Cover and table of contents

139K characters. Original on sec.gov · Markdown

Cover and table of contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

____________________________________________

FORM 10-Q


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2022


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File No. 001-36609

NORTHERN TRUST CORPORATION

(Exact name of registrant as specified in its charter)


Delaware			36-2723087
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)


50 South LaSalle Street		60603
Chicago,	Illinois	(Zip Code)
(Address of principal executive offices)

Registrant’s telephone number, including area code: (312) 630-6000

____________________________________________

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol	Name of each exchange on which registered
Common Stock, $1.66 2/3 Par Value	NTRS	The NASDAQ Stock Market LLC
Depositary Shares, each representing 1/1,000th interest in a share of Series E Non-Cumulative Perpetual Preferred Stock	NTRSO	The NASDAQ Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	x	Accelerated filer	¨

Non-accelerated filer	¨	Smaller reporting company	☐

		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No x

At March 31, 2022, 208,379,813 shares of common stock, $1.66 2/3 par value, were outstanding.

NORTHERN TRUST CORPORATION

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2022

TABLE OF CONTENTS



			Page
Consolidated Financial Highlights (unaudited)			1

Part I – Financial Information
Items 2 and 3: Management’s Discussion and Analysis of Financial Condition and Results of Operations and Quantitative and Qualitative Disclosures About Market Risk			3
Item 1: Consolidated Financial Statements (unaudited)			28
Consolidated Balance Sheets			28
Consolidated Statements of Income			29
Consolidated Statements of Comprehensive Income			29
Consolidated Statements of Changes in Stockholders’ Equity			30
Consolidated Statements of Cash Flows			31
Notes to Consolidated Financial Statements			32
Item 4: Controls and Procedures			74

Part II – Other Information
Item 1: Legal Proceedings			75
Item 2: Unregistered Sales of Equity Securities and Use of Proceeds			75
Item 6: Exhibits			75

Signatures			76

CONSOLIDATED FINANCIAL HIGHLIGHTS

(UNAUDITED)


	THREE MONTHS ENDED MARCH 31,
CONDENSED INCOME STATEMENTS ($ In Millions)	2022		2021		% CHANGE(1)
Noninterest Income	$	1,337.7	$	1,243.3	8	%
Net Interest Income	381.0		340.1		12
Total Revenue	1,718.7		1,583.4		9
Provision for Credit Losses	2.0		(30.0)		N/M
Noninterest Expense	1,205.9		1,117.5		8
Income before Income Taxes	510.8		495.9		3
Provision for Income Taxes	121.5		120.8		1
Net Income	$	389.3	$	375.1	4	%


PER COMMON SHARE
Net Income — Basic	$	1.78	$	1.71	4	%
— Diluted	1.77		1.70		4
Cash Dividends Declared Per Common Share	0.70		0.70		—
Book Value — End of Period (EOP)	50.51		50.80		(1)
Market Price — EOP	116.45		105.11		11


SELECTED BALANCE SHEET DATA ($ In Millions)	MARCH 31, 2022		DECEMBER 31, 2021		% CHANGE(1)
End of Period:
Total Assets	$	172,565.0	$	183,889.8	(6)	%
Earning Assets	160,435.5		172,276.0		(7)
Deposits	149,629.6		159,928.4		(6)
Stockholders’ Equity	11,409.8		12,016.8		(5)


	THREE MONTHS ENDED MARCH 31,
	2022		2021		% CHANGE(1)
Average Balances:
Total Assets	$	162,143.0	$	153,255.8	6	%
Earning Assets	149,768.4		140,588.6		7
Deposits	138,500.2		126,416.4		10
Stockholders’ Equity	11,511.2		11,537.4		—


CLIENT ASSETS ($ In Billions)	MARCH 31, 2022		DECEMBER 31, 2021		% CHANGE(1)
Assets Under Custody/Administration(2)	$	15,544.1	$	16,248.8	(4)	%
Assets Under Custody	12,010.4		12,612.3		(5)
Assets Under Management	1,487.8		1,607.1		(7)

N/M - Not meaningful

(1) Percentage calculations are based on actual balances rather than the rounded amounts presented in the Consolidated Financial Highlights.

(2) For the purposes of disclosing Assets Under Custody/Administration, to the extent that both custody and administration services are provided, the value of the assets is included only once in this amount.

SELECTED RATIOS AND METRICS


	THREE MONTHS ENDED MARCH 31,
	2022		2021
Financial Ratios:
Return on Average Common Equity	14.2	%	13.7	%
Return on Average Assets	0.97		0.99
Dividend Payout Ratio	39.5		41.2
Net Interest Margin(1)	1.05		1.00


	MARCH 31, 2022				DECEMBER 31, 2021
	STANDARDIZED APPROACH		ADVANCED APPROACH		STANDARDIZED APPROACH		ADVANCED APPROACH		WELL-CAPITALIZED RATIOS		MINIMUM CAPITAL RATIOS
Capital Ratios:
Northern Trust Corporation
Common Equity Tier 1 Capital	11.4	%	12.1	%	11.9	%	13.2	%	N/A		4.5	%
Tier 1 Capital	12.4		13.2		12.9		14.3		6.0		6.0
Total Capital	13.6		14.2		14.1		15.3		10.0		8.0
Tier 1 Leverage	6.5		6.5		6.9		6.9		N/A		4.0
Supplementary Leverage	N/A		7.9		N/A		8.2		N/A		3.0

The Northern Trust Company
Common Equity Tier 1 Capital	11.7	%	12.6	%	12.0	%	13.5	%	6.5	%	4.5	%
Tier 1 Capital	11.7		12.6		12.0		13.5		8.0		6.0
Total Capital	12.6		13.4		13.0		14.4		10.0		8.0
Tier 1 Leverage	6.1		6.1		6.4		6.4		5.0		4.0
Supplementary Leverage	N/A		7.4		N/A		7.6		3.0		3.0

(1) Net interest margin is presented on a fully taxable equivalent (FTE) basis, a non-generally accepted accounting principle (GAAP) financial measure that facilitates the analysis of asset yields. The net interest margin on a GAAP basis and a reconciliation of net interest income on a GAAP basis to net interest income on an FTE basis are presented in “Reconciliation to Fully Taxable Equivalent” within the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section.

PART I – FINANCIAL INFORMATION

Items 2. and 3. Management’s Discussion and Analysis of Financial Condition and Results of Operations and Quantitative and Qualitative Disclosures about Market Risk

The following is management’s discussion and analysis of the financial condition and results of operations (MD&A) of Northern Trust Corporation (Corporation) for the first quarter of 2022. The following should be read in conjunction with the consolidated financial statements and related footnotes included in this report as well as the Annual Report on Form 10-K for the year ended December 31, 2021. Investors also should read the section entitled “Forward-Looking Statements.”

Certain terms used in this report are defined in the Glossary included in our Annual Report on Form 10-K for the year ended December 31, 2021.

FIRST QUARTER CONSOLIDATED RESULTS OF OPERATIONS

General

The Corporation is a leading provider of wealth management, asset servicing, asset management and banking solutions to corporations, institutions, families and individuals. The Corporation focuses on managing and servicing client assets through its two client-focused reporting segments: Asset Servicing and Wealth Management. During the first quarter of 2022, the Corporation changed the name of its Corporate & Institutional Services (C&IS) segment to “Asset Servicing.” Accordingly, the disclosures herein and all future disclosures regarding the Corporation’s reporting segments filed with, or furnished to, the SEC will refer to this segment as Asset Servicing. Asset management and related services are provided to Asset Servicing and Wealth Management clients primarily by the Asset Management business. Except where the context requires otherwise, the terms “Northern Trust,” “we,” “us,” “our,” “its,” or similar terms mean the Corporation and its subsidiaries on a consolidated basis.

COVID-19 Pandemic and Recent Events

Since the start of the COVID-19 pandemic, Northern Trust has remained focused on the health and well-being of our workforce, meeting our clients’ needs and supporting our communities. With the overall improvement in COVID-19 virus trends, and guided by public health and safety recommendations and government regulations, we have begun to safely return to our offices in most locations, across all of our regions—consistent with our established protocols. We continue to provide our workforce with resources to facilitate this return to the office. We remain committed to closely monitoring the situation in all our locations and responding appropriately.

During the pandemic, Northern Trust offered credit assistance to impacted clients under a government lending program and provided payment deferrals. The number of loans under the government lending program, as well as the number of pandemic-related payment deferrals, have declined since the start of the pandemic. For further information, please refer to Note 6 — Loans and Leases to the consolidated financial statements provided in Item 1. Consolidated Financial Statements (unaudited).

Overview of Financial Results

Net Income per diluted common share increased in the current quarter to $1.77 from $1.70 in the first quarter of 2021. Net Income increased $14.2 million, or 4%, to $389.3 million in the current quarter from $375.1 million in the prior-year quarter. Annualized return on average common equity was 14.2% in the current quarter and 13.7% in the prior-year quarter. The annualized return on average assets was 0.97% in the current quarter as compared to 0.99% in the prior-year quarter.

Revenue increased $135.3 million, or 9%, to $1.72 billion in the current quarter from $1.58 billion in the prior-year quarter.

Beginning in 2022, Trust, Investment and Other Servicing fees were impacted by the change in classification of certain fees that were previously recorded in Other Operating Income or as a reduction of Other Operating Expense. This change resulted in no impact to Net Income. The accounting reclassification increased Trust, Investment and Other Servicing fees in the current quarter by $18.5 million, with a $6.9 million decrease in Other Operating Income and a $11.6 million increase in Other Operating Expense. The classification changes are considered by the Corporation’s management to be a better representation of the underlying nature of the business as they are directly tied to client asset levels and the related services are more akin to our core service offerings. Prior-period amounts have not been reclassified.

Trust, Investment and Other Servicing Fees increased $104.7 million, or 10%, from $1.06 billion in the prior-year quarter to $1.17 billion in the current quarter, primarily due to favorable markets, new business and the accounting reclassification previously discussed.

Other Noninterest Income decreased $10.3 million, or 6%, from $179.6 million in the prior-year quarter to $169.3 million in the current quarter, primarily reflecting lower Other Operating Income, partially offset by higher Foreign Exchange Trading Income.

FIRST QUARTER CONSOLIDATED RESULTS OF OPERATIONS (continued)

Overview of Financial Results (continued)

Net Interest Income increased $40.9 million, or 12%, to $381.0 million in the current quarter as compared to $340.1 million in the prior-year quarter, primarily due to higher average earning assets and a higher net interest margin.

There was a $2.0 million provision in the current quarter, as compared to a $30.0 million release of credit reserves in the prior-year quarter. The current quarter provision was primarily due to an increase in the reserve evaluated on an individual basis for two commercial borrowers, partially offset by a slight decrease in the reserve evaluated on a collective basis. The reserve evaluated on a collective basis relates to pooled financial assets sharing similar risk characteristics. The decrease in the collective basis reserve was primarily due to continued improvements in credit quality mainly within the commercial real estate portfolio, partially offset by increases in the reserve driven by projected economic conditions.

Noninterest Expense increased $88.4 million, or 8%, from $1.12 billion in the prior-year quarter to $1.21 billion in the current quarter, primarily attributable to higher Compensation, Outside Services, Equipment and Software expense, and Other Operating Expense.

The Provision for Income Taxes in the current quarter totaled $121.5 million, representing an effective tax rate of 23.8%. The Provision for Income Taxes in the prior-year quarter totaled $120.8 million, representing an effective tax rate of 24.4%. The effective tax rate decreased compared to the prior-year quarter primarily due to a lower net tax impact from international operations.

Trust, Investment and Other Servicing Fees

Trust, Investment and Other Servicing Fees are based primarily on the market value of assets held in custody, managed or serviced; the volume of transactions; securities lending volume and spreads; and fees for other services rendered. Certain market value calculations on which fees are based are performed on a monthly or quarterly basis in arrears. Low-interest-rate environments have historically had a negative impact on fees earned on certain products. Certain fees associated with money market mutual funds were waived by the Corporation due to the low-interest-rate environment. Northern Trust voluntarily waived $50.7 million and $50.2 million of money market mutual fund fees for the three months ended March 31, 2022 and 2021, respectively. These fee waivers are impacted by the level of yields earned and account balances in certain funds, as the yields in these funds remained insufficient to pay the stated fees associated with such funds. Fee waivers are expected to decline to the extent the increase in short-term interest rates experienced during the first quarter of 2022 continues.

Beginning in 2022, Trust, Investment and Other Servicing Fees were impacted by the change in classification of certain fees that were previously recorded in Other Operating Income or as a reduction of Other Operating Expense. The impact to Trust, Investment and Other Servicing Fees in the current quarter was $18.5 million, with $6.9 million relating to amounts previously recorded in Other Operating Income and $11.6 million relating to amounts previously reported as a reduction of Other Operating Expense. Prior-period amounts have not been reclassified.

The components of Trust, Investment and Other Servicing Fees are provided below.

TABLE 1: TRUST, INVESTMENT AND OTHER SERVICING FEES


	THREE MONTHS ENDED MARCH 31,
($ In Millions)	2022		2021		CHANGE
Asset Servicing Trust, Investment and Other Servicing Fees
Custody and Fund Administration	$	452.7	$	446.0	$	6.7	2	%
Investment Management	146.9		115.9		31.0		27
Securities Lending	18.8		18.2		0.6		3
Other	44.0		40.4		3.6		9
Total Asset Servicing Trust, Investment and Other Servicing Fees	$	662.4	$	620.5	$	41.9	7	%
Wealth Management Trust, Investment and Other Servicing Fees
Central	$	181.7	$	164.2	$	17.5	11	%
East	134.0		119.0		15.0		13
West	101.4		90.8		10.6		12
Global Family Office	88.9		69.2		19.7		29
Total Wealth Management Trust, Investment and Other Servicing Fees	$	506.0	$	443.2	$	62.8	14	%
Total Consolidated Trust, Investment and Other Servicing Fees	$	1,168.4	$	1,063.7	$	104.7	10	%

FIRST QUARTER CONSOLIDATED RESULTS OF OPERATIONS (continued)

Trust, Investment and Other Servicing Fees (continued)

Asset Servicing

Custody and Fund Administration fees, the largest component of Asset Servicing fees, are driven primarily by values of client assets under custody/administration (AUC/A), transaction volumes and the number of accounts. The asset values used to calculate these fees vary depending on the individual fee arrangements negotiated with each client. Custody fees related to asset values are client-specific and are priced based on month-end market values, quarter-end market values, or the average of month-end market values for the quarter. The fund administration fees that are asset-value-related are priced using month-end, quarter-end, or average daily balances. Investment Management fees are based generally on market values of client assets under management throughout the period. Typically, the asset values used to calculate fee revenue are based on a one-month or one-quarter lag. Securities Lending revenue is affected by market values; the demand for securities to be lent, which drives volumes; and the interest rate spread earned on the investment of cash deposited by investment firms as collateral for securities they have borrowed. The Other fee category in Asset Servicing includes such products as investment risk and analytical services, benefit payments, and other services. Revenue from these products is based generally on the volume of services provided or a fixed fee.

Custody and Fund Administration fees increased from the prior-year quarter, primarily due to favorable markets and new business, partially offset by unfavorable currency translation and lower transaction volumes.

Investment Management fees increased from the prior-year quarter, primarily due to new business, the accounting reclassification previously discussed, and favorable markets.

Other fees increased from the prior-year quarter primarily due to the accounting reclassification previously discussed.

Wealth Management

Wealth Management fee income is calculated primarily based on market values and is impacted by both one-month and one-quarter lagged asset values. Fee income in the regions (Central, East and West) increased from the prior-year quarter, primarily due to favorable markets, new business and the accounting reclassification previously discussed. Global Family Office fee income increased from the prior-year quarter, primarily due to new business, favorable markets, and the accounting reclassification previously discussed.

Market Indices

The following tables present selected market indices and the percentage changes year over year to provide context regarding equity and fixed income market impacts on the Corporation’s results.

TABLE 2: EQUITY MARKET INDICES


	DAILY AVERAGES				PERIOD-END
	THREE MONTHS ENDED MARCH 31,				AS OF MARCH 31,
	2022	2021	CHANGE		2022	2021	CHANGE
S&P 500	4,469	3,864	16	%	4,530	3,973	14	%
MSCI EAFE (U.S. dollars)	2,212	2,200	1		2,182	2,208	(1)
MSCI EAFE (local currency)	1,304	1,220	7		1,302	1,255	4

TABLE 3: FIXED INCOME MARKET INDICES


	AS OF MARCH 31,
	2022	2021	CHANGE
Barclays Capital U.S. Aggregate Bond Index	2,215	2,311	(4)	%
Barclays Capital Global Aggregate Bond Index	500	534	(6)

Client Assets

As noted above, AUC/A and assets under management are two of the primary drivers of our Trust, Investment and Other Servicing Fees. For the purposes of disclosing AUC/A, to the extent that both custody and administration services are provided, the value of the assets is included only once in this amount. The following table presents AUC/A by reporting segment.

TABLE 4: ASSETS UNDER CUSTODY / ADMINISTRATION BY REPORTING SEGMENT


	MARCH 31, 2022		DECEMBER 31, 2021		MARCH 31, 2021		CHANGE Q1-22/Q4-21		CHANGE Q1-22/Q1-21
($ In Billions)
Asset Servicing	$	14,513.0	$	15,183.2	$	13,876.3	(4)	%	5	%
Wealth Management	1,031.1		1,065.6		918.8		(3)		12
Total Assets Under Custody / Administration	$	15,544.1	$	16,248.8	$	14,795.1	(4)	%	5	%

FIRST QUARTER CONSOLIDATED RESULTS OF OPERATIONS (continued)

Trust, Investment and Other Servicing Fees (continued)

The following table presents Northern Trust’s assets under custody, a component of AUC/A, by reporting segment.

TABLE 5: ASSETS UNDER CUSTODY BY REPORTING SEGMENT


	MARCH 31, 2022		DECEMBER 31, 2021		MARCH 31, 2021		CHANGE Q1-22/Q4-21		CHANGE Q1-22/Q1-21
($ In Billions)
Asset Servicing	$	10,987.5	$	11,554.8	$	10,618.0	(5)	%	3	%
Wealth Management	1,022.9		1,057.5		916.2		(3)		12
Total Assets Under Custody	$	12,010.4	$	12,612.3	$	11,534.2	(5)	%	4	%

Consolidated assets under custody decreased from the prior quarter, primarily reflecting the impact of unfavorable markets and unfavorable currency translation. Consolidated assets under custody increased compared to the prior-year quarter, primarily reflecting the impact of favorable markets and net inflows, partially offset by unfavorable currency translation.

The following table presents the allocation of Northern Trust’s custodied assets by reporting segment.

TABLE 6: ALLOCATION OF ASSETS UNDER CUSTODY


	MARCH 31, 2022						DECEMBER 31, 2021						MARCH 31, 2021
	ASSET SERVICING		WM		TOTAL		ASSET SERVICING		WM		TOTAL		ASSET SERVICING		WM		TOTAL
Equities	46	%	60	%	47	%	47	%	61	%	48	%	47	%	63	%	48	%
Fixed Income Securities	34		14		33		35		13		33		35		14		33
Cash and Other Assets	18		26		19		16		26		17		16		23		17
Securities Lending Collateral	2		—		1		2		—		2		2		—		2

The following table presents Northern Trust’s assets under custody by investment type.

TABLE 7: ASSETS UNDER CUSTODY BY INVESTMENT TYPE


($ In Billions)	MARCH 31, 2022		DECEMBER 31, 2021		MARCH 31, 2021		CHANGE Q1-22/Q4-21		CHANGE Q1-22/Q1-21
Equities	$	5,677.7	$	6,049.1	$	5,580.7	(6)	%	2	%
Fixed Income Securities	3,909.4		4,139.6		3,818.7		(6)		2
Cash and Other Assets	2,246.1		2,228.0		1,933.6		1		16
Securities Lending Collateral	177.2		195.6		201.2		(9)		(12)
Total Assets Under Custody	$	12,010.4	$	12,612.3	$	11,534.2	(5)	%	4	%

The following table presents Northern Trust’s assets under management by reporting segment.

TABLE 8: ASSETS UNDER MANAGEMENT BY REPORTING SEGMENT


	MARCH 31, 2022		DECEMBER 31, 2021		MARCH 31, 2021		CHANGE Q1-22/Q4-21		CHANGE Q1-22/Q1-21
($ In Billions)
Asset Servicing	$	1,091.6	$	1,191.0	$	1,093.7	(8)	%	—	%
Wealth Management	396.2		416.1		355.4		(5)		11
Total Assets Under Management	$	1,487.8	$	1,607.1	$	1,449.1	(7)	%	3	%

Consolidated assets under management decreased compared to the prior quarter, primarily reflecting net outflows and unfavorable markets. Consolidated assets under management increased compared to the prior-year quarter, primarily reflecting favorable markets, partially offset by net outflows and unfavorable currency translation.

The following table presents the allocation of Northern Trust’s assets under management by reporting segment.

TABLE 9: ALLOCATION OF ASSETS UNDER MANAGEMENT


	MARCH 31, 2022						DECEMBER 31, 2021						MARCH 31, 2021
	ASSET SERVICING		WM		TOTAL		ASSET SERVICING		WM		TOTAL		ASSET SERVICING		WM		TOTAL
Equities	54	%	55	%	54	%	53	%	55	%	53	%	52	%	55	%	53	%
Fixed Income Securities	11		21		14		11		20		13		11		23		14
Cash and Other Assets	19		24		20		20		25		22		19		22		19
Securities Lending Collateral	16		—		12		16		—		12		18		—		14

FIRST QUARTER CONSOLIDATED RESULTS OF OPERATIONS (continued)

Trust, Investment and Other Servicing Fees (continued)

The following table presents Northern Trust’s assets under management by investment type.

TABLE 10: ASSETS UNDER MANAGEMENT BY INVESTMENT TYPE


($ In Billions)	MARCH 31, 2022		DECEMBER 31, 2021		MARCH 31, 2021		CHANGE Q1-22/Q4-21		CHANGE Q1-22/Q1-21
Equities	$	800.9	$	856.5	$	769.6	(6)	%	4	%
Fixed Income Securities	204.4		216.1		198.9		(5)		3
Cash and Other Assets	305.3		338.9		279.4		(10)		9
Securities Lending Collateral	177.2		195.6		201.2		(9)		(12)
Total Assets Under Management	$	1,487.8	$	1,607.1	$	1,449.1	(7)	%	3	%

The following table presents activity in consolidated assets under management by product.

TABLE 11: ACTIVITY IN CONSOLIDATED ASSETS UNDER MANAGEMENT BY PRODUCT


		THREE MONTHS ENDED
($ In Billions)		MARCH 31, 2022		DECEMBER 31, 2021		SEPTEMBER 30, 2021		JUNE 30, 2021		MARCH 31, 2021
Beginning Balance of AUM		$	1,607.1	$	1,532.4	$	1,539.4	$	1,449.1	$	1,405.3
Inflows by Product
	Equities	59.1		54.7		82.0		72.0		84.2
	Fixed Income	13.0		18.6		16.7		13.1		15.3
	Cash and Other Assets	205.9		263.9		183.5		197.2		165.6
	Securities Lending Collateral	70.2		61.3		71.2		64.0		74.1
Total Inflows		348.2		398.5		353.4		346.3		339.2
Outflows by Product
	Equities	(72.0)		(57.6)		(102.1)		(72.9)		(88.4)
	Fixed Income	(15.6)		(15.2)		(15.6)		(10.6)		(14.8)
	Cash and Other Assets	(242.2)		(226.1)		(170.5)		(184.9)		(163.9)
	Securities Lending Collateral	(88.6)		(73.9)		(62.4)		(65.8)		(59.8)
Total Outflows		(418.4)		(372.8)		(350.6)		(334.2)		(326.9)
Net Inflows (Outflows)		(70.2)		25.7		2.8		12.1		12.3
Market Performance, Currency & Other
	Market Performance & Other	(45.3)		51.8		(5.9)		76.7		37.2
	Currency	(3.8)		(2.8)		(3.9)		1.5		(5.7)
Total Market Performance, Currency & Other		(49.1)		49.0		(9.8)		78.2		31.5
Ending Balance of AUM		$	1,487.8	$	1,607.1	$	1,532.4	$	1,539.4	$	1,449.1

Other Noninterest Income

The components of noninterest income are provided below.

TABLE 12: OTHER NONINTEREST INCOME


	THREE MONTHS ENDED MARCH 31,
($ In Millions)	2022		2021		CHANGE
Foreign Exchange Trading Income	$	80.9	$	78.7	$	2.2	3	%
Treasury Management Fees	11.1		11.2		(0.1)		(1)
Security Commissions and Trading Income	36.2		34.8		1.4		4
Other Operating Income	41.1		54.9		(13.8)		(25)
Investment Security Gains (Losses), net	—		—		—		—
Total Other Noninterest Income	$	169.3	$	179.6	$	(10.3)	(6)	%

Beginning in 2022, Other Operating Income was impacted by the change in classification of certain fees to Trust, Investment and Other Servicing Fees. The impact to Other Operating Income in the current quarter was $6.9 million relating to amounts now recorded in Trust, Investment and Other Servicing Fees. Prior-period amounts have not been reclassified.

Foreign Exchange Trading Income increased compared to the prior-year quarter primarily due to higher client volumes and market volatility.

Other Operating Income decreased compared to the prior-year quarter, primarily driven by the accounting reclassification previously discussed and lower miscellaneous income. The lower miscellaneous income was primarily associated with a market

FIRST QUARTER CONSOLIDATED RESULTS OF OPERATIONS (continued)

Other Noninterest Income (continued)

value decrease in the supplemental compensation plans, which also resulted in a related decrease in supplemental compensation plan expense reported in Other Operating Expense. Please refer to Note 16 — Other Operating Income to the consolidated financial statements provided in Item 1. Consolidated Financial Statements (unaudited) for further detail.

Net Interest Income

Net Interest Income is defined as the total of Interest Income and amortized fees on earning assets, less Interest Expense on deposits and borrowed funds, adjusted for the impact of interest-related hedging activity. Earning assets—including Federal Funds Sold, Securities Purchased under Agreements to Resell, Interest-Bearing Due From Banks, Federal Reserve and Other Central Bank Deposits and Other, Securities, and Loans and Leases—are financed by a large base of interest-bearing funds that include client deposits, short-term borrowings, Senior Notes and Long-Term Debt. Short-term borrowings include Federal Funds Purchased, Securities Sold Under Agreements to Repurchase, and Other Borrowings. Earning assets are also funded by noninterest-related funds, which include demand deposits and stockholders’ equity. Net Interest Income is subject to variations in the level and mix of earning assets and interest-bearing funds and their relative sensitivity to interest rates. In addition, the levels of nonaccruing assets and client compensating deposit balances used to pay for services impact Net Interest Income.

Net interest margin is the difference between what we earn on our assets and what we pay for deposits and other sources of funding. The direction and level of interest rates are important factors in our earnings. Net interest margin is calculated by dividing annualized Net Interest Income by average interest-earning assets.

Net Interest Income stated on a fully taxable equivalent (FTE) basis is a non-generally accepted accounting principle (GAAP) financial measure that facilitates the analysis of asset yields. Management believes an FTE presentation provides a clearer indication of net interest margins for comparative purposes. When adjusted to an FTE basis, yields on taxable, nontaxable, and partially taxable assets are comparable; however, the adjustment to an FTE basis has no impact on Net Income. A reconciliation of Net Interest Income on a GAAP basis to Net Interest Income on an FTE basis is provided in “Reconciliation to Fully Taxable Equivalent” within this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section.

FIRST QUARTER CONSOLIDATED RESULTS OF OPERATIONS (continued)

Net Interest Income (continued)

The following tables present an analysis of average daily balances and interest rates affecting Net Interest Income and an analysis of Net Interest Income changes.

TABLE 13: AVERAGE CONSOLIDATED BALANCE SHEETS WITH ANALYSIS OF NET INTEREST INCOME


(INTEREST AND RATE ON A FULLY TAXABLE EQUIVALENT BASIS)	FIRST QUARTER
2022					2021
($ In Millions)	INTEREST		AVERAGE BALANCE		AVERAGE RATE(6)		INTEREST		AVERAGE BALANCE		AVERAGE RATE(6)
Interest-Earning Assets
Federal Reserve and Other Central Bank Deposits and Other(1)	$	17.6	$	45,220.6	0.16	%	$	0.2	$	37,140.3	—	%
Interest-Bearing Due from and Deposits with Banks(2)	2.6		4,384.0		0.24		2.4		6,464.3		0.15
Federal Funds Sold	—		0.7		0.45		—		0.3		0.41
Securities Purchased under Agreements to Resell	0.9		691.6		0.50		1.0		1,551.2		0.27
Securities
U.S. Government	10.0		2,500.7		1.62		7.2		2,876.9		1.02
Obligations of States and Political Subdivisions	20.0		3,793.4		2.11		15.6		3,199.1		1.96
Government Sponsored Agency	72.9		23,511.4		1.26		83.6		24,845.9		1.36
Other(3)	74.5		30,121.7		1.00		73.9		30,309.5		0.99
Total Securities	177.4		59,927.2		1.20		180.3		61,231.4		1.19
Loans and Leases(4)	191.7		39,544.3		1.97		172.6		34,201.1		2.05
Total Interest-Earning Assets	390.2		149,768.4		1.06		356.5		140,588.6		1.03
Cash and Due from Banks and Other Central Bank Deposits(5)	—		2,047.0		—		—		2,614.5		—
Other Noninterest-Earning Assets	—		10,327.6		—		—		10,052.7		—
Total Assets	$	—	$	162,143.0	—	%	$	—	$	153,255.8	—	%
Average Source of Funds
Deposits
Savings, Money Market and Other	$	3.3	$	32,329.2	0.04	%	$	3.7	$	26,735.9	0.06	%
Savings Certificates and Other Time	1.1		842.3		0.51		1.5		923.6		0.67
Non-U.S. Offices — Interest-Bearing	(20.3)		68,199.6		(0.12)		(18.6)		68,305.6		(0.11)
Total Interest-Bearing Deposits	(15.9)		101,371.1		(0.06)		(13.4)		95,965.1		(0.06)
Federal Funds Purchased	—		0.2		0.05		0.1		405.8		0.06
Securities Sold under Agreements to Repurchase	0.3		253.7		0.49		—		89.8		0.07
Other Borrowings	3.1		3,690.7		0.35		3.5		4,681.4		0.30
Senior Notes	9.6		2,442.4		1.59		13.7		3,057.8		1.82
Long-Term Debt	5.4		1,128.3		1.94		5.3		1,178.7		1.83
Floating Rate Capital Debt	—		—		—		0.6		277.8		0.81
Total Interest-Related Funds	2.5		108,886.4		0.01		9.8		105,656.4		0.04
Interest Rate Spread	—		—		1.05		—		—		0.99
Demand and Other Noninterest-Bearing Deposits	—		37,129.1		—		—		30,451.3		—
Other Noninterest-Bearing Liabilities	—		4,616.3		—		—		5,610.7		—
Stockholders’ Equity	—		11,511.2		—		—		11,537.4		—
Total Liabilities and Stockholders’ Equity	$	—	$	162,143.0	—	%	$	—	$	153,255.8	—	%
Net Interest Income/Margin (FTE Adjusted)	$	387.7	$	—	1.05	%	$	346.7	$	—	1.00	%
Net Interest Income/Margin (Unadjusted)	$	381.0	$	—	1.03	%	$	340.1	$	—	0.98	%

*(1)*Federal Reserve and Other Central Bank Deposits and Other includes collateral deposits with certain securities depositories and clearing houses, which are classified in Other Assets on the consolidated balance sheets.

*(2)*Interest-Bearing Due from and Deposits with Banks includes the interest-bearing component of Cash and Due from Banks and Interest-Bearing Deposits with Banks as presented on the consolidated balance sheets.

*(3)*Other securities include certain community development investments and Federal Home Loan Bank and Federal Reserve stock, which are classified in Other Assets on the consolidated balance sheets.

*(4)*Average balances include nonaccrual loans and leases. Lease financing receivable balances are reduced by deferred income.

*(5)*Cash and Due from Banks and Other Central Bank Deposits includes the noninterest-bearing component of Federal Reserve and Other Central Bank Deposits on the consolidated balance sheets.

*(6)*Rate calculations are based on actual balances rather than the rounded amounts presented in the Average Consolidated Balance Sheets with Analysis of Net Interest Income.

FIRST QUARTER CONSOLIDATED RESULTS OF OPERATIONS (continued)

Net Interest Income (continued)

TABLE 14: ANALYSIS OF NET INTEREST INCOME CHANGES DUE TO VOLUME AND RATE**(1)**


(INTEREST AND RATE ON A FULLY TAXABLE EQUIVALENT BASIS)	THREE MONTHS ENDED MARCH 31, 2022/2021
	CHANGE DUE TO
(In Millions)	AVERAGE BALANCE		AVERAGE RATE		NET (DECREASE) INCREASE
Increase (Decrease) in Net Interest Income (FTE)
Federal Reserve and Other Central Bank Deposits and Other	$	1.8	$	15.6	$	17.4
Interest-Bearing Due from and Deposits with Banks	(0.9)		1.1		0.2

Securities Purchased under Agreements to Resell	(0.8)		0.7		(0.1)
Securities
U.S. Government	(1.0)		3.8		2.8
Obligations of States and Political Subdivisions	3.1		1.3		4.4
Government Sponsored Agency	(4.5)		(6.2)		(10.7)
Other	(1.4)		2.0		0.6
Total Securities	(3.8)		0.9		(2.9)
Loans and Leases	26.0		(6.9)		19.1
Total Interest Income	$	22.3	$	11.4	$	33.7

Interest-Bearing Deposits
Savings, Money Market and Other	$	4.3	$	(4.7)	$	(0.4)
Savings Certificates and Other Time	(0.1)		(0.3)		(0.4)
Non-U.S. Offices - Interest-Bearing	—		(1.7)		(1.7)
Total Interest-Bearing Deposits	4.2		(6.7)		(2.5)
Federal Funds Purchased	(0.1)		—		(0.1)
Securities Sold under Agreements to Repurchase	—		0.3		0.3
Other Borrowings	(0.8)		0.4		(0.4)
Senior Notes	(2.6)		(1.5)		(4.1)
Long-Term Debt	(0.2)		0.3		0.1
Floating Rate Capital Debt	(0.6)		—		(0.6)
Total Interest Expense	$	(0.1)	$	(7.2)	$	(7.3)
Increase (Decrease) in Net Interest Income (FTE)	$	22.4	$	18.6	$	41.0

*(1)*Changes not due solely to average balance changes or rate changes are allocated proportionately to average balance and rate based on their relative absolute magnitudes.

Notes: Net Interest Income (FTE Adjusted), a non-GAAP financial measure, includes adjustments to a fully taxable equivalent basis for loans and securities. The adjustments are based on a federal income tax rate of 21.0%, where the rate is adjusted for applicable state income taxes, net of related federal tax benefit. Total taxable equivalent interest adjustments amounted to $6.7 million and $6.6 million for the three months ended March 31, 2022 and 2021, respectively. A reconciliation of Net Interest Income and net interest margin on a GAAP basis to Net Interest Income and net interest margin on an FTE basis (each of which is a non-GAAP financial measure) is provided in “Reconciliation to Fully Taxable Equivalent” within this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section. Net interest margin is calculated by dividing annualized Net Interest Income by average interest-earning assets.

Interest revenue on cash collateral positions is reported above in Interest-Bearing Due from and Deposits with Banks and in Loans and Leases. Interest Expense on cash collateral positions is reported above in Non-U.S. Offices Interest-Bearing Deposits. Related cash collateral received from and deposited with derivative counterparties is recorded net of the associated derivative contract in Other Assets and Other Liabilities, respectively.

Net Interest Income, stated on a FTE basis, increased from the prior-year quarter, primarily due to higher average earning assets and a higher net interest margin. Average earning assets increased from the prior-year quarter, primarily due to higher levels of net short-term interest-bearing deposits with central banks and banks, as well as loans, partially offset by lower levels of securities.

The net interest margin on an FTE basis increased from the prior-year quarter, primarily driven by a favorable balance sheet volume and mix shift. Net interest margin is expected to benefit in the future from the recent and anticipated increases in short-term interest rates.

Federal Reserve and Other Central Bank Deposits and Other averaged $45.2 billion and increased $8.1 billion, or 22%, from $37.1 billion in the prior-year quarter, resulting from increased deposit inflows. The higher level of client deposits were primarily placed with the Federal Reserve and other central banks and in loans. Average Securities were $59.9 billion and decreased $1.3 billion, or 2%, from $61.2 billion, in the prior-year quarter and include certain community development investments, Federal Home Loan Bank stock, and Federal Reserve stock of $962.8 million, $70.1 million and $70.0 million, respectively, which are recorded in Other Assets on the consolidated balance sheets. Average taxable Securities were $57.4 billion in the current quarter and $57.5 billion in the prior-year quarter. Average nontaxable Securities, which represent securities that are primarily exempt from U.S. federal and state income taxes, were $2.5 billion in the current quarter and

FIRST QUARTER CONSOLIDATED RESULTS OF OPERATIONS (continued)

Net Interest Income (continued)

$3.7 billion in the prior-year quarter. Interest-Bearing Due from and Deposits with Banks averaged $4.4 billion in the current quarter and $6.5 billion in the prior-year quarter.

Loans and Leases averaged $39.5 billion and increased $5.3 billion, or 16%, from $34.2 billion in the prior-year quarter, primarily reflecting higher levels of private client, commercial and institutional, commercial real estate, non-U.S., and residential real estate loans. Private client loans averaged $14.1 billion and increased $2.3 billion, or 19%, from $11.8 billion for the prior-year quarter. Commercial and institutional loans averaged $11.7 billion and increased $1.8 billion, or 19%, from $9.9 billion for the prior-year quarter. Commercial real estate loans averaged $4.3 billion and increased $643.8 million, or 18%, from $3.7 billion for the prior-year quarter. Non-U.S. loans averaged $2.9 billion and increased $540.6 million or 23%, from $2.3 billion for the prior-year quarter. Residential real estate loans averaged $6.2 billion and increased $66.2 million, or 1%, from $6.1 billion for the prior-year quarter.

Northern Trust utilizes a diverse mix of funding sources. Average Interest-Bearing Deposits increased $5.4 billion, or 6%, to an average of $101.4 billion in the current quarter from $96.0 billion in the prior-year quarter. Other Average Interest-Related Funds decreased $2.2 billion, or 22%, to an average of $7.5 billion in the current quarter from $9.7 billion in the prior-year quarter. The balances within short-term borrowing classifications vary based on funding requirements and strategies, interest rate levels, changes in the volume of lower-cost deposit sources, and the availability of collateral to secure these borrowings. Average net noninterest-related funds increased $6.0 billion, or 17%, to $40.9 billion in the current quarter from $34.9 billion in the prior-year quarter, primarily resulting from higher levels of Demand and Other Noninterest-Bearing Deposits.

Interest expense for Interest-Bearing Deposits in the current quarter was driven by low and negative interest rates for Non-U.S. Offices Interest-Bearing Deposits and low interest rates on domestic Interest-Bearing Deposits. Average Non-U.S. Offices Interest-Bearing Deposits comprised 67% of total average Interest-Bearing Deposits for the three months ended March 31, 2022.

Provision for Credit Losses

There was a $2.0 million provision in the current quarter, as compared to a $30.0 million release of credit reserves in the prior-year quarter. The provision in the current quarter was primarily due to an increase in the reserve evaluated on an individual basis for two commercial borrowers, partially offset by a slight decrease in the reserve evaluated on a collective basis. The reserve evaluated on a collective basis relates to pooled financial assets sharing similar risk characteristics. The decrease in the collective basis reserve was primarily due to continued improvements in credit quality mainly within the commercial real estate portfolio, partially offset by increases in the reserve driven by projected economic conditions.

The release of credit reserves in the prior-year quarter was primarily due to a decrease in the reserve evaluated on a collective basis driven by continued improvement in projected economic conditions at the time and portfolio credit quality. Decreases in the collective basis reserve were primarily in the commercial and institutional, commercial real estate and private client portfolios.

Net recoveries in the current quarter were $3.2 million, reflecting $3.3 million of recoveries and $0.1 million of charge-offs. The prior-year quarter included $0.9 million of net recoveries, reflecting $1.3 million of recoveries and $0.4 million of charge-offs. Nonaccrual assets of $101.0 million decreased $24.3 million, or 19%, from $125.3 million at the end of the prior-year quarter.

Commercial real estate, residential real estate, commercial and institutional, and lease financing accounted for 46%, 25%, 18%, and 11%, respectively, of total nonaccrual loans and leases at March 31, 2022. Residential real estate, commercial real estate, commercial and institutional, and private client loans accounted for 48%, 33%, 17%, and 2%, respectively, of total nonaccrual loans and leases at March 31, 2021. For additional discussion of the allowance for credit losses, refer to the “Asset Quality” section in this MD&A.

FIRST QUARTER CONSOLIDATED RESULTS OF OPERATIONS (continued)

Noninterest Expense

Beginning in 2022, Other Operating Expense was impacted by the change in classification of certain amounts previously reported as a reduction of Other Operating Expense to Trust, Investment and Other Servicing Fees. The impact to Other Operating Expense in the current quarter was $11.6 million relating to amounts now recorded in Trust, Investment and Other Servicing Fees rather than as a reduction of Other Operating Expenses. Prior-period amounts have not been reclassified.

The components of Noninterest Expense are provided in the following table.

TABLE 15: NONINTEREST EXPENSE


	THREE MONTHS ENDED MARCH 31,
($ In Millions)	2022		2021		CHANGE
Compensation	$	563.9	$	518.5	$	45.4	9	%
Employee Benefits	104.3		103.4		0.9		1
Outside Services	213.4		196.4		17.0		9
Equipment and Software	193.5		176.7		16.8		10
Occupancy	51.1		50.8		0.3		1
Other Operating Expense	79.7		71.7		8.0		11
Total Noninterest Expense	$	1,205.9	$	1,117.5	$	88.4	8	%

Compensation expense, the largest component of Noninterest Expense, increased compared to the prior-year quarter, primarily due to higher incentives and salary expense.

Outside Services expense increased compared to the prior-year quarter, primarily due to higher technical services costs and consulting services.

Equipment and Software expense increased compared to the prior-year quarter, primarily due to higher software support and rental costs and higher amortization.

Other Operating Expense increased compared to the prior-year quarter, primarily due to the accounting reclassification previously discussed, partially offset by lower supplemental compensation plan expense. The lower supplemental compensation plan expense in the prior-year quarter comparison resulted in a related decrease in miscellaneous income reported in noninterest income. Please refer to Note 17 — Other Operating Expense to the consolidated financial statements provided in Item 1. Consolidated Financial Statements (unaudited) for further detail.

Provision for Income Taxes

Income tax expense for the three months ended March 31, 2022 was $121.5 million, representing an effective tax rate of 23.8%, compared to $120.8 million in the prior-year quarter, representing an effective tax rate of 24.4%.

The effective tax rate decreased compared to the prior-year quarter primarily due to a lower net tax impact from international operations.

REPORTING SEGMENTS

During the first quarter of 2022, the Corporation changed the name of its C&IS segment to “Asset Servicing.” Accordingly, the disclosures herein and all future disclosures regarding the Corporation’s reporting segments filed with, or furnished to, the SEC will refer to this segment as Asset Servicing. This change has not had, and is not expected in the future to have, any impact upon the methodology by which the Corporation allocates revenue and expense to each of its reporting segments.

Northern Trust is organized around its two client-focused reporting segments: Asset Servicing and Wealth Management. Asset management and related services are provided to Asset Servicing and Wealth Management clients primarily by the Asset Management business. The revenue and expenses of Asset Management and certain other support functions are allocated fully to Asset Servicing and Wealth Management.

Reporting segment financial information, presented on an internal management reporting basis, is determined by accounting systems used to allocate revenue and expense to each segment, and incorporates processes for allocating assets, liabilities, equity and the applicable interest income and expense utilizing a funds transfer pricing (FTP) methodology. Under the methodology, assets and liabilities receive a funding charge or credit that considers interest rate risk, liquidity risk, and other product characteristics on an instrument level. Additionally, segment information is presented on an FTE basis as management believes an FTE presentation provides a clearer indication of net interest income. The adjustment to an FTE basis has no impact on Net Income.

REPORTING SEGMENTS (continued)

Revenues, expenses and average assets are allocated to Asset Servicing and Wealth Management, with the exception of non-recurring activities such as certain costs associated with acquisitions, divestitures, litigation, restructuring, and tax adjustments not directly attributable to a specific reporting segment.

Reporting segment results are subject to reclassification when organizational changes are made. The results are also subject to refinements in revenue and expense allocation methodologies, which are typically reflected on a prospective basis.

The following table presents the earnings contributions and average assets of Northern Trust’s reporting segments for the three months ended March 31, 2022 and 2021.

TABLE 16: RESULTS OF REPORTING SEGMENTS


($ In Millions)	ASSET SERVICING						WEALTH MANAGEMENT						OTHER						RECONCILING ITEMS				TOTAL CONSOLIDATED
THREE MONTHS ENDED MARCH 31,	2022			2021			2022			2021			2022			2021			2022		2021		2022			2021
Noninterest Income
Trust, Investment and Other Servicing Fees	$	662.4		$	620.5		$	506.0		$	443.2		$	—		$	—		$	—	$	—	$	1,168.4		$	1,063.7
Foreign Exchange Trading Income	77.4			74.5			3.5			4.2			—			—			—		—		80.9			78.7
Other Noninterest Income	61.1			60.3			31.8			44.2			(4.5)			(3.6)			—		—		88.4			100.9
Total Noninterest Income	800.9			755.3			541.3			491.6			(4.5)			(3.6)			—		—		1,337.7			1,243.3
Net Interest Income	190.1			160.7			197.6			186.0			—			—			(6.7)		(6.6)		381.0			340.1
Revenue	991.0			916.0			738.9			677.6			(4.5)			(3.6)			(6.7)		(6.6)		1,718.7			1,583.4
Provision for Credit Losses	8.4			(5.4)			(6.4)			(24.6)			—			—			—		—		2.0			(30.0)
Noninterest Expense	757.9			713.1			445.1			403.1			2.9			1.3			—		—		1,205.9			1,117.5
Income before Income Taxes	224.7			208.3			300.2			299.1			(7.4)			(4.9)			(6.7)		(6.6)		510.8			495.9
Provision for Income Taxes	51.8			50.1			78.3			78.5			(1.9)			(1.2)			(6.7)		(6.6)		121.5			120.8
Net Income	$	172.9		$	158.2		$	221.9		$	220.6		$	(5.5)		$	(3.7)		$	—	$	—	$	389.3		$	375.1
Percentage of Consolidated Net Income	44		%	42		%	57		%	59		%	(1)		%	(1)		%	N/A		N/A		100		%	100		%
Average Assets	$	125,234.9		$	120,157.7		$	36,908.1		$	33,098.1		$	—		$	—		N/A		N/A		$	162,143.0		$	153,255.8

Note: Segment results are stated on an FTE basis. The FTE adjustments are eliminated in the reconciling items column with the Corporation’s total consolidated financial results stated on a GAAP basis. The adjustment to an FTE basis has no impact on Net Income..

Asset Servicing

Asset Servicing Net Income

For the quarter ended March 31, 2022, Net Income increased $14.7 million, or 9%, from the prior-year quarter, primarily reflecting higher Trust, Investment and Other Servicing Fees and Net Interest Income, partially offset by higher Noninterest Expense and a Provision for Credit Losses in the current quarter as compared to a release in the prior-year quarter.

Asset Servicing Trust, Investment and Other Servicing Fees

For an explanation of Asset Servicing Trust, Investment, and Other Servicing Fees, please see the “Trust, Investment and Other Servicing Fees” section within the Consolidated Results of Operations section of the MD&A.

Asset Servicing Foreign Exchange Trading Income

For the quarter ended March 31, 2022, Foreign Exchange Trading Income increased $2.9 million, or 4%, from the prior-year quarter, primarily due to higher client volumes and market volatility.

Asset Servicing Other Noninterest Income

For the quarter ended March 31, 2022, Other Noninterest Income increased $0.8 million, or 1.3%, from the prior-year quarter, primarily due to higher Security Commissions and Trading Income, partially offset by lower Other Operating Income. The lower Other Operating Income was driven by the change in classification of certain fees to Trust, Investment and Other Servicing Fees for which prior-period amounts have not been reclassified.

REPORTING SEGMENTS (continued)

Asset Servicing (continued)

Asset Servicing Net Interest Income

For the quarter ended March 31, 2022, Net Interest Income stated on an FTE basis increased $29.4 million, or 18%, from the prior-year quarter. The increase for the three months ended March 31, 2022 primarily reflected a higher net interest margin and higher average earning asset levels funded by higher deposit balances. Average earning assets increased $5.4 billion to $114.4 billion in the current quarter from $109.0 billion in the prior-year quarter. The earning assets and funding sources in Asset Servicing for the quarter ended March 31, 2022 consisted primarily of intercompany assets and of loans and non-U.S. custody-related interest-bearing deposits, respectively.

Asset Servicing Provision for Credit Losses

For the quarter ended March 31, 2022, there was an $8.4 million Provision for Credit Losses compared to a $5.4 million release of credit reserves in the prior-year quarter. The provision for credit losses in the current quarter was primarily due to an increase in the reserve evaluated on an individual basis and increases in the collective basis reserve driven by projected economic conditions. The reserve evaluated on a collective basis relates to pooled financial assets sharing similar risk characteristics.

Asset Servicing Noninterest Expense

For the quarter ended March 31, 2022, Noninterest Expense, which includes the direct expense of the reporting segment, indirect expense allocations for product and operating support and indirect expense allocations for certain corporate support services, increased $44.8 million, or 6%, from the prior-year quarter, primarily due to higher expense allocations, Other Operating Expense, and Compensation expense. The higher Other Operating Expense was due to the change in classification of certain amounts, previously reported as a reduction of Other Operating Expense, to Trust, Investment and Other Servicing Fees for which prior-periods amounts have not been reclassified.

Wealth Management

Wealth Management Net Income

For the quarter ended March 31, 2022, Net Income increased $1.3 million, or 1%, from the prior-year quarter primarily due to higher Trust, Investment and Other Servicing Fees and Net Interest Income, partially offset by higher Noninterest Expense, a lower release of credit reserves, and lower Other Noninterest Income.

Wealth Management Trust, Investment and Other Servicing Fees

For an explanation of Wealth Management Trust, Investment and Other Servicing Fees, please see the “Trust, Investment and Other Servicing Fees” section within the Consolidated Results of Operations section of the MD&A.

Wealth Management Other Noninterest Income

For the quarter ended March 31, 2022, Other Noninterest Income decreased $12.4 million, or 28%, from the prior-year quarter primarily due to lower Other Operating Income driven by lower income allocations and the change in classification of certain fees to Trust, Investment and Other Servicing Fees for which prior-period amounts have not been reclassified.

Wealth Management Net Interest Income

For the quarter ended March 31, 2022, Net Interest Income stated on an FTE basis increased $11.6 million, or 6%, from the prior-year quarter. The increase for the three months ended March 31, 2022 was primarily due to higher average loans and deposits balances, partially offset by lower average interest rates. Average earning assets increased $3.8 billion to $35.4 billion in the current quarter from $31.6 billion in the prior-year quarter. Earning assets and funding sources for the quarter ended March 31, 2022 were primarily comprised of loans and domestic interest-bearing deposits, respectively.

Wealth Management Provision for Credit Losses

For the quarter ended March 31, 2022, there was a $6.4 million release of credit reserves compared to a $24.6 million release of credit reserves in the prior-year quarter. The release of credit reserves for the quarter ended March 31, 2022, was primarily due to a decrease in the reserve evaluated on a collective basis, which relates to pooled financial assets sharing similar risk characteristics. The decrease in the collective basis reserve was driven by continued improvements in portfolio credit quality mainly within the commercial real estate portfolio, partially offset by increases in the reserve driven by projected economic conditions.

Wealth Management Noninterest Expense

For the quarter ended March 31, 2022, Noninterest Expense, which includes the direct expenses of the reporting segment, indirect expense allocations for product and operating support and indirect expense allocations for certain corporate support services, increased $42.0 million or 10% from the prior-year quarter, primarily reflecting higher expense allocations and Compensation expense.

CONSOLIDATED BALANCE SHEETS

The following tables summarize selected consolidated balance sheet information.

TABLE 17: SELECT CONSOLIDATED BALANCE SHEET INFORMATION


($ In Billions)	MARCH 31, 2022		DECEMBER 31, 2021		CHANGE
Assets
Federal Reserve and Other Central Bank Deposits and Other(1)	$	55.6	$	64.5	$	(8.9)	(14)	%
Interest-Bearing Due from and Deposits with Banks(2)	5.2		3.9		1.3		35
Securities Purchased under Agreements to Resell	1.0		0.7		0.3		50
Total Securities(3)	59.4		62.7		(3.3)		(5)
Loans and Leases	39.2		40.5		(1.3)		(3)
Total Earning Assets	160.4		172.3		(11.9)		(7)
Total Assets	172.6		183.9		(11.3)		(6)
Liabilities and Stockholders' Equity
Total Interest-Bearing Deposits	102.1		111.6		(9.5)		(9)
Demand and Other Noninterest-Bearing Deposits	47.5		48.3		(0.8)		(2)

Securities Sold under Agreements to Repurchase	0.3		0.5		(0.2)		(38)
Other Borrowings	3.5		3.6		(0.1)		(2)
Total Stockholders’ Equity	11.4		12.0		(0.6)		(5)

(1) Federal Reserve and Other Central Bank Deposits and Other includes collateral deposits with certain securities depositories and clearing houses for the purpose of presenting earning assets; such deposits are presented in Other Assets on the consolidated balance sheets.

(2) Interest-Bearing Due from and Deposits with Banks includes the interest-bearing component of Cash and Due from Banks and Interest-Bearing Deposits with Banks as presented on the consolidated balance sheets.

(3) Total Securities includes certain community development investments and Federal Home Loan Bank and Federal Reserve stock, which are classified in Other Assets on the consolidated balance sheets.

TABLE 18: SELECT AVERAGE CONSOLIDATED BALANCE SHEET INFORMATION


	THREE MONTHS ENDED MARCH 31,
($ In Billions)	2022		2021		CHANGE
Assets
Federal Reserve and Other Central Bank Deposits and Other(1)	$	45.2	$	37.1	$	8.1	22	%
Interest-Bearing Due from and Deposits with Banks(2)	4.4		6.5		(2.1)		(32)
Securities Purchased under Agreements to Resell	0.7		1.6		(0.9)		(55)
Total Securities(3)	59.9		61.2		(1.3)		(2)
Loans and Leases	39.5		34.2		5.3		16
Total Earning Assets	149.7		140.6		9.1		7
Total Assets	162.1		153.3		8.8		6
Liabilities and Stockholders' Equity
Total Interest-Bearing Deposits	101.4		96.0		5.4		6
Demand and Other Noninterest-Bearing Deposits	37.1		30.5		6.6		22
Federal Funds Purchased	—		0.4		(0.4)		(100)
Securities Sold under Agreements to Repurchase	0.3		0.1		0.2		N/M
Other Borrowings	3.7		4.7		(1.0)		(21)
Total Stockholders’ Equity	11.5		11.5		—		—

Average balances are considered to be a better measure of balance sheet trends, as period-end balances can be impacted by the timing of deposit and withdrawal activity involving large client balances. The current-quarter growth in the average consolidated balance sheets was primarily driven by higher customer deposit balances.

Short-Term Borrowings. Short-term borrowings includes Federal Funds Purchased, Securities Sold under Agreements to Repurchase, and Other Borrowings. Securities Sold under Agreements to Repurchase are accounted for as collateralized financings and recorded at the amounts at which the securities were sold plus accrued interest. To minimize any potential credit risk associated with these transactions, the fair value of the securities sold is monitored, limits are set on exposure with

CONSOLIDATED BALANCE SHEETS (continued)

counterparties, and the financial condition of counterparties is regularly assessed. Securities Sold under Agreements to Repurchase are held by the counterparty until the repurchase. See Note 5 — Securities Sold Under Agreements to Repurchase, Note 21 — Commitments and Contingent Liabilities and Note 23 — Offsetting of Assets and Liabilities to the consolidated financial statements provided in Item 1. Consolidated Financial Statements (unaudited) for additional information on our repurchase and reverse repurchase agreements.

Stockholders’ Equity. During the three months ended March 31, 2022, the Corporation declared cash dividends totaling $147.8 million to common stockholders and cash dividends totaling $16.2 million to preferred stockholders.

For the three months ended March 31, 2022, the Corporation repurchased 295,410 shares of common stock, all of which were withheld related to share-based compensation, at a total cost of $33.8 million ($114.58 average price per share).

ASSET QUALITY

Securities Portfolio

Northern Trust maintains a high quality debt securities portfolio. Debt securities not explicitly rated were grouped where possible under the credit rating of the issuer of the security.

The following tables provide the fair value of available for sale (AFS) debt securities and amortized cost of held to maturity (HTM) debt securities by credit rating.

TABLE 19: FAIR VALUE OF AVAILABLE FOR SALE DEBT SECURITIES BY CREDIT RATING


	AS OF MARCH 31, 2022
($ In Millions)	AAA			AA			A			BBB			NOT RATED			TOTAL
U.S. Government	$	2,547.0		$	—		$	—		$	—		$	—		$	2,547.0
Obligations of States and Political Subdivisions	1,089.8			2,558.0			—			—			—			3,647.8
Government Sponsored Agency	16,927.3			—			—			—			—			16,927.3
Non-U.S. Government	621.4			—			—			—			—			621.4
Corporate Debt	393.7			532.3			1,301.7			28.9			34.9			2,291.5
Covered Bonds	573.5			—			—			—			—			573.5
Sub-Sovereign, Supranational and Non-U.S. Agency Bonds	1,986.9			632.7			220.7			—			—			2,840.3
Other Asset-Backed	5,942.4			—			—			—			—			5,942.4
Commercial Mortgage-Backed	1,469.7			—			—			—			—			1,469.7
Total	$	31,551.7		$	3,723.0		$	1,522.4		$	28.9		$	34.9		$	36,860.9
Percent of Total	86		%	10		%	4		%	—		%	—		%	100		%


	AS OF DECEMBER 31, 2021
($ In Millions)	AAA			AA			A			BBB			NOT RATED			TOTAL
U.S. Government	$	2,426.1		$	—		$	—		$	—		$	—		$	2,426.1
Obligations of States and Political Subdivisions	1,133.2			2,742.9			—			—			—			3,876.1
Government Sponsored Agency	18,075.6			—			—			—			—			18,075.6
Non-U.S. Government	374.0			—			—			—			—			374.0
Corporate Debt	442.0			466.2			1,206.6			29.4			197.5			2,341.7
Covered Bonds	364.1			—			23.5			—			118.0			505.6
Sub-Sovereign, Supranational and Non-U.S. Agency Bonds	2,030.9			783.7			230.5			—			—			3,045.1
Other Asset-Backed	5,941.6			—			—			—			—			5,941.6
Commercial Mortgage-Backed	1,424.7			—			—			—			—			1,424.7
Total	$	32,212.2		$	3,992.8		$	1,460.6		$	29.4		$	315.5		$	38,010.5
Percent of Total	84		%	11		%	4		%	—		%	1		%	100		%

As of March 31, 2022, the less than 1% of AFS debt securities not rated by Moody’s Investors Service, Inc. (Moody’s), S&P Global Ratings (S&P Global) or Fitch Ratings, Inc. (Fitch Ratings) consisted of corporate debt securities.

As of December 31, 2021, the 1% of AFS debt securities not rated by Moody’s, S&P Global or Fitch Ratings consisted of corporate debt securities and covered bonds.

ASSET QUALITY (continued)

Securities Portfolio (continued)

TABLE 20: AMORTIZED COST OF HELD TO MATURITY DEBT SECURITIES BY CREDIT RATING


	AS OF MARCH 31, 2022
($ In Millions)	AAA			AA			A			BBB			NOT RATED			TOTAL
U.S. Government	$	49.0		$	—		$	—		$	—		$	—		$	49.0

Government Sponsored Agency	6,079.8			—			—			—			—			6,079.8
Non-U.S. Government	501.3			1,036.3			1,077.0			336.3			—			2,950.9
Corporate Debt	2.3			382.5			547.4			—			—			932.2
Covered Bonds	2,941.9			—			—			—			—			2,941.9
Certificates of Deposit	—			—			—			—			892.1			892.1
Sub-Sovereign, Supranational and Non-U.S. Agency Bonds	4,271.4			1,889.0			62.1			1.1			—			6,223.6
Other Asset-Backed	608.4			—			—			—			—			608.4
Other	76.4			—			—			—			469.2			545.6
Total	$	14,530.5		$	3,307.8		$	1,686.5		$	337.4		$	1,361.3		$	21,223.5
Percent of Total	68		%	16		%	8		%	2		%	6		%	100		%


	AS OF DECEMBER 31, 2021
(In Millions)	AAA			AA			A			BBB			NOT RATED			TOTAL
U.S. Government	$	47.0		$	—		$	—		$	—		$	—		$	47.0
Obligations of States and Political Subdivisions	—			0.8			—			—			—			0.8
Government Sponsored Agency	5,927.6			—			—			—			—			5,927.6
Non-U.S. Government	398.0			942.6			4,088.8			343.9			—			5,773.3
Corporate Debt	2.3			386.7			512.8			—			—			901.8
Covered Bonds	2,942.4			—			—			—			—			2,942.4
Certificates of Deposit	—			—			—			—			674.7			674.7
Sub-Sovereign, Supranational and Non-U.S. Agency Bonds	4,207.6			1,858.0			31.3			1.1			—			6,098.0
Other Asset-Backed	682.6			—			—			—			—			682.6
Other	—			—			—			—			516.3			516.3
Total	$	14,207.5		$	3,188.1		$	4,632.9		$	345.0		$	1,191.0		$	23,564.5
Percent of Total	60		%	14		%	20		%	1		%	5		%	100		%

As of March 31, 2022 and December 31, 2021, the 6% and 5%, respectively, of HTM debt securities not rated by Moody’s, S&P Global or Fitch Ratings consisted of certificates of deposit with a remaining life of less than six months, as well as investments purchased by Northern Trust to fulfill its obligations under the Community Reinvestment Act (CRA). Northern Trust fulfills its obligations under the CRA by making qualified investments for purposes of supporting institutions and programs that benefit low-to-moderate income communities within Northern Trust’s market area.

Net unrealized losses within the investment securities portfolio totaled $1.9 billion at March 31, 2022, compared to net unrealized losses of $187.1 million as of December 31, 2021. Net unrealized losses as of March 31, 2022 were comprised of $62.4 million and $1,999.6 million of gross unrealized gains and losses, respectively. Net unrealized losses as of December 31, 2021 were comprised of $345.1 million and $532.2 million of gross unrealized gains and losses, respectively.

As of March 31, 2022, the $36.9 billion AFS debt securities portfolio had unrealized losses of $475.9 million and $256.6 million related to government-sponsored agency securities and obligations of states and political subdivisions, respectively, which are primarily attributable to changes in market interest rates and credit spreads since their purchase. As of December 31, 2021, the $38.0 billion AFS debt securities portfolio had unrealized losses of $110.2 million related to government-sponsored agency securities, which are primarily attributable to changes in market interest rates and credit spreads since their purchase. As of March 31, 2022 and December 31, 2021, 12% and 14%, respectively, of the AFS corporate debt securities portfolio was backed by guarantees provided by U.S. and non-U.S. government entities.

As of March 31, 2022, the $21.2 billion HTM debt securities portfolio had unrealized losses of $400.9 million and $208.2 million related to government-sponsored agency securities and sub-sovereign, supranational and non-U.S. agency bonds, respectively, which are primarily attributable to changes in overall market interest rates and credit spreads since their purchase. As of December 31, 2021, the $23.6 billion HTM debt securities portfolio had an unrealized loss of $106.1 million, $80.0 million and $71.6 million related to government-sponsored agency, sub-sovereign, supranational and non-U.S. agency bonds, and other residential mortgage-backed securities, respectively, which are primarily attributable to changes in overall market interest rates and credit spreads since their purchase.

ASSET QUALITY (continued)

Securities Portfolio (continued)

HTM debt securities consist of securities that management intends to, and Northern Trust has the ability to, hold until maturity. During the three months ended March 31, 2022 and 2021, no securities were transferred from AFS to HTM. Upon transfer of a debt security from the AFS to HTM classification, the amortized cost is reset to fair value. Any net unrealized gain or loss at the date of transfer will remain in AOCI and be amortized into Net Interest Income over the remaining life of the securities using the effective interest method. The amortization of amounts retained in AOCI will offset the effect on interest income of the amortization of the premium or discount resulting from transferring the securities at fair value.

For additional information relating to the securities portfolio, refer to Note 4 — Securities to the consolidated financial statements provided in Item 1. Consolidated Financial Statements (unaudited).

Securities purchased under agreements to resell and securities sold under agreements to repurchase are accounted for as collateralized financings and recorded at the amounts at which the securities were acquired or sold plus accrued interest. To minimize potential credit risk associated with these transactions, the fair value of the securities purchased or sold is monitored, limits are set on exposure with counterparties, and the financial condition of counterparties is regularly assessed. It is Northern Trust’s policy to take possession, either directly or via third-party custodians, of securities purchased under agreements to resell. Securities sold under agreements to repurchase are held by the counterparty until their repurchase.

For additional information relating to the securities sold under agreements to repurchase, refer to Note 5 — Securities Sold Under Agreements to Repurchase to the consolidated financial statements provided in Item 1. Consolidated Financial Statements (unaudited).

Nonaccrual Loans and Leases and Other Real Estate Owned

Nonaccrual assets consist of nonaccrual loans and leases and other real estate owned (OREO). OREO is comprised of commercial and residential properties acquired in partial or total satisfaction of loans.

The following table provides the amounts of nonaccrual loans and leases, by loan and lease segment and class, and of OREO that were outstanding at the dates shown, as well as the balance of loans that were delinquent 90 days or more and still accruing interest. Loans that are delinquent 90 days or more and still accruing interest can fluctuate widely based on the timing of cash collections, renegotiation and renewals.

TABLE 21: NONACCRUAL ASSETS


($ In Millions)	MARCH 31, 2022			DECEMBER 31, 2021
Nonaccrual Loans and Leases
Commercial
Commercial and Institutional	$	18.3		$	19.5
Commercial Real Estate	46.5			66.6
Lease Financing, net	11.0			—
Total Commercial	$	75.8		$	86.1
Personal
Residential Real Estate	$	25.0		$	36.2
Total Personal	$	25.0		$	36.2
Total Nonaccrual Loans and Leases	100.8			122.3
Other Real Estate Owned	0.2			3.0
Total Nonaccrual Assets	$	101.0		$	125.3
90 Day Past Due Loans Still Accruing	$	106.0		$	28.3
Nonaccrual Loans and Leases to Total Loans and Leases	0.26		%	0.30		%
Allowance for Credit Losses Assigned to Loans and Leases to Nonaccrual Loans and Leases	1.4		x	1.1		x

Nonaccrual assets of $101.0 million as of March 31, 2022 decreased from December 31, 2021 primarily due to the payoff of one nonaccrual loan in the commercial real estate portfolio and payoffs in the residential real estate portfolio, partially offset by the addition of one nonaccrual lease in the lease financing portfolio. In addition to the negative impact on Net Interest Income and the risk of credit losses, nonaccrual assets also increase operating costs due to the expense associated with collection efforts. Changes in the level of nonaccrual assets may be indicative of changes in the credit quality of one or more loan classes. Changes in credit quality impact the allowance for credit losses through the resultant adjustment of the allowance evaluated on an individual basis and the quantitative and qualitative factors used in the determination of the allowance evaluated on a collective basis within the allowance for credit losses.

ASSET QUALITY (continued)

Nonaccrual Loans and Leases and Other Real Estate Owned (continued)

Northern Trust’s credit policies do not allow for the origination of loan types generally considered to be high risk in nature, such as option adjustable rate mortgage loans, subprime loans, loans with initial “teaser” rates and loans with excessively high loan-to-value ratios. Residential real estate loans consist of first lien mortgages and equity credit lines, which generally require a loan-to-collateral value of no more than 65% to 80% at inception. Appraisals of supporting collateral for residential real estate loans are obtained at loan origination and upon refinancing or default or when otherwise considered warranted. Residential real estate collateral appraisals are performed and reviewed by independent third parties.

The commercial real estate portfolio consists of commercial mortgages and construction, acquisition and development loans extended primarily to experienced investors well known to Northern Trust. Underwriting standards generally reflect conservative loan-to-value ratios and debt service coverage requirements. Recourse to owners through guarantees also is commonly required.

For additional information relating to the loans and leases portfolio, refer to Note 6 — Loans and Leases to the consolidated financial statements provided in Item 1. Consolidated Financial Statements (unaudited).

Allowance for Credit Losses

The allowance for credit losses—which represents management’s best estimate of lifetime expected credit losses related to various portfolios subject to credit risk, off-balance-sheet credit exposure, and specific borrower relationships—is determined by management through a disciplined credit review process. Northern Trust measures expected credit losses of financial assets with similar risk characteristics on a collective basis. A financial asset is measured individually if it does not share similar risk characteristics with other financial assets and the related allowance is determined through an individual evaluation.

Management’s estimates utilized in establishing an appropriate level of allowance for credit losses are not dependent on any single assumption. In determining an appropriate allowance level, management evaluates numerous variables, many of which are interrelated or dependent on other assumptions and estimates, and takes into consideration past events, current conditions and reasonable and supportable forecasts.

The results of the credit reserve estimation methodology are reviewed quarterly by Northern Trust’s Credit Loss Reserve Committee, which receives input from Credit Risk Management, Treasury, Corporate Finance, the Economic Research group, and each of Northern Trust’s business units.

As of March 31, 2022, the allowance for credit losses related to loans and leases, undrawn loan commitments and standby letters of credit, HTM debt securities, AFS debt securities, and other financial assets, was $136.3 million, $37.5 million, $14.6 million, $0.4 million and $1.1 million, respectively. As of December 31, 2021, the allowance for credit losses related to loans and leases, undrawn loan commitments and standby letters of credit, HTM debt securities, and other financial assets, was $138.4 million, $34.1 million, $11.2 million, and $1.0 million, respectively. There was no allowance for credit losses related to AFS debt securities as of December 31, 2021. For additional information relating to the allowance for credit losses and the changes in the allowance for credit losses during the three months ended March 31, 2022 and 2021 due to charge-offs, recoveries and provisions for credit losses, refer to Note 7 — Allowance for Credit Losses to the consolidated financial statements provided in Item 1. Consolidated Financial Statements (unaudited). The following table shows the allowance evaluated on an individual and collective basis for the loans and leases portfolio by segment and class.

ASSET QUALITY (continued)

Allowance for Credit Losses (continued)

TABLE 22: ALLOCATION OF THE ALLOWANCE FOR CREDIT LOSSES FOR LOANS AND LEASES


	MARCH 31, 2022					DECEMBER 31, 2021
($ In Millions)	ALLOWANCE AMOUNT			PERCENT OF LOANS TO TOTAL LOANS		ALLOWANCE AMOUNT			PERCENT OF LOANS TO TOTAL LOANS
Evaluated on an Individual Basis	$	16.9		—	%	$	10.1		—	%
Evaluated on a Collective Basis
Commercial
Commercial and Institutional	54.7			30		50.6			27
Commercial Real Estate	57.7			11		68.2			11
Lease Financing, net	—			—		0.4			—
Non-U.S.	7.9			7		7.7			5
Other	—			1		—			2
Total Commercial	120.3			49		126.9			45
Personal
Residential Real Estate	23.0			16		23.3			16
Private Client	12.5			34		11.1			38
Non-U.S.	1.1			1		1.1			1
Other	—			—		—			—
Total Personal	36.6			51		35.5			55
Total Allowance Evaluated on a Collective Basis	$	156.9				$	162.4
Total Allowance for Credit Losses	$	173.8				$	172.5
Allowance Assigned to
Loans and Leases	$	136.3				$	138.4
Undrawn Commitments and Standby Letters of Credit	37.5					34.1
Total Allowance for Credit Losses	$	173.8				$	172.5
Allowance Assigned to Loans and Leases to Total Loans and Leases	0.35		%			0.34		%

STATEMENTS OF CASH FLOWS

The following discusses the statement of cash flow activities for the three months ended March 31, 2022 and 2021.

TABLE 23: CASH FLOW ACTIVITY SUMMARY


	THREE MONTHS ENDED MARCH 31,
(In Millions)	2022		2021
Net cash provided by (used in):
Operating activities	$	746.9	$	68.3
Investing activities	10,325.6		5,133.7
Financing activities	(10,316.6)		(4,905.6)
Effect of Foreign Currency Exchange Rates on Cash	(29.5)		(101.5)
Change in Cash and Due from Banks	$	726.4	$	194.9

Operating Activities

Net cash provided by operating activities of $746.9 million for the three months ended March 31, 2022 was primarily attributable to net changes in other operating activities, period earnings, decrease in receivables and the impact of lower non-cash charges such as depreciation and amortization, partially offset by higher net collateral deposited with derivative counterparties.

Net cash provided by operating activities of $68.3 million for the three months ended March 31, 2021 was primarily attributable to period earnings, the impact of lower non-cash charges such as amortization and net changes in other operating activities, partially offset by higher net collateral deposited with derivative counterparties.

Investing Activities

Net cash provided by investing activities of $10.3 billion for the three months ended March 31, 2022 was primarily attributable to decreased levels of Federal Reserve and other central bank deposits, net proceeds associated with HTM debt securities and lower levels of loans and leases, partially offset by higher levels of interest-bearing deposits with banks and securities purchased under agreements to resell.

Net cash provided by investing activities of $5.1 billion for the three months ended March 31, 2021 was primarily attributable to decreased levels of Federal Reserve and other central bank deposits, partially offset by net purchases of debt securities available for sale, client security settlement receivables, and interest-bearing deposits with banks.

STATEMENTS OF CASH FLOWS (continued)

Financing Activities

Net cash used in financing activities of $10.3 billion for the three months ended March 31, 2022 was primarily attributable to the decreased levels of total deposits and securities sold under agreements to repurchase. The decrease in total deposits was primarily attributable to lower levels of interest-bearing non-U.S office client deposits, savings, money market and other interest-bearing deposits, and non-U.S. office noninterest-bearing deposits, partially offset by increased domestic noninterest-bearing deposits.

Net cash used in financing activities of $4.9 billion for the three months ended March 31, 2021 was primarily attributable to the decreased levels of total deposits, partially offset by increased levels of short-term borrowings. The decrease in total deposits was primarily attributable to lower levels of interest-bearing non-U.S. office client deposits, and savings, money market and other interest-bearing deposits, partially offset by increased non-U.S. and domestic noninterest-bearing deposits.

CAPITAL RATIOS

The capital ratios of Northern Trust Corporation and its principal subsidiary, The Northern Trust Company, remained strong at March 31, 2022, exceeding the requirements for classification as “well-capitalized” under applicable U.S. regulatory requirements.

The results of the 2021 Dodd-Frank Act Stress Test, published by the Federal Reserve on June 24, 2021, resulted in Northern Trust’s stress capital buffer and effective Common Equity Tier 1 capital ratio minimum requirement remaining at 2.5% for the annual Capital Plan cycle beginning on October 1, 2021.

An increase in accumulated other comprehensive loss, which was primarily due to an increase in net unrealized losses on the available for sale debt securities portfolio largely from rising interest rates, contributed to the current quarter’s change in capital ratios from the prior period.

The table below provides capital ratios, as well as the required minimum capital ratios, for Northern Trust Corporation and The Northern Trust Company determined by Basel III phased-in requirements.

TABLE 24: REGULATORY CAPITAL RATIOS


Capital Ratios — Northern Trust Corporation	MARCH 31, 2022				DECEMBER 31, 2021				MARCH 31, 2021
STANDARDIZED APPROACH	ADVANCED APPROACH		STANDARDIZED APPROACH		ADVANCED APPROACH		STANDARDIZED APPROACH		ADVANCED APPROACH		WELL-CAPITALIZED RATIOS		MINIMUM CAPITAL RATIOS
Common Equity Tier 1 Capital	11.4	%	12.1	%	11.9	%	13.2	%	12.0	%	12.8	%	N/A	4.5	%
Tier 1 Capital	12.4		13.2		12.9		14.3		13.0		14.0		6.0	6.0
Total Capital	13.6		14.2		14.1		15.3		14.5		15.2		10.0	8.0
Tier 1 Leverage	6.5		6.5		6.9		6.9		6.9		6.9		N/A	4.0
Supplementary Leverage(1)	N/A		7.9		N/A		8.2		N/A		8.1		N/A	3.0


Capital Ratios — The Northern Trust Company	MARCH 31, 2022				DECEMBER 31, 2021				MARCH 31, 2021
STANDARDIZED APPROACH	ADVANCED APPROACH		STANDARDIZED APPROACH		ADVANCED APPROACH		STANDARDIZED APPROACH		ADVANCED APPROACH		WELL-CAPITALIZED RATIOS		MINIMUM CAPITAL RATIOS
Common Equity Tier 1 Capital	11.7	%	12.6	%	12.0	%	13.5	%	12.1	%	13.2	%	6.5	%	4.5	%
Tier 1 Capital	11.7		12.6		12.0		13.5		12.1		13.2		8.0		6.0
Total Capital	12.6		13.4		13.0		14.4		13.4		14.3		10.0		8.0
Tier 1 Leverage	6.1		6.1		6.4		6.4		6.4		6.4		5.0		4.0
Supplementary Leverage(1)	N/A		7.4		N/A		7.6		N/A		7.4		3.0		3.0

(1) In November 2019, the Federal Reserve and other U.S. federal banking agencies adopted a final rule that established a deduction for central bank deposits from the total leverage exposures of custodial banking organizations, including the Corporation and the Bank, equal to the lesser of (i) the total amount of funds the custodial banking organization and its consolidated subsidiaries have on deposit at qualifying central banks and (ii) the total amount of client funds on deposit at the custodial banking organization that are linked to fiduciary or custodial and safekeeping accounts. The rule became effective on April 1, 2020. The supplementary leverage ratios at March 31, 2022, December 31, 2021 and March 31, 2021 for the Northern Trust Corporation and The Northern Trust Company reflect the impact of this final rule.

RECENT ACCOUNTING PRONOUNCEMENTS AND DEVELOPMENTS

In March 2022, the Financial Accounting Standards Board (FASB) issued ASU No. 2022-01, “Derivatives and Hedging (Topic 815): Fair Value Hedging—Portfolio Layer Method” (ASU 2022-01). The amendments in ASU 2022-01 expand the current last-of-layer hedging model from a single-layer method to allow multiple hedged layers of a single closed portfolio. To reflect that expansion, the last-of-layer method is renamed the portfolio layer method. In addition, ASU 2022-01 (1) expands the scope of the portfolio layer method to include non-prepayable assets, (2) specifies eligible hedging instruments in a single-layer hedge, (3) provides additional guidance on the accounting for and disclosure of hedge basis adjustments under the portfolio layer method and (4) specifies how hedge basis adjustments should be considered when determining credit losses for the assets included in the closed portfolio. ASU 2022-01 is effective for interim and annual periods beginning after December 15, 2022, although early adoption is permitted. Upon adoption, ASU 2022-01 is not expected to have a significant impact on Northern Trust’s consolidated financial condition or results of operations.

In March 2022, the Financial Accounting Standards Board (FASB) issued ASU No. 2022-02, “Financial Instruments—Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures” (ASU 2022-02). The amendments in ASU 2022-02 eliminate the accounting guidance for troubled debt restructurings (“TDRs”) for creditors that have adopted CECL while enhancing disclosure requirements for certain loan refinancings and restructurings made to borrowers experiencing financial difficulty. In addition, ASU 2022-02 requires that a public business entity disclose current-period gross write-offs by year of origination for financing receivables and net investment in leases. ASU 2022-02 is effective for interim and annual periods beginning after December 15, 2022, although early adoption is permitted. Northern Trust is currently assessing the impact of adoption of ASU 2022-02.

MARKET RISK MANAGEMENT

There are two types of market risk, interest rate risk associated with the banking book and trading risk. Interest rate risk associated with the banking book is the potential for movements in interest rates to cause changes in net interest income and the market value of equity. Trading risk is the potential for movements in market variables such as foreign exchange and interest rates to cause changes in the value of trading positions.

Northern Trust uses two primary measurement techniques to manage interest rate risk: Net Interest Income (NII) sensitivity and Market Value of Equity (MVE) sensitivity. NII sensitivity provides management with a short-term view of the impact of interest rate changes on NII. MVE sensitivity provides management with a long-term view of interest rate changes on MVE based on the period-end balance sheet.

As part of its risk management activities, Northern Trust also measures daily the risk of loss associated with all non-U.S. currency positions using a Value-at-Risk (VaR) model and applying the historical simulation methodology. The following information about Northern Trust’s management of market risk should be read in conjunction with the Annual Report on Form 10-K for the year ended December 31, 2021.

NII Sensitivity — The modeling of NII sensitivity incorporates on-balance-sheet positions, as well as derivative financial instruments (principally interest rate swaps) that are used to manage interest rate risk. Northern Trust uses market implied forward interest rates as the base case and measures the sensitivity (i.e., change) of a static balance sheet to changes in interest rates. Stress testing of interest rates is performed to include such scenarios as immediate parallel shocks to rates, nonparallel (i.e., twist) changes to yield curves that result in their becoming steeper or flatter, and changes to the relationship among the yield curves (i.e., basis risk).

The NII sensitivity analysis incorporates certain critical assumptions such as interest rates and client behaviors under changing rate environments. These assumptions are based on a combination of historical analysis and future expected pricing behavior. The simulation cannot precisely estimate NII sensitivity given uncertainty in the assumptions. The following key assumptions are incorporated into the simulation:

▪the balance sheet size and mix remains constant over the simulation horizon with maturing assets and liabilities replaced with instruments with similar terms as those that are maturing, with the exception of certain nonmaturity deposits that are considered short-term in nature and therefore receive a more conservative interest-bearing treatment;

▪prepayments on mortgage loans and securities collateralized by mortgages are projected under each rate scenario using a third-party mortgage analytics system that incorporates market prepayment assumptions;

▪cash flows for structured securities are estimated using a third-party vendor in conjunction with the prepayments provided by the third-party mortgage analytics vendor;

▪nonmaturity deposit pricing is projected based on Northern Trust’s actual historical patterns and management judgment, depending upon the availability of historical data and current pricing strategies/or judgment; and

▪new business rates are based on current spreads to market indices.

MARKET RISK MANAGEMENT (continued)

The following table shows the estimated NII impact over the next twelve months of 100 and 200 basis point ramps upward and 100 basis point ramp downward movements in interest rates relative to forward rates. Each rate movement is assumed to occur gradually over a one-year period.

TABLE 25: NET INTEREST INCOME SENSITIVITY AS OF MARCH 31, 2022


($ In Millions)	INCREASE (DECREASE) ESTIMATED IMPACT ON NEXT TWELVE MONTHS OF NET INTEREST INCOME
Increase in Interest Rates Above Market Implied Forward Rates
100 Basis Points	$	107
200 Basis Points	234
Decrease in Interest Rates Below Market Implied Forward Rates
100 Basis Points	$	(154)

The NII sensitivity analysis does not incorporate certain management actions that may be used to mitigate adverse effects of actual interest rate movement. For that reason and others, the estimated impacts do not reflect the likely actual results but serve as estimates of interest rate risk. NII sensitivity is not comparable to actual results disclosed elsewhere or directly predictive of future values of other measures provided.

MVE Sensitivity — MVE is defined as the present value of assets minus the present value of liabilities, net of the value of financial derivatives that are used to manage the interest rate risk of balance sheet items. The potential effect of interest rate changes on MVE is derived from the impact of such changes on projected future cash flows and the present value of these cash flows and is then compared to the established limit. Northern Trust uses current market rates (and the future rates implied by these market rates) as the base case and measures MVE sensitivity under various rate scenarios. Stress testing of interest rates is performed to include such scenarios as immediate parallel shocks to rates, nonparallel (i.e., twist) changes to yield curves that result in their becoming steeper or flatter, and changes to the relationship among the yield curves (i.e., basis risk).

The MVE sensitivity analysis incorporates certain critical assumptions such as interest rates and client behaviors under changing rate environments. These assumptions are based on a combination of historical analysis and future expected pricing behavior. The simulation cannot precisely estimate MVE sensitivity given uncertainty in the assumptions. Many of the assumptions that apply to NII sensitivity also apply to MVE sensitivity simulations, with the following separate key assumptions incorporated into the MVE simulation:

▪the present value of nonmaturity deposits are estimated using dynamic decay methodologies or estimated remaining lives, which are based on a combination of Northern Trust’s actual historical runoff patterns and management judgment—some balances are assumed to be core and have longer lives while other balances are assumed to be temporary and have comparatively shorter lives;

▪the present values of most noninterest-related balances (such as receivables, equipment, and payables) are the same as their book values; and

▪Monte Carlo simulation is used to generate forward interest rate paths.

The following table shows the estimated impact on MVE of 100 and 200 basis point shocks up and a 100 basis point shock down from current market implied forward rates.

TABLE 26: MARKET VALUE OF EQUITY SENSITIVITY AS OF MARCH 31, 2022


($ In Millions)	INCREASE (DECREASE) ESTIMATED IMPACT ON MARKET VALUE OF EQUITY
Increase in Interest Rates Above Market Implied Forward Rates
100 Basis Points	$	(329)
200 Basis Points	(859)
Decrease in Interest Rates Below Market Implied Forward Rates
100 Basis Points	$	(40)

The MVE simulations do not incorporate certain management actions that may be used to mitigate adverse effects of actual interest rate movements. For that reason and others, the estimated impacts do not reflect the likely actual results but serve as estimates of interest rate risk. MVE sensitivity is not comparable to actual results disclosed elsewhere or directly predictive of future values of other measures provided.

Foreign Currency Value-At-Risk (VaR) — Northern Trust measures daily the risk of loss associated with all non-U.S. currency positions using a VaR model and applying the historical simulation methodology. This statistical model provides

MARKET RISK MANAGEMENT (continued)

estimates, based on high confidence levels, of the potential loss in value that might be incurred if an adverse shift in non-U.S. currency exchange rates and interest rates were to occur over a small number of days. The model incorporates foreign currency and interest rate volatilities and correlations in price movements among the currencies. VaR is computed for each trading desk and for the global portfolio.

Northern Trust monitors several variations of the global foreign exchange (GFX) VaR measures to meet specific regulatory and internal management needs. Variations include different methodologies (historical simulation, Monte Carlo simulation and Taylor approximation), horizons of one day and ten days, confidence levels of 95% and 99%, subcomponent VaRs using only foreign exchange (FX) drivers and only interest rate (IR) drivers, and look-back periods of one year, two years, and four years. Those alternative measures provide management an array of corroborating metrics and alternative perspectives on Northern Trust’s market risks.

During the three months ended March 31, 2022 and December 31, 2021, Northern Trust did not incur an actual GFX trading loss in excess of the daily GFX VaR estimate.

The following table presents the levels of total regulatory VaR and its subcomponents for GFX in the periods indicated below, based on the historical simulation methodology, a 99% confidence level, a one-day horizon and equally-weighted volatility. The total VaR for GFX is typically less than the sum of its two subcomponents due to diversification benefits derived from the two subcomponents.

TABLE 27: GLOBAL FOREIGN CURRENCY VALUE-AT-RISK


($ In Millions)	TOTAL VaR (FX AND IR DRIVERS)				FX VaR (FX DRIVERS ONLY)				IR VaR (IR DRIVERS ONLY)
THREE MONTHS ENDED	MARCH 31, 2022		DECEMBER 31, 2021		MARCH 31, 2022		DECEMBER 31, 2021		MARCH 31, 2022		DECEMBER 31, 2021
High	$	0.2	$	0.3	$	0.2	$	0.2	$	0.3	$	0.2
Low	0.1		0.1		—		—		—		—
Average	0.1		0.2		0.1		0.1		0.1		0.1
Quarter-End	0.2		0.1		0.1		0.1		0.1		0.1

RECONCILIATION TO FULLY TAXABLE EQUIVALENT

The following table presents a reconciliation of interest income, net interest income, net interest margin, and total revenue prepared in accordance with GAAP to such measures on an FTE basis, which are non-GAAP financial measures. Net interest margin is calculated by dividing annualized net interest income by average interest-earning assets. Management believes this presentation provides a clearer indication of these financial measures for comparative purposes. When adjusted to an FTE basis, yields on taxable, nontaxable and partially taxable assets are comparable; however, the adjustment to an FTE basis has no impact on net income.

TABLE 28: RECONCILIATION TO FULLY TAXABLE EQUIVALENT


	THREE MONTHS ENDED MARCH 31,
($ In Millions)	2022			2021
Net Interest Income
Interest Income - GAAP	$	383.5		$	349.9
Add: FTE Adjustment	6.7			6.6
Interest Income (FTE) - Non-GAAP	$	390.2		$	356.5

Net Interest Income - GAAP	$	381.0		$	340.1
Add: FTE Adjustment	6.7			6.6
Net Interest Income (FTE) - Non-GAAP	$	387.7		$	346.7

Net Interest Margin - GAAP	1.03		%	0.98		%
Net Interest Margin (FTE) - Non-GAAP	1.05		%	1.00		%

Total Revenue
Total Revenue - GAAP	$	1,718.7		$	1,583.4
Add: FTE Adjustment	6.7			6.6
Total Revenue (FTE) - Non-GAAP	$	1,725.4		$	1,590.0

FORWARD-LOOKING STATEMENTS

This report may include statements which constitute “forward-looking statements” within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are identified typically by words or phrases such as “believe,” “expect,” “anticipate,” “intend,” “estimate,” “project,” “likely,” “plan,” “goal,” “target,” “strategy,” and similar expressions or future or conditional verbs such as “may,” “will,” “should,” “would,” and “could.” Forward-looking statements include statements, other than those related to historical facts, that relate to Northern Trust’s financial results and outlook; capital adequacy; dividend policy and share repurchase program; accounting estimates and assumptions; credit quality including allowance levels; future pension plan contributions; effective tax rate; anticipated expense levels; contingent liabilities; acquisitions; strategies; market and industry trends; and expectations regarding the impact of accounting pronouncements and legislation. These statements are based on Northern Trust’s current beliefs and expectations of future events or future results, and involve risks and uncertainties that are difficult to predict and subject to change. These statements are also based on assumptions about many important factors, including:

financial market disruptions or economic recession in the United States or other countries across the globe resulting from any of a number of factors;
volatility or changes in financial markets, including debt and equity markets, that impact the value, liquidity, or credit ratings of financial assets in general, or financial assets held in particular investment funds or client portfolios, including those funds, portfolios, and other financial assets with respect to which Northern Trust has taken, or may in the future take, actions to provide asset value stability or additional liquidity;
the impact of equity markets on fee revenue;
geopolitical risks, risks related to global climate change and the risks of extraordinary events such as pandemics, natural disasters, terrorist events and war (including current events involving Ukraine and the Russian Federation), and the responses of the United States and other countries to those events;
the downgrade of U.S. government-issued and other securities;
changes in foreign exchange trading client volumes and volatility in foreign currency exchange rates, changes in the valuation of the U.S. dollar relative to other currencies in which Northern Trust records revenue or accrues expenses, and Northern Trust’s success in assessing and mitigating the risks arising from all such changes and volatility;
a decline in the value of securities held in Northern Trust’s investment portfolio, particularly asset-backed securities, the liquidity and pricing of which may be negatively impacted by periods of economic turmoil and financial market disruptions;
Northern Trust’s ability to address operating risks, including those related to cybersecurity, data security, human errors or omissions, pricing or valuation of securities, fraud, operational resiliency (including systems performance), failure to maintain sustainable business practices, and breakdowns in processes or internal controls;
Northern Trust’s success in responding to and investing in changes and advancements in technology;
a significant downgrade of any of Northern Trust’s debt ratings;
the health and soundness of the financial institutions and other counterparties with which Northern Trust conducts business;
uncertainties inherent in the complex and subjective judgments required to assess credit risk and establish appropriate allowances therefor;
the effectiveness of Northern Trust’s management of its human capital, including its success in recruiting and retaining necessary and diverse personnel to support business growth and expansion and maintain sufficient expertise to support increasingly complex products and services;
Northern Trust’s success in controlling the costs and expenses of its business operations and the impacts of any broader inflationary environment thereon;
the transition away from the London Interbank Offered Rate (LIBOR) or changes in the calculation of alternative interest rate benchmarks;
the pace and extent of continued globalization of investment activity and growth in worldwide financial assets;
changes in interest rates or in the monetary or other policies of various regulatory authorities or central banks;
changes in the legal, regulatory and enforcement framework and oversight applicable to financial institutions, including Northern Trust;
increased costs of compliance and other risks associated with changes in regulation, the current regulatory environment, and areas of increased regulatory emphasis and oversight in the United States and other countries, such as anti-money laundering, anti-bribery, and data privacy;
failure to satisfy regulatory standards or to obtain regulatory approvals when required, including for the use and distribution of capital;
changes in tax laws, accounting requirements or interpretations and other legislation in the United States or other countries that could affect Northern Trust or its clients;
the impact of the ongoing COVID-19 pandemic—and governmental and societal responses thereto—on Northern Trust’s business, financial condition, and results of operations;
the departure of the United Kingdom from the European Union, commonly referred to as “Brexit;”
changes in the nature and activities of Northern Trust’s competition;

FORWARD-LOOKING STATEMENTS (continued)

Northern Trust’s success in maintaining existing business and continuing to generate new business in existing and targeted markets and its ability to deploy deposits in a profitable manner consistent with its liquidity requirements;
Northern Trust’s ability to address the complex needs of a global client base and manage compliance with legal, tax, regulatory and other requirements;
Northern Trust’s ability to maintain a product mix that achieves acceptable margins;
Northern Trust’s ability to continue to generate investment results that satisfy clients and to develop an array of investment products;
uncertainties inherent in Northern Trust’s assumptions concerning its pension plan, including discount rates and expected contributions, returns and payouts;
Northern Trust’s success in continuing to enhance its risk management practices and controls and managing risks inherent in its businesses, including credit risk, operational risk, market and liquidity risk, fiduciary risk, compliance risk and strategic risk;
risks and uncertainties inherent in the litigation and regulatory process, including the possibility that losses may be in excess of Northern Trust’s recorded liability and estimated range of possible loss for litigation exposures;
risks associated with being a holding company, including Northern Trust’s dependence on dividends from its principal subsidiary;
the risk of damage to Northern Trust’s reputation which may undermine the confidence of clients, counterparties, rating agencies, and stockholders; and
other factors identified elsewhere in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2021, including those factors described in Item 1A, “Risk Factors,” and other filings with the SEC, all of which are available on Northern Trust’s website.

Actual results may differ materially from those expressed or implied by forward-looking statements. The information contained herein is current only as of the date of that information. All forward-looking statements included in this document are based upon information presently available, and Northern Trust assumes no obligation to update its forward-looking statements.

Next: Item 1. Consolidated Financial Statements (unaudited)