It has been about a month since the last earnings report for Northern Trust (NTRS). Shares have lost about 4.5% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Northern Trust due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Northern Trust Q1 Earnings Beat Estimates, Revenues Up
Reflecting top-line strength, Northern Trust’s 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 January-March 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.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended upward during the past month.
Currently, Northern Trust has a poor Growth Score of F, however its Momentum Score is doing a lot better with a B. However, the stock was allocated a grade of F on the value side, putting it in the bottom 20% quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Northern Trust has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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