NTRS

Northern Trust Corporation (NTRS)

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Northern Trust Corporation (NTRS)

Q1 2010 Earnings Call Transcript

April 20, 2010 10:00 am ET

Executives

Bev Fleming – Director, IR

Bill Morrison – EVP and CFO

Analysts

Betsy Graseck – Morgan Stanley

Robert Lee – KBW

Mike Mayo – CLSA

Brian Foran – Goldman Sachs

Brian Bedell – ISI Group

Howard Chen – Credit Suisse

Gerard Cassidy – RBC Capital Markets

Clare Hart – JP Morgan

Presentation

Operator

Good day everyone, and welcome to the Northern Trust Corporation first quarter 2010 earnings conference call. Today’s call is being recorded. At this time I would like to turn the call over to the Director of Investor Relations, Bev Fleming for opening remarks and introductions. Please go ahead.

Bev Fleming

Thank you Andrea. Welcome to Northern Trust Corporation’s first quarter 2010 earnings conference call. Joining me on our call this morning are Bill Morrison, Northern Trust’s Chief Financial Officer; Aileen Blake, our controller, and Preeti Sullivan from our investor relations team. Also joining us this morning is Allison Quentin [ph], who will be joining the investor relations team in Northern Trust in May, as Preeti embarks on a new role in corporate and institutional services. We welcome Allison into the investor relations team at Northern Trust and wish Preeti well in her new role. Both Preeti and Allison will attend our New York Investor Day on May 26.

For those of you who did not receive our first quarter earnings press release or financial trends report by email this morning, they are both available on our web site at northerntrust.com. In addition, this April 20 call is being web cast live on northerntrust.com. The only authorized rebroadcast of this call is the replay that will be available through April 27. Northern Trust disclaims any continuing accuracy of the information provided in this call after today.

Now for our safe harbor statement; what we say during today’s conference call may include forward-looking statements, which are Northern Trust’s current estimates or expectations of future events or future results. Actual results of course could differ materially from those indicated by these statements because the realization of those results is subject to many risks and uncertainties.

I urge you to read our 2009 annual report and our periodic reports to the Securities and Exchange Commission for detailed information about factors that could affect actual results. Thank you again for your time today. Let me turn the call over to Bill Morrison.

Bill Morrison

Thank you Bev. Let me add my welcome to those of you listening to Northern Trust’s first quarter 2010 earnings conference call. Earlier this morning Northern Trust reported first quarter 2010 net income of $157 million equal to $0.64 per share.

To assist you in understanding our performance this quarter, we’ve organized today’s remarks into the following sections. First, I’ll discuss market conditions that impacted our performance in the first quarter. Second, I’ll review our financial performance focusing on those items that most impacted our results. Third, I’ll offer our perspectives on the near term environment as well as the strong competitive positioning of Northern Trust. And finally, Bev and I will be pleased to answer your questions.

The equity market environment improved for the fourth consecutive quarter. The S&P 500 was up 46.6% when compared with one year earlier and increased 4.9% during the first quarter. Let me give you the equity market trends that are most relevant to our fees.

Equity market performance calculated on a one quarter lag basis, which is the methodology used for calculating C&IS custody and PFS Wealth Management fees, was strong. The S&P 500 increased 23.5% year-over-year on a one quarter lag basis.

On a sequential quarter basis the one quarter lag markets 5.5%. Using the one month lag methodology that applies to PFS fees, excluding Wealth Management, the S&P 500 was up 34% versus the prior year and up 3% versus the first quarter. The positive impact of improving equity markets while welcome and encouraging was diminished in our performance by the ongoing negative impact of historically low short-term interest rates.

For example, in the United States overnight interest rates averaged only 14 basis points in the first quarter. Three-month rates averaged only 26 basis points and short-term rates for the euro and sterling were also at low levels by historical standards.

Our economists expect central banks to maintain their low interest rate policies until January of 2011. Low interest rates are impacted our performance most noticeably but pressuring both net interest margin and the fees that we earn on our money market mutual funds.

With that environmental background, let me review our first quarter results. Revenues in the first quarter equaled $908 million, up slightly about $3 million compared to last year’s first quarter. On a sequential quarter basis revenues decreased 4% or $43 million.

Trust investment and other servicing fees are the largest component of our revenues representing 57% of total revenues in the first quarter. Trust investment and other servicing fees of $515 million increased 25% year-over-year, but were down 6% on a sequential quarter basis.

In our institutional business, C&IS trust investment and other servicing fees totaled $297 million in the first quarter, an increase of 44% year-over-year, but were down 10% on a sequential quarter basis. C&IS fees include three primary revenue areas; custody and fund administration, institutional asset management and securities lending.

Let me discuss the performance of each of these in the first quarter. C&IS investment management fees equaled $64 million in the first quarter, up 5% year-over-year, yet down 1% compared with last quarter. Our results in the first quarter were negatively impacted by approximately $4 million in waived fees associated with institutional money market funds. As I mentioned earlier, fee waivers are one area where low interest rates are directly pressuring our revenues. Absent fee waivers, C&IS investment management fees would have shown growth of 12% year-over-year and 3% sequentially. These results show the impact of the improving market environment on our institutional index and managers businesses, as well as new business in both institutional index and short duration.

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