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Northern Trust (NTRS) Q1 Earnings Beat on Fee Income Strength

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Northern Trust Corporation NTRS reported first-quarter 2021 earnings per share of $1.70, which surpassed the Zacks Consensus Estimate of $1.51 on release of credit reserves. Also, the bottom line increased 9% year over year.

Results were positively impacted by increase in trust, investment and other servicing fees. Rise in assets under custody and assets under management were the driving factors. Moreover, credit provision was a tailwind. However, lower net interest income on contraction of margin was a negative. Moreover, escalating operating expenses posed a major drag.

Net income in the quarter came in at $375.1 million compared with the $360.6 million in the prior-year quarter.

Revenues Down, Costs Up

On a fully-taxable equivalent basis, total revenues of $1.59 billion were down marginally year over year. The top line however, beat the Zacks Consensus Estimate of $1.53 billion.

Net interest income of $346.7 million in the first quarter declined 17% year over 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%, shrinking 51 basis points from the prior-year quarter. This decline chiefly reflects the impact of lower interest rates and a balance-sheet mix shift.

Non-interest income climbed 5% from the year-ago quarter to $1.24 billion. Rise in trust, investment and other servicing fees, treasury management fees, along with other operating income and higher security commissions and trading income, led to this upsurge.

Trust, investment and other servicing fees (86% of non-interest income) summed $1.06 billion, up 6% year over year. The upside was supported by new business, favorable currency translation and higher transaction volumes.

Non-interest expenses jumped 5% year over year to $1.12 billion during the January-March period. This upswing mainly resulted from an elevation in compensation, employee benefits, equipment and software, outside service and other expenses.

Assets Under Management and Custody

As of Mar 31, 2021, Northern Trust’s total assets under custody climbed 40% year over year to $11.5 trillion, while total assets under management increased 14% to $1.41 trillion.

Credit Quality: A Mixed Bag

Credit metrics during the March-ended quarter showed a mixed trend. The company released credit reserves of $30 million in the first quarter against provisions of $61 million reported in the prior-year quarter. Also, net charge-offs were $1 million against net recoveries of $0.7 million reported in the year-ago quarter.

Total allowance for credit losses came in at $230.8 million, up 16% year over year. Further, non-accrual loans and leases surged 18.8% to $125.3 million as of Mar 31, 2021.

Strong Capital Position

Under the Advanced Approach, as of Mar 31, 2021, Common Equity Tier 1 capital ratio, total capital ratio and Tier 1 leverage ratio came in at 12.8%, 15.2% and 6.9% compared with the 12.9%, 15.7% and 8.1%, respectively, witnessed in the prior-year quarter. All ratios exceeded the regulatory requirements.

Return on average common equity was 13.7% compared with the year-earlier quarter’s 13.4%. Return on average assets was 0.99% compared with the 1.17% witnessed in the year-ago quarter.

Capital Deployment Activities

During the quarter, Northern Trust repurchased 1.4 million shares for $135.6 million at an average price of $96.91 per share. This includes shares related to share-based compensation. It also paid cash dividends worth $151 million to common stock shareholders.

Our Viewpoint

Northern Trust put up a decent show during the 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

M&T Bank Corporation MTB reported first-quarter 2021 positive earnings surprise of 15%. Net operating earnings per share of $3.41 beat the Zacks Consensus Estimate of $2.96. Also, the bottom line compared favorably with the $1.95 per share reported in the year-ago quarter.

Bank of New York Mellon Corporation’s BK first-quarter 2021 earnings per share of 97 cents surpassed the Zacks Consensus Estimate of 87 cents. However, the figure represents a decline of 7.6% from the prior-year quarter’s level.

State Street’s (STT - Free Report) first-quarter 2021 adjusted earnings of $1.47 per share outpaced the Zacks Consensus Estimate of $1.34. However, the bottom line was 12% lower than the prior-year level.

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