Northern Trust Earnings: Choppy Trends, but Shares Undervalued

Wide-moat Northern Trust NTRS reported a mostly in-line third quarter. Revenue of $1.74 billion and EPS of $1.49 were roughly consistent with the FactSet estimates of $1.74 billion and $1.50. Net interest income continues to decline and offers limited visibility, a factor weighing on the stock. Still, we think investors should not overreact to a volatile revenue item; we believe the firm’s wealth-management franchise continues to hold up. As a result, we are maintaining our $86 fair value estimate and believe the shares are attractive.

Net interest income was down 10% sequentially, with the 1.41% GAAP net interest margin in line with our expectations. Northern Trust expects fourth-quarter net interest income to be down 7% at the midpoint, a result below our and Street expectations. Unlike State Street, Northern Trust did not quantify its 2024 net interest income expectations, saying there is a wide range of outcomes—a view likely frustrating investors. Asset servicing trust fee revenue was up 4%, and wealth-management trust fees were up 2%. Northern Trust’s fees are lagged relative to peers, so we expect some pressure in the fourth quarter.

On the positive side, Northern Trust does seem to be making progress on expenses. Core expenses by our calculations were up 5% from the year-ago period and 1% sequentially. Head count was down 1% sequentially. We think a mid-single-digit increase in core expenses is a reasonable expectation for the full year, down from the elevated 9% seen in 2022.