Northern Trust Bank

...

[pic 20]

Profit margin measures how much of a company’s revenue that a company actually keeps, and as is the case with many of these other ratios Northern Trust performed at its best during the recession. Before 2007, their profit margin was 2-5% lower than that of the industry. After 2007 however, its profits were well above that of the industry and actually increased from 2007 to 2009. After 2009 they saw their profit margin drop by almost 9%.

[pic 21]

. Asset turnover measures how a company deploys its assets to generate revenue. From 2000 to 2006 Northern Trust performed just under industry averages which is no surprise as their ROA was very similar during this period, but as was the case with the other ratios as the recession came closer Northern Trust began to perform above industry averages. As companies began to recover Northern Trusts AU began to drop slowly, but in 2011 started to gradually increase again. From 2011 and on though Northern Trust actually kept on outperforming the industry even though their ROA is under the industries.

FIN 4303 – Commercial Banking Assignment – Part 2

This report consists of an analysis of The Northern Trust Corporation (NTRS) banking strategy. Time trend analysis and comparisons to the industry for seven financial ratios will be discussed. Thereafter, we will go on to discuss the similarities and differences in breakdown of noninterest income, loan portfolio and deposit funding between NTRS and the industry.

The Northern Trust Corporation is a financial holding company and one of many banking institutions in the United States. It provides investment management, asset and fund administration, fiduciary and banking services. It has a network of offices in 19 U.S. states and 20 international locations in Canada, Europe, the Middle East, and the Asia-Pacific region. As of June 30, 2014, Northern Trust Corporation had $106 billion in banking assets, $6.0 trillion in assets under custody and $924.4 billion in assets under management. Northern Trust focuses on managing and servicing client assets through its two client-focused reporting segments: Corporate & Institutional Services (C&IS) and Wealth Management.

Wealth Management focuses on high-net-worth individuals and families, business owners, executives, professionals, retirees, and established privately-held businesses in its target markets. Wealth Management is one of the largest providers of advisory services in the United States, with $515.7 billion in assets under custody and $224.5 billion in assets under management at December 31, 2014.

[pic 22]

[pic 23]

NTRS’s net interest margin is correlated to asset utilization. NTRS’s lower than industry average net interest margin from 2000 to 2014 was reflected in its low asset utilization during the period. While net interest margin is net interest income as a percentage of earning assets, asset utilization is total operating income as a percentage of total assets.

NTRS’s net interest margin exhibits a somewhat inverse realation in regards to the trend of the industry. However, the gap between the net interest margin of NTRS and the industry decreased from 2005 to 2008 as the industry’s ratio decreased.

[pic 24]

NTRS’s allowance for loan losses is established and maintained to protect against charges on its operating income. It is an estimate of uncollectible amounts that are used to reduce the book value of loans and leases to the amount expected to be collected. It is representative of the firm’s realistic anticipation of loan losses.

NTRS’s allowance for loan losses as a percentage of assets follows a clearly distinct trend than that of the industry. However, it shows a constant fluctuaution from 2000 to 2014.

During the years 2000 and 2007, NTRS’s allowance for loan losses was averaging above the industry average. However, in 2008, the indusrty average spiked from below 1% to almost 1.8% in span of year. This may be due the housing crisis in 2008. During which, NTRS was faring well in comparison to the industry.

Nevertheless, the industry managed to bring down its allowance for loan losses as of 2011. During 2010, NTRS managed to decrease its allowance for loan losses as low as 1.0%.

[pic 25]

[pic 26]

[pic 27]

From 2000 to 2014, the industry’s loan to core deposits has consistently maintained itself within a narrow range. In contrast, NTRS’s ratio has shown major fluctuations than the industry during this period.

However, as of 2011, NTRS has managed close the gap significantly with the industry average. From 2004 to 2006, NTRS’s average was at its highest, with a monumental gap between industry and NTRS average.

In 2008, NTRS began closing the gap at a very rapid pace. Currently, NTRS follows the trend along with the industry much closer.

[pic 28]

The loans to asset ratio represents the portion of NTRS’s assets that are loaned to consumers through a traditional banking structure.

NTRS maintains a lower loans to assets ratio than the industry. Though the industry shows small shifts in its ratio, NTRS emphasizes the pattern more closely because of its loan risks. During 2009 and 2010, NTRS shows a drop in its ratio due to an increase in total assets.

[pic 29]

Noninterest income as a percentage of operating income represents the amount of NTRS’s income that comes from fiduciary activities, service charges on deposit accounts, gains from trading assets/ liabilities, and other noninterest income. It also relates to trends in provisions for loan losses and net interest income.

NTRS consistently maintains a higher noninterest income as a percentage of operating income than the industry average.

NTRS’s decrease in noninterest income as a percentage of operating income from 2010 to 2011 can be attributed to a increase in total operating income.

NTRS ratios remained steady during the housing market collapse largely due to a small percentage of individual loans being given and thus having no real provisions for loan loss.

[pic 30]

The Cost Efficiency Ratio is