Northern Trust (NTRS) Reports Q3 Earnings As Expected
Zacks Investment Research | Oct 18, 2016 10:49PM ET
Northern Trust Corporation’s (NASDAQ:NTRS) third-quarter 2016 earnings per share of $1.08 were in line with the Zacks Consensus Estimate. Also, the reported figure compared favorably with 96 cents in the year-ago quarter.
Results benefited from improved revenues. Further, the quarter witnessed a rise in assets under custody as well assets under management. However, escalating operating expenses were the undermining factors.
Net income came in at $257.6 million, up 10% from the prior-year quarter.
Top Line Grows; Costs Increase
Total revenue of $1.21 billion missed the Zacks Consensus Estimate of $1.24 billion. However, the reported figure was up 5% year over year.
On a fully taxable equivalent basis, net interest income of $310.1 million was up 13% year over year. This was driven by increased levels of average earning assets.
Net interest margin (NIM) was 1.14%, up 6 basis points from the prior-year quarter. The increase mainly reflected higher yields on earning assets.
Non-interest income rose 3% from the year-ago quarter to $910.6 million. Rise in trust, investment and other servicing fees were the primary reasons for this increase. Lower foreign exchange trading income and other operating income were on the downside.
Non-interest expenses were up 4% year over year to $843 million in the quarter. The rise was mainly due to an elevation in all components of expenses, except outside services costs.
Improvement in Assets Under Management and Custody
As of Sep 30, 2016, Northern Trust’s total assets under custody increased 13% year over year to $6.71 trillion, while total assets under management rose 7% to $945.8 billion.
Improving Credit Quality
Total allowance for credit losses were $224.9 million, down 12% year over year. Further, non-performing assets fell 12.8% year over year to $181 million as of Sep 30, 2016.
Also, net charge-offs were $0.8 million, down significantly from $9.4 million in the prior-year quarter figure. Also, provision credit was $3.0 million in the quarter while it was $10 million in the prior-year quarter.
Strong Capital Position
Under the Advanced Approach, as of Sep 30, 2016, Tier 1 capital ratio, total capital ratio and Tier 1 leverage ratio were 13.1%, 14.5% and 7.9% respectively, each exceeding the regulatory requirements.
During third-quarter 2016, Northern Trust repurchased nearly 1 million shares for $64.9 million at an average price of $68.25 per share.
Our Viewpoint
Results of Northern Trust display a decent performance considering the quarter’s challenging backdrop. We remain optimistic by the continued growth in assets under custody, revenues and an improving credit quality. However, increase in expenses might pose a threat to its profitability. Further, the new regulations could put strain on the company’s fundamentals.
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