Northern Trust has reported second quarter 2012 net income of USD179.6m, an 11 per cent increase from the sequential quarter and an 18 per cent increase from the year-ago quarter.

These results equated to a 0.78 per cent return on assets (ROA) and a 9.91 per cent return on equity (ROE). Fitch Ratings views this result as satisfactory, but lower than Northern Trust's historical averages.

In Q2 2012, Northern Trust's total revenue expanded two per cent from the sequential quarter and five per cent from the prior year period. The company's overall trust, investment, and other servicing fees (the largest component of revenue) expanded by four per cent from the sequential quarter. Fitch notes that this growth includes approximately USD17m of money market fee waivers that are dragging on earnings.

This growth, however, was partially offset by the continued decline in foreign exchange trading income, which declined four per cent from the sequential quarter and down 27 per cent from the prior year quarter. Fitch expects this to remain challenging over the near-to-intermediate term.

Net interest income was down slightly from the sequential quarter, and the net interest margin modestly ticked up to 1.28 per cent at Q2 2012 due primarily to lower funding costs.

Northern Trust's expense initiatives did bear some modest fruit in Q2 2012, as total non-interest expense declined one per cent from the sequential quarter. Fitch would expect additional cost savings to benefit earnings over the near-to-intermediate term.

The increase total fee revenue increase relative to the sequential quarter is reflective of lower money market mutual fund fee waivers than prior quarters, the positive impact of equity markets on fees, as well as additional securities lending income which was driven by higher spreads.

Northern Trust had a modest decline in assets under custody (AUC) of one per cent in the sequential quarter to USD4.56trn and modest decline in total assets under management (AUM) of two per cent from the sequential quarter to USD704bn. Fitch expects growth in AUC and AUM to partially remain challenging amid volatile markets.