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Northern Trust (NTRS) Tops Q1 Earnings with High Revenues

Driven by higher revenues, Northern Trust Corporation NTRS delivered a positive earnings surprise of 6% in the first quarter 2016. Earnings per share came in at $1.01, easily beating the Zacks Consensus Estimate of 95 cents. Moreover, the reported figure compared favorably with 94 cents per share of  the year-ago quarter.

Results were primarily driven by substantial increase in net interest income as well as improved trust, investment and other servicing fees which benefited from new businesses and reduced money market fee waivers. The quarter also witnessed rise in assets under custody. However, on the flip side, results reflected increasing operating expenses and provisions. Also, assets under management declined during the quarter.

Net income for the quarter came in at $241.8 million, up 5% year over year.

Performance in Detail

Total revenue for the first quarter came in at $1.19 billion, beating the Zacks Consensus Estimate of $1.18 billion. Moreover, the reported figure was up 5% year over year, driven by a rise in non-interest as well as net interest income.

On a fully taxable equivalent basis, Northern Trust reported net interest income of $314.0 million, up 18% year over year. This was driven by increased levels of average earning assets.

Net interest margin (NIM) was 1.21%, up 11 basis points from 1.10% in the prior-year quarter. The increase mainly reflected higher yields on earning assets.

Non-interest income grew 1% from the year-ago quarter to $882.2 million. The rise was largely due to an improvement in trust, investment and other servicing fees, which came on the back of new businesses and reduced money market fee waivers, partially offset by the unfavorable effects of equity markets and movements in foreign exchange rates. However, the company recorded a decline in several fee categories including foreign exchange trading income and security commissions and trading income.

Non-interest expenses were up 5% year over year to $828.8 million in the quarter. The rise was mainly due to elevated compensation, outside services expense and equipment and software expense, partially offset by reduced employee benefits.

Assets Under Management and Custody  

As of Mar 31, 2016, Northern Trust’s total assets under custody increased 2% year over year to $6.21trillion while total assets under management decreased 6% to $900 billion.

Credit Quality

Northern Trust’s overall asset quality was a mixed bag during the quarter. Total allowance for credit losses were $232.6 million, down 19% year over year. Further, nonperforming assets fell 24% year over year to $174.4 million as of Mar 31, 2016.  

Also, net charge-offs were $2.7 million, down from $4.6 million in the prior-year quarter figure. However, provision for credit losses was $2.0 million in the quarter against a provision credit of $4.5 million in the prior-year quarter.

Capital Position

Northern Trust’s capital ratios remained strong. Under the Advanced Approach, as of Mar 31, 2016, Tier 1 capital ratio, total capital ratio and Tier 1 leverage ratio were 12.1%, 13.6% and 7.4% respectively, each exceeding the regulatory requirements.

During the first-quarter 2016, Northern Trust repurchased 2.31 million shares for $140.3 million at an average price of $60.71 per share.

Our Viewpoint

Results of Northern Trust reflect a decent performance considering the quarter’s challenging backdrop with volatile markets and global concerns. We remain encouraged 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 pressure on the company’s fundamentals.

Currently, Northern Trust carries a Zacks Rank #3 (Hold).

Among other investment managers, BlackRock, Inc. BLK reported first-quarter 2016 adjusted earnings of $4.25 per share, which lagged the Zacks Consensus Estimate of $4.29. Also, the bottom line came in 13% lower than the year-ago quarter figure. Lower-than-expected quarterly results were due to a decrease in revenues triggered by market volatility. However, an almost stable expense line was a positive. Further, AUM reflected a year-over-year decline during the quarter.

The Blackstone Group L.P. BX and Ameriprise Financial, Inc. AMP are scheduled to report results on Apr 21 and Apr 27, respectively.

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