Northern Trust Corporation's
(
NTRS
) first-quarter 2012 earnings of 67 cents per share surpassed the
Zacks Consensus Estimate by a penny. The results were in line with
the prior quarter's earnings.
Overall, results were marked by higher non-interest income,
strong new business and improved equity markets. Moreover, decline
in non-interest expenses and improved credit quality were the
positives for the quarter. The fall in net interest income acted as
a headwind for the company.
Including the pre-tax restructuring and integration related
charges of $3.9 million ($2.6 million after tax, or 1 cent per
share), the net income was reported at $161.2 million or 66 cents
per share in the quarter.
Performance in Detail
Total revenue reported was $965.4 million in the quarter,
slightly up by 1% sequentially, reflecting improved equity markets.
However, revenue was below the Zacks Consensus Estimate of $977.0
million.
Net interest income (fully taxable equivalent) totaled $266.3
million in the quarter, down 5% sequentially. The decline was
driven by a fall in average earnings assets and a decrease in net
interest margin (
NIM
). NIM was 1.24%, down from 1.28% in the prior quarter.
However, non-interest income climbed 4% sequentially to $709.0
million, primarily due to a rise in trust, investment and other
servicing fees. These increases were partially offset by lower
foreign exchange trading income.
Trust, investment and other servicing fees from the Corporate
and Institutional Services segment hiked 4% sequentially to $317.0
million in the quarter, mainly due to new business, improved
transaction volumes and high equity markets.
Trust, investment and other servicing fees from the Personal
Financial Services segment surged 10% sequentially to $258.2
million. The improvement in PFS fees primarily reflects higher
markets and lower waived fees in money market mutual funds.
Non-interest expenses totaled $723.6 million in the quarter,
dipping 6% sequentially. The decline in expenses were primarily
attributable to a decrease in equipment and software expenses,
employee benefits expenses, compensation expenses, occupancy and
outside services expenses.
Credit Quality
Overall, credit quality marked an improvement in the first
quarter of 2012. Provision for credit losses was $5 million in the
quarter, down from $12.5 million in the prior quarter. Moreover,
Northern Trust witnessed an improvement in asset quality as
nonperforming assets declined to $284.5 million from $314.9 in the
last quarter.
Further, net charge-offs plummeted to $5.8 million from $18.2
million in the fourth-quarter 2011. Nonperforming loans and
leases edged down 11% sequentially to $262.1 million from $293.7
million. Reported provision levels reflected continuing weakness in
residential real estate loans in certain markets, though commercial
and institutional as well as commercial real estate loans
improved.
Share Repurchase
In the first quarter of 2012, Northern Trust repurchased 0.3
million shares worth $14.5 million at an average price of $43.98
per share. Moreover, the company's common stock repurchase
authorization was replaced in March 2012, under which up to 10
million shares are authorized for buyback after March 31, 2012.
Assets Position
Assets under management witnessed an increase of 8% both
sequentially and year over year (y/y) to $716.5 billion. Assets
under custody grew 8% sequentially and 5% y/y to $4,595.2 billion.
Average earnings assets of $86.1 billion inched down 1%
sequentially but jumped 14% y/y.
Capital Ratios Evaluation
Northern Trust's risk-based capital ratios remained strong as of
March 31, 2012, with Tier 1 capital ratio of 12.4%, total
risk-based capital ratio of 14.0%, and leverage ratio of 7.6%, each
exceeding the regulatory requirements of 6%, 10%, and 5%,
respectively. This classifies Northern Trust as a well-capitalized
institution. The ratio of Tier 1 common equity to risk-weighted
assets, a non-GAAP financial measure, was 11.9%, down from 12.1% in
the prior quarter.
Our Viewpoint
Overall, results were marked by higher non-interest income and a
strong new business. Improved credit quality and an increase in
assets under management acted as positives for the company.
Moreover, a fall in non-interest expenses reflects better expense
management.
Further, we expect increased asset management and servicing fees
based on equity markets improvement and higher volumes. However,
the Dodd-Frank Act will bring in numerous regulatory changes over
the next several years, which might act as deterrents to the
company's fundamentals.
In Conclusion
An investor with an appetite to absorb risks related to the
market volatility should not be disappointed with an investment in
Northern Trust over the long haul. Northern Trust's fundamentals
remain highly promising with a diverse business model and a strong
balance sheet.
Also, from the risk perspective, as Northern Trust cleared the
most difficult stress test, it is for sure that Northern Trust
would be able to withstand another financial crisis as it has
cleared the most difficult stress test.
Moreover, one can consider a company like Northern Trust as
value investment due to its steady dividend-yielding nature. The
company announced about 7% increase in its quarterly dividend to 30
cents per share. Prior to this, the company had increased its
quarterly dividend by 12% to 28 cents per share in December
2007.
Northern Trust currently retains a Zacks #3 rank, which
translates into a short-term "Hold" rating. Considering the
fundamentals, we also maintain long-term 'Neutral' recommendation
on the stock.
Among Northern Trust's peers,
Huntington Bancshares Inc.
(
HBAN
) will be releasing its first-quarter 2012 earnings on April 18,
while
TCF Financial Corporation
(
TCB
) will come up with it on April 19.
HUNTINGTON BANC (
HBAN
): Free Stock Analysis Report
NORTHERN TRUST (
NTRS
): Free Stock Analysis Report
TCF FINL CORP (
TCB
): Free Stock Analysis Report
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