DBRS: Northern Trust’s Strong 4Q Results Benefit from Broad-based Revenue Growth

Summary:
• Reported 4Q14 higher net income of $244.0 million, or $234.5 million adjusting for a tax benefit.
• Strong QoQ revenue growth of 5% was broad-based with particular strength in FX trading, net interest income, security commissions and trading income, and other income.
• DBRS rates Northern Trust Corporation Issuer & Senior Debt at AA (low) with a Stable trend.

DBRS, Inc. (DBRS) views Northern Trust Corporation’s (Northern Trust or the Company) 4Q14 results as strong reflecting strong broad-based revenue growth, net new business wins and solid expense control. Positively, the Company generated positive operating leverage both sequentially and for the year. Moreover, Northern Trust’s sound balance sheet remains supportive of the rating including robust liquidity, sound asset quality, and solid capital metrics.

The return of currency volatility, net interest margin expansion, solid loan growth, record Security Commissions and Trading Income, net new business and higher US market valuations all helped bolster revenue growth during the quarter. Indeed, foreign exchange trading increased a material $14.3 million, or 31%, from higher volatility. Margin expansion and earning asset growth also contributed to an increase in net interest income. DBRS notes that Trust, Investment and Other Servicing Fees, Northern Trust’s largest revenue component, increased 8% YoY. Overall, total revenues grew 5% sequentially. With solid expense control, DBRS notes that the Company generated positive operating leverage both QoQ and YoY and enters 2015 with momentum. Indeed, management noted that pipelines are very strong.

Both assets under custody and management increased modestly during the quarter primarily reflecting new business, and higher markets, partially offset by an unfavorable impact in FX rates.

Asset quality remains sound with relatively stable net charge-offs and nonperforming assets. The Company did have a modest provision for credit losses, but this was related to solid loan growth, not asset quality deterioration.

Positively, the Company noted that it remains fully compliant with new regulatory guidelines prior to the rules going into effect. Specifically, Northern Trust already meets the full 100% minimum requirement mandated by the liquidity coverage ratio, the fully phased in Basel III Common Equity Tier 1 ratio, as well as the supplementary leverage ratio (above 5% at both the Bank and Company).

DBRS rates Northern Trust Corporation Issuer & Senior Debt at AA (low) with a Stable trend.

Note:
All figures are in U.S. Dollars unless otherwise noted.