Northern Trust shares weaken on Chicago company’s lackluster earnings

Northern Trust's third quarter earnings disappointed investors as increased expenses cut into profits.
Northern Trust’s third quarter earnings disappointed investors as increased expenses cut into profits.

By Megan Hart

Rising expenses hit Northern Trust Corp.’s earnings in the third quarter, and sent the company’s shares tumbling by more than 5 percent.

Net income for the Chicago-based financial services company declined 1 percent, to $204.5 million, or 84 cents per diluted share, from $206.5 million, or 84 cents per share a year ago.

Analysts had expected 87 cents per share according to Bloomberg.

Northern Trust’s total revenue rose 3 percent to $1.08 billion from last year’s $1.05 billion. Despite the increase in revenue, third quarter net income declined due to a hike in expenses.

Third quarter expenses totaled $775 million in 2014, a jump of 5 percent from the year-ago quarter. Compensation and employee benefit expenses saw the largest spike, growing 7 percent and 11 percent respectively. The company said the increased price of medical benefits had the largest impact on its expense totals.

“Expense growth during the third quarter underscores our opinion that it will be difficult for Northern Trust to materially improve its results until the interest rate environment improves,” Morningstar analyst Erin Davis wrote in a report.

The company also noted that last year’s third quarter profit was bolstered by the sale of a $32.6 million office building. Without that additional revenue, Northern Trust said net income would have been reported in the year-ago quarter as $186.2 million, or 76 cents per diluted share in 2013.

According to a report by Jefferies analyst Ken Usdin, Northern Trust’s earnings per share was strengthened by the repurchase of 1.1 million shares, for $77 million, during the third quarter.

Northern Trust’s earnings were also aided by an 11 percent increase in revenue for its asset management division, which rose to nearly $400 million, and accounts for two-thirds of the company’s total revenue.

“New business and higher equity markets contributed to strong growth in assets under custody and under management,” Northern Trust’s chairman and CEO Frederick Waddell said.

The company also reported a 19 percent drop in nonperforming assets from last year’s third quarter, and accounted for no loan loss provisions.

Despite Northern Trust’s lackluster third quarter results, Davis said she expects the bank to benefit when interest rates rise from current historic lows.

In NASDAQ trading Wednesday, shares of Northern Trust closed down $3.57, or 5.5 percent, at $61.90.