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Can High Revenues Drive Northern Trust's (NTRS) Q4 Earnings?

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Northern Trust Corporation’s (NTRS - Free Report) fourth-quarter and 2021 results, scheduled for Jan 20 release, are expected to indicate gains in revenues and earnings from the respective year-ago reported figures.

In the last reported quarter, NTRS’ earnings surpassed the Zacks Consensus Estimate on the release of credit reserves. Results were positively impacted by an increase in net interest income (NII) and fee income. A rise in assets under custody and assets under management was the driving factor. However, contraction of margin and rising operating expenses were major drags.

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 third quarter, NTRS might have registered gains in custody, servicing and management fees during the fourth.

Northern Trust boasts an impressive surprise history. Earnings surpassed estimates in three of the trailing four quarters, missing the mark in one, the surprise being 4.7%, on average.

Northern Trust Corporation Price and EPS Surprise

Northern Trust Corporation Price and EPS Surprise

Northern Trust Corporation price-eps-surprise | Northern Trust Corporation Quote

NTRS’ activities in the to-be-reported quarter were adequate to raise analysts’ optimism. As a result, the Zacks Consensus Estimate for fourth-quarter earnings of $1.82 has moved marginally upward in the past 60 days. The figure indicates a 22.2% rise from the year-ago quarter’s reported figure. The consensus estimate for revenues is pegged at $1.64 billion, suggesting growth of 7.7% from the year-ago quarter’s reported figure.

Key Developments During the Quarter

In November 2021, Northern Trust expanded its relationship with Pendal Group Limited to offer a broad spectrum of asset services to the latter in the United Kingdom, Ireland and Australia. NTRS also bolstered the range of services it will execute for the global investment manager’s business in the United States.

Here are the other factors that might have impacted NTRS’s quarterly performance:

NII: In the fourth quarter of 2021, which is a seasonally strong quarter for loan growth, lending activity witnessed a decent ramp-up, sequentially. Per the Fed’s latest data, the commercial and industrial loans and real-estate loans remained strong in the to be-reported quarter, while consumer loan portfolio was flat, sequentially. Amid this, NTRS is likely to have witnessed decent December-quarter loan growth.

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 (NIM). The yield on the 10-year U.S. Treasury Bond of 1.52% at the end of December 2021 was up 59 basis points from 0.93% at the end of December 2020. Thus, NII is likely to have got some boost.

Excess liquidity, low loan yields and low reinvestment rates on securities are expected to have put downward pressure on the earning asset yields. However, low deposit costs might have been the offsetting factor.

The Zacks Consensus Estimate for average interest earning assets of $144.3 million for the quarter indicates a 10% improvement from the year-ago reported figure, while NII is expected to have risen 4.8% to $350 million.

Fee Income: NTRS provides majority of its asset-management services through the C&IS 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.

The Zacks Consensus Estimate for the C&I segment’s trust, investment and other servicing fees stands at 6.2% growth from the year-ago quarter’s reported figure to $633 million.

The Zacks Consensus Estimate for security commissions and trading income, and treasury management fees, pegged at $36.5 million and $11.5 million, respectively, is likely to have increased 13% and marginally each from the corresponding year-ago actuals.

Expenses: NTRS’ investments in digital initiatives and technology might have kept costs elevated during the quarter. These investments might aid the company over the long term but the rising current expense level is curbing bottom-line expansion.

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: Northern Trust has an Earnings ESP of +0.09%.

Zacks Rank: Northern Trust currently carries a Zacks Rank of 3, which increases the predictive power of ESP. But we also need to have a positive ESP to be confident of a positive earnings surprise.

Stocks That Warrant a Look

BOK Financial (BOKF - Free Report) , The PNC Financial Services Group, Inc. (PNC - Free Report) and Huntington Bancshares Incorporated (HBAN - Free Report) are a few companies worth considering as these have the right combination of elements to beat on earnings in their upcoming releases, per our model.

BOK Financial has an Earnings ESP of +3.64% and a Zacks Rank #2 (Buy) at present. BOKF is slated to report fourth-quarter and full-year results on Jan 19.
Over the past 30 days, BOKF’s Zacks Consensus Estimate for quarterly earnings has moved marginally southward.

PNC Financial is scheduled to release fourth-quarter 2021 and annual earnings on Jan 18. PNC, which is Zacks #3 Ranked at present, has an Earnings ESP of +2.29%. You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.

PNC’s fourth-quarter earnings estimates have been marginally revised downward over the past month.

Huntington Bancshares is scheduled to release earnings on Jan 21. HBAN, currently a #3 Ranked player, has an Earnings ESP of +1.46%.

The Zacks Consensus Estimate for Huntington Bancshares’ fourth-quarter earnings has beenunchanged over the past month.

Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.

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