After missing earnings estimates in the last few quarters,
Northern Trust Corporation
) managed to deliver a positive earnings surprise of 3.6% in the
second quarter. Earnings per share came in at 87 cents, outpacing
the Zacks Consensus Estimate of 84 cents. Also, this compared
favorably with 78 cents earned in the year-ago quarter.
Results were aided by top-line growth, partially offset by higher
operating expenses. Also, a strong capital position and rise in
both assets under management and assets under custody were the
positives for the quarter.
Net income for the quarter came in at $209.8 million, up 10% year
over year. Notably, including pre-tax charges and write-offs of
$42.3 million, net income for the reported quarter stood at $181.9
million or 75 cents per share.
Quarter in Detail
Total revenue came in at $1.08 billion, in line with the Zacks
Consensus Estimate. However, the reported figure was up 6% year
over year, driven by a rise in non-interest as well as net interest
Non-interest income grew 4% from the year-ago quarter to $835.1
million, largely due to a rise in trust, investment and other
servicing fees, partially offset by lower foreign exchange trading
Moreover, on a fully taxable equivalent basis, Northern Trust
reported net interest income of $253.4 million, up 11% year over
year. This was driven by increased levels of average earning
assets, partially offset by a decline in net interest margin (NIM).
NIM was 1.06%, down 4 basis points from 1.10% in the prior-year
quarter. The decline in NIM was primarily due to a fall in yields
on earning assets, partially offset by lower funding costs.
Excluding pre-tax charges and write-offs, non-interest expenses
totaled $768.7 million in the quarter, up 5% year over year. The
rise was primarily owing to increase in costs related to
compensation, outside services and equipment and software.
Assets Under Management and Custody
As of Jun 30, 2014, Northern Trust's assets under management
increased 15% year over year to $924.4 billion. Also, assets under
custody rose 20% from the last-year period to $6.0 trillion.
Northern Trust witnessed improvement in its overall asset quality
during the quarter. There was no provision for credit losses in the
quarter as against provision of $5.0 million in the prior-year
quarter. Further, net charge-offs were $5.9 million, down 27% from
the prior-year quarter figure.
Also, total allowance for credit losses assigned to loans and
leases were $275.2 million, down 5% year over year. Nonperforming
assets fell 14% year over year to $241.9 million as of Jun 30,
Northern Trust's capital ratios remained strong as of Jun 30, 2014,
with Tier 1 capital ratio of 12.9%, total capital ratio of 15.4%
and leverage ratio of 7.6%, each exceeding the regulatory
Under the Advance Approach, common equity Tier 1 ratio and Tier 1
ratio stood at 12.7% and 12.9 %, respectively.
During second-quarter 2014, Northern Trust repurchased more than
1.2 million shares for $74.9 million at an average price of $60.63
We remain encouraged owing to continued growth in assets under
management and assets under custody, top-line growth and an
improving credit quality. However, the new banking regulations
could pressure the company's fundamentals. Also, if the company
fails to undertake efficient cost control measures, the mounting
expenses will pose a threat to its profitability.
Performance of Other Major Banks
The earnings season this quarter started with Wall Street banking
Wells Fargo & Company
). The company's second-quarter 2014 earning per share of $1.01
came in line with the Zacks Consensus Estimate. However, the
reported figure came above the prior-year-quarter earnings.
) reported yet another impressive quarter with adjusted earnings
per share of $1.24 in second-quarter 2014, outpacing the Zacks
Consensus Estimate of $1.08. However, earnings fell below the
year-ago figure by a penny.
Another major bank,
Fifth Third Bancorp
) is scheduled to report its second-quarter results on Jul 17.
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