Driven by strong top-line growth, Northern Trust Corporation (NTRS) posted a positive earnings surprise of 16% in the fourth quarter of 2014. Earnings per share came in at 94 cents, significantly beating the Zacks Consensus Estimate of 81 cents. Moreover, this compared favorably with 75 cents per share earned in the year-ago quarter.
Results were primarily driven by higher revenues and lower operating expenses. However, improved credit quality and rise in both assets under custody and assets under management were positives for the quarter.
Net income for the quarter came in at $234.5 million, compared with $181.6 million in the prior-year quarter. Including certain one-time items, net income was $244 million or 98 cents per share, compared with $169.7 million or 70 cents per share.
For full-year 2014, net income was $833.6 million or $3.41 per share, compared with $730.7 million or $2.99 per share in the prior year. Including certain one-time items, net income was $811.8 million or $3.32 per share, compared with $731.3 million or $2.99 per share.
Performance in Detail
For full-year 2014, revenues were $4.33 billion, up 6% from $4.09 billion in 2013. Moreover, results were almost in line with the Zacks Consensus Estimate.
Total revenue for the fourth quarter came in at $1.13 billion, beating the Zacks Consensus Estimate of $1.10 billion. Moreover, the reported figure was up 8% 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 $270.9 million, up 5% year over year. This was driven by increased levels of average earning assets.
Net interest margin (NIM) was 1.08%, down 4 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 9% from the year-ago quarter to $866.2 million. The rise was largely due to 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 were down 2% year over year to $781.3 million in the quarter. Excluding legal settlement charge of $19.2 million in the prior-year quarter, expenses increased 1% year over year, primarily impacted by elevated compensation and equipment and software expense.
Assets Under Management and Custody
As of Dec 31, 2014, Northern Trust’s total assets under management increased 6% year over year to $934.1 billion. Also, total assets under custody rose 7% from the last-year period to $5.97 trillion.
Credit Quality
Northern Trust witnessed improvement in its overall asset quality during the quarter. Provision for credit losses was $3 million in the quarter as against $5 million in the prior-year quarter. Further, net charge-offs were $5.4 million, down 63% from the prior-year quarter figure.
Also, total allowance for credit losses were $295.9 million, down 3.9% year over year. Nonperforming assets fell 15% year over year to $232.3 million as of Dec 31, 2014.
Capital Position
Northern Trust’s capital ratios remained strong as of Dec 31, 2014, with Tier 1 capital ratio of 13.3%, total capital ratio of 15.5% and leverage ratio of 7.8%, each exceeding the regulatory requirements.
Under the Advanced Approach, common equity Tier 1 ratio and Tier 1 ratio stood at 12.4% and 13.2%, respectively.
During 2014, Northern Trust repurchased 7.5 million shares for $480.7 million at an average price of $64.20 per share. Notably, during the quarter, the company repurchased 2.5 million shares for $165.5 million at an average price of $66.57 per share.
Our Viewpoint
Results of Northern Trust reflect a strong quarter. We remain encouraged owing to continued growth in assets under management and assets under custody, top line and an improving credit quality. If the company fails to undertake efficient cost control measures further, 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 Major Banks
The fourth-quarter earnings season kick started with Wall Street biggies – Wells Fargo & Company (WFC) and JPMorgan Chase & Co. (JPM). Amid a challenging industry backdrop, Wells Fargo’s fourth-quarter 2014 earnings met expectations. The financial bigwig came out with earnings per share of $1.02, meeting the Zacks Consensus Estimate. Also the reported figure came above the year-ago figure of $1.00.
JPMorgan came out with adjusted earnings of $1.45 per share, ahead of the Zacks Consensus Estimate as well as the prior-year quarter earnings of $1.30 per share. Earnings exclude an impact of $990 million related to after-tax legal expenses. Considering this significant one-time item, the company has earned $1.19 per share.
Another banking major – Citigroup Inc. (C) reported adjusted earnings per share for fourth-quarter 2014 of 6 cents, missing the Zacks Consensus Estimate of 9 cents. Further, earnings came significantly below the year-ago figure of 82 cents per share. Including the impact of credit valuation adjustment (CVA) and debt valuation adjustment (DVA), Citigroup reported net income of $350 million, which was significantly down from $2.5 billion reported in the prior-year quarter.
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