Northern Trust Corporation (NTRS) reported second quarter 2012 (2Q'12) net income of 179.6 million, an 11% increase from the sequential quarter and a 18% increase from the year-ago quarter. These results equated to a 0.78% return on assets (ROA) and a 9.91% return on equity (ROE). Fitch Ratings views this result as satisfactory, but lower than NTRS's historical averages.
In 2Q'12, NTRS's total revenue expanded 2% from the sequential quarter and 5% from the prior year period. NTRS's overall trust, investment, and other servicing fees (the largest component of revenue) expanded by 4% from the sequential quarter. Fitch notes that this growth includes approximately $17 million of money market fee waivers that are dragging on earnings.
This growth, however, was partially offset by the continued decline in foreign exchange trading income, which declined 4% from the sequential quarter and down 27% from the prior year quarter. Fitch expects this to remain challenging over the near-to-intermediate term.
Net interest income was down slightly from the sequential quarter, and the net interest margin modestly ticked up to 1.28% at 2Q'12 due primarily to lower funding costs.
NTRS's expense initiatives did bear some modest fruit in 2Q'12, as total non-interest expense declined 1% from the sequential quarter. Fitch would expect additional cost savings to benefit earnings over the near-to-intermediate term.
The increase in NTRS's total fee revenue increase relative to the sequential quarter is reflective of lower money market mutual fund fee waivers than prior quarters, the positive impact of equity markets on fees, as well as additional securities lending income which was driven by higher spreads.
NTRS had a modest decline in Assets Under Custody (AUC) of 1% in the sequential quarter to $4.56 trillion and modest decline in total Assets Under Management (AUM) of 2% from the sequential quarter to $704 billion. Fitch expects growth in AUC and AUM to partially remain challenging amid volatile markets.
Fitch notes that NTRS continues to maintain a conservative financial profile. NTRS's Tier 1 common equity ratio remains strong at 12.4% at 2Q'12, and continues to support the company's ratings.
Additional information is available at www.fitchratings.com.
Justin Fuller, CFA
70 W. Madison Street
Chicago, IL 60602