Can high revenues boost Northern Trust’s (NTRS) fourth quarter earnings?

Northern Trust CompanyThe NTRS’ fourth quarter and 2021 results, due for release Jan. 20, are expected to show gains in revenue and profit from the respective numbers released a year ago.

In the most recently reported quarter, NTRS earnings exceeded Zacks’ consensus estimate for the release of credit reserves. The results were positively influenced by an increase in net interest income (NII) and commission income. The increase in assets in custody and assets under management was the driving force. However, the contraction of the margin and the increase in operating expenses were major brakes.

Northern Trust uses a lag effect to calculate its custodial and investment management fees, ie the calculations are based on the previous quarter end valuations. Given that stock market performance was impressive in the third quarter, NTRS may have seen gains in custody, service and management fees in the fourth.

Northern Trust has a surprisingly impressive history. Earnings beat estimates in three of the past four quarters, missing the target in one, with the surprise averaging 4.7%.

Northern Trust Corporation Award and EPS Surprise

Northern Trust Corporation price-eps-surprise | Quote from the Northern Trust Company

NTRS’ activities in the quarter to report were enough to spark optimism among analysts. As a result, Zacks’ consensus estimate for fourth-quarter earnings of $1.82 has risen slightly over the past 60 days. The figure indicates a 22.2% increase on the figure reported a year ago. The consensus revenue estimate is set at $1.64 billion, suggesting growth of 7.7% from the figure published a year ago.

Main developments during the quarter

In November 2021, Northern Trust expanded its relationship with Pendal Group Limited to offer a wide range of asset services to the latter in the UK, Ireland and Australia. NTRS has also strengthened the range of services it will perform for the global investment manager’s US business.

Here are the other factors that could have impacted NTRS’ quarterly performance:

TIN: In the fourth quarter of 2021, which is a seasonal quarter for loan growth, lending activity saw a decent ramp-up, sequentially. According to the latest data from the Fed, commercial and industrial loans and home loans remained strong in the quarter to report, while the consumer loan portfolio was stable, sequentially. Against this backdrop, the NTRS likely saw decent loan growth in the December quarter.

The steepening of the yield curve (the difference between short and long-term interest rates) likely supported the bank’s net interest margin (NIM). The 10-year US Treasury yield of 1.52% at the end of December 2021 rose by 59 basis points, compared to 0.93% at the end of December 2020. Thus, the NII should have received a boost .

Excess liquidity, low loan yields and low reinvestment rates on securities should have put downward pressure on yields on earning assets. However, the low filing costs might have been the compensating factor.

The Zacks consensus estimate for average interest-earning assets of $144.3 million for the quarter indicates a 10% improvement from the figure published a year ago, while the NII is expected to have increased by 4.8% to $350 million.

Fee receipts: NTRS provides the majority of its asset management services through the C&IS unit, which generates over 50% of total revenue. An increase in revenue in this segment should have provided some support to Northern Trust’s overall revenue in the reporting quarter.

Zacks consensus estimate for C&I segment trust, investment and other service fees is 6.2% growth from reported year-ago quarter figure of $633 million dollars.

Zacks consensus estimate for security fees and trading revenue, as well as cash management fees, set at $36.5 million and $11.5 million, respectively, is expected to have increased by 13 % and slightly each compared to the corresponding actual figures of the previous year.

Expenses: NTRS’ investments in digital initiatives and technology may have kept costs high in the quarter. These investments could help the company in the long term, but the increase in the level of current expenses is holding back the expansion of results.

Let’s see what our quantitative model predicts:

Northern Trust lacks the right combination of the two key ingredients – a positive Earnings ESP and a Zacks Rank #3 (Hold) or higher – to increase the chances of a Winning Beat.

You can discover the best stocks to buy or sell before they’re flagged with our earnings ESP filter.

ESP Earnings: Northern Trust has an ESP on revenue of +0.09%.

Zack’s Ranking: Northern Trust currently carries a Zacks rank of 3, which increases the predictive power of ESP. But we also need to have a positive ESP to be sure of a positive earnings surprise.

Actions worth a look

BOK Financial BOKF, PNC Financial Services Group, Inc. cabin crew and Huntington Bancshares Incorporated HBAN are a few companies worth considering because they have the right combination of elements to beat on profits in their upcoming releases, according to our model.

BOK Financial has an ESP on earnings of +3.64% and a Zacks rank #2 (buy) at present. BOKF is expected to release its fourth quarter and full year results on January 19.
Over the past 30 days, BOKF’s Zacks consensus estimate for quarterly earnings has moved slightly south.

PNC Financial is expected to report fourth quarter 2021 and full-year results on January 18. PNC, which is currently ranked No. 3 from Zacks, has an ESP profit of +2.29%. You can see the full list of today’s Zacks #1 (Strong Buy) ranking stocks here.

PNC’s fourth-quarter earnings estimates have been revised down slightly over the past month.

Huntington Bancshares is expected to report earnings on January 21. HBAN, currently a No. 3 ranked player, has an Earnings ESP of +1.46%.

Zacks’ consensus estimate for Huntington Bancshares’ fourth-quarter earnings has not changed in the past month.

Stay on top of upcoming earnings announcements with Zacks Earnings Calendar.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.