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Northern Trust (NTRS) Q4 Earnings Top Estimates, Revenues Up

Zacks Equity Research

Reflecting top-line strength, Northern Trust Corporation’s NTRS fourth-quarter 2018 earnings per share of $1.80 outpaced the Zacks Consensus Estimate of $1.71. The earnings figure also compares favorably with $1.51 recorded in the year-ago quarter.    

Higher revenues and strong capital position were driving factors. Moreover, most credit metrics marked a significant improvement. However, escalating operating expenses acted as a headwind in the reported quarter.

Net income came in at $409.9 million, up 14.9% year over year.

For full-year 2018, net income was $1.6 billion or $6.64 per share compared with $1.2 billion or $4.92 per share in the previous year. The Zacks Consensus Estimate was pinned at $6.49.

Margins & Revenues Improve, Costs Escalate

For full-year 2018, revenues on a fully taxable equivalent basis, were $6 billion, up 11.1% from $5.42 billion in 2017. Additionally, the figure surpassed the Zacks Consensus Estimate of $5.96 billion.

Total revenues of $1.52 billion improved 5% year over year.  Further, results surpassed the Zacks Consensus Estimate of $1.50 billion.

On a fully-taxable equivalent basis, net interest income of $430.1 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 1.52%, up 13 basis points from the prior-year quarter. The increase chiefly reflects higher short-term interest rates. These positives were partially offset by an unfavorable balance-sheet mix shift and higher premium amortization.

Non-interest income advanced 4% from the year-ago quarter to $1.08 billion. Rise in trust, investment and other servicing fees, along with foreign exchange trading income, and other operating income, were the primary reasons behind this upswing. These were partially offset by lower treasury management fees, and security commissions and trading income.

Non-interest expenses flared up 2% year over year to $1.02 billion in the quarter. The rise was mainly driven by an elevation in outside services, and equipment and software expenses. These increases were partly offset by lower compensation, employee benefits, occupancy and other expenses.

Assets Under Management and Custody Declined

As of Dec 31, 2018, Northern Trust’s total assets under custody decreased 6% year over year to $7.6 trillion, while total assets under management declined 8% to $1.1 trillion.

Credit Quality: A Marked Improvement

Total allowance for credit losses came in at $138.2 million, down 10% year over year. Net recoveries were $1.7 million compared with provision of $6.6 million in the year-ago quarter.

Further, non-performing assets decreased 24.2% year over year to $117.7 million as of Dec 31, 2018.  Credit provision was $4 million in the quarter compared with $13 million credit provision reported in the prior-year quarter.

Strong Capital Position

Under the Advanced Approach, as of Dec 31, 2018, Tier 1 capital ratio, total capital ratio and Tier 1 leverage ratio came in at 15.0%, 16.9% and 8.0%, 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 17% compared with 15.1% in the prior-year quarter. Return on average assets was 1.34% compared with 1.16% in the year-ago quarter.

Capital Deployment Update

During 2018, Northern Trust repurchased 9 million shares for $924.3 million at an average price of $102.69 per share. Notably, during the reported quarter, the company repurchased 2.52 million shares for $234.6 million, at an average price of $92.97 per share. This includes shares related to share-based compensation.

Recently, Northern Trust announced an increased quarterly common stock cash dividend of 60 cents per share, up 9% from the previous payout of 55 cents. The new dividend will be paid on Apr 1, to holders of record as of Mar 8, 2019.

Our Viewpoint

Results of Northern Trust display a decent performance in the Oct-Dec quarter. 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 #4 (Sell).

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

Performance of Other Banks

First Republic Bank FRC registered a positive earnings surprise of 4% in fourth-quarter 2018, reflecting higher revenues. Earnings per share came in at $1.29, outpacing the Zacks Consensus Estimate of $1.24. Moreover, the figure improved 17.3% from the year-ago tally.

Riding on higher revenues, U.S. Bancorp’s USB fourth-quarter 2018 adjusted earnings per share of $1.07 outpaced the Zacks Consensus Estimate by a penny. Results were also up 10.3% from the prior-year quarter. Higher revenues, along with loan and deposit growth, were the driving factors. Though lower mortgage banking revenues, along with escalating expenses and provisions, disappointed, easing margin pressure on rising rates and overall higher fee income acted as tailwinds.

Dismal fixed income trading and underwriting business performance affected JPMorgan’s JPM fourth-quarter 2018 earnings of $1.98 per share, which lagged the Zacks Consensus Estimate of $2.20. However, the figure surged 85% from the prior-year quarter.

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