A month has gone by since the last earnings report for Northern Trust Corporation (
NTRS Quick Quote NTRS - Free Report) . Shares have added about 9.9% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Northern Trust Corporation due for a pullback? 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 catalysts.
Northern Trust's Q1 Earnings Beat on Lower Provisions
Northern Trust 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.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in estimates revision.
Currently, Northern Trust Corporation 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 D on the value side, putting it in the bottom 40% 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 broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Northern Trust Corporation has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.