Northern Trust Corp (NTRSO) 2001 Q1 法說會逐字稿

NORTHERN TRUST ANNUAL MEETING

Good morning on this great spring day. My name is Bill Osborn. I'd like to welcome you to Northern Trust's 112th annual meeting. I am pleased to announce that the annual meeting is being webcast live on Northern Trust's website. The only item of business on this morning's agenda is the election of 14 directors. As the bylaws provide, I will act as Chairman of the meeting. Let me also introduce Rose Ellis, our Corporate Secretary, who will act as secretary of the meeting. Ms. Ellis has informed me that notice of the meeting and proxy materials were mailed on or about March 12th, to stockholders of record on February 26th. Mr. James [________________] and Mrs. Laurie McMahon have been appointed as inspectors of election for this meeting. They have inspected the proxies and reported that at least 197,716,150 shares of common stock are represented by proxies making up 88.84% of the total of 222,556,383 shares outstanding. This establishes that a majority of the outstanding stock of the corporation is represented at the meeting. A quorum is present and the meeting is duly constituted. Now I have a motion to weigh the reading of the minutes of last year's meeting?

Mr. Chairman, [_______________] move.

Thank you [_______________]. A second.

Mr. Chairman, I second.

Thank-you, Mabel. All in favor? Rose, motion is secured. Nice Chicago election there. It is now 10:34 a.m. and I declare the polls are now open for voting. Polls will remain open until this single item of business has been presented and discussed. I now turn to the election of directors. I am pleased to introduce the current directors who, in addition to myself, are nominees for election. I'd like each director and nominee to stand and remain standing as I call your name. Please hold your applause until everyone has been introduced. We have a great combination of experience and fresh perspectives on our board, and I'd like to demonstrate that my mentioning the year when each of our directors joined the board. Duane L. Burnham, Retired Chairman and CEO, Abbot Laboratories; Duane joined the board in 1997. Delores E. Cross, President, Morris Brown College; Delores joined the board in 1994. Susan Crown, Vice-President, Henry Crown and Company; Susan joined the board in 1997. Robert S. Hamada, Dean and Edward Eagle Brown Distinguished Service Professor of Finance, Graduate School of Business, University of Chicago; Bob joined the board in 1998. Barry G. Hastings, President and Chief Operating Officer in Northern Trust Corporation; Barry joined the board, as I did, in 1994. Robert A. Helman, Partner, Mayer, Brown & Platt; Bob joined the board in 1986. Arthur L. Kelly, Managing Partner, KEL Enterprises; Arth joined the board in 1988. Fredrick A. Krehbiel, Co-Chairman and Co-CEO Molex Incorporated; Fred joined the board in 1988. Robert C. McCormack, Co-Chairman and Managing Director, Trident Capital, Inc.; Bob the joined the board in 2000. Edward J. Mooney, former Chairman and CEO of Nalco Chemical Company, and recently retired delegate general of [_______________]; Ted joined the board in 1996. Harold Byron Smith, Chairman of the Executive Committee, Illinois Tool Works; Harold joined the board in 1974. William D. Smithburg, Retired Chairman, President, and CEO of The Quaker Oats Company; Bill joined the board in 1981. Bide L. Thomas, Retired President, Commonwealth Edison Company; Bide joined the board in 1984. Now you may applause if you would like. Before this slate of directors is placed in nomination, I'd like to also introduce the officers who serve with Mr. Hastings and me on our management committee. They are Perry Pero, Vice-Chairman and Chief Financial Officer; Jim Mitchell, President, Worldwide Operations and Technology; Peter Rossiter, President, Corporate and Institutional Services; Mark Stevens, President, Personal Financial Services; Steve Timbers, President, Northern Trust Global Investments; and Kelly Welsh who joined us in July 2000, as Executive Vice-President and General Counsel. The meeting is now open for the nomination of 14 directors. I will ask Barbara Lumpkin, one of the bank's Senior Vice-President to place the nomination in the slate of directors.

Mr. Chairman, I nominate those individuals names, in the proxy statement dated March 12, 2001, to hold office as directors of Northern Trust Corporation for the ensuing year and until their successors are duly elected.

Thank-you, Barbara.

Mr. Chairman, I second the nominations.

Thank-you, Mabel. These are all of the nominations that have been made in accordance with the provision of the corporation's bylaws. I declare that the nominations are closed. We'll now proceed to vote on the election of directors. If you have already voted by proxy, you do not need a ballot to vote at this meeting. If you do need a ballot and did not receive one when you came in, please raise your hand and the inspector of election will give a ballot. Let me repeat though that you do not need to do anything further if you've already sent in or handed us a proxy card. Anybody need a ballot? Right there. For those who have marked ballots, please sign them and indicate the number of shares you hold or represent, and then please pass your ballots to the aisles to be collected by the inspectors of election as soon as possible. We can pick that up in the second arch and discontinue. Since there is no further business on the agenda, the voting portion of our meeting is over. It is now 10:40 a.m. and I declare the polls are now closed. While the votes are being counted, I'd like to give you a brief report on Northern's progress last year and in the first quarter and talk about some of our plans going forward. Now, this is the disclaimer statement that Kelly Welsh makes me read to you. My remarks today may include some forward-looking statements such as statements that relate to our financial goals, new business results and outlook, expansion plans, and credit quality. Of course, actual results could differ materially from those indicated by my remarks. I encourage you to read our 2000 Annual Report and our periodic reports with the SEC for additional information that could affect results, now with that out of the way. Year 2000, was the 13th consecutive year of record earnings for Northern Trust. Net income of $485 million was 20% ahead of 1999. Since 1996, the compound annual growth rate and net income has been an outstanding 17%. This performance has been the result of strong revenue growth, which has grown at 16% annually since 1996, combined with controlled expenses, which have grown 15% annually since 1996. I'm pleased to tell you that we met or exceeded each of our strategic financial targets in 2000. For the year, return on average common equity was 22.1% and was above our 18% to 20% target range for the fourth consecutive year. Earnings per share growth during 2000 was 20%, double our goal of a minimum 10% growth, and after two years at a 159%, our productivity ratio in 2000 reached an all time high of 160% meeting our strategic target. Total trust assets at yearend were $1.7 trillion, and since 1996 have grown at a compound annual rate of 21%. Managed assets have grown in at 27% rate during this period. During 2000, managed assets grew 13% to $338 billion, again making Northern Trust one of the nation's largest asset management firms. The Global Trust assets are key to the continued success of our Personal Financial Services in Corporate and Institutional Services businesses. You should know that this growth is primarily from gaining more business from existing clients and from winning new clients, and not from major acquisitions. New business momentum continued in 2000. Since 1996, net new business has grown at a compound annual growth rate of 26%. These figures represent new trust business sold, stated in terms of annualized fees less any lost or reprised business. For 2000, $168 million in net new business was equivalent of 14% of our total trust fees for the year. Fueled by the excellent new business results, trust fees during 2000, grew 23% to $1.2 billion. Trust fees were the largest component of our revenues representing 56% of total revenues. Both our Personal and Corporate Institutional businesses contributed to this growth. The slide shows our trust fees in 2000 were more than double the total trust fees in 1996 and for the first time exceeded $1 billion. During this period, our trust fees have grown in the compound annual rate of 19%. Now let me briefly review our 2-client focus businesses. Now first the financial services business, our mission is to be the premier provider of financial solutions to our targeted market through a wide array of trust, investment management, and banking services. In PFS, we administered $169 billion of trust assets and had investment discretion for $98 billion of those assets. During 2000, PFS trust fees grew 25% to $613 million. Our PFS network now has 82 offices in 12 states giving us a one-of-a-kind distribution capability for personal trust and private banking services. We currently serve 175,000 households. From our 82 offices, we are in close proximity to approximately 28% of the millionaire population, which we define as household $1 million or more of investable house assets. Over the next five years, the US population is expected to grow at 1% annually. In contrast, this affiliate segment is expected to grow at 8 times that rate of the general population. In addition, the intergenerational wealth transfer that is and will continue to take place over the next 20+ years is a huge factor for our PFS business, to the resulting increase in demand for a state planing, asset management, and advisory services. We see plenty of growth opportunities in PFS. First, we will continue to fill in our existing states and markets with additional locations. There are still many untapped areas near our current markets where in many cases, we already have strong brand recognition. During 2000, we opened 4 offices in our existing states Sun Lakes and north Scottsdale in Arizona, Austin, Texas, and Gross Point in Michigan. Just last week, we opened our 26th office in the state of Florida in Weston which is just west of Fort Lauderdale. In addition, our plans for 2001, so far, include offices in Los Santos, California, that's Silicon Valley, assuming it's still there and Belleaire, Florida which is near Clearwater. Growth opportunities will also come from our continued entry into new markets, as we announced in 1997, when we had our offices located in 5 states. It is our goal to enter at least one new state per year and to reach 100 offices by the end of 2003. In fact, we've entered 7 new states since 1997. Last year, we entered 3 new states, opening offices in Saint Louis, Missouri, Las Vegas, Nevada, and Milwaukee, Wisconsin. We continued to look opportunistically at all markets that we want to enter. Our traditional marketing strategies have proven highly successful. The nature of wealth accumulation is changing, and we are changing along with it. We're expanding our product offerings to include hedge funds, private equity funds, and single-stock risk management to meet the evolving needs of our clients. We're also reaching clients through more nontraditional channels. One example is are unique referral agreement with the Northwestern Mutual Life Insurance Company in which they refer their clients with over $3 million in assets to us for active management, and the other important source of clients is 401-K participants, and we currently service through Northern Trust Retirement Consulting, our subsidiary based in Atlanta, 2.25 million participants. We continue to expand the availability of our mutual fund family for individuals northern funds, remote third party distributors, and our recent investment in my CFR has given us another nontraditional channel to reach new clients. Northern's Corporate and Institutional Services business accounts for the other half of our revenues and profits. In CNIS, we provide trust, custody, investment management, retirement, banking, and treasury management services to corporations and institutions around the world. At yearend, total assets under administration in CNIS were $1.5 trillion of which $240 billion was under our management. These assets include pension funds, institutional funds, such as foundations and endowments, governmental entities, and a niche group of fund managers. Included in these assets are $385 billion in global custody assets in 90 markets worldwide. These are essentially the cross-border assets of our clients. Global custody assets have been growing at a rate of 35% per year since 1995. Northern was recently voted custodian of the year for the second year running by Professional Pensions, one of UK's leading industry publications. In a recent trust and custody satisfaction survey in CNIS, 93% of our clients said, northern has met or exceeded their expectations, and 92% of the CNIS clients said, they'll be willing to recommend us to others. Our international and global fund services segment is the fastest growing area of CNIS. We currently serve clients in 37 countries around the world. New businesses clearly engine for growth in this segment. In 2000, we brought in 67 new clients, 28 of whom had assets in excess of half a billion dollars. Another fast growing area of CNIS is Northern Trust Retirement Consulting, our subsidiary in Atlanta, which benefits from the growth and defines contribution plans. As of yearend, we serviced two-and-a-quarter million participants from 250 different retirement plans. In January of this year, we rolled out the latest version of retirement passport, our web-based participant servicing platform. Our investment organization, Northern Trust Global Investments, is a global multi-asset class investment manager. NTGI combines portfolio management, research, client servicing, marketing, and product management activities allowing us to leverage these capabilities across both our personal and corporate client bases. As of the end of 2000, we managed 338 billion in assets, as I mentioned earlier, which ranked us as the 14th largest US money manager and the 5th largest manager of tax-exempt assets. In 1999, Northern was ranked second in new investment management business from institutions, and our new business results were even higher in 2000. Northern is also the seventh largest index manager with about $70 billion under management at yearend. Between our two mutual fund families, Northern funds and Northern Institutional funds, we managed $7.7 billion in assets, which placed us as the third largest bank-sponsored mutual fund organization. We have a total of 51 funds, many of which have been awarded top rankings from Morning Star and Lipper Analytical Services. We continue to expand our capabilities with NTGI. During 2000, we established NTGI Europe, and hired an international equity portfolio management team in London. We added the values to our capability with our purchase of Carl Domino Associates and launched our first value mutual fund in August of last year. We're also adding alternate asset class such as hedge funds and private equity funds by utilizing our manager of manager's program expertise. At Northern, we are committed to being a leader in technology. Our worldwide operations in technology business unit supports both PFS and CNIS. A single technology platform allows us to manage cost and leverage efficiencies across business lines. To maintain a leadership position in the rapidly changing technology-driven environment, Northern has spent $700 million in technology over the last three years. We expect to commit an additional $1 billion in technology over the next three years. This continuing investment in technology has allowed us to not only be a competitive provider, but to anticipate client needs with industry-leading products and services. Last month, we rolled out our new corporate website with an improved look, feel, and navigation. Just last week, a new version of private passport, our online platform for individuals was introduced, which added online brokerage capabilities. Private passport is used by 13% of our personal clients. On the CNIS side, through Northern Trust passport over 1000 clients, fund managers, and foreign exchange traders around the world interact with us through our industry-leading capability. We also continue to work with the industry in preparation for the US move to trade date plus one settlement which will reduce the time to allow to settle trades from the current three days to one. This is currently scheduled to take effect in 2004, and we'll require significant improvement in straight through processing throughout our industry. Now, let me briefly review our first quarter results, which we announced yesterday. We're pleased to report another record quarter of earnings of $127.2 million or ¢55 per share. In spite of the softening in the general economy and the significant decline in the equity markets, we recorded record revenues which increased 7% from a year ago. Trust fees also grew at 7% with a benefit of new business, offset in part by the impact of lower equity markets. In response to the current environment, we aggressively managed our business resulting in expense growth of only 5%. We exceeded each of our strategic financial goals during the quarter. EPS grew at 12% versus our goal of a minimum of 10%, ROE was 21.5% versus our goal of 18% to 20%, and our productivity ratio was 161% versus our goal of 160%. We need to put this performance in context with the environment we're in. We have a slowing economy, and the equity markets are down considerably from prior levels. The SOP was down 12% during the quarter and down 23% from a year ago. We have taken steps, starting last year, and continuing now to manage through this period by tightly controlling our expense growth, investing only in areas we feel are important for the long term. We also recognized that this is a tough period for our clients. We're attempting to further our communication to them during this period. We feel very strongly that our long-term strategy, positioning, and opportunities for growth remain very positive. Despite the recent performances in the equity market, the long-term track record of Northern Trust common stock has been outstanding. The period beginning at the end of 1995 to the end of last month, the compound annual growth rate of Northern Trust common stock was 33%. This compares very well to 16% for the Keefe Bruyette & Woods 50 bank index, and 13% for the S&P 500. I know some of you were disappointed that we've had some drop in the stock, but on a relative basis, long term, it's performed quite well, and I can tell you the management team was disappointed also. In closing, I'd like to thank our employees, worldwide, for their hard work and dedication. I want to especially thank them for their outstanding response to the more challenging environment we are in, also, our clients for their confidence and trust in placing their business with Northern, and finally our board of directors for their advice, counsel and support. We continue to be very optimistic about the future of your company. Now, I'll be happy to answer any questions you may have. First let me also introduce Joe Moravec, representative, Arthur Andersen LLP our independent public accounts. Joe is also available to respond to any questions you may have. Are there any questions? This is the test. I won't wait long. Good, I like it. If there are no questions, I'd like to call for report on the election of directors. Ms. McMahon.

Mr. Chairman, having counted the votes cast for the election of directors, we wish to report that each of the individuals nominated and named in the proxy statement received no less than 195,541,608 votes to serve as a director of Northern Trust Corporation for the coming year and until a successor is duly elected. This amounts to 98.9% of the shares voted and 87.9% of the outstanding shares.

Thank-you Laurie. I'd just like to mention Laurie McMahon has been our head of Investor Relations for over 10 years, and she is going to be leaving us this summer to spend time with her family and we have missed her. She has coordinated a lot of work with the shareholders and with the analysts and has done a great job, so thank-you Laurie for all you've done. The individual's name in the proxy statement had been duly elected. This concludes the former part of our meeting. The secretary will file, with the records of the corporation, the proxies, inspector's reports, and other documents pertaining to the conduct of the meeting. May I have a motion to adjourn?

Mr. Chairman, I move the meeting be adjourned.

Thank-you Laurie.

Mr. Chairman [_______________].

Thank-you Steve. All in favor? Meeting is adjourned. Thank-you very much.