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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 June 30, 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 June 30, 2022, 208,386,524 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 JUNE 30, 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)			37
Consolidated Balance Sheets			37
Consolidated Statements of Income			38
Consolidated Statements of Comprehensive Income			38
Consolidated Statements of Changes in Stockholders’ Equity			39
Consolidated Statements of Cash Flows			40
Notes to Consolidated Financial Statements			41
Item 4: Controls and Procedures			86

Part II – Other Information
Item 1: Legal Proceedings			87
Item 2: Unregistered Sales of Equity Securities and Use of Proceeds			87
Item 6: Exhibits			87

Signatures			88

CONSOLIDATED FINANCIAL HIGHLIGHTS

(UNAUDITED)


	THREE MONTHS ENDED JUNE 30,						SIX MONTHS ENDED JUNE 30,
CONDENSED INCOME STATEMENTS ($ In Millions)	2022		2021		% CHANGE(1)		2022		2021		% CHANGE(1)
Noninterest Income	$	1,310.0	$	1,244.7	5	%	$	2,647.7	$	2,488.0	6	%
Net Interest Income	458.7		335.6		37		839.7		675.7		24
Total Revenue	1,768.7		1,580.3		12		3,487.4		3,163.7		10
Provision for Credit Losses	4.5		(27.0)		N/M		6.5		(57.0)		N/M
Noninterest Expense	1,223.6		1,120.8		9		2,429.5		2,238.3		9
Income before Income Taxes	540.6		486.5		11		1,051.4		982.4		7
Provision for Income Taxes	144.4		118.4		22		265.9		239.2		11
Net Income	$	396.2	$	368.1	8	%	$	785.5	$	743.2	6	%


PER COMMON SHARE
Net Income — Basic	$	1.86	$	1.73	8	%	$	3.64	$	3.44	6	%
— Diluted	1.86		1.72		8		3.63		3.42		6
Cash Dividends Declared Per Common Share	0.70		0.70		—		1.40		1.40		—
Book Value — End of Period (EOP)	48.87		52.49		(7)		48.87		52.49		(7)
Market Price — EOP	96.48		115.62		(17)		96.48		115.62		(17)


SELECTED BALANCE SHEET DATA ($ In Millions)	JUNE 30, 2022		DECEMBER 31, 2021		% CHANGE(1)
End of Period:
Total Assets	$	157,786.3	$	183,889.8	(14)	%
Earning Assets	142,184.7		172,276.0		(17)
Deposits	133,674.6		159,928.4		(16)
Stockholders’ Equity	11,069.7		12,016.8		(8)


	THREE MONTHS ENDED JUNE 30,						SIX MONTHS ENDED JUNE 30,
	2022		2021		% CHANGE(1)		2022		2021		% CHANGE(1)
Average Balances:
Total Assets	$	154,084.1	$	154,300.1	—	%	$	158,091.3	$	153,780.8	3	%
Earning Assets	139,901.5		142,024.4		(1)		144,807.8		141,310.4		2
Deposits	129,393.8		127,997.5		1		133,921.8		127,211.2		5
Stockholders’ Equity	10,907.0		11,551.0		(6)		11,207.5		11,544.2		(3)


CLIENT ASSETS ($ In Billions)	JUNE 30, 2022		DECEMBER 31, 2021		% CHANGE(1)
Assets Under Custody/Administration(2)	$	13,733.7	$	16,248.8	(15)	%
Assets Under Custody	10,684.2		12,612.3		(15)
Assets Under Management	1,302.8		1,607.1		(19)

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 JUNE 30,				SIX MONTHS ENDED JUNE 30,
	2022		2021		2022		2021
Financial Ratios:
Return on Average Common Equity	15.7	%	13.7	%	14.9	%	13.7	%
Return on Average Assets	1.03		0.96		1.00		0.97
Dividend Payout Ratio	37.6		40.7		38.6		40.9
Net Interest Margin(1)	1.35		0.97		1.19		0.99


	JUNE 30, 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	10.5	%	11.6	%	11.9	%	13.2	%	N/A		4.5	%
Tier 1 Capital	11.5		12.7		12.9		14.3		6.0		6.0
Total Capital	12.6		13.7		14.1		15.3		10.0		8.0
Tier 1 Leverage	6.7		6.7		6.9		6.9		N/A		4.0
Supplementary Leverage	N/A		7.6		N/A		8.2		N/A		3.0

The Northern Trust Company
Common Equity Tier 1 Capital	11.0	%	12.3	%	12.0	%	13.5	%	6.5	%	4.5	%
Tier 1 Capital	11.0		12.3		12.0		13.5		8.0		6.0
Total Capital	11.9		13.1		13.0		14.4		10.0		8.0
Tier 1 Leverage	6.3		6.3		6.4		6.4		5.0		4.0
Supplementary Leverage	N/A		7.2		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 second 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.

SECOND 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.

Overview of Financial Results

Net Income per diluted common share increased in the current quarter to $1.86 from $1.72 in the second quarter of 2021. Net Income increased $28.1 million, or 8%, to $396.2 million in the current quarter from $368.1 million in the prior-year quarter. Annualized return on average common equity was 15.7% in the current quarter and 13.7% in the prior-year quarter. The annualized return on average assets was 1.03% in the current quarter as compared to 0.96% in the prior-year quarter.

Revenue increased $188.4 million, or 12%, to $1.77 billion in the current quarter from $1.58 billion in the prior-year quarter.

Beginning in the first quarter of 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 $17.3 million, with a $6.9 million decrease in Other Operating Income and a $10.4 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-year amounts have not been reclassified.

Trust, Investment and Other Servicing Fees increased $68.0 million, or 6%, from $1.08 billion in the prior-year quarter to $1.14 billion in the current quarter, primarily due to lower money market fund fee waivers, the accounting reclassification previously discussed, and new business, partially offset by unfavorable currency translation.

Net Interest Income increased $123.1 million, or 37%, to $458.7 million in the current quarter as compared to $335.6 million in the prior-year quarter, primarily due to a higher net interest margin, a favorable balance sheet mix shift and nonrecurring interest received from certain nonaccrual loans.

There was a $4.5 million provision in the current quarter, as compared to a $27.0 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 a collective basis, partially offset by recoveries in the current quarter. The reserve evaluated on a collective basis relates to pooled financial assets sharing similar risk characteristics. The increase in the collective basis reserve was primarily driven by recent market conditions and a higher risk of recession as compared to the previous period, partially offset by improvements in credit quality mainly within the commercial real estate and commercial and institutional portfolios.

Noninterest Expense increased $102.8 million, or 9%, from $1.12 billion in the prior-year quarter to $1.22 billion in the current quarter, primarily attributable to higher Compensation, Equipment and Software expense, and Other Operating Expense, partially offset by lower Outside Services.

The Provision for Income Taxes in the current quarter totaled $144.4 million, representing an effective tax rate of 26.7%. The Provision for Income Taxes in the prior-year quarter totaled $118.4 million, representing an effective tax rate of 24.3%. The

SECOND QUARTER CONSOLIDATED RESULTS OF OPERATIONS (continued)

Overview of Financial Results (continued)

effective tax rate increased compared to the prior-year quarter primarily due to a higher net tax impact from international operations, which includes a change in the earnings mix in tax jurisdictions in which the Corporation operates, limitations on the U.S. foreign tax credit, and reserves for uncertain tax positions, partially offset by the deferred tax impact of the UK statutory tax rate increase enacted in the prior-year quarter.

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.

Northern Trust voluntarily waived $8.6 million of money market fund fees for the three months ended June 30, 2022 and $79.8 million of money market fund fees for the three months ended June 30, 2021.

Beginning in the first quarter of 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 accounting reclassification increased Trust, Investment and Other Servicing Fees in the current quarter by $17.3 million, with a $6.9 million decrease in Other Operating Income and a $10.4 million increase in Other Operating Expense. Prior-year 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 JUNE 30,
($ In Millions)	2022		2021		CHANGE
Asset Servicing Trust, Investment and Other Servicing Fees
Custody and Fund Administration	$	433.8	$	454.9	$	(21.1)	(5)	%
Investment Management	148.4		100.7		47.7		47
Securities Lending	21.6		19.5		2.1		11
Other	38.9		36.4		2.5		7
Total Asset Servicing Trust, Investment and Other Servicing Fees	$	642.7	$	611.5	$	31.2	5	%
Wealth Management Trust, Investment and Other Servicing Fees
Central	$	177.4	$	174.3	$	3.1	2	%
East	128.1		127.2		0.9		1
West	98.7		93.8		4.9		5
Global Family Office	96.5		68.6		27.9		41
Total Wealth Management Trust, Investment and Other Servicing Fees	$	500.7	$	463.9	$	36.8	8	%
Total Consolidated Trust, Investment and Other Servicing Fees	$	1,143.4	$	1,075.4	$	68.0	6	%

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 decreased from the prior-year quarter, primarily due to unfavorable currency translation, partially offset by new business.

Investment Management fees increased from the prior-year quarter, primarily due to lower money market fund fee waivers and the accounting reclassification previously discussed, partially offset by client outflows.

SECOND QUARTER CONSOLIDATED RESULTS OF OPERATIONS (continued)

Trust, Investment and Other Servicing Fees (continued)

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 lower money market fund fee waivers and new business. Global Family Office fee income increased from the prior-year quarter, primarily due to lower money market fund fee waivers, new business and favorable markets.

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 JUNE 30,				AS OF JUNE 30,
	2022	2021	CHANGE		2022	2021	CHANGE
S&P 500	4,112	4,180	(2)	%	3,785	4,298	(12)	%
MSCI EAFE (U.S. dollars)	2,001	2,306	(13)		1,846	2,305	(20)
MSCI EAFE (local currency)	1,253	1,286	(3)		1,188	1,305	(9)

TABLE 3: FIXED INCOME MARKET INDICES


	AS OF JUNE 30,
	2022	2021	CHANGE
Barclays Capital U.S. Aggregate Bond Index	2,111	2,354	(10)	%
Barclays Capital Global Aggregate Bond Index	458	541	(15)

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


	JUNE 30, 2022		MARCH 31, 2022		JUNE 30, 2021		CHANGE Q2-22/Q1-22		CHANGE Q2-22/Q2-21
($ In Billions)
Asset Servicing	$	12,812.2	$	14,513.0	$	14,754.1	(12)	%	(13)	%
Wealth Management	921.5		1,031.1		973.0		(11)		(5)
Total Assets Under Custody / Administration	$	13,733.7	$	15,544.1	$	15,727.1	(12)	%	(13)	%

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


	JUNE 30, 2022		MARCH 31, 2022		JUNE 30, 2021		CHANGE Q2-22/Q1-22		CHANGE Q2-22/Q2-21
($ In Billions)
Asset Servicing	$	9,771.2	$	10,987.5	$	11,260.8	(11)	%	(13)	%
Wealth Management	913.0		1,022.9		967.8		(11)		(6)
Total Assets Under Custody	$	10,684.2	$	12,010.4	$	12,228.6	(11)	%	(13)	%

Consolidated assets under custody decreased from the prior quarter, primarily reflecting the impact of unfavorable markets and unfavorable currency translation. Consolidated assets under custody decreased compared to the prior-year quarter, primarily reflecting the impact of unfavorable markets, unfavorable currency translation and net outflows.

SECOND QUARTER CONSOLIDATED RESULTS OF OPERATIONS (continued)

Trust, Investment and Other Servicing Fees (continued)

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

TABLE 6: ALLOCATION OF ASSETS UNDER CUSTODY


	JUNE 30, 2022						MARCH 31, 2022						JUNE 30, 2021
	ASSET SERVICING		WM		TOTAL		ASSET SERVICING		WM		TOTAL		ASSET SERVICING		WM		TOTAL
Equities	44	%	56	%	45	%	46	%	60	%	47	%	47	%	64	%	48	%
Fixed Income Securities	35		15		33		34		14		33		35		14		33
Cash and Other Assets	19		29		20		18		26		19		16		22		17
Securities Lending Collateral	2		—		2		2		—		1		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)	JUNE 30, 2022		MARCH 31, 2022		JUNE 30, 2021		CHANGE Q2-22/Q1-22		CHANGE Q2-22/Q2-21
Equities	$	4,785.5	$	5,677.7	$	5,951.0	(16)	%	(20)	%
Fixed Income Securities	3,513.8		3,909.4		4,029.6		(10)		(13)
Cash and Other Assets	2,215.6		2,246.1		2,048.7		(1)		8
Securities Lending Collateral	169.3		177.2		199.3		(4)		(15)
Total Assets Under Custody	$	10,684.2	$	12,010.4	$	12,228.6	(11)	%	(13)	%

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

TABLE 8: ASSETS UNDER MANAGEMENT BY REPORTING SEGMENT


	JUNE 30, 2022		MARCH 31, 2022		JUNE 30, 2021		CHANGE Q2-22/Q1-22		CHANGE Q2-22/Q2-21
($ In Billions)
Asset Servicing	$	950.0	$	1,091.6	$	1,168.3	(13)	%	(19)	%
Wealth Management	352.8		396.2		371.1		(11)		(5)
Total Assets Under Management	$	1,302.8	$	1,487.8	$	1,539.4	(12)	%	(15)	%

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


	JUNE 30, 2022						MARCH 31, 2022						JUNE 30, 2021
	ASSET SERVICING		WM		TOTAL		ASSET SERVICING		WM		TOTAL		ASSET SERVICING		WM		TOTAL
Equities	50	%	52	%	51	%	54	%	55	%	54	%	53	%	57	%	54	%
Fixed Income Securities	12		23		15		11		21		14		11		22		14
Cash and Other Assets	20		25		21		19		24		20		19		21		19
Securities Lending Collateral	18		—		13		16		—		12		17		—		13

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

TABLE 10: ASSETS UNDER MANAGEMENT BY INVESTMENT TYPE


($ In Billions)	JUNE 30, 2022		MARCH 31, 2022		JUNE 30, 2021		CHANGE Q2-22/Q1-22		CHANGE Q2-22/Q2-21
Equities	$	664.1	$	800.9	$	827.8	(17)	%	(20)	%
Fixed Income Securities	194.9		204.4		214.9		(5)		(9)
Cash and Other Assets	274.5		305.3		297.4		(10)		(8)
Securities Lending Collateral	169.3		177.2		199.3		(4)		(15)
Total Assets Under Management	$	1,302.8	$	1,487.8	$	1,539.4	(12)	%	(15)	%

SECOND QUARTER CONSOLIDATED RESULTS OF OPERATIONS (continued)

Trust, Investment and Other Servicing Fees (continued)

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)		JUNE 30, 2022		MARCH 31, 2022		DECEMBER 31, 2021		SEPTEMBER 30, 2021		JUNE 30, 2021
Beginning Balance of AUM		$	1,487.8	$	1,607.1	$	1,532.4	$	1,539.4	$	1,449.1
Inflows by Product
	Equities	51.4		59.1		54.7		82.0		72.0
	Fixed Income	11.8		13.0		18.6		16.7		13.1
	Cash and Other Assets	186.5		205.9		263.9		183.5		197.2
	Securities Lending Collateral	61.6		70.2		61.3		71.2		64.0
Total Inflows		311.3		348.2		398.5		353.4		346.3
Outflows by Product
	Equities	(60.6)		(72.0)		(57.6)		(102.1)		(72.9)
	Fixed Income	(14.8)		(15.6)		(15.2)		(15.6)		(10.6)
	Cash and Other Assets	(220.3)		(242.2)		(226.1)		(170.5)		(184.9)
	Securities Lending Collateral	(69.5)		(88.6)		(73.9)		(62.4)		(65.8)
Total Outflows		(365.2)		(418.4)		(372.8)		(350.6)		(334.2)
Net Inflows (Outflows)		(53.9)		(70.2)		25.7		2.8		12.1
Market Performance, Currency & Other
	Market Performance & Other	(118.5)		(45.3)		51.8		(5.9)		76.7
	Currency	(12.6)		(3.8)		(2.8)		(3.9)		1.5
Total Market Performance, Currency & Other		(131.1)		(49.1)		49.0		(9.8)		78.2
Ending Balance of AUM		$	1,302.8	$	1,487.8	$	1,607.1	$	1,532.4	$	1,539.4

Other Noninterest Income

The components of noninterest income are provided below.

TABLE 12: OTHER NONINTEREST INCOME


	THREE MONTHS ENDED JUNE 30,
($ In Millions)	2022		2021		CHANGE
Foreign Exchange Trading Income	$	77.6	$	70.6	$	7.0	10	%
Treasury Management Fees	10.6		11.3		(0.7)		(6)
Security Commissions and Trading Income	32.8		33.0		(0.2)		(1)
Other Operating Income	45.6		54.4		(8.8)		(16)
Investment Security Gains (Losses), net	—		—		—		N/M
Total Other Noninterest Income	$	166.6	$	169.3	$	(2.7)	(2)	%

N/M - Not meaningful

Beginning in the first quarter of 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-year amounts have not been reclassified.

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

Other Operating Income decreased compared to the prior-year quarter, primarily driven by lower miscellaneous income and the accounting reclassification previously discussed, partially offset by other nonrecurring items. The lower miscellaneous income was primarily associated with a market 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 17 — Other Operating Income to the consolidated financial statements provided in Item 1. Consolidated Financial Statements (unaudited) for further detail.

SECOND QUARTER CONSOLIDATED RESULTS OF OPERATIONS (continued)

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 MD&A.

SECOND 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)	SECOND 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)	$	59.2	$	36,708.4	0.65	%	$	1.2	$	37,424.5	0.01	%
Interest-Bearing Due from and Deposits with Banks(2)	6.5		4,227.6		0.62		2.7		6,736.7		0.16
Federal Funds Sold	—		2.2		0.75		—		0.1		0.41
Securities Purchased under Agreements to Resell(7)	7.0		1,149.3		2.47		0.9		1,011.5		0.34
Securities
U.S. Government	11.5		2,648.1		1.74		6.9		2,676.0		1.03
Obligations of States and Political Subdivisions	20.1		3,486.6		2.31		16.8		3,373.0		1.99
Government Sponsored Agency	84.6		22,468.3		1.51		73.4		24,520.5		1.20
Other(3)	89.9		28,464.0		1.27		76.8		30,000.0		1.03
Total Securities	206.1		57,067.0		1.45		173.9		60,569.5		1.15
Loans and Leases(4)	257.1		40,747.0		2.53		172.7		36,282.1		1.91
Total Interest-Earning Assets	535.9		139,901.5		1.54		351.4		142,024.4		0.99
Cash and Due from Banks and Other Central Bank Deposits(5)	—		2,559.1		—		—		2,402.5		—
Other Noninterest-Earning Assets	—		11,623.5		—		—		9,873.2		—
Total Assets	$	—	$	154,084.1	—	%	$	—	$	154,300.1	—	%
Average Source of Funds
Deposits
Savings, Money Market and Other	$	18.7	$	30,967.5	0.24	%	$	3.0	$	27,427.0	0.04	%
Savings Certificates and Other Time	1.1		792.3		0.58		1.1		898.9		0.49
Non-U.S. Offices — Interest-Bearing	3.4		63,900.7		0.02		(18.9)		69,202.4		(0.11)
Total Interest-Bearing Deposits	23.2		95,660.5		0.10		(14.8)		97,528.3		(0.06)
Federal Funds Purchased	2.8		922.8		1.22		(0.5)		195.3		(0.95)
Securities Sold under Agreements to Repurchase(7)	6.0		596.7		4.01		—		228.5		0.03
Other Borrowings	8.4		4,186.7		0.80		3.2		5,195.7		0.25
Senior Notes	18.9		2,885.1		2.65		13.8		3,022.9		1.82
Long-Term Debt	6.8		1,096.4		2.47		5.3		1,168.8		1.83
Floating Rate Capital Debt	—		—		—		0.5		277.8		0.76
Total Interest-Related Funds	66.1		105,348.2		0.25		7.5		107,617.3		0.03
Interest Rate Spread	—		—		1.29		—		—		0.96
Demand and Other Noninterest-Bearing Deposits	—		33,733.3		—		—		30,469.2		—
Other Noninterest-Bearing Liabilities	—		4,095.6		—		—		4,662.6		—
Stockholders’ Equity	—		10,907.0		—		—		11,551.0		—
Total Liabilities and Stockholders’ Equity	$	—	$	154,084.1	—	%	$	—	$	154,300.1	—	%
Net Interest Income/Margin (FTE Adjusted)	$	469.8	$	—	1.35	%	$	343.9	$	—	0.97	%
Net Interest Income/Margin (Unadjusted)	$	458.7	$	—	1.31	%	$	335.6	$	—	0.95	%

*(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.

*(7)*Includes the impact of balance sheet netting under master netting arrangements of approximately $2.8 billion for the three months ended June 30, 2022. Excluding the impact of netting, the average interest rate on Securities Purchased under Agreements to Resell would be approximately 0.72% for the three months ended June 30, 2022. Excluding the impact of netting, the average interest rate on Securities Sold under Agreements to Repurchase would be approximately 0.70% for the three months ended June 30, 2022. Beginning in the third quarter of 2021, Northern Trust became an approved Government Securities Division (GSD) netting and sponsoring member in the Fixed Income Clearing Corporation (FICC) sponsored member program, through which Northern Trust submits eligible repurchase and reverse repurchase transactions in U.S. Government securities between Northern Trust and its sponsored member clients for novation and clearing. Northern Trust nets securities sold under repurchase agreements against those purchased under resale agreements when FICC is the counterparty.

SECOND 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 JUNE 30, 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	$	—	$	58.0	$	58.0
Interest-Bearing Due from and Deposits with Banks	(1.3)		5.1		3.8

Securities Purchased under Agreements to Resell	0.1		6.0		6.1
Securities
U.S. Government	(0.1)		4.7		4.6
Obligations of States and Political Subdivisions	0.6		2.7		3.3
Government Sponsored Agency	(6.5)		17.7		11.2
Other	(4.7)		17.8		13.1
Total Securities	(10.7)		42.9		32.2
Loans and Leases	5.8		78.6		84.4
Total Interest Income	$	(6.1)	$	190.6	$	184.5

Interest-Bearing Deposits
Savings, Money Market and Other	$	0.4	$	15.3	$	15.7
Savings Certificates and Other Time	(0.1)		0.1		—
Non-U.S. Offices - Interest-Bearing	(2.7)		25.0		22.3
Total Interest-Bearing Deposits	(2.4)		40.4		38.0
Federal Funds Purchased	1.1		2.2		3.3
Securities Sold under Agreements to Repurchase	—		6.0		6.0
Other Borrowings	(0.7)		5.9		5.2
Senior Notes	(0.7)		5.8		5.1
Long-Term Debt	(0.3)		1.8		1.5
Floating Rate Capital Debt	(0.5)		—		(0.5)
Total Interest Expense	$	(3.5)	$	62.1	$	58.6
Increase (Decrease) in Net Interest Income (FTE)	$	(2.6)	$	128.5	$	125.9

*(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 $11.1 million and $8.3 million for the three months ended June 30, 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 MD&A. 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 a higher net interest margin, a favorable balance sheet mix shift and nonrecurring interest received from certain nonaccrual loans. Average earning assets decreased from the prior-year quarter, primarily due to lower levels of securities and short-term interest-bearing deposits with central banks and banks, partially offset by higher levels of loans. The decline in the size of the average balance sheet was primarily the result of lower levels of client deposits.

The net interest margin on an FTE basis increased from the prior-year quarter, primarily due to higher average interest rates, favorable balance sheet mix and nonrecurring interest received from certain nonaccrual loans.

Federal Reserve and Other Central Bank Deposits and Other averaged $36.7 billion and decreased $716.1 million, or 2%, from $37.4 billion in the prior-year quarter. Interest-Bearing Due from and Deposits with Banks averaged $4.2 billion and decreased $2.5 billion, or 37%, from $6.7 billion in the prior-year quarter. Average Securities were $57.1 billion and decreased $3.5 billion, or 6%, from $60.6 billion in the prior-year quarter and include certain community development investments, Federal Home Loan Bank stock, and Federal Reserve stock of $954.5 million, $84.6 million and $70.0 million, respectively, which are recorded in Other Assets on the consolidated balance sheets. Average taxable Securities were $54.4 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 $2.7 billion in the current quarter and $3.1 billion in the prior-year quarter.

SECOND QUARTER CONSOLIDATED RESULTS OF OPERATIONS (continued)

Net Interest Income (continued)

Loans and Leases averaged $40.7 billion and increased $4.4 billion, or 12%, from $36.3 billion in the prior-year quarter, primarily reflecting higher levels of commercial and institutional, non-U.S., commercial real estate, private client and residential real estate loans. Commercial and institutional loans averaged $12.3 billion and increased $2.5 billion, or 25%, from $9.8 billion for the prior-year quarter. Non-U.S. loans averaged $3.8 billion and increased $1.2 billion or 49%, from $2.6 billion for the prior-year quarter. Commercial real estate loans averaged $4.3 billion and increased $463.2 million, or 12%, from $3.8 billion for the prior-year quarter. Private client loans averaged $13.9 billion and increased $319.8 million, or 2%, from $13.5 billion for the prior-year quarter. Residential real estate loans averaged $6.3 billion and increased $144.3 million, or 2%, from $6.2 billion for the prior-year quarter.

Northern Trust utilizes a diverse mix of funding sources. Average Interest-Bearing Deposits decreased $1.8 billion, or 2%, to an average of $95.7 billion in the current quarter from $97.5 billion in the prior-year quarter. Other Average Interest-Related Funds decreased $401.3 million, or 4%, to an average of $9.7 billion in the current quarter from $10.1 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.

Interest expense for Interest-Bearing Deposits in the current quarter was driven by higher interest rates on Non-U.S. Offices Interest-Bearing Deposits as well as higher 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 June 30, 2022.

Provision for Credit Losses

There was a $4.5 million provision in the current quarter, as compared to a $27.0 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 a collective basis, partially offset by recoveries in the current quarter. The reserve evaluated on a collective basis relates to pooled financial assets sharing similar risk characteristics. The increase in the collective basis reserve was primarily driven by recent market conditions and a higher risk of recession as compared to the previous period, partially offset by improvements in credit quality mainly within the commercial real estate and commercial and institutional portfolios.

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 improvements in overall projected economic conditions at the time, as well as improved industry-specific conditions, partially offset by credit deterioration associated with a limited number of commercial real estate loans and overall portfolio growth.

Net recoveries in the current quarter were $5.5 million, reflecting $5.5 million of recoveries and de minimis charge-offs. The prior-year quarter included $3.2 million of net recoveries, reflecting $3.2 million of recoveries and de minimis charge-offs. Nonaccrual assets of $89.8 million decreased $16.9 million, or 16%, from $106.7 million at the end of the prior-year quarter.

For additional discussion of the allowance for credit losses, refer to the “Asset Quality” section in this MD&A.

SECOND QUARTER CONSOLIDATED RESULTS OF OPERATIONS (continued)

Noninterest Expense

Beginning in the first quarter of 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 $10.4 million relating to amounts now recorded in Trust, Investment and Other Servicing Fees rather than as a reduction of Other Operating Expense. Prior-year amounts have not been reclassified.

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

TABLE 15: NONINTEREST EXPENSE


	THREE MONTHS ENDED JUNE 30,
($ In Millions)	2022		2021		CHANGE
Compensation	$	546.5	$	486.3	$	60.2	12	%
Employee Benefits	119.6		118.4		1.2		1
Outside Services	213.1		218.1		(5.0)		(2)
Equipment and Software	203.5		178.3		25.2		14
Occupancy	51.0		52.2		(1.2)		(2)
Other Operating Expense	89.9		67.5		22.4		33
Total Noninterest Expense	$	1,223.6	$	1,120.8	$	102.8	9	%

Compensation expense, the largest component of Noninterest Expense, increased compared to the prior-year quarter, primarily due to higher salary expense and cash-based incentives, partially offset by favorable currency translation.

Employee Benefits expense included pension settlement charges of $20.3 million in the current quarter and $17.6 million in the prior-year quarter. Please refer to Note 19 — Pension and Postretirement Health Care to the consolidated financial statements provided in Item 1. Consolidated Financial Statements (unaudited) for further detail regarding pension settlement charges.

Outside Services expense decreased compared to the prior-year quarter, primarily due to lower third-party advisory fees and technical services costs, partially offset by higher consulting services.

Equipment and Software expense increased compared to the prior-year quarter, primarily due to higher software costs driven by continued technology investments as well as amortization.

Other Operating Expense increased compared to the prior-year quarter, primarily due to the accounting reclassification previously discussed, higher business promotion, and other miscellaneous expense, 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 18 — 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 June 30, 2022 was $144.4 million, representing an effective tax rate of 26.7%, compared to $118.4 million in the prior-year quarter, representing an effective tax rate of 24.3%.

The effective tax rate increased compared to the prior-year quarter primarily due to a higher net tax impact from international operations, which includes a change in the earnings mix in tax jurisdictions in which the Corporation operates, limitations on the U.S. foreign tax credit, and reserves for uncertain tax positions, partially offset by the deferred tax impact of the UK statutory tax rate increase enacted in the prior-year quarter.

SIX-MONTH CONSOLIDATED RESULTS OF OPERATIONS

Overview of Financial Results

Net Income per diluted common share increased in the current period to $3.63 from $3.42 in the comparable prior-year period. Net income increased $42.3 million, or 6%, to $785.5 million in the current period from $743.2 million in the prior-year period. Annualized return on average common equity was 14.9% in the current period and 13.7% in the prior-year period. The annualized return on average assets was 1.00% in the current period compared to 0.97% in the prior-year period.

Revenue for the six months ended June 30, 2022 increased $323.7 million, or 10%, from $3.16 billion in the prior-year period to $3.49 billion in the current period.

SIX-MONTH CONSOLIDATED RESULTS OF OPERATIONS (continued)

Overview of Financial Results (continued)

Trust, Investment and Other Servicing Fees increased $172.7 million, or 8%, from $2.14 billion in the prior-year period to $2.31 billion in the current period, primarily driven by lower money market fund fee waivers, favorable markets, new business, and the accounting reclassification previously mentioned, partially offset by unfavorable currency translation.

Other Noninterest Income decreased $13.0 million, or 4% from $348.9 million in the prior-year period to $335.9 million in the current period, primarily driven by lower Other Operating Income, partially offset by higher Foreign Exchange Trading Income.

Net Interest Income increased $164.0 million, or 24%, to $839.7 million in the current period from $675.7 million in the prior-year period, primarily due to a higher net interest margin, higher average earning assets and nonrecurring interest received from certain nonaccrual loans.

There was a $6.5 million provision for credit losses in the current period, as compared to a $57.0 million release of credit reserves in the prior-year period. The provision in the current period was due to an increase in the reserve evaluated on a collective basis and an increase in the reserve evaluated on an individual basis for two commercial borrowers, partially offset by net recoveries during the current period. The reserve evaluated on a collective basis relates to pooled financial assets sharing similar risk characteristics. The increase in the collective basis reserve was primarily driven by recent market conditions and a higher risk of recession as compared to the previous period, partially offset by improvements in credit quality mainly within the commercial real estate and commercial and institutional portfolios.

Noninterest Expense increased $191.2 million, or 9%, from $2.24 billion in the prior-year period to $2.43 billion in the current period, primarily attributable to higher Compensation, Equipment and Software expense, Other Operating Expense and Outside Services.

The Provision for Income Taxes for the six months ended June 30, 2022 totaled $265.9 million, representing an effective tax rate of 25.3%. The Provision for Income Taxes for the six months ended June 30, 2021 totaled $239.2 million, representing an effective tax rate of 24.3%. The effective tax rate increased compared to the prior-year period primarily due to a higher net tax impact from international operations, which includes limitations on the U.S. foreign tax credit and reserves for uncertain tax positions, partially offset by the deferred tax impact of the UK statutory tax rate increase enacted in the prior-year-period.

Trust, Investment and Other Servicing Fees

Northern Trust voluntarily waived $59.3 million of money market fund fees for the six months ended June 30, 2022 as compared to $130.0 million voluntarily waived for the six months ended June 30, 2021.

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

TABLE 16: TRUST, INVESTMENT AND OTHER SERVICING FEES


	SIX MONTHS ENDED JUNE 30,
($ In Millions)	2022		2021		CHANGE
Asset Servicing Trust, Investment and Other Servicing Fees
Custody and Fund Administration	$	886.5	$	900.9	$	(14.4)	(2)	%
Investment Management	295.3		216.6		78.7		36
Securities Lending	40.4		37.7		2.7		7
Other	82.9		76.8		6.1		8
Total Asset Servicing Trust, Investment and Other Servicing Fees	$	1,305.1	$	1,232.0	$	73.1	6	%
Wealth Management Trust, Investment and Other Servicing Fees
Central	$	359.1	$	338.5	$	20.6	6	%
East	262.1		246.2		15.9		6
West	200.1		184.6		15.5		8
Global Family Office	185.4		137.8		47.6		35
Total Wealth Management Trust, Investment and Other Servicing Fees	$	1,006.7	$	907.1	$	99.6	11	%
Total Consolidated Trust, Investment and Other Servicing Fees	$	2,311.8	$	2,139.1	$	172.7	8	%

Asset Servicing

Custody and Fund Administration fees, the largest component of Asset Servicing fees, decreased primarily driven by unfavorable currency translation and lower transaction volumes, partially offset by new business and favorable markets. Investment Management fees increased primarily due to lower money market fund fee waivers, the accounting reclassification previously discussed and favorable markets.

SIX-MONTH CONSOLIDATED RESULTS OF OPERATIONS (continued)

Trust, Investment and Other Servicing Fees (continued)

Wealth Management

Fee income in the regions (Central, East and West) increased primarily due to favorable markets, new business and lower money market fund fee waivers. Global Family Office fee income increased primarily due to new business, lower money market fund fee waivers and favorable markets.

Other Noninterest Income

The components of other noninterest income are provided in the following table.

TABLE 17: OTHER NONINTEREST INCOME


	SIX MONTHS ENDED JUNE 30,
($ In Millions)	2022		2021		CHANGE
Foreign Exchange Trading Income	$	158.5	$	149.3	$	9.2	6	%
Treasury Management Fees	21.7		22.5		(0.8)		(3)
Security Commissions and Trading Income	69.0		67.8		1.2		2
Other Operating Income	86.7		109.3		(22.6)		(21)
Investment Security Gains, net	—		—		—		N/M
Total Other Noninterest Income	$	335.9	$	348.9	$	(13.0)	(4)	%

N/M - Not meaningful

Beginning in the first quarter of 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 for the six months ended June 30, 2022 was $13.8 million relating to amounts now recorded in Trust, Investment and Other Servicing Fees. Prior-year amounts have not been reclassified.

Foreign Exchange Trading Income increased from the prior-year period, primarily due to higher client volumes.

Other Operating Income decreased from the prior-year period, primarily due to lower miscellaneous income and the accounting reclassification previously discussed, partially offset by other nonrecurring items. The lower miscellaneous income was primarily associated with a market value decrease in the supplemental compensation plans, which also resulted in a related decrease in supplemental compensation plan expense in Other Operating Expense. Please refer to Note 17 — Other Operating Income to the consolidated financial statements provided in Item 1. Consolidated Financial Statements (unaudited) for further detail.

SIX-MONTH CONSOLIDATED RESULTS OF OPERATIONS (continued)

Net Interest Income

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

TABLE 18: AVERAGE CONSOLIDATED BALANCE SHEETS WITH ANALYSIS OF NET INTEREST INCOME


(INTEREST AND RATE ON A FULLY TAXABLE EQUIVALENT BASIS)	SIX MONTHS ENDED JUNE 30,
2022					2021
($ In Millions)	INTEREST		AVERAGE BALANCE		AVERAGE RATE(6)		INTEREST		AVERAGE BALANCE		AVERAGE RATE(6)
Average Earning Assets
Federal Reserve and Other Central Bank Deposits and Other(1)	$	76.8	$	40,941.0	0.38	%	$	1.4	$	37,283.1	0.01	%
Interest-Bearing Due from and Deposits with Banks(2)	9.1		4,305.4		0.43		5.1		6,601.3		0.15
Federal Funds Sold	—		1.5		0.67		—		0.2		0.41
Securities Purchased under Agreements to Resell(7)	7.9		921.7		1.74		1.9		1,279.8		0.30
Securities
U.S. Government	21.5		2,574.8		1.68		14.1		2,775.9		1.02
Obligations of States and Political Subdivisions	40.1		3,639.1		2.21		32.4		3,286.5		1.97
Government Sponsored Agency	157.5		22,987.0		1.38		157.0		24,683.7		1.28
Other(3)	164.4		29,288.3		1.13		150.7		30,152.5		1.01
Total Securities	383.5		58,489.2		1.32		354.2		60,898.6		1.17
Loans and Leases(4)	448.8		40,149.0		2.25		345.3		35,247.4		1.98
Total Earning Assets	926.1		144,807.8		1.29		707.9		141,310.4		1.01
Cash and Due from Banks and Other Central Bank Deposits(5)	—		2,304.4		—		—		2,507.9		—
Other Noninterest-Earning Assets	—		10,979.1		—		—		9,962.5		—
Total Assets	$	—	$	158,091.3	—	%	$	—	$	153,780.8	—	%
Average Source of Funds
Deposits
Savings, Money Market and Other	$	22.0	$	31,644.6	0.14	%	$	6.7	$	27,083.3	0.05	%
Savings Certificates and Other Time	2.2		817.1		0.54		2.6		911.2		0.58
Non-U.S. Offices — Interest-Bearing	(16.9)		66,038.3		(0.05)		(37.5)		68,756.5		(0.11)
Total Interest-Bearing Deposits	7.3		98,500.0		0.01		(28.2)		96,751.0		(0.06)
Federal Funds Purchased	2.8		464.0		1.22		(0.4)		300.0		(0.27)
Securities Sold under Agreements to Repurchase(7)	6.3		426.1		2.97		—		159.5		0.04
Other Borrowings	11.5		3,940.2		0.59		6.7		4,940.1		0.27
Senior Notes	28.5		2,664.9		2.17		27.5		3,040.2		1.82
Long-Term Debt	12.2		1,112.3		2.20		10.6		1,173.7		1.83
Floating Rate Capital Debt	—		—		—		1.1		277.8		0.79
Total Interest-Related Funds	68.6		107,107.5		0.13		17.3		106,642.3		0.03
Interest Rate Spread	—		—		1.16		—		—		0.98
Demand and Other Noninterest-Bearing Deposits	—		35,421.8		—		—		30,460.2		—
Other Liabilities	—		4,354.5		—		—		5,134.1		—
Stockholders’ Equity	—		11,207.5		—		—		11,544.2		—
Total Liabilities and Stockholders’ Equity	$	—	$	158,091.3	—	%	$	—	$	153,780.8	—	%
Net Interest Income/Margin (FTE Adjusted)	$	857.5	$	—	1.19	%	$	690.6	$	—	0.99	%
Net Interest Income/Margin (Unadjusted)	$	839.7	$	—	1.17	%	$	675.7	$	—	0.96	%

*(4)*Average balances include nonaccrual loans. 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.

*(7)*Includes the impact of balance sheet netting under master netting arrangements of approximately $2.0 billion for the six months ended June 30, 2022. Excluding the impact of netting, the average interest rate on Securities Purchased under Agreements to Resell would be approximately 0.55% for the six months ended June 30, 2022. Excluding the impact of netting, the average interest rate on Securities Sold under Agreements to Repurchase would be approximately 0.53% for the six months ended June 30, 2022. Beginning in the third quarter of 2021, Northern Trust became an approved GSD netting and sponsoring member in the FICC sponsored member program, through which Northern Trust submits eligible repurchase and reverse repurchase transactions in U.S. Government securities between Northern Trust and its sponsored member clients for novation and clearing. Northern Trust nets securities sold under repurchase agreements against those purchased under resale agreements when FICC is the counterparty.

SIX-MONTH CONSOLIDATED RESULTS OF OPERATIONS (continued)

Net Interest Income (continued)

TABLE 19: ANALYSIS OF NET INTEREST INCOME CHANGES DUE TO VOLUME AND RATE**(1)**


(INTEREST AND RATE ON A FULLY TAXABLE EQUIVALENT BASIS)	SIX MONTHS ENDED JUNE 30, 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	$	0.2	$	75.2	$	75.4
Interest-Bearing Due from and Deposits with Banks	(2.2)		6.2		4.0

Securities Purchased under Agreements to Resell	(0.6)		6.6		6.0
Securities
U.S. Government	(1.1)		8.5		7.4
Obligations of States and Political Subdivisions	3.7		4.0		7.7
Government Sponsored Agency	(11.2)		11.7		0.5
Other	(5.9)		19.6		13.7
Total Securities	(14.5)		43.8		29.3
Loans and Leases	35.5		68.0		103.5
Total Interest Income	$	18.4	$	199.8	$	218.2

Interest-Bearing Deposits
Savings, Money Market and Other	$	5.6	$	9.7	$	15.3
Savings Certificates and Other Time	(0.2)		(0.2)		(0.4)
Non-U.S. Offices - Interest-Bearing	(1.4)		22.0		20.6
Total Interest-Bearing Deposits	4.0		31.5		35.5
Federal Funds Purchased	0.3		2.9		3.2
Securities Sold under Agreements to Repurchase	4.2		2.1		6.3
Other Borrowings	(1.6)		6.4		4.8
Senior Notes	(3.8)		4.8		1.0
Long-Term Debt	(0.6)		2.2		1.6
Floating Rate Capital Debt	(1.1)		—		(1.1)
Total Interest Expense	$	1.4	$	49.9	$	51.3
(Decrease) Increase in Net Interest Income (FTE)	$	17.0	$	149.9	$	166.9

(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 $17.8 million and $14.9 million for the six months ended June 30, 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 MD&A. 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 within Interest-Bearing Due from and Deposits with Banks and within Loans and Leases. Interest expense on cash collateral positions is reported above within 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 within Other Assets and Other Liabilities, respectively.

Net Interest Income, stated on an FTE basis, increased from the prior-year period, primarily due to a higher net interest margin, higher average earning assets and nonrecurring interest received from certain nonaccrual loans. Average earning assets increased primarily due to loans and higher levels of net short-term interest-bearing deposits with central banks and banks, partly offset by lower levels of securities. Average non-U.S. offices interest-bearing deposits comprised 67% of total average interest-bearing deposits for the six months ended June 30, 2022.

The net interest margin on an FTE basis increased from the prior-year period, primarily due to higher average interest rates.

Federal Reserve and Other Central Bank Deposits and Other averaged $40.9 billion and increased $3.6 billion, or 10%, from $37.3 billion in the prior-year period, resulting from significant deposit inflows. The higher level of client deposits were primarily placed with the Federal Reserve and other central banks. Average Securities were $58.5 billion and decreased $2.4 billion, or 4%, from $60.9 billion in the prior-year period and include certain community development investments, Federal Home Loan Bank stock, and Federal Reserve stock of $958.6 million, $77.4 million and $70.0 million, respectively, which are recorded in Other Assets on the consolidated balance sheets. Average taxable Securities were $55.9 billion in the current period and $57.5 billion in the prior-year period. Average nontaxable Securities, which represent securities that are primarily exempt from U.S. federal and state income taxes, were $2.6 billion in the current period and $3.4 billion in the prior-year period. Interest-Bearing Due from and Deposits with Banks averaged $4.3 billion in the current period and $6.6 billion in the prior-year period.

SIX-MONTH CONSOLIDATED RESULTS OF OPERATIONS (continued)

Net Interest Income (continued)

Loans and leases averaged $40.1 billion and increased $4.9 billion, or 14%, from $35.2 billion in the prior-year period, primarily reflecting higher levels of commercial and institutional, private client, non-U.S., commercial real estate, and residential real estate loans. Commercial and institutional loans averaged $12.0 billion and increased $2.2 billion, or 22%, from $9.8 billion for the prior-year period. Private client loans averaged $14.0 billion and increased $1.3 billion, or 10%, from $12.7 billion for the prior-year period. Non-U.S. loans averaged $3.4 billion and increased $901.3 million or 37% from $2.5 billion for the prior-year period. Commercial real estate loans averaged $4.3 billion and increased $553.0 million, or 15%, from $3.7 billion for the prior-year period. Residential real estate loans averaged $6.3 billion and increased $102.1 million, or 2%, from $6.2 billion for the prior-year period.

Northern Trust utilizes a diverse mix of funding sources. Average Interest-Bearing Deposits increased $1.7 billion, or 2%, to an average of $98.5 billion in the current period from $96.8 billion in the prior-year period. Other Average Interest-Related Funds decreased $1.3 billion, or 13%, to an average of $8.6 billion in the current period from $9.9 billion in the prior-year period. 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.

Provision for Credit Losses

There was a $6.5 million provision for credit losses for the six months ended June 30, 2022, as compared to a $57.0 million release of credit reserves in the prior-year period. The provision in the current period was due to an increase in the reserve evaluated on a collective basis and an increase in the reserve evaluated on an individual basis for two commercial borrowers, partially offset by net recoveries during the current period. The reserve evaluated on a collective basis relates to pooled financial assets sharing similar risk characteristics. The increase in the collective basis reserve was primarily driven by recent market conditions and a higher risk of recession as compared to the previous period, partially offset by improvements in credit quality mainly within the commercial real estate and commercial and institutional portfolios.

The release of credit reserves in the prior-year period was primarily due to a decrease in the reserve evaluated on a collective basis driven by improvements in overall projected economic conditions at the time, improvements in portfolio quality, and improved industry-specific conditions, partially offset by credit deterioration associated with a limited number of commercial real estate loans and overall portfolio growth.

Net recoveries in the current-year period totaled $8.7 million resulting from $0.1 million of charge-offs and $8.8 million of recoveries, compared to net recoveries of $4.1 million in the prior-year period resulting from $0.4 million of charge-offs and $4.5 million of recoveries.

For additional discussion of the allowance for credit losses, refer to the “Asset Quality” section in this MD&A.

Noninterest Expense

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

TABLE 20: NONINTEREST EXPENSE


	SIX MONTHS ENDED JUNE 30,
($ In Millions)	2022		2021		CHANGE
Compensation	$	1,110.4	$	1,004.8	$	105.6	11	%
Employee Benefits	223.9		221.8		2.1		1
Outside Services	426.5		414.5		12.0		3
Equipment and Software	397.0		355.0		42.0		12
Occupancy	102.1		103.0		(0.9)		(1)
Other Operating Expense	169.6		139.2		30.4		22
Total Noninterest Expense	$	2,429.5	$	2,238.3	$	191.2	9	%

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

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

Equipment and Software expense increased compared to the prior-year period, primarily due to higher software support costs driven by continued technology investments as well as amortization.

SIX-MONTH CONSOLIDATED RESULTS OF OPERATIONS (continued)

Noninterest Expense (continued)

Other Operating Expense increased compared to the prior-year period, primarily due to the accounting reclassification, higher business promotion and other miscellaneous expense, partially offset by lower supplemental compensation plan expense. The lower supplemental compensation plan expense resulted in a related decrease in miscellaneous income reported in Other Operating Income. Please refer to Note 18 — 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 six months ended June 30, 2022 was $265.9 million, representing an effective tax rate of 25.3%, compared to $239.2 million for the six months ended June 30, 2021, representing an effective tax rate of 24.3%.

The effective tax rate increased compared to the prior-year period primarily due to a higher net tax impact from international operations, which includes limitations on the U.S. foreign tax credit and reserves for uncertain tax positions, partially offset by the deferred tax impact of the UK statutory tax rate increase enacted in the prior-year-period.

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.

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.

REPORTING SEGMENTS (continued)

The following table presents the earnings contributions and average assets of Northern Trust’s reporting segments for the three- and six-months ended June 30, 2022 and 2021.

TABLE 21: RESULTS OF REPORTING SEGMENTS


($ In Millions)	ASSET SERVICING						WEALTH MANAGEMENT						OTHER						RECONCILING ITEMS				TOTAL CONSOLIDATED
THREE MONTHS ENDED JUNE 30,	2022			2021			2022			2021			2022			2021			2022		2021		2022			2021
Noninterest Income
Trust, Investment and Other Servicing Fees	$	642.8		$	611.5		$	500.6		$	463.9		$	—		$	—		$	—	$	—	$	1,143.4		$	1,075.4
Foreign Exchange Trading Income	74.8			67.9			2.8			2.7			—			—			—		—		77.6			70.6
Other Noninterest Income	61.8			68.9			32.8			38.3			(5.6)			(8.5)			—		—		89.0			98.7
Total Noninterest Income	779.4			748.3			536.2			504.9			(5.6)			(8.5)			—		—		1,310.0			1,244.7
Net Interest Income	255.1			153.1			214.7			190.8			—			—			(11.1)		(8.3)		458.7			335.6
Revenue	1,034.5			901.4			750.9			695.7			(5.6)			(8.5)			(11.1)		(8.3)		1,768.7			1,580.3
Provision for Credit Losses	0.5			(16.8)			4.0			(10.2)			—			—			—		—		4.5			(27.0)
Noninterest Expense	751.1			703.6			439.1			398.5			33.4			18.7			—		—		1,223.6			1,120.8
Income before Income Taxes	282.9			214.6			307.8			307.4			(39.0)			(27.2)			(11.1)		(8.3)		540.6			486.5
Provision for Income Taxes	74.5			53.0			90.7			80.5			(9.7)			(6.8)			(11.1)		(8.3)		144.4			118.4
Net Income	$	208.4		$	161.6		$	217.1		$	226.9		$	(29.3)		$	(20.4)		$	—	$	—	$	396.2		$	368.1
Percentage of Consolidated Net Income	53		%	44		%	54		%	62		%	(7)		%	(6)		%	N/A		N/A		100		%	100		%
Average Assets	$	117,047.6		$	119,502.3		$	37,036.5		$	34,797.8		$	—		$	—		N/A		N/A		$	154,084.1		$	154,300.1



($ In Millions)	ASSET SERVICING						WEALTH MANAGEMENT						OTHER						RECONCILING ITEMS				TOTAL CONSOLIDATED
SIX MONTHS ENDED JUNE 30,	2022			2021			2022			2021			2022			2021			2022		2021		2022			2021
Noninterest Income
Trust, Investment and Other Servicing Fees	$	1,305.2		$	1,232.0		$	1,006.6		$	907.1		$	—		$	—		$	—	$	—	$	2,311.8		$	2,139.1
Foreign Exchange Trading Income	152.2			142.4			6.3			6.9			—			—			—		—		158.5			149.3
Other Noninterest Income	122.9			129.2			64.6			82.5			(10.1)			(12.1)			—		—		177.4			199.6
Total Noninterest Income	1,580.3			1,503.6			1,077.5			996.5			(10.1)			(12.1)			—		—		2,647.7			2,488.0
Net Interest Income	445.2			313.8			412.3			376.8			—			—			(17.8)		(14.9)		839.7			675.7
Revenue	2,025.5			1,817.4			1,489.8			1,373.3			(10.1)			(12.1)			(17.8)		(14.9)		3,487.4			3,163.7
Provision for Credit Losses	8.9			(22.2)			(2.4)			(34.8)			—			—			—		—		6.5			(57.0)
Noninterest Expense	1,509.0			1,416.7			884.2			801.6			36.3			20.0			—		—		2,429.5			2,238.3
Income before Income Taxes	507.6			422.9			608.0			606.5			(46.4)			(32.1)			(17.8)		(14.9)		1,051.4			982.4
Provision for Income Taxes	126.3			103.1			169.0			159.0			(11.6)			(8.0)			(17.8)		(14.9)		265.9			239.2
Net Income	$	381.3		$	319.8		$	439.0		$	447.5		$	(34.8)		$	(24.1)		$	—	$	—	$	785.5		$	743.2
Percentage of Consolidated Net Income	49		%	43		%	55		%	60		%	(4)		%	(3)		%	N/A		N/A		100		%	100		%
Average Assets	$	121,114.2		$	119,820.7		$	36,977.1		$	33,960.1		$	—		$	—		N/A		N/A		$	158,091.3		$	153,780.8

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.

REPORTING SEGMENTS (continued)

Asset Servicing

Asset Servicing Net Income

For the quarter ended June 30, 2022, Net Income increased $46.8 million, or 29%, from the prior-year quarter, primarily reflecting higher Net Interest Income and Trust, Investment and Other Servicing Fees, partially offset by higher Noninterest Expense, Provision for Income Taxes and a Provision for Credit Losses in the current quarter as compared to a release in the prior-year quarter.

For the six months ended June 30, 2022, Net Income increased $61.5 million, or 19%, from the prior-year period, primarily reflecting higher Net Interest Income and Trust, Investment and Other Servicing Fees, partially offset by higher Noninterest Expense, Provision for Credit Losses in the current period as compared to a release in the prior-year period and Provision for Income Taxes.

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 June 30, 2022, Foreign Exchange Trading Income increased $6.9 million, or 10%, from the prior-year quarter, primarily due to higher client volumes.

For the six months ended June 30, 2022, Foreign Exchange Trading Income increased $9.8 million, or 7%, from the prior-year period, primarily due to higher client volumes..

Asset Servicing Other Noninterest Income

For the quarter ended June 30, 2022, Other Noninterest Income decreased $7.1 million, or 10%, from the prior-year quarter, primarily due to the change in classification of certain fees to Trust, Investment and Other Servicing Fees for which prior-year amounts have not been reclassified and lower income allocations.

For the six months ended June 30, 2022, Other Noninterest Income decreased $6.3 million, or 5%, from the prior-year period, primarily due to lower income allocations and the accounting reclassification previously discussed, partially offset by higher Security Commissions and Trading Income.

Asset Servicing Net Interest Income

For the quarter ended June 30, 2022, Net Interest Income stated on an FTE basis increased $102.0 million, or 67%, from the prior-year quarter. For the six months ended June 30, 2022, Net Interest Income stated on an FTE basis increased $131.4 million, or 42%, from the prior-year period.

The increase for the three and six months ended June 30, 2022 primarily reflected a higher net interest margin. Average earning assets decreased $4.1 billion, or 4%, to $105.8 billion in the current quarter from $109.9 billion in the prior-year quarter and increased $761.8 million, or 1%, to $110.2 billion for the six months ended June 30, 2022 from $109.4 billion in the prior-year period. The earning assets and funding sources in Asset Servicing for the three and six months ended June 30, 2022 consisted primarily of intercompany assets, money market assets and loans and non-U.S. custody-related interest-bearing deposits, respectively.

Asset Servicing Provision for Credit Losses

For the three and six months ended June 30, 2022, there was a $0.5 million and a $8.9 million Provision for Credit Losses, respectively, compared to a $16.8 million and a $22.2 million release of credit reserves for the three and six months ended June 30, 2021, respectively.

The Provision for Credit Losses for the three months ended June 30, 2022 was primarily due to an increase in the collective basis reserve, which relates to pooled financial assets sharing similar risk characteristics. The increase in the collective basis reserve was driven by recent market conditions and a higher risk of recession as compared to the prior quarter, partially offset by improvements in credit quality within the commercial and institutional portfolio.

The Provision for Credit Losses for the six months ended June 30, 2022 was primarily due to an increase in the reserve evaluated on an individual basis and increases in the collective basis reserve driven by recent market conditions and a higher risk of recession as compared to the prior period, partially offset by improvements in credit quality within the commercial and institutional portfolio.

REPORTING SEGMENTS (continued)

Asset Servicing (continued)

Asset Servicing Noninterest Expense

For the quarter ended June 30, 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 $47.5 million, or 7%, from the prior-year quarter, primarily due to higher expense allocations and Compensation Expense.

For the six months ended June 30, 2022, Noninterest Expense increased $92.3 million, or 7%, from the prior-year period, primarily reflecting higher expense allocations and Compensation Expense.

Wealth Management

Wealth Management Net Income

For the quarter ended June 30, 2022, Net Income decreased $9.8 million, or 4%, from the prior-year quarter primarily due to higher Noninterest Expense, a Provision for Credit Reserves compared to a release of credit reserves in the prior-year quarter, and a Provision for Income Taxes, partially offset by higher Trust, Investment and Other Servicing Fees and Net Interest Income.

For the six months ended June 30, 2022, Net Income decreased $8.5 million, or 2%, from the prior-year period primarily due higher Noninterest Expense, a lower release of credit reserves as compared to the prior-year period, lower Other Noninterest Income, and a higher Provision for Income Taxes, partially offset by higher Trust, Investment and Other Servicing Fees and Net Interest 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 June 30, 2022, Other Noninterest Income decreased $5.5 million, or 14%, from the prior-year quarter primarily due to lower income allocations and the change in classification of certain fees to Trust, Investment and Other Servicing Fees for which prior-year amounts have not been reclassified.

For the six months ended June 30, 2022, Other Noninterest Income decreased $17.9 million, or 22%, from the prior-year period primarily due to lower income allocations and the accounting reclassification previously discussed.

Wealth Management Net Interest Income

For the quarter ended June 30, 2022, Net Interest Income stated on an FTE basis increased $23.9 million, or 13%, from the prior-year quarter. For the six months ended June 30, 2022, Net Interest Income stated on an FTE basis increased $35.5 million, or 9%, from the prior-year period.

The increase for the three and six months ended June 30, 2022 primarily reflected higher average loans and deposits balances. Average earning assets increased $1.9 billion, or 6%, to $34.1 billion in the current quarter from $32.2 billion in the prior-year quarter and increased $2.7 billion, or 8%, to $34.6 billion for the six months ended June 30, 2022 from $31.9 billion in the prior-year period. Earning assets and funding sources for the three and six months ended June 30, 2022 were primarily comprised of loans and domestic interest-bearing deposits, respectively.

Wealth Management Provision for Credit Losses

For the three and six months ended June 30, 2022, there was a $4.0 million provision for credit losses and a $2.4 million release of credit reserves, respectively, compared to a $10.2 million and a $34.8 million release of credit reserves for the three and six months ended June 30, 2021, respectively.

The Provision for Credit Losses for the three months ended June 30, 2022 was primarily due to an increase in the reserve evaluated on a collective basis, partially offset by recoveries in the current quarter. The increase in the reserve evaluated on a collective basis was driven by recent market conditions and a higher risk of recession as compared to the prior quarter, partially offset by improvements in credit quality within the commercial real estate portfolio. The reserve evaluated on a collective basis relates to pooled financial assets sharing similar risk characteristics.

The release of credit reserves for the six months ended June 30, 2022 was primarily due to recoveries in the current period, partially offset by an increase in the reserve on a collective basis. The increase in the reserve on a collective basis was driven by recent market conditions and a higher risk of recession as compared to the prior period, partially offset by improvements in credit quality within the commercial real estate portfolio.

REPORTING SEGMENTS (continued)

Wealth Management (continued)

Wealth Management Noninterest Expense

For the quarter ended June 30, 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 $40.6 million or 10% from the prior-year quarter, primarily reflecting higher expense allocations and Compensation expense.

For the six months ended June 30, 2022, Noninterest Expense increased $82.6 million, or 10%, from the prior-year period, primarily reflecting higher expense allocations and Compensation expense.

Other

Other Noninterest Expense

For the three and six months ended June 30, 2022, Other Noninterest Expense increased $14.7 million, or 79% and $16.3 million, or 82%, respectively, primarily due to other miscellaneous expense, a $20.3 million pension settlement charge in the current quarter compared to a $17.6 million pension settlement charge in the prior-year quarter, and costs associated with executing workplace real estate strategies.

CONSOLIDATED BALANCE SHEETS

The following tables summarize selected consolidated balance sheet information.

TABLE 22: SELECT CONSOLIDATED BALANCE SHEET INFORMATION


($ In Billions)	JUNE 30, 2022		DECEMBER 31, 2021		CHANGE
Assets
Federal Reserve and Other Central Bank Deposits and Other(1)	$	37.9	$	64.5	$	(26.6)	(41)	%
Interest-Bearing Due from and Deposits with Banks(2)	5.4		3.9		1.5		39
Securities Purchased under Agreements to Resell	1.2		0.7		0.5		71
Total Securities(3)	56.5		62.7		(6.2)		(10)
Loans and Leases	41.2		40.5		0.7		2
Total Earning Assets	142.2		172.3		(30.1)		(17)
Total Assets	157.8		183.9		(26.1)		(14)
Liabilities and Stockholders' Equity
Total Interest-Bearing Deposits	101.6		111.6		(10.0)		(9)
Demand and Other Noninterest-Bearing Deposits	32.1		48.3		(16.2)		(34)
Federal Funds Purchased	0.4		—		0.4		N/M
Securities Sold under Agreements to Repurchase	0.8		0.5		0.3		50
Other Borrowings	3.5		3.6		(0.1)		(2)
Total Stockholders’ Equity	11.1		12.0		(0.9)		(8)

(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.

N/M - Not meaningful

TABLE 23: SELECT AVERAGE CONSOLIDATED BALANCE SHEET INFORMATION


	THREE MONTHS ENDED JUNE 30,								SIX MONTHS ENDED JUNE 30,
($ In Billions)	2022		2021		CHANGE				2022		2021		CHANGE
Assets
Federal Reserve and Other Central Bank Deposits and Other(1)	$	36.7	$	37.4	$	(0.7)	(2)	%	$	40.9	$	37.3	$	3.6	10	%
Interest-Bearing Due from and Deposits with Banks(2)	4.2		6.7		(2.5)		(37)		4.3		6.6		(2.3)		(35)
Securities Purchased under Agreements to Resell	1.1		1.0		0.1		14		0.9		1.3		(0.4)		(28)
Total Securities(3)	57.1		60.6		(3.5)		(6)		58.5		60.9		(2.4)		(4)
Loans and Leases	40.8		36.3		4.5		12		40.2		35.2		5.0		14
Total Earning Assets	139.9		142.0		(2.1)		(1)		144.8		141.3		3.5		2
Total Assets	154.1		154.3		(0.2)		—		158.1		153.8		4.3		3
Liabilities and Stockholders' Equity
Total Interest-Bearing Deposits	95.7		97.5		(1.8)		(2)		98.5		96.8		1.7		2
Demand and Other Noninterest-Bearing Deposits	33.7		30.5		3.2		11		35.4		30.5		4.9		16
Federal Funds Purchased	0.9		0.2		0.7		N/M		0.5		0.3		0.2		55
Securities Sold under Agreements to Repurchase	0.6		0.2		0.4		161		0.4		0.2		0.2		167
Other Borrowings	4.2		5.2		(1.0)		(19)		3.9		4.9		(1.0)		(20)
Total Stockholders’ Equity	10.9		11.6		(0.7)		(6)		11.2		11.5		(0.3)		(3)

N/M - Not meaningful

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.

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

CONSOLIDATED BALANCE SHEETS (continued)

risk associated with these transactions, the fair value of the securities sold is monitored, limits are set on exposure with 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 22 — Commitments and Contingent Liabilities and Note 24 — 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 and six months ended June 30, 2022, the Corporation declared cash dividends totaling $148.0 million and $295.8 million to common stockholders and cash dividends totaling $4.7 million and $20.9 million to preferred stockholders. During the three and six months ended June 30, 2021, the Corporation declared cash dividends totaling $148.1 million and $299.1 million to common stockholders, and cash dividends totaling $4.7 million and $20.9 million to preferred stockholders, respectively.

For the three and six months ended June 30, 2022, the Corporation repurchased 2,844 and 298,254 shares of common stock, respectively, at a total cost of $0.3 million ($110.36 average price per share) and $34.1 million ($114.54 average price per share), respectively, all of which were related to share-based compensation to satisfy tax withholding obligations.

For the three months ended June 30, 2021, the Corporation repurchased 252,304 shares of common stock, including 1,480 shares withheld related to share-based compensation, at a total cost of $30.2 million ($119.59 average price per share). During the six months ended June 30, 2021, the Corporation repurchased 1,651,977 shares of common stock, including 367,177 shares withheld related to share-based compensation, at a total cost of $165.8 million ($100.38 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 24: FAIR VALUE OF AVAILABLE FOR SALE DEBT SECURITIES BY CREDIT RATING


	JUNE 30, 2022
($ In Millions)	AAA			AA			A			BBB			NOT RATED			TOTAL
U.S. Government	$	2,588.4		$	—		$	—		$	—		$	—		$	2,588.4
Obligations of States and Political Subdivisions	1,024.1			2,429.2			—			—			—			3,453.3
Government Sponsored Agency	16,413.2			—			—			—			—			16,413.2
Non-U.S. Government	367.3			—			—			—			—			367.3
Corporate Debt	366.5			477.1			1,193.2			19.7			31.4			2,087.9
Covered Bonds	507.1			—			21.9			—			—			529.0
Sub-Sovereign, Supranational and Non-U.S. Agency Bonds	2,026.3			550.4			217.1			—			—			2,793.8
Other Asset-Backed	5,391.5			—			—			—			—			5,391.5
Commercial Mortgage-Backed	1,393.5			—			—			—			—			1,393.5
Total	$	30,077.9		$	3,456.7		$	1,432.2		$	19.7		$	31.4		$	35,017.9
Percent of Total	86		%	10		%	4		%	—		%	—		%	100		%


	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		%

ASSET QUALITY (continued)

Securities Portfolio (continued)

As of June 30, 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.

TABLE 25: AMORTIZED COST OF HELD TO MATURITY DEBT SECURITIES BY CREDIT RATING


	JUNE 30, 2022
($ In Millions)	AAA			AA			A			BBB			NOT RATED			TOTAL
U.S. Government	$	56.9		$	—		$	—		$	—		$	—		$	56.9

Government Sponsored Agency	5,806.7			—			—			—			—			5,806.7
Non-U.S. Government	720.4			923.9			1,136.7			316.0			—			3,097.0
Corporate Debt	2.1			353.4			517.7			—			—			873.2
Covered Bonds	2,678.3			—			—			—			—			2,678.3
Certificates of Deposit	—			—			—			—			554.3			554.3
Sub-Sovereign, Supranational and Non-U.S. Agency Bonds	4,380.3			1,656.0			28.4			1.1			—			6,065.8
Other Asset-Backed	496.1			—			—			—			—			496.1
Other	69.8			—			—			—			414.5			484.3
Total	$	14,210.6		$	2,933.3		$	1,682.8		$	317.1		$	968.8		$	20,112.6
Percent of Total	71		%	15		%	8		%	1		%	5		%	100		%


	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 June 30, 2022 and December 31, 2021, the 5% 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 $3.0 billion at June 30, 2022, compared to net unrealized losses of $187.1 million as of December 31, 2021. Net unrealized losses as of June 30, 2022 were comprised of $23.5 million and $3.0 billion of gross unrealized gains and losses, respectively. $1.9 billion of the $3.0 billion gross unrealized losses relate to AFS debt securities. The increase in net unrealized losses on the AFS debt securities portfolio were largely from higher interest rates. Refer to Note 25 — Subsequent Events to the consolidated financial statements provided in Item 1. Consolidated Financial Statements (unaudited) for discussion of securities transfers from AFS to HTM in the third quarter of 2022 for capital management purposes. 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.

ASSET QUALITY (continued)

Securities Portfolio (continued)

As of June 30, 2022, the $35.0 billion AFS debt securities portfolio had unrealized losses of $751.6 million and $430.0 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 June 30, 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 June 30, 2022, the $20.1 billion HTM debt securities portfolio had unrealized losses of $582.5 million and $273.6 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.

HTM debt securities consist of securities that management intends to, and Northern Trust has the ability to, hold until maturity. During the three and six months ended June 30, 2022, no securities were transferred from AFS to HTM. During the three and six months ended June 30, 2021, $6.9 billion of government sponsored agency securities were transferred from AFS to HTM for capital management purposes, all of which were transferred during the second quarter of 2021. 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 Accumulated Other Comprehensive Income (Loss) (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 and Note 25 — Subsequent Events 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).

ASSET QUALITY (continued)

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 26: NONACCRUAL ASSETS


($ In Millions)	JUNE 30, 2022			% OF NONACCRUAL LOANS AND LEASES TO TOTAL NONACCRUAL LOANS AND LEASES		DECEMBER 31, 2021			% OF NONACCRUAL LOANS AND LEASES TO TOTAL NONACCRUAL LOANS AND LEASES
Nonaccrual Loans and Leases
Commercial
Commercial and Institutional	$	18.3		21	%	$	19.5		16	%
Commercial Real Estate	42.3			47	%	66.6			54	%
Lease Financing, net	11.0			12	%	—			—	%
Total Commercial	$	71.6		80	%	$	86.1		70	%
Personal
Residential Real Estate	$	18.1		20	%	$	36.2		30	%
Total Personal	$	18.1		20	%	$	36.2		30	%
Total Nonaccrual Loans and Leases	89.7					122.3
Other Real Estate Owned	0.1					3.0
Total Nonaccrual Assets	$	89.8				$	125.3
90 Day Past Due Loans Still Accruing	$	36.9				$	28.3
Nonaccrual Loans and Leases to Total Loans and Leases	0.22		%			0.30		%
Allowance for Credit Losses Assigned to Loans and Leases to Nonaccrual Loans and Leases	1.5		x			1.1		x

Nonaccrual assets of $89.8 million as of June 30, 2022 decreased from December 31, 2021 primarily due to the payoffs of two nonaccrual loans 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.

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).

ASSET QUALITY (continued)

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 June 30, 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 $138.2 million, $43.5 million, $15.4 million, $1.7 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 and six months ended June 30, 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.

TABLE 27: ALLOCATION OF THE ALLOWANCE FOR CREDIT LOSSES FOR LOANS AND LEASES


	JUNE 30, 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	$	16.2		—	%	$	10.1		—	%
Evaluated on a Collective Basis
Commercial
Commercial and Institutional	64.9			30		50.6			27
Commercial Real Estate	52.5			10		68.2			11
Lease Financing, net	—			—		0.4			—
Non-U.S.	9.2			7		7.7			5
Other	—			3		—			2
Total Commercial	126.6			50		126.9			45
Personal
Residential Real Estate	23.4			15		23.3			16
Private Client	14.4			34		11.1			38
Non-U.S.	1.1			1		1.1			1
Other	—			—		—			—
Total Personal	38.9			50		35.5			55
Total Allowance Evaluated on a Collective Basis	$	165.5				$	162.4
Total Allowance for Credit Losses	$	181.7				$	172.5
Allowance Assigned to
Loans and Leases	$	138.2				$	138.4
Undrawn Commitments and Standby Letters of Credit	43.5					34.1
Total Allowance for Credit Losses	$	181.7				$	172.5
Allowance Assigned to Loans and Leases to Total Loans and Leases	0.34		%			0.34		%

STATEMENTS OF CASH FLOWS

The following discusses the statement of cash flow activities for the six months ended June 30, 2022 and 2021.

TABLE 28: CASH FLOW ACTIVITY SUMMARY


	SIX MONTHS ENDED JUNE 30,
(In Millions)	2022		2021
Net cash provided by (used in):
Operating activities	$	(863.9)	$	(1,167.7)
Investing activities	25,225.8		(2,231.6)
Financing activities	(22,060.4)		3,895.1
Effect of Foreign Currency Exchange Rates on Cash	(238.5)		(86.0)
Change in Cash and Due from Banks	$	2,063.0	$	409.8

Operating Activities

Net cash used in operating activities of $863.9 million for the six months ended June 30, 2022 was primarily attributable to higher net collateral deposited with derivative counterparties, partially offset by period earnings, the impact of higher non-cash charges such as amortization and depreciation, change in receivables and net changes in other operating activities.

Net cash used in operating activities of $1.2 billion for the six months ended June 30, 2021 was primarily attributable to higher net collateral deposited with derivative counterparties, partially offset by period earnings and the impact of higher non-cash charges such as amortization and depreciation.

Investing Activities

Net cash provided by investing activities of $25.2 billion for the six months ended June 30, 2022 was primarily attributable to decreased levels of Federal Reserve and other central bank deposits.

Net cash used in investing activities of $2.2 billion for the six months ended June 30, 2021 was primarily attributable to higher levels of loans and leases and net purchases of AFS debt securities, partially offset by net proceeds associated with HTM debt securities and decreased levels of Federal Reserve and other central bank deposits.

Financing Activities

Net cash used in financing activities of $22.1 billion for the six months ended June 30, 2022 was primarily attributable to the decreased levels of total deposits. The decrease in total deposits was primarily attributable to lower levels of non-U.S. office noninterest-bearing and interest-bearing deposits as well as savings, money market and other interest-bearing deposits.

Net cash provided by financing activities of $3.9 billion for the six months ended June 30, 2021 was primarily attributable to increased levels of total deposits and short-term borrowings. The increase in total deposits was primarily attributable to higher levels of savings, money market, and other interest-bearing deposits as well as domestic noninterest-bearing deposits, partially offset by a decrease in non-U.S. office noninterest-bearing deposits.

CAPITAL RATIOS

The capital ratios of Northern Trust Corporation and its principal subsidiary, The Northern Trust Company, remained strong at June 30, 2022, exceeding the requirements for classification as “well-capitalized” under applicable U.S. regulatory requirements.

The results of the 2022 Dodd-Frank Act Stress Test, published by the Federal Reserve on June 23, 2022, resulted in Northern Trust’s stress capital buffer and effective Common Equity Tier 1 capital ratio minimum requirement remaining constant at 2.5% and 7%, respectively, for the annual Capital Plan cycle beginning on October 1, 2022.

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 higher 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 29: REGULATORY CAPITAL RATIOS


Capital Ratios — Northern Trust Corporation	JUNE 30, 2022				MARCH 31, 2022				JUNE 30, 2021
STANDARDIZED APPROACH	ADVANCED APPROACH		STANDARDIZED APPROACH		ADVANCED APPROACH		STANDARDIZED APPROACH		ADVANCED APPROACH		WELL-CAPITALIZED RATIOS		MINIMUM CAPITAL RATIOS
Common Equity Tier 1 Capital	10.5	%	11.6	%	11.4	%	12.1	%	12.0	%	13.1	%	N/A	4.5	%
Tier 1 Capital	11.5		12.7		12.4		13.2		13.1		14.2		6.0	6.0
Total Capital	12.6		13.7		13.6		14.2		14.5		15.5		10.0	8.0
Tier 1 Leverage	6.7		6.7		6.5		6.5		7.1		7.1		N/A	4.0
Supplementary Leverage	N/A		7.6		N/A		7.9		N/A		8.2		N/A	3.0


Capital Ratios — The Northern Trust Company	JUNE 30, 2022				MARCH 31, 2022				JUNE 30, 2021
STANDARDIZED APPROACH	ADVANCED APPROACH		STANDARDIZED APPROACH		ADVANCED APPROACH		STANDARDIZED APPROACH		ADVANCED APPROACH		WELL-CAPITALIZED RATIOS		MINIMUM CAPITAL RATIOS
Common Equity Tier 1 Capital	11.0	%	12.3	%	11.7	%	12.6	%	12.3	%	13.6	%	6.5	%	4.5	%
Tier 1 Capital	11.0		12.3		11.7		12.6		12.3		13.6		8.0		6.0
Total Capital	11.9		13.1		12.6		13.4		13.6		14.7		10.0		8.0
Tier 1 Leverage	6.3		6.3		6.1		6.1		6.7		6.7		5.0		4.0
Supplementary Leverage	N/A		7.2		N/A		7.4		N/A		7.7		3.0		3.0

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 balance sheets or consolidated statements of income.

In March 2022, the 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. Upon adoption, ASU 2022-02 is not expected to have a significant impact on Northern Trust’s consolidated balance sheets or consolidated statements of income.

In June 2022, the FASB issued ASU No. 2022-03, “Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions” (ASU 2022-03). The amendments in ASU 2022-03 clarify that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value. ASU 2022-03 also clarifies that an entity cannot, as a separate unit of account, recognize and measure a contractual sale restriction. In addition, ASU 2022-03 introduces new disclosure requirements to provide investors with information about contractual sale restrictions including the nature and remaining duration of these restrictions. ASU 2022-03 is effective for interim and annual periods beginning after December 15, 2023, although early adoption is permitted. Northern Trust is currently assessing the impact of adoption of ASU 2022-03.

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;

MARKET RISK MANAGEMENT (continued)

▪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.

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 30: NET INTEREST INCOME SENSITIVITY AS OF JUNE 30, 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	$	60
200 Basis Points	110
Decrease in Interest Rates Below Market Implied Forward Rates
100 Basis Points	$	(7)

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 31: MARKET VALUE OF EQUITY SENSITIVITY AS OF JUNE 30, 2022


($ In Millions)	INCREASE (DECREASE) ESTIMATED IMPACT ON MARKET VALUE OF EQUITY
Increase in Interest Rates Above Market Implied Forward Rates
100 Basis Points	$	(503)
200 Basis Points	(1,069)
Decrease in Interest Rates Below Market Implied Forward Rates
100 Basis Points	$	451

MARKET RISK MANAGEMENT (continued)

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 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 and six months ended June 30, 2022 and three months ended March 31, 2022, 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 32: 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	JUNE 30, 2022		MARCH 31, 2022		JUNE 30, 2022		MARCH 31, 2022		JUNE 30, 2022		MARCH 31, 2022
High	$	0.2	$	0.2	$	0.2	$	0.2	$	0.2	$	0.3
Low	0.1		0.1		—		—		—		—
Average	0.1		0.1		0.1		0.1		0.1		0.1
Quarter-End	0.1		0.2		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 33: RECONCILIATION TO FULLY TAXABLE EQUIVALENT


	THREE MONTHS ENDED JUNE 30,						SIX MONTHS ENDED JUNE 30,
($ In Millions)	2022			2021			2022			2021
Net Interest Income
Interest Income - GAAP	$	524.8		$	343.1		$	908.3		$	693.0
Add: FTE Adjustment	11.1			8.3			17.8			14.9
Interest Income (FTE) - Non-GAAP	$	535.9		$	351.4		$	926.1		$	707.9

Net Interest Income - GAAP	$	458.7		$	335.6		$	839.7		$	675.7
Add: FTE Adjustment	11.1			8.3			17.8			14.9
Net Interest Income (FTE) - Non-GAAP	$	469.8		$	343.9		$	857.5		$	690.6

Net Interest Margin - GAAP	1.31		%	0.95		%	1.17		%	0.96		%
Net Interest Margin (FTE) - Non-GAAP	1.35		%	0.97		%	1.19		%	0.99		%

Total Revenue
Total Revenue - GAAP	$	1,768.7		$	1,580.3		$	3,487.4		$	3,163.7
Add: FTE Adjustment	11.1			8.3			17.8			14.9
Total Revenue (FTE) - Non-GAAP	$	1,779.8		$	1,588.6		$	3,505.2		$	3,178.6

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)