NTRS

Northern Trust Corporation (NTRS)

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Northern Trust Corp., (NTRS)

Q3 2010 Earnings Conference Call

October 21, 2010 12:00 pm ET

Executives

William Morrison - Executive Vice President and Chief Financial Officer

Beverly Fleming - Investor Relations

Analysts

Howard Chen - Credit Suisse

John Stilmar - SunTrust

Mike Mayo - CLSA

Brian Bedell - ISI Group

Thomas McCrohan - Janney Capital Markets

Robert Lee - KBW

Jeffrey Hopson - Stifel Nicolaus

Glenn Schorr - Nomura Securities

Presentation

Operator

You're on hold for today's Northern Trust Corporations Third Quarter 2010 Earning's Call. At this time we are gathering additional participants and we should be underway shortly. We thank you for your patience and please remain on-line. You're on hold for today's Northern Trust Corporation Third Quarter 2010 Earning's call. At this time we are gathering additional participants and we should be underway shortly. We thank you for your patience and please remain on-line.

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

Beverly Fleming

Thank you, Jill. Welcome to Northern Trust Corporation’s third 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 Allison Quaintance from our Investor Relations team.

For those of you who did not receive our third quarter earnings press release or financial trends report via email this morning, they are both available on our Web site at northerntrust.com.

In addition, this October 21 call is being webcast live on northerntrust.com. The only authorized rebroadcast of this call is the replay that will be available through October 28. 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 and expectations of future events and for 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.

William Morrison

Thank you, Bev, and good morning, everybody. It’s my pleasure to speak with you today on Northern Trust’s third quarter earnings conference call. Earlier this morning Northern Trust reported third quarter net income of $156 million or $0.64 a share. This compares to reported earnings per share of $0.77 in the third quarter of 2009 and $0.82 in the second quarter of this year.

Recall that our earnings last year and last quarter each benefited from reduction and indemnification liability related to Visa. We've provided operating earning in the relevant quarters which exclude they include of Visa items. To reiterate operating earnings per share equal $0.72 in the year ago quarter and $0.78 last quarter.

Before I begin reviewing our performance in the third quarter let me remind you that market conditions continue to influence our results specifically uneven equity markets and very low interest rates. Equity markets as you know improved during the third quarter with the S&P500 and EFA Indexes rising 10.7% and 6.5% respectively. However, recall that equity markets declined 12% in the second quarter which is relevant to our businesses which use a quarter latent methodology in calculating some fees specifically C&IS custody and PFS wealth management. Likewise equity markets declined 7.7% in the third quarter using the one-month latent methodology which is relevant to fees that we earned in PFS, excluding wealth management.

While we're certainly encouraged by the performance of het equity markets in the third quarter particularly during the month of September we remind you that some of the fees that we earn are based on lag calculation methodologies. The level of short-term interest is very relevant to our earnings and has had an ongoing negative impact on interest income, some investment management fees and securities lending revenues.

As you know interest rates remained at extremely low levels throughout the third quarter, in the United States overnight interest rates averaged only 19 basis points in the third quarter unchanged from the second quarter. Three months LIBOR averaged 39 basis points, a decrease of five basis points sequentially, short-term interest rates for the Euro and Furling were also at low levels by historical standards although a short-term interest rates in the Euro increased modestly.

With that environmental backdrop let me review our third quarter results. Revenues in the third quarter equaled $899 million, down 3% compared to last years third quarter and down 8% sequentially. Trust, investment, and other serving fees, are the largest component of our revenues representing 58% of total revenues in the third quarter. Trust investment and other serving fees of 519 million dollars decreased 1% year-over-year and 5% sequentially.

In our institutional business C&IS trust investment and other serving fees totaled $293 million in the third quarter down 5% year-over-year and down 7% on a sequential quarter basis, C&IS fees including three primary categories, custody and fund administration, institutional asset management and securities lending. Before I move into a review of our C&IS fee trends please make note of the commentary in our earnings press release that C&IS custody and fund administration fees were increased and investment management fees were decreased by $4.3 million each as a result of the fee classification.

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