Northern Trust (NTRS) Q4 NII Gain From Securities Repositioning
At the Goldman Sachs Financial Services Conference, Northern Trust Corporation NTRS increased its guidance for the fourth-quarter net interest income (NII), while the outlook for fees remained gloomy.
The company expects NII to be flat with that reported in third-quarter 2023. This is an improvement from its previous outlook of $430-$440 billion, which indicated a 6-8% decline from the third-quarter reported figure of $469.4 billion.
This improvement in outlook is supported by an increase in deposit levels and benefits from the securities portfolio repositioning.
The company has noted that deposit levels have been $95-$100 billion so far in the quarter. Management sees this as a positive factor.
Also, in early November, NTRS repositioned part of its securities portfolio. While this is expected to result in a realized loss of less than $200 million in fourth-quarter 2023, the move will increase NII by $10 million in the December-end quarter.
Spread income aside, the company’s outlook for fees remained dismal. This is mainly due to a challenging environment and less money movement.
Markedly, organic growth is Northern Trust’s key strength, as reflected by its revenue and loan growth story. Revenues witnessed a compound 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. The growth of NII was aided by the improvements in loan balances. The trend continued in the first nine months of 2023. However, the non-interest income declined in the first nine months of 2023.
Nonetheless, the company’s loan and lease balance increased, seeing a CAGR of 12.7% in the last three years (ending 2022), with the trend continuing in the first nine months of 2023. Also, robust pipelines in asset servicing and several new wins across both operating segments are likely to drive organic growth and propel fee income in the upcoming period.
Over the past six months, shares of NTRS have risen 6.8% compared with the industry's 7.2% growth.
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Currently, NTRS carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Securities Repositioning Efforts by Other Banks
Equity Bancshares, Inc. EQBK disclosed that it sold approximately $442 million of available-for-sale investment securities, resulting in an after-tax loss of $38.2 million. Nonetheless, the transaction will have no impact on tangible common equity and will enhance balance sheet efficiency for EQBK.
The assets sold mostly consist of treasury, agency and mortgage-backed securities, with a weighted average yield of 1.33%. The company will redeploy the proceeds in cash, investment and loan assets, with an expected yield of more than 5%. Equity Bancshares anticipates the repositioning to contribute additional annual interest income of $16.2 million, producing earnings per share accretion of 81 cents in 2024.
Pacific Premier Bancorp, Inc. PPBI completed the repositioning of its investment securities portfolio by selling $1.27 billion of available-for-sale securities. Particularly, the sold securities indicate 35% of the total securities and 66% of available-for-sale securities as of Sep 30, 2023. It consisted primarily of lower-yielding agency and mortgage-backed debt securities, with an average yield of 1.34%.
PPBI expects to record an after-tax loss of $182.3 million related to the sale. Pacific Premier Bancorp expects to deploy the net proceeds in fourth-quarter 2023 in a mix of cash and higher-yielding earning assets, with an expected average yield of 5%. With this, PPBI expects the repositioning to be incremental to net interest income by $50.4 million and neutral to tangible book value per share in 2024. Management expects the repositioning to increase the net interest margin by 26 basis points and net income by $37.1 million in 2024.
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