Northern Trust (NTRS) Q3 Earnings & Revenues Top, Costs Flare Up

Northern Trust Corporation (NASDAQ:NTRS) NTRS has reported third-quarter 2021 earnings per share of $1.80, which surpassed the Zacks Consensus Estimate of $1.67 on the release of credit reserves. The bottom line increased from $1.32 year over year.

Results were positively impacted by an increase in net interest income and fee income. A rise in assets under custody and assets under management were the driving factors. Credit reserve release was a tailwind. However, contraction of margin and rising operating expenses were major drags.

Net income in the quarter was $395.7 million, up 34% year over year.

Revenues Climb, Costs Shoot Up

On a fully-taxable-equivalent basis, total revenues of $1.63 billion were up 10% year over year. The top line beat the Zacks Consensus Estimate of $1.61 billion.

The NII of $357.1 million in the third quarter inched up 1.8%, year over year, mainly on rise in average earning assets to some extent.

Net interest margin (NIM) came in at 0.98%, shrinking 5 basis points from the prior-year quarter. This decline chiefly reflects lower average interest rates, partially offset by a favorable balance-sheet volume and mix shift.

Non-interest income improved marginally from the year-ago quarter to $1.29 billion. Trust, investment and other servicing fees summed $1.11 billion, up 11% year over year.

Non-interest expenses flared up marginally year over year to $1.13 billion during the third quarter. This upswing chiefly resulted from an elevation in all components other than other operating expenses.

Assets Under Management and Custody Rise

As of Sep 30, 2021, Northern Trust’s total assets under custody climbed 21% year over year to $12.3 trillion, while total assets under management increased 17% to $1.53 trillion.

Credit Quality: A Mixed Bag

Credit metrics during the September-ended quarter showed a mixed trend. The company released credit loss reserves of $13 million in the third quarter against provisions of $0.5 million reported in the prior-year quarter. Net recoveries were $1.1 million compared with the $0.4 million reported in the year-ago quarter. Total allowance for credit losses was $195.1 million, down 27% year over year.

However, total non-accrual assets rose 43% to $141.2 million as of Sep 30, 2021.

Capital Position Mixed

Under the Advanced Approach, as of Sep 30, 2021, Common Equity Tier 1 capital ratio, total capital ratio and Tier 1 leverage ratio came in at 13%, 15.4% and 7.1% compared with 13.9%, 16.7% and 7.7%, respectively, witnessed in the prior-year quarter. All ratios exceeded regulatory requirements.

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Return on average common equity was 13.7% compared with the year-earlier quarter’s 10.5%. Return on average assets was 1% compared with the 0.83% witnessed in the year-ago quarter.

Capital Deployment Activities

During the quarter, the company returned $248 million to shareholders through share repurchases and dividends. The company repurchased $100 million of common stock under its share-repurchase program.

Our Viewpoint

Northern Trust put up a decent show in the quarter. Growth in assets under custody and management along with credit reserve release will likely continue. Though a rise in fee income is anticipated to act as a tailwind, rising expenses might pose as threats to the company’s profitability. A fall in margin on low rates is concerning.

Written By: Zacks Investment Research