The results reflect exceptionally high levels of currency volatility and increased client volumes.

 

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THIRD QUARTER PERFORMANCE HIGHLIGHTS (continued)

 

Revenues from security commissions and trading income equaled $19.2 million, up 5% from the prior year, driven by increased revenue from core brokerage services. Other operating income equaled $36.2 million compared with $19.2 million in the same period last year. The current quarter results include $7.2 million of valuation gains recorded on certain credit default swap contracts with outside counterparties used to mitigate credit risk associated with specific commercial credits. Also contributing to the current quarter performance are higher levels of commercial loan-related commitment fees and the foreign exchange rate impact of translating non-U.S. assets and liabilities. A $16.9 million pre-tax charge was recorded to reflect the other-than-temporary impairment of two asset-backed securities held within Northern Trust’s balance sheet investment portfolio. The prior year quarter benefited from an investment security gain of $6.3 million recognized on the sale of CME Group Inc. stock.

Net interest income for the quarter, stated on a fully taxable equivalent basis, totaled $265.7 million, up 15% from $232.0 million reported in the prior year quarter. The current quarter includes the $9.5 million reduction related to revised estimates regarding the Corporation’s tax dispute with respect to certain structured lease transactions. Absent this adjustment, net interest income for the current quarter would have increased 19% from the prior year quarter, primarily reflecting higher levels of average earning assets. Average earning assets of $65.3 billion were 22% higher than a year ago, driven by growth in money market assets and loans. The net interest margin equaled 1.62%, down from 1.71% in the prior year quarter. The net interest margin absent the leasing related adjustment would have been 1.68%.

The reserve for credit losses at September 30, 2008 of $207.5 million increased $24.4 million from the June 30, 2008 balance. The provision for credit losses was $25.0 million in the current quarter and net charge-offs totaled $.3 million. The current quarter provision primarily reflects loan growth and the continued weakness in the broader economic environment. A $6.0 million provision was recorded in the prior year third quarter and net charge-offs totaled $2.0 million. Nonperforming loans totaled $58.8 million at September 30, 2008, compared with $30.1 million at June 30, 2008 and $23.4 million at September 30, 2007. The increase primarily reflects the addition of two loans to nonperforming status. The reserve for credit losses of

 

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THIRD QUARTER PERFORMANCE HIGHLIGHTS (continued)

 

$207.5 million included $12.8 million allocated to loan commitments and other off-balance sheet exposures. The remaining $194.7 million reserve assigned to loans and leases at September 30, 2008 represented a reserve to loan and lease ratio of .65%, compared with .60% at June 30, 2008 and .57% a year ago. Nonperforming loans of $58.8 million at quarter-end represented .20% of total loans and leases and were covered 3.3 times by the assigned reserve.

Noninterest expenses totaled $1.12 billion for the quarter, up 98% from $566.6 million in the year-ago quarter. Included in this total are the previously discussed client support-related charges totaling $561.5 million. Without these charges, total noninterest expenses would have totaled $562.5 million, down 1% from the prior year quarter.

Compensation and employee benefit expenses totaled $282.7 million, down $33.9 million or 11% compared with the prior year quarter. The current quarter decline was primarily driven by a $67.5 million decrease in performance-based compensation and certain defined contribution benefit expense, offset in part by higher staff levels, annual salary increases, and higher employment taxes. Staff on a full-time equivalent basis at September 30, 2008 totaled 12,100, up 14% from a year ago.

The expenses associated with outside services totaled $106.5 million, up $7.2 million or 7% from $99.3 million last year. The current quarter increase primarily reflects higher expenses for legal, technical and consulting services.

The remaining expense categories totaled $734.8 million and include the $561.5 million of previously discussed client support-related charges. These expense categories totaled $173.3 million after adjusting for these third quarter charges, $22.6 million or 15% higher than the prior year quarter. The increase after adjustment is primarily the result of higher charges from account servicing activities and legal matters, increased equipment and software-related expenses, and higher business promotion expenses.

 

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THIRD QUARTER PERFORMANCE HIGHLIGHTS (continued)

 

An income tax benefit of $93.4 million was recorded in the current quarter due to the pre-tax loss reported for the quarter. This resulted in an effective tax rate of 41.9% as the operating loss resulted primarily from U.S. activities while foreign operations, with lower tax rates, remained profitable. The current quarter effective tax rate excluding the impact of client support and leasing related charges was 32.0%. The prior year quarter provision for income taxes was $92.8 million, representing an effective tax rate of 30.8%.

As previously disclosed, the IRS has been in dispute with the leasing industry and as part of that dispute challenged the Corporation’s tax position with respect to certain structured leasing transactions. The IRS proposed to disallow certain tax deductions and assess related interest and penalties. On August 6, 2008, the IRS announced that settlements would be offered to taxpayers who participated in Lease-In/Lease-Out (LILO) and Sale-In/Sale-Out (SILO) transactions. Although Northern Trust elected not to participate in the IRS offer, in light of the settlement terms, the Corporation revised its estimates regarding the likely outcome of leveraged leasing tax positions. FASB Staff Position No. FAS 13-2, “Accounting for a Change or Projected Change in the Timing of Cash Flows Relating to Income Taxes Generated by a Leveraged Lease Transaction” (FSP 13-2) requires a reallocation of lease income from the inception of the leveraged lease if, during the lease term, the expected timing of income tax cash flows is revised. As a result of the reallocation of lease income and an increase in taxable income over the life of certain of the leveraged leases under the revised assumptions, Northern Trust recorded a $9.5 million charge against interest income. The provision for taxes related to this adjustment, inclusive of interest and penalties, totaled $3.4 million resulting in a $12.9 million reduction in net income for the quarter. Reductions of interest income will be recognized into income over the remaining terms of the affected leveraged leases.

 

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This excerpt taken from the NTRS 8-K filed Jul 16, 2008.

SECOND QUARTER PERFORMANCE HIGHLIGHTS

Northern Trust’s second quarter consolidated revenues reached $1.09 billion, up 24% from last year’s second quarter. Trust, investment and other servicing fees increased 21% from last year to $645.1 million and represented 59% of second quarter revenues. Total fee-related income increased 26% to $845.3 million and represented 77% of revenues.

As previously disclosed, the IRS has challenged the Corporation’s tax position with respect to certain structured leasing transactions and proposed to disallow certain tax deductions and assess related interest and penalties. After evaluating recent court cases involving other taxpayers that were decided in favor of the IRS, Northern Trust revised its assumptions regarding the timing of income tax cash flows related to its disputed lease transactions with the IRS and increased its tax reserves for this matter. FASB Staff Position No. FAS 13-2, “Accounting for a Change or Projected Change in the Timing of Cash Flows Relating to Income Taxes Generated by a Leveraged Lease Transaction” (FSP 13-2) requires a reallocation of lease income from the inception of the leveraged lease if, during the lease term, the expected timing of income tax cash flows are revised. As a result of the reallocation of lease income under the revised assumptions, Northern Trust recorded a $29.4 million charge against interest income in the current quarter. In addition, the provision for income taxes was increased by $57.9 million for interest and penalties, net of tax benefits related to the interest adjustment. The continuing impact of leasing related revisions is expected to reduce net interest income by approximately $6 million and increase the provision for income taxes by approximately $9 million for the remainder of 2008. The reductions of interest income will be recognized into income over the remaining terms of the affected leveraged leases.

Trust, investment and other servicing fees from Corporate & Institutional Services (C&IS) increased 32% from the year-ago quarter to $409.2 million, primarily reflecting strong securities lending fees and new business, partially offset by lower market valuations. The largest component of C&IS fees is custody and fund administration fees, which increased 17% to $172.4 million. Securities lending fees totaled a record $149.9 million, up 104% compared with the second quarter last year, primarily reflecting improved spreads on the investment of cash collateral and an approximate $25 million partial recovery of prior period unrealized losses in one

 

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SECOND QUARTER PERFORMANCE HIGHLIGHTS (continued)

 

mark-to-market investment fund used in our securities lending activities. Fees from asset management in the quarter totaled $71.8 million, up 1%, which compares favorably with the decline experienced in the equity markets. Trust, investment and other servicing fees from Personal Financial Services (PFS) in the quarter increased 5% and totaled $235.9 million compared with $223.7 million a year ago. The increase in PFS fees resulted primarily from strong new business, partially offset by lower market valuations. Revenue growth continued to be broad-based, with all regions and the Wealth Management Group reporting year-over-year increases in fees.

C&IS assets under custody totaled $3.6 trillion, down 1% from a year ago, and included $2.0 trillion of global custody assets, a 5% increase compared with a year ago. C&IS assets under management totaled $608.6 billion, a 2% decrease from the prior year. PFS assets under custody totaled $325.9 billion, a 2% increase from $319.2 billion in the prior year quarter. PFS assets under management totaled $142.8 billion, a 1% decrease from $144.4 billion last year. The above are in comparison to the twelve month decline in the S&P 500 index of approximately 15% and in the EAFE index (USD) of approximately 13%.

Foreign exchange trading income reached a record $126.6 million, up 56% or $45.6 million from the performance in last year’s second quarter. The results reflect continued strong client volumes and higher currency volatility.

Revenues from security commissions and trading income equaled $20.4 million, up 36% from the prior year, driven by increased revenue from brokerage, interest rate protection products, and transition management services. Other operating income equaled $34.8 million, an increase of 23% compared with $28.3 million in the same period last year. The current quarter results include $2.8 million of valuation gains recorded on certain credit default swap contracts with outside counterparties used to mitigate credit risk associated with specific commercial credits, a gain on the redemption of an equity investment, and higher custody-related deposit revenue.

 

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SECOND QUARTER PERFORMANCE HIGHLIGHTS (continued)

 

Net interest income for the quarter, stated on a fully taxable equivalent basis, totaled $248.8 million, up 19% from $209.0 million reported in the prior year quarter. The current quarter includes the $29.4 million reduction from the leasing related adjustment. Absent this adjustment, net interest income for the current quarter would have increased 33% from the prior year quarter, reflecting higher levels of average earning assets. Average earning assets of $62.9 billion were 19% higher than a year ago, driven by growth in short term money market assets and loans. The net interest margin equaled 1.59%, unchanged from the prior year quarter. The net interest margin absent the leasing related adjustment would have been 1.78%, reflecting a widening of the spread between interest rates on short term investments and on overnight funding sources, including the impact of Federal Reserve Bank rate reductions.

The reserve for credit losses at June 30, 2008 of $183.1 million increased $5.3 million from the March 31, 2008 balance. The provision for credit losses was $10.0 million in the current quarter and net charge-offs totaled $4.7 million. The current quarter provision primarily reflects loan growth and the continued weakness in the broader economic environment. A $4.0 million provision was recorded in the prior year second quarter and net charge-offs totaled $2.3 million. Nonperforming loans totaled $30.1 million at June 30, 2008, compared with $27.7 million at March 31, 2008 and $26.8 million at June 30, 2007. The reserve for credit losses of $183.1 million included $10.6 million allocated to loan commitments and other off-balance sheet exposures. The remaining $172.5 million reserve assigned to loans and leases at June 30, 2008 represented a reserve to loan and lease ratio of .60%, compared with .62% at March 31, 2008 and .58% a year ago. Nonperforming loans of $30.1 million at quarter-end represented .10% of total loans and leases and were covered 5.7 times by the assigned reserve.

 

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SECOND QUARTER PERFORMANCE HIGHLIGHTS (continued)

 

Noninterest expenses totaled $643.3 million for the quarter, up 16% from $555.3 million in the year-ago quarter.

Compensation and employee benefit expenses totaled $368.7 million, up $58.6 million or 19% compared with the prior year quarter. The current quarter increase was driven by higher staff levels, higher performance-based compensation, annual salary increases, and higher employment taxes and health-care costs. Staff on a full-time equivalent basis at June 30, 2008 totaled 11,797, up 15% from a year ago.

The expenses associated with outside services totaled $106.2 million, up $12.5 million or 13% from $93.7 million last year. The current quarter increase primarily reflects higher expenses for technical and consulting services.

The remaining expense categories totaled $168.4 million, an increase of $16.9 million or 11% from the prior year quarter. The increase is primarily the result of significantly higher charges from account servicing activities, higher business promotion expenses, and a valuation adjustment of the liability established in this year’s first quarter in connection with the previously disclosed capital support agreements with eight Northern Trust investment vehicles. An additional charge of $1.2 million was recorded in the current quarter to bring the Corporation’s contingent liability under the agreements to the June 30, 2008 estimated fair value of $9.9 million. As of June 30, 2008, no capital contributions have been made under the agreements. On July 15, 2008, the Corporation extended the termination dates of the capital support agreements through February 28, 2009 with all other significant terms, including the maximum contribution limits, remaining unchanged.

The provision for income taxes of $212.5 million includes the $57.9 million increase resulting from the leasing related adjustments and represents an effective tax rate of 49.6%. In the prior year quarter, the provision for income taxes was $102.8 million and the effective tax rate was 33.2%. The effective tax rate for the current quarter, excluding the impact of the leasing adjustments, was 33.8%.

 

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This excerpt taken from the NTRS 8-K filed Apr 15, 2008.

FIRST QUARTER PERFORMANCE HIGHLIGHTS

Northern Trust’s first quarter consolidated revenues reached $1.15 billion, up 39% from last year’s first quarter. Current quarter noninterest income includes the previously discussed $167.9 million gain recorded upon the redemption of Visa shares. Absent this transaction, consolidated revenues would have totaled $978.1 million, up 19% from last year’s first quarter. Trust, investment and other servicing fees increased 8% from last year to $526.8 million and represented 54% of first quarter revenues, adjusted to exclude the gain on the Visa shares. Total fee-related income increased 17% to $712.0 million and represented 73% of adjusted total revenues.

Trust, investment and other servicing fees from Corporate & Institutional Services (C&IS) increased 9% from the year-ago quarter to $298.4 million, primarily reflecting strong new business, partially offset by a decline in securities lending fees. The largest component of C&IS fees is custody and fund administration fees, which increased 24% to a record $174.7 million. Securities lending fees totaled $31.9 million, down 30% compared with the first quarter last year, reflecting lower yields earned in one mark-to-market investment fund used in our securities lending activities. Fees from asset management in the quarter grew 4% from the prior year to $74.6 million. C&IS assets under custody totaled $3.7 trillion, up 6% from a year ago, and included $2.0 trillion of global custody assets, a 12% increase compared with a year ago. C&IS assets under management totaled $632.6 billion, a 3% increase from the prior year.

Trust, investment and other servicing fees from Personal Financial Services (PFS) in the quarter increased 6% and totaled $228.4 million compared with $214.7 million a year ago. The increase in PFS fees resulted primarily from strong new business. Revenue growth continued to be broad-based, with all regions and the Wealth Management Group reporting year-over-year increases in fees. PFS assets under custody totaled $322.2 billion, an 8% increase from $297.5 billion in the prior year. PFS assets under management totaled $146.0 billion, a 5% increase from $139.3 billion last year.

 

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FIRST QUARTER PERFORMANCE HIGHLIGHTS (continued)

 

Foreign exchange trading income reached a record of $113.2 million, up 69% or $46.0 million from the performance in last year’s first quarter. The results reflect continued strong client volumes and higher currency volatility.

Revenues from security commissions and trading income equaled $17.8 million, up 27% from the prior year. Other operating income was $31.8 million for the first quarter compared with $23.0 million in the same period last year. The majority of the current period increase reflects gains recorded on certain credit default swap contracts with outside counterparties used to mitigate credit risk associated with specific commercial loans. Investment security gains of $5.0 million were recognized during the quarter, including a $4.9 million gain on the sale of the remaining CME Group Inc. stock acquired from the demutualization and subsequent merger of the Chicago Mercantile Exchange and the Chicago Board of Trade.

Net interest income for the quarter, stated on a fully taxable equivalent basis, totaled a record $266.1 million, up 24% from $214.4 million reported in the prior year quarter. The increase reflects higher levels of average earning assets and an increase in the net interest margin. Average earning assets of $59.6 billion were 17% higher than a year ago driven by growth in short term money market assets and loans. The net interest margin equaled 1.79%, up from 1.71% in the prior year quarter, reflecting a widening of the spread between interest rates on short term investments and on overnight funding sources, including the impact of Federal Reserve Bank rate reductions.

The reserve for credit losses at March 31, 2008 of $177.8 million increased $17.6 million from the December 31, 2007 balance. The provision for credit losses was $20.0 million in the current quarter and net charge-offs totaled $2.4 million. The current quarter provision primarily reflects growth in the commercial portfolio and weakness in the broader economic environment. No provision was recorded in the prior year first quarter and net charge-offs totaled $2.2 million. Nonperforming loans totaled $27.7 million at March 31, 2008, compared with $23.2 million at December 31, 2007 and $35.1 million at March 31, 2007. The reserve for credit losses of $177.8 million included $12.4 million allocated to loan commitments and other off-balance sheet

 

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FIRST QUARTER PERFORMANCE HIGHLIGHTS (continued)

 

exposures. The remaining $165.4 million reserve assigned to loans and leases at March 31, 2008 represented a reserve to loan and lease ratio of .62%, compared with .58% at December 31, 2007 and .64% a year ago. Nonperforming loans of $27.7 million at quarter-end represented .10% of total loans and leases and were covered 6.0 times by the assigned reserve.

Noninterest expenses totaled $535.3 million for the quarter, up 2% from $525.9 million in the year-ago quarter. The current quarter includes a $76.1 million reduction of the Visa related indemnification reserves, established in last year’s fourth quarter, due to the previously discussed funding of the litigation escrow. Without this expense reduction, noninterest expenses would have totaled $611.4 million, up 16% from last year’s first quarter.

Compensation and employee benefit expenses totaled $343.5 million, up $42.2 million or 14% compared with last year. The current quarter increase was driven by higher staff levels, higher performance-based compensation, annual salary increases, and higher employment taxes and health-care costs. Staff on a full-time equivalent basis at March 31, 2008 totaled 11,323, up 14% from a year ago.

The expenses associated with outside services totaled $93.9 million, up $9.8 million or 12% from $84.1 million last year. The current quarter increase reflects volume driven growth in global subcustody and investment manager sub-advisor expenses, and higher expenses for legal, technical and consulting services.

 

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FIRST QUARTER PERFORMANCE HIGHLIGHTS (continued)

The remaining expense categories, excluding the Visa reserve reduction, totaled $174.0 million, an increase of $33.5 million or 24% from last year. The increase is primarily the result of increased business promotion and advertising expenses resulting from the sponsorship of the Northern Trust Open golf tournament, a valuation adjustment of the liability established in connection with the previously disclosed capital support agreements with eight Northern Trust investment vehicles, and higher charges from securities processing activities. Under the capital support agreements, Northern Trust has committed to provide capital to the covered funds, in certain defined circumstances and subject to maximum aggregate capital contribution limits, in order to provide stability to the funds and investors in the funds with respect to one investment downgraded by rating agencies. A charge of $8.7 million was recorded in the current quarter for the estimated fair value at March 31, 2008 of the Corporation’s contingent liability under the agreements. As of March 31, 2008, no capital contributions have been made under the agreements.

The provision for income taxes was $192.9 million resulting in an effective tax rate of 33.4%. In the prior year quarter, the provision for income taxes was $95.6 million and the effective tax rate was 33.9%. The lower effective rate for the current quarter relates to lower U.S. federal and state income tax provisions due to the benefit of earnings generated in tax jurisdictions outside the U.S. with more favorable rates.

 

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This excerpt taken from the NTRS 8-K filed Jan 16, 2008.

FOURTH QUARTER PERFORMANCE HIGHLIGHTS

Northern Trust’s fourth quarter consolidated revenues reached $972.8 million, up 25% from last year’s fourth quarter. Trust, investment and other servicing fees increased 19% from last year to $547.2 million and represented 56% of fourth quarter revenues. Total fee-related income increased 27% to $726 million and represented 75% of total revenues. Net interest income rose 19% to a record $246.8 million and foreign exchange trading income reached a record $111.2 million, increasing 105% from last year’s fourth quarter.

Trust, investment and other servicing fees from Corporate & Institutional Services (C&IS) increased 24% from the year-ago quarter to $314.6 million, reflecting strong new business and higher equity markets. The largest component of C&IS fees is custody and fund administration fees, which increased 29% to a record $167.7 million. Securities lending fees totaled $55.1 million, up 32% compared with the fourth quarter last year, reflecting higher volumes, partially offset by lower yields earned in one mark-to-market investment fund used in our securities lending activities. Fees from asset management in the quarter grew 12% from the prior year to a record $74.9 million. C&IS assets under custody totaled $3.8 trillion, up 17% from a year ago, and included $2.1 trillion of global custody assets, a 23% increase compared with a year ago. C&IS assets under management totaled $608.9 billion, an 8% increase from the prior year.

Trust, investment and other servicing fees from Personal Financial Services (PFS) in the quarter increased 14% and totaled a record $232.6 million compared with $203.8 million a year ago. The increase in PFS fees resulted primarily from strong new business and higher equity markets. Revenue growth continued to be broad-based, with all regions and the Wealth Management Group reporting year-over-year increases in fees. PFS assets under custody totaled $332.3 billion, an 18% increase from $281.9 billion in the prior year. PFS assets under management totaled $148.3 billion, a 10% increase from $134.7 billion last year.

 

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FOURTH QUARTER PERFORMANCE HIGHLIGHTS (continued)

 

Foreign exchange trading income reached a record of $111.2 million, up 105% or $56.9 million from the performance in last year’s fourth quarter. The results reflect continued strong client volumes and higher currency volatility.

Revenues from security commissions and trading income equaled $20.4 million, up 30% from the prior year. Other operating income was $30.5 million for the fourth quarter compared with $24.9 million in the same period last year.

Net interest income for the quarter, stated on a fully taxable equivalent basis, totaled a record $246.8 million, up 19% from $206.6 million reported in the prior year quarter. The increase reflects higher levels of average earning assets and an increase in the net interest margin. Average earning assets of $56.2 billion were 14% higher than a year ago driven by growth in short term money market assets, and loans and leases. The net interest margin equaled 1.74%, up from 1.67% in the prior year quarter. Implementation of FASB Staff Position No. 13-2, “Accounting for a Change or Projected Change in the Timing of Cash Flows Relating to Income Taxes Generated by a Leveraged Lease Transaction” (FSP 13-2), effective January 1, 2007, reduced current quarter net interest income on a fully taxable equivalent basis by approximately $3.5 million. The full year impact of FSP 13-2 reduced net interest income by approximately $13 million.

The reserve for credit losses at December 31, 2007 of $160.2 million increased $5.7 million from the September 30, 2007 balance. The provision for credit losses was $8.0 million in the current quarter, and net charge-offs totaled $2.3 million compared with $.4 million in the fourth quarter last year. Nonperforming loans totaled $23.2 million at December 31, 2007, compared with $23.4 million at September 30, 2007 and $35.7 million at December 31, 2006. The reserve for credit losses of $160.2 million included $12.1 million allocated to loan commitments and other off-balance sheet exposures. The remaining $148.1 million reserve assigned to loans and leases at December 31, 2007 represented a reserve to loan and lease ratio of .58%, compared with .57% at September 30, 2007 and .62% a year ago. Nonperforming loans of $23.2 million at quarter-end represented .09% of total loans and leases and were covered 6.4 times by the assigned reserve.

 

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FOURTH QUARTER PERFORMANCE HIGHLIGHTS (continued)

 

Noninterest expenses totaled $782.4 million for the quarter, up 52% from $514.6 million in the year-ago quarter. The current quarter includes the $150 million of Visa related indemnification charges previously discussed. Without these charges, noninterest expenses would have totaled $632.4 million, up 23% from last year’s fourth quarter.

Compensation and employee benefit expenses totaled $345.1 million, up $68.1 million or 25% compared with last year. The current quarter increase was driven by higher performance-based compensation, higher staff levels, annual salary increases, and higher employment taxes and health-care costs. Staff on a full-time equivalent basis at December 31, 2007 totaled 10,918, up 12% from a year ago.

The expenses associated with outside services totaled $109.1 million, up $20.1 million or 23% from $89.0 million last year. The current quarter increase reflects volume driven growth in global subcustody and investment manager sub-advisor expenses, and higher expenses for technical and consulting services.

The remaining expense categories totaled $328.2 million, an increase of $179.6 million from last year. The increase is primarily a result of the $150 million of Visa related indemnification charges. The increase also reflects significantly higher charges from securities processing activities, primarily as the result of two charges totaling approximately $11 million, and increased business promotion and advertising expenses.

The provision for income taxes was $42.7 million resulting in an effective tax rate of 25.5%. In the prior year quarter, the provision for income taxes was $71.3 million and the effective tax rate was 29.5%. The lower effective rate for the current quarter relates to a lower level of taxable earnings, lower U.S. federal and state income tax provisions due to a higher proportion of income generated in tax jurisdictions outside the U.S. with more favorable tax rates, and a net reduction in state income tax reserves.

 

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This excerpt taken from the NTRS 8-K filed Oct 17, 2007.

THIRD QUARTER PERFORMANCE HIGHLIGHTS

Northern Trust’s third quarter consolidated revenues reached $892.5 million, up 19% from last year’s third quarter. Trust, investment and other servicing fees increased 16% from last year to $508.8 million and represented 57% of third quarter revenues. Total fee-related income represented 74% of revenues. Net interest income rose 15% to $228.4 million and foreign exchange trading income reached a record $91.9 million, increasing 74% from last year’s third quarter.

Trust, investment and other servicing fees from Corporate & Institutional Services (C&IS) increased 16% from the year-ago quarter to $282.0 million, reflecting strong new business and higher equity markets. The largest component of C&IS fees is custody and fund administration fees, which increased 27% to a record $159.1 million. Securities lending fees totaled $33.0 million, down 19% compared with the third quarter last year. The current quarter performance was impacted by lower yields earned in one mark-to-market investment fund used in our securities lending activities. Fees from asset management in the quarter grew 15% from the prior year to $72.8 million. C&IS assets under custody totaled $3.8 trillion, up 24% from a year ago, and included $2.0 trillion of global custody assets, a 31% increase compared with a year ago. C&IS assets under management totaled $614.5 billion, a 14% increase from the prior year.

Trust, investment and other servicing fees from Personal Financial Services (PFS) in the quarter increased 17% and totaled a record $226.8 million compared with $194.1 million a year ago. The increase in PFS fees resulted primarily from strong new business and higher equity markets. Revenue growth continued to be broad-based, with all regions and the Wealth Management Group reporting year-over-year double-digit increases in fees. PFS assets under custody totaled $329.2 billion, a 36% increase from $242.8 billion in the prior year. PFS assets under management totaled $146.9 billion, a 15% increase from $127.9 billion last year.

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THIRD QUARTER PERFORMANCE HIGHLIGHTS (continued)

 

Foreign exchange trading income reached a record of $91.9 million, up 74% or $39.1 million from the performance in last year’s third quarter. The record results reflect continued strong client volumes and higher currency volatility attributable, in part, to the recent disruptions within the credit markets. Revenues from security commissions and trading income equaled $18.2 million, up 18% from the prior year. Other operating income was $22.8 million for the third quarter compared with $28.3 million in the same period last year.

An investment security gain of $6.3 million was recognized during the quarter resulting from the sale of CME Group Inc. stock acquired from the demutualizations and subsequent merger of the Chicago Mercantile Exchange and the Chicago Board of Trade.

Net interest income for the quarter, stated on a fully taxable equivalent basis, totaled a record $228.4 million, up 15% from $198.5 million reported in the prior year quarter. The increase reflects higher levels of average earning assets, partially offset by a decline in the net interest margin. Average earning assets of $53.7 billion were 18% higher than a year ago driven by growth in short term money market assets, loans and leases, and securities. The net interest margin equaled 1.69%, down from 1.73% in the prior year quarter. The decline in the net interest margin reflects significant growth in global custody-related deposits which have been invested primarily in short-term money market assets and securities. Implementation of FASB Staff Position No. 13-2, “Accounting for a Change or Projected Change in the Timing of Cash Flows Relating to Income Taxes Generated by a Leveraged Lease Transaction” (FSP 13-2), reduced current quarter net interest income on a fully taxable equivalent basis by approximately $2.5 million. The full year impact of FSP 13-2 is expected to reduce net interest income by approximately $13 million.

The reserve for credit losses at September 30, 2007 of $154.5 million increased $4.0 million from the June 30, 2007 balance. The provision for credit losses was $6.0 million in the current quarter, and net charge-offs totaled $2.0 million compared with $.1 million in the third quarter last year. Nonperforming loans totaled $23.4 million at September 30, 2007, compared with $26.8 million at June 30, 2007 and $32.1 million at September 30, 2006. The reserve for

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THIRD QUARTER PERFORMANCE HIGHLIGHTS (continued)

 

credit losses of $154.5 million included $11.3 million allocated to loan commitments and other off-balance sheet exposures. The remaining $143.2 million reserve assigned to loans and leases at September 30, 2007 represented a reserve to loan and lease ratio of .57%, compared with .58% at June 30, 2007 and .66% a year ago. Nonperforming loans of $23.4 million at quarter-end represented .09% of total loans and leases and were covered 6.1 times by the assigned reserve.

Noninterest expenses totaled $566.6 million for the quarter, up 19% from $477.0 million in the year-ago quarter.

Compensation and employee benefit expenses totaled $316.6 million, up $48.4 million or 18% compared with last year. The current quarter increase was driven by higher staff levels, higher performance-based compensation, annual salary increases, and higher employment taxes. Staff on a full-time equivalent basis at September 30, 2007 totaled 10,600 up 11% from a year ago.

The expenses associated with outside services totaled $99.3 million, up $23.6 million or 31% from $75.7 million last year. The current quarter increase reflects volume driven growth in global subcustody and investment manager sub-advisor expenses, and higher expenses for technical and consulting services.

The remaining expense categories totaled $150.7 million, an increase of 13% or $17.6 million from last year. The increase is a result of charges related to securities processing activities and increased occupancy, hiring, and employee relocation expenses.

The provision for income taxes was $92.8 million resulting in an effective tax rate of 30.8%. In the prior year quarter, the provision for income taxes was $86.8 million and the effective tax rate was 34.7%. The lower effective rate for the current quarter relates to management’s decision to reinvest indefinitely the earnings of certain non-U.S. subsidiaries, and a tax benefit resulting from new state tax legislation enacted during the quarter.

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This excerpt taken from the NTRS 8-K filed Jul 18, 2007.

SECOND QUARTER PERFORMANCE HIGHLIGHTS

Northern Trust’s second quarter consolidated revenues reached a record $882.4 million, up 11% from last year’s second quarter. Trust, investment and other servicing fees increased 18% from last year to a record $532.7 million and represented 60% of second quarter revenues. Total fee-related income represented 76% of revenues. Net interest income rose 5% to $208.6 million and foreign exchange trading income decreased slightly from the extremely strong levels recorded in last year’s second quarter.

Trust, investment and other servicing fees from Corporate & Institutional Services (C&IS) increased 19% from the year-ago quarter to a record $309.0 million, reflecting strong new business and higher equity markets. The largest component of C&IS fees is custody and fund administration fees, which increased 21% to a record $147.7 million. Securities lending fees totaled a record $73.4 million, also up 21% compared with the second quarter last year, reflecting higher volumes. Fees from asset management in the quarter grew 15% from the prior year to $71.4 million. C&IS assets under custody totaled $3.7 trillion, up 25% from a year ago, and included $1.9 trillion of global custody assets, a 34% increase compared with a year ago. C&IS assets under management totaled $622.1 billion, a 20% increase from the prior year.

Trust, investment and other servicing fees from Personal Financial Services (PFS) in the quarter increased 16% and totaled a record $223.7 million compared with $192.4 million a year ago. The increase in PFS fees resulted primarily from strong new business and higher equity markets. Revenue growth continued to be broad-based, with all regions and the Wealth Management Group reporting year-over-year increases in fees. PFS assets under custody totaled $319.2 billion, a 36% increase from $234.9 billion in the prior year. PFS assets under management totaled $144.4 billion, a 17% increase from $123.0 billion last year.

Foreign exchange trading income of $81.0 million was down 4% from the strong performance in last year’s second quarter. Revenues from security commissions and trading income equaled $15.0 million, down 7% from the prior year due primarily to lower revenues from transition management services. Other operating income was $28.7 million for the second quarter compared with $23.2 million in the same period last year. Gains totaling $4.9 million

 

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6


SECOND QUARTER PERFORMANCE HIGHLIGHTS (continued)

were recognized in the current quarter resulting from the sale of leased equipment at the end of the scheduled lease terms. In addition, a subsidiary located on the Isle of Man and acquired as part of the 2005 acquisition of the Baring Asset Management’s Financial Services Group, was sold during the quarter at a loss of $3.0 million.

Net interest income for the quarter, stated on a fully taxable equivalent basis, totaled $208.6 million, up 5% from $199.0 million reported in the prior year quarter. The increase reflects higher levels of average earning assets, partially offset by a decline in the net interest margin. Refinements to our implementation of the FASB Staff Position No. 13-2, “Accounting for a Change or Projected Change in the Timing of Cash Flows Relating to Income Taxes Generated by a Leveraged Lease Transaction” (FSP 13-2), reduced current quarter net interest income on a fully taxable equivalent basis by approximately $7.0 million, representing the entirety of the first half’s impact. The full year impact of FSP 13-2, including the current quarter’s adjustment, is expected to reduce net interest income by approximately $14 million. Average earning assets of $52.9 billion were 15% higher than a year ago driven by growth in short term money market assets, loans and leases, and securities. The net interest margin equaled 1.58%, down from 1.73% in the prior year quarter. The decline in the net interest margin reflects the impact of FSP 13-2 and the narrowing of the interest rate spread.

The reserve for credit losses at June 30, 2007 of $150.5 million increased $1.7 million from the March 31, 2007 balance. The provision for credit losses was $4.0 million in the current quarter compared with $3.0 million in the prior year quarter. Net charge-offs in the quarter totaled $2.3 million compared with $.6 million of net recoveries in the second quarter last year. Nonperforming loans totaled $26.8 million at June 30, 2007, compared with $35.1 million at March 31, 2007 and $30.1 million at June 30, 2006. The reserve for credit losses of $150.5 million included $11.2 million allocated to loan commitments and other off-balance sheet exposures. The remaining $139.3 million reserve assigned to loans and leases at June 30, 2007 represented a reserve to loan and lease ratio of .58%, compared with .64% at March 31, 2007 and .63% a year ago. Nonperforming loans of $26.8 million at quarter-end represented .11% of total loans and leases and were covered 5.2 times by the assigned reserve.

 

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SECOND QUARTER PERFORMANCE HIGHLIGHTS (continued)

Noninterest expenses totaled $555.3 million for the quarter, up 13% from $492.0 million in the year-ago quarter.

Compensation and employee benefit expenses totaled $310.1 million, up $33.1 million or 12% compared with last year. The current quarter increase was driven by higher staff levels, annual salary increases, higher performance-based compensation, and higher employment taxes and health care costs. Staff on a full-time equivalent basis at June 30, 2007 totaled 10,248, up 10% from a year ago.

The expenses associated with outside services totaled $93.7 million, up $17.1 million or 22% from $76.6 million last year. The current quarter increase reflects volume driven growth in global subcustody and investment manager sub-advisor expenses, and higher expenses for technical and consulting services.

The remaining expense categories totaled $151.5 million, an increase of 9% or $13.1 million from last year. The increase is a result of higher equipment and software expense, which included a computer software write-down, and increased occupancy and advertising costs.

The provision for income taxes was $102.8 million resulting in an effective tax rate of 33.2%. In the prior year quarter, the provision for income taxes was $113.3 million and the effective tax rate was 40.3%. The prior year quarter included approximately $15 million of additional tax reserves related to leveraged leasing transactions. After adjusting for these prior year reserves, the lower effective rate for the current year relates to management’s decision to reinvest indefinitely the earnings of certain non-U.S. subsidiaries and a tax benefit associated with a revision of state tax related cash flows on leveraged leasing transactions which resulted from a periodic review of state tax rates and apportionment factors.

 

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This excerpt taken from the NTRS 8-K filed Apr 17, 2007.

FIRST QUARTER PERFORMANCE HIGHLIGHTS

 

Northern Trust’s first quarter consolidated revenues reached a record $823.8 million, up 11% from last year’s first quarter. Trust, investment and other servicing fees increased 10% from last year to a record $488.9 million and represented 59% of first quarter revenues. Total fee-related income represented 74% of revenues. Net interest income rose 10% from a year ago to a record $210.3 million and foreign exchange trading income increased 20% to $67.2 million.

Trust, investment and other servicing fees from Corporate & Institutional Services (C&IS) increased 8% from the year-ago quarter to a record $274.2 million, reflecting strong new business and higher equity markets. Growth in our international business resulted in a 12% increase in custody and fund administration fees to $140.7 million. Custody and fund administration fees in the prior year quarter included a nonrecurring revenue accrual of approximately $4.5 million. Securities lending fees totaled $45.6 million, down 6% compared with the exceptionally strong performance last year. Results were impacted by lower spreads on the investment of cash collateral, offset in part by higher volumes. Fees from asset management in the quarter grew 12% from the prior year to $71.5 million. C&IS assets under custody totaled $3.5 trillion, up 20% from a year ago, and included $1.8 trillion of global custody assets, a 30% increase compared with a year ago. C&IS assets under management totaled $616.5 billion, a 16% increase from the prior year.

Trust, investment and other servicing fees from Personal Financial Services (PFS) in the quarter increased 14% and totaled a record $214.7 million compared with $188.9 million a year ago. The increase in PFS fees resulted primarily from strong new business results and higher equity markets. Revenue growth continued to be broad-based, with all regions and the Wealth Management Group reporting year-over-year increases in fees. PFS assets under custody totaled $291.8 billion, a 24% increase from $235.6 billion in the prior year. PFS assets under management totaled $139.3 billion, a 15% increase from $121.5 billion last year.

 

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FIRST QUARTER PERFORMANCE HIGHLIGHTS (continued)

 

Foreign exchange trading income of $67.2 million increased 20% from the prior year quarter, primarily driven by strong client volumes. Revenues from security commissions and trading income equaled $14.0 million, down 10% from the prior year. Other operating income was $27.1 million for the first quarter compared with $21.4 million in the same period last year. Approximately half of the increase in other operating income reflects the foreign exchange rate impact of translating non-U.S. assets and liabilities.

Net interest income for the quarter, stated on a fully taxable equivalent basis, totaled $210.3 million, up 10% from $190.6 million reported in the prior year quarter. The increase reflects higher levels of average earning assets, partially offset by a decline in the net interest margin. Average earning assets of $50.9 billion were 18% higher than a year ago driven by growth in short term money market assets, loans and leases, and securities. The net interest margin equaled 1.68%, down from 1.79% in the prior year quarter. The decline in the net interest margin reflects the significant growth in global custody-related deposits which have been invested primarily in short-term money market assets and securities.

The reserve for credit losses at March 31, 2007 of $148.8 million decreased $2.2 million from the December 31, 2006 balance. There was no provision for credit losses in the current quarter compared with $4.0 million in the prior year quarter. Net charge-offs in the quarter totaled $2.2 million compared with $.1 million in the first quarter last year. Nonperforming loans totaled $35.1 million at March 31, 2007, compared with $35.7 million at December 31, 2006 and $31.1 million at March 31, 2006. The reserve for credit losses of $148.8 million included $10.5 million allocated to loan commitments and other off-balance sheet exposures. The remaining $138.3 million reserve assigned to loans and leases at March 31, 2007 represented a reserve to loan ratio of .64%, compared with .62% at December 31, 2006 and .65% a year ago. Nonperforming loans of $35.1 million at quarter-end represented .16% of total loans and leases and were covered 3.9 times by the assigned reserve.

 

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FIRST QUARTER PERFORMANCE HIGHLIGHTS (continued)

 

Noninterest expenses totaled $525.9 million for the quarter, up 11% from $473.3 million in the year-ago quarter.

Compensation and employee benefit expenses totaled $301.3 million, up $29.3 million or 11% compared with last year. The current quarter increase was driven by increased staff levels, annual salary increases, higher performance-based compensation, and higher health care costs. Staff on a full-time equivalent basis at March 31, 2007 totaled 9,940, up 9% from a year ago.

Other expense categories totaled $224.6 million, up $23.3 million or 12% from $201.3 million last year. The current quarter increase reflects volume driven growth in global subcustody expense, higher expenses for technical and consulting services, a litigation reserve accrual, higher computer software amortization, and increased advertising costs.

The provision for income taxes was $95.6 million resulting in an effective tax rate of 33.9%. In the prior year quarter, the provision for income taxes was $87.4 million and the effective tax rate was 34.9%. The lower effective rate reflects management’s decision to reinvest indefinitely the earnings of certain non-U.S. subsidiaries.

"FIRST QUARTER PERFORMANCE HIGHLIGHTS" elsewhere:

Valley National Bancorp (VLY)
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