Northern Trust Corporation (NTRS)

Total return at 5 years: 10.0%/year = 7.9% appreciation + 2.0% dividend. The target price ($248) is ex-dividend; the $20 in dividends collected over 5 years are added separately.

By both methods, the value today (DCF $337 · Multiples $216) exceeds the market price ($169).

Today — fairly valued: at $169 trades ~21.8% below its value discounted to today (~$216); the discount is positive but does not reach the margin of safety we require (≥38%).

At 5 years — En valor: the target price ($248) plus dividends yield between the 4% floor and the 10% average return — a reasonable return, though without the margin of a great investment.

The bridge: the return at 5 years exceeds the risk-free rate (4.5%) — but the discount does not reach the required margin of safety (≥38%). To require a 15% annual return, it would need to be bought at ~$136.

Educational / informational. Does not constitute investment advice.

The inverse approach: instead of projecting growth to obtain the value, the market price ($169) is taken as given and it solves for what annual owner-earnings growth would need to hold for 5 years for the present value —at the method's rate (4.5%, no-growth terminal)— to equal that price. It is the disconfirmation test: the expectations the price already pays for, contrasted against the method's projection.

The market discounts less growth (-7.9%/year) than we project (7.0%/year) → if the base case holds, there is margin: perception is more pessimistic than the estimated reality.

That growth implies ~$1.4 bn of owner earnings in year 5 (vs ~$2.9 bn of our base case). It recalculates if the DCF assumptions are edited.

A bank is valued on equity (P/E × common earnings + price/tangible book), not EV: deposits and debt are funding. It returns capital via dividend + buyback —the buyback reduces the share count, so earnings per share grow faster than aggregate earnings—. Total return adds the dividend collected along the way. In edit mode, the metric, shares, dividend, and exit multiple can be adjusted.

Northern Trust is valued at the equity level (bank/custodian, §4): normalized P/E over earnings to common for the last twelve months, with tangible book value per share (TBVPS) as a cross-check. Year 0 excludes the non-recurring gain of US$396.4 million (after tax) from the second Visa share exchange recognized in Q2 2026, since it is the second time in three years that an item of this nature has materialized (there was also US$878.4 million in 2024) and it is not extrapolable. The earnings path reflects organic fee growth (the eighth consecutive positive quarter) and recent operating leverage (+700bp), decelerating toward a more moderate terminal rate. The share count falls ~4%/year in the base case on sustained buybacks (more than US$1,300 million over the last twelve months); the dividend starts from the current run rate of US$3.52/share after the 10% increase approved on 21-Jul-2026. The exit multiple (10-15x, the bank band §4) is positioned at 13x in the base case for a normalized ROTCE (~18%) in the 'excellent' band against the 10% bar, offset by moderate terminal growth and a 'narrow' moat.

Today's multiple compresses on its own going forward as the metric per share grows (accelerated by the buyback, which reduces the share count). The exit multiple at 3 years is higher than the terminal at 5 years —at 3 years there is more growth still ahead—. Total return adds the dividend collected; the required return is applied to the base scenario.

They are valued separately, with their own rationale, and are not incorporated into the base or the verdict (they are excess return). When assigning them value — in Editmode —, the total with optionalities updates live, without moving the base.

The verdict, the base CAGR, and the margin of safety are always calculated on the base; optionalities do not alter them (with optionalities at $0 they do not move).

Each card fixes a required annual return and answers: if the business is worth $248 in 5 years, what is the maximum that can be paid today to obtain that return? Since it now trades at $169, the margin of safety is how much cheaper the market is than that maximum. The three thresholds: 4% covers inflation (the floor), 10% is the long-term average return, and 15% is the level of a great investment.

With a target price of $248 in 5 years plus $20 of dividends collected (the dividend adds to the return, not to the price) and a required return of 4.5% annually, the maximum to pay today is $216. Against the current market price ($169), the margin of safety is 21.8% (trades below the maximum → there is margin) and the total return at that price would be 10.0% annually.

• Current multiple vs. band. The current normalized P/E exceeds the ceiling of the bank band (10-15x), reflecting the fee-based, low-credit-risk profile.
• Expected 5-year return. The CAGR at market price is +10%, within the Fairly valued range.
• Dividend yield. Current yield around 1.9%, with a 10% increase just approved.

• Credit quality. Net charge-offs of just US$0.3 million in 2025 on a book of more than US$41,000 million.
• Return on tangible capital. Normalized ROTCE around 18%, above the 10% bar and in the 'excellent' band.
• Capitalization. Standardized CET1 of 12.2% (Q2 2026), well above the 6.5% well-capitalized threshold.

Annual levels from the official filing (10-K); the % over each bar is the year-over-year (YoY) growth vs the prior year.

AUC/A and AUM are the drivers of custody, administration, and management fees (asset volume times fee rate); they grew 11-19% year-over-year in Q2 2026 on favorable markets and net client inflows. NIM reflects the balance-sheet spread on institutional and wealth deposits, the other leg of revenue, which expanded on lower funding costs despite lower asset yields.

The % are the annual (year-over-year) growth: each year —historical and projected— vs the prior one; the TTM (trailing 12m) vs the TTM of a year ago, to avoid overlapping windows. The historicals are exact figures from the official filings; the projected years come from the year-by-year model (the intermediate years without their own series are interpolated between the anchors). The projected columns (+1y…+5y) are 12-month windows counted from the TTM close (30-jun-2026): the projection starts from the most recently reported data, not the fiscal year. The projected base is realistic and unbiased — the risk discount is applied at the end, via the required return. The rationale for each metric is in the (i).

• Fee momentum. Eighth consecutive quarter of positive organic trust fee growth.
• Operating leverage. More than 700 basis points of operating leverage for a second consecutive quarter.
• Rate sensitivity. Net interest margin could compress if the Federal Reserve cuts rates faster than expected.

• Revenue recurrence. Fees on assets under custody/management, with long-term institutional contracts.
• Market sensitivity. Fees depend on the market value of managed assets: a market decline reduces revenue without the company controlling it.
• Geographic diversification. 30% of 2025 revenue came from operations outside the United States.
• Competitive position. One of the largest institutional custodians and wealth managers in the world, competing with State Street and BNY Mellon.

• ✓Capital adequacy (CET1)CET1 12.2% (+5.7pp above the minimum)
• ✕Reserve coverage (allowance / loan book)0.39% of the loan book
• ✓Credit quality (net charge-off rate)0.00% annually
• ✓Value creation (ROTCE − 10% bar)+8pp
• ✓Funding (deposit base)Deposits $145.6 bn

A traffic-light interpreted by the method (not generic): float (negative WC) adds up, capex is judged by incremental ROIC (malinvestment test), and a lender is not subjected to corporate solvency. The (i) shows the derivation of each number.

ⓘ Has a loan book: credit health (delinquency, coverage, normalized CECL, RoA/RoE) is evaluated separately, not with corporate solvency.

• Capital. Standardized CET1 of 12.2% and Tier 1 leverage ratio of 7.8%, both with ample regulatory cushion.
• Liquidity. Deposit base of US$145,600 million, with 66% coming from offices outside the United States.
• Loan book quality. Negative credit loss provision in 2025 from improvement in the commercial and real estate portfolios.

How cash comes in and how it is deployed. In green, the business's own cash (the owner-FCF it generates and reinvests); in gray, the float and credit — customer and funding money, which is not the shareholder's.

Northern Trust returns nearly all of its normalized earnings to shareholders: ~29% via dividends and ~66% via share buybacks on trailing-twelve-month normalized net income to common, with minimal retention (~5%) to build CET1 capital. No material M&A activity is disclosed.

Who owns the shares — the alignment and whether there is a controlling shareholder.

• Capital allocation. Returns nearly all normalized earnings via dividends and buybacks; minimal retention.
• Alignment. Michael O'Grady chairs the board and serves as CEO; ownership is mostly held by passive institutional investors, with no controlling shareholder.
• Transparency. Explicitly discloses notable items each quarter (Visa, severance charges, software disposal), facilitating the normalization of results.

• There is no evidence of motivated sellers or missing buyers: the price already reflects a robust quarter.
• The 10% dividend increase and accelerated buybacks have already been well received by the market, so much of the recent operating improvement is likely already priced in.
• The current multiple (P/E on normalized earnings) already exceeds the ceiling of the historical bank band (10-15x), consistent with a stock trading near fair value rather than a classic value opportunity.

No clear source of market discount is identified (Marks's perception-reality gap): the current price reasonably reflects the recent improvement in profitability and the aggressive capital return.

The annual return (CAGR at 5 years) in each scenario, with the total period return below — the margin of safety made visual: upside range wide, downside range narrow.

Even in the bear scenario, the return holds at +3%/year (+14% total): the margin of safety protects the downside. The bull (+16%/year, +112% total) exceeds it comfortably — a favorable asymmetry, with a narrow downside range and a wide upside range.

• Market cycle. A market decline directly reduces the value of assets under custody/management and, with it, fee revenue.
• Cybersecurity. Critical dependence on proprietary and third-party technology infrastructure, with exposure to cyberattacks.
• Multi-jurisdictional regulation. 30% of revenue comes from non-U.S. operations, multiplying exposure to regulatory change.
• Fiduciary liability. As a fiduciary of third-party assets in very large amounts, it faces litigation risk from fiduciary liability.

Each thinker's analytical framework applied to our data.

• Buffett / Graham Quality + margin of safety

  A narrow moat and ROTCE 18% above the 10% bar, but the margin is limited (+22%) → excellent business at a fair price.

• Peter Lynch Growth at a reasonable price (GARP)

  A stalwart growing 7% at a PEG of 2.2 → expensive for its growth.

• Joel Greenblatt Cheap and high-return (Magic Formula)

  Not applicable — the Magic Formula excludes financials and regulated businesses (EBIT/EV does not capture the operating leverage).

• Howard Marks Perception vs reality + cycle

  The price discounts -8% vs our 7%: perception is more pessimistic than reality, with an identified source of the discount.

• Seth Klarman Capital protection (bear scenario)

  Bear-scenario floor +0%/yr, bull-scenario ceiling +14%/yr over 5y → capital protected, asymmetry in your favor.

• Pat Dorsey Moat strength (Five Rules)

  A narrow moat, stable; sources: cost advantage, efficient scale, switching costs, intangibles → partially passes the Five Rules.

• Aswath Damodaran Expectations implied by the price

  Justifying the price requires discounting -8%, within what we project (7%) — the story squares with the numbers.