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Northern Trust (NTRS) Q2 Earnings Beat, Revenues Decline

Zacks Equity Research

Northern Trust Corporation NTRS reported second-quarter 2019 earnings per share of $1.75, which outpaced the Zacks Consensus Estimate of $1.68. Also, the bottom line improved 4.2% from the year-ago quarter.   

Higher interest income and strong capital position were driving factors. Moreover, credit metrics saw a significant improvement. However, escalating operating expenses and decline in fee income were headwinds in the reported quarter.

The company reported net income of $389.4 million, flat year over year.

Revenues Fall, Costs Rise

Total revenues of $1.51 billion declined slightly year over year in the second quarter. The top line matched the Zacks Consensus Estimate.

On a fully-taxable equivalent basis, net interest income of $425.1 million was up 1% year over year. This was driven by higher net interest margin (NIM), partly mitigated by decreased earning assets.

NIM was 1.61%, up 13 basis points from the prior-year quarter. The increase chiefly reflects higher short-term interest rates, balance-sheet mix shift and lower foreign exchange swap volume.

Non-interest income declined marginally from the year-ago quarter to $1.09 billion. Fall in treasury management fees, security commissions and trading along with foreign exchange trading income led to this downside.

Non-interest expenses climbed 1% year over year to $1 billion. This upswing mainly resulted from an elevation in occupancy, equipment and software expenses, along with other expenses.

Assets Under Management and Custody Improve

As of Jun 30, 2019, Northern Trust’s total assets under custody inched up 4% sequentially to $8.52 trillion, while total assets under management increased 2% to $1.18 trillion.

Credit Quality: A Marked Improvement

Total allowance for credit losses came in at $134.1 million, down 10% year over year. Net recoveries were $1.2 million against charge-offs of $0.1 million reported a year ago.

Further, non-performing assets decreased 10.1% year over year to $118.9 million as of Jun 30, 2019.  A benefit to provisions of $6.5 million was recorded compared with $1.5 million provisions in the prior-year quarter.

Strong Capital Position

Under the Advanced Approach, as of Jun 30, 2019, Tier 1 capital ratio, total capital ratio and Tier 1 leverage ratio came in at 14.9%, 16.7% and 8.6%, compared with 14.6%, 16.5% and 7.7%, respectively, in the prior-year quarter. All ratios exceeded the regulatory requirements.

Return on average common equity was 15.9% compared with 16.5% in the prior-year quarter. Return on average assets was 1.34% compared with 1.26% a year ago.

Capital Deployment Update

During the June-ended quarter, the company repurchased 2.93 million shares for $271.2 million, at average price of $92.62 per share. This includes shares related to share-based compensation.

Our Viewpoint

Northern Trust’s results display a decent second-quarter performance. Growth in assets under custody/management, improvement in credit quality and strong capital position will likely continue. However escalating expenses pose a threat to the company’s profitability. Also, decline in revenues acts as a headwind.

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 #5 (Strong Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Other Banks

Fifth Third Bancorp FITB delivered a positive earnings surprise of 7.6% in second-quarter 2019. Adjusted earnings per share of 71 cents surpassed the Zacks Consensus Estimate of 66 cents. However, excluding certain one-time items, the bottom line came in at 57 cents, down 30.5% year over year.

Riding on higher revenues, Citizens Financial Group CFG delivered a positive earnings surprise of 2.1% in second-quarter 2019. Adjusted earnings per share came in at 96 cents, beating the Zacks Consensus Estimate of 94 cents. Also, the bottom line improved 9.1% year over year.

Signature Bank SBNY reported second-quarter 2019 earnings per share of $2.72, outpacing the Zacks Consensus Estimate of $2.71. Yet, the bottom line decreased 3.5% from the prior-year quarter’s figure.

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