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Northern Trust's (NTRS) Q4 Earnings Miss, Expenses Flare Up

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Northern Trust Corporation (NTRS - Free Report) delivered fourth-quarter 2020 adjusted earnings per share of $1.49, missing the Zacks Consensus Estimate of $1.52, on lower revenues. Also, the reported figure declined 12.4% year over year.

Results were negatively impacted by lower net interest income, partly offset by a rise in fee income. In addition, decline in net interest margin was a negative. Moreover, escalating operating expenses was a major drag. However, rise in assets under custody and assets under management were driving factors. Moreover, credit provision was a tailwind.

Including certain one-time items, net income came in at $240.9 million or $1.12 per share, compared with the $371.1 million or $1.70 per share reported in the prior-year quarter.

For full-year 2020, net income was $1.2 billion or $5.46 per share compared with the prior year’s $1.5 billion or $6.63 per share. The Zacks Consensus Estimate was pinned at $5.83.

Revenues Down, Costs Flare Up

Total revenues of $1.53 billion were down 2% year on year. The revenue figure, however, beat the Zacks Consensus Estimate of $1.5 billion.

For full-year 2020, revenues on a fully taxable equivalent basis, came in at $6.1 billion, flat year over year. The figure is also in line with the Zacks Consensus Estimate.

On a fully-taxable equivalent basis, net interest income of $345.1 million in the fourth quarter declined 20%, year on year, mainly on lower net interest margin, negated by rise in average earning assets to some extent.

Net interest margin (NIM) came in at 1.05%, shrinking 54 basis points from the prior-year quarter. This decline chiefly reflects the impact of lower interest rates and a balance-sheet mix shift.

Consolidated Trust, Investment and Other Servicing Fees summed $1.03 billion, up 3% year on year.

Non-interest income climbed 5% from the year-ago quarter to $1.19 billion. Rise in trust, investment and other servicing fees, foreign-exchange trading income, treasury management fees, along with other operating income and higher security commissions and trading income, led to this upsurge.

Non-interest expenses flared up 7% year over year to $1.15 billion during the October-December period. This upswing mainly resulted from an elevation in compensation, employee benefits, equipment and software, outside service and occupancy expenses. These were partly muted by lower other expenses.

Assets Under Management and Custody

As of Dec 31, 2020, Northern Trust’s total assets under custody climbed 22% year over year to $11.3 trillion, while total assets under management increased 14% to $1.41 trillion.

Credit Quality: A Concern

Credit metrics deteriorated during the December-end quarter. Total allowance for credit losses came in at $259.9 million, significantly up 109% year over year. Net charge-offs were $5.5 million compared with the $2.3 million reported in the year-ago quarter.

Credit provision was $2.5 million in the fourth quarter compared with the $1 million reported in the prior-year quarter. Further, non-accrual assets surged 52.5% year over year to $132.4 million as of Dec 31, 2020.

Strong Capital Position

Under the Advanced Approach, as of Dec 31, 2020, Tier 1 capital ratio, total capital ratio and Tier 1 leverage ratio came in at 14.5%, 15.9% and 7.6%, compared with the 15%, 16.8% and 8.7%, respectively, witnessed in the prior-year quarter. All ratios exceeded the regulatory requirements.

Return on average common equity was 8.8% compared with the year-earlier quarter’s 14.8%. Return on average assets was 0.67% compared with the 1.25% witnessed in the year-ago quarter.

During 2020, Northern Trust repurchased 3.28 million shares for $299.8 million at an average price of $91.49 per share. This includes shares related to share-based compensation.

Our Viewpoint

Northern Trust put up a decent show during the October-December quarter. Growth in assets under custody and management, along with credit provision will likely continue. Though a rise in fee income is anticipated to act as a tailwind, escalating expenses 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) fourth-quarter adjusted earnings per share of 96 cents came in 5% lower than the prior-year quarter level. The Zacks Consensus Estimate for earnings was 93 cents. Results reflected growth in asset balances. Moreover, lower expenses supported results to some extent. However, a decline in revenues was an undermining factor.

First Republic Bank (FRC - Free Report) delivered an earnings surprise of 5.3% during the October-December period on solid top-line strength. Earnings per share of $1.60 surpassed the Zacks Consensus Estimate of $1.52. Additionally, the bottom line climbed 15.1% from the year-ago quarter. Results were supported by an increase in net interest income and fee income. Moreover, the company’s balance-sheet position was strong during the quarter. Nonetheless, higher expenses and elevated provisions were offsetting factors.

State Street’s (STT - Free Report) fourth-quarter adjusted earnings of $1.69 per share outpaced the Zacks Consensus Estimate of $1.57. However, the figure came in 14.6% lower than the prior-year level. Results for the reported quarter reflected new investment servicing wins of $205 billion, improvement in fee income and lower expenses. Yet, a decline in net interest income, mainly due to lower rates, was a major headwind.

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