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Northern Trust (NTRS) Q1 Earnings Beat Estimates, Costs Up

Zacks Equity Research

Reflecting top-line strength, Northern Trust Corporation’s NTRS first-quarter 2019 earnings per share of $1.48 outpaced the Zacks Consensus Estimate of $1.46. However, the earnings figure compares unfavorably with the year-ago quarter’s tally of $1.58.    

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

Net income came in at $347.1 million, down 9% year over year.

Margins & Revenues Improve, Costs Escalate

Total revenues of $1.49 billion improved slightly year over year in the first quarter.  Further, the revenue figure surpassed the Zacks Consensus Estimate of $1.46 billion.

On a fully-taxable equivalent basis, net interest income of $429.8 million was up 9% year over year. This was driven by higher net interest margin, partly mitigated by decreased earning assets.

Net interest margin (NIM) was 1.58%, up 20 basis points from the prior-year quarter. The increase chiefly reflects higher short-term interest rates and a balance-sheet mix shift.

Non-interest income declined 3% from the year-ago quarter to $1.06 billion. Fall in almost all components of income led to this downside.

Non-interest expenses flared up 3% year over year to $1.03 billion in the quarter. This upswing mainly resulted from an elevation in compensation, outside services, equipment and software expenses, along with other expenses. These were partly offset by lower employee benefits.

Assets Under Management and Custody

As of Mar 31, 2019, Northern Trust’s total assets under custody inched up 1% year over year to $8.2 trillion, while total assets under management declined slightly to $1.2 trillion.

Credit Quality: A Marked Improvement

Total allowance for credit losses came in at $139.4 million, down 6% year over year. Net recoveries were $1.2 million compared with charge-offs of $3 million reported in the year-ago quarter.

Further, non-performing assets decreased 3.7% year over year to $124.1 million as of Mar 31, 2019.  No provisions were recorded in the quarter compared with $3 million of credit provision reported in the prior-year quarter.

Strong Capital Position

Under the Advanced Approach, as of Mar 31, 2019, Tier 1 capital ratio, total capital ratio and Tier 1 leverage ratio came in at 14.8%, 16.6% and 8.2%, compared with 14.3%, 16.2% and 7.6%, respectively, in the prior-year quarter. All ratios exceeded the regulatory requirements.

Return on average common equity was 14% compared with 16% in the prior-year quarter. Return on average assets was 1.18% compared with 1.24% witnessed in the year-ago quarter.

Capital Deployment Update

During the Jan-Mar quarter, the company repurchased 2.85 million shares for $257.4 million, at average price of $90.31 per share. This includes shares related to share-based compensation.

Our Viewpoint

Northern Trust’s results display a decent performance during the Mar-end quarter. Growth in assets under custody, revenues and an improving credit quality will likely continue. Furthermore, positive impact of rising rates is likely to prevail. Though escalating expenses might pose a threat to the company’s profitability, benefits of tax reform are 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 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

Riding on higher revenues, Citizens Financial Group, Inc. CFG recorded a positive earnings surprise of 4.5% in first-quarter 2019. Adjusted earnings per share came in at 93 cents, beating the Zacks Consensus Estimate of 89 cents. Also, the reported figure improved 19.2% year over year. Results excluded one-time items of $4 million or 1 cent per share.

PNC Financial PNC reported positive earnings surprise of 0.8% in the Jan-Mar quarter. Earnings per share of $2.61 surpassed the Zacks Consensus Estimate of $2.59. Further, the bottom line reflected a 7.4% jump from the prior-year quarter. Higher revenues, driven by easing margin pressure and escalating fee income, aided the results. However, rise in costs and provisions were headwinds.

Comerica CMA delivered positive earnings surprise of 7.2% in the Mar-end quarter on high interest income. Adjusted earnings per share of $2.08 in the quarter handily outpaced the Zacks Consensus Estimate of $1.94. In addition, earnings were up from the prior-year quarter adjusted figure of $1.54. Including certain non-recurring items, earnings came in at $2.11.

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