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Northern Trust (NTRS) Q3 Earnings & Revenues Top, Costs Up

Reflecting top-line strength, Northern Trust Corporation’s NTRS third-quarter 2019 earnings per share of $1.69 outpaced the Zacks Consensus Estimate of $1.64. Also, the earnings figure compares favorably with the year-ago quarter’s $1.58.    

Higher revenues, aided by rise in net interest as well as fee income, were driving factors. Moreover, most credit metrics marked a significant improvement. However, escalating operating expenses were headwinds in the reported quarter.

Net income came in at $384.6 million, up 3% year over year.

Margins & Revenues Improve, Costs Escalate

Total revenues of $1.55 billion improved 4% year over year in the third quarter. Further, the revenue figure surpassed the Zacks Consensus Estimate of $1.52 billion.

On a fully-taxable equivalent basis, net interest income of $425.3 million was up 2%, year on year. This was driven by higher net interest margin, partly mitigated by decreased earning assets.

Net interest margin (NIM) was 1.61%, up 14 basis points from the prior-year quarter. The upside chiefly reflects higher short-term interest rates, the impact of reduced foreign exchange swap volume and a balance-sheet mix shift.

Consolidated Trust, Investment and Other Servicing Fees summed $975.5 million, up 4% year over year.

Non-interest income escalated 5% from the year-ago quarter to $1.12 billion. Rise in trust, investment and other servicing fees, security commissions and trading income and other operating income led to this upsurge.

Non-interest expenses flared up 3% year over year to $1.04 billion in the quarter. This upswing mainly resulted from an elevation in compensation, employee benefits, outside services, equipment and software expenses. These were partly offset by lower other expenses.

Assets Under Management and Custody Climb

As of Sep 30, 2019, Northern Trust’s total assets under custody climbed 7% year over year to $8.8 trillion, while total assets under management increased 3% to $1.2 trillion.

Credit Quality: A Marked Improvement

Total allowance for credit losses came in at $127.7 million, down 9% year over year. Net recoveries were $0.6 million compared with the $0.3 million reported in the year-ago quarter.

Further, non-performing assets decreased 6.9% year over year to $116.3 million as of Sep 30, 2019.  Credit provision was $7 million in the quarter compared with $9 million of credit provision reported in the prior-year quarter.

Strong Capital Position

Under the Advanced Approach, as of Sep 30, 2019, Tier 1 capital ratio, total capital ratio and Tier 1 leverage ratio came in at 15%, 16.8% and 8.6%, compared with 14.8%, 16.7% and 7.8%, respectively, in the prior-year quarter. All ratios exceeded the regulatory requirements.

Return on average common equity was 14.9% compared with 15.1% in the prior-year quarter. Return on average assets was 1.31% compared with 1.22% witnessed in the year-ago quarter.

Capital Deployment Update

During the July-September quarter, the company repurchased 3.39 million shares for $307.2 million, at an average price of $90.55 per share. This includes shares related to share-based compensation.

Our Viewpoint

Northern Trust put up a decent show during the September-end quarter. Growth in assets under custody and management, revenues and an improving credit quality will likely continue. Furthermore, rise in margin is a tailwind. Though escalating expenses might pose a threat to the company’s profitability, rise in fee income is anticipated to act as a tailwind.
 

Northern Trust Corporation Price, Consensus and EPS Surprise

Northern Trust Corporation Price, Consensus and EPS Surprise

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

Currently, Northern Trust carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Other Banks

PNC Financial PNC reported positive earnings surprise of 5% in the third quarter. Earnings per share of $2.94 surpassed the Zacks Consensus Estimate of $2.80. Further, the bottom line reflected a 4.3% jump from the prior-year quarter’s reported figure. Higher revenues, driven by higher net interest income and escalating fee income, aided the company’s results. However, rise in costs and provisions were headwinds.

Goldman Sachs GS reported a negative earnings surprise of 4.8% for the September-end period. The company reported earnings per share of $4.79, missing the Zacks Consensus Estimate of $5.03. Further, the bottom-line figure compared unfavorably with earnings of $6.28 per share recorded in the year-earlier quarter.

Regions Financial Corporation RF reported third-quarter 2019 adjusted earnings of 39 cents per share, in line with the Zacks Consensus Estimate. Results were up 5.4% year over year. Lower expenses and higher non-interest income were the driving factors. However, lower net interest income due to reduced market-interest rates, were major drags. Additionally, elevated provisions were an undermining factor.

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