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Rising Revenues Aid Northern Trust (NTRS) Amid High Costs

Northern Trust Corporation’s NTRS organic growth, driven by higher net interest income (NII) and fee income, will help the company maintain revenue growth in the upcoming period.However, rising expenses on inflation and personnel hires are likely to deter Northern Trust’s bottom-line growth. Also, volatile equity markets may cause a reduction in transaction volumes.

Looking at its earnings estimates, it seems that analysts are not very optimistic regarding NTRS’ earnings growth prospects. The Zacks Consensus Estimate for its current-year earnings has been revised marginally lower over the past seven days. As a result, NTRS currently carries a Zacks Rank #3 (Hold).

Over the past six months, shares of the company have lost 1.9% compared with the industry’s decline of 3.8%.

 

Zacks Investment Research
Zacks Investment Research


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The company’s revenues witnessed a compounded annual growth rate (CAGR) of 5.3% over the last three years (2020-2022) on rising non-interest income and NII, with some annual volatility. Growth of NII was aided by the improvement in loan balances. In the upcoming quarters, a decent loan pipeline in the Asset Servicing and Wealth Management segments will position it for organic growth. Moreover, the elimination of fee waivers and the ongoing creation of businesses will propel fee income.

Given the increase in its lending book, a favorable balance sheet mix and prevalent high interest rates, Northern Trust's net interest margin is likely to increase.

The bank’s credit quality remained decent. Provisions recorded a benefit in 2021 and were only $12 million in 2022. The company has been witnessing improvements in credit quality within the commercial and institutional portfolios. We believe, with the continuation of such a favorable trend in the future, Northern Trust will be able to strengthen its earnings.

As of Dec 31, 2022, Northern Trust’s cash and due from banks were $1.73 billion. It maintains investment grade senior debt ratings of A+/A2/A+ and a stable outlook from Fitch, Moody’s and S&P Global, respectively.

Northern Trust’s capital deployment activities seem sustainable, given its decent liquidity. Following the clearance of the 2022 stress test, the company hiked its third-quarter dividend by 7% to 75 cents per share in July 2022. In October 2021, the company announced a 25-million share repurchase program. Northern Trust repurchased 2.5 million shares of common stock in 2022. Such moves will boost shareholder value in the stock.

Northern Trust’s expenses continue to rise on higher compensation and increases in equipment and software expenses. We believe that an increasing expense trend on inflation and personnel hires will hinder bottom-line growth in the upcoming quarters.

Changing conditions of the global financial markets and general economic conditions could affect NTRS’ businesses. Weak economic conditions affected wealth creation, investment preferences, trading activities, and savings patterns, which, in turn, affected the demand for trust and investment products and services. Amid volatile equity markets, a reduction in transaction volumes may affect earnings in the coming quarters.

Stocks Worth Considering

A couple of better-ranked stocks from the banking space are CB Financial Services CBFV and Byline Bancorp BY.

The Zacks Consensus Estimate for CB Financials' current-year earnings has been unchanged in the past 30 days. CBFV's shares have gained 1.8% over the past three months. Currently, CBFV sports a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today's Zacks #1 Rank stocks here.

Byline Bancorp currently carries a Zacks Rank #2 (Buy). Its Zacks Consensus Estimate for 2023 has been unchanged in the past 30 days. Over the past six months, BY’s shares have gained 0.7%.

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Northern Trust Corporation (NTRS) : Free Stock Analysis Report

CB Financial Services, Inc. (CBFV) : Free Stock Analysis Report

Byline Bancorp, Inc. (BY) : Free Stock Analysis Report

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