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.

. 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.

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…

Thank you. [Operator Instructions] We'll go first to John Stilmar at SunTrust.

Just a quick question on -- just touching on compensation for a second. The $294 million that you had this quarter, was there a onetime benefit or detriment in there? I wasn't quite sure. I was wondering if you could just clarify for me.

In compensation expense, the only issue is really stock option expense. And, John, as I mentioned in my comments, we expense stock option grants, which of course, are done in the first quarter, in their entirety for retirement-eligible people. And we do have several retirement-eligible people on our management [Audio Gap] Group.

And that's a common first quarter occurrence, John. Give you the numbers. Stock option expense in the first quarter was $15 million, and last quarter, the fourth quarter, was $5 million. A $10 million delta.

Okay, perfect. Thank you. And then with regard to the pace of new investments on the custodial side, can you talk to me a little bit about whether -- the standard question of winning new business. On one of the other calls this morning, we were given some color around the pace of whether new business wins were at the expense of others in the industry. I was wondering if you could share with us if there's an update on that and just kind of general comments around kind of pipeline and what we should be thinking of at least and how to kind of put that in the context of where we've been relative to the fourth quarter.

Well, I think that relative to the issue of where our new business wins are coming from, on the institutional side, they're pretty much across the board from multiple providers, from multiple regions and across all of the service areas that we're in, John. And then, on the personal side of the business, same thing. I mean, our new business is very broadly across all of our geographic regions in the United States and in Western Europe and within all of our service segments, all of our client segments. So it's very, very broad and from a broad, broad source of prior providers in both the Institutional business and in the Personal business.

Yes, perfect. Then final question, just with regards to the increase in recoveries, is it having to do with the lumpiness of some of your previous collection efforts? Or is that you actually achieving a better severity on some of the actual loans that you took the sort of the charge-off for this quarter? And thank you.

I think it's more of the lumpiness that we've talked about in the past. I sense that we have a slightly improved marketplace in a lot of the places that we do business, particularly in PFS, and we're starting to see some very slight trends of improvement there. But as we've said in the past, we have a relatively low level of nonperformers, and we have, generally, in some cases, some rather large loans. So we would caution you all to think in terms of the fact that 1 or 2 loans moving one way or the other could impact the statistics pretty significantly. But things do seem to be improving at a little bit quicker pace around the United States.

Thank you.

Next, we'll move to Howard Chen at Credit Suisse. Howard Chen - Crédit Suisse AG: Bill, you've been highlighting the record levels in your business momentum within C&IS in the second half of the year, specifically the fourth quarter, along with the rallying asset prices. I guess I would have felt we've seen a bit more strength in fees here. Did I just miss something? Is this timing related? Or is there another factor in your mind that's impacting results?

Yes, I would tell you to some extent, it's timing related. It's also in part related by our hedging practices. In the first quarter, we have a situation where our hedged rates are effectively lower than market rates. To what extent others have that problem, I can't comment. But I would tell you it's a combination of both of those issues. Howard Chen - Crédit Suisse AG: Got it, thanks. And then you noted sort of just the desire to sort of protect and insulate the net interest margin without taking undue risk. I think last quarter, you mentioned an 18-month duration of the securities portfolio. Where did that go and what do you think about taking that?

Well, we did almost nothing in the first quarter. We just finished out the program that we began in the fourth quarter and had done nothing since. The securities portfolio is roughly flat quarter-to-quarter in terms of yield. Bev, would you add something there?

. Yes, Howard, the one thing that I would add is if you look at our financial trend report that we issued this morning, you can actually see some of the actions that we took. If you look at the U.S. Government line on the average balance sheet, you'll see the U.S. Government securities equaled, on average, $974 million in the first quarter versus only $67 million last year. And then if you look at the interest rate trend update, which is Page 8 on our trend report, you'll actually see -- you can see the rates that we're earning on those securities. And that line item really depicts a lot of the yield enhancement strategies that we talked about that we instituted in the fourth quarter.

Also, Howard, the duration of the securities portfolio now is about 2 years. Average pricing duration is about 9 months.

Great, perfect. Thanks on this.

Certainly.

And next, we'll move to Brian Bedell at ISI Group.

If you'll just elaborate a little bit more on the hedged rates that you, Bill, that you just talked about a couple of questions ago?

Sure.

. Brian, the way I would describe this to you is that we hedge our non-U.S. dollar fees to reduce the volatility that can arise when currency rates fluctuate during a cross period. So there's hedging on fees. But, of course, we're not hedging the asset levels. So any analytics that you're doing where you're comparing our fees to our assets need to take into consideration that we're hedging our fees, but the assets are reacting to spot rates. So the relationship between those quarterly hedged rates and the period and spot rates can have an influence on the realization that we get on the assets. As a matter fact, if you look over the last 9 quarters, you'll see that the quarters where we had the highest realization on our assets were actually the quarters where there was the widest variance between the hedge rates and the spot rates.

Right, right. That was going to be my next question on the pricing. So I guess as we move forward, how should we think about that? Are you -- do you plan to continue those hedges as you have in the past? Or should we be modeling this a little closer to the actual foreign exchange influence?

. Our hedge strategy remains in place. So we would expect that to continue. And it just depends on what the difference is between the hedge rates and the spot rates in any given quarter and how it compares with the prior quarter or the prior year.

Right, right. Okay. And then just on the net interest margin, I think, Bill, you said it would have been slightly lower without the onetime and the loan. Are you talking about like 1 or 2 basis points or...?

Yes, right. Exactly.

Okay. And then given the strategy of investing in U.S. Government securities pretty significantly in the fourth quarter, do you expect to continue that policy? So we should see the potential for them to improve from here?

No, not necessarily. I mean, we look at our investment portfolio every month and consider options and how we want to invest the maturing securities. As we speak, our policy is unchanged, meaning we would reinvest upcoming maturities in common types and common durations.

Right, right. Okay. And then just to clarify on the employee comp again. So once again, there was the $10 million of additional stock options expense versus the prior quarter. And then you said there was a $9 million reversal on the employee benefits side, is that right?

Yes, that's correct.

And so going into the second quarter, we should normalize for both of those of course for other people?

Yes, that's correct.

Okay, great. Thank you.

And next, we'll move to Tom McCrohan at Janney Capital Markets.

What's the breakeven U.S. dollar rate? So what level does the U.S. dollar need to be to break even on the hedge for the rest of 2011?

I don't know.

Higher from current levels?

We don't have any disclosures on that, Tom.

Okay. And then, was the weaker U.S. dollar -- just a curious question, is the weak dollar during the quarter a factor at all in the sequential improvement in net interest margin?

In the net interest margin?

Yes.

No, it's not.

It's not? So okay. And on the expense side, just kind of curious what you're thinking about on expense growth. Is there a point where you're going to -- are you thinking internally about taking a little more aggressive actions on the expense side to offset potentially persistently low interest rates? Are you going to continue to invest and be comfortable with the dynamic of potentially kind of stubbornly low growth in top line and rising expenses? Thanks.

Yes. As we've said in the call comments, we're continuing to invest in our business. And the best thing in our business involves a considerable investment in technology. At the present time, we have a higher number than last year planned in that category and involves a continuing commitment to high-quality people. And we've discussed our investing through the cycle program with you before. At the present time, I would tell you that remains in place. However, we talk about the changing environment every month, every quarter. And if we feel that the realization of the benefits of these types of programs will be farther out than we had originally thought or that market circumstances change or that the world changes in some unanticipated way, we would consider changing our policy. But today, our policy is to continue to invest in the business because we can and certain others can't.

And we'll go next to Betsy Graseck with Morgan Stanley.

A couple questions. One is on fee waivers. I think you mentioned the run rate right now is $16.7 million, is that right?

That's correct.

So that's up from the prior?

Yes, it is. It's up from the prior quarter and, actually, I think down from a year ago's quarter. But the issue here is the stuff's very short duration these days, as you know, and during the fourth quarter, we had a pretty significant decline in various short-term yields, particularly toward the end of the quarter.

Okay. So this was rate oriented, not which -- the amount of the funds that you're applying this to?

No, it's actually -- it's completely rate resulting because the balances in our money market fund complex are roughly the same quarter-to-quarter, and the distribution is roughly unchanged as well. So purely lower yields and our inability to realize even the percentage of our fees that we were realizing in the prior quarter.

Okay. And then on PFS, you were indicating how business is up in part from the Northeast region. You started to build out your Northeast region about 3 years ago, is that right?

Actually, we started in 2003 with the opening of our office in New York and then have built out subsequent to them. So it's been almost 8 years now.

Okay. So as we're thinking about the opening of the D.C. office, I'm wondering if you can give us a sense as to how you're expecting that office to contribute to the overall performance. I know it's 1 office out of many, but I guess the basic point of my question is, do you think you're going to be in a period of ramping to break even to profitability faster than what you experienced in the New England area or is it kind of on the same track?

Well, I think we'll do better than we did with our first couple of entrants. When we first came to New York in 2003 and later to Boston, I believe, in 2005, we were quite under known and under recognized. Today, our presence in the market, while not dominating by any sense, is more important, and we have a very strong reputation for high-quality client service in the Northeast and the mid-Atlantic that we might not have had at the beginning of last decade. So I think reputationally, we're better positioned. Having said that, these new offices take a while to become profitable. So while I wouldn't expect the incremental expense run rate to be too significant, it does, absent an acquisition, take several years to become profitable.

. And the other thing that I would add, Betsy, for the benefit of you and others on the call is that in our 2010 annual report, we began disclosing our PFS fees on a regional basis because that's how we're running the business. So you can actually see the Northeast region fees not only in our annual report but continuing into this first quarter in our trend report. So just to give you a perspective on the relative size of the various regions, the Northeast included.

Okay, super. Thanks.

Sure.

And next, we'll move to Robert Lee with KBW. Robert Lee - Keefe, Bruyette, & Woods, Inc.: First question is on the tax rate. Is there any onetime items there? I guess my impression had been with the change in the Illinois state tax, there were some changes to some deferred tax items that may have caused some onetime adjustments.

Yes, there are. We think that the impact of the Illinois state corporate tax rate will affect us in 2 ways. One, and this is reflected in the first quarter, there's a $3.4 million adjustment to deferred tax liability. And then for each of the 4 quarters of this year, we're looking for a $1 million incremental tax liability. So in quarter, $4.4 million, $3.4 million which would not be recurring. And then going forward, another $1 million a quarter. Robert Lee - Keefe, Bruyette, & Woods, Inc.: Okay, great. That's helpful. I want to ask you a question on capital management, just kind of a strategic question. I mean, as you pointed out, I mean, your capital management strategy had served you well the last couple of years in the crisis. But as you come out now with essentially all your competitors around the world and particularly in the U.S. being forced to retain higher levels of capital, in some ways you can argue that the competitive advantage to that diminishes over time. So how do you think about -- how do you think about capital management going forward? I mean, for example, just to throw numbers out, if the regulators dictate that hey, you have to have at least -- all your competitors have to have 7% or 8% tier 1 common to Basel III, do you feel that competitively you want to run 9% or 10%? Or, I mean, do you always kind of want to be 1 or 2 steps ahead of everyone else even if everyone else's capital ratios are coming up?

I think the answer to that is yes because historically, we've maintained the company at well above well-capitalized level. And I think we want to do that into the future for, among other reasons, the fact that while our capital is very high on a percentage basis, on an absolute dollar basis, it isn't that high relative to some of the peer banks that we compete with. So I think it's important to both keep the ratio high and the dollar amount, particularly of common equity, reasonably high. Let me make a comment, though, about where we are on the issue of capital management. It may not be clear to all of you. While we are not one of the 19 so-called scab [ph] banks, we are the next bank. We are the 20th on the list. And we're actually in a unique peer group. I believe we're in a peer group of 1, being a Basel II bank and not being a scab [ph] Bank. So while we have not filed or followed exactly the timelines that the Fed has set for the scab [ph] banks in terms of filing capital plans and certain other things, we are doing the same things. And we did file, after our Board meeting in February, a 2-year capital plan which then covered all of our planned capital actions with the Fed in late February. And we're waiting to hear the Fed's comments on that plan now. So my point is that capital management and capital actions are not simply something that we are controlling at the present time. We've had pretty good cooperation from our principal regulator. But at some point, we do need to have agreement between the company and our principal regulator about what an appropriate level of capital is going forward. And I'm sure we will, but at this point, we don't. Robert Lee - Keefe, Bruyette, & Woods, Inc.: Okay, thanks. And maybe 1 or 2 quick follow-ups, I guess, also related to the balance sheet. I mean, for a while now, your non-U.S. businesses have been growing much quicker. And certainly, you see your non-U.S. deposit base continues to be the driver of growth. Have you started to think about at all changing on how you manage the asset side of the balance sheet to reflect that, whether it's actually more non-U.S.-based assets or -- I mean, any need to change or rethink balance sheet management as the mix of your deposit sources changes?

I don't think so. But keep in mind that our practice in this area is to reinvest in common currency. So, for instance, if we get Australian dollars, we buy something on the asset side in Australian dollars. So we don't take currency risk on client deposits, one. Two, relative to the client expectations in this business, we need to keep that money quite liquid. Three, the growth in our balance sheet, and you have the balance sheet in our press release and in our trend report, has been pretty significant here in the last quarter. And particularly at the quarter end period, it's well north of $9 billion. And almost all of that growth is from our non-U.S. deposit base. So the business is growing at a quick rate, probably at an accelerated rate versus prior periods. And we, of course, will continue to accept our clients' deposits when they want to place their money with us. But to the question of being a little bit different in our approach on reinvesting those deposits on the asset side, we'll consider alternatives, but I don't think they'll be much different than where we are today. Robert Lee - Keefe, Bruyette, & Woods, Inc.: Okay. And thanks for indulging me one last quick question. This is on money fund fee waivers. I know you have disclosure about what they were in the quarter, but I guess as a forward-looking comment or asking for one. But assuming repo rates, which started off the quarter under some pressure here, assuming that they remain under pressure for the quarter, is it reasonable to expect that in the short term at least, we're going to see some -- could see some increased pressure on fee waivers in the coming quarter, particularly given how short-duration money fund portfolios have to be nowadays?

Yes. We're -- I think if things stayed exactly they were at quarter end, hypothetically speaking, our -- throughout the second quarter, our fee waivers would be higher than they were in the first quarter. Robert Lee - Keefe, Bruyette, & Woods, Inc.: Great. Okay, thanks for taking my questions.

And next, we'll move to Ken Usdin at Jefferies. Kenneth Usdin - Jefferies & Company, Inc.: Bill, I just want -- I apologize if I missed this in your prepared remarks. But the last few quarters, you've been giving us just some color on how net new business was just anecdotally. I was wondering if you can tell us across the businesses how that looked in 1Q?

Sure. I'm happy to say that on the Personal side, first quarter was the best quarter we've ever had when presented on a net new business basis. So good news there. And last year, as you'll remember from prior comments, was historically high as well. In the Institutional side of our business, you may recall that the fourth quarter was the best quarter we’d ever had. And again, on the same basis, net new business. And there was a -- they were a little bit softer in the first quarter in C&IS. Kenneth Usdin - Jefferies & Company, Inc.: Okay. And my second question, just to kind of follow up on the business progression, just looking at the servicing fees' detail, it's good positive marks on the equity side in all of the businesses, but investment management was down slightly. I'm sure some of that is the performance fees. And also, in looking at the new color on the PFS side, Midwest was slightly down and Wealth Management was slightly down. So I was just -- obviously, the year-over-year growth is very strong. But just from a progression perspective, can you just kind of walk us through, whatever -- whether it's day count or money fund fees or just negative business mix, what are the drivers there?

. Well, Ken, this is Bev. First of all, we don't have performance fees like some of our peers do. So that would not be part of our equation as you do to your analytics. And then the other point that you make is a good one. Now that we have a regional breakdown in PFS, one of the things that you correctly saw was that our sequential quarter growth in the Midwest region did not look as strong as it was across the other regions. And you actually have to deconstruct that a little bit. Actually, our Illinois fees and the rest of our Midwest states did have strong growth, very similar to what you're seeing from the other regions. But we also, because the Midwest is our heritage region, we include other in there. And in the first quarter, we did change an allocation methodology for some of our fund-level asset management fees. They’d previously been assigned to other, and now we've moved them out into the regions. So that does affect -- it affects the Midwest region, but primarily because it has previously had this other category related to fund-level asset management fees. So as Bill said earlier, new business was strong across all of our regions, and we feel very good about all the regions. And I wouldn't focus too much on that one metric, the sequential quarter growth for Midwest. Kenneth Usdin - Jefferies & Company, Inc.: Okay, great. Thanks very much.

And that is all the time we have for questions today. Mr. Morrison, I'll turn the conference back over to you for any closing remarks.

Well, thank you. Thanks, everyone. We look forward to updating you on Northern Trust's second quarter performance on July 20. Thanks. Have a good day.

And that does conclude today's conference. Again, thank you for your participation.