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Financial Overview
  Service                Expertise   Integrity
                                                 & Persp...
Today’s Agenda



                     Financial Overview & Perspectives

                       Strong Performance Over t...
Strong Financial
  Service                Expertise   Integrity
                                                 Performan...
20 Years of History: Economic Shocks & Cycles
                                                 2000:
                     ...
20 Years of History: Interest Rate Environment

     Average U.S. Federal Funds                      2000:
               ...
20 Years of History: Successfully Navigated by Northern Trust

    NTRS Net Income ($ Millions)                           ...
Financial Overview
  Service                Expertise   Integrity




                                                 Pri...
NTRS: Record Financial Performance in 2007


                                                                             ...
NTRS: Excellent Financial Performance Continued in 1Q08


                                                                ...
Long-Term, Strategic Financial Targets Met in 2007


                                                                     ...
Strong Growth in Client Assets…

             …in stark contrast to equity markets.
                                      ...
Trust, Investment & Other Servicing Fees…

     …continue to dominate revenue profile.

                                  ...
A Hallmark of Northern Trust: Positive Operating Leverage*

We have achieved positive or neutral operating leverage in 17 ...
A Hallmark of Northern Trust: Positive Operating Leverage*

 We have achieved positive or neutral operating leverage in 17...
Financial Perspectives in Focus




                             Net Interest Income

                             Credit ...
Focus on Net Interest Income
              Strong Growth in Net Interest Income…
          …through various interest rate ...
Focus on Credit Quality
       Outstanding Credit Quality Relative to Peer Banks

     Consistent top-tier credit quality ...
Focus on Capital Management
     Strong and Conservative Capital Management
First Quarter 2008 was the 80th consecutive qu...
Focus on Capital Management
       Strong and Conservative Capital Management
Strong Capital Ratios Consistently Exceed
Re...
Focus on Business Unit Financials
      PFS Income Statement


                                          Fiscal Year      ...
Focus on Business Unit Financials
     PFS Trust, Investment & Other Servicing Fees
     ($ Millions)


                  ...
Focus on Business Unit Financials
     C&IS Income Statement

                                            Fiscal Year     ...
Focus on Business Unit Financials
     C&IS Trust, Investment & Other Servicing Fees
     ($ Millions)

                  ...
Focus on Business Unit Financials
       C&IS and PFS – A Balanced Mix
       Full Year 2007


                           ...
Current Topics
  Service                Expertise   Integrity
                                                 of Interest...
Current Topics of Interest
          Conservative Securities Portfolio
High Quality Portfolio
                            ...
Current Topics of Interest
          Diversified and High Quality Loan Portfolio
Top-Tier Credit Quality
     Relationship...
Current Topics of Interest
     Capital Support Agreements for Cash Funds
Executed on February 21, 2008

     Though not o...
Current Topics of Interest
     Securities Lending
     Quarterly Fees ($ Millions)


                                    ...
Current Topics of Interest
     Securities Lending
     Quarterly Fees ($ Millions)


                                    ...
Key Takeaways


                     Northern Trust:

                       Business model centered around
              ...
Financial Overview
  Service                Expertise   Integrity
                                                 & Persp...
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Transcript of "ntrs_investor_day_cfo"

  1. 1. Financial Overview Service Expertise Integrity & Perspectives Steven L. Fradkin Executive Vice President & Chief Financial Officer Principles That Endure INVESTOR DAY 2008 © 2008 Northern Trust Corporation
  2. 2. Today’s Agenda Financial Overview & Perspectives Strong Performance Over the Long-Term Financial Overview Financial Perspectives in Focus Current Topics of Interest Service Expertise Integrity 2
  3. 3. Strong Financial Service Expertise Integrity Performance Over the Long-Term Principles That Endure INVESTOR DAY 2008 © 2008 Northern Trust Corporation
  4. 4. 20 Years of History: Economic Shocks & Cycles 2000: Y2K financial infrastructure scare; 2008: Start of 2-year stock Bear 2004-05: bear market Stearns 2003: Disastrous bailout Second hurricane Persian seasons 1998: Gulf War LTCM collapse; (Iraq) Russian debt default; Global currency crisis 1991: Soviet Union 2004-07: 1994: collapse Oil spike Fed rate 2001: 1989: from $30 squeeze 9/11 attack; Commercial to $90 per and bond Invasion of Real Estate 3/31/08 barrel bear Afghanistan Bubble S&P 500: market bursting 1322.70 1991: 2002: Persian 1995: 10/19/87: Accounting 2007: Gulf War Mexican & Latin Black Monday: scandals: Subprime (Kuwait) American debt crises S&P 500 Enron, mortgage declines 20% Worldcom, market Tyco, & collapse & 1993: Global debt market Orange County Crossing liquidity bankruptcy crisis crunch 1990-1991: Recession 9/30/87 S&P 500: 321.83 Service Expertise Integrity 4
  5. 5. 20 Years of History: Interest Rate Environment Average U.S. Federal Funds 2000: Y2K financial Effective Rate infrastructure scare; 2008: Start of 2-year stock Bear 2004-05: bear market 1989 = 9.21% Stearns 2003: Disastrous bailout Second hurricane Persian seasons 1998: Gulf War LTCM collapse; (Iraq) Russian debt default; Global currency crisis 1988 = 7.57% 1991: Soviet Union 2004-07: 1994: collapse Oil spike Fed rate 2001: 1989: from $30 squeeze 9/11 attack; Commercial to $90 per and bond Invasion of Real Estate 3/31/08 2007 = 5.02% barrel bear Afghanistan Bubble S&P 500: market bursting 1322.70 1991: 2002: Persian 1995: 10/19/87: Accounting 2007: Gulf War Mexican & Latin Black Monday: scandals: Subprime (Kuwait) American debt crises S&P 500 Enron, mortgage declines 20% Worldcom, market Tyco, & collapse & 1993: debt market = 3.18% 2008 Global Orange County Crossing liquidity bankruptcy crisis crunch 1990-1991: Recession 2003 = 1.13% 9/30/87 S&P 500: 321.83 Service Expertise Integrity 5
  6. 6. 20 Years of History: Successfully Navigated by Northern Trust NTRS Net Income ($ Millions) 2000: Y2K financial $821 infrastructure scare; 1988-2007 CAGR = 11% 2008: Start of 2-year stock Bear S&P 500 1988-2007 CAGR = 8% 2004-05: bear market 1989 = 9.21% Stearns 2003: Disastrous bailout Second hurricane Persian seasons $665 1998: Gulf War LTCM collapse; (Iraq) Russian debt default; $584 Global currency crisis 1988 = 7.57% 1991: Soviet $506 $485 $488 Union 2004-07: 1994: collapse $447 Oil spike Fed rate 2001: 1989: from $30 squeeze 9/11 attack; $405 $405 Commercial to $90 per and bond Invasion of Real Estate 3/31/08 2007 = 5.02% barrel bear $354 Afghanistan Bubble S&P 500: market bursting 1322.70 $309 1991: 2002: $259 Persian 1995: 10/19/87: Accounting 2007: Gulf War Mexican & Latin $220 Black Monday: scandals: Subprime (Kuwait) American debt crises S&P 500 Enron, mortgage $168 $182 declines 20% Worldcom, market $150 Tyco, & collapse & $127 1993: debt market = 3.18% 2008 $109 $113 $115 Global Orange County Crossing liquidity bankruptcy crisis crunch 1990-1991: Recession 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 1.13%2005 2006 2007 2003 = 2004 9/30/87 *2007 excludes Visa-related items. Please see Northern Trust's 2007 Financial Annual Report and Form S&P 500: 321.83 10-K for reported results prepared in accordance with generally accepted accounting principles. Service Expertise Integrity 6
  7. 7. Financial Overview Service Expertise Integrity Principles That Endure INVESTOR DAY 2008 © 2008 Northern Trust Corporation
  8. 8. NTRS: Record Financial Performance in 2007 Fiscal Year % Growth 2007 2006 to 2007 Trust, Inv. & Other Servicing Fees $2,078 Million +16% Other Non-Interest Income $600 Million +26% Net Interest Income $894 Million +13% Total Revenues $3,572 Million +17% Non-Interest Expenses* $2,280 Million +17% Net Income* $821 Million +23% Earnings Per Share* $3.66 +22% Assets Under Custody $4.1 Trillion +17% Global Custody Assets $2.1 Trillion +23% Assets Under Management $757 Billion +9% *Excludes Visa-related items. Please see Northern Trust's 2007 Financial Annual Report and Form 10-K for reported results prepared in accordance with generally accepted accounting principles. Service Expertise Integrity 8
  9. 9. NTRS: Excellent Financial Performance Continued in 1Q08 Year-to-Date % Growth 3/31/08 2007 to 2008 Trust, Inv. & Other Servicing Fees $527 Million +8% Other Non-Interest Income* $185 Million +54% Net Interest Income $266 Million +24% Total Revenues* $978 Million +19% Non-Interest Expenses* $611 Million +16% Net Income* $232 Million +24% Earnings Per Share* $1.03 +23% Assets Under Custody $4.0 Trillion +6% Global Custody Assets $2.0 Trillion +12% Assets Under Management $779 Billion +3% *Excludes Visa-related items. Please see Northern Trust's Form 10-Q for the first quarter of 2008 for reported results prepared in accordance with generally accepted accounting principles. Service Expertise Integrity 9
  10. 10. Long-Term, Strategic Financial Targets Met in 2007 Full Year Full Year Full Year Full Year Annual Target 2007* 2005 2004 2006 Revenue Growth 16.7% 15.5% 8.6% 13.9% 8% - 10% Positive +0.2 +2.3 +3.4 +1.2 Operating Leverage EPS Growth 22.0% 16.0% 26.0% 13.6% 10% - 12% Return on Equity 19.7% 17.0% 16.1% 17.6% 16% - 18% *Excludes Visa-related items. Please see Northern Trust's 2007 Financial Annual Report and Form 10-K for reported results prepared in accordance with generally accepted accounting principles. Service Expertise Integrity 10
  11. 11. Strong Growth in Client Assets… …in stark contrast to equity markets. Assets Assets Under Custody Global Custody Assets Under Management $4.0 Trillion $2.0 Trillion $779 Billion +21% +32% +20% CAGR CAGR CAGR (12/31/02 – 3/31/08) (12/31/02 – 3/31/08) (12/31/02 – 3/31/08) $4.4 $2.0 $800 $3.3 $1.5 $600 $2.2 $1.0 $400 $1.1 $0.5 $200 $0.0 $0 $0.0 2003 2004 2005 2006 2007 1Q08 2003 2004 2005 2006 2007 1Q08 2003 2004 2005 2006 2007 1Q08 5 Year Dow Jones S&P 500 NASDAQ EAFE CAGR: +8% +8% +11% +15% Service Expertise Integrity 11
  12. 12. Trust, Investment & Other Servicing Fees… …continue to dominate revenue profile. $2,078 Consolidated Trust, Investment & Other Servicing Fees ($ Millions) $1,792 $1,559 $1,330 $1,189 2003 2004 2005 2006 2007 % of Total 55% 57% 58% 59% 58% Revenues Service Expertise Integrity 12
  13. 13. A Hallmark of Northern Trust: Positive Operating Leverage* We have achieved positive or neutral operating leverage in 17 of the last 20 years. +6% +5% +4% +2% +2% +2% +2% +1% +1% +1% +1% +1% +0% +0% +0% +0% +0% -2% -3% -5% 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Note: Calculations prior to 1999 based on actual reported results. 1999-2005 calculations restated for sale of NTRC business and exclude certain nonrecurring revenue and expense items in 2003 and 2004. 2007 excludes the 4Q07 VISA charge. *Revenue Growth less Expense Growth Service Expertise Integrity 13
  14. 14. A Hallmark of Northern Trust: Positive Operating Leverage* We have achieved positive or neutral operating leverage in 17 of the last 20 years… through various market and interest rate environments. +6% +5% +4% +2% +2% +2% +2% +1% +1% +1% +1% +1% +0% +0% +0% +0% +0% -2% -3% -5% 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 S&P +12% +27% -7% +26% +5% +7% -2% +34% +20% +31% +27% +20% -10% -13% -23% +26% +9% +3% +14% +4% 500 Avg. Fed 7.6% 9.2% 8.1% 5.7% 3.5% 3.0% 4.2% 5.8% 5.3% 5.5% 5.4% 5.0% 6.2% 3.9% 1.7% 1.1% 1.4% 3.2% 5.0% 5.0% Funds Note: Calculations prior to 1999 based on actual reported results. 1999-2005 calculations restated for sale of NTRC business and exclude certain nonrecurring revenue and expense items in 2003 and 2004. 2007 excludes the 4Q07 VISA charge. *Revenue Growth less Expense Growth Service Expertise Integrity 14
  15. 15. Financial Perspectives in Focus Net Interest Income Credit Quality Capital Management Business Unit Financial Performance Service Expertise Integrity 15
  16. 16. Focus on Net Interest Income Strong Growth in Net Interest Income… …through various interest rate cycles. $950 12% $908 $850 $810 $735 $750 9% $651 $648 $622 $621 $650 $603 $557 $550 6% $513 $471 $450 $350 3% Average Annual Fed Funds Rate $250 $150 0% 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Avg. Earning Assets ($BN) 21.6 24.6 27.2 30.7 32.0 33.6 34.8 37.0 40.5 46.0 53.4 Service Expertise Integrity 16
  17. 17. Focus on Credit Quality Outstanding Credit Quality Relative to Peer Banks Consistent top-tier credit quality rankings. Notably better than peer averages in each category. Peer* NTRS Average As of March 31, 2008 Non-Performing Assets 1.18% 0.13% as a % of Loans Loan Loss Reserve as a 168% 463% % of Non-Performing Assets Net Charge-Offs to Average Loans 1.01% 0.04% *Peer group consists of the 20 largest U.S. Bank Holding Companies in terms of total balance sheet assets. Source: SNL Financial Service Expertise Integrity 17
  18. 18. Focus on Capital Management Strong and Conservative Capital Management First Quarter 2008 was the 80th consecutive quarter (or 20 years) of increasing common equity. $4.8 End-of-Period Common Equity ($ Billions) $4.5 10-Year Compound Annual Growth Rate: 11% $3.9 $3.6 $3.3 $3.1 $2.9 $2.7 $2.3 $2.1 $1.8 $1.6 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1Q08 Service Expertise Integrity 18
  19. 19. Focus on Capital Management Strong and Conservative Capital Management Strong Capital Ratios Consistently Exceed Regulatory “Well Capitalized” Guidelines. Tier 1 Capital Ratio Total Risk Based Ratio Leverage Ratio Well Capitalized Guideline = 6% Well Capitalized Guideline = 10% Well Capitalized Guideline = 5% 14.0% 13.3% 12.3% 11.9% 11.9% 11.1% 11.0% 9.8% 9.7% 9.7% 7.6% 7.6% 7.1% 6.8% 6.7% 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007 Service Expertise Integrity 19
  20. 20. Focus on Business Unit Financials PFS Income Statement Fiscal Year % Growth 2007 2006 to 2007 Trust, Inv. & Other Servicing Fees $898 Million +15% Other Non-Interest Income $99 Million +3% Net Interest Income $514 Million +3% Total Revenues $1,511 Million +10% Non-Interest Expenses $944 Million +10% Provision for Credit Losses $14 Million +129% Income Before Income Tax $554 Million +8% Provision for Income Tax $215 Million +8% Net Income $339 Million +8% Service Expertise Integrity 20
  21. 21. Focus on Business Unit Financials PFS Trust, Investment & Other Servicing Fees ($ Millions) $898 $779 $708 $650 $599 2003 2004 2005 2006 2007 5-YEAR CAGR +8% Service Expertise Integrity 21
  22. 22. Focus on Business Unit Financials C&IS Income Statement Fiscal Year % Growth 2007 2006 to 2007 Trust, Inv. & Other Servicing Fees $1,180 Million +17% Other Non-Interest Income $477 Million +32% Net Interest Income $409 Million +30% Total Revenues $2,066 Million +22% Non-Interest Expenses $1,224 Million +20% Provision for Credit Losses $5 Million -50% Income Before Income Tax $837 Million +27% Provision for Income Tax $311 Million +16% Net Income $526 Million +34% Service Expertise Integrity 22
  23. 23. Focus on Business Unit Financials C&IS Trust, Investment & Other Servicing Fees ($ Millions) $1,180 $1,012 $852 $680 $590 2003 2004 2005 2006 2007 5-YEAR CAGR +16% Service Expertise Integrity 23
  24. 24. Focus on Business Unit Financials C&IS and PFS – A Balanced Mix Full Year 2007 PFS C&IS $2,066 $526 40.5% 36.7% $1,511 $339 25.5% 22.4% Total Revenues Net Income Pre-Tax After-Tax ($ Millions) ($ Millions) Profit Margin Profit Margin Service Expertise Integrity 24
  25. 25. Current Topics Service Expertise Integrity of Interest Principles That Endure INVESTOR DAY 2008 © 2008 Northern Trust Corporation
  26. 26. Current Topics of Interest Conservative Securities Portfolio High Quality Portfolio Composition % of ($ Millions) 92% of Northern Trust’s total Total 3/31/08 securities portfolio was composed Securities – Available for Sale of triple-A rated securities U.S. Government $ 20.3 nm 95% of Asset Backed Securities Obligations of States / Political Subdivisions 33.0 nm rated triple-A Government Sponsored Agency 7,856.0 70% Asset-Backed 1,779.3 16% Exposure to subprime Asset Backed securities relative to the Other 388.5 3% overall portfolio was minimal at Total Securities – Available for Sale 10,077.1 89% less than 4% Securities – Held to Maturity 90% of subprime Asset-Backed Obligations of States / Political Subdivisions 852.9 8% Securities rated triple-A Government Sponsored Agency 12.8 nm Other 310.3 3% Total gross unrealized losses on the securities portfolio were Total Securities – Held to Maturity 1,176.0 11% $159 million Other 11.4 nm Total Securities $11,264.5 100% All data is as of March 31, 2008 Service Expertise Integrity 26
  27. 27. Current Topics of Interest Diversified and High Quality Loan Portfolio Top-Tier Credit Quality Relationship-based lending practices Nonperforming assets totaled $35.7 million, down nearly 4% from the year-ago Composition % of quarter ($ Billions) 3/31/08 Total Nonperforming assets represent only U.S. 0.13% of total outstanding loans, an Residential Real Estate $ 9.3 35% improvement from 0.17% in the year ago quarter Commercial 6.4 24% Commercial Real Estate 2.4 9% Nonperforming assets are covered 4.6 times by current credit loss reserves Personal 3.8 14% as compared to 3.7 times in the year Other 1.6 6% ago quarter Lease Financing 1.1 4% Northern Trust does not: Total U.S. 24.7 92% Underwrite mortgage loans to Non-U.S. 2.1 8% sub-prime borrowers Total Loans and Leases $ 26.8 100% Lend directly to hedge funds Provide bridge financing to private equity deals Offer an off-balance sheet commercial paper conduit for client liquidity All data is as of March 31, 2008 Service Expertise Integrity 27
  28. 28. Current Topics of Interest Capital Support Agreements for Cash Funds Executed on February 21, 2008 Though not obligated to do so, Northern Trust entered into Capital Support Agreements (“CSA”) with an aggregate maximum contribution of $229 million, largely for the benefit of our clients. The CSAs expire no later than July 31, 2008 The CSAs support eight cash funds which invest in the recently downgraded Whistlejacket and White Pine SIVs (collectively known as “Whistlejacket”). Capital support will be provided to any affected cash fund which disposes of Whistlejacket at a loss and, as a result, breaches a designated minimum NAV. The capital contribution will, up to the extent of the disposition loss, restore the NAV to the minimum threshold level, generally 99.5%. In the event the entire $229 million in capital support is utilized, Northern Trust Corporation’s capital ratios would decline by approximately 20 to 30 basis points – a marginal decrease. As of March 31, 2008, no capital contributions have been made under the agreements. The estimated fair value of the agreements was $8.7 million as of March 31, 2008. Service Expertise Integrity 28
  29. 29. Current Topics of Interest Securities Lending Quarterly Fees ($ Millions) Actual 2007 Actual Y-o-Y Growth First Quarter $ 45.6 (6%) Second Quarter 73.4 21% Third Quarter 33.0 (19%) Fourth Quarter 55.1 32% Total $ 207.1 8% 2008 First Quarter $ 31.9 (30%) Service Expertise Integrity 29
  30. 30. Current Topics of Interest Securities Lending Quarterly Fees ($ Millions) Proforma* Actual 2007 Actual Y-o-Y Growth Proforma* Y-o-Y Growth First Quarter $ 45.6 (6%) Second Quarter 73.4 21% Third Quarter 33.0 (19%) $ 69.0 70% Fourth Quarter 55.1 32% 101.1 142% Total $ 207.1 8% $ 289.1 51% 2008 First Quarter $ 31.9 (30%) $ 124.9 174% *Reflects securities lending fees on a proforma basis for each period had clients chosen our most commonly used collateral pool instead of the marked-to-market portfolio. Service Expertise Integrity 30
  31. 31. Key Takeaways Northern Trust: Business model centered around clients with real needs Strong and differentiated financial positioning Conservatively managed, while generating high performance results A focused and disciplined business model, across cycles Financial success achieved for clients, investors and other constituents through principles that endure Service Expertise Integrity 31
  32. 32. Financial Overview Service Expertise Integrity & Perspectives Steven L. Fradkin Executive Vice President & Chief Financial Officer Principles That Endure INVESTOR DAY 2008 © 2008 Northern Trust Corporation
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