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Revenue Growth Aids Northern Trust (NTRS) Amid High Costs
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Northern Trust’s (NTRS - Free Report) organic growth is aided by rising non-interest income and net-interest income (NII). Also, decent liquidity will likely support capital deployment activities in the near term. However, rising costs, volatile equity markets and the deterioration of credit quality are concerning.
Northern Trust’s key strength lies in its organic growth, reflected by rises in revenues and loan balances. Its revenues have been increasing over the years on rising non-interest income and NII. In fact, management expects modest growth in core advisory fees, elimination of fee waiver and ongoing creation of new businesses to propel fee income in the upcoming period.
The company’s NII and net interest margin have been rising on loan balances and rise in interest rates. Though its loan and lease balance increased over the years, the trend declined in first-quarter 2023. Nonetheless, margins are likely to get support in the quarters ahead from high interest rates and betterment of the lending scenario.
Northern Trust has been focusing on reinstating its operating leverage. Management expects growth in core expenses to be less than or equal to 7% in 2023. Through such efforts, it will likely to improve productivity and meet its financial targets. Also, the ultimate measure of success of the company’s past efforts was its ability to consistently achieve its financial target of a return on equity between 10% and 15%.
As of Mar 31, 2023, Northern Trust’s long-term debt of $2.07 billion was lower than its cash and due from banks, and Federal Reserve and other Central Bank deposits totaling $40.65 billion. Given the higher level of liquid assets compared with long-term obligations, debt levels seem manageable and capital deployment activities seem sustainable. Consistent dividend payments and share repurchases are likely to enhance shareholders’ value.
However, Northern Trust’s non-interest expenses have been rising over the years. In fact, its costs are expected to remain high on rising compensation, and equipment and software expenses. Hence, we believe that an increasing expense trend is likely to hinder bottom-line growth in the upcoming quarters.
In the first quarter, NTRS recorded a sequential rise in total non-accrual loans and $15 million of provision expense. The worsening economic outlook amid recessionary fears is expected to keep provisions and non-accrual assets high in the near term, increasing the risk of credit losses.
Northern Trust’s business is affected by the changing conditions of global financial markets and general economic conditions. Weak economic conditions affected demand for trust and investment products and services. Hence, amid volatile equity markets, reduction in transaction volumes might affect earnings in the coming quarters.
Shares of this Zacks Rank #3 (Hold) company have lost 15.2% compared with a decline of 6.6% recorded by its industry over the past six months.
The Zacks Consensus Estimate for OFG’s 2023 earnings has been revised 3.3% upward over the past 60 days. The stock has declined 6.5% over the past six months.
The consensus estimate for CASH’s fiscal 2023 earnings has been revised 1.8% upward over the past 30 days. The company’s share price has increased 16% over the past six months.
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Revenue Growth Aids Northern Trust (NTRS) Amid High Costs
Northern Trust’s (NTRS - Free Report) organic growth is aided by rising non-interest income and net-interest income (NII). Also, decent liquidity will likely support capital deployment activities in the near term. However, rising costs, volatile equity markets and the deterioration of credit quality are concerning.
Northern Trust’s key strength lies in its organic growth, reflected by rises in revenues and loan balances. Its revenues have been increasing over the years on rising non-interest income and NII. In fact, management expects modest growth in core advisory fees, elimination of fee waiver and ongoing creation of new businesses to propel fee income in the upcoming period.
The company’s NII and net interest margin have been rising on loan balances and rise in interest rates. Though its loan and lease balance increased over the years, the trend declined in first-quarter 2023. Nonetheless, margins are likely to get support in the quarters ahead from high interest rates and betterment of the lending scenario.
Northern Trust has been focusing on reinstating its operating leverage. Management expects growth in core expenses to be less than or equal to 7% in 2023. Through such efforts, it will likely to improve productivity and meet its financial targets. Also, the ultimate measure of success of the company’s past efforts was its ability to consistently achieve its financial target of a return on equity between 10% and 15%.
As of Mar 31, 2023, Northern Trust’s long-term debt of $2.07 billion was lower than its cash and due from banks, and Federal Reserve and other Central Bank deposits totaling $40.65 billion. Given the higher level of liquid assets compared with long-term obligations, debt levels seem manageable and capital deployment activities seem sustainable. Consistent dividend payments and share repurchases are likely to enhance shareholders’ value.
However, Northern Trust’s non-interest expenses have been rising over the years. In fact, its costs are expected to remain high on rising compensation, and equipment and software expenses. Hence, we believe that an increasing expense trend is likely to hinder bottom-line growth in the upcoming quarters.
In the first quarter, NTRS recorded a sequential rise in total non-accrual loans and $15 million of provision expense. The worsening economic outlook amid recessionary fears is expected to keep provisions and non-accrual assets high in the near term, increasing the risk of credit losses.
Northern Trust’s business is affected by the changing conditions of global financial markets and general economic conditions. Weak economic conditions affected demand for trust and investment products and services. Hence, amid volatile equity markets, reduction in transaction volumes might affect earnings in the coming quarters.
Shares of this Zacks Rank #3 (Hold) company have lost 15.2% compared with a decline of 6.6% recorded by its industry over the past six months.
Image Source: Zacks Investment Research
Finance Stocks Worth Considering
A couple of better-ranked stocks from the finance sector are OFG Bancorp (OFG - Free Report) and Pathward Financial Inc. (CASH - Free Report) , each currently carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for OFG’s 2023 earnings has been revised 3.3% upward over the past 60 days. The stock has declined 6.5% over the past six months.
The consensus estimate for CASH’s fiscal 2023 earnings has been revised 1.8% upward over the past 30 days. The company’s share price has increased 16% over the past six months.