Mixed Trends for Northern Trust as Lower Asset Values, Deposit Outflows Offset Higher Rate Impact

Wide-moat-rated Northern Trust had a mixed second quarter. Revenue of $1.78 billion was roughly in line with the FactSet consensus of $1.76 billion while EPS of $1.86 was a bit below the consensus estimate of $1.93 amid a higher tax rate. On the positive side, higher interest rates drove a 21% increase in interest income with the firm’s net interest margin expanding to 1.35% from 1.05% in the prior year and 0.97% in the year-ago period. On the negative side, lower equity and fixed-income markets weighed on asset-based fees, and average deposits declined 7% amid quantitative tightening. We will maintain our $108 fair value estimate.