Riding on higher revenues, Northern Trust Corporation NTRS posted a positive earnings surprise of 8% in the first quarter of 2015. Earnings per share came in at 94 cents, easily beating the Zacks Consensus Estimate of 87 cents. Moreover, this compared favorably with 75 cents per share earned in the year-ago quarter.
Northern Trust Corporation - Earnings Surprise | FindTheCompany
Following the earnings release, investors have been bullish on the results as shares of Northern Trust gained over 2% in the beginning of the trading session. However, the price reaction during the full trading session will give a better idea.
Results were primarily driven by higher revenues but partially offset by increasing operating expenses. An improved credit quality and rise in both assets under custody and assets under management were tailwinds for the quarter.
Net income for the quarter came in at $230.7 million, up 27% year over year.
Performance in Detail
Total revenue for the first quarter came in at $1.13 billion, beating the Zacks Consensus Estimate of $1.12 billion. Moreover, the reported figure was up 9% 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 $266.8 million, up 5% year over year. This was driven by increased levels of average earning assets.
Net interest margin (NIM) was 1.10%, down 2 basis points from 1.12% in the prior-year quarter. The decrease was primarily owing to a fall in yields on earning assets, partially offset by lower funding costs.
Non-interest income grew 10% from the year-ago quarter to $873.9 million. The rise was largely backed by an improvement in trust, investment and other servicing fees, which came on the back of new business and strong equity markets along with elevated foreign exchange trading income.
Non-interest expenses increased 3% year over year to $789.0 million in the quarter. The rise was mainly due to elevated compensation, employee benefits and equipment and software expense, partially offset by lower outside services expense.
Assets Under Management and Custody
As of Mar 31, 2015, Northern Trust’s total assets under management increased 5% year over year to $960.1 billion. Also, total assets under custody rose 6% from the prior-year period to $6.09 trillion. Growth in assets under management and custody was driven by new business and higher equity markets.
Credit Quality
Northern Trust witnessed improvement in its overall asset quality during the quarter. Provision for credit losses was credit of $3 million against a provision of $3 million in the prior-year quarter. Also, total allowance for credit losses was $286.7 million, down 7% year over year. Nonperforming assets fell 15% year over year to $228.1 million as of Mar 31, 2015.
However, net charge-offs were $4.6 million, higher than $1.5 million in the prior-year quarter.
Capital Position
Northern Trust’s capital ratios remained strong. Under the Advanced Approach, as of Mar 31, 2015, Tier 1 capital ratio of 12.4%, total capital ratio of 14.2% and Tier 1 leverage ratio of 7.8%, each exceeded the regulatory requirements.
During the first quarter, Northern Trust repurchased 1.56 million shares for $107.2 million at an average price of $68.93 per share.
Our Viewpoint
Results of Northern Trust reflect a strong quarter. We are encouraged by continued growth in assets under management and assets under custody, a higher top line 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).
Performance of Other Wall Street Giants
Banking majors – Wells Fargo & Co. WFC and JPMorgan Chase & Co. JPM kick started the first-quarter earnings season.
Wells Fargo’s first-quarter 2015 earnings of $1.04 outpaced the Zacks Consensus Estimate of 98 cents. However, the reported figure fell a penny below the year-ago figure. JPMorgan’s earnings of $1.45 per share beat the Zacks Consensus Estimate of $1.39. The bottom line also improved 13.3% over the year-ago earnings of $1.28 per share.
Driven by lower expenses and absence of substantial legal costs, Bank of America Corp.’s BAC first-quarter 2015 results marked a year-over-year improvement. Earnings of 27 cents per share turned around from a loss of 5 cents in the prior-year quarter. However, earnings fell below the Zacks Consensus Estimate of 29 cents.
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