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Northern Trust (NTRS) Q4 Earnings Disappoint, Costs Escalate

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Northern Trust Corporation NTRS reported a negative earnings surprise of 4% in fourth-quarter 2019. Earnings per share of $1.70 lagged the Zacks Consensus Estimate of $1.77. Moreover, the reported figure declined 5.6% year over year. Results included certain one-time items.    

Escalating operating expenses was on the downside during the quarter. However, higher revenues, aided by rise in fee income, were a driving factor. Also, net interest margin escalated. Moreover, most credit metrics marked significant improvements.

Net income came in at $371.1 million, down 9% year over year.

For full-year 2019, net income was $1.5 billion or $6.63 per share compared with the prior year’s $1.6 billion or $6.64 per share. The Zacks Consensus Estimate was pinned at $7.29.

Margins & Revenues Improve, Costs Escalate

For full-year 2019, revenues on a fully taxable equivalent basis, were $6.1 billion, up 1.7% from the $6 billion reported in 2018. However, the figure lagged the Zacks Consensus Estimate of $6.3 billion.

Total revenues of $1.56 billion improved 3% year over year in the quarter. Further, the revenue figure surpassed the Zacks Consensus Estimate of $1.54 billion.

On a fully-taxable equivalent basis, net interest income of $430.5 million was almost stable year on year.

Net interest margin (NIM) was 1.59%, up 7 basis points from the prior-year quarter. The upside chiefly reflects the impact of reduced foreign-exchange swap volume and a balance-sheet mix shift, partly mitigated by lower short-term interest rates.

Consolidated Trust, Investment and Other Servicing Fees summed $992.2 million, up 6% year over year.

Non-interest income escalated 4% from the year-ago quarter to $1.12 billion. Rise in trust, investment and other servicing fees, along with security commissions and trading income, led to this upsurge. These increases were partly offset by lower foreign-exchange trading income, treasury management fees and other operating income.

Non-interest expenses flared up 5% year over year to $1.07 billion during the October-December period. This upswing mainly resulted from an elevation in compensation, employee benefits, occupancy, outside services, equipment and software expenses. These were partly negated by lower other expenses.

Assets Under Management and Custody Climb

As of Dec 31, 2019, Northern Trust’s total assets under custody climbed 22% year over year to $9.2 trillion, while total assets under management increased 15% to $1.2 trillion.

Credit Quality: A Marked Improvement

Total allowance for credit losses came in at $124.4 million, down 10% year over year. Net charge offs were $2.3 million compared with the net recoveries of $1.7 million reported in the year-ago quarter.

Further, non-performing assets decreased 26.3% year over year to $86.8 million as of Dec 31, 2019.  Credit provision was $1 million in the quarter compared with the $4 million of credit provision reported in the prior-year quarter.

Strong Capital Position

Under the Advanced Approach, as of Dec 31, 2019, Tier 1 capital ratio, total capital ratio and Tier 1 leverage ratio came in at 15.2%, 16.9% and 8.7%, compared with 15%, 16.9% and 8%, respectively, witnessed in the prior-year quarter. All ratios exceeded the regulatory requirements.

Return on average common equity was 14.8% compared with the year-earlier quarter’s 17%. Return on average assets was 1.25% compared with the 1.34% witnessed in the year-ago quarter.

Capital Deployment Update

During 2019, Northern Trust repurchased 11.78 million shares for $1.1 billion at an average price of $93.40 per share. Notably, during the reported quarter, the company repurchased 2.61 million shares for $264.4 million, at an average price of $101.33 per share. This includes shares related to share-based compensation.

Our Viewpoint

Northern Trust put up a decent show during the December-end quarter. Growth in assets under custody and management, revenues and an improving credit quality will likely continue. Furthermore, rise in margin is another tailwind. Though escalating expenses might pose a threat to the company’s profitability, rise in fee income is anticipated to act as a tailwind.

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 #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Other Banks

U.S. Bancorp (USB - Free Report) reported fourth-quarter 2019 adjusted earnings per share of $1.08, in line with the Zacks Consensus Estimate. The bottom line jumped slightly from the prior-year quarter figure. Higher loan and deposit balances were the driving factors. However, fall in interest and fee income was recorded. Also, escalating expenses and provisions were the undermining factors.

Regions Financial’s RF fourth-quarter adjusted earnings of 40 cents per share surpassed the Zacks Consensus Estimate of 39 cents. Moreover, the figure reflects a 5.3% rise, year over year. Results benefited from an improvement in revenues. The company’s balance-sheet position remained strong. Nonetheless, higher expenses and rise in provisions hurt results to some extent.

Riding on high revenues, PNC Financial PNC reported a positive earnings surprise of 1.7% in fourth-quarter 2019. Earnings per share of $2.97 outpaced the Zacks Consensus Estimate of $2.92. In addition, the bottom line reflects an 8% jump from the prior-year quarter’s reported figure.

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