BancAnalysts Association of Boston 25 th Annual Fall Conference

Transcription

1 N O R T H E R N T R U S T C O R P O R A T I O N BancAnalysts Association of Boston 25 th Annual Fall Conference November 2, 2006 Steven L. Fradkin Executive Vice President & Chief Financial Officer 2006 Northern Trust Corporation northerntrust.com

2 Forward Looking Statement This presentation may include forward-looking statements such as statements that relate to Northern Trust s financial goals, dividend policy, expansion and business development plans, anticipated expense levels and projected profit improvements, business prospects and positioning with respect to market, demographic and pricing trends, strategic initiatives, re-engineering and outsourcing activities, new business results and outlook, changes in securities market prices, credit quality including reserve levels, planned capital expenditures and technology spending, anticipated tax benefits and expenses, and the effects of any extraordinary events and various other matters (including developments in litigation and regulation involving Northern Trust and changes in accounting policies, standards and interpretations) on Northern Trust s business and results. These statements speak of Northern Trust s plans, goals, strategies, beliefs, and expectations, and refer to estimates or use similar terms. Actual results could differ materially from those indicated by these statements because the realization of those results is subject to many risks and uncertainties. Our 2005 financial annual report and periodic reports to the SEC contain information about specific factors that could cause actual results to differ, and you are urged to read them. 2 BancAnalysts Association of Boston November 2, 2006

3 N O R T H E R N T R U S T C O R P O R A T I O N BancAnalysts Association of Boston 25 th Annual Fall Conference Dangerous Curves Behind? 2006 Northern Trust Corporation northerntrust.com

4 N O R T H E R N T R U S T C O R P O R A T I O N BancAnalysts Association of Boston 25 th Annual Fall Conference Dangerous? No Suboptimal, but manageable? Yes 2006 Northern Trust Corporation northerntrust.com

5 Consistent Strategy for Growth Client-centric and Highly Focused Personal Financial Services Serving affluent private clients in U.S. and Europe Asset Servicing Northern Trust Global Investments Banking Corporate & Institutional Services Serving institutional investors worldwide Integrated Operations & Technology Platform Assets Under Custody $3.3 Trillion Assets Under Management $667 Billion Bank Assets $55 Billion As of September 30, BancAnalysts Association of Boston November 2, 2006

6 Consistent Strategy for Growth Client-centric and Highly Focused Asset Servicing Personal Financial Services Serving affluent private clients in U.S. and Europe Northern Trust Global Investments Banking Corporate & Institutional Services Serving institutional investors worldwide Integrated Operations & Technology Platform Some of the businesses Northern Trust is not in: Consumer Finance Retail Banking Credit Cards Investment Banking Insurance Venture Capital Corporate Trustee Stock Transfer ADRs 6 BancAnalysts Association of Boston November 2, 2006

7 Consistent Strategy for Growth Client-centric and Highly Focused Exclusively Focused on Attractive Demographic Markets Market segmentation is a critical success factor Not all segments create the same profit opportunities Significant Industry Expertise in Chosen Areas of Focus Private banking Asset servicing Asset management Considerable Geographic Reach in Target Markets Outstanding Client Service Client centricity is deeply embedded in our culture Excellence in Execution 7 BancAnalysts Association of Boston November 2, 2006

8 Corporate & Institutional Services Focused on Attractive Demographic Markets A World of Vast and Growing Opportunities. $21 Trillion European Market $30 Trillion Americas Market $14 Trillion Asia-Pacific Market $65 Trillion World Market Only $46 Trillion Held by Top 15 Custodians Significant Growth Potential Source: Prudential Equity Group, GlobalCustody.net 8 BancAnalysts Association of Boston November 2, 2006

9 Corporate & Institutional Services Broad Suite of Products for Institutional Clients Asset Management Risk Management Information Services Fund Services Asset Servicing Cash Active Passive Securities Lending Attribution Analysis Value at Risk Cross-Border Pension Pooling Accounting Reporting Valuation Fund Accounting Investment Operations Outsourcing Pooling Safekeeping Settlement Manager of Managers Foreign Exchange Transition Management Commission Management Compliance Monitoring Market Event Analytics Rates of Return Multinational HQ Reporting Hedge Fund Administration Private Equity Administration Property Administration Income Collection Corporate Actions 9 BancAnalysts Association of Boston November 2, 2006

10 Corporate & Institutional Services Positioned Globally for Growth Serving clients locally and capitalizing on global opportunities. Chicago (Corporate Headquarters) Toronto New York Dublin Guernsey Jersey Isle of Man London Amsterdam Luxembourg Tokyo Beijing Hong Kong Bangalore Singapore 15 Locations Worldwide Clients in 40 Countries Trade Settlement in 90 Markets 10 BancAnalysts Association of Boston November 2, 2006

11 Personal Financial Services Focused on Attractive Demographic Markets Favorable Growth Projections in the Affluent Market. Projected Annual Growth Rate % 10% 8% 8.5% 10.5% 6% 4% 2% 1.0% 0% U.S. Population $1-$10 Million Households $10 Million+ Households Source: U.S. Census Bureau, Claritas, Survey of Consumer Finances, Company Research. 11 BancAnalysts Association of Boston November 2, 2006

12 Personal Financial Services Industry Leader in Serving the Affluent Market Largest Personal Trust Bank in U.S. SOURCE: SNL Financial Wealth Management The recognized leader in providing sophisticated financial solutions to high net worth families. Target market: Individuals or families with $75+ million in investable assets Wealth Advisory Delivering comprehensive, investment solutions through a multi-manager investment program. Target market: Individuals or families with $10 to $75 million in investable assets Private Client Delivering high-touch trust, investment management and banking solutions to individuals through 84 offices in 18 states. Target market: Affluent individuals with at least $1 million in investable assets $1 Million $10 Million $75 Million Client Investable Assets 12 BancAnalysts Association of Boston November 2, 2006

13 Northern Trust Global Investments Focused on Attractive Demographic Markets Keefe, Bruyette & Woods Asset Manager M&A July 21, 2006 Asset Management is still a really good business. The sheer size of the asset pool is huge. Demographics and the outlook for global growth of financial assets remain favorable. Growth expectations for products and investment strategies remain high. Globalization and the increasing complex structure of financial products and markets creates opportunities for managers with product structuring capabilities and the ability to deliver investment products and services that span geographic boundaries. 13 BancAnalysts Association of Boston November 2, 2006

14 Northern Trust Global Investments World Class Investment Manager $667 Billion Assets Under Management as of September 30, th Largest Asset Manager Worldwide 3 rd Largest Institutional Index Manager A Diversified Asset Manager Across Asset Classes Across Client Segments Across Styles Short Duration $301 Billion (45%) Equities $245 Billion (37%) Fixed Income $113 Bn (17%) Institutional $539 Billion Personal $128 Billion Active $416 Billion (62%) Quantitative $218 Billion (33%) Other $8 Billion (1%) Manager of Managers $33 Billion (5%) Source: Pensions & Investments 14 BancAnalysts Association of Boston November 2, 2006

15 Northern Trust Global Investments Broad Array of Proprietary & Open Architecture Capabilities Active, quantitative and manager of manager businesses provide a unique mix of investment solutions for both personal and institutional clients. Equities Large Cap Mid Cap Small Cap International Tax Advantaged Fixed Income Core International Municipals Cash Enhanced Cash High Yield Proprietary Quantitative Strategies Manager of Manager Strategies Proprietary Active Strategies Alternatives Private Equity Hedge Funds Emerging Markets Emerging / Minority Investment Services Securities Lending Transition Management Commission Management Securities Brokerage 15 BancAnalysts Association of Boston November 2, 2006

16 N O R T H E R N T R U S T C O R P O R A T I O N BancAnalysts Association of Boston 25 th Annual Fall Conference Dangerous Curves Behind? 2006 Northern Trust Corporation northerntrust.com

17 N O R T H E R N T R U S T C O R P O R A T I O N BancAnalysts Association of Boston 25 th Annual Fall Conference Dangerous? No Suboptimal, but manageable? Yes 2006 Northern Trust Corporation northerntrust.com

18 Fee Income Dominates our Revenue Stream and demonstrates a significantly different profile relative to the industry Northern Trust Fees 56% Net Interest Income 44% Fees 73% Net Interest Income 27% Average of Top 20 Banks* Fees 29% Net Interest Income 71% Fees 45% Net Interest Income 55% Source: SNL *20 largest, publicly traded U.S. banks in terms of asset size as of 12/31/05 18 BancAnalysts Association of Boston November 2, 2006

19 Steepness (or Inversion) of the Yield Curve has had little impact on our Net Interest Margin. 3.5% 3.0% 2.5% 2.79% 2.99% 2.95% 2.65% 10 year Fed Funds 2.34% 2.30% 2.25% 2.18% 5% 4% 2.0% 2.08% 2.05% 2.02% 2.02% 1.93% 1.73% 1.73% 1.79% 3% 1.5% 2% 1.0% 0.5% 1% 0.0% % -1% 19 BancAnalysts Association of Boston November 2, 2006

20 Recent Margin Changes Demonstrate That Point Northern Trust Bank of New York Mellon State Street Citigroup Bank of America JP Morgan Chase Wachovia Wells Fargo U.S. Bancorp. SunTrust National City Fifth Third Key Bank 3Q06 Net Interest Margin 1.73% 1.89% 1.61% 1.22% 2.62% 2.73% 2.19% 3.03% 4.79% 3.56% 2.93% 3.74% 2.99% 3.63% Sequential Change Flat -6 bps -6 bps +2 bps -11 bps -12 bps +12 bps -15 bps +3 bps -12 bps -7 bps Flat -2 bps -3 bps Source: SNL and company reports 20 BancAnalysts Association of Boston November 2, 2006

21 Consistent, Prudent Balance Sheet Management Strategy Short Duration Portfolio Repricing period for $10.1 billion Government Sponsored Agency portfolio equaled only 1.3 months as of September 30, % of Earning Assets were repriceable within one year or mature within one year as of June 30, Top 20 Bank average equals 50%. 75% of Interest-Bearing Deposit liabilities reprice within one year or mature within one year as of June 30, Top 20 Bank average equals 45%. High Quality Portfolio 97% of Northern Trust s total securities portfolio was composed of AAA rated securities as of September 30, % of the total securities portfolio as of September 30, 2006 was composed of Government Sponsored Agency securities. Source: Form 10-Q and FR Y-9C; SNL for Top 20 banks 21 BancAnalysts Association of Boston November 2, 2006

22 Our Net Interest Margin Has Trended Down Over the Years % 3.00% 2.79% 2.99% 2.95% 2.65% 2.34% 2.30% 2.25% 2.18% 2.00% 2.08% 2.05% 2.02% 2.02% 1.93% 1.73% 1.73% 1.79% 1.00% 0.00% BancAnalysts Association of Boston November 2, 2006

23 As Has the Average Net Interest Margin of the Top 20 Banks* 5.00% 4.00% 4.01% 4.22% 4.43% 4.34% 4.19% 4.05% 4.13% 4.09% 3.85% 3.78% 3.65% 3.75% 3.86% 3.53% 3.39% 3.29% 3.00% 2.00% 1.00% 0.00% *Top 20 publicly traded banks in terms of asset size as of 12/31/05. Source: SNL 23 BancAnalysts Association of Boston November 2, 2006

24 Why? Outstanding International Growth in C&IS Global Custody Assets $ Billions $1,750 $1,500 $1,250 12/31/95 to 9/30/06 % Change CAGR Global Custody Assets +1,711% +31% S&P % +7% EAFE +66% +5% $1,240 $1,539 $1,000 $965 $750 $727 $500 $312 $385 $452 $471 $250 $85 $108 $149 $200 % of C&IS Total AUC $ Q06 15% 15% 15% 18% 23% 26% 30% 35% 38% 41% 46% 50% 24 BancAnalysts Association of Boston November 2, 2006

25 Has Driven Growth in Foreign Office Time Deposits Average Foreign Office Time Deposits $ Billions $25 12/31/95 to 9/30/06 % Change CAGR Foreign Office Time Deposits +526% +19% $21.9 $20 Global Custody Assets +1,711% +31% S&P % +7% EAFE +66% +5% $17.1 $15 $12.5 $10 $5 $3.5 $3.8 $5.0 $5.8 $6.6 $8.1 $8.6 $9.7 $10.5 $0 % of Total Int. Bearing Deposits Q06 37% 38% 43% 45% 46% 49% 49% 53% 54% 58% 65% 72% 25 BancAnalysts Association of Boston November 2, 2006

26 Growth in Foreign Office Time Deposits has fueled growth in Securities and Money Market Assets, shifting the asset mix on our balance sheet. 1990: $9.0 billion 2005: $34.2 billion Average Interest Related Funding Other Interest Bearing Deposits 54% FOTD 12% Wholesale Funding 33% Other Interest Bearing Deposits 27% Foreign Office Time Deposits 50% Wholesale Funding 23% 1990: $10.3 billion 2005: $40.4 billion Average Earning Assets Loans & Leases 57% Securities, Money Market, & Other Assets 43% Loans & Leases 46% Securities, Money Market, & Other Assets 54% Wholesale Funding = Federal Funds purchased, Repurchase Agreements, Commercial Paper, and Other Borrowings 26 BancAnalysts Association of Boston November 2, 2006

27 All in All, Net Interest Income Has Exhibited Steady Growth except when faced with historically low rates. 12/31/90 to 12/31/05: % Change CAGR 10% $800 Net Interest Income % +6.3% $722 9% 8% $700 $622 $648 $650 $601 $616 7% $600 $500 $400 $300 $287 Average Fed Funds $422 $395 $362 $368 $343 $318 $471 $513 $557 6% 5% 4% 3% $200 2% $100 1% $ % 27 BancAnalysts Association of Boston November 2, 2006

28 2006 Results Reflect Excellent Performance Trust, Inv. & Other Servicing Fees Other Non-Interest Income Net Interest Income Total Revenues Non-Interest Expenses Net Income Earnings Per Share Year-to-Date 9/30/06 $1,333 Million $363 Million $588 Million $2.28 Billion $1,442 Million $495 Million $2.23 % Growth 2005 to % +20% +10% +15% +13% +13% +13% Assets Under Custody Global Custody Assets Assets Under Management $3.3 Trillion $1.54 Trillion $667 Billion +16% +30% +10% 28 BancAnalysts Association of Boston November 2, 2006

29 Outstanding, Long-Term Growth in Client Assets Assets Under Custody ($ Trillions) Assets Under Management ($ Billions) 12/31/95-9/30/06 CAGR: 17% 12/31/95-9/30/06 CAGR: 19% $2.9 $3.3 $572 $618 $667 $2.6 $479 $2.1 Acquired $75 BN Index Assets $1.5 $1.6 $1.7 $1.5 $292 $326 $320 $303 $1.1 $1.3 $197 $233 $0.6 $0.8 $130 $ Q Q06 29 BancAnalysts Association of Boston November 2, 2006

30 Key Takeaways Dangerous Curves Behind? Not Dangerous. Suboptimal, but Manageable: Our Fee Driven Profile is Different Net Interest Income is Relationship Income Driven by our Business International Business Growth Manifested in Exceptional Foreign Deposit Growth Has Led to a Change in Asset Mix Consistent, Prudent Strategy for Managing the Balance Sheet and Interest Rate Risk Short Duration and High Quality Yield Curve Has Little Impact on Our Net Interest Income Long-Term Success Based On: Consistent Strategy for Growth Client-Centric and Highly Focused Exclusive Focus on Attractive Demographic Markets Significant Expertise in Chosen Markets 30 BancAnalysts Association of Boston November 2, 2006

31 N O R T H E R N T R U S T C O R P O R A T I O N BancAnalysts Association of Boston 25 th Annual Fall Conference November 2, 2006 Steven L. Fradkin Executive Vice President & Chief Financial Officer 2006 Northern Trust Corporation northerntrust.com