Northern Trust (NTRS)
Q4 2011 Earnings Call
January 18, 2012 12:00 pm ET
Michael G. O'grady - Chief Financial Officer and Executive Vice President
Beverly J. Fleming - Senior Vice President and Director of Investor Relations
Gerard S. Cassidy - RBC Capital Markets, LLC, Research Division
Brian Bedell - ISI Group Inc., Research Division
Michael Mayo - Credit Agricole Securities (USA) Inc., Research Division
Glenn Schorr - Nomura Securities Co. Ltd., Research Division
John W. Stilmar - SunTrust Robinson Humphrey, Inc., Research Division
Howard Chen - Crédit Suisse AG, Research Division
Kenneth M. Usdin - Jefferies & Company, Inc., Research Division
J. Jeffrey Hopson - Stifel, Nicolaus & Co., Inc., Research Division
Betsy Graseck - Morgan Stanley, Research Division
Alexander Blostein - Goldman Sachs Group Inc., Research Division
Previous Statements by NTRS
» Northern Trust Management Discusses Q3 2011 Results - Earnings Call Transcript
» Northern Trust Management Discusses Q2 2011 Results - Earnings Call Transcript
» Northern Trust's CEO Discusses Q1 2011 Results - Earnings Call Transcript
Beverly J. Fleming
Thank you, Ryan, and welcome to Northern Trust Corporation's Fourth Quarter 2011 Earnings Conference Call. Joining me on our call this morning are Michael O'grady, Northern Trust's Chief Financial Officer; Eileen Blake, our Controller; and Allison Quaintance, from our investor relations team.
For those of you who do not receive our fourth quarter earnings press release or financial trends report via e-mail this morning, they are both available on our website at northerntrust.com. In addition and also on our website, you will find our quarterly earnings review presentation which we will use to guide today's conference call. This January 18th call is being webcast live on northerntrust.com. The only authorized rebroadcast of this call is the replay that will be available through February 17th. 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 Mike O'grady.
Michael G. O'grady
Thank you, Bev. Let me join Bev and welcome you to today's call. First, I'll review our fourth quarter financial performance as we customarily do. And second, as we indicated in our last earnings call, I'll review the initiative we call driving performance which is our corporate-wide effort embarked on earlier in 2011 that focuses on improving our productivity, profitability and returns in order to deliver greater value to our clients and shareholders.
Before we get into details, I'd like to make a few overview comments on the quarter. The operating environment Northern Trust has faced in the last several quarters continued in the fourth quarter. While these conditions presented mostly challenges for our business, we saw certain benefits in our financial results in the fourth quarter reflected this dynamic. While the U.S. economy exhibited signs of a continued slow recovery, there was growing uncertainty in Europe. As a result, many of our clients remained cautious, which was reflected in continued increases in demand deposits on our balance sheet.
With interest rates still at historically low levels, we realized only a modest benefit from higher deposits as yields on high-quality investments decline. In addition, fee waivers on our money market funds increased as a result of low rates.
Another benefit of the improving U.S. economy can be seen in the credit quality of our loan portfolio. With trouble loans declining, our provision also declined. Equity markets were up in the fourth quarter but down on a quarterly and monthly lag basis. This had a negative impact on our trust fees as most of our fees are calculated on a lag basis. And foreign exchange volatility and volumes trended lower in the fourth quarter resulting in lower foreign exchange trading income.
Importantly, the uncertain backdrop does present the opportunity for Northern Trust to fulfill our role as a trusted advisor and service provider to our clients. We continue to be very successful in adding new clients, both personal and institutional, which enabled us to organically grow our business and partially offset the impact of these headwinds on our revenues. To provide the high level of service Northern Trust clients both new and existing are accustomed to, we continue to invest in our business both people and technology, which caused our ongoing expense levels to grow.
To achieve our goals delivering value to both our clients and shareholders, we have been actively identifying ways in which we can increase our productivity while maintaining the differentiated client service experience. With successful execution of driving performance, we expect to improve profitability and return. We'll talk more about that in the second section, but now, let's move to Page 4 and discuss the financial highlights of the fourth quarter.
Earlier this morning, Northern Trust announced fourth quarter reported net income of $130 million, a decrease of 17% versus last year and 24% versus last quarter. Earnings per share were $0.53. Fourth quarter results included $13 million in adjustments related to Visa, so consistent with our treatment of Visa items, operating earnings, which exclude the adjustment, were $0.50 per share. There were 2 additional items that we do not adjust for in operating earnings but impacted the fourth quarter. First, we recorded $61 million in restructuring, acquisition and integration expenses during the fourth quarter or $0.17 per share. The charges primarily relate to the driving performance initiative. There's a schedule of the components of the charges in the appendix.
Second, net interest income in the quarter included a $7-million increase associated with the settlement with the IRS regarding the tax treatment for certain structured leasing transactions. This settlement, along with related income tax impact, amounted to a benefit of $0.02 per share on the quarter. For the full year 2011, reported earnings were $2.47 per share. Operating earnings, which exclude only Visa, were $2.41 per share and restructuring, acquisition and integration charges were $92 million or $0.25 per share.
If you turn to Slide 5, Slide 5 summarizes our results for the quarter. Operating net income, which excludes Visa, was $122 million, and down 15% year-over-year and 28% sequentially. Excluding the after-tax impact of the additional 2 items I mentioned, the restructuring charge and the lease settlement, operating net income would've been up 9% year-over-year and down 9% sequentially. On that basis, both the year-over-year and sequential comparisons were favorably impacted by higher net interest income, a lower loan-loss provision and a lower effective tax rate. And while the fourth quarter was the first quarter to include the full impact of the Bank of Ireland security services and Omnium acquisitions, increasing both revenues and expenses, they were essentially just below breakeven on an operating basis.