Good day everyone and welcome to the Northern Trust Corporation First Quarter 2015 Earnings Conference Call. Today’s call is being recorded. At this time, I would like to turn the call over to the Director of Investor Relations, Bev Fleming for opening remarks and introductions. Please go ahead.

Thank you, Casella, and good morning, everyone, and welcome to Northern Trust Corporation’s first quarter 2015 earnings conference call. Joining me on our call this morning are Biff Bowman, our Chief Financial Officer; Jane Karpinski, 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 financial trends report by e-mail this morning they are both available on our Web site at northertrust.com. In addition, and also on our Web site, you will find our quarterly earnings review presentation which we will use to guide today’s conference call. This April 21st call is being webcast live on northerntrust.com, the only authorized rebroadcast of this call is a replay that will be available on our Web site through May 19. Northern Trust disclaims any continuing accuracy of the information provided on 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 expectation of future events or future results. Actual results of course could differ materially from those expressed or implied by these statements because the realization of those results is subject to many risks and uncertainties that are difficult to predict. I urge you to read our 2004 annual report on Form 10-K and other reports filed with the Securities and Exchange Commission for detailed information about factors that could affect actual results. During today’s question-and-answer session please limit your initial query to one question and one related follow-up. This will allow us to move through the queue and allow as many people as possible the opportunity to ask questions as time permits. So, thank you again for joining us today. Let me turn the call over to Biff Bowman.

Good morning, everyone. Let me join Bev in welcoming you to Northern Trust first quarter earnings conference call. As is our customary practice, today I will review our results for the quarter after which Bev and I would be happy to answer your questions. Starting on Page 2, this morning we reported first quarter net income of $231 million, earnings per share were $0.94, 25% higher year-over-year. Our return on equity was 11.3% in the quarter. Environmental factors which impact our businesses and our clients were mixed in the first quarter, a theme which has been ongoing for some time. U.S. equity markets were higher year-over-year with the S&P 500 up 10%, but relatively flat sequentially. International equities as measured by the MSCI EAFE Index were down approximately 3.5% year-over-year and up 4% sequentially and were negatively impacted in both comparisons by a stronger U.S. dollar. In bond markets, the Barclays U.S. aggregate index was up 2% year-over-year and 1% sequentially. Client assets under custody ended the quarter at 6.1 trillion, up 6% over last year and 2% versus last quarter, and assets under management ended at 960 billion, up 5% year-over-year and 3% sequentially. I’ll provide further details on asset trends later during this call. Currency markets had multiple impacts this quarter. Currency volatility as measured by the G7 index was 33% higher than the first quarter of last year and 22% higher than last quarter. Currency volatility influences our foreign exchange trading income as does the level of client activity. Currency rates which influence the translation of non U.S currencies to the U.S dollar impact client assets and our revenues and expenses. The dollar was stronger both year-over-year and sequentially. Dollar strength tempered custody asset growth and related fee growth, but benefited expense growth. Short-term interest rates rose…

[Operator Instruction] We’ll take our first question from Brennan Hawken with UBS. Your line is open.

So the fully phased in Basel III capital ratios declined quarter-over-quarter in about 30 bps for standardized and 40 for advanced, what drove those declines?

So there are a couple of factors that we need to consider here; first is the phase to Basel III. So largely it was a risk weighted asset impact. The two point that you talk about approximately 75% were driven by that conversion and then 50% were driven -- up to 50 basis points were driven by the shift in asset mix on the balance sheet. So we have greater loans and we moved items out of our fed deposits if you will into other earning assets. And is as expected we -- these are as we would have expected to move under the migration into Basel III and the shift-mix if you will on the balance sheet into assets that draw the RWA up again about 50 of the basis points and then 150 basis points is simply to move to the Basel III standardize.

But I was actually asking on the fully phased basis, your fully phased as you guys reported last quarter, standardized 10.6, this quarter at 10.3 and the advanced was 11.9 and this quarter to 11.5. So does that mean that on the fully phased basis it was purely based on asset mix on the balance sheet?

Yes, that’s exactly right.

Okay thanks. And then thinking about -- what you just referenced the deposits with fed, what drove that shift quarter-over-quarter? They dropped almost in half, is that something that you expect to be sustainable and is that some progress that you're making in decreasing non-operating deposits?

I don’t know that the halfing is something that we’ll continue, but we’re just trying to put the balance sheet items to work. The asset mix as you can see shifted to the shorter end of the securities portfolio, so we have just put those items to a more effective use than 25 basis point deposit at the fed. I don’t think you should anticipate a half -- continued halfing though.

No, sure, sure of course, I just -- and the other part of the question does that mean is it right to infer that maybe non-operating deposits might have decline too, which gives you the confidence to switch it over to securities?

No I don’t think you can make that inference.

Thank you. We’ll move now to Luke Montgomery with Bernstein Research. Your line is open.

So just a question on the base line fee rates for which we estimate a fee waivers. I think some investors are concerned that the fee waiver disclosures, maybe not just for you, but for the industry are calculated on fee rates that haven’t been negotiate for a long time and clearly your yields on those funds could be primarily lower. In the past, I think you’ve discussed you're recapture expectation and the possibility of how competition might play into that, but more fundamentally in providing those disclosures, is your basic assumption that fee rates are roughly what they were about six years ago?

So, we’ve reprised some of our money market fee assets more recently than that, I think 2012 was the most recent reprising in a portion of our money market fee asset. So it's not fair to say that some of those aren’t current, but we are revisiting in light of the money market reform and all the other acts, we are constantly revisiting if you will our bulk of product offerings and capabilities as well as the competitive pricing landscape in that space.

And then on sec lending in February, you said a couple of pair of class action lawsuits for about; I think it was three quarters worth of sec lending revenue. So could you just remind us are there other suits outstanding of a similar nature or is this issue pretty much put to bed and then had that already been accrued for in prior earnings or was there an impact in the P&L this quarter?

As we previously disclosed we did agree to settle the alleged class action claims arising out of the client investments in the Northern Trust index funds that experienced losses from securities lending during the financial crisis. We took the 19.2 million pre-tax charge in the fourth quarter of 2013. The parties obtained preliminary court approval for the class wide settlement during the first quarter of 2015 and the final approval hearing has been schedule for August of 2015. So there are still some items that we are reviewing in the process the best sort of the most recent update we have on our securities lending.

(Operator Instructions) We’ll move next to Glenn Shor with Evercore ISI. Your line is open.

A NIM question if I could on the yield front, so yields on the loan -- so I think 22 basis points year-on-year they fell double that on the debt front which is helping support [indiscernible] among other things. So the question is, is the drop end loans -- how do you attribute to rates versus pricing versus mix of products and on the debt front? I’m assuming there is a component of rolling off high [cost] debt, could you talk about maybe the year ahead and in terms of what's rolling off and can we still expect to same year-on-year trends?

If you will on the loan mix and if you will -- the lessening of the yield. The mix of products there has moved from, as we talked about residential real estate into what we would call investment secured loans. Those have a lower yield but they are well secured in high credit quality. So the mix shift there has driven a lot of that change if you will in rate, in terms of the first part of your question in the loan mix. So the areas we are growing our loans in have a slightly higher lower yield then the traditional residential real estate and others. So that is driven most of the loan mix down. In terms of the debt we did have last year 500 million of senior notes and then in the first quarter of this year we had 125 million sterling note which was used financed the bearings acquisition about a decade ago roll off in the first quarter. And then as far as the rest of the year we along with the treasure in the [indiscernible] committee of the firm look at our debt structure on an ongoing basis to determine what type of debt structures we will have over that roll off.

Okay, nothing imminent schedule?

Nothing.

I know you're sure on time, go ahead you can move on. Thank you.

We’ll take our next question from Ashley Serrao with Credit Suisse. Your line is open.

Just a boarder question, expenses in general. You are off to a good start in the first quarter, as we think about the balance of the year what are some of the puts and takes which we should mindful of in terms of reinvestment and maybe any other efficiency gains in the horizon?

So as we've discussed before we have many ongoing expense initiatives around the firm. I talked about our location strategy for instance and we gave some numbers in our talking points were last year a little north of 75% of our higher were in our locations that we would call Operating Centers in Tier 2 and Tier 3 locations. That will continue ongoing and we've done a great job of managing our consulting and legal expenses that we've talked about that are other drivers on the expense front. Those can be episodic, particularly legal can be episodic but some of the disciplines that we put in place around there have aided us in the expense measures that you see here and in the expense performance that you see here. In essence it's a business as usual on the expense product, we've embedded some of the disciplines around the expense to trust fees that we talk about is been embedded into our businesses and people are gearing their expense growth rates to be in line with our trust fee growth rates.

And just a quick follow up. Just in FX if you look at the cumulative pre-tax impact was this last quarter or a year ago what was it?

Are you talking about the impact of the currency rates?

Yes, the exchanges rates.

If you're talking about the impacts on the P&L for us, to give some indication if you look at revenues sequentially we would have had 7% on trust fees -- excuse me $7 million of trust fees were impacted negatively. And then if you looked at it on a year-over-year basis that would have been about 15 million negatively impacted by the strengthening dollar, that’s an important line. On the expense side if I look at [indiscernible] largest expense line it was $14 million impact year-over-year and sequentially also 7 million. Just trying to give you some idea of our two main expenses.

We'll move on to Brian Bedell with Deutsche Bank. Your line is open.

Maybe just go back to expenses very good cost control in the quarter. I was just trying to understand a little bit more granularly some of the what you would identify as seasonally high or first quarter and then some of the -- as mentioned I think the lower consulting and legal fees. Just trying to isolate that as well.

So we do have some seasonality in our expense as you noted. We have the Northern Trust open and then we have certain compensation related expenses particularly with option expense for retirement eligible individuals that are seasonal. I think if you look probably historically you'll be able to see the spike particularly in our business promotions and other lines in your analysis to see. We felt pretty good about our ability to absorb that increase in expense in the first quarter and still maintained expense growth rates at you saw in our earnings release. As for things like legal and consulting, the disciplines we put in place around the use and the contracts, and the rate cards with those individuals, I think will allow us to create some permanent savings, but take legal for instance there is -- there can be episodic situations where we need to utilize outside law firms for situations and we continue to manage the cost of the rate cards, but if we have to use legal firms more for entities going forward or consultants for needs going forward it could move that needle around. I think most of the other expenses again are very much in line with the expense-to-trust fee ratio that we talk about and people are embedding that into their allowable growth rates in their businesses.

And then just maybe on the outside services, do you view that run rate as a sustainable run rate borrowing anything unforeseen in the first quarter?

I am hesitate to say that that’s a run rate because of the episodic nature of some of it, but I think there is a portion of that that is permanent, but there is also the episodic need. So I am not sure I am willing to concede.

Thank you. We’ll take our next question from Alex Blostein with Goldman Sachs. Your line is open.

Question on the asset management business and the I guess the organic growth, I know you guys don’t give that to us here and that’s sort of a wish, but broadly speaking if I look at the AUM growth up 4% quarter-over-quarter it’s up quite nicely despite the FX headwinds in the market helped to some extent, but I am assuming that’s not all of it. So just got a curiosity here where the growth is coming from? We’ve definitely seem a lot of incremental growth in the past with strategy seeing that, predominantly what’s driving that and maybe what the pipeline looks there?

So if we look at our growth in our AUM and our asset management business in general, we did see growth in our cash funds in the quarter, we’ve seen growth in our OCIO business, our outsourced Chief Investment Officer business, very much we’ve seen growth in our enhanced equities strategy. Our three areas where we’ve seen growth are ETF business also has continued to grow as well. So, we’ve had -- and it's been -- I would also say it's been global as well, that growth has been both domestically here in the U.S. and particularly in Europe and in the Middle East we’ve seen significant growth in our AUM.

And then just my follow-ups to business initiative, the cash business, given the fact that the bigger banks continue to seek pressure on the balance sheet size and more cash continues to move off to the sidelines. Given your roll in the cash management world both on the money market fund side, but also I guess some of the balance sheet capacity since you guys are not, that’s a lot of constrained like your peers. Just curious to think about how you guys think about that opportunity relative to some of your peers given the fact that there is still -- feels like a lot of cash in the systems that needs home and nobody sort of wants it?

We’ve assembled a cross business unit project team which would as you describe encompass both professionals from our asset management business and our treasury team to look really in servicing the liquidity needs of our clients and in some cases that liquidity needed is balance sheet and in some cases that is in some form of money market fund or some other type of cash vehicle. There is a cross Northern Trust wide team looking at that, working with clients to understand their solution needs and it’s very active and moving forward at a pace as you might imagine, in conjunction with the money market reform that you see on the asset management side but also in relation to other financial institutions that have taken a very different tact around large deposits and we -- right now we view each of those on an individual basis, but we’re looking at that as I said across the business with a real holistic approach to client liquidity needs.

[indiscernible] with Jefferies.

A little bit on the securities lending business, you mentioned that the spreads look like they continue to be under pressure, you had okay period in collateral growth and we did see little bit disconnect between LIBOR and sec funds this quarter. So can you talk through to some of the underlying dynamics and if anything is just changing fundamentally inside the security lending business or if it was just some anomaly from this quarter?

On volumes we did see a pickup in borrower demand particularly in U.S. equities and U.S. corporate bonds, our sequential volume growth was impacted -- we have sequential volume growth. However it was essentially offset by two fewer days in the first quarter versus the fourth quarter and I know you're asking from macro trends as well. We also saw sort of for us a mix shift in the impacted fee splits so our clients with different fees split were more in the market than those with perhaps more favorable to Northern fees splits. And so the clients having those less favorable fee arrangements represented a larger portion of our revenue in this quarter. Fundamentally though I don’t think we saw any other macro level issues that we would call out on the call. I would note in the second quarter we get our dividend fees and ramp up in security funding so we anticipate that in the quarter.

And then my follow up is just on the same topic. So historically securities lending spread, did you tend to widen when we get an advance of that rate cycle. But I'm just wondering this time do we actually have to wait for the administer grade to change. Or should we anticipate that as dead funds in LIBOR go up in advanced of the actual fed cycle. How would you expect that dynamic to work this cycle if any different form prior.

I don’t know that I can answer that, if you want to be all candor. I'm not sure that I’ll have a good answer for you on that.

I'll follow up offline.

We'll go now to Betsy Graseck with Morgan Stanley. Your line is open.

Couple of questions on wealth management. We've seen some headlines on some of the neutrals that are coming out of the West Coast they're known as robo advisors. I'm not asking if, if you’re going down that road, but is there something in the technology that you could use to leverage that kind of concept and get even more efficient, freeing up some of your folks to spend more of their time on client acquisition or enhance there wallet in using some of these tools?

We are -- our product team insight is actively looking at if you will the capabilities that those type of robo advisors if you will bring to the market. And if you will considering the technology that would enable our client situations more effectively and it is an emerging trend, our president of our wealth management business spends significant amount of time on the West Coast meeting with individuals to further understand the technologies if you will that are driving the wealth management business forward. So you're right, there is technology there, it today doesn’t target our typical client as you might suspect. But I think the nuances and the capability under penning the technology there is of interest to us to continue to evaluate.

And the follow up is just on the fiduciary standard language that came out of departmental [liberalizing] was last week. I'm sure you had took the time to look through that just wondering if there is any change in how you approach the marketing of your clients given that language come of the DOL.

We believe our wealth management remains very well positioned versus others vis-à-vis the new fiduciary standards. A brief overview from a financial perspective we would expect minimal negative impact because our model is a fee based model, other have commission oriented models with different compensation structures. Ours are largely discretionary structures which don’t lend themselves to some of the issues the department of LIBOR has timed on. If you think about the discretionary incentive awards for our individuals, the factors that drive them are really based on client satisfaction, client retention and risk management and not driven by product placement and some of the other elements that the department of LIBOR is concerned about. And then lastly I would say this for 125 year the firm has been driven by fiduciary responsibility and we don’t some of these new requirement that department of LIBOR is talking about here is new news for us in that space.

So opportunity for potential mortgage or gain as the DOL has tightened people awareness around the need for fiduciary responsibility. And maybe there is a marketing effort that will ring little bit more clearly in people minds.

We hope so.

We'll move next to Mike Mayo from CLSA. Your line is open.

Foreign exchange is up about one fifth quarter-over-quarter and about two fifth year-over-year. How much that is sustainable? How should we think about that?

So it is highly links to volatility and volumes. So it's very links to the volatility that you saw. We have taken -- as we discussed we have taken efforts to look at our e-commerce platforms and other solutions for clients that has modestly driven up our client volumes and our client share. But still the lion share of this is driven by the volatility that we see. We're hoping to further through products and capabilities and solutions, have more that is sustainable as you describe, but it's partially linked to volatility.

And what are the key drivers of that volatility when you do the analysis and is that continuing into the second quarter?

Well we used probably the same things that you do to looking at the JP Morgan, G7 currency volatility or the emerging market volatility index in the [seats], we have into April seen the same types of volatilities that we’ve seen and I -- we believe that you have the possibility of Central Bank divergence on monitory policy it could continue to create at least the need for more volatility or create volatility in the foreign exchange system.

Thank you. We’ll move next to Adam Beatty with Bank of America. Your line is open.

On asset management just interested in any differences that you're seeing between your overseas and domestic clients, whether that’s in C&IS or wealth management just in terms of the level of new business or asset allocation and whether maybe currencies effecting that? Thanks.

If you look at our business and our asset management business globally, in the U.S. it has a strong balance between our asset, our wealth management business and our corporate institutional businesses. Outside of the U.S. that becomes largely an institutional base for our AUM and it has a significant position in our passive products if you will and particularly to large sovereign wealth funds those are meaningful clients across the globe outside the U.S. So there is obviously substantial pools of assets there and they need those kinds of index products. And in U.S. in the domestic product market, we have a wide arrays of suite of products in our asset management that are attractive to our clients from alternatives to ETFs, to mutual funds, to cash products, to active equity, et cetera. So it's a much broader spectrum. Institutionally, in the U.S. we also have a broader array, it still has a heavily cash and index component on the institutional side, but we do have an array. But on the wealth side it's a much broader mix product capabilities.

Thank you, really appreciate the detail and then just a quick follow-up on the OCIO business, how much synergy is there between that and custody and asset servicing, do you look for cross selling there or is it more of a stand alone? Thanks.

Tremendous synergies and if you think it from a -- we may be providing the custodial services and as part of a solution set to that client, they need help or they’re seeking help, or they’re seeking to outsource some of the pension responsibilities or the investment responsibilities, we become a fairly natural solution for them and there is synergies in the ability to bundle that product and service together.

Thank you. We’ll take our next question from Gerard Cassidy with RBC. Your line is open.

Biff, can you share with us an update on the funding over in the European markets where there are negative interest rates and you’ve passed on the cost to some of your customers, what’s been the reaction by the customers? And also what percentage of those deposits are actually being -- that cost is being passed on them, in the markets where there are negative rates?

So we do have several markets, you're correct where we have a negative rate environment. We have the Euro, we have the Danish krona, we have the Swiss franc, our three areas where we have gone negative if you will with our clients. In terms of the spread if you will on that it's interesting in some cases it depends on the reinvestment possibilities that we have in those. So we -- in some cases we have seen the spread erosion occur where the spread is narrowed and in others we’ve been able to maintain that if you will that spread even with negative rates. I will say that we on a continuous and an active basis we monitor the markets, we understand where we’re able to reinvest and we have active dialogues with our clients about in some cases perhaps the need to press further negative into the rate environment where Central Bank’s continue to take more aggressive negative rate stances.

Gerard, one thing that I would add to that is that of the three currencies where we’re currently charging negative rates, the one that is really the most significant for us from a client balance perspective as the euro and I think we had mentioned last quarter that while we had seen a run up in our Euro balances when our rates was not negative, we did see that come down we went from about €4 billion to about 3 billion, kind of stabilized at that level in line with what our expectations had been and I guess after that initial response, we have seen those balances drift up, but just modestly. In terms of the Swiss franc and the Danish krona is about the balances is there from client, they’re really quite small.

And about what percentage of customers are being passed on this cost? Is it half of the deposit base or a third or all?

A vast majority.

A vast majority.

And then second, there has been some evidence of loans that are tie to Euro bar, that when the Euro bar rate has gone negative the variable rate loan, the spread over the loan is also pushing the loan yield negative meaning the bank is being forced to pay the borrowers. Do you guys have any loans tied to these negative rates where you could be at risk, where you would be forced to pay the borrower?

We don’t as of our last asset liability committee meeting because we walked through this scenario. But we keep our eyes very closely pealed to I know what you're describing and to date we don’t have that situation. But we're continuing to stay close with the negative movement in the rate. Most of our lending is domestic in this dollar based; in fact I believe all of our lending is dollar base.

And we'll move now to Jeffrey Elliott with Autonomous. Your line is open.

On the 20 million or so year-on-year increase in foreign exchange trading income. Can you give us sense of what if, any expenses all attached to that incremental income or does it all just drop through to pretax?

There are some but they are relatively modest level of expenses. There is compensation related expenses that would move with that success in the foreign exchange trading market. But there is not much else in way of incremental expense that moves with that.

We'll move next to Brian [indiscernible] with KBW. Your line is open.

I just have a quick question on the wealth management specifically looking at the East region. I know you have been seeing growth there relative to all the other reasons but look like for the last four quarters revenues kind of plateaued and I know in the past you kind of talk about a j-curve when you are in certain markets. Kind of outline where you are at on that j-curve in the market? When you kind of expect to see enhance growth in that market again?

So I would take a step back and say that our east region is very broad geographically, it goes from Miami Florida to Boston. So I think you need to sort of peel back into market by market type analysis which we don’t have in here. So we've got markets within there that have stronger growth trajectories than what you see here overall. We are -- and continue to have very large market share and meaningful presence in the Florida coast and we're building out that presence from what I would say the Washington D.C. quarter. We have meaningful presence in New York but continue to work on increasing our presence and penetration in that market all the way up to Boston. So I don’t know that I can specifically make a comment on generically about the East because it's made up of so many markets along the Eastern sea board. So some with great growth dynamics and some where we continuing to invest and want to deliver more.

Would say that the investment in the North East is going to pick up year-over-year than in 2015?

It continues to be a growth initiative for our wealth management area and we continue to invest both marketing and probably more important talent [dollars] into the region to facilitate that growth.

We'll take our final question today from Jeff Harte with Sandler O'Neil. Your line is open.

Looking at assets under custody the growth has been consistently impressive and the market share gain opportunity is pretty clear with 6 trillion versus some peers north of 30. Can you talk a little bit about what is actually driving the market share gain you're seeing there? Is it a better product offering than competitors? Is it simply entering new markets and winning your share of bids? What's actually driving that logistically?

I'll answer that with a few points. One is we had success in regions where we've grown quickly. So let me highlight Australia and we highlighted an Australian wins. So there is an example where the regionality and our strength in that region has helped drive that market share growth, that’s one area where we've seen net growth. Most notably has been our success in our servicing asset manager or our global fund services business. We've seen really substantial double digit growth in that business over the last three or four years and our ability to compete against our primary competitors in there and be successful has grown remarkably over the time. And then I would end with product and capabilities, technologies like what we have -- from in our hedge fund services, the Omnium acquisition and other elements of technology. The combination of technology, regional strength and growth particularly in our GFS business have allowed to market share gains.

Is GFS; is that a function of operating it to new markets where maybe you hadn’t been before?

In some cases geographic markets, in some cases its product and capabilities. So it's a combination of both. And then the scale that we've achieved in that business makes us competitive force.

And this does conclude our Q&A for today. I’ll turn the call back to our speakers for any closing remarks.

Thank you, Biff and thank you everyone for joining us today. Allison and I would be happy to take additional questions as the rest of this week unfolds and we look forward to speaking with you on our second quarter call in July. Have a good day. Thank you.

And that does conclude today’s conference. You may disconnect at any time.