Capital Structure

Total stockholders' equity averaged $6.9 billion, up 6.0% y/y from $6.5 billion in 1Q10, primarily reflecting the retention of earnings, partially offset by the repurchase of common stock pursuant to the company’s share buyback program.

During the quarter, Northern Trust repurchased 701,146 shares at a cost of $36.4 million ($51.88 average price per share). An additional 6.5 million shares are authorized for repurchase after March 31, 2011 under the current share buyback program.

Northern Trust and its subsidiary banks' risk-based capital ratios remained strong as of March 31, 2011. Tier 1 capital ratio of 13.5%, total risk-based capital ratio of 15.4% and leverage ratio of 8.5% exceeded the regulatory requirements of 6.0%, 10.0%, and 5.0%, respectively, for classification as a "well capitalized" institution established by U.S. banking regulators. Return on average common equity was 8.9% in the quarter compared with 9.9% in 1Q10 and 9.1% in 1Q11.

The ratio of Tier 1 common equity to risk-weighted assets, a non-GAAP financial measure, was 13.0% as of March 31, 2011, up from 12.8% as of March 31, 2010 and in line with 13.0% as of December 31, 2010.

Regulations

The recession is undergoing a slow recovery, with uncertain prospects coupled with changes within the financial services industry and regulatory actions such as the Dodd-Frank Wall Street Reform and Consumer Protection Act, which was signed into law in July 2010. The Dodd-Frank Act, among other things, may affect the company’s leverage limits and risk-based capital and liquidity requirements. It could increase regulatory fees and deposit insurance assessments, and impose restrictions that will affect the company’s businesses. Until the regulations of the Dodd-Frank Act are finalized, the company will not be able to fully assess the legislative impact on its businesses.

As part of its audit of federal tax returns filed from 1997–2004, the Internal Revenue Service (IRS) challenged Northern Trust’s tax position, with respect to certain structured leasing transactions and proposed to disallow certain tax deductions and assess related interest and penalties. There have been no changes to December 31, 2010 leveraged lease related uncertain tax position balance of $66.7 million. Due to the settlement discussions that have taken place with the IRS Appeals Office, it is anticipated that these remaining unrecognized tax benefits related to leasing will be settled in 2011. It is possible that additional changes in the amount of leveraged lease related uncertain tax positions and related cash flows could occur in the next twelve months if Northern Trust terminates some or all of these leases, is not able to resolve this matter with the IRS, or if management becomes aware of new information that would lead it to change its assumptions regarding the timing or amount of any potential payments to the IRS. Northern Trust does not believe that future changes, if any, would have a material effect on its consolidated financial position or liquidity, although they could have a material effect on operating results for a particular period.

Dividend

On April 19, 2011, Northern Trust declared a quarterly cash dividend of $0.28 per share on its common stock ($1.66-2/3 par value). The dividend is payable on July 1, 2011 to stockholders of record on June 10, 2011.

On April 1, 2011, Northern Trust paid a quarterly cash dividend of $0.28 per share on its common stock ($1.66-2/3 par value) to stockholders of record as of March 10, 2011.

On January 3, 2011, Northern Trust paid a quarterly cash dividend of $0.28 per share on its common stock to stockholders of record as of December 10, 2010.