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Northern Trust (NTRS) Q3 Earnings Miss Estimates, Revenues Up

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Reflecting high costs, Northern Trust Corporation’s NTRS third-quarter 2018 earnings per share of $1.58 missed the Zacks Consensus Estimate of $1.60. Earnings compared favorably with $1.20 recorded in the year-ago quarter.

Escalating operating expenses acted as a headwind in the reported quarter. However, higher revenues and strong capital position were positives. Additionally, the third quarter witnessed a rise in assets under custody, as well as assets under management. Moreover, mostly credit metrics marked a significant improvement.

Net income came in at $374.5 million, up 25.5% year over year.

Margins & Revenues Improve, Costs Escalate

Total revenues of $1.48 billion improved 9% year over year.  However, results lagged the Zacks Consensus Estimate of $1.51 billion.

On a fully-taxable equivalent basis, net interest income of $418.5 million was up 14% year over year. This was driven by higher net interest margin.

Net interest margin (NIM) was 1.47%, up 18 basis points from the prior-year quarter. The increase chiefly reflected higher short-term interest rates and reduced premium amortization. The positives were partially offset by an unfavorable balance-sheet mix shift.

Non-interest income advanced 8% from the year-ago quarter to $1.07 billion. Rise in trust, investment and other servicing fees, along with foreign exchange trading income, security commissions and trading income, were the primary reasons behind this upswing. These were partially offset by lower treasury management fees and other operating income.

Non-interest expenses flared up 7% year over year to $1 billion in the quarter. The rise was mainly driven by an elevation in mostly all components of expenses.

Improvement in Assets Under Management and Custody

As of Sep 30, 2018, Northern Trust’s total assets under custody increased 6% year over year to $8.2 trillion, while total assets under management rose 4% to $1.2 trillion.

Credit Quality: A Marked Improvement

Total allowance for credit losses came in at $140.5 million, down 19% year over year. Net recoveries were $0.3 million, down 81% from the year-ago quarter figure. Further, non-performing assets decreased 14.2% year over year to $124.9 million as of Sep 30, 2018.  Credit provision was $9 million in the quarter compared with $7 million credit provision reported in the prior-year quarter.

Strong Capital Position

Under the Advanced Approach, as of Sep 30, 2018, Tier 1 capital ratio, total capital ratio and Tier 1 leverage ratio came in at 14.8%, 16.7% and 7.8%, compared with 14.6%, 16.4% and 8%, respectively, in the prior-year quarter. All ratios exceeded the regulatory requirements.

Return on average common equity was 15.1% compared with 12.2% in the prior-year quarter. Return on average assets was 1.22% compared with 0.98% in the year-ago quarter.

Capital Deployment Update

During the reported quarter, the company repurchased 2.17 million shares for $235.9 million, at an average price of $108.62 per share. This includes shares related to share-based compensation.

Our Viewpoint

Results of Northern Trust display a decent performance in the July-Sep quarter. Continued growth in assets under custody, revenues and an improving credit quality is expected. Furthermore, positive impact of rising rates is likely to continue. 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

Driven by expense management, Citigroup C delivered a positive earnings surprise of 4.8% in third-quarter 2018. Earnings from continuing operations per share of $1.74 for the quarter handily outpaced the Zacks Consensus Estimate of $1.66. Also, earnings climbed 22.5% year over year.

Higher consumer banking, equity markets and fixed income market revenues, along with loan growth were witnessed. Though investment banking revenues disappointed as strong advisory business was more than offset by lower underwriting fees on low client activity, reduced expenses and credit costs acted as tailwinds.

Impacted by lower mortgage banking revenues, Wells Fargo WFC recorded a negative earnings surprise of 3.4% in third-quarter 2018. Earnings of $1.13 per share missed the Zacks Consensus Estimate of $1.17. However, the bottom-line compared favorably with 83 cents recorded in the prior-year quarter.

Lower provisions and higher net interest income aided results. Moreover, expenses declined. However, reduced fee income was an undermining factor. Further, reduction in loans and deposits acted as headwinds in the reported quarter.

Reflecting the highest strong year-to-date net revenues in eight years, Goldman Sachs’ GS third-quarter 2018 results recorded a positive earnings surprise of 15.9%. The company reported earnings per share of $6.28, comfortably beating the Zacks Consensus Estimate of $5.42. Further, the bottom line witnessed 25.1% year-over-year improvement.

The investment bank turned triumphant with strong equity underwriting revenues aiding continued momentum in investment banking business, supporting the bottom-line numbers. In addition, Investment Management business was strong. However, lower Fixed Income, Currency and Commodities Client Execution (FICC) revenues and elevated expenses were undermining factors.

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