Fee Income to Support Northern Trust (NTRS) Q3 Earnings

Northern Trust Corporation’s NTRS third-quarter 2020 results, scheduled for an Oct 21 release, are expected to reflect year-over-year declines in revenues and earnings.

Northern Trust uses a lag effect to calculate its corporate custody and investment management fees, i.e. the computations are based on the prior-quarter end valuations. Since the performance of equity markets was strong during the second quarter, the company is likely to have registered increases in custody, servicing and management fees during the third.

Notably, the company provides majority of its asset-management services through the C&IS unit, which generates more than 50% of total revenues. An increase in revenues in this segment is anticipated to have driven the company’s overall top line.

Per the Zacks Consensus Estimate, the C&I segment’s custody and fund administration fees will likely go up 2.6% year over year to $402 million. Also, investment management revenues are estimated to have climbed 13.9% on a year-over-year basis. Further, securities lending revenues are projected to have been up 10% year on year.

Therefore, with the impressive performance of its components, total C&I trust, investment and other servicing fees are likely to have increased 5% year over year to $588 million.

Here are the other factors that might have influenced the company’s quarterly performance:

Low Net Interest Income (NII): The overall lending scenario was soft during the July-September quarter, with commercial real estate loan portfolios having offered significant support. Conversely, revolving home equity and consumer loans, along with commercial and industrial (C&I), were hit hard.

With the central bank cutting interest rates to near zero in March, in a bid to support the U.S. economy, Regions’ net interest margin and NII are likely to have been affected. Nonetheless, low deposit costs and higher average interest earning assets might have been offsetting factors.

The Zacks Consensus Estimate for average interest earning assets of $126.1 million for the quarter indicates a 20.1% year-over-year improvement, while the NII is expected to decline 24.2% to $322 million.

Low Foreign-Exchange Trading Revenues: Given the slightly low foreign-exchange (FX) trading volatility in developing and emerging markets, along with mixed volumes during the September-end quarter as compared with the prior quarter, the company’s revenues from FX trading might have registered a further decline. Moreover, the Zacks Consensus Estimate for income of $64 million for the quarter calls for a 9.9% sequential decline.

Controlled Expenses: Northern Trust’s expenses in the quarter under review are anticipated to have been under control aided by its continued cost-saving initiatives.

Let’s have a look at what our quantitative model predicts:

Northern Trust has the right combination of the two key ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or higher — for increasing the odds of an earnings beat.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earnings ESP: The Earnings ESP for Northern Trust is +0.37%.

Zacks Rank: Northern Trust currently carries a Zacks Rank of 2 (Buy), which increases the predictive power of ESP.

Northern Trust Corporation Price and EPS Surprise

Northern Trust Corporation Price and EPS Surprise

Northern Trust Corporation price-eps-surprise | Northern Trust Corporation Quote

The bank’s activities in the to-be-reported quarter were adequate to win analysts’ confidence. As a result, its Zacks Consensus Estimate for quarterly earnings has been revised upward in the last 30 days. However, earnings are expected to record a year-over-year slump of 16%. Also, the Zacks Consensus Estimate of $1.48 billion for sales indicates a 3.5% decrease from the prior-year quarter.


Other Banks Worth a Look

Here are a few other bank stocks that you may want to consider, as our model shows that these too have the right combination of elements to post an earnings beat this time around:

The Earnings ESP for CullenFrost Bankers, Inc. CFR is +2.61% and the stock carries a Zacks Rank of 3, at present. The company is slated to report third-quarter numbers on Oct 29. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Huntington Bancshares Incorporated HBAN is set to release earnings figures on Oct 22. The company, which carries a Zacks Rank of 3 at present, has an Earnings ESP of +3.47%.

BankUnited, Inc. BKU is scheduled to announce quarterly results on Oct 28. The company has an Earnings ESP of +13.29% and currently carries a Zacks Rank of 3.

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