Northern Trust Earnings Beat on Higher Revenues - Analyst Blog


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After missing earnings estimates in the last few quarters, Northern Trust Corporation ( NTRS ) 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 income.

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 income.

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.

Credit Quality

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, 2014.

Capital Position

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 requirements.

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 per share.

Our Viewpoint

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 giants like Wells Fargo & Company ( WFC ). 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.

Citigroup Inc. ( C ) 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 ( FITB ) is scheduled to report its second-quarter results on Jul 17.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Business , Earnings , Stocks
Referenced Stocks: NIM , NTRS , FITB , WFC , C

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