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Northern Trust (NTRS) Q2 Earnings Beat Estimates, Provisions Up

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Northern Trust Corporation (NTRS - Free Report) delivered second-quarter 2020 earnings per share of $1.46, surpassing the Zacks Consensus Estimate of $1.37, on higher fee income. However, the reported figure declined 16.6% year over year.   

Rise in non-interest income, assets under custody and assets under management were driving factors. However, decline in net interest margin was on the downside. Moreover, escalating operating expenses and provisions were major drags.

Net income came in at $313.3 million, down 19.5% year over year.

Revenues Stable, Costs Escalate

Total revenues of $1.51 billion remained almost flat, year on year. The revenue figure, however, beat the Zacks Consensus Estimate of $1.49 billion.

On a fully-taxable equivalent basis, net interest income of $379.8 million declined 11%, year on year, mainly on lower net interest margin, partially negated by rise in average earning assets.

Net interest margin (NIM) came in at 1.22%, shrinking 39 basis points from the prior-year quarter. This decline chiefly reflects the impact of lower short-term interest rates and a balance-sheet mix shift.

Consolidated Trust, Investment and Other Servicing Fees summed $961.5 million, up 1% year over year.

Non-interest income climbed 4% from the year-ago quarter to $1.13 billion. Rise in trust, investment and other servicing fees, foreign-exchange trading income, treasury management fees, along with security commissions and trading income and other operating income, led to this upsurge.

Non-interest expenses flared up 3% year over year to $1.04 billion during the April-June period. This upswing mainly resulted from an elevation in compensation, employee benefits, occupancy, equipment and software along with other expenses. These were partly muted by lower outside service expenses.

Assets Under Management and Custody

As of Jun 30, 2020, Northern Trust’s total assets under custody climbed 9% year over year to $9.3 trillion, while total assets under management increased 7% to $1.3 trillion.

Credit Quality: A Mixed bag

Total allowance for credit losses came in at $267 million, up 99% year over year. Net recoveries were $2.6 million compared with the net recoveries of $1.2 million reported in the year-ago quarter.

Provision for credit losses was $66 million in the quarter compared with the benefit of $6.5 million reported in the prior-year quarter. Notably, provisions flared up on the coronavirus crisis. However, non-accrual assets decreased 16.4% year over year to $99.4 million as of Jun 30, 2020.

Strong Capital Position

Under the Advanced Approach, as of Jun 30, 2020, Tier 1 capital ratio, total capital ratio and Tier 1 leverage ratio came in at 15.2%, 16.8% and 7.6%, compared with the 14.8%, 16.5% and 8.6%, respectively, witnessed in the prior-year quarter. All ratios exceeded the regulatory requirements.

Return on average common equity was 12.2% compared with the year-earlier quarter’s 15.9%. Return on average assets was 0.91% compared with the 1.34% witnessed in the year-ago quarter.

Our Viewpoint

Northern Trust put up a decent show during the June-end quarter. Growth in assets under custody and management, along with 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 on low rates 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 #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Other Banks

Bank of New York Mellon Corporation’s (BK - Free Report) second-quarter 2020 earnings per share of $1.01 surpassed the Zacks Consensus Estimate of 94 cents. The figure was on par with the prior-year level. The results benefited from growth in fee income and improvement in assets balance. However, significantly higher provisions and a slight rise in operating expenses were the undermining factors.

First Republic Bank’s (FRC - Free Report) earnings per share of $1.40 surpassed the Zacks Consensus Estimate of $1.20 in the second quarter. Also, the bottom line climbed 12.9% from the year-ago quarter. The results were supported by an increase in net interest income. However, higher expenses, decline in fee income and elevated provisions were the offsetting factors.

Regions Financial (RF - Free Report) reported adjusted loss of 23 cents per share in the April-June quarter, as against the earnings of 39 cents per share recorded in the prior-year period. The Zacks Consensus Estimate was pegged at 7 cents. Results were negatively impacted by higher provisions for credit losses on increasing economic uncertainty due to coronavirus woes. Moreover, rise in expenses is a major drag. Nevertheless, higher revenues aided by rising loans and deposit balances provided some respite.

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