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Northern Trust (NTRS) Reports Q3 Earnings as Expected


Northern Trust Corporation’s 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.

NORTHERN TRUST Price, Consensus and EPS Surprise

NORTHERN TRUST Price, Consensus and EPS Surprise | NORTHERN TRUST 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 Major Banks

Significantly lower provisions and higher fee revenues drove Regions Financial Corporation’s RF third-quarter 2016 earnings from continuing operations, which surpassed the Zacks Consensus Estimate. Relatively stable net interest income also supported the results. However, these were partially offset by a rise in operating expenses.

The PNC Financial Services Group, Inc.’s PNC third-quarter 2016 earnings per share beat the Zacks Consensus Estimate. Better-than-expected results were aided by increased net interest income as well as non-interest income. However, on the downside, the quarter recorded higher expenses and provisions.

Rise in fixed income sales and trading revenue as well as mortgage banking fees drove Bank of America Corporation’s BAC third-quarter 2016 earnings, which surpassed the Zacks Consensus Estimate. However, weakness in equity trading revenues marginally offset these positives.

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