Northern Trust (NTRS) Q1 Earnings Top Estimates, Provisions Up

Northern Trust Corporation NTRS delivered first-quarter 2020 earnings per share of $1.55, surpassing the Zacks Consensus Estimate of $1.45, riding on higher fee income. Also, the reported figure climbed 5% year over year.    

Higher revenues, aided by a rise in fee income, were a driving factor. However, decline in net interest margin was on the downside. Moreover, escalating operating expenses and provisions were major drags.

Net income came in at $360.6 million, up 4% year over year.

Revenues Improve, Costs Escalate

Total revenues of $1.6 billion improved 7% year over year in the first quarter. Further, the revenue figure beat the Zacks Consensus Estimate of $1.54 billion.

On a fully-taxable equivalent basis, net interest income of $416.2 million declined 3% year on year, mainly on lower net interest margin.

Net interest margin (NIM) was 1.51%, down 7 basis points from the prior-year quarter. This decline chiefly reflects the impact of lower short-term interest rates, partly muted by a balance-sheet mix shift.

Consolidated Trust, Investment and Other Servicing Fees summed $1 billion, up 8% year over year.

Non-interest income climbed 11% from the year-ago quarter to $1.18 billion. Rise in trust, investment and other servicing fees, foreign-exchange trading income, along with security commissions and trading income and other operating income, led to this upsurge. These increases were partly offset by lower treasury management fees.

Non-interest expenses flared up 4% year over year to $1.07 billion during the January-March period. This upswing mainly resulted from an elevation in compensation, employee benefits, outside services, equipment and software expenses. These were partly negated by lower occupancy and other expenses.

Assets Under Management and Custody

As of Mar 31, 2020, Northern Trust’s total assets under custody inched up 1% year over year to $8.3 trillion, while total assets under management decreased 4% to $1.1 trillion.

Credit Quality: A Mixed bag

Total allowance for credit losses came in at $198.4 million, up 42% year over year. Net charge offs were $0.7 million compared with the net recoveries of $1.2 million reported in the year-ago quarter.

Provision for credit losses was $61 million in the quarter compared with the nil provision reported in the prior-year quarter. Notably, provisions flared up on the coronavirus crisis. However, non-accrual assets decreased 15% year over year to $105.5 million as of Mar 31, 2020.  

Strong Capital Position

Under the Advanced Approach, as of Mar 31, 2020, Tier 1 capital ratio, total capital ratio and Tier 1 leverage ratio came in at 14.1%, 15.7% and 8.1%, compared with the 14.8%, 16.6% and 8.2%, respectively, witnessed in the prior-year quarter. All ratios exceeded the regulatory requirements.

Return on average common equity was 13.4% compared with the year-earlier quarter’s 14%. Return on average assets was 1.17% compared with the 1.18% witnessed in the year-ago quarter.

Capital Deployment Update

During the reported quarter, the company repurchased 3.24 million shares for $296.8 million, at an average price of $91.59 per share. This includes shares related to share-based compensation. Notably, the company has temporarily suspended share buybacks through the second quarter of 2020, following the “unprecedented challenge” from the coronavirus pandemic.

Our Viewpoint

Northern Trust put up a decent show during the March-end quarter. Growth in assets under custody, revenues and lower non-accrual assets will likely continue. Though a rise in fee income is anticipated to act as a tailwind, escalating expenses and provisions might pose a threat to the company’s profitability. Furthermore, a fall in margin is a concern.

Northern Trust Corporation Price, Consensus and EPS Surprise

Northern Trust Corporation Price, Consensus and EPS Surprise

Northern Trust Corporation price-consensus-eps-surprise-chart | 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

The Bank of New York Mellon Corporation’s BK first-quarter 2020 earnings per share of $1.05 surpassed the Zacks Consensus Estimate of 90 cents. Moreover, the figure reflected a rise of 11.7% from the prior-year quarter. Results benefited from growth in revenues. However, a marginal increase in expenses, along with a decline in assets under management (AUM) balance, hurt results to some extent. Moreover, significantly higher provisions were an undermining factor.

Regions Financial Corporation RF delivered adjusted earnings of 15 cents per share, missing the Zacks Consensus Estimate of 19 cents during the first quarter. The figure plummeted 59.5%, year over year. Results were negatively impacted by lower revenues resulting from a reduction in net interest income on lower rates and a deteriorating fee income. Additionally, elevated provisions were an undermining factor. Yet, lower non-interest expenses were the driving factor. Moreover, rise in loans and deposits reflect a strong capital position.

PNC Financial PNC posted earnings per share of $1.95, surpassing the Zacks Consensus Estimate of $1.38 amid coronavirus concerns during the January-March quarter. The bottom line, however, reflected a 25.3% decline from the prior-year quarter’s reported figure. Higher revenues, driven by higher net interest income and escalating fee income, aided the company’s results. Further, expenses declined. Nonetheless, rise in provisions was a headwind. Also, lower net interest margin was another concern.

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