Northern Trust Corporation’s (NTRS Quick QuoteNTRS - Free Report) third-quarter 2021 results, scheduled for an Oct 20 release, are expected to reflect year-over-year growth in revenues and earnings.

In the last-reported quarter, the company’s earnings surpassed the Zacks Consensus Estimate on the release of credit reserves. Results were positively impacted by an increase in trust, investment and other servicing fees. A rise in assets under custody and assets under management was also a driving factor. However, lower net interest income (NII) on the contraction of margin was a negative. Rising operating expenses were a major drag.

Northern Trust uses a lag effect to calculate its corporate custody and investment management fees, i.e., the computations are based on the prior-quarter end valuations. Since the performance of equity markets was impressive in the second quarter, the company might have registered gains in custody, servicing and management fees during the third quarter.

Notably, Northern Trust had a mixed earnings surprise history. It surpassed estimates in two of the trailing four quarters for as many misses, delivering an earnings surprise of 1.37%, on average.

Prior to the third-quarter earnings release, the company is witnessing downward estimate revision, indicating analysts’ bearish sentiments. The earnings estimate for the current quarter has moved marginally south in the past 30 days. Nonetheless, the Zacks Consensus Estimate for the third-quarter earnings is pegged at $1.67 per share, which suggests a 26.5% increase from the year-ago reported number. Also, the consensus estimate for revenues of $1.61 billion indicates an 8.4% rise.

Here are the other factors that are likely to have influenced the company’s quarterly performance:

Net Interest Income: Per the Fed’s latest data, the overall lending scenario was soft during the July-September period, with weak home equity, and commercial and industrial loans. Conversely, the real estate, commercial real estate as well as consumer loan portfolios are anticipated to have offered support.

The steepening of the yield curve (the difference between short and long-term interest rates) is likely to have supported the bank’s net interest margin. Though the yield on 10-year U.S. Treasury Bond of 1.49% at September-end was relatively stable on a sequential basis, the figure expanded 57 basis points from 0.92% at the end of 2020. Thus, the NII will likely get some support.
Excess liquidity, low loan yields, and low reinvestment rates on securities might have put downward pressure on earning asset yields. However, low deposit costs are expected to have been the offsetting factor.

The Zacks Consensus Estimate for average interest earning assets of $142.9 million for the quarter indicates a 10.5% year-over-year improvement, while the NII is expected to rise 2.7% to $338 million.

Fee Income: Notably, the company provides majority of its asset-management services through the Corporate and Institutional Services unit, which generates more than 50% of total revenues. An increase in revenues in this segment is anticipated to have offered some support to Northern Trust’s overall top line during the to-be-reported quarter. Per the Zacks Consensus Estimate, the C&I segment’s trust, investment and other servicing fees will likely go up 9.1% year over year to $638 million.

Moreover, the Zacks Consensus Estimate for security commissions and trading income as well as treasury management fees, at $31.5 million and $12 million, respectively, are likely to have moved up 21% and 3.5%, respectively, on a year-over-year basis.

Controlled Expenses: Northern Trust’s expenses in the quarter are anticipated to have been under control, aided by its continued cost-saving initiatives.

Let’s have a look at what our quantitative model predicts:

Northern Trust does not have the right combination of the two key ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or higher — for increasing the odds of an earnings beat.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earnings ESP: The Earnings ESP for Northern Trust is 0.00%.

Zacks Rank: Northern Trust currently carries a Zacks Rank of 3.

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