Northern Trust Corp.'s conservative approach has enabled it to avoid a lot of the problems that have affected competitors and has it thinking about growth, its chief financial officer said.
Even though Northern Trust is not immune to the challenges facing the market, "we continue to focus on our conservative management process," Steven L. Fradkin, its CFO and an executive vice president, said during its second-quarter earnings call Wednesday. "We believe our conservatism has placed us in a better position to manage through the current storm."
Northern Trust has maintained a tight business model focused on institutional and wealthy clients, he said, and it will continue to look to buy in domestic and foreign markets with a high concentration of affluent families and institutional clients.
Last month Northern Trust said it had agreed to buy Lakepoint Investment Partners LLC, a Cleveland wealth manager that serves individual and institutional investors.
"The environment is disruptive, and we are always looking at M&A opportunities," Mr. Fradkin said Wednesday. "We have done this transaction in Cleveland, and we'll continue to look at opportunities. … The opportunities have increased, but we've remained pretty steady."
Net new assets at Northern Trust's personal financial services business increased 20% from a year earlier — the strongest growth since the fourth quarter of 2000. "This is noteworthy, given the challenging market environment," he said.
Northern Trust said Wednesday its net income increased 4.2% from a year earlier, to $215.6 million, or 96 cents a share. Before accounting charges, the company earned $1.35 a share. On average, analysts polled by Thomson Reuters expected it to report earnings of $1.05 a share.
The results include accounting charges of $87.3 million, or 39 cents per common share, associated with previously disclosed lease transactions, the company said.
Its loan-loss provision increased 150% from a year earlier but fell by half from the first quarter, to $10 million. The decrease indicates "strong commercial loan growth," Mr. Fradkin said. "Credit quality remained strong at the end of the quarter," despite "stress" in areas such as Florida and California. "It is tough out there, but we are still doing well."
Revenue, driven by fees generated by its trust and investment businesses, rose 24% from a year earlier, to $1.09 billion. Trust, investment, and other servicing fees from the corporate and institutional services business increased 32%, to $409.2 million.
Northern Trust's assets under custody fell 0.69%, to $3.96 trillion, and its assets under management dropped 1.97%, to $751.4 billion.
The results pale in comparison with the ones State Street Corp. released Tuesday. The Boston company, which competes with Northern Trust in the trust and custody market, said its second-quarter profits increased 50% from a year earlier, to $548 million, or $1.35 a share, and its revenue increased 39.1%, to a record $2.7 billion.
Analysts said trust banks are continuing to benefit from a steady diet of fee-based business while other banking companies struggle. Northern Trust's "leading position in the affluent market, and its focus on ultra-wealthy clients, should result in above-peers-average revenue and earnings growth in a stable or modestly rising equity market," Stuart Plesser, an analyst at Standard & Poor's Corp., wrote in a research note.
Mr. Fradkin said there has been a "flight to quality" as Northern Trust, like other custody banks, has drawn new customers from struggling financial institutions. He also said he expects to draw more assets nationally because of this trend in the next few quarters.
