Northern Trust Corporation (NTRSFree Report) has reported second-quarter 2021 earnings per share of $1.72, which surpassed the Zacks Consensus Estimate of $1.71 on the release of credit reserves. The bottom line increased from $1.46 year over year.

Results were positively impacted by an increase in trust, investment and other servicing fees. A rise in assets under custody and assets under management were the driving factors. Credit provision was a tailwind. However, lower net interest income (NII) on the contraction of margin was a negative. Escalating operating expenses were major drags.

Net income in the quarter was $368.1 million, up 18% year over year.

Revenues Rise, Costs Shoot up

On a fully-taxable-equivalent basis, total revenues of $1.58 billion were up 5% year over year. The top line beat the Zacks Consensus Estimate by 0.32%.

NII of $344 million in the second quarter declined 9% year over year mainly on lower net interest margin, negated by a rise in average earning assets to some extent.

Net interest margin (NIM) was 0.97%, shrinking 25 basis points from the prior-year quarter. The decline chiefly reflects the impact of lower interest rates.

Non-interest income improved 10% from the year-ago quarter to $1.24 billion. Trust, investment and other servicing fees summed $1.07 billion, up 12% year over year.

Non-interest expenses jumped 8% year over year to $1.12 billion in the second quarter. The upswing mainly resulted from an elevation in compensation, employee benefits, equipment and software and outside service expenses.

Assets Under Management and Custody Rise

As of Jun 30, 2021, Northern Trust’s total assets under custody climbed 32% year over year to $12.2 trillion, while total assets under management increased 22% to $1.54 trillion.

Credit Quality: A Mixed Bag

Credit metrics in the June-ended quarter showed a mixed trend. The company released credit loss reserves of $27 million in the second quarter against provisions of $66 million reported in the prior-year quarter. Net recoveries were $3.2 million compared with $2.6 million reported in the year-ago quarter.

Total allowance for credit losses was $207 million, down 22% year over year. However, total non-accrual assets rose 7.3% to $106.7 million as of Jun 30, 2021.

Capital Position Strong

Under the Advanced Approach, as of Jun 30, 2021, Common Equity Tier 1 capital ratio, total capital ratio and Tier 1 leverage ratio came in at 13.1%, 15.5% and 7.1% compared with 13.9%, 16.8% and 7.6%, respectively, witnessed in the prior-year quarter. All ratios exceeded regulatory requirements.

Return on average common equity was 13.7% compared with the year-earlier quarter’s 12.2%. Return on average assets was 0.96% compared with 0.91% witnessed in the year-ago quarter.

Capital Deployment Activities

In the quarter, the company returned $178.3 million to shareholders through share repurchases and dividends. The company repurchased $135.6 million of common stock under its share repurchase program.

Our Viewpoint

Northern Trust put up a decent show in the quarter. Growth in assets under custody and management along with credit provision will likely continue. Though a rise in fee income is anticipated to act as a tailwind, escalating expenses might pose as threats to the company’s profitability. A fall in margin on low rates is concerning.

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

Performance of Other Banks

KeyCorp‘s (KEYFree Report) second-quarter 2021 earnings of 72 cents per share handily surpassed the Zacks Consensus Estimate of 55 cents. The bottom line improved substantially from 16 cents earned in the prior-year quarter.

Zions Bancorporation‘s (ZIONFree Report) second-quarter 2021 net earnings per share of $2.08 surpassed the Zacks Consensus Estimate of $1.25. The bottom line marks a significant improvement from 34 cents earned in the year-ago quarter.

State Street‘s (STTFree Report) second-quarter 2021 adjusted earnings of $1.97 per share outpaced the Zacks Consensus Estimate of $1.78. The bottom line was 4.8% higher than the prior-year level.

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