NTRS

Northern Trust Corporation (NTRS)

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Northern Trust (NTRS)

Q1 2011 Earnings Call

April 19, 2011 10:00 am ET

Executives

Beverly Fleming - Senior Vice President and Director of Investor Relations

William Morrison - Chief Financial Officer and Executive Vice President

Frederick Waddell - Chairman, Chief Executive Officer, President, Chairman of Executive Committee and President of Northern Trust Company

Analysts

Brian Bedell - ISI Group Inc.

Thomas McCrohan - Janney Montgomery Scott LLC

Betsy Graseck - Morgan Stanley

Kenneth Usdin - Jefferies & Company, Inc.

Robert Lee - Keefe, Bruyette, & Woods, Inc.

Howard Chen - Crédit Suisse AG

John Stilmar - SunTrust Robinson Humphrey, Inc.

Presentation

Operator

Good day, everyone, and welcome to the Northern Trust Corporation First Quarter 2011 Earnings Conference Call. [Operator Instructions] At this time, I'd like to turn the call over to the Director of Investor Relations, Bev Fleming, for opening remarks and introductions. Please go ahead.

Beverly Fleming

.

Thank you, Audra, and welcome to Northern Trust Corporation's First Quarter 2011 Earnings Conference Call. Joining me on our call this morning are Bill Morrison, Northern Trust Chief Financial Officer; Aileen Blake, our Controller; and Allison Quaintance from our Investor Relations team.

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

In addition, this April 19 call is being webcast live on northerntrust.com. The only authorized rebroadcast of this call is the replay that will be available through April 29. 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 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 2010 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 joining us today. Let me turn the call over to Bill Morrison.

William Morrison

Thanks, Bev, and good morning, everyone. It's my pleasure to speak with you today about Northern Trust's first quarter earnings. Earlier this morning, Northern Trust announced first quarter net income of $151 million and reported earnings per share of $0.61. Our first quarter results include an expense credit of approximately $0.02 per share related to the 2008 IPO of Visa, which impacted all Visa member banks. In our press release issued today, we present operating results, which exclude this Visa-related item. We believe operating results provide the clearest indication of results and trends in our core businesses. Our commentary for the remainder of today's conference call will focus on operating results, which again exclude only the Visa-related item.

First quarter operating net income was $145 million, and operating earnings per share was $0.59. Before I review the key drivers of our first quarter performance, let me briefly discuss current market conditions and how they impact our results.

As has been the case for several quarters, extremely low short-term interest rates, coupled with narrow spreads at the short end of the yield curve, continue to have a negative impact on our net interest income, some investment management fees and securities lending revenues. Overnight interest rates in the United States averaged only 16 basis points in the first quarter, down from the already low 19 basis points in the fourth quarter. Three-month LIBOR averaged 31 basis points, an increase of only 2 basis points sequentially. Short-term interest rates for the euro and sterling were also at low levels by historical standards, although short-term interest rates in the euro rose in the first quarter in anticipation of the European Central Bank increasing interest rates, which it announced on April 7.

Equity markets, as you know, improved for the third consecutive quarter with the S&P 500 advancing 5.4% in the first quarter. The international IFA Index, however, was up just 3/10 of 1% in the quarter.

Equity markets rose in the fourth quarter of 2010 as well, which is relevant to fees that we earn on C&IS custody and PFS wealth management, our businesses which primarily use a quarter-lag methodology in calculating some fees.

Finally, using the 1-month lag methodology, which is relevant to fees that we earn in PFS, excluding wealth management, equity markets improved 10.5% in the first quarter. So all in all, a modestly favorable equity market environment for the first quarter of 2011.

With that background, let me get into the detail behind our first quarter results. Revenues on a fully taxable equivalent basis were $908 million in the first quarter, essentially flat both year-over-year and sequentially. Trust, investment and other servicing fees are the largest component of our revenue mix, representing 57% of total revenues in the first quarter. Trust, investment and other servicing fees of $515 million were flat year-over-year and up 2% sequentially.

In our Institutional business, C&IS trust, investment and other servicing fees totaled $271 million in the first quarter, down 9% year-over-year and up 1% on a sequential quarter basis. C&IS fees include 3 primary categories: custody and fund administration, institutional asset management and securities lending. Let me discuss each of those briefly. C&IS custody and fund administration fees were $169 million in the first quarter, up 6% year-over-year and up 2% sequentially. The increase in both periods reflects new business success in global custody, fund administration, investment operations outsourcing and domestic custody, as well as higher market values.

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