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Northern Trust Corporation NTRS delivered a positive earnings surprise of around 1% in the second-quarter 2016 on higher revenues. Earnings per share came in at $1.06, beating the Zacks Consensus Estimate by a penny. Moreover, the reported figure compared favorably with $1.01 per share in the year-ago quarter.
Results were primarily driven by higher revenues. The quarter also witnessed a rise in assets under custody. However, on the flip side, results exhibited escalating operating expenses and decreased assets under management.
Including certain non-recurring items, net income came in at $260.7 million or $1.09 as compared with $269.2 million or $1.10 in the prior-year quarter.
Top-line Grows; High Costs
Total revenue for the second quarter came in at $1.32 billion, beating the Zacks Consensus Estimate of $1.22 billion. Moreover, the reported figure was up 5% year over year, due to a rise in non-interest as well as net interest income.
On a fully taxable equivalent basis, Northern Trust reported net interest income of $306.6 million, up 19% year over year. This was driven by increased levels of average earning assets.
Net interest margin (NIM) was 1.16%, up 16 basis points from 1.00% 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 $1.02 billion. The key catalysts for the rise were improvement in trust, investment and other servicing fees, which came on the back of new businesses and reduced money market fee waivers, slightly offset by the unfavorable effects of equity markets and movements in foreign exchange rates. However, the company recorded a decline in foreign exchange trading income and treasury management fees.
Non-interest expenses were up 8% year over year to $925 million in the quarter. The rise was mainly due to an elevation in all components of expenses, partially counteracted by reduced employee benefits.
Assets Under Management and Custody
As of Jun 30, 2016, Northern Trust’s total assets under custody increased 3% year over year to $6.35 trillion while total assets under management decreased 4% to $906.2 billion.
Credit Quality: A Mixed Bag
Northern Trust’s overall asset quality was a mixed bag during the quarter. Total allowance for credit losses were $227.1 million, down 17% year over year. Further, non-performing assets fell 23.9% year over year to $166.4 million as of Jun 30, 2016.
Also, net charge-offs were $2.4 million, down from $2.6 million in the prior-year quarter figure. However, provision credit was $3.0 million in the quarter while it was $10 million in the prior-year quarter.
Strong Capital Position
Northern Trust’s capital ratios remained strong. Under the Advanced Approach, as of Jun 30, 2016, Tier 1 capital ratio, total capital ratio and Tier 1 leverage ratio were 12.0%, 13.5% and 7.4% respectively, each exceeding the regulatory requirements.
During the second-quarter 2016, Northern Trust repurchased 1.97 million shares for $140.8 million at an average price of $71.52 per share.
Results of Northern Trust display a decent performance considering the quarter’s challenging backdrop with volatile markets and global concerns. 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.
Currently, Northern Trust carries a Zacks Rank #4 (Sell).
Performance of Other Banks
Among other banks, Regions Financial Corporation’s RF second-quarter 2016 earnings from continuing operations came in at 20 cents per share, in line with the Zacks Consensus Estimate and stable year over year. On an adjusted basis, earnings per share would have been 21 cents.
U.S. Bancorp USB reported a positive surprise of 2.5% in the second-quarter 2016. The company reported earnings per share of 83 cents, beating the Zacks Consensus Estimate by 2 cents. Results also exceeded the prior-year quarter earnings of 80 cents.
The PNC Financial Services Group, Inc.’s PNC second-quarter 2016 earnings per share of $1.82 neatly beat the Zacks Consensus Estimate of $1.75. However, the bottom line declined 3% year over year.
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