Northern Trust Earnings: Net Interest Income Lackluster as Deposits Decline

Northern Trust NTRS reported an OK start to the year. Revenue of $1.76 billion and EPS of $1.51 were slightly below the FactSet consensus estimates of $1.78 billion and $1.52, respectively. However, net interest income fell sequentially, which we think disappointed investors. Average interest-bearing deposits fell 2% sequentially and 9% from the year-ago period and the average non-interest-bearing deposit fell 9% sequentially and 46% from the year-ago period, which resulted in average deposits declining 4% sequentially and 19% from the year-ago period to $112.2 billion. Looking ahead, Northern Trust sees deposits averaging about $110 billion in April thus far and expects an incremental decline after tax season. As we trim our net interest income forecasts, we expect to lower our fair value estimate by a single-digit percentage.

Asset servicing trust, investment, and other servicing fees was up 3% sequentially but down 9% year over year, which roughly tracks assets under custody movements. Wealth management trust, investment, and other servicing fees were up 1% sequentially but down 9% sequentially. On the positive side, the banking turmoil is presenting an opportunity for the wealth business as wealth management clients seek to leave troubled financial institutions such as First Republic.

Expense management continues to be a focus for management and progress is slow. Excluding notable items, expenses were up 6% from the year-ago period and flat sequentially. The expense/trust fee ratio (lower is better) was 121%, an improvement from the elevated 127% seen in the prior quarter, but still much above the firm’s historical range.