Northern Trust (NTRS) Third-quarter earnings and revenue lead, costs rise

Northern Trust Company NTRS reported earnings per share of $1.80 in the third quarter of 2021, which beat Zacks’ consensus estimate of $1.67 on the release of credit reserves. Net income increased by $1.32 year over year.

The results were positively influenced by an increase in net interest income and commission income. The increase in assets in custody and assets under management was the driving force behind this. The release of credit reserves was a tailwind. However, the contraction of the margin and the increase in operating expenses were major brakes.

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

Revenues soar, costs soar

On a fully taxable equivalent basis, total revenue of $1.63 billion increased 10% year over year. The top line beat Zacks’ consensus estimate of $1.61 billion.

The NII of $357.1 million in the third quarter was up slightly by 1.8% year over year, mainly due to the increase in average earning assets to some extent.

Net interest margin (NIM) was 0.98%, down 5 basis points from the prior year quarter. This decline mainly reflects lower average interest rates, partially offset by favorable balance sheet volume and a change in mix.

Non-interest revenue improved slightly from the year-ago quarter to $1.29 billion. Trust, investment and other service fees totaled $1.11 billion, up 11% year-over-year.

Non-interest expenses edged up slightly year over year to $1.13 billion in the third quarter. This increase is mainly due to an increase in all components other than other operating expenses.

Increase in assets under management and in custody

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

Credit quality: a mixed bag

Credit metrics in the quarter ended September showed a mixed trend. The company released provisions for credit losses of $13 million in the third quarter compared to provisions of $0.5 million recorded in the prior year quarter. Net recoveries were $1.1 million, compared to $0.4 million reported in the prior year quarter. Total provision for credit losses was $195.1 million, down 27% year over year.

However, total unaccrued assets increased by 43% to $141.2 million as of September 30, 2021.

Mixed capital position

Under the advanced approach, as of September 30, 2021, the Common Equity Tier 1 capital ratio, total capital ratio and Tier 1 leverage ratio were 13%, 15.4% and 7.1 %, compared to 13.9%, 16.7% and 7.7%, respectively. , observed during the quarter of the previous year. All ratios exceeded regulatory requirements.

The average common stock return was 13.7%, compared to 10.5% in the prior quarter a year ago. Return on average assets was 1%, compared to 0.83% in the prior year quarter.

Capital deployment activities

During the quarter, the company returned $248 million to shareholders in the form of stock buybacks and dividends. The company repurchased $100 million of common stock under its stock buyback program.

Our point of view

Northern Trust put on a decent show during the quarter. The growth in assets under custody and management as well as the release of credit reserves will likely continue. Although an increase in fee income should act as a tailwind, rising expenses could pose a threat to the company’s profitability. A decline in the margin on low rates is worrying.

Northern Trust Corporation EPS Price, Consensus and Surprise

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

Currently, Northern Trust carries a Zacks Rank #3 (Hold). You can see the full list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of other banks

Bank of AmericaBAC’s third-quarter 2021 earnings of 85 cents per share beat Zacks’ consensus estimate of 71 cents. Net income compares favorably to 51 cents earned in the prior year quarter. The results for the quarter included a reserve release of $1.1 billion.

Robust advisory business, the release of reserves and a slight increase in loan demand spurred JP MorganJPM’s third-quarter 2021 earnings of $3.74 per share. Net income topped Zacks’ consensus estimate of $3.00.

Bank of the First Republic FRC posted a surprise profit of 4.4% in the third quarter of 2021 on the strength of its turnover. Earnings per share of $1.91 beat Zacks consensus estimate of $1.83. Net income improved by 18.6% compared to the prior year quarter.

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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.