Item 1. Consolidated Financial Statements (unaudited)

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Item 1. Consolidated Financial Statements (unaudited)


CONSOLIDATED BALANCE SHEETS (UNAUDITED)			NORTHERN TRUST CORPORATION


(In Millions Except Share Information)	JUNE 30, 2022		DECEMBER 31, 2021

ASSETS
Cash and Due from Banks	$	5,119.8	$	3,056.8
Federal Reserve and Other Central Bank Deposits	37,933.6		64,582.2
Interest-Bearing Deposits with Banks	2,526.3		1,949.4
Federal Funds Sold	10.0		—
Securities Purchased under Agreements to Resell	1,171.8		686.4
Debt Securities
Available for Sale (Amortized cost of $36,852.2 and $37,948.5)	35,017.9		38,010.5
Held to Maturity (Fair value of $18,925.5 and $23,315.4)	20,112.6		23,564.5
Trading Account	0.4		0.3
Total Debt Securities	55,130.9		61,575.3
Loans and Leases
Commercial	20,426.8		18,487.4
Personal	20,781.0		21,993.2
Total Loans and Leases (Net of unearned income of $9.5 and $10.4)	41,207.8		40,480.6
Allowance for Credit Losses	(154.7)		(150.6)
Buildings and Equipment	476.6		488.7
Client Security Settlement Receivables	2,284.7		1,941.2
Goodwill	690.0		706.2
Other Assets	11,389.5		8,573.6
Total Assets	$	157,786.3	$	183,889.8
LIABILITIES
Deposits
Demand and Other Noninterest-Bearing	$	21,235.8	$	22,028.2
Savings, Money Market and Other Interest-Bearing	30,857.0		35,003.1
Savings Certificates and Other Time	785.0		842.7
Non U.S. Offices — Noninterest-Bearing	10,845.7		26,287.3
— Interest-Bearing	69,951.1		75,767.1
Total Deposits	133,674.6		159,928.4
Federal Funds Purchased	389.2		0.2
Securities Sold Under Agreements to Repurchase	799.4		531.9
Other Borrowings	3,514.9		3,583.8
Senior Notes	3,305.8		2,505.5
Long-Term Debt	1,094.1		1,145.7
Other Liabilities	3,938.6		4,177.5
Total Liabilities	146,716.6		171,873.0
STOCKHOLDERS' EQUITY
Preferred Stock, No Par Value; Authorized 10,000,000 shares:
Series D, outstanding shares of 5,000	493.5		493.5
Series E, outstanding shares of 16,000	391.4		391.4
Common Stock, $1.66 2/3 Par Value; Authorized 560,000,000 shares;
Outstanding shares of 208,386,524 and 207,761,875	408.6		408.6
Additional Paid-In Capital	951.1		939.3
Retained Earnings	13,586.1		13,117.3
Accumulated Other Comprehensive Loss	(1,510.6)		(35.6)
Treasury Stock (36,785,000 and 37,409,649 shares, at cost)	(3,250.4)		(3,297.7)
Total Stockholders’ Equity	11,069.7		12,016.8
Total Liabilities and Stockholders’ Equity	$	157,786.3	$	183,889.8

See accompanying notes to the consolidated financial statements.


CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)			NORTHERN TRUST CORPORATION


	THREE MONTHS ENDED JUNE 30,				SIX MONTHS ENDED JUNE 30,
(In Millions Except Share Information)	2022		2021		2022		2021
Noninterest Income
Trust, Investment and Other Servicing Fees	$	1,143.4	$	1,075.4	$	2,311.8	$	2,139.1
Foreign Exchange Trading Income	77.6		70.6		158.5		149.3
Treasury Management Fees	10.6		11.3		21.7		22.5
Security Commissions and Trading Income	32.8		33.0		69.0		67.8
Other Operating Income	45.6		54.4		86.7		109.3
Investment Security Gains (Losses), net	—		—		—		—
Total Noninterest Income	1,310.0		1,244.7		2,647.7		2,488.0
Net Interest Income
Interest Income	524.8		343.1		908.3		693.0
Interest Expense	66.1		7.5		68.6		17.3
Net Interest Income	458.7		335.6		839.7		675.7
Provision for Credit Losses	4.5		(27.0)		6.5		(57.0)
Net Interest Income after Provision for Credit Losses	454.2		362.6		833.2		732.7
Noninterest Expense
Compensation	546.5		486.3		1,110.4		1,004.8
Employee Benefits	119.6		118.4		223.9		221.8
Outside Services	213.1		218.1		426.5		414.5
Equipment and Software	203.5		178.3		397.0		355.0
Occupancy	51.0		52.2		102.1		103.0
Other Operating Expense	89.9		67.5		169.6		139.2
Total Noninterest Expense	1,223.6		1,120.8		2,429.5		2,238.3
Income before Income Taxes	540.6		486.5		1,051.4		982.4
Provision for Income Taxes	144.4		118.4		265.9		239.2
Net Income	$	396.2	$	368.1	$	785.5	$	743.2
Preferred Stock Dividends	4.7		4.7		20.9		20.9
Net Income Applicable to Common Stock	$	391.5	$	363.4	$	764.6	$	722.3
Per Common Share
Net Income – Basic	$	1.86	$	1.73	$	3.64	$	3.44
– Diluted	1.86		1.72		3.63		3.42
Average Number of Common Shares Outstanding
– Basic	208,383,991		208,369,188		208,205,469		208,241,714
– Diluted	208,878,350		209,138,090		208,843,934		209,042,798


CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)	NORTHERN TRUST CORPORATION
	THREE MONTHS ENDED JUNE 30,				SIX MONTHS ENDED JUNE 30,
(In Millions)	2022		2021		2022		2021
Net Income	$	396.2	$	368.1	$	785.5	$	743.2
Other Comprehensive Income (Loss) (Net of Tax and Reclassifications)
Net Unrealized Gains (Losses) on Available for Sale Debt Securities	(533.4)		100.9		(1,401.8)		(268.8)
Net Unrealized Gains (Losses) on Cash Flow Hedges	4.4		3.0		3.0		(2.2)
Net Foreign Currency Adjustments	(9.7)		2.1		(17.6)		7.1
Net Pension and Other Postretirement Benefit Adjustments	(64.9)		22.8		(58.6)		30.6
Other Comprehensive Income (Loss)	(603.6)		128.8		(1,475.0)		(233.3)
Comprehensive Income (Loss)	$	(207.4)	$	496.9	$	(689.5)	$	509.9

See accompanying notes to the consolidated financial statements.


CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED)			NORTHERN TRUST CORPORATION


	SIX MONTHS ENDED JUNE 30, 2022
(In Millions Except Per Share Information)	PREFERRED STOCK		COMMON STOCK		ADDITIONAL PAID-IN CAPITAL		RETAINED EARNINGS		ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)		TREASURY STOCK		TOTAL
Balance at December 31, 2021	$	884.9	$	408.6	$	939.3	$	13,117.3	$	(35.6)	$	(3,297.7)	$	12,016.8
Net Income	—		—		—		389.3		—		—		389.3
Other Comprehensive Income (Loss) (Net of Tax and Reclassifications)	—		—		—		—		(871.4)		—		(871.4)
Dividends Declared:
Common Stock, $0.70 per share	—		—		—		(147.8)		—		—		(147.8)
Preferred Stock	—		—		—		(16.2)		—		—		(16.2)
Stock Awards and Options Exercised	—		—		(7.6)		—		—		80.5		72.9
Stock Purchased	—		—		—		—		—		(33.8)		(33.8)
Balance at March 31, 2022	$	884.9	$	408.6	$	931.7	$	13,342.6	$	(907.0)	$	(3,251.0)	$	11,409.8
Net Income	—		—		—		396.2		—		—		396.2
Other Comprehensive Income (Loss) (Net of Tax and Reclassifications)	—		—		—		—		(603.6)		—		(603.6)
Dividends Declared:
Common Stock, $0.70 per share	—		—		—		(148.0)		—		—		(148.0)
Preferred Stock	—		—		—		(4.7)		—		—		(4.7)
Stock Awards and Options Exercised	—		—		19.4		—		—		0.9		20.3
Stock Purchased	—		—		—		—		—		(0.3)		(0.3)
Balance at June 30, 2022	$	884.9	$	408.6	$	951.1	$	13,586.1	$	(1,510.6)	$	(3,250.4)	$	11,069.7

See accompanying notes to the consolidated financial statements.


	SIX MONTHS ENDED JUNE 30, 2021
(In Millions Except Per Share Information)	PREFERRED STOCK		COMMON STOCK		ADDITIONAL PAID-IN CAPITAL		RETAINED EARNINGS		ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)		TREASURY STOCK		TOTAL
Balance at December 31, 2020	$	884.9	$	408.6	$	963.6	$	12,207.7	$	428.0	$	(3,204.5)	$	11,688.3
Net Income	—		—		—		375.1		—		—		375.1
Other Comprehensive Income (Loss) (Net of Tax and Reclassifications)	—		—		—		—		(362.1)		—		(362.1)
Dividends Declared:
Common Stock, $0.70 per share	—		—		—		(151.0)		—		—		(151.0)
Preferred Stock	—		—		—		(16.2)		—		—		(16.2)
Stock Awards and Options Exercised	—		—		(49.5)		—		—		108.9		59.4
Stock Purchased	—		—		—		—		—		(135.6)		(135.6)
Balance at March 31, 2021	$	884.9	$	408.6	$	914.1	$	12,415.6	$	65.9	$	(3,231.2)	$	11,457.9
Net Income	—		—		—		368.1		—		—		368.1
Other Comprehensive Income (Loss) (Net of Tax and Reclassifications)	—		—		—		—		128.8		—		128.8
Dividends Declared:
Common Stock, $0.70 per share	—		—		—		(148.1)		—		—		(148.1)
Preferred Stock	—		—		—		(4.7)		—		—		(4.7)
Stock Awards and Options Exercised	—		—		7.0		—		—		44.2		51.2
Stock Purchased	—		—		—		—		—		(30.2)		(30.2)
Balance at June 30, 2021	$	884.9	$	408.6	$	921.1	$	12,630.9	$	194.7	$	(3,217.2)	$	11,823.0

See accompanying notes to the consolidated financial statements.


CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)			NORTHERN TRUST CORPORATION


	SIX MONTHS ENDED JUNE 30,
(In Millions)	2022		2021
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income	$	785.5	$	743.2
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities
Investment Security (Losses) Gains, net	—		—
Amortization and Accretion of Securities and Unearned Income, net	34.4		50.1
Provision for Credit Losses	6.5		(57.0)
Depreciation and Amortization	264.5		253.8
Pension Plan Contributions	(20.7)		(6.7)
Change in Receivables	192.2		(78.9)
Change in Interest Payable	25.7		(0.4)
Change in Collateral With Derivative Counterparties, net	(2,314.2)		(1,907.5)
Other Operating Activities, net	162.2		(164.3)
Net Cash Used in Operating Activities	(863.9)		(1,167.7)
CASH FLOWS FROM INVESTING ACTIVITIES
Change in Federal Funds Sold	(10.0)		(0.1)
Change in Securities Purchased under Agreements to Resell	(503.1)		639.7
Change in Interest-Bearing Deposits with Banks	(645.9)		534.5
Net Change in Federal Reserve and Other Central Bank Deposits	25,295.1		1,000.6
Purchases of Held to Maturity Debt Securities	(21,034.6)		(28,474.5)
Proceeds from Maturity and Redemption of Held to Maturity Debt Securities	23,282.6		30,847.7
Purchases of Available for Sale Debt Securities	(2,741.1)		(6,623.7)
Proceeds from Maturity and Redemption of Available for Sale Debt Securities	3,646.9		4,441.0
Change in Loans and Leases	(763.9)		(3,651.1)
Purchases of Buildings and Equipment	(47.2)		(39.1)
Purchases and Development of Computer Software	(270.0)		(169.3)
Change in Client Security Settlement Receivables	(372.5)		(857.7)
Bank-Owned Life Insurance Policy Premiums	(500.0)		—
Other Investing Activities, net	(110.5)		120.4
Net Cash Provided by (Used in) Investing Activities	25,225.8		(2,231.6)
CASH FLOWS FROM FINANCING ACTIVITIES
Change in Deposits	(23,291.2)		2,961.5
Change in Federal Funds Purchased	389.0		(260.0)
Change in Securities Sold under Agreements to Repurchase	267.5		489.3
Change in Short-Term Other Borrowings	(77.4)		1,141.7
Proceeds from Senior Notes	995.4		—


Treasury Stock Purchased	(34.1)		(165.8)
Net Proceeds from Stock Options	2.6		41.0
Cash Dividends Paid on Common Stock	(291.5)		(291.7)
Cash Dividends Paid on Preferred Stock	(20.9)		(20.9)
Other Financing Activities, net	0.2		—
Net Cash (Used in) Provided by 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
Cash and Due from Banks at Beginning of Period	3,056.8		4,389.5
Cash and Due from Banks at End of Period	$	5,119.8	$	4,799.3
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest Paid	$	44.2	$	17.2
Income Taxes Paid	164.1		189.7
Transfers from Loans to OREO	0.1		3.4
Transfers from Available for Sale Debt Securities to Held to Maturity Debt Securities	—		6,864.1

See accompanying notes to the consolidated financial statements.

Notes to Consolidated Financial Statements (unaudited)

Note 1 – Basis of Presentation

The consolidated financial statements include the accounts of Northern Trust Corporation (Corporation) and its wholly-owned subsidiary, The Northern Trust Company (Bank), and various other wholly-owned subsidiaries of the Corporation and Bank. Throughout the notes to the consolidated financial statements, the term “Northern Trust” refers to the Corporation and its subsidiaries. Intercompany balances and transactions have been eliminated in consolidation. The consolidated financial statements, as of and for the periods ended June 30, 2022 and 2021, have not been audited by the Corporation’s independent registered public accounting firm. In the opinion of management, all accounting entries and adjustments, including normal recurring accruals, necessary for a fair presentation of the financial position and the results of operations for the interim periods have been made. The accounting and financial reporting policies of Northern Trust conform to U.S. generally accepted accounting principles (GAAP) and reporting practices prescribed for the banking industry. The consolidated statements of income include results of acquired subsidiaries from the dates of acquisition. Certain prior-period balances have been reclassified to conform with the current year’s presentation. During the first quarter of 2022, the Corporation changed the name of the 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. For a description of Northern Trust’s significant accounting policies, refer to Note 1 — Summary of Significant Accounting Policies included under Item 8. Financial Statements and Supplementary Data in the Annual Report on Form 10-K for the year ended December 31, 2021.

Note 2 – Recent Accounting Pronouncements

On January 1, 2022, Northern Trust adopted Accounting Standards Update (ASU) No. 2020-06, “Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contract in Entity's Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity” (ASU 2020-06). ASU 2020-06 simplifies the convertible instrument accounting framework through the elimination of the beneficial conversion and cash conversion accounting models used to account for convertible debt and convertible preferred stock. ASU 2020-06 also amends the accounting for certain contracts in an entity’s own equity that are currently accounted for as derivatives because of specific settlement provisions in Accounting Standards Codification 815—Derivatives and Hedging. In addition, ASU 2020-06 modifies how particular convertible instruments and certain contracts that may be settled in cash or shares impact the diluted earnings per share computation. Upon adoption of ASU 2020-06, there was no significant impact to Northern Trust’s consolidated balance sheets or consolidated statements of income.

On January 1, 2022, Northern Trust adopted ASU No. 2021-10, “Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance” (ASU 2021-10). ASU 2021-10 requires annual disclosures about transactions with a government that are accounted for by applying a grant or contribution accounting model by analogy to other accounting guidance within Topic 958, Not-for-Profit Entities, or International Accounting Standards 20, Accounting for Government Grants and Disclosure of Government Assistance. Upon adoption of ASU 2021-10, there was no significant impact to Northern Trust’s consolidated balance sheets or consolidated statements of income.

On March 31, 2022, the Securities and Exchange Commission (SEC) released Staff Accounting Bulletin No. 121 (SAB 121) which expresses the SEC staff’s view regarding the accounting for entities that have obligations to safeguard “crypto-assets” held for their platform users. SAB 121 requires that entities that perform custodial activities for crypto-assets, whether directly or through an agent acting on its behalf, should recognize a liability and a corresponding asset in respect of the crypto-assets safeguarded for their platform users, with the liability and asset measured at the fair value of the crypto-assets. SAB 121 further requires an entity to provide certain disclosures related to safeguarding obligations for crypto-assets. The guidance is effective for interim and annual periods ending after June 15, 2022, with retrospective application as of the beginning of the fiscal year to which the interim or annual period relates. Upon adoption of SAB 121, there was no impact to Northern Trust’s consolidated balance sheets or consolidated statements of income.

Notes to Consolidated Financial Statements (unaudited) (continued)

Note 3 – Fair Value Measurements

Fair Value Hierarchy. The following describes the hierarchy of valuation inputs (Levels 1, 2, and 3) used to measure fair value and the primary valuation methodologies used by Northern Trust for financial instruments measured at fair value on a recurring basis. Observable inputs reflect market data obtained from sources independent of the reporting entity; unobservable inputs reflect the entity’s own assumptions about how market participants would value an asset or liability based on the best information available. GAAP requires an entity measuring fair value to maximize the use of observable inputs and minimize the use of unobservable inputs and establishes a fair value hierarchy of inputs. Financial instruments are categorized within the hierarchy based on the lowest level input that is significant to their valuation. No transfers into or out of Level 3 occurred during the six months ended June 30, 2022 or the year ended December 31, 2021.

Level 1 — Quoted, active market prices for identical assets or liabilities.

Northern Trust’s Level 1 assets are comprised of available for sale (AFS) investments in U.S. Treasury securities.

Level 2 — Observable inputs other than Level 1 prices, such as quoted active market prices for similar assets or liabilities, quoted prices for identical or similar assets in inactive markets, and model-derived valuations in which all significant inputs are observable in active markets.

Northern Trust’s Level 2 assets include AFS and trading account debt securities, the fair values of which are determined predominantly by external pricing vendors. Prices received from vendors are compared to other vendor and third-party prices. If a security price obtained from a pricing vendor is determined to exceed predetermined tolerance levels that are assigned based on an asset type’s characteristics, the exception is researched and, if the price is not able to be validated, an alternate pricing vendor is utilized, consistent with Northern Trust’s pricing source hierarchy. As of June 30, 2022, Northern Trust’s AFS debt securities portfolio included 2,555 Level 2 debt securities with an aggregate market value of $32.4 billion. All 2,555 debt securities were valued by external pricing vendors. As of December 31, 2021, Northern Trust’s AFS debt securities portfolio included 2,547 Level 2 debt securities with an aggregate market value of $35.6 billion. All 2,547 debt securities were valued by external pricing vendors. Trading account debt securities, which totaled $0.4 million and $0.3 million as of June 30, 2022 and December 31, 2021, respectively, were all valued using external pricing vendors.

Level 2 assets and liabilities also include derivative contracts which are valued internally using widely accepted income-based models that incorporate inputs readily observable in actively quoted markets and reflect the contractual terms of the contracts. Observable inputs include foreign exchange rates and interest rates for foreign exchange contracts; credit spreads, default probabilities, and recovery rates for credit default swap contracts; interest rates for interest rate swap contracts and forward contracts; and interest rates and volatility inputs for interest rate option contracts. Northern Trust evaluates the impact of counterparty credit risk and its own credit risk on the valuation of its derivative instruments. Factors considered include the likelihood of default by Northern Trust and its counterparties, the remaining maturities of the instruments, net exposures after giving effect to master netting arrangements or similar agreements, available collateral, and other credit enhancements in determining the appropriate fair value of derivative instruments. The resulting valuation adjustments have not been considered material.

Level 3 — Valuation techniques in which one or more significant inputs are unobservable in the marketplace.

Northern Trust’s Level 3 liabilities consist of swaps that Northern Trust entered into with the purchaser of 1.1 million and 1.0 million shares of Visa Inc. Class B common stock (Visa Class B common shares) previously held by Northern Trust and sold in June 2016 and 2015, respectively. Pursuant to the swaps, Northern Trust retains the risks associated with the ultimate conversion of the Visa Class B common shares into shares of Visa Inc. Class A common stock (Visa Class A common shares), such that the counterparty will be compensated for any dilutive adjustments to the conversion ratio and Northern Trust will be compensated for any anti-dilutive adjustments to the ratio. The swaps also require periodic payments from Northern Trust to the counterparty calculated by reference to the market price of Visa Class A common shares and a fixed rate of interest. The fair value of the swaps is determined using a discounted cash flow methodology. The significant unobservable inputs used in the fair value measurement are Northern Trust’s own assumptions about estimated changes in the conversion rate of the Visa Class B common shares into Visa Class A common shares, the date on which such conversion is expected to occur and the estimated growth rate of the Visa Class A common share price. See “Visa Class B Common Shares” under Note 22 — Commitments and Contingent Liabilities for further information.

Northern Trust believes its valuation methods for its assets and liabilities carried at fair value are appropriate; however, the use of different methodologies or assumptions, particularly as applied to Level 3 assets and liabilities, could have a material effect on the computation of their estimated fair values.

The following table presents the fair values of Northern Trust’s Level 3 liabilities as of June 30, 2022 and December 31, 2021, as well as the valuation techniques, significant unobservable inputs, and quantitative information used to develop significant unobservable inputs for such liabilities as of such dates.

Notes to Consolidated Financial Statements (unaudited) (continued)

TABLE 34: LEVEL 3 SIGNIFICANT UNOBSERVABLE INPUTS


	JUNE 30, 2022
FINANCIAL INSTRUMENT	FAIR VALUE	VALUATION TECHNIQUE	UNOBSERVABLE INPUTS	INPUT VALUES	WEIGHTED-AVERAGE INPUT VALUES(1)
Swaps Related to Sale of Certain Visa Class B Common Shares	$31.1 million	Discounted Cash Flow	Conversion Rate	1.61x	1.61x
Visa Class A Appreciation	10.47%			10.47%
Expected Duration	12	-	33 months	20 months

(1) Weighted average of expected duration based on scenario probability.


	DECEMBER 31, 2021
FINANCIAL INSTRUMENT	FAIR VALUE	VALUATION TECHNIQUE	UNOBSERVABLE INPUTS	INPUT VALUES	WEIGHTED-AVERAGE INPUT VALUES(1)
Swaps Related to Sale of Certain Visa Class B Common Shares	$37.5 million	Discounted Cash Flow	Conversion Rate	1.62x	1.62x
Visa Class A Appreciation	10.10%			10.10%
Expected Duration	12	-	33 months	20 months

(1) Weighted average of expected duration based on scenario probability.

The following table presents assets and liabilities measured at fair value on a recurring basis as of June 30, 2022 and December 31, 2021, segregated by fair value hierarchy level.

TABLE 35: RECURRING BASIS HIERARCHY LEVELING


	JUNE 30, 2022
(In Millions)	LEVEL 1		LEVEL 2		LEVEL 3		NETTING		ASSETS/LIABILITIES AT FAIR VALUE
Debt Securities
Available for Sale
U.S. Government	$	2,588.4	$	—	$	—	$	—	$	2,588.4
Obligations of States and Political Subdivisions	—		3,453.3		—		—		3,453.3
Government Sponsored Agency	—		16,413.2		—		—		16,413.2
Non-U.S. Government	—		367.3		—		—		367.3
Corporate Debt	—		2,087.9		—		—		2,087.9
Covered Bonds	—		529.0		—		—		529.0
Sub-Sovereign, Supranational and Non-U.S. Agency Bonds	—		2,793.8		—		—		2,793.8
Other Asset-Backed	—		5,391.5		—		—		5,391.5
Commercial Mortgage-Backed	—		1,393.5		—		—		1,393.5
Total Available for Sale	2,588.4		32,429.5		—		—		35,017.9
Trading Account	—		0.4		—		—		0.4
Total Available for Sale and Trading Debt Securities	2,588.4		32,429.9		—		—		35,018.3
Other Assets
Derivative Assets
Foreign Exchange Contracts	—		4,761.2		—		(1,739.4)		3,021.8
Interest Rate Contracts	—		102.9		—		(51.4)		51.5
Total Derivative Assets	—		4,864.1		—		(1,790.8)		3,073.3
Other Liabilities
Derivative Liabilities
Foreign Exchange Contracts	—		4,469.0		—		(3,779.4)		689.6
Interest Rate Contracts	—		286.1		—		(22.5)		263.6
Other Financial Derivatives(1)	—		—		31.1		—		31.1
Total Derivative Liabilities	$	—	$	4,755.1	$	31.1	$	(3,801.9)	$	984.3

Note: Northern Trust has elected to net derivative assets and liabilities when legally enforceable master netting arrangements or similar agreements exist between Northern Trust and the counterparty. As of June 30, 2022, derivative assets and liabilities shown above also include reductions of $217.6 million and $2,228.8 million, respectively, as a result of cash collateral received from and deposited with derivative counterparties.

*(1)*This line consists of swaps related to the sale of certain Visa Class B common shares.

Notes to Consolidated Financial Statements (unaudited) (continued)


	DECEMBER 31, 2021
(In Millions)	LEVEL 1		LEVEL 2		LEVEL 3		NETTING		ASSETS/LIABILITIES AT FAIR VALUE
Debt Securities
Available for Sale
U.S. Government	$	2,426.1	$	—	$	—	$	—	$	2,426.1
Obligations of States and Political Subdivisions	—		3,876.1		—		—		3,876.1
Government Sponsored Agency	—		18,075.6		—		—		18,075.6
Non-U.S. Government	—		374.0		—		—		374.0
Corporate Debt	—		2,341.7		—		—		2,341.7
Covered Bonds	—		505.6		—		—		505.6
Sub-Sovereign, Supranational and Non-U.S. Agency Bonds	—		3,045.1		—		—		3,045.1
Other Asset-Backed	—		5,941.6		—		—		5,941.6
Commercial Mortgage-Backed	—		1,424.7		—		—		1,424.7
Total Available for Sale	2,426.1		35,584.4		—		—		38,010.5
Trading Account	—		0.3		—		—		0.3
Total Available for Sale and Trading Debt Securities	2,426.1		35,584.7		—		—		38,010.8
Other Assets
Derivative Assets
Foreign Exchange Contracts	—		2,207.4		—		(1,530.7)		676.7
Interest Rate Contracts	—		140.0		—		(3.1)		136.9
Total Derivative Assets	—		2,347.4		—		(1,533.8)		813.6
Other Liabilities
Derivative Liabilities
Foreign Exchange Contracts	—		1,998.8		—		(1,234.5)		764.3
Interest Rate Contracts	—		98.9		—		(48.1)		50.8
Other Financial Derivatives(1)	—		—		37.5		(0.9)		36.6
Total Derivative Liabilities	$	—	$	2,097.7	$	37.5	$	(1,283.5)	$	851.7

Note: Northern Trust has elected to net derivative assets and liabilities when legally enforceable master netting arrangements or similar agreements exist between Northern Trust and the counterparty. As of December 31, 2021, derivative assets and liabilities shown above also include reductions of $389.4 million and $139.0 million, respectively, as a result of cash collateral received from and deposited with derivative counterparties.

(1) This line consists of swaps related to the sale of certain Visa Class B common shares.

The following table presents the changes in Level 3 liabilities for the three and six months ended June 30, 2022 and 2021.

TABLE 36: CHANGES IN LEVEL 3 LIABILITIES


(In Millions)	SWAPS RELATED TO SALE OF CERTAIN VISA CLASS B COMMON SHARES
THREE MONTHS ENDED JUNE 30,	2022		2021
Fair Value at April 1	$	35.3	$	34.6
Total (Gains) Losses:
Included in Earnings(1)	5.6		8.5
Purchases, Issues, Sales, and Settlements
Settlements	(9.8)		(4.7)
Fair Value at June 30	$	31.1	$	38.4

(1) (Gains) losses are recorded in Other Operating Income on the consolidated statements of income.



SIX MONTHS ENDED JUNE 30,	2022		2021
Fair Value at January 1	$	37.5	$	35.3
Total (Gains) Losses:
Included in Earnings(1)	10.1		12.1
Purchases, Issues, Sales, and Settlements
Settlements	(16.5)		(9.0)
Fair Value at June 30	$	31.1	$	38.4

(1) (Gains) losses are recorded in Other Operating Income on the consolidated statements of income.

Notes to Consolidated Financial Statements (unaudited) (continued)

Carrying values of assets and liabilities that are not measured at fair value on a recurring basis may be adjusted to fair value in periods subsequent to their initial recognition, for example, to record an impairment of an asset. GAAP requires entities to separately disclose these subsequent fair value measurements and to classify them under the fair value hierarchy.

Assets measured at fair value on a nonrecurring basis at June 30, 2022 and December 31, 2021, all of which were categorized as Level 3 under the fair value hierarchy, were comprised of nonaccrual loans whose values were based on real estate and other available collateral, and of other real estate owned (OREO) properties.

Fair values of real estate loan collateral were estimated using a market approach typically supported by third-party valuations and property-specific fees and taxes. The fair values of real estate loan collateral were subject to adjustments to reflect management’s judgment as to realizable value and consisted of discount factors ranging from 15.0% to 20.0% with a weighted average based on fair values of 16.5% and 15.4% as of June 30, 2022 and December 31, 2021, respectively. Other loan collateral, which typically consists of accounts receivable, inventory and equipment, is valued using a market approach adjusted for asset-specific characteristics and in limited instances third-party valuations are used. OREO assets are carried at the lower of cost or fair value less estimated costs to sell, with fair value typically based on third-party appraisals.

Collateral-based nonaccrual loans that have been adjusted to fair value totaled $13.8 million and $15.0 million at June 30, 2022 and December 31, 2021, respectively.

The following table presents the fair values of Northern Trust’s Level 3 assets that were measured at fair value on a nonrecurring basis as of June 30, 2022 and December 31, 2021, as well as the valuation technique, significant unobservable inputs and quantitative information used to develop the significant unobservable inputs for such assets as of such dates.

TABLE 37: LEVEL 3 NONRECURRING BASIS SIGNIFICANT UNOBSERVABLE INPUTS


	JUNE 30, 2022
FINANCIAL INSTRUMENT	FAIR VALUE(1)	VALUATION TECHNIQUE	UNOBSERVABLE INPUTS	INPUT VALUES				WEIGHTED-AVERAGE INPUT VALUES
Loans	$13.8 million	Market Approach	Discount factor applied to real estate collateral-based loans to reflect realizable value	15.0	%	-	20.0%	16.5%

(1) Includes real estate collateral-based loans and other collateral-based loans.


	DECEMBER 31, 2021
FINANCIAL INSTRUMENT	FAIR VALUE(1)	VALUATION TECHNIQUE	UNOBSERVABLE INPUTS	INPUT VALUES				WEIGHTED-AVERAGE INPUT VALUES
Loans	$15.0 million	Market Approach	Discount factor applied to real estate collateral-based loans to reflect realizable value	15.0	%	-	20.0%	15.4%

(1) Includes real estate collateral-based loans and other collateral-based loans.

The following tables present the book value and estimated fair value, including the level within the fair value hierarchy, of Northern Trust’s financial instruments that are not measured at fair value on the consolidated balance sheets as of June 30, 2022 and December 31, 2021. The following tables exclude those items measured at fair value on a recurring basis.

Notes to Consolidated Financial Statements (unaudited) (continued)

TABLE 38: FAIR VALUE OF FINANCIAL INSTRUMENTS


	JUNE 30, 2022
					ESTIMATED FAIR VALUE
(In Millions)	BOOK VALUE		TOTAL ESTIMATED FAIR VALUE		LEVEL 1		LEVEL 2		LEVEL 3
FINANCIAL ASSETS
Cash and Due from Banks	$	5,119.8	$	5,119.8	$	5,119.8	$	—	$	—
Federal Reserve and Other Central Bank Deposits	37,933.6		37,933.6		—		37,933.6		—
Interest-Bearing Deposits with Banks	2,526.3		2,526.3		—		2,526.3		—
Federal Funds Sold	10.0		10.0		—		10.0		—
Securities Purchased under Agreements to Resell	1,171.8		1,171.8		—		1,171.8		—
Debt Securities - Held to Maturity	20,112.6		18,925.5		56.5		18,869.0		—
Loans (excluding Leases)
Held for Investment	41,058.6		40,818.8		—		—		40,818.8

Other Assets	1,304.0		1,292.8		111.2		1,181.6		—
FINANCIAL LIABILITIES
Deposits
Demand, Noninterest-Bearing, Savings, Money Market and Other Interest-Bearing	$	62,938.5	$	62,938.5	$	62,938.5	$	—	$	—
Savings Certificates and Other Time	785.0		778.6		—		778.6		—
Non U.S. Offices Interest-Bearing	69,951.1		69,951.1		—		69,951.1		—
Federal Funds Purchased	389.2		389.2		—		389.2		—
Securities Sold Under Agreements to Repurchase	799.4		799.4		—		799.4		—
Other Borrowings	3,514.9		3,513.0		—		3,513.0		—
Senior Notes	3,305.8		3,515.5		—		3,515.5		—
Long-Term Debt	1,094.1		1,083.0		—		1,083.0		—
Unfunded Commitments	276.7		276.7		—		276.7		—
Other Liabilities	84.1		84.1		—		—		84.1


	DECEMBER 31, 2021
					ESTIMATED FAIR VALUE
(In Millions)	BOOK VALUE		TOTAL ESTIMATED FAIR VALUE		LEVEL 1		LEVEL 2		LEVEL 3
FINANCIAL ASSETS
Cash and Due from Banks	$	3,056.8	$	3,056.8	$	3,056.8	$	—	$	—
Federal Reserve and Other Central Bank Deposits	64,582.2		64,582.2		—		64,582.2		—
Interest-Bearing Deposits with Banks	1,949.4		1,949.4		—		1,949.4		—
Securities Purchased under Agreements to Resell	686.4		686.4		—		686.4		—
Debt Securities - Held to Maturity	23,564.5		23,315.4		47.0		23,268.4		—
Loans (excluding Leases)
Held for Investment	40,319.3		40,208.2		—		—		40,208.2
Held for Sale	12.3		24.5		—		24.5		—
Other Assets	1,275.3		1,279.8		119.1		1,160.7		—
FINANCIAL LIABILITIES
Deposits
Demand, Noninterest-Bearing, Savings, Money Market and Other Interest-Bearing	$	83,318.6	$	83,318.6	$	83,318.6	$	—	$	—
Savings Certificates and Other Time	842.7		843.8		—		843.8		—
Non U.S. Offices Interest-Bearing	75,767.1		75,767.1		—		75,767.1		—
Federal Funds Purchased	0.2		0.2		—		0.2		—
Securities Sold Under Agreements to Repurchase	531.9		531.9		—		531.9		—
Other Borrowings	3,583.8		3,583.9		—		3,583.9		—
Senior Notes	2,505.5		2,591.4		—		2,591.4		—
Long-Term Debt	1,145.7		1,189.4		—		1,189.4		—
Unfunded Commitments	289.3		289.3		—		289.3		—
Other Liabilities	75.5		75.5		—		—		75.5

Notes to Consolidated Financial Statements (unaudited) (continued)

Note 4 – Securities

Available for Sale Debt Securities. The following tables provide the amortized cost and fair values as of June 30, 2022 and December 31, 2021, and remaining maturities of AFS debt securities as of June 30, 2022.

TABLE 39: RECONCILIATION OF AMORTIZED COST TO FAIR VALUE OF AVAILABLE FOR SALE DEBT SECURITIES


	JUNE 30, 2022
(In Millions)	AMORTIZED COST		GROSS UNREALIZED GAINS		GROSS UNREALIZED LOSSES		FAIR VALUE
U.S. Government	$	2,645.2	$	4.4	$	61.2	$	2,588.4
Obligations of States and Political Subdivisions	3,883.1		0.2		430.0		3,453.3
Government Sponsored Agency	17,151.3		13.5		751.6		16,413.2
Non-U.S. Government	396.2		—		28.9		367.3
Corporate Debt	2,163.4		0.8		76.3		2,087.9
Covered Bonds	541.6		0.3		12.9		529.0
Sub-Sovereign, Supranational and Non-U.S. Agency Bonds	2,939.6		1.7		147.5		2,793.8
Other Asset-Backed	5,663.2		—		271.7		5,391.5
Commercial Mortgage-Backed	1,468.6		—		75.1		1,393.5
Total	$	36,852.2	$	20.9	$	1,855.2	$	35,017.9


	DECEMBER 31, 2021
(In Millions)	AMORTIZED COST		GROSS UNREALIZED GAINS		GROSS UNREALIZED LOSSES		FAIR VALUE
U.S. Government	$	2,406.2	$	29.3	$	9.4	$	2,426.1
Obligations of States and Political Subdivisions	3,841.0		73.7		38.6		3,876.1
Government Sponsored Agency	18,092.1		93.7		110.2		18,075.6
Non-U.S. Government	383.4		0.1		9.5		374.0
Corporate Debt	2,319.8		31.6		9.7		2,341.7
Covered Bonds	502.6		3.9		0.9		505.6
Sub-Sovereign, Supranational and Non-U.S. Agency Bonds	3,052.4		28.1		35.4		3,045.1
Other Asset-Backed	5,962.0		11.3		31.7		5,941.6
Commercial Mortgage-Backed	1,389.0		38.9		3.2		1,424.7
Total	$	37,948.5	$	310.6	$	248.6	$	38,010.5

TABLE 40: REMAINING MATURITY OF AVAILABLE FOR SALE DEBT SECURITIES


JUNE 30, 2022	ONE YEAR OR LESS				ONE TO FIVE YEARS				FIVE TO TEN YEARS				OVER TEN YEARS				TOTAL
(In Millions)	AMORTIZED COST		FAIR VALUE		AMORTIZED COST		FAIR VALUE		AMORTIZED COST		FAIR VALUE		AMORTIZED COST		FAIR VALUE		AMORTIZED COST		FAIR VALUE
U.S. Government	$	494.8	$	495.9	$	1,901.8	$	1,873.4	$	248.6	$	219.1	$	—	$	—	$	2,645.2	$	2,588.4
Obligations of States and Political Subdivisions	28.3		28.2		721.7		689.0		3,008.0		2,632.3		125.1		103.8		3,883.1		3,453.3
Government Sponsored Agency	2,633.7		2,578.1		7,043.5		6,852.2		5,752.9		5,398.1		1,721.2		1,584.8		17,151.3		16,413.2
Non-U.S. Government	104.2		103.9		214.9		196.8		77.1		66.6		—		—		396.2		367.3
Corporate Debt	486.5		484.2		1,655.9		1,585.7		18.2		15.6		2.8		2.4		2,163.4		2,087.9
Covered Bonds	178.4		178.4		363.2		350.6		—		—		—		—		541.6		529.0
Sub-Sovereign, Supranational and Non-U.S. Agency Bonds	506.1		506.8		2,083.1		1,979.7		350.4		307.3		—		—		2,939.6		2,793.8
Other Asset-Backed	694.9		676.0		3,563.1		3,382.1		1,291.3		1,223.5		113.9		109.9		5,663.2		5,391.5
Commercial Mortgage-Backed	49.4		47.4		1,115.5		1,068.5		303.7		277.6		—		—		1,468.6		1,393.5
Total	$	5,176.3	$	5,098.9	$	18,662.7	$	17,978.0	$	11,050.2	$	10,140.1	$	1,963.0	$	1,800.9	$	36,852.2	$	35,017.9

Note: Mortgage-backed and asset-backed securities are included in the above table taking into account anticipated future prepayments.

Notes to Consolidated Financial Statements (unaudited) (continued)

Available for Sale Debt Securities with Unrealized Losses. The following table provides information regarding AFS debt securities with no credit losses reported that had been in a continuous unrealized loss position for less than twelve months and for twelve months or longer as of June 30, 2022 and December 31, 2021.

TABLE 41: AVAILABLE FOR SALE DEBT SECURITIES IN UNREALIZED LOSS POSITION WITH NO CREDIT LOSSES REPORTED


JUNE 30, 2022	LESS THAN 12 MONTHS				12 MONTHS OR LONGER				TOTAL
(In Millions)	FAIR VALUE		UNREALIZED LOSSES		FAIR VALUE		UNREALIZED LOSSES		FAIR VALUE		UNREALIZED LOSSES
U.S. Government	$	988.2	$	31.7	$	219.1	$	29.5	$	1,207.3	$	61.2
Obligations of States and Political Subdivisions	2,492.4		261.3		871.9		168.7		3,364.3		430.0
Government Sponsored Agency	11,012.3		348.4		3,833.4		403.2		14,845.7		751.6
Non-U.S. Government	168.4		3.4		198.9		25.5		367.3		28.9
Corporate Debt	1,653.9		57.9		53.3		5.6		1,707.2		63.5
Covered Bonds	407.2		12.9		—		—		407.2		12.9
Sub-Sovereign, Supranational and Non-U.S. Agency Bonds	1,238.1		58.7		731.4		82.1		1,969.5		140.8
Other Asset-Backed	5,120.4		253.0		271.1		18.7		5,391.5		271.7
Commercial Mortgage-Backed	1,346.5		69.3		47.0		5.8		1,393.5		75.1
Total	$	24,427.4	$	1,096.6	$	6,226.1	$	739.1	$	30,653.5	$	1,835.7

Note: Five corporate debt AFS securities with a fair value of $144.4 million and unrealized losses of $12.8 million and one sub-sovereign, supranational and non-U.S. agency bonds AFS securities with a fair value of $70.7 million and unrealized losses of $6.7 million have been excluded from the table above as these AFS securities have a $1.7 million allowance for credit losses reported as of June 30, 2022. Refer to the discussion further below and Note 7 - Allowance for Credit Losses for further information.


DECEMBER 31, 2021	LESS THAN 12 MONTHS				12 MONTHS OR LONGER				TOTAL
(In Millions)	FAIR VALUE		UNREALIZED LOSSES		FAIR VALUE		UNREALIZED LOSSES		FAIR VALUE		UNREALIZED LOSSES
U.S. Government	$	239.0	$	9.4	$	—	$	—	$	239.0	$	9.4
Obligations of States and Political Subdivisions	1,699.5		37.4		31.6		1.2		1,731.1		38.6
Government Sponsored Agency	8,207.3		90.2		1,821.4		20.0		10,028.7		110.2
Non-U.S. Government	230.0		9.5		—		—		230.0		9.5
Corporate Debt	693.7		9.7		—		—		693.7		9.7
Covered Bonds	92.1		0.9		—		—		92.1		0.9
Sub-Sovereign, Supranational and Non-U.S. Agency Bonds	1,116.8		31.9		172.3		3.5		1,289.1		35.4
Other Asset-Backed	3,815.5		31.4		11.7		0.3		3,827.2		31.7
Commercial Mortgage-Backed	566.8		3.2		—		—		566.8		3.2
Total	$	16,660.7	$	223.6	$	2,037.0	$	25.0	$	18,697.7	$	248.6

As of June 30, 2022, 2,484 AFS debt securities with a combined fair value of $30.7 billion were in an unrealized loss position, with their unrealized losses totaling $1.8 billion. As of June 30, 2022, unrealized losses related to AFS debt securities of $751.6 million and $430.0 million related to government-sponsored agency securities and obligations of states and political subdivisions, respectively, are primarily attributable to changes in market interest rates and credit spreads since their purchase.

As of December 31, 2021, 1,233 AFS debt securities with a combined fair value of $18.7 billion were in an unrealized loss position, with their unrealized losses totaling $248.6 million. As of December 31, 2021, unrealized losses related to AFS debt securities 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.

12% and 14% of the AFS corporate debt securities portfolio were backed by guarantees provided by U.S. and non-U.S. governmental entities as of June 30, 2022 and December 31, 2021, respectively. The remaining unrealized losses on Northern Trust’s AFS debt securities portfolio as of June 30, 2022 and December 31, 2021 are attributable to changes in overall market interest rates or credit spreads.

As of June 30, 2022, Northern Trust did not intend to sell any AFS debt securities in an unrealized loss position and it was more likely than not that Northern Trust would not be required to sell any such investment before the recovery of its amortized cost basis, which may be maturity.

AFS debt securities impairment reviews are conducted quarterly to identify and evaluate securities that have indications of possible credit losses. A determination as to whether a security’s decline in market value is related to credit impairment takes into consideration numerous factors and the relative significance of any single factor can vary by security. Factors Northern Trust considers in determining whether impairment is credit-related include, but are not limited to, the severity of the impairment; the cause of the impairment and the financial condition and near-term prospects of the issuer; activity in the market

Notes to Consolidated Financial Statements (unaudited) (continued)

of the issuer, which may indicate adverse credit conditions; Northern Trust’s intent regarding the sale of the security as of the balance sheet date; and the likelihood that Northern Trust will not be required to sell the security for a period of time sufficient to allow for the recovery of the security’s amortized cost basis. For each security meeting the requirements of Northern Trust’s internal screening process, an extensive review is conducted to determine if a credit loss has occurred.

There was a $1.3 million and a $1.7 provision for credit losses for AFS securities for the three and six months ended June 30, 2022, respectively. There was no provision for credit losses for AFS securities for the three and six months ended June 30, 2021. There was a $1.7 million allowance for credit losses for AFS securities as of June 30, 2022 which was primarily corporate debt securities and no allowance for credit losses for AFS securities as of December 31, 2021. The process for identifying credit losses for AFS securities is based on the best estimate of cash flows to be collected from the security, discounted using the security’s effective interest rate. If the present value of the expected cash flows is found to be less than the current amortized cost of the security, an allowance for credit losses is generally recorded equal to the difference between the two amounts, limited to the amount the amortized cost basis exceeds the fair value of the security. For additional information, please refer to Note 7 — Allowance for Credit Losses.

Held to Maturity Debt Securities. The following tables provide the amortized cost and fair values as of June 30, 2022 and December 31, 2021, and remaining maturities of held to maturity (HTM) debt securities as of June 30, 2022.

TABLE 42: RECONCILIATION OF AMORTIZED COST TO FAIR VALUE OF HELD TO MATURITY DEBT SECURITIES


	JUNE 30, 2022
(In Millions)	AMORTIZED COST		GROSS UNREALIZED GAINS		GROSS UNREALIZED LOSSES		FAIR VALUE
U.S Government	$	56.9	$	0.1	$	0.5	$	56.5

Government Sponsored Agency	5,806.7		0.1		582.5		5,224.3
Non-U.S. Government	3,097.0		0.1		79.5		3,017.6
Corporate Debt	873.2		—		32.6		840.6
Covered Bonds	2,678.3		0.4		101.5		2,577.2
Certificates of Deposit	554.3		—		—		554.3
Sub-Sovereign, Supranational and Non-U.S. Agency Bonds	6,065.8		1.9		273.6		5,794.1
Other Asset-Backed	496.1		—		1.4		494.7
Other	484.3		—		118.1		366.2
Total	$	20,112.6	$	2.6	$	1,189.7	$	18,925.5


	DECEMBER 31, 2021
(In Millions)	AMORTIZED COST		GROSS UNREALIZED GAINS		GROSS UNREALIZED LOSSES		FAIR VALUE
U.S. Government	$	47.0	$	—	$	—	$	47.0
Obligations of States and Political Subdivisions	0.8		—		—		0.8
Government Sponsored Agency	5,927.6		1.1		106.1		5,822.6
Non-U.S. Government	5,773.3		3.9		9.8		5,767.4
Corporate Debt	901.8		2.5		6.5		897.8
Covered Bonds	2,942.4		8.3		9.6		2,941.1
Certificates of Deposit	674.7		—		—		674.7
Sub-Sovereign, Supranational and Non-U.S. Agency Bonds	6,098.0		14.3		80.0		6,032.3
Other Asset-Backed	682.6		1.0		—		683.6
Other	516.3		3.4		71.6		448.1
Total	$	23,564.5	$	34.5	$	283.6	$	23,315.4

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 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 unrealized losses 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.

Notes to Consolidated Financial Statements (unaudited) (continued)

TABLE 43: REMAINING MATURITY OF HELD TO MATURITY DEBT SECURITIES


JUNE 30, 2022	ONE YEAR OR LESS				ONE TO FIVE YEARS				FIVE TO TEN YEARS				OVER TEN YEARS				TOTAL
(In Millions)	Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value
U.S. Government	$	56.9	$	56.5	$	—	$	—	$	—	$	—	$	—	$	—	$	56.9	$	56.5

Government Sponsored Agency	640.5		583.4		1,865.3		1,689.6		2,094.9		1,872.7		1,206.0		1,078.6		5,806.7		5,224.3
Non-U.S. Government	1,615.6		1,614.0		1,335.0		1,269.4		146.4		134.2		—		—		3,097.0		3,017.6
Corporate Debt	228.8		228.0		629.6		600.0		14.8		12.6		—		—		873.2		840.6
Covered Bonds	489.6		489.5		1,678.4		1,630.4		510.3		457.3		—		—		2,678.3		2,577.2
Certificates of Deposit	554.3		554.3		—		—		—		—		—		—		554.3		554.3
Sub-Sovereign, Supranational and Non-U.S. Agency Bonds	932.8		931.7		4,752.8		4,523.6		380.2		338.8		—		—		6,065.8		5,794.1
Other Asset-Backed	58.1		58.0		344.8		344.0		93.2		92.7		—		—		496.1		494.7
Other	24.5		23.9		286.1		258.2		57.5		45.4		116.2		38.7		484.3		366.2
Total	$	4,601.1	$	4,539.3	$	10,892.0	$	10,315.2	$	3,297.3	$	2,953.7	$	1,322.2	$	1,117.3	$	20,112.6	$	18,925.5

Note: Mortgage-backed and asset-backed securities are included in the above table taking into account anticipated future prepayments.

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 in 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.

Credit Quality Indicators. The following table provides the amortized cost of HTM debt securities by credit rating.

TABLE 44: 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		%

Notes to Consolidated Financial Statements (unaudited) (continued)


	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		%

Credit quality indicators are metrics that provide information regarding the relative credit risk of debt securities. Northern Trust maintains a high quality debt securities portfolio, with 94% of the HTM portfolio at both June 30, 2022 and December 31, 2021, respectively, comprised of securities rated A or higher. The remaining HTM debt securities portfolio was comprised of 1% rated BBB at both June 30, 2022 and December 31, 2021, respectively, and 5% not rated by Moody’s, S&P Global, or Fitch Ratings at both June 30, 2022 and December 31, 2021, respectively. Securities not explicitly rated were grouped where possible under the credit rating of the issuer of the security.

Investment Security Gains and Losses. There were no sales of debt securities during the three and six months ended June 30, 2022 and 2021. There were no net investment security (losses) gains for the three and six months ended June 30, 2022 and 2021.

Note 5 – Securities Sold Under Agreements to Repurchase

Securities sold under agreements to repurchase are accounted for as collateralized financings and recorded at the amounts at which the securities were sold plus accrued interest. To minimize any potential credit risk associated with these transactions, the fair value of the securities sold is monitored, limits are set on exposure with counterparties, and the financial condition of counterparties is regularly assessed. Securities sold under agreements to repurchase are either directly held by, or pledged to the counterparty until the repurchase. Northern Trust nets securities sold under repurchase agreements against those purchased under resale agreements when the Fixed Income Clearing Corporation (FICC) is the counterparty.

The following table provides information regarding repurchase agreements that are accounted for as secured borrowings as of June 30, 2022 and December 31, 2021.

TABLE 45: REPURCHASE AGREEMENTS ACCOUNTED FOR AS SECURED BORROWINGS


	REMAINING CONTRACTUAL MATURITY OF THE AGREEMENTS
	JUNE 30, 2022						DECEMBER 31, 2021
($ In Millions)	OVERNIGHT AND CONTINUOUS		UP TO 30 DAYS		TOTAL		OVERNIGHT AND CONTINUOUS		UP TO 30 DAYS		TOTAL
U.S. Treasury and Agency Securities	$	799.4	$	—	$	799.4	$	32.4	$	499.5	$	531.9
Total Borrowings	799.4		—		799.4		32.4		499.5		531.9
Net Amount of Recognized Liabilities for Repurchase Agreements in Note 24	799.4		—		799.4		32.4		499.5		531.9
Amounts related to agreements not included in Note 24	—		—		—		—		—		—

Notes to Consolidated Financial Statements (unaudited) (continued)

Note 6 – Loans and Leases

Amounts outstanding for Loans and Leases, by segment and class, are shown in the following table.

TABLE 46: LOANS AND LEASES


(In Millions)	JUNE 30, 2022		DECEMBER 31, 2021
Commercial
Commercial and Institutional	$	12,138.4	$	11,489.2
Commercial Real Estate	4,299.9		4,326.3
Non-U.S.	2,881.1		1,990.2
Lease Financing, net	11.0		11.0
Other	1,096.4		670.7
Total Commercial	20,426.8		18,487.4
Personal
Private Client	13,887.1		15,256.3
Residential Real Estate	6,383.2		6,319.9
Non-U.S.	491.7		381.8
Other	19.0		35.2
Total Personal	20,781.0		21,993.2
Total Loans and Leases	$	41,207.8	$	40,480.6

Residential real estate loans consist of traditional first lien mortgages and equity credit lines that generally require a loan-to-collateral value of no more than 65% to 80% at inception. Northern Trust’s equity credit line products generally have draw periods of up to 10 years and a balloon payment of any outstanding balance is due at maturity. Payments are interest-only with variable interest rates. Northern Trust does not offer equity credit lines that include an option to convert the outstanding balance to an amortizing payment loan. As of June 30, 2022 and December 31, 2021, equity credit lines totaled $252.0 million and $258.2 million, respectively, and equity credit lines for which first liens were held by Northern Trust represented 98% and 97% of the total equity credit lines as of June 30, 2022 and December 31, 2021, respectively.

Included within the non-U.S., commercial-other and personal-other classes are short-duration advances primarily related to the processing of custodied client investments, totaling $2.6 billion at June 30, 2022 and $1.6 billion at December 31, 2021, respectively. Demand deposit overdrafts reclassified as loan balances totaled $16.8 million and $8.0 million at June 30, 2022 and December 31, 2021, respectively. There were no loans classified as held for sale at June 30, 2022 as compared to $12.3 million at December 31, 2021, which related to the decision to exit a non-strategic loan portfolio. Loans classified as held for sale are recorded at the lower of cost or fair value.

As of June 30, 2022 and December 31, 2021, there were no leases classified as held for sale.

Paycheck Protection Program (PPP). 39 and 182 loans were forgiven, of which 1 loan was partially forgiven, through the PPP loan forgiveness process which resulted in $10.5 million and $51.8 million of loan principal and interest being forgiven during the three and six months ended June 30, 2022, respectively. The 1 partially forgiven loan had $0.2 million of loan principal and interest being forgiven during the three and six months ended June 30, 2022. 1,301 loans were forgiven through the PPP loan forgiveness process which resulted in $231.5 million of loan principal and interest being forgiven during the year ended December 31, 2021.

As of June 30, 2022, Northern Trust had 30 outstanding loans totaling $5.3 million under the PPP in its commercial and institutional portfolio with an average loan balance of $0.2 million. As of December 31, 2021, Northern Trust had 213 outstanding loans totaling $56.9 million under the PPP in its commercial and institutional portfolio with an average loan balance of $0.3 million.

Northern Trust accounts for loans originated under the PPP as loan receivables in accordance with Accounting Standards Codification (ASC) 310 and recognizes such loans at the principal amount less the net amount of loan origination fees. PPP loans are reported in Total Loans and Leases on the consolidated balance sheets.

The SBA provides a 100% guarantee on PPP loans covering principal and interest. Northern Trust considers the risk mitigating effects of these guarantees, and accounts for them as a credit enhancement embedded in the contract. As a result, no allowance for credit losses is measured for Northern Trust’s exposure under the PPP.

Notes to Consolidated Financial Statements (unaudited) (continued)

Credit Quality Indicators. Credit quality indicators are statistics, measurements or other metrics that provide information regarding the relative credit risk of loans and leases. Northern Trust utilizes a variety of credit quality indicators to assess the credit risk of loans and leases at the segment, class, and individual credit exposure levels.

As part of its credit process, Northern Trust utilizes an internal borrower risk rating system to support identification, approval, and monitoring of credit risk. Borrower risk ratings are used in credit underwriting and management reporting. Risk ratings are used for ranking the credit risk of borrowers and the probability of their default. Each borrower is rated using one of a number of ratings models, which consider both quantitative and qualitative factors. The ratings models vary among classes of loans and leases in order to capture the unique risk characteristics inherent within each particular type of credit exposure. Provided below are the more significant performance indicator attributes considered within Northern Trust’s borrower rating models, by loan and lease class.

Commercial and Institutional: leverage, profit margin, liquidity, asset size and capital levels;
Commercial Real Estate: debt service coverage, loan-to-value ratio, leasing status and guarantor support;
Lease Financing and Commercial-Other: leverage, profit margin, liquidity, asset size and capital levels;
Non-U.S.: leverage, profit margin, liquidity, return on assets and capital levels;
Residential Real Estate: payment history, credit bureau scores and loan-to-value ratio;
Private Client: cash-flow-to-debt and net worth ratios, leverage and liquidity; and
Personal-Other: cash-flow-to-debt and net worth ratios.

While the criteria vary by model, the objective is for the borrower ratings to be consistent in both the measurement and ranking of risk. Each model is calibrated to a master rating scale to support this consistency. Ratings for borrowers not in default range from “1” for the strongest credits to “7” for the weakest non-defaulted credits. Ratings of “8” or “9” are used for defaulted borrowers. Borrower risk ratings are monitored and are revised when events or circumstances indicate a change is required. Risk ratings are generally validated at least annually.

Loan and lease segment and class balances as of June 30, 2022 and December 31, 2021 are provided in the following table, segregated by borrower ratings into “1 to 3,” “4 to 5” and “6 to 9” (watch list and nonaccrual status) categories by year of origination at amortized cost basis. Loans that are held for investment are reported at the principal amount outstanding, net of unearned income.

Notes to Consolidated Financial Statements (unaudited) (continued)

TABLE 47: CREDIT QUALITY INDICATOR AT AMORTIZED COST BASIS BY ORIGINATION YEAR


June 30, 2022	TERM LOANS AND LEASES												REVOLVING LOANS		REVOLVING LOANS CONVERTED TO TERM LOANS
(In Millions)	2022		2021		2020		2019		2018		PRIOR		TOTAL
Commercial
Commercial and Institutional
Risk Rating:
1 to 3 Category	$	442.6	$	1,133.2	$	357.0	$	296.7	$	56.7	$	551.7	$	5,507.1	$	17.8	$	8,362.8
4 to 5 Category	466.7		794.3		305.1		318.1		155.9		256.6		1,306.7		33.8		3,637.2
6 to 9 Category	—		31.4		—		25.7		25.6		5.5		50.3		—		138.5
Total Commercial and Institutional	909.3		1,958.9		662.1		640.5		238.2		813.8		6,864.0		51.6		12,138.4
Commercial Real Estate
Risk Rating:
1 to 3 Category	190.3		471.6		235.6		181.9		44.2		62.9		189.6		2.1		1,378.2
4 to 5 Category	231.0		884.1		598.2		502.9		192.6		340.8		78.7		21.7		2,850.0
6 to 9 Category	7.8		11.4		—		50.0		—		—		2.5		—		71.7
Total Commercial Real Estate	429.1		1,367.1		833.8		734.8		236.8		403.7		270.8		23.8		4,299.9
Non-U.S.
Risk Rating:
1 to 3 Category	982.3		62.0		108.7		43.5		—		6.5		646.0		—		1,849.0
4 to 5 Category	602.5		19.1		—		—		—		300.8		64.5		1.8		988.7
6 to 9 Category	0.1		—		—		23.1		—		—		20.2		—		43.4
Total Non-U.S.	1,584.9		81.1		108.7		66.6		—		307.3		730.7		1.8		2,881.1
Lease Financing, net
Risk Rating:


6 to 9 Category	—		—		—		—		—		11.0		—		—		11.0
Total Lease Financing, net	—		—		—		—		—		11.0		—		—		11.0
Other
Risk Rating:
1 to 3 Category	564.7		—		—		—		—		—		—		—		564.7
4 to 5 Category	531.7		—		—		—		—		—		—		—		531.7
Total Other	1,096.4		—		—		—		—		—		—		—		1,096.4
Total Commercial	4,019.7		3,407.1		1,604.6		1,441.9		475.0		1,535.8		7,865.5		77.2		20,426.8
Personal
Private Client
Risk Rating:
1 to 3 Category	275.4		323.7		138.0		343.8		19.6		159.0		5,835.0		29.8		7,124.3
4 to 5 Category	181.2		676.1		206.3		231.5		44.1		65.1		5,104.1		209.1		6,717.5
6 to 9 Category	23.8		1.0		0.1		—		19.5		—		0.9		—		45.3
Total Private Client	480.4		1,000.8		344.4		575.3		83.2		224.1		10,940.0		238.9		13,887.1
Residential Real Estate
Risk Rating:
1 to 3 Category	608.3		847.1		578.5		197.6		94.0		816.1		185.4		—		3,327.0
4 to 5 Category	194.2		510.7		648.5		292.9		190.3		980.2		185.2		1.0		3,003.0
6 to 9 Category	—		7.0		1.5		2.0		1.4		39.7		1.6		—		53.2
Total Residential Real Estate	802.5		1,364.8		1,228.5		492.5		285.7		1,836.0		372.2		1.0		6,383.2
Non-U.S.
Risk Rating:
1 to 3 Category	2.6		16.1		—		1.0		1.7		0.1		115.1		—		136.6
4 to 5 Category	17.0		28.3		—		21.0		3.3		33.0		244.5		7.8		354.9
6 to 9 Category	—		—		—		—		—		0.2		—		—		0.2
Total Non-U.S.	19.6		44.4		—		22.0		5.0		33.3		359.6		7.8		491.7
Other
Risk Rating:
1 to 3 Category	1.0		—		—		—		—		—		—		—		1.0
4 to 5 Category	18.0		—		—		—		—		—		—		—		18.0
6 to 9 Category	—		—		—		—		—		—		—		—		—
Total Other	19.0		—		—		—		—		—		—		—		19.0
Total Personal	1,321.5		2,410.0		1,572.9		1,089.8		373.9		2,093.4		11,671.8		247.7		20,781.0
Total Loans and Leases	$	5,341.2	$	5,817.1	$	3,177.5	$	2,531.7	$	848.9	$	3,629.2	$	19,537.3	$	324.9	$	41,207.8

Notes to Consolidated Financial Statements (unaudited) (continued)


December 31, 2021	TERM LOANS AND LEASES												REVOLVING LOANS		REVOLVING LOANS CONVERTED TO TERM LOANS
(In Millions)	2021		2020		2019		2018		2017		PRIOR		TOTAL
Commercial
Commercial and Institutional
Risk Rating:
1 to 3 Category	$	1,042.0	$	310.2	$	468.9	$	163.9	$	55.4	$	541.6	$	4,946.0	$	0.1	$	7,528.1
4 to 5 Category	993.4		441.7		406.7		193.6		243.3		230.2		1,217.8		33.1		3,759.8
6 to 9 Category	44.0		6.0		47.1		30.2		9.9		1.9		62.2		—		201.3
Total Commercial and Institutional	2,079.4		757.9		922.7		387.7		308.6		773.7		6,226.0		33.2		11,489.2
Commercial Real Estate
Risk Rating:
1 to 3 Category	472.0		298.7		279.8		65.8		16.6		79.5		67.5		2.9		1,282.8
4 to 5 Category	912.7		644.8		491.5		205.4		89.6		390.6		182.3		20.5		2,937.4
6 to 9 Category	50.1		—		50.6		—		—		2.9		2.5		—		106.1
Total Commercial Real Estate	1,434.8		943.5		821.9		271.2		106.2		473.0		252.3		23.4		4,326.3
Non-U.S.
Risk Rating:
1 to 3 Category	816.5		68.9		38.4		—		9.1		—		582.0		—		1,514.9
4 to 5 Category	167.0		—		—		1.9		—		191.9		73.3		1.8		435.9
6 to 9 Category	2.9		—		23.1		—		—		—		13.4		—		39.4
Total Non-U.S.	986.4		68.9		61.5		1.9		9.1		191.9		668.7		1.8		1,990.2
Lease Financing, net
Risk Rating:
6 to 9 Category	—		—		—		—		—		11.0		—		—		11.0
Total Lease Financing, net	—		—		—		—		—		11.0		—		—		11.0
Other
Risk Rating:
1 to 3 Category	551.5		—		—		—		—		—		—		—		551.5
4 to 5 Category	119.2		—		—		—		—		—		—		—		119.2
Total Other	670.7		—		—		—		—		—		—		—		670.7
Total Commercial	5,171.3		1,770.3		1,806.1		660.8		423.9		1,449.6		7,147.0		58.4		18,487.4
Personal
Private Client
Risk Rating:
1 to 3 Category	432.5		116.6		90.3		14.9		39.3		129.8		7,592.8		44.7		8,460.9
4 to 5 Category	567.8		335.2		396.9		213.3		55.0		39.9		4,979.8		178.3		6,766.2
6 to 9 Category	1.9		2.4		3.0		20.4		—		—		1.5		—		29.2
Total Private Client	1,002.2		454.2		490.2		248.6		94.3		169.7		12,574.1		223.0		15,256.3
Residential Real Estate
Risk Rating:
1 to 3 Category	1,018.1		660.3		213.0		110.4		139.8		763.1		161.5		—		3,066.2
4 to 5 Category	434.0		676.6		325.5		190.9		172.1		1,145.9		218.1		2.2		3,165.3
6 to 9 Category	0.3		9.9		6.5		5.3		6.3		55.1		5.0		—		88.4
Total Residential Real Estate	1,452.4		1,346.8		545.0		306.6		318.2		1,964.1		384.6		2.2		6,319.9
Non-U.S.
Risk Rating:
1 to 3 Category	27.5		—		1.2		—		—		1.0		44.1		—		73.8
4 to 5 Category	36.1		—		20.6		10.4		—		3.8		229.1		7.8		307.8
6 to 9 Category	—		—		—		—		—		0.2		—		—		0.2
Total Non-U.S.	63.6		—		21.8		10.4		—		5.0		273.2		7.8		381.8
Other
Risk Rating:
1 to 3 Category	13.4		—		—		—		—		—		—		—		13.4
4 to 5 Category	21.8		—		—		—		—		—		—		—		21.8
Total Other	35.2		—		—		—		—		—		—		—		35.2
Total Personal	2,553.4		1,801.0		1,057.0		565.6		412.5		2,138.8		13,231.9		233.0		21,993.2
Total Loans and Leases	$	7,724.7	$	3,571.3	$	2,863.1	$	1,226.4	$	836.4	$	3,588.4	$	20,378.9	$	291.4	$	40,480.6

Notes to Consolidated Financial Statements (unaudited) (continued)

Loans and leases in the “1 to 3” category are expected to exhibit minimal to modest probabilities of default and are characterized by borrowers having the strongest financial qualities, including above average financial flexibility, cash flows and capital levels. Borrowers assigned these ratings are anticipated to experience very little to moderate financial pressure in adverse down-cycle scenarios. As a result of these characteristics, borrowers within this category exhibit a minimal to modest likelihood of loss.

Loans and leases in the “4 to 5” category are expected to exhibit moderate to acceptable probabilities of default and are characterized by borrowers with less financial flexibility than those in the “1 to 3” category. Cash flows and capital levels are generally sufficient to allow for borrowers to meet current requirements, but have fewer financial resources to manage through economic downturns. As a result of these characteristics, borrowers within this category exhibit a moderate likelihood of loss.

Loans and leases in the watch list category have elevated credit risk profiles that are monitored through internal watch lists, and consist of credits with borrower ratings of “6 to 9.” These credits, which include all nonaccrual credits, are expected to exhibit minimally acceptable probabilities of default, elevated risk of default, or are currently in default. Borrowers associated with these risk profiles that are not currently in default have limited financial flexibility. Cash flows and capital levels range from acceptable to potentially insufficient to meet current requirements, particularly in adverse down cycle scenarios. As a result of these characteristics, borrowers in this category exhibit an elevated to probable likelihood of loss.

Past Due Status. Past due status is based on the length of time from the contractual due date a principal or interest payment has been past due. For disclosure purposes, loans and leases that are 29 days past due or less are reported as current.

The following table provides balances and delinquency status of accrual and nonaccrual loans and leases by segment and class, as well as the other real estate owned and nonaccrual asset balances, as of June 30, 2022 and December 31, 2021.

TABLE 48: DELINQUENCY STATUS


	ACCRUAL														NONACCRUAL WITH NO ALLOWANCE
(In Millions)	CURRENT		30 – 59 DAYS PAST DUE		60 – 89 DAYS PAST DUE		90 DAYS OR MORE PAST DUE		TOTAL ACCRUAL		NONACCRUAL		TOTAL LOANS AND LEASES
June 30, 2022
Commercial
Commercial and Institutional	$	11,943.9	$	105.9	$	60.6	$	9.7	$	12,120.1	$	18.3	$	12,138.4	$	3.6
Commercial Real Estate	4,252.3		2.6		2.7		—		4,257.6		42.3		4,299.9		31.9
Non-U.S.	2,881.1		—		—		—		2,881.1		—		2,881.1		—
Lease Financing, net	—		—		—		—		—		11.0		11.0		11.0
Other	1,096.4		—		—		—		1,096.4		—		1,096.4		—
Total Commercial	20,173.7		108.5		63.3		9.7		20,355.2		71.6		20,426.8		46.5
Personal
Private Client	13,718.5		127.6		13.9		27.1		13,887.1		—		13,887.1		—
Residential Real Estate	6,365.0		—		—		0.1		6,365.1		18.1		6,383.2		18.1
Non-U.S.	487.2		4.5		—		—		491.7		—		491.7		—
Other	19.0		—		—		—		19.0		—		19.0		—
Total Personal	20,589.7		132.1		13.9		27.2		20,762.9		18.1		20,781.0		18.1
Total Loans and Leases	$	40,763.4	$	240.6	$	77.2	$	36.9	$	41,118.1	$	89.7	$	41,207.8	$	64.6
	Other Real Estate Owned										$	0.1
	Total Nonaccrual Assets										$	89.8

Notes to Consolidated Financial Statements (unaudited) (continued)


	ACCRUAL														NONACCRUAL WITH NO ALLOWANCE
(In Millions)	CURRENT		30 – 59 DAYS PAST DUE		60 – 89 DAYS PAST DUE		90 DAYS OR MORE PAST DUE		TOTAL ACCRUAL		NONACCRUAL		TOTAL LOANS AND LEASES
December 31, 2021
Commercial
Commercial and Institutional	$	11,434.7	$	32.5	$	2.1	$	0.4	$	11,469.7	$	19.5	$	11,489.2	$	8.8
Commercial Real Estate	4,256.6		3.1		—		—		4,259.7		66.6		4,326.3		52.3
Non-U.S.	1,990.2		—		—		—		1,990.2		—		1,990.2		—
Lease Financing, net	11.0		—		—		—		11.0		—		11.0		—
Other	670.7		—		—		—		670.7		—		670.7		—
Total Commercial	18,363.2		35.6		2.1		0.4		18,401.3		86.1		18,487.4		61.1
Personal
Private Client	14,927.3		229.5		71.8		27.7		15,256.3		—		15,256.3		—
Residential Real Estate	6,273.2		7.0		3.3		0.2		6,283.7		36.2		6,319.9		36.2
Non-U.S	381.6		0.2		—		—		381.8		—		381.8		—
Other	35.2		—		—		—		35.2		—		35.2		—
Total Personal	21,617.3		236.7		75.1		27.9		21,957.0		36.2		21,993.2		36.2
Total Loans and Leases	$	39,980.5	$	272.3	$	77.2	$	28.3	$	40,358.3	$	122.3	$	40,480.6	$	97.3
	Other Real Estate Owned										$	3.0
	Total Nonaccrual Assets										$	125.3

Interest income that would have been recorded for nonaccrual loans and leases in accordance with their original terms was $1.0 million and $2.1 million for the three and six months ended June 30, 2022, and $0.8 million and $1.7 million for the three and six months ended June 30, 2021, respectively.

Collateral Dependent Financial Assets. A financial asset is collateral-dependent when the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the sale or operation of the collateral. Most of Northern Trust’s collateral dependent credit exposure relates to its residential real estate portfolio for which the collateral is usually the underlying real estate property. For collateral-dependent financial assets, it is Northern Trust’s policy to reserve or charge-off the difference between the amortized cost basis of the loan and the value of the collateral. The collateral-dependent financial asset balance as of June 30, 2022 was immaterial to Northern Trust’s financial statements.

Recognition of Income. Interest income on loans and leases is recorded on an accrual basis unless, in the opinion of management, there is a question as to the ability of the debtor to meet the terms of the loan agreement, or interest or principal is more than 90 days contractually past due and the loan is not well-secured and in the process of collection. Loans meeting such criteria are classified as nonaccrual and interest income is recorded on a cash basis. At the time a loan is determined to be nonaccrual, interest accrued but not collected is reversed against interest income in the current period. Interest collected on nonaccrual loans is applied to principal unless, in the opinion of management, collectability of principal is not in doubt. Management’s assessment of the indicators of loan and lease collectability, and its policies relative to the recognition of interest income, including the suspension and subsequent resumption of income recognition, do not meaningfully vary between loan and lease classes. Nonaccrual loans are returned to accrual status when factors indicating doubtful collectability no longer exist. Factors considered in returning a loan to accrual status are consistent across all classes of loans and leases and, in accordance with regulatory guidance, relate primarily to expected payment performance. Loans are eligible to be returned to accrual status when: (i) no principal or interest that is due is unpaid and repayment of the remaining contractual principal and interest is expected or (ii) the loan has otherwise become well-secured (possessing realizable value sufficient to discharge the debt, including accrued interest, in full) and is in the process of collection (through action reasonably expected to result in debt repayment or restoration to a current status in the near future). A loan that has not been brought fully current may be restored to accrual status provided there has been a sustained period of repayment performance (generally a minimum of six payment periods) by the borrower in accordance with the contractual terms, and Northern Trust is reasonably assured of repayment within a reasonable period of time. Additionally, a loan that has been formally restructured so as to be reasonably assured of repayment and performance according to its modified terms may be returned to accrual status, provided there was a well-documented credit evaluation of the borrower’s financial condition and prospects of repayment under the revised terms and there has been a sustained period of repayment performance (generally a minimum of six payment periods) under the revised terms.

Nonaccrual Loans and Troubled Debt Restructurings (TDRs). A loan that has been modified as a concession by Northern Trust or a bankruptcy court resulting from the debtor’s financial difficulties is referred to as a troubled debt restructuring (TDR). All TDRs are reported starting in the calendar year of their restructuring. In subsequent years, a TDR may cease being reported if the loan was modified at a market rate and has performed according to the modified terms for at least six payment

Notes to Consolidated Financial Statements (unaudited) (continued)

periods. A loan that has been modified at a below market rate will return to accrual status if it satisfies the six-payment-period performance requirement.

The expected credit loss is measured based upon the present value of expected future cash flows, discounted at the effective interest rate based on the original contractual rate. If a loan’s contractual interest rate varies based on subsequent changes in an independent factor, such as an index or rate, the loan’s effective interest rate is calculated based on the factor as it changes over the life of the loan. Northern Trust elected not to project changes in the factor for purposes of estimating expected future cash flows. Further, Northern Trust elected not to adjust the effective interest rate for prepayments. If the loan is collateral dependent, the expected loss is measured based on the fair value of the collateral at the reporting date.

If the loan valuation is less than the recorded value of the loan, either an allowance is established or a charge-off is recorded for the difference. Smaller balance (individually less than $1 million) homogeneous loans are collectively evaluated. Northern Trust’s accounting policies for material nonaccrual loans is consistent across all classes of loans and leases.

All loans and leases with TDR modifications are evaluated for additional expected credit losses. The nature and extent of further deterioration in credit quality, including a subsequent default, is considered in the determination of an appropriate level of allowance for credit losses.

Included within nonaccrual loans were $37.6 million and $76.7 million of nonaccrual TDRs, and $16.2 million and $16.5 million of accrual TDRs as of June 30, 2022 and December 31, 2021, respectively.

There were $0.2 million of aggregate undrawn loan commitments and standby letters of credit at both June 30, 2022 and December 31, 2021, respectively, issued to borrowers with TDR modifications of loans.

The following table provides, by segment and class, the number of TDR modifications of loans and leases during the three- and six- months ended June 30, 2022 and 2021, and the recorded investments and unpaid principal balances as of June 30, 2022 and 2021.

TABLE 49: TROUBLED DEBT RESTRUCTURINGS


	THREE MONTHS ENDED JUNE 30, 2022					SIX MONTHS ENDED JUNE 30, 2022
($ In Millions)	NUMBER OF LOANS AND LEASES	RECORDED INVESTMENT		UNPAID PRINCIPAL BALANCE		NUMBER OF LOANS AND LEASES	RECORDED INVESTMENT		UNPAID PRINCIPAL BALANCE
Commercial
Commercial and Institutional	—	$	—	$	—	1	$	0.5	$	0.5

Total Commercial	—	—		—		1	0.5		0.5
Personal
Residential Real Estate	—	—		—		2	0.1		0.1
Total Personal	—	—		—		2	0.1		0.1
Total Loans and Leases	—	$	—	$	—	3	$	0.6	$	0.6

Note: Period-end balances reflect all pay downs and charge-offs during the period.


	THREE MONTHS ENDED JUNE 30, 2021					SIX MONTHS ENDED JUNE 30, 2021
($ In Millions)	NUMBER OF LOANS AND LEASES	RECORDED INVESTMENT		UNPAID PRINCIPAL BALANCE		NUMBER OF LOANS AND LEASES	RECORDED INVESTMENT		UNPAID PRINCIPAL BALANCE
Commercial
Commercial and Institutional	—	$	—	$	—	6	$	19.6	$	19.6
Commercial Real Estate	1	6.9		11.2		2	28.3		34.5
Total Commercial	1	6.9		11.2		8	47.9		54.1
Personal
Residential Real Estate	5	0.6		0.7		7	0.8		1.0
Total Personal	5	0.6		0.7		7	0.8		1.0
Total Loans and Leases	6	$	7.5	$	11.9	15	$	48.7	$	55.1

Note: Period-end balances reflect all pay downs and charge-offs during the period.

TDR modifications involve extensions of term, deferrals of principal, interest rate concessions, and other modifications. Other modifications typically reflect other nonstandard terms which Northern Trust would not offer in non-troubled situations.

During the three months ended June 30, 2022, there were no TDR modifications within residential real estate. During the six months ended June 30, 2022, the TDR loan modifications within residential real estate were deferred principal, interest rate concession, and an extension of term.

Notes to Consolidated Financial Statements (unaudited) (continued)

During the three months ended June 30, 2022, there were no TDR modifications within commercial and institutional. During the six months ended June 30, 2022, the TDR loan modification within commercial and institutional was an other modification.

During the three and six months ended June 30, 2021, the TDR modification of loans within residential real estate were other modifications and deferred principal. During the six months ended June 30, 2021, the TDR modification of loans within commercial and institutional were deferred principal. During the three and six months ended June 30, 2021, the TDR modification of loans within commercial real estate were deferred principal, interest rate concessions, and extension of term.

There were no residential real estate loan TDR modifications during the twelve months ended March 31, 2022, which subsequently had a payment default during the three and six months ended June 30, 2022.

There were no residential real estate loan TDR modification during the twelve months ended March 31, 2021, which subsequently had a payment default during the three and six months ended June 30, 2021.

Northern Trust may obtain physical possession of real estate via foreclosure on an in-substance repossession. As of June 30, 2022, Northern Trust held foreclosed real estate properties with a carrying value of $0.1 million as a result of obtaining physical possession. In addition, as of June 30, 2022, Northern Trust had loans with a carrying value of $1.4 million for which formal foreclosure proceedings were in process.

TDR Relief — COVID-19. There have been two forms of relief provided for classifying loans as TDRs: the Interagency Guidance and the CARES Act. The following provides the number of total COVID-19-related loan modifications including the loan volume as of June 30, 2022 and December 31, 2021, for which Northern Trust applied an exemption from TDR classification that are in active deferral or completed deferral.

As of June 30, 2022, there were no COVID-19-related loan modifications in active deferral status. As of December 31, 2021, there were three residential real estate COVID-19-related loan modifications in active deferral status which totaled $2.0 million, with immaterial deferred principal and interest.

As of June 30, 2022 and December 31, 2021 there were 291 and 390 COVID-19-related completed deferral loan modifications that returned to their regular payment schedule, primarily residential real estate, which totaled $605.7 million and $835.6 million, with immaterial deferred principal and interest, respectively.

Northern Trust continues to accrue and recognize interest income during the loan deferral period, and hence has not moved these loans to nonaccrual or reported them as past due. Further, these loan balances continue to be assessed on a collective basis for purposes of measuring an allowance for expected credit losses. While these loans are under the COVID-19 loan modification program, this may delay the recognition of nonaccruals and charge-offs. Loans which have exited the COVID-19 loan modification program may be placed on nonaccrual status or charged-off if borrowers were unable to resume their regular payment schedule.

During the period ended June 30, 2022, 87 loans with an aggregate principal amount of $85.7 million that had been granted payment deferrals were paid off. During the year ended December 31, 2021, 148 loans with an aggregate principal amount of $209.4 million that had been granted payment deferrals were paid off. As of June 30, 2022 and December 31, 2021, less than 4% and 10%, respectively, of loans that had been granted payment deferrals were either past due or in nonaccrual status.

Note 7 – Allowance for Credit Losses

Allowance and Provision 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 exposures, 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. The Credit Loss Reserve Committee determines the probability weights applied to each forecast approved by Northern Trust’s Macroeconomic Scenario Development Committee, and also reviews and approves qualitative adjustments to the collective allowance in line with Northern Trust’s qualitative adjustment framework.

Notes to Consolidated Financial Statements (unaudited) (continued)

The following table provides information regarding changes in the total allowance for credit losses during the three and six months ended June 30, 2022 and 2021.

TABLE 50: CHANGES IN THE ALLOWANCE FOR CREDIT LOSSES


	THREE MONTHS ENDED JUNE 30, 2022
(In Millions)	LOANS AND LEASES		UNDRAWN LOAN COMMITMENTS AND STANDBY LETTERS OF CREDIT		HELD TO MATURITY DEBT SECURITIES		OTHER FINANCIAL ASSETS		TOTAL
Balance at Beginning of Period	$	136.3	$	37.5	$	14.6	$	1.1	$	189.5
Charge-Offs	—		—		—		—		—
Recoveries	5.5		—		—		—		5.5
Net Recoveries (Charge-Offs)	5.5		—		—		—		5.5
Provision for Credit Losses(1)	(3.6)		6.0		0.8		—		3.2
Balance at End of Period	$	138.2	$	43.5	$	15.4	$	1.1	$	198.2

(1) The table excludes a provision of $1.3 million for the three months ended June 30, 2022 for AFS debt securities. See further detail in Note 4 - Securities.



	SIX MONTHS ENDED JUNE 30, 2022
(In Millions)	LOANS AND LEASES		UNDRAWN LOAN COMMITMENTS AND STANDBY LETTERS OF CREDIT		HELD TO MATURITY DEBT SECURITIES		OTHER FINANCIAL ASSETS		TOTAL
Balance at Beginning of Period	$	138.4	$	34.1	$	11.2	$	1.0	$	184.7
Charge-Offs	(0.1)		—		—		—		(0.1)
Recoveries	8.8		—		—		—		8.8
Net Recoveries (Charge-Offs)	8.7		—		—		—		8.7
Provision for Credit Losses(1)	(8.9)		9.4		4.2		0.1		4.8
Balance at End of Period	$	138.2	$	43.5	$	15.4	$	1.1	$	198.2

(1) The table excludes a provision of $1.7 million for the six months ended June 30, 2022 for AFS debt securities. See further detail in Note 4 - Securities.


	THREE MONTHS ENDED JUNE 30, 2021
(In Millions)	LOANS AND LEASES		UNDRAWN LOAN COMMITMENTS AND STANDBY LETTERS OF CREDIT		HELD TO MATURITY DEBT SECURITIES		OTHER FINANCIAL ASSETS		TOTAL
Balance at Beginning of Period	$	165.4	$	55.1	$	8.6	$	1.7	$	230.8
Charge-Offs	—		—		—		—		—
Recoveries	3.2		—		—		—		3.2
Net Recoveries (Charge-Offs)	3.2		—		—		—		3.2
Provision for Credit Losses	(19.8)		(8.6)		1.9		(0.5)		(27.0)
Balance at End of Period	$	148.8	$	46.5	$	10.5	$	1.2	$	207.0



	SIX MONTHS ENDED JUNE 30, 2021
(In Millions)	LOANS AND LEASES		UNDRAWN LOAN COMMITMENTS AND STANDBY LETTERS OF CREDIT		HELD TO MATURITY DEBT SECURITIES		OTHER FINANCIAL ASSETS		TOTAL
Balance at Beginning of Period	$	190.7	$	61.1	$	7.3	$	0.8	$	259.9
Charge-Offs	(0.4)		—		—		—		(0.4)
Recoveries	4.5		—		—		—		4.5
Net Recoveries (Charge-Offs)	4.1		—		—		—		4.1
Provision for Credit Losses	(46.0)		(14.6)		3.2		0.4		(57.0)
Balance at End of Period	$	148.8	$	46.5	$	10.5	$	1.2	$	207.0

The portion of the allowance assigned to loans and leases, HTM debt securities, and other financial assets is presented as a contra asset in Allowance for Credit Losses on the consolidated balance sheets. The portion of the allowance assigned to undrawn loan commitments and standby letters of credit is reported in Other Liabilities on the consolidated balance sheets. For credit exposure and the associated allowance related to fee receivables, please refer to Note 14 — Revenue from Contracts with Clients. For information related to the allowance for AFS debt securities, please refer to Note 4 — Securities. For all other financial assets recognized at amortized cost, which include Cash and Due from Banks, Other Central Bank Deposits, Interest Bearing Deposits with Banks, and Other Assets, please refer to the Allowance for Other Financial Assets section within this footnote.

Notes to Consolidated Financial Statements (unaudited) (continued)

The Provision for Credit Losses on the consolidated statements of income represents the change in the Allowance for Credit Losses on the consolidated balance sheets and is the charge to current period earnings. It represents the amount needed to maintain the Allowance for Credit Losses on the consolidated balance sheets at an appropriate level to absorb lifetime expected credit losses related to financial assets in scope. Actual losses may vary from current estimates and the amount of the Provision for Credit Losses may be either greater or less than actual net charge-offs.

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 for credit losses, excluding the provision for available for sale debt securities of $1.3 million, was a provision of $3.2 million in the current quarter. There were net recoveries of $5.5 million during the three months ended June 30, 2022, as compared to net recoveries of $3.2 million for the three months ended June 30, 2021. For further detail, please see the Allowance for the Loan and Lease Portfolio and the Allowance for Held to Maturity Debt Securities Portfolio sections below.

There was a $6.5 million provision 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 for credit losses, excluding the provision for available for sale debt securities of $1.7 million, was a provision of $4.8 million. There were net recoveries of $8.7 million during the six months ended June 30, 2022, as compared to net recoveries of $4.1 million for the prior-year period. For further detail, please see the Allowance for the Loan and Lease Portfolio and the Allowance for Held to Maturity Debt Securities Portfolio sections below.

Forecasting and Reversion. Estimating expected lifetime credit losses requires the consideration of the effect of future economic conditions. Northern Trust employs multiple scenarios over a reasonable and supportable period (currently two years) to project future conditions. Key variables determined to be relevant for projecting credit losses on the portfolios in scope include macroeconomic factors, such as corporate profits, unemployment, and real estate price indices, as well as financial market factors such as equity prices, volatility, and credit spreads. For periods beyond the reasonable and supportable period, Northern Trust reverts to its own historical loss experiences on a straight-line basis over four quarters. While uncertainty and volatility have increased recently due to geopolitical events and higher levels of inflation and interest rates, the primary forecast in the current quarter is for continued economic growth, recognizing the current strength of the labor market, consumer spending, and business investment. An alternative scenario is also considered, which reflects a recession that incorporates the experiences of a wider set of historical economic cycles.

Contractual Term. Northern Trust estimates expected credit losses over the contractual term of the financial assets adjusted for prepayments, unless prepayments are not relevant to specific portfolios or sub-portfolios. Extension and renewal options are typically not considered since it is not Northern Trust’s practice to enter into arrangements where the borrower has the unconditional option to renew, or a conditional extension option whereby the conditions are beyond Northern Trust’s control.

Allowance for the Loan and Lease Portfolio. The following table provides information regarding changes in the total allowance for credit losses related to loans and leases, including undrawn loan commitments and standby letters of credit, by segment during the three and six months ended June 30, 2022 and 2021.

TABLE 51: CHANGES IN THE ALLOWANCE FOR CREDIT LOSSES RELATED TO LOANS AND LEASES


	THREE MONTHS ENDED JUNE 30, 2022
	LOANS AND LEASES						UNDRAWN LOAN COMMITMENTS AND STANDBY LETTERS OF CREDIT
(In Millions)	COMMERCIAL		PERSONAL		TOTAL		COMMERCIAL		PERSONAL		TOTAL
Balance at Beginning of Period	$	102.5	$	33.8	$	136.3	$	34.7	$	2.8	$	37.5
Charge-Offs	—		—		—		—		—		—
Recoveries	0.2		5.3		5.5		—		—		—
Net Recoveries (Charge-Offs)	0.2		5.3		5.5		—		—		—
Provision for Credit Losses	(0.2)		(3.4)		(3.6)		5.6		0.4		6.0
Balance at End of Period	$	102.5	$	35.7	$	138.2	$	40.3	$	3.2	$	43.5



	SIX MONTHS ENDED JUNE 30, 2022
	LOANS AND LEASES						UNDRAWN LOAN COMMITMENTS AND STANDBY LETTERS OF CREDIT
(In Millions)	COMMERCIAL		PERSONAL		TOTAL		COMMERCIAL		PERSONAL		TOTAL
Balance at Beginning of Period	$	105.6	$	32.8	$	138.4	$	31.4	$	2.7	$	34.1
Charge-Offs	—		(0.1)		(0.1)		—		—		—
Recoveries	2.4		6.4		8.8		—		—		—
Net Recoveries (Charge-Offs)	2.4		6.3		8.7		—		—		—
Provision for Credit Losses	(5.5)		(3.4)		(8.9)		8.9		0.5		9.4
Balance at End of Period	$	102.5	$	35.7	$	138.2	$	40.3	$	3.2	$	43.5

Notes to Consolidated Financial Statements (unaudited) (continued)


	THREE MONTHS ENDED JUNE 30, 2021
	LOANS AND LEASES						UNDRAWN LOAN COMMITMENTS AND STANDBY LETTERS OF CREDIT
(In Millions)	COMMERCIAL		PERSONAL		TOTAL		COMMERCIAL		PERSONAL		TOTAL
Balance at Beginning of Period	$	124.7	$	40.7	$	165.4	$	51.7	$	3.4	$	55.1
Charge-Offs	—		—		—		—		—		—
Recoveries	0.5		2.7		3.2		—		—		—
Net Recoveries (Charge-Offs)	0.5		2.7		3.2		—		—		—
Provision for Credit Losses	(7.2)		(12.6)		(19.8)		(8.1)		(0.5)		(8.6)
Balance at End of Period	$	118.0	$	30.8	$	148.8	$	43.6	$	2.9	$	46.5



	SIX MONTHS ENDED JUNE 30, 2021
	LOANS AND LEASES						UNDRAWN LOAN COMMITMENTS AND STANDBY LETTERS OF CREDIT
(In Millions)	COMMERCIAL		PERSONAL		TOTAL		COMMERCIAL		PERSONAL		TOTAL
Balance at Beginning of Period	$	142.2	$	48.5	$	190.7	$	57.6	$	3.5	$	61.1
Charge-Offs	—		(0.4)		(0.4)		—		—		—
Recoveries	0.5		4.0		4.5		—		—		—
Net Recoveries (Charge-Offs)	0.5		3.6		4.1		—		—		—
Provision for Credit Losses	(24.7)		(21.3)		(46.0)		(14.0)		(0.6)		(14.6)
Balance at End of Period	$	118.0	$	30.8	$	148.8	$	43.6	$	2.9	$	46.5

The increase to the allowance for loans and leases of $1.9 million for the three months ended June 30, 2022 was primarily due to an increase in the reserve evaluated on a collective basis, driven by recent market conditions and a higher risk of recession as compared to the previous quarter, partially offset by improvements in credit quality mainly within the commercial real estate and commercial and institutional portfolios. The increase to the allowance for undrawn loan commitments and standby letters of credit of $6.0 million for the three months ended June 30, 2022 was due to an increase in the reserve on a collective basis, primarily driven by recent market conditions and a higher risk of recession as compared to the previous quarter.

The decrease to the allowance for loans and leases of $0.2 million for the six months ended June 30, 2022 was primarily due to a decrease in the reserve evaluated on a collective basis, driven by continued improvements in credit quality, mainly within the commercial real estate and commercial and institutional portfolios, partially offset by the impact of recent market conditions and a higher risk of recession as compared to the previous period. The decrease in the collective basis reserve was diminished by an increase to the reserve evaluated on an individual basis for two individual commercial borrowers. The increase to the allowance for undrawn loan commitments and standby letters of credit of $9.4 million for the six months ended June 30, 2022 was due to an increase in the reserve on a collective basis, primarily driven by recent market conditions and a higher risk of recession as compared to the previous period and an increase in potential exposure.

Allowance Related to Credit Exposure Evaluated on a Collective Basis. Expected credit losses are measured on a collective basis as long as the financial assets included in the respective pool share similar risk characteristics. If financial assets are deemed to not share similar risk characteristics, an individual assessment is warranted.

The allowance estimation methodology for the collective assessment is primarily based on internally developed loss data specific to the Northern Trust financial asset portfolio from a historical observation period that includes both expansionary and recessionary periods. The estimation methodology and the related qualitative adjustment framework segregate the loan and lease portfolio into homogenous segments based on similar risk characteristics or risk monitoring methods.

Northern Trust utilizes a quantitative probability of default/loss given default approach for the calculation of its credit allowance on a collective basis. For each of the different parameters, specific credit models for the individual loan segments were developed. For each segment, the probability of default and the loss given default are applied to the exposure at default for each projected quarter to determine the quantitative component of the allowance. The quantitative allowance is then reviewed within the qualitative adjustment framework, through which management applies judgment by assessing internal risk factors, potential limitations in the quantitative methodology, and environmental factors that are not fully contemplated in the forecast to compute an adjustment to the quantitative allowance for each segment of the loan portfolio.

Allowance Related to Credit Exposure Evaluated on an Individual Basis. The allowance is determined through an individual evaluation of loans, leases, and lending-related commitments that have defaulted, generally those with borrower ratings of 8 and 9, that is based on expected future cash flows, the value of collateral, and other factors that may impact the borrower’s ability to pay. For defaulted loans for which the amount of allowance, if any, is determined based on the value of the underlying real estate collateral, third-party appraisals are typically obtained and utilized by management. These appraisals are generally less than twelve months old and are subject to adjustments to reflect management’s judgment as to the realizable value of the collateral.

Notes to Consolidated Financial Statements (unaudited) (continued)

The following table provides information regarding the recorded investments in loans and leases and the allowance for credit losses for loans and leases and undrawn loan commitments and standby letters of credit by segment as of June 30, 2022 and December 31, 2021.

TABLE 52: RECORDED INVESTMENTS IN LOANS AND LEASES


	JUNE 30, 2022						DECEMBER 31, 2021
(In Millions)	COMMERCIAL		PERSONAL		TOTAL		COMMERCIAL		PERSONAL		TOTAL
Loans and Leases
Evaluated on an Individual Basis	$	76.0	$	46.7	$	122.7	$	92.1	$	74.5	$	166.6
Evaluated on a Collective Basis	20,350.8		20,734.3		41,085.1		18,395.3		21,918.7		40,314.0
Total Loans and Leases	20,426.8		20,781.0		41,207.8		18,487.4		21,993.2		40,480.6
Allowance for Credit Losses on Loans and Leases
Evaluated on an Individual Basis	16.2		—		16.2		10.1		—		10.1
Evaluated on a Collective Basis	86.3		35.7		122.0		95.5		32.8		128.3
Allowance Assigned to Loans and Leases	102.5		35.7		138.2		105.6		32.8		138.4
Allowance for Undrawn Loan Commitments and Standby Letters of Credit
Evaluated on an Individual Basis	—		—		—		—		—		—
Evaluated on a Collective Basis	40.3		3.2		43.5		31.4		2.7		34.1
Allowance Assigned to Undrawn Loan Commitments and Standby Letters of Credit	40.3		3.2		43.5		31.4		2.7		34.1
Total Allowance Assigned to Loans and Leases and Undrawn Loan Commitments and Standby Letters of Credit	$	142.8	$	38.9	$	181.7	$	137.0	$	35.5	$	172.5

Northern Trust analyzes its exposure to credit losses from both on-balance-sheet and off-balance-sheet activity using a consistent methodology for the quantitative framework as well as the qualitative framework. For purposes of estimating the allowance for credit losses for undrawn loan commitments and standby letters of credit, the exposure at default includes an estimated drawdown of unused credit based on credit utilization factors, resulting in a proportionate amount of expected credit losses.

Allowance for Held to Maturity Debt Securities Portfolio. The following table provides information regarding changes in the total allowance for credit losses for HTM debt securities during the three and six months ended June 30, 2022 and 2021.

TABLE 53: CHANGES IN THE ALLOWANCE FOR CREDIT LOSSES RELATED TO HELD TO MATURITY DEBT SECURITIES


	THREE MONTHS ENDED JUNE 30, 2022
(In Millions)	CORPORATE DEBT		NON-U.S. GOVERNMENT		SUB-SOVEREIGN, SUPRANATIONAL, AND NON-U.S. AGENCY BONDS		COVERED BONDS		OTHER		TOTAL
Balance at Beginning of Period	$	1.6	$	3.4	$	4.6	$	0.1	$	4.9	$	14.6
Provision for Credit Losses	0.2		0.4		0.2		—		—		0.8
Balance at End of Period	$	1.8	$	3.8	$	4.8	$	0.1	$	4.9	$	15.4



	SIX MONTHS ENDED JUNE 30, 2022
(In Millions)	CORPORATE DEBT		NON-U.S. GOVERNMENT		SUB-SOVEREIGN, SUPRANATIONAL, AND NON-U.S. AGENCY BONDS		COVERED BONDS		OTHER		TOTAL
Balance at Beginning of Period	$	1.4	$	1.9	$	3.0	$	0.1	$	4.8	$	11.2
Provision for Credit Losses	0.4		1.9		1.8		—		0.1		4.2
Balance at End of Period	$	1.8	$	3.8	$	4.8	$	0.1	$	4.9	$	15.4


	THREE MONTHS ENDED JUNE 30, 2021
(In Millions)	CORPORATE DEBT		NON-U.S. GOVERNMENT		SUB-SOVEREIGN, SUPRANATIONAL, AND NON-U.S. AGENCY BONDS		COVERED BONDS		OTHER		TOTAL
Balance at Beginning of Period	$	1.1	$	0.9	$	1.8	$	0.1	$	4.7	$	8.6
Provision for Credit Losses	0.5		0.6		0.8		—		—		1.9
Balance at End of Period	$	1.6	$	1.5	$	2.6	$	0.1	$	4.7	$	10.5

Notes to Consolidated Financial Statements (unaudited) (continued)



	SIX MONTHS ENDED JUNE 30, 2021
(In Millions)	CORPORATE DEBT		NON-U.S. GOVERNMENT		SUB-SOVEREIGN, SUPRANATIONAL, AND NON-U.S. AGENCY BONDS		COVERED BONDS		OTHER		TOTAL
Balance at Beginning of Period	$	0.8	$	0.2	$	1.2	$	0.1	$	5.0	$	7.3
Provision for Credit Losses	0.8		1.3		1.4		—		(0.3)		3.2
Balance at End of Period	$	1.6	$	1.5	$	2.6	$	0.1	$	4.7	$	10.5

HTM debt securities classified as U.S. government, government sponsored agency, and certain securities classified as obligations of states and political subdivisions are considered to be guarantees of the U.S. government or an agency of the U.S. government and therefore an allowance for credit losses is not estimated for such investments as the expected probability of non-payment of the amortized cost basis is zero.

HTM debt securities classified as other asset-backed represent pools of underlying receivables from which the cash flows are used to pay the bonds that vary in seniority. Utilizing a qualitative estimation approach, the allowance for other asset-backed securities is assessed by evaluating underlying pool performance based on delinquency rates and available credit support.

HTM debt securities classified as other relates to 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. The allowance for CRA investments is assessed using a qualitative estimation approach primarily based on internal historical performance experience and default history of the underlying CRA portfolios to determine a quantitative component of the allowance.

The allowance estimation methodology for all other HTM debt securities is developed using a combination of external and internal data. The estimation methodology groups securities with shared characteristics for which the probability of default and the loss given default are applied to the total exposure at default to determine a quantitative component of the allowance.

The increase in the allowance attributable to HTM debt securities for the six months ended June 30, 2022 was due to an increase in the reserve evaluated on a collective basis driven by model enhancements and related macroeconomic factors.

Allowance for Other Financial Assets. The allowance for Other Financial Assets consists of the allowance for Due from Banks, Other Central Bank Deposits, Interest Bearing Deposits with Banks, and Other Assets. The Other Assets category includes other miscellaneous credit exposures reported in Other Assets on the consolidated balance sheets. The allowance estimation methodology for Other Financial Assets primarily utilizes a similar approach as used for the HTM debt securities portfolio. It consists of a combination of externally and internally developed loss data, adjusted for the appropriate contractual term. Northern Trust’s portfolio of Other Financial Assets is composed mostly of institutions within the “1 to 3” internal borrower rating category and is expected to exhibit minimal to modest likelihood of loss. The allowance for credit losses related to Other Financial Assets was $1.1 million and $1.0 million as of June 30, 2022 and December 31, 2021, respectively.

Accrued Interest. Accrued interest balances are reported within Other Assets on the consolidated balance sheets. Northern Trust elected not to measure an allowance for credit losses for accrued interest receivables related to its loan and securities portfolio as its policy is to write-off uncollectible accrued interest receivable balances in a timely manner. Accrued interest is written off by reversing interest income during the quarter the financial asset is moved from an accrual to a nonaccrual status.

The following table provides the amount of accrued interest excluded from the amortized cost basis of the following portfolios.

TABLE 54: ACCRUED INTEREST


(In Millions)	JUNE 30, 2022		DECEMBER 31, 2021
Loans and Leases	$	94.8	$	62.6
Debt Securities
Held to Maturity	42.5		30.4
Available for Sale	144.1		129.7
Other Financial Assets	11.8		2.3
Total	$	293.2	$	225.0

The amount of accrued interest reversed through interest income for loans and leases was immaterial for the three and six months ended June 30, 2022 and 2021, and there was no accrued interest reversed through interest income related to any other financial assets for the three and six months ended June 30, 2022 and 2021.

Notes to Consolidated Financial Statements (unaudited) (continued)

Note 8 – Pledged and Restricted Assets

Pledged Assets. Certain of Northern Trust’s subsidiaries, as required or permitted by law, pledge assets to secure public and trust deposits, repurchase agreements and borrowings, as well as for other purposes, including support for securities settlement, primarily related to client activities, and for derivative contracts. Collateral required for these purposes totaled $8.1 billion and $5.6 billion at June 30, 2022 and December 31, 2021, respectively.

The following table presents Northern Trust's pledged assets.

TABLE 55: TYPE OF PLEDGED ASSETS


(In Billions)	JUNE 30, 2022		DECEMBER 31, 2021
Securities
Obligations of States and Political Subdivisions	$	3.3	$	3.7
Government Sponsored Agency and Other Securities	33.5		35.6
Loans	12.2		15.3
Total Pledged Assets	$	49.0	$	54.6

The following table presents the AFS debt securities pledged as collateral that are included in pledged assets.

TABLE 56: FAIR VALUE OF AVAILABLE FOR SALE DEBT SECURITIES INCLUDED IN PLEDGED ASSETS


	SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE				DERIVATIVE CONTRACTS
(In Millions)	JUNE 30, 2022		DECEMBER 31, 2021		JUNE 30, 2022		DECEMBER 31, 2021
Debt Securities
Available for Sale	$	1,144.7	$	524.1	$	22.7	$	17.6

The secured parties to these transactions have the right to repledge or sell the securities as it relates to $1,144.7 million and $524.1 million of the pledged collateral as of June 30, 2022 and December 31, 2021, respectively.

Northern Trust accepts financial assets as collateral that it may, in some instances, be permitted to repledge or sell. The collateral is generally obtained under certain reverse repurchase agreements and derivative contracts.

The following table presents the fair value of securities accepted as collateral.

TABLE 57: ACCEPTED COLLATERAL


(In Millions)	JUNE 30, 2022		DECEMBER 31, 2021
Collateral that may be repledged or sold
Reverse repurchase agreements (1)	$	4,157.3	$	1,457.0
Derivative contracts	17.2		2.8
Collateral that may not be repledged or sold
Reverse repurchase agreements	700.0		650.0
Total Collateral Accepted	$	4,874.5	$	2,109.8

(1) The fair value of securities collateral that was repledged or sold totaled $3,692.0 million and $1,419.0 million at June 30, 2022 and December 31, 2021, respectively.

Restricted Assets. As a result of the economic environment arising from the COVID-19 pandemic, the Federal Reserve reduced the reserve requirement to zero percent on March 26, 2020. There were no deposits required to meet Federal Reserve Bank reserve requirements for both the six months ended June 30, 2022 and June 30, 2021.

Notes to Consolidated Financial Statements (unaudited) (continued)

Note 9 – Goodwill and Other Intangibles

Goodwill. Changes by reporting segment in the carrying amount of Goodwill for the six months ended June 30, 2022, including the effect of foreign exchange rates on non-U.S. dollar denominated balances, were as follows.

TABLE 58: GOODWILL


(In Millions)	ASSET SERVICING		WEALTH MANAGEMENT		TOTAL
Balance at December 31, 2021	$	625.7	$	80.5	$	706.2

Foreign Exchange Rates	(16.0)		(0.2)		(16.2)
Balance at June 30, 2022	$	609.7	$	80.3	$	690.0

Other Intangible Assets Subject to Amortization. The gross carrying amount and accumulated amortization of other intangible assets subject to amortization as of June 30, 2022 and December 31, 2021 were as follows.

TABLE 59: OTHER INTANGIBLE ASSETS


(In Millions)	JUNE 30, 2022		DECEMBER 31, 2021
Gross Carrying Amount	$	194.5	$	206.4
Less: Accumulated Amortization	114.2		114.8
Net Book Value	$	80.3	$	91.6

Other intangible assets consist primarily of the value of acquired client relationships and are included within Other Assets on the consolidated balance sheets. Amortization expense related to other intangible assets totaled $2.2 million and $4.9 million for the three and six months ended June 30, 2022, respectively and $3.9 million and $8.2 million for the three and six months ended June 30, 2021, respectively. Amortization for the remainder of 2022 and for the years 2023, 2024, 2025, and 2026 is estimated to be $6.8 million, $9.0 million, $8.9 million, $8.3 million, and $7.9 million, respectively.

Capitalized Software. The gross carrying amount and accumulated amortization of capitalized software as of June 30, 2022 and December 31, 2021 were as follows.

TABLE 60: CAPITALIZED SOFTWARE


(In Millions)	JUNE 30, 2022		DECEMBER 31, 2021
Gross Carrying Amount	$	3,267.4	$	2,982.1
Less: Accumulated Amortization	1,504.5		1,299.5
Net Book Value	$	1,762.9	$	1,682.6

Capitalized software, which is included in Other Assets on the consolidated balance sheets, consists primarily of purchased software, software licenses, and allowable internal costs, including compensation relating to software developed for internal use. Fees paid for the use of software licenses that are not hosted by Northern Trust are expensed as incurred. Amortization expense, which is included in Equipment and Software on the consolidated statements of income, totaled $104.4 million and $205.9 million for the three and six months ended June 30, 2022, respectively and $95.9 million and $189.9 million for the three and six months ended June 30, 2021, respectively.

Note 10 – 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.

Notes to Consolidated Financial Statements (unaudited) (continued)

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

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

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

TABLE 61: 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.

Notes to Consolidated Financial Statements (unaudited) (continued)

Note 11 – Stockholders’ Equity

Preferred Stock. The Corporation is authorized to issue 10 million shares of preferred stock without par value. The Board of Directors is authorized to fix the particular designations, preferences and relative, participating, optional and other special rights and qualifications, limitations or restrictions for each series of preferred stock issued.

As of June 30, 2022, 5,000 shares of Series D Non-Cumulative Perpetual Preferred Stock (Series D Preferred Stock) and 16,000 shares of Series E Non-Cumulative Perpetual Preferred Stock (Series E Preferred Stock) were outstanding.

Series D Preferred Stock. As of June 30, 2022, the Corporation had issued and outstanding 500,000 depositary shares, each representing a 1/100th ownership interest in a share of Series D Preferred Stock, issued in August 2016. Equity related to Series D Preferred Stock as of June 30, 2022 and December 31, 2021 was $493.5 million. Shares of the Series D Preferred Stock have no par value and a liquidation preference of $100,000 (equivalent to $1,000 per depositary share).

Dividends on the Series D Preferred Stock, which are not mandatory, accrue and are payable on the liquidation preference amount, on a non-cumulative basis, at a rate per annum equal to (i) 4.60% from the original issue date of the Series D Preferred Stock to but excluding October 1, 2026; and (ii) a floating rate equal to three-month LIBOR plus 3.202% from and including October 1, 2026. Fixed rate dividends are payable in arrears on the first day of April and October of each year, through and including October 1, 2026, and floating rate dividends will be payable in arrears on the first day of January, April, July and October of each year, commencing on January 1, 2027.

Series E Preferred Stock. As of June 30, 2022, the Corporation had issued and outstanding 16 million depositary shares, each representing 1/1,000th ownership interest in a share of Series E Preferred Stock, issued in November 2019. Equity related to Series E Preferred Stock as of June 30, 2022 and December 31, 2021 was $391.4 million. Shares of the Series E Preferred Stock have no par value and a liquidation preference of $25,000 (equivalent to $25 per depositary share).

Dividends on the Series E Preferred Stock, which are not mandatory, will accrue and be payable on the liquidation preference amount, on a non-cumulative basis, quarterly in arrears on the first day of January, April, July and October of each year, at a rate per annum equal to 4.70%. On April 26, 2022, the Corporation declared a cash dividend of $293.75 per share of Series E Preferred Stock payable on July 1, 2022, to stockholders of record as of June 15, 2022.

Common Stock. In October 2021, the Board of Directors authorized the Corporation to repurchase up to 25.0 million shares of the Corporation’s common stock. Shares are repurchased by the Corporation to, among other things, manage the Corporation’s capital levels. Repurchased shares are used for general purposes, including the issuance of shares under stock option and other incentive plans. The repurchase authorization approved by the Board of Directors has no expiration date. 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 and six months ended June 30, 2021, the Corporation repurchased 252,304 and 1,651,977 shares of common stock, respectively, at a total cost of $30.2 million ($119.59 average price per share) and $165.8 million ($100.38 average price per share), respectively. Shares withheld related to share-based compensation were 1,480 and 367,177, for the three and six months ended June 30, 2021.

Notes to Consolidated Financial Statements (unaudited) (continued)

Note 12 – Accumulated Other Comprehensive Income (Loss)

The following tables summarize the components of Accumulated Other Comprehensive Income (Loss) (AOCI) at June 30, 2022 and 2021, and changes during the three and six months then ended.

TABLE 62: SUMMARY OF CHANGES IN ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)


	THREE MONTHS ENDED JUNE 30, 2022
(In Millions)	NET UNREALIZED GAINS (LOSSES) ON AVAILABLE FOR SALE DEBT SECURITIES(1)		NET UNREALIZED (LOSSES) GAINS ON CASH FLOW HEDGES		NET FOREIGN CURRENCY ADJUSTMENT		NET PENSION AND OTHER POSTRETIREMENT BENEFIT ADJUSTMENTS		TOTAL
Balance at March 31, 2022	$	(761.3)	$	(3.8)	$	147.3	$	(289.2)	$	(907.0)
Net Change	(533.4)		4.4		(9.7)		(64.9)		(603.6)
Balance at June 30, 2022	$	(1,294.7)	$	0.6	$	137.6	$	(354.1)	$	(1,510.6)

(1) The balance at June 30, 2022 includes after-tax net unamortized gains related to AFS securities that have been transferred to HTM debt securities. Refer to Note 4 - Securities for further information.



	SIX MONTHS ENDED JUNE 30, 2022
(In Millions)	NET UNREALIZED GAINS (LOSSES) ON AVAILABLE FOR SALE DEBT SECURITIES(1)		NET UNREALIZED (LOSSES) GAINS ON CASH FLOW HEDGES		NET FOREIGN CURRENCY ADJUSTMENT		NET PENSION AND OTHER POSTRETIREMENT BENEFIT ADJUSTMENTS		TOTAL
Balance at December 31, 2021	$	107.1	$	(2.4)	$	155.2	$	(295.5)	$	(35.6)
Net Change	(1,401.8)		3.0		(17.6)		(58.6)		(1,475.0)
Balance at June 30, 2022	$	(1,294.7)	$	0.6	$	137.6	$	(354.1)	$	(1,510.6)


	THREE MONTHS ENDED JUNE 30, 2021
(In Millions)	NET UNREALIZED GAINS (LOSSES) ON AVAILABLE FOR SALE DEBT SECURITIES(1)		NET UNREALIZED (LOSSES) GAINS ON CASH FLOW HEDGES		NET FOREIGN CURRENCY ADJUSTMENT		NET PENSION AND OTHER POSTRETIREMENT BENEFIT ADJUSTMENTS		TOTAL
Balance at March 31, 2021	$	272.1	$	(8.4)	$	149.7	$	(347.5)	$	65.9
Net Change	100.9		3.0		2.1		22.8		128.8
Balance at June 30, 2021	$	373.0	$	(5.4)	$	151.8	$	(324.7)	$	194.7

(1) The balance at June 30, 2021 includes after-tax net unamortized gains related to AFS securities that have been transferred to HTM debt securities. Refer to Note 4 - Securities for further information.



	SIX MONTHS ENDED JUNE 30, 2021
(In Millions)	NET UNREALIZED GAINS (LOSSES) ON AVAILABLE FOR SALE DEBT SECURITIES(1)		NET UNREALIZED (LOSSES) GAINS ON CASH FLOW HEDGES		NET FOREIGN CURRENCY ADJUSTMENT		NET PENSION AND OTHER POSTRETIREMENT BENEFIT ADJUSTMENTS		TOTAL
Balance at December 31, 2020	$	641.8	$	(3.2)	$	144.7	$	(355.3)	$	428.0
Net Change	(268.8)		(2.2)		7.1		30.6		(233.3)
Balance at June 30, 2021	$	373.0	$	(5.4)	$	151.8	$	(324.7)	$	194.7

Notes to Consolidated Financial Statements (unaudited) (continued)

TABLE 63: DETAILS OF CHANGES IN ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)


THREE MONTHS ENDED JUNE 30,	2022						2021
(In Millions)	PRE-TAX		TAX		AFTER TAX		PRE-TAX		TAX		AFTER TAX
Unrealized Gains (Losses) on Available for Sale Debt Securities
Unrealized Gains (Losses) on Available for Sale Debt Securities	$	(731.2)	$	188.5	$	(542.7)	$	149.9	$	(37.3)	$	112.6
Reclassification Adjustments for (Gains) Losses Included in Net Income:
Interest Income on Debt Securities(1)	12.4		(3.1)		9.3		(15.6)		3.9		(11.7)

Net Change	$	(718.8)	$	185.4	$	(533.4)	$	134.3	$	(33.4)	$	100.9
Unrealized Gains (Losses) on Cash Flow Hedges
Foreign Exchange Contracts	$	4.4	$	(1.1)	$	3.3	$	4.2	$	(1.1)	$	3.1
Reclassification Adjustment for (Gains) Losses Included in Net Income(2)	1.5		(0.4)		1.1		(0.2)		0.1		(0.1)
Net Change	$	5.9	$	(1.5)	$	4.4	$	4.0	$	(1.0)	$	3.0
Foreign Currency Adjustments
Foreign Currency Translation Adjustments	$	(163.7)	$	2.4	$	(161.3)	$	10.1	$	0.8	$	10.9
Long-Term Intra-Entity Foreign Currency Transaction Gains (Losses)	(1.8)		0.5		(1.3)		0.4		(0.2)		0.2
Net Investment Hedge Gains (Losses)	204.3		(51.4)		152.9		(12.1)		3.1		(9.0)
Net Change	$	38.8	$	(48.5)	$	(9.7)	$	(1.6)	$	3.7	$	2.1
Pension and Other Postretirement Benefit Adjustments
Net Actuarial Gains (Losses)	$	(114.4)	$	28.8	$	(85.6)	$	(0.4)	$	0.9	$	0.5
Reclassification Adjustment for (Gains) Losses Included in Net Income(3)
Amortization of Net Actuarial Loss	7.6		(1.9)		5.7		11.6		(2.8)		8.8
Amortization of Prior Service Cost (Credit)	(0.2)		—		(0.2)		(0.3)		—		(0.3)
Settlement Loss	20.3		(5.1)		15.2		18.3		(4.5)		13.8
Net Change	$	(86.7)	$	21.8	$	(64.9)	$	29.2	$	(6.4)	$	22.8
Total Net Change	$	(760.8)	$	157.2	$	(603.6)	$	165.9	$	(37.1)	$	128.8



SIX MONTHS ENDED JUNE 30,	2022						2021
(In Millions)	PRE-TAX		TAX		AFTER TAX		PRE-TAX		TAX		AFTER TAX
Unrealized Gains (Losses) on Available for Sale Debt Securities
Unrealized Gains (Losses) on Available for Sale Debt Securities	$	(1,902.7)	$	489.9	$	(1,412.8)	$	(346.6)	$	89.5	$	(257.1)
Reclassification Adjustments for (Gains) Losses Included in Net Income:
Interest Income on Debt Securities(1)	14.7		(3.7)		11.0		(15.6)		3.9		(11.7)

Net Change	$	(1,888.0)	$	486.2	$	(1,401.8)	$	(362.2)	$	93.4	$	(268.8)
Unrealized Gains (Losses) on Cash Flow Hedges
Foreign Exchange Contracts	$	0.8	$	(0.2)	$	0.6	$	1.7	$	(0.4)	$	1.3

Reclassification Adjustment for (Gains) Losses Included in Net Income(2)	3.2		(0.8)		2.4		(4.7)		1.2		(3.5)
Net Change	$	4.0	$	(1.0)	$	3.0	$	(3.0)	$	0.8	$	(2.2)
Foreign Currency Adjustments
Foreign Currency Translation Adjustments	$	(214.0)	$	0.6	$	(213.4)	$	(47.2)	$	1.3	$	(45.9)
Long-Term Intra-Entity Foreign Currency Transaction Gains (Losses)	(1.8)		0.5		(1.3)		0.2		(0.1)		0.1
Net Investment Hedge Gains (Losses)	263.7		(66.6)		197.1		70.6		(17.7)		52.9
Net Change	$	47.9	$	(65.5)	$	(17.6)	$	23.6	$	(16.5)	$	7.1
Pension and Other Postretirement Benefit Adjustments
Net Actuarial Gains (Losses)	$	(113.6)	$	28.2	$	(85.4)	$	(1.7)	$	1.2	$	(0.5)
Reclassification Adjustment for (Gains) Losses Included in Net Income(3)
Amortization of Net Actuarial Loss	15.2		(3.8)		11.4		23.3		(5.6)		17.7
Amortization of Prior Service Cost (Credit)	(0.5)		0.1		(0.4)		(0.6)		0.1		(0.5)
Settlement Loss	$	21.0	$	(5.2)	$	15.8	18.5		(4.6)		13.9
Net Change	$	(77.9)	$	19.3	$	(58.6)	$	39.5	$	(8.9)	$	30.6
Total Net Change	$	(1,914.0)	$	439.0	$	(1,475.0)	$	(302.1)	$	68.8	$	(233.3)

(1) The before-tax reclassification adjustment out of AOCI is related to the amortization of unrealized gains (losses) on AFS debt securities that were transferred to HTM debt securities during the second quarter of 2021. Refer to Note 4 - Securities for further information.

(2) See Note 23 - Derivative Financial Instruments for the location of the reclassification adjustment related to cash flow hedges.

(3) The before-tax reclassification adjustment out of AOCI related to pension and other postretirement benefit adjustments is recorded in Employee Benefits expense on the consolidated statements of income.

Notes to Consolidated Financial Statements (unaudited) (continued)

Note 13 – Net Income Per Common Share

The computations of net income per common share are presented in the following table.

TABLE 64: NET INCOME PER COMMON SHARE


	THREE MONTHS ENDED JUNE 30,				SIX MONTHS ENDED JUNE 30,
($ In Millions Except Per Common Share Information)	2022		2021		2022		2021
Basic Net Income Per Common Share
Average Number of Common Shares Outstanding	208,383,991		208,369,188		208,205,469		208,241,714
Net Income	$	396.2	$	368.1	$	785.5	$	743.2
Less: Dividends on Preferred Stock	4.7		4.7		20.9		20.9
Net Income Applicable to Common Stock	391.5		363.4		764.6		722.3
Less: Earnings Allocated to Participating Securities	3.2		3.2		6.3		6.9
Earnings Allocated to Common Shares Outstanding	388.3		360.2		758.3		715.4
Basic Net Income Per Common Share	$	1.86	$	1.73	$	3.64	$	3.44
Diluted Net Income Per Common Share
Average Number of Common Shares Outstanding	208,383,991		208,369,188		208,205,469		208,241,714
Plus: Dilutive Effect of Share-based Compensation	494,359		768,902		638,465		801,084
Average Common and Potential Common Shares	208,878,350		209,138,090		208,843,934		209,042,798
Earnings Allocated to Common and Potential Common Shares	$	388.3	$	360.2	$	758.3	$	715.4
Diluted Net Income Per Common Share	1.86		1.72		3.63		3.42

Note: For the three and six months ended June 30, 2022 and 2021, there were no common stock equivalents excluded in the computation of diluted net income per share.

Note 14 – Revenue from Contracts with Clients

Trust, Investment, and Other Servicing Fees. Custody and Fund Administration income is comprised of revenues received from our core asset servicing business for providing custody, fund administration, and middle-office-related services, primarily to Asset Servicing clients. Investment Management and Advisory income contains revenue received from providing asset management and related services to Wealth Management and Asset Servicing clients and to Northern Trust sponsored funds. Securities Lending income represents revenues generated from securities lending arrangements that Northern Trust enters into as agent, mainly with Asset Servicing clients. Other income largely consists of revenues received from providing employee benefit, investment risk and analytic and other services to Asset Servicing and Wealth Management clients.

Other Noninterest Income. Treasury management income represents revenues received from providing cash and liquidity management services to Asset Servicing and Wealth Management clients. The portion of Security Commissions and Trading Income that relates to revenue from contracts with clients is primarily comprised of commissions earned from providing securities brokerage services to Wealth Management and Asset Servicing clients. The portion of Other Operating Income that relates to revenue from contracts with clients is mainly comprised of service fees for banking-related services provided to Wealth Management and Asset Servicing clients.

Performance Obligations. Clients are typically charged monthly or quarterly in arrears based on the fee arrangement agreed to with each client; payment terms will vary depending on the client and services offered.

Substantially all revenues generated from contracts with clients for asset servicing, asset management, securities lending, treasury management and banking-related services are recognized on an accrual basis, over the period in which services are provided. The nature of Northern Trust’s performance obligations is to provide a series of distinct services in which the customer simultaneously receives and consumes the benefits of the promised services as they are performed. Fee arrangements are mainly comprised of variable amounts based on market value of client assets managed and serviced, transaction volumes, number of accounts, and securities lending volume and spreads. Revenue is recognized using the output method in an amount that reflects the consideration to which Northern Trust expects to be entitled in exchange for providing each month or quarter of service. For contracts with multiple performance obligations, revenue is allocated to each performance obligation based on the price agreed to with the client, representing its relative standalone selling price.

Security brokerage revenue is primarily represented by securities commissions received in exchange of providing trade execution related services. Control is transferred at a point in time, on the trade date of the transaction, and fees are typically variable based on transaction volumes and security types.

Northern Trust’s contracts with its clients are typically open-ended arrangements and are therefore considered to have an original duration of less than one year. Northern Trust has elected the practical expedient to not disclose the value of remaining performance obligations for contracts with an original expected duration of one year or less.

Notes to Consolidated Financial Statements (unaudited) (continued)

The following table presents revenues disaggregated by major revenue source.

TABLE 65: REVENUE DISAGGREGATION


	THREE MONTHS ENDED JUNE 30,				SIX MONTHS ENDED JUNE 30,
(In Millions)	2022		2021		2022		2021
Noninterest Income
Trust, Investment and Other Servicing Fees
Custody and Fund Administration	$	464.4	$	479.2	$	948.4	$	948.9
Investment Management and Advisory	597.3		521.2		1,200.5		1,037.6
Securities Lending	21.6		19.5		40.5		37.8
Other	60.1		55.5		122.4		114.8
Total Trust, Investment and Other Servicing Fees	$	1,143.4	$	1,075.4	$	2,311.8	$	2,139.1
Other Noninterest Income
Foreign Exchange Trading Income	$	77.6	$	70.6	$	158.5	$	149.3
Treasury Management Fees	10.6		11.3		21.7		22.5
Security Commissions and Trading Income	32.8		33.0		69.0		67.8
Other Operating Income	45.6		54.4		86.7		109.3
Investment Security Gains (Losses), net	—		—		—		—
Total Other Noninterest Income	$	166.6	$	169.3	$	335.9	$	348.9
Total Noninterest Income	$	1,310.0	$	1,244.7	$	2,647.7	$	2,488.0

On the consolidated statements of income, Trust, Investment and Other Servicing Fees and Treasury Management Fees represent revenue from contracts with clients. For the three months ended June 30, 2022, revenue from contracts with clients also includes $27.3 million of the $32.8 million total Security Commissions and Trading Income and $9.7 million of the $45.6 million total Other Operating Income. For the six months ended June 30, 2022, revenue from contracts with clients also includes $58.9 million of the $69.0 million total Security Commissions and Trading Income and $19.4 million of the $86.7 million total Other Operating Income.

For the three months ended June 30, 2021, revenue from contracts with clients also includes $27.2 million of the $33.0 million total Security Commissions and Trading Income and $12.7 million of the $54.4 million total Other Operating Income. For the six months ended June 30, 2021, revenue from contracts with clients also includes $55.9 million of the $67.8 million total Security Commissions and Trading Income and $25.5 million of the $109.3 million total Other Operating Income.

Receivables Balances. The table below represents receivables balances from contracts with clients, which are included in Other Assets on the consolidated balance sheets, at June 30, 2022 and December 31, 2021.

TABLE 66: CLIENT RECEIVABLES


(In Millions)	JUNE 30, 2022		DECEMBER 31, 2021
Trust Fees Receivable, net(1)	$	1,009.7	$	925.2
Other	134.8		126.9
Total Client Receivables	$	1,144.5	$	1,052.1

(1) Trust Fees Receivable is net of a $13.1 million and $10.9 million fee receivable allowance as of June 30, 2022 and December 31, 2021, respectively.

Notes to Consolidated Financial Statements (unaudited) (continued)

Note 15 – Net Interest Income

The components of Net Interest Income were as follows:

TABLE 67: NET INTEREST INCOME


	THREE MONTHS ENDED JUNE 30,				SIX MONTHS ENDED JUNE 30,
(In Millions)	2022		2021		2022		2021
Interest Income
Loans and Leases	$	256.4	$	172.2	$	447.6	$	344.2
Securities — Taxable	195.4		165.7		366.2		339.6
— Non-Taxable(1)	0.3		0.4		0.7		0.8
Interest-Bearing Due from and Deposits with Banks(2)	6.5		2.7		9.1		5.1
Federal Reserve and Other Central Bank Deposits and Other	66.2		2.1		84.7		3.3
Total Interest Income	$	524.8	$	343.1	$	908.3	$	693.0
Interest Expense
Deposits	$	23.2	$	(14.8)	$	7.3	$	(28.2)
Federal Funds Purchased	2.8		(0.5)		2.8		(0.4)
Securities Sold Under Agreements to Repurchase	6.0		—		6.3		—
Other Borrowings	8.4		3.2		11.5		6.7
Senior Notes	18.9		13.8		28.5		27.5
Long-Term Debt	6.8		5.3		12.2		10.6
Floating Rate Capital Debt	—		0.5		—		1.1
Total Interest Expense	$	66.1	$	7.5	$	68.6	$	17.3
Net Interest Income	$	458.7	$	335.6	$	839.7	$	675.7

(1) Non-Taxable Securities represent securities that are exempt from U.S. federal income taxes.

(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.

Note 16 – Debt Issuance

On May 10, 2022, the Corporation issued $1.0 billion of 4.00% senior notes, due May 10, 2027. The senior notes will bear interest from the date they were issued at an annual rate of 4.00%, payable semi-annually in arrears. The senior notes are unsecured and rank equally with all of the Corporation’s existing and future senior debt. On or after April 10, 2027, the senior notes may be redeemed, in whole or in part, at a redemption price equal to 100% of the principal amount of the senior notes to be redeemed plus accrued and unpaid interest to, but excluding, the redemption date.

Notes to Consolidated Financial Statements (unaudited) (continued)

Note 17 – Other Operating Income

The components of Other Operating Income were as follows:

TABLE 68: OTHER OPERATING INCOME


	THREE MONTHS ENDED JUNE 30,				SIX MONTHS ENDED JUNE 30,
(In Millions)	2022		2021		2022		2021
Loan Service Fees	$	18.1	$	17.8	$	34.8	$	33.2
Banking Service Fees	12.9		12.5		25.6		25.2
Other Income	14.6		24.1		26.3		50.9
Total Other Operating Income	$	45.6	$	54.4	$	86.7	$	109.3

For the three and six months ended June 30, 2022, Other Operating Income decreased compared to the prior-year quarter and prior-year period, primarily driven by lower miscellaneous income and the accounting reclassification, 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.

Note 18 – Other Operating Expense

The components of Other Operating Expense were as follows:

TABLE 69: OTHER OPERATING EXPENSE


	THREE MONTHS ENDED JUNE 30,				SIX MONTHS ENDED JUNE 30,
($ In Millions)	2022		2021		2022		2021
Business Promotion	$	18.1	$	8.9	$	28.9	$	16.8
Staff Related	6.2		9.8		9.1		16.6
FDIC Insurance Premiums	4.6		4.1		10.4		7.7
Other Intangibles Amortization	2.2		3.9		4.9		8.2
Other Expenses	58.8		40.8		116.3		89.9
Total Other Operating Expense	$	89.9	$	67.5	$	169.6	$	139.2

For the three and six months ended June 30, 2022, Other Operating Expense increased compared to the prior-year quarter and 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.

Notes to Consolidated Financial Statements (unaudited) (continued)

Note 19 – Pension and Postretirement Health Care

The following table sets forth the net periodic pension and postretirement benefit expense for Northern Trust’s U.S. Qualified Plan, Non-U.S. Pension Plans, U.S. Non-Qualified Plan, and postretirement health care plan for the three and six months ended June 30, 2022 and 2021.

TABLE 70: NET PERIODIC PENSION EXPENSE (BENEFIT)


U.S. QUALIFIED PLAN	THREE MONTHS ENDED JUNE 30,				SIX MONTHS ENDED JUNE 30,
(In Millions)	2022		2021		2022		2021
Service Cost	$	13.2	$	13.2	$	26.4	$	26.4
Interest Cost	10.3		9.8		20.6		19.6
Expected Return on Plan Assets	(20.2)		(20.1)		(40.4)		(40.2)
Amortization
Net Actuarial Loss	5.7		9.4		11.4		18.8
Prior Service Cost (Credit)	—		(0.1)		(0.1)		(0.2)
Net Periodic Pension Expense	$	9.0	$	12.2	$	17.9	$	24.4
Settlement Expense	20.3		17.6		20.3		17.6
Total Pension Expense	$	29.3	$	29.8	$	38.2	$	42.0


NON-U.S. PENSION PLANS	THREE MONTHS ENDED JUNE 30,				SIX MONTHS ENDED JUNE 30,
(In Millions)	2022		2021		2022		2021
Service Cost	$	0.5	$	0.6	$	0.9	$	1.1
Interest Cost	0.6		0.5		1.3		1.1
Expected Return on Plan Assets	(0.8)		(0.7)		(1.5)		(1.3)
Amortization
Net Actuarial Loss	0.2		0.2		0.4		0.5
Prior Service Cost	—		0.1		—		0.1
Net Periodic Pension Expense	$	0.5	$	0.7	$	1.1	$	1.5
Settlement Expense	—		0.7		0.7		0.9
Total Pension Expense	$	0.5	$	1.4	$	1.8	$	2.4


U.S. NON-QUALIFIED PLAN	THREE MONTHS ENDED JUNE 30,				SIX MONTHS ENDED JUNE 30,
(In Millions)	2022		2021		2022		2021
Service Cost	$	1.4	$	1.3	$	2.8	$	2.6
Interest Cost	1.0		1.0		2.0		1.9
Amortization
Net Actuarial Loss	1.8		2.0		3.6		4.1
Net Periodic Pension Expense	$	4.2	$	4.3	$	8.4	$	8.6


POSTRETIREMENT HEALTH CARE PLAN	THREE MONTHS ENDED JUNE 30,				SIX MONTHS ENDED JUNE 30,
(In Millions)	2022		2021		2022		2021
Service Cost	$	—	$	—	$	—	$	—
Interest Cost	0.1		0.1		0.2		0.2
Amortization
Net Actuarial (Gain)	(0.1)		—		(0.2)		(0.1)
Prior Service Cost (Credit)	(0.2)		(0.3)		(0.4)		(0.5)
Net Periodic Postretirement (Benefit)	$	(0.2)	$	(0.2)	$	(0.4)	$	(0.4)

Northern Trust’s U.S. Qualified Plan provides participants the option to select lump-sum benefit payments upon retirement and termination of service. During the three and six months ended June 30, 2022, Northern Trust recognized settlement charges of $20.3 million related to its U.S. Qualified Plan, as in the second quarter of 2022 it became probable that total lump-sum payments in 2022 would exceed the settlement threshold of the sum of annual service and interest cost. During the three and six months ended June 30, 2021, Northern Trust recognized settlement charges of $17.6 million. The settlement charge represents the pro rata amount of the net loss in AOCI that is charged to income based on the proportion of the Projected Benefit Obligation settled to the total Projected Benefit Obligation and is resulting from the normal operation of the plan and not as a result of any special event.

The application of settlement accounting required an interim remeasurement of the U.S. Qualified Plan as of quarter-end. Northern Trust utilized a discount rate of 4.81% based on the established discount rate methodology, and an expected rate of

Notes to Consolidated Financial Statements (unaudited) (continued)

return of 6.00%. The remeasurement and the recognition of settlement charges decreased the Projected Benefit Obligation of the U.S Qualified Plan by $295.0 million from $1,401.3 million as of December 31, 2021 to $1,106.3 million as of June 30, 2022, and decreased the net funded status of the U.S. Qualified Plan by $118.7 million from $307.6 million as of December 31, 2021 to $188.9 million as of June 30, 2022.

The components of net periodic pension expense are recorded in Employee Benefits expense on the consolidated statements of income.

There were no contributions to the U.S. Qualified Plan during the six months ended June 30, 2022 and 2021, and $20.7 million and $6.7 million of contributions to the U.S. Non-Qualified Plan during the six months ended June 30, 2022 and 2021, respectively.

Note 20 – Share-Based Compensation Plans

The Northern Trust Corporation 2017 Long-Term Incentive Plan provides for the grant of non-qualified and incentive stock options; tandem and free-standing stock appreciation rights; stock awards in the form of restricted stock, restricted stock units and other stock awards; and performance awards.

Beginning with the grants made on February 21, 2017 under the Corporation’s prior equity incentive plan, restricted stock unit and performance stock unit grants continue to vest in accordance with the original terms of the award if the applicable employee retires after satisfying applicable age and service requirements.

Total compensation expense for share-based payment arrangements and the associated tax impacts were as follows for the three and six months ended June 30, 2022 and 2021.

TABLE 71: TOTAL COMPENSATION EXPENSE FOR SHARE-BASED PAYMENT ARRANGEMENTS


	THREE MONTHS ENDED JUNE 30,				SIX MONTHS ENDED JUNE 30,
(In Millions)	2022		2021		2022		2021
Restricted Stock Unit Awards	$	16.9	$	15.2	$	69.5	$	53.6
Performance Stock Units	3.1		3.6		20.5		15.7
Total Share-Based Compensation Expense	20.0		18.8		90.0		69.3
Tax Benefits Recognized	$	5.0	$	4.7	$	22.6	$	17.4

Note 21 – Variable Interest Entities

Variable Interest Entities (VIEs) are defined within GAAP as entities which either (1) lack sufficient equity at risk to permit the entity to finance its activities without additional subordinated financial support, (2) have equity investors that lack attributes typical of an equity investor, such as the ability to make significant decisions through voting rights affecting the entity’s operations, or the obligation to absorb expected losses or the right to receive residual returns of the entity, or (3) are structured with voting rights that are disproportionate to the equity investor’s obligation to absorb losses or right to receive returns, and substantially all of the activities are conducted on behalf of the holder of the equity investment at risk with disproportionately few voting rights. Investors that finance a VIE through debt or equity interests are variable interest holders in the entity and the variable interest holder, if any, that has both the power to direct the activities that most significantly impact the entity’s economic performance and, through its variable interest, the obligation to absorb losses or the right to receive returns that could potentially be significant to the entity is deemed to be the VIE’s primary beneficiary and is required to consolidate the VIE.

Tax Credit Structures. Northern Trust invests in qualified affordable housing projects and community development entities (collectively, community development projects) that are designed to generate a return primarily through the realization of tax credits. The community development projects are formed as limited partnerships and limited liability companies in which Northern Trust invests as a limited partner/investor member through equity contributions. The economic performance of the community development projects, some of which are VIEs, is subject to the performance of their underlying investment and their ability to operate in compliance with the rules and regulations necessary for the qualification of tax credits generated by equity investments. Northern Trust has determined that it is not the primary beneficiary of any community development project VIEs as it lacks the power to direct the activities that most significantly impact the economic performance of the underlying investments or to affect their ability to operate in compliance with the rules and regulations necessary for the qualification of tax credits generated by equity investments. This power is held by the general partners and managing members who exercise full and exclusive control of the operations of the community development project VIEs.

Northern Trust’s maximum exposure to loss as a result of its involvement with community development projects is limited to the carrying amounts of its investments, including any undrawn commitments. As of June 30, 2022 and December 31, 2021, the carrying amounts of these investments in community development projects that generate tax credits, included in Other Assets on the consolidated balance sheets, totaled $899.1 million and $916.8 million, respectively, of which $860.2 million and $880.0

Notes to Consolidated Financial Statements (unaudited) (continued)

million are VIEs as of June 30, 2022 and December 31, 2021, respectively. As of June 30, 2022 and December 31, 2021, liabilities related to unfunded commitments on investments in tax credit community development projects, included in Other Liabilities on the consolidated balance sheets, totaled $276.7 million and $289.3 million, respectively, of which $261.2 million and $280.5 million related to undrawn commitments on VIEs as of June 30, 2022 and December 31, 2021, respectively. Northern Trust’s funding requirements are limited to its invested capital and undrawn commitments for future equity contributions. Northern Trust has no exposure to loss from liquidity arrangements and no obligation to purchase assets of the community development projects.

Tax credits and other tax benefits attributable to community development projects totaled $25.7 million and $23.1 million for the three months ended June 30, 2022 and 2021, respectively, and $48.4 million and $46.1 million for the six months ended June 30, 2022 and 2021, respectively.

Investment Funds. Northern Trust acts as asset manager for various funds in which clients of Northern Trust are investors. As an asset manager of funds, Northern Trust earns a competitively priced fee that is based on assets managed and varies with each fund’s investment objective. Based on its analysis, Northern Trust has determined that it is not the primary beneficiary of these VIEs under GAAP.

Some of the funds for which Northern Trust acts as asset manager comply or operate in accordance with requirements that are similar to those in Rule 2a-7 of the Investment Company Act of 1940 for registered money market funds and therefore the funds are exempt from the consolidation requirements in ASC 810-10. Northern Trust voluntarily waived $8.6 million of money market fund fees for the three months ended June 30, 2022 related to certain competitive factors and $59.3 million for the six months ended June 30, 2022 related to the low-interest-rate environment and certain competitive factors. Northern Trust voluntarily waived $79.8 million of money market fund fees for the three months ended June 30, 2021 and $130.0 million for the six months ended June 30, 2021 related to the low-interest rate environment and certain competitive factors. Northern Trust does not have any contractual obligations to provide financial support to the funds. Any potential future support of the funds will be at the discretion of Northern Trust after an evaluation of the specific facts and circumstances.

Periodically, Northern Trust makes seed capital investments to certain funds. As of June 30, 2022, and December 31, 2021, Northern Trust had no seed capital investments and no unfunded commitments related to seed capital investments.

Note 22 – Commitments and Contingent Liabilities

Off-Balance Sheet Financial Instruments, Guarantees and Other Commitments. Northern Trust, in the normal course of business, enters into various types of commitments and issues letters of credit to meet the liquidity and credit enhancement needs of its clients. The contractual amounts of these instruments represent the maximum potential credit exposure should the instrument be fully drawn upon and the client default. To control the credit risk associated with entering into commitments and issuing letters of credit, Northern Trust subjects such activities to the same credit quality and monitoring controls as its lending activities. Northern Trust does not believe the total contractual amount of these instruments to be representative of its future credit exposure or funding requirements.

The following table provides details of Northern Trust's off-balance sheet financial instruments as of June 30, 2022 and December 31, 2021.

TABLE 72: SUMMARY OF OFF-BALANCE SHEET FINANCIAL INSTRUMENTS


	JUNE 30, 2022						DECEMBER 31, 2021
($ In Millions)	ONE YEAR AND LESS		OVER ONE YEAR		TOTAL		ONE YEAR AND LESS		OVER ONE YEAR		TOTAL
Undrawn Commitments(1)	$	12,146.2	$	17,233.4	$	29,379.6	$	9,567.0	$	17,855.2	$	27,422.2
Standby Letters of Credit and Financial Guarantees(2)(3)	7,815.4		1,076.7		8,892.1		3,485.6		553.9		4,039.5
Commercial Letters of Credit	34.9		0.8		35.7		68.5		1.1		69.6
Custody Securities Lent with Indemnification	149,303.1		—		149,303.1		170,445.3		—		170,445.3
Total Off-Balance Sheet Financial Instruments	$	169,299.6	$	18,310.9	$	187,610.5	$	183,566.4	$	18,410.2	$	201,976.6

(1) These amounts exclude $299.3 million and $366.6 million of commitments participated to others at June 30, 2022 and December 31, 2021, respectively.

(2) These amounts include $37.2 million and $30.5 million of standby letters of credit secured by cash deposits or participated to others as of June 30, 2022 and December 31, 2021, respectively.

(3) These amounts include a $7,178.8 million and $2,309.6 million guarantee to the Fixed Income Clearing Corporation (FICC) under the sponsored member program, without taking into consideration the related collateral, as of June 30, 2022 and December 31, 2021, respectively.

Undrawn Commitments generally have fixed expiration dates or other termination clauses. Since a significant portion of the commitments are expected to expire without being drawn upon, the total commitment amount does not necessarily represent future loans or liquidity requirements.

Standby Letters of Credit obligate Northern Trust to meet certain financial obligations of its clients, if, under the contractual terms of the agreement, the clients are unable to do so. These instruments are primarily issued to support public and private

Notes to Consolidated Financial Statements (unaudited) (continued)

financial commitments, including commercial paper, bond financing, initial margin requirements on futures exchanges and similar transactions. Northern Trust is obligated to meet the entire financial obligation of these agreements and in certain cases is able to recover the amounts paid through recourse against collateral received or other participants.

Financial Guarantees are issued by Northern Trust to guarantee the performance of a client to a third party under certain arrangements.

Commercial Letters of Credit are instruments issued by Northern Trust on behalf of its clients that authorize a third party (the beneficiary) to draw drafts up to a stipulated amount under the specified terms and conditions of the agreement and other similar instruments. Commercial letters of credit are issued primarily to facilitate international trade.

Custody Securities Lent with Indemnification involves Northern Trust lending securities owned by clients to borrowers who are reviewed and approved by the Northern Trust Capital Markets Credit Committee, as part of its securities custody activities and at the direction of its clients. In connection with these activities, Northern Trust has issued indemnifications to certain clients against certain losses that are a direct result of a borrower’s failure to return securities when due, should the value of such securities exceed the value of the collateral required to be posted. Borrowers are required to collateralize fully securities received with cash or marketable securities. As securities are loaned, collateral is maintained at a minimum of 100% of the fair value of the securities plus accrued interest. The collateral is revalued on a daily basis. The amount of securities loaned as of June 30, 2022 and December 31, 2021 subject to indemnification was $149.3 billion and $170.4 billion, respectively. Because of the credit quality of the borrowers and the requirement to fully collateralize securities borrowed, management believes that the exposure to credit loss from this activity is not significant and no liability was recorded as of June 30, 2022 or December 31, 2021, related to these indemnifications.

Unsettled Repurchase and Reverse Repurchase Agreements. Northern Trust enters into repurchase agreements and reverse repurchase agreements which may settle at a future date. In repurchase agreements, Northern Trust receives cash from and provides securities as collateral to a counterparty. In reverse repurchase agreements, Northern Trust advances cash to and receives securities as collateral from a counterparty. These transactions are recorded on the consolidated balance sheets on the settlement date. As of June 30, 2022 and December 31, 2021, there were no unsettled repurchase or reverse repurchase agreements.

Sponsored Member Program**.** Northern Trust is an approved Government Securities Division (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 may sponsor clients to clear their eligible repurchase transactions with the FICC. As a sponsoring member, Northern Trust guarantees to the FICC the prompt and full payment and performance of its sponsored member clients’ respective obligations under the FICC GSD’s rules. To mitigate Northern Trust’s credit exposure under this guarantee, Northern Trust obtains a security interest in its sponsored member clients’ collateral. See Note 24 — Offsetting of Assets and Liabilities for additional information on Northern Trust’s repurchase and reverse repurchase agreements.

Clearing and Settlement Organizations**.** The Bank is a participating member of various cash, securities and foreign exchange clearing and settlement organizations. It participates in these organizations on behalf of its clients and on its own behalf as a result of its own activities. A wide variety of cash and securities transactions are settled through these organizations, including those involving U.S. Treasuries, obligations of states and political subdivisions, asset-backed securities, commercial paper, dollar placements, and securities issued by the Government National Mortgage Association.

Certain of these industry clearing and settlement exchanges require their members to guarantee their obligations and liabilities and/or to provide liquidity support in the event other members do not honor their obligations as stipulated in each clearing organization’s membership agreement. Exposure related to these agreements varies, primarily as a result of fluctuations in the volume of transactions cleared through the organizations. At June 30, 2022 and December 31, 2021, Northern Trust has not recorded any material liabilities under these arrangements as Northern Trust believes the likelihood that a clearing or settlement exchange (of which Northern Trust is a member) would become insolvent is remote. Controls related to these clearing transactions are closely monitored by management to protect the assets of Northern Trust and its clients.

Legal Proceedings. In the normal course of business, the Corporation and its subsidiaries are routinely defendants in or parties to pending and threatened legal actions, and are subject to regulatory examinations, information-gathering requests, investigations, and proceedings, both formal and informal. In certain legal actions, claims for substantial monetary damages are asserted. In regulatory matters, claims for disgorgement, restitution, penalties and/or other remedial actions or sanctions may be sought.

Based on current knowledge, after consultation with legal counsel and after taking into account current accruals, management does not believe that losses, fines or penalties, if any, arising from pending litigation or threatened legal actions or regulatory matters either individually or in the aggregate, after giving effect to applicable reserves and insurance coverage will have a

Notes to Consolidated Financial Statements (unaudited) (continued)

material adverse effect on the consolidated financial position or liquidity of the Corporation, although such matters could have a material adverse effect on the Corporation’s operating results for a particular period.

Under GAAP, (i) an event is “probable” if the “future event or events are likely to occur”; (ii) an event is “reasonably possible” if “the chance of the future event or events occurring is more than remote but less than likely”; and (iii) an event is “remote” if “the chance of the future event or events occurring is slight.”

The outcome of litigation and regulatory matters is inherently difficult to predict and/or the range of loss often cannot be reasonably estimated, particularly for matters that (i) will be decided by a jury, (ii) are in early stages, (iii) involve uncertainty as to the likelihood of a class being certified or the ultimate size of the class, (iv) are subject to appeals or motions, (v) involve significant factual issues to be resolved, including with respect to the amount of damages, (vi) do not specify the amount of damages sought or (vii) seek very large damages based on novel and complex damage and liability legal theories. Accordingly, the Corporation cannot reasonably estimate the eventual outcome of these pending matters, the timing of their ultimate resolution or what the eventual loss, fines or penalties, if any, related to each pending matter will be.

In accordance with applicable accounting guidance, the Corporation records accruals for litigation and regulatory matters when those matters present loss contingencies that are both probable and reasonably estimable. When loss contingencies are not both probable and reasonably estimable, the Corporation does not record accruals. No material accruals have been recorded for pending litigation or threatened legal actions or regulatory matters.

For a limited number of matters for which a loss is reasonably possible in future periods, whether in excess of an accrued liability or where there is no accrued liability, the Corporation is able to estimate a range of possible loss. As of June 30, 2022, the Corporation has estimated the range of reasonably possible loss for these matters to be from zero to approximately $25 million in the aggregate. The Corporation’s estimate with respect to the aggregate range of reasonably possible loss is based upon currently available information and is subject to significant judgment and a variety of assumptions and known and unknown uncertainties. The matters underlying the estimated range will change from time to time, and actual results may vary significantly from the current estimate.

In certain other pending matters, there may be a range of reasonably possible loss (including reasonably possible loss in excess of amounts accrued) that cannot be reasonably estimated for the reasons described above. Such matters are not included in the estimated range of reasonably possible loss discussed above.

In 2015, Northern Trust Fiduciary Services (Guernsey) Limited (NTFS), an indirect subsidiary of the Corporation, was charged by a French investigating magistrate judge with complicity in estate tax fraud in connection with the administration of two trusts for which it serves as trustee. Charges also were brought against a number of other persons and entities related to this matter. In 2017, a French court found no estate tax fraud had occurred and NTFS and all other persons and entities charged were acquitted. The Public Prosecutor’s Office of France appealed the court decision and in June 2018 a French appellate court issued its opinion on the matter, acquitting all persons and entities charged, including NTFS. In January 2021, the Cour de Cassation, the highest court in France, reversed the June 2018 appellate court ruling, requiring a re-trial at the appellate court level. The re-trial proceedings in the appellate court have not yet been scheduled. As trustee, NTFS provided no tax advice and had no involvement in the preparation or filing of the challenged estate tax filings.

Visa Class B Common Shares. Northern Trust, as a member of Visa U.S.A. Inc. (Visa U.S.A.) and in connection with the 2007 restructuring of Visa U.S.A. and its affiliates and the 2008 initial public offering of Visa Inc. (Visa), received certain Visa Class B common shares. The Visa Class B common shares are subject to certain selling restrictions until the final resolution of certain litigation related to interchange fees involving Visa (the covered litigation), at which time the shares are convertible into Visa Class A common shares based on a conversion rate dependent upon the ultimate cost of resolving the covered litigation. On June 28, 2018, September 27, 2019, December 29, 2021 and June 29, 2022, Visa deposited an additional $600 million, $300 million, $250 million and $600 million, respectively, into an escrow account previously established with respect to the covered litigation. As a result of the additional contributions to the escrow account, the rate at which Visa Class B common shares will convert into Visa Class A common shares was reduced.

In September 2018, Visa reached a proposed class settlement agreement covering damage claims but not injunctive relief claims regarding the covered litigation. In December 2019, the district court granted final approval for the proposed class settlement agreement. Certain merchants have opted out of the class settlement and are pursuing claims separately, while other merchants have appealed the approval order granted by the district court. The ultimate resolution of the covered litigation, the timing for removal of the selling restrictions on the Visa Class B common shares and the rate at which such shares will ultimately convert into Visa Class A common shares are uncertain.

In June 2016 and 2015, Northern Trust recorded a $123.1 million and $99.9 million net gain on the sale of 1.1 million and 1.0 million of its Visa Class B common shares, respectively. These sales do not affect Northern Trust’s risk related to the impact of the covered litigation on the rate at which such shares will ultimately convert into Visa Class A common shares. Northern Trust

Notes to Consolidated Financial Statements (unaudited) (continued)

continued to hold approximately 4.1 million Visa Class B common shares, which are recorded at their original cost basis of zero, as of June 30, 2022 and December 31, 2021.

Note 23 – Derivative Financial Instruments

Northern Trust is a party to various derivative financial instruments that are used in the normal course of business to meet the needs of its clients, as part of its trading activity for its own account and as part of its risk management activities. These instruments may include foreign exchange contracts, interest rate contracts, total return swap contracts, and swaps related to the sale of certain Visa Class B common shares.

Foreign exchange contracts are agreements to exchange specific amounts of currencies at a future date, at a specified rate of exchange. Foreign exchange contracts are entered into primarily to meet the foreign exchange needs of clients. Foreign exchange contracts are also used for trading and risk management purposes. For risk management purposes, Northern Trust uses foreign exchange contracts to reduce its exposure to changes in foreign exchange rates relating to certain forecasted non-functional-currency-denominated revenue and expenditure transactions, foreign-currency-denominated assets and liabilities, including debt securities, and net investments in non-U.S. affiliates.

Interest rate contracts include swap and option contracts. Interest rate swap contracts involve the exchange of fixed and floating rate interest payment obligations without the exchange of the underlying principal amounts. Northern Trust enters into interest rate swap contracts with its clients and also may utilize such contracts to reduce or eliminate the exposure to changes in the cash flows or fair value of hedged assets or liabilities due to changes in interest rates. Interest rate option contracts may include caps, floors, collars and swaptions, and provide for the transfer or reduction of interest rate risk, typically in exchange for a fee. Northern Trust enters into option contracts primarily as a seller of interest rate protection to clients. Northern Trust receives a fee at the outset of the agreement for the assumption of the risk of an unfavorable change in interest rates. This assumed interest rate risk is then mitigated by entering into an offsetting position with an outside counterparty. Northern Trust may also purchase or enter into option contracts for risk management purposes including to reduce the exposure to changes in the cash flows of hedged assets due to changes in interest rates.

The following table shows the notional and fair values of all derivative financial instruments as of June 30, 2022 and December 31, 2021.

TABLE 73: NOTIONAL AND FAIR VALUES OF DERIVATIVE FINANCIAL INSTRUMENTS


	JUNE 30, 2022						DECEMBER 31, 2021
	NOTIONAL VALUE		FAIR VALUE				NOTIONAL VALUE		FAIR VALUE
(In Millions)	ASSET(1)		LIABILITY(2)		ASSET(1)		LIABILITY(2)
Derivatives Designated as Hedging under GAAP
Interest Rate Contracts
Fair Value Hedges	$	4,584.6	$	32.7	$	21.1	$	4,430.5	$	7.6	$	8.7

Foreign Exchange Contracts
Cash Flow Hedges	339.6		12.8		12.0		3,697.9		61.8		12.6
Net Investment Hedges	3,501.8		259.9		4.0		4,161.8		183.3		12.3
Total Derivatives Designated as Hedging under GAAP	$	8,426.0	$	305.4	$	37.1	$	12,290.2	$	252.7	$	33.6
Derivatives Not Designated as Hedging under GAAP
Non-Designated Risk Management Derivatives
Foreign Exchange Contracts	$	42.9	$	0.2	$	0.3	$	109.9	$	0.2	$	0.6
Other Financial Derivatives(3)	664.0		—		31.1		738.5		—		37.5
Total Non-Designated Risk Management Derivatives	$	706.9	$	0.2	$	31.4	$	848.4	$	0.2	$	38.1
Client-Related and Trading Derivatives
Foreign Exchange Contracts	$	314,288.7	$	4,488.3	$	4,452.7	$	315,532.3	$	1,962.1	$	1,973.3
Interest Rate Contracts	11,267.3		70.2		265.0		11,570.1		132.4		90.2
Total Client-Related and Trading Derivatives	$	325,556.0	$	4,558.5	$	4,717.7	$	327,102.4	$	2,094.5	$	2,063.5
Total Derivatives Not Designated as Hedging under GAAP	$	326,262.9	$	4,558.7	$	4,749.1	$	327,950.8	$	2,094.7	$	2,101.6
Total Gross Derivatives	$	334,688.9	$	4,864.1	$	4,786.2	$	340,241.0	$	2,347.4	$	2,135.2
Less: Netting(4)			1,790.8		3,801.9				1,533.8		1,283.5
Total Derivative Financial Instruments			$	3,073.3	$	984.3			$	813.6	$	851.7

(1) Derivative assets are reported in Other Assets on the consolidated balance sheets.

(2) Derivative liabilities are reported in Other Liabilities on the consolidated balance sheets.

(3) This line includes swaps related to sales of certain Visa Class B common shares.

(4) See further detail in Note 24 — Offsetting of Assets and Liabilities.

Notes to Consolidated Financial Statements (unaudited) (continued)

Notional amounts of derivative financial instruments do not represent credit risk, and are not recorded in the consolidated balance sheets. They are used merely to express the volume of this activity. Northern Trust’s credit-related risk of loss is limited to the positive fair value of the derivative instrument, net of any collateral received, which is significantly less than the notional amount.

All derivative financial instruments, whether designated as hedges or not, are recorded on the consolidated balance sheets at fair value within Other Assets or Other Liabilities. Northern Trust has elected to net derivative assets and liabilities when legally enforceable master netting arrangements or similar agreements exist between Northern Trust and the counterparty.

Hedging Derivative Instruments Designated under GAAP. Northern Trust uses derivative instruments to hedge its exposure to foreign currency, interest rate, and equity price. Certain hedging relationships are formally designated and qualify for hedge accounting under GAAP as fair value, cash flow or net investment hedges. Other derivatives that are entered into for risk management purposes as economic hedges are not formally designated as hedges and changes in fair value are recognized currently in Other Operating Income within the consolidated statements of income (see below section “Derivative Instruments Not Designated as Hedging under GAAP”).

In order to qualify for hedge accounting, a formal assessment is performed on a calendar-quarter basis to verify that derivatives used in designated hedging transactions continue to be highly effective in offsetting the changes in fair value or cash flows of the hedged item. If a derivative ceases to be highly effective, matures, is sold or is terminated, or if a hedged forecasted transaction is no longer probable of occurring, hedge accounting is terminated and the derivative is treated as if it were a trading instrument.

Fair Value Hedges. Derivatives are designated as fair value hedges to limit Northern Trust’s exposure to changes in the fair value of assets and liabilities due to movements in interest rates. Northern Trust enters into interest rate swaps to hedge changes in fair value of AFS debt securities and long-term subordinated debt and senior notes. Northern Trust applied the “shortcut” method of accounting, available under GAAP, which assumes there is perfect effectiveness in a hedge, for all of its fair value hedges during the three- and six- month periods ended June 30, 2022 and 2021. Changes in the fair value of the derivative instrument and changes in the fair value of the hedged asset or liability attributable to the hedged risk are recognized currently in earnings within the same income statement line item.

Cash Flow Hedges. Derivatives are also designated as cash flow hedges in order to minimize the variability in cash flows of earning assets or forecasted transactions caused by movements in interest or foreign exchange rates. Northern Trust enters into foreign exchange contracts to hedge changes in cash flows due to movements in foreign exchange rates of forecasted foreign- currency-denominated transactions and foreign-currency-denominated debt securities. Northern Trust also enters into interest rate contracts to hedge changes in cash flows due to movements in interest rates of AFS debt securities. The change in fair value of cash flow hedging derivative instruments are recorded in AOCI and reclassified to earnings when the hedged forecasted transaction impacts earnings within the same income statement line item.

There were no material gains or losses reclassified into earnings during the three- and six- month periods ended June 30, 2022 and 2021, as a result of the discontinuance of forecasted transactions that were no longer probable of occurring. It is estimated that net gains of $0.4 million will be reclassified into net income within the next twelve months relating to cash flow hedges of foreign-currency-denominated transactions. As of June 30, 2022, 14 months was the maximum length of time over which the exposure to variability in future cash flows of forecasted foreign-currency-denominated transactions was being hedged.

Notes to Consolidated Financial Statements (unaudited) (continued)

The following tables provide fair value and cash flow hedge derivative gains and losses recognized in income during the three- and six-month periods ended June 30, 2022 and 2021.

TABLE 74: LOCATION AND AMOUNT OF FAIR VALUE AND CASH FLOW HEDGE DERIVATIVE GAINS AND LOSSES RECORDED IN INCOME


(In Millions)	INTEREST INCOME				INTEREST EXPENSE				OTHER OPERATING INCOME
THREE MONTHS ENDED JUNE 30,	2022		2021		2022		2021		2022		2021
Total amounts on the consolidated statements of income	$	524.8	$	343.1	$	66.1	$	7.5	$	45.6	$	54.4
Gains (Losses) on fair value hedges recognized on
Interest Rate Contracts
Recognized on derivatives	18.5		(0.5)		(97.8)		31.9		—		—
Recognized on hedged items	(18.5)		0.5		97.8		(31.9)		—		—
Amounts related to interest settlements on derivatives	(0.4)		(2.0)		23.7		24.5		—		—
Total gains (losses) recognized on fair value hedges	$	(0.4)	$	(2.0)	$	23.7	$	24.5	$	—	$	—
Gains (Losses) on cash flow hedges recognized on
Foreign Exchange Contracts
Net gains (losses) reclassified from AOCI to net income	$	—	$	2.7	$	—	$	—	$	(1.5)	$	(2.5)


Total gains (losses) reclassified from AOCI to net income on cash flow hedges	$	—	$	2.7	$	—	$	—	$	(1.5)	$	(2.5)



(In Millions)	INTEREST INCOME				INTEREST EXPENSE				OTHER OPERATING INCOME
SIX MONTHS ENDED JUNE 30,	2022		2021		2022		2021		2022		2021
Total amounts on the consolidated statements of income	$	908.3	$	693.0	$	68.6	$	17.3	$	86.7	$	109.3
Gains (Losses) on fair value hedges recognized on
Interest Rate Contracts
Recognized on derivatives	57.7		17.9		(253.7)		(111.0)		—		—
Recognized on hedged items	(57.7)		(17.9)		253.7		111.0		—		—
Amounts related to interest settlements on derivatives	(9.3)		(3.6)		24.9		31.5		—		—
Total gains (losses) recognized on fair value hedges	$	(9.3)	$	(3.6)	$	24.9	$	31.5	$	—	$	—
Gains (Losses) on cash flow hedges recognized on
Foreign Exchange Contracts
Net gains (losses) reclassified from AOCI to net income	$	0.6	$	8.2	$	—	$	—	$	(3.8)	$	(3.5)


Total gains (losses) reclassified from AOCI to net income on cash flow hedges	$	0.6	$	8.2	$	—	$	—	$	(3.8)	$	(3.5)

The following table provides the impact of fair value hedge accounting on the carrying value of the designated hedged items as of June 30, 2022 and December 31, 2021.

TABLE 75: HEDGED ITEMS IN FAIR VALUE HEDGES


	JUNE 30, 2022				DECEMBER 31, 2021
(In Millions)	CARRYING VALUE OF THE HEDGED ITEMS		CUMULATIVE HEDGE ACCOUNTING BASIS ADJUSTMENT(1)		CARRYING VALUE OF THE HEDGED ITEMS		CUMULATIVE HEDGE ACCOUNTING BASIS ADJUSTMENT(2)
Available for Sale Debt Securities(3)	$	1,779.0	$	43.4	$	1,677.4	$	11.1
Senior Notes and Long-Term Subordinated Debt	2,745.9		189.0		2,745.6		59.5
Total	$	4,524.9	$	232.4	$	4,423.0	$	70.6

(1) The cumulative hedge accounting basis adjustment includes $8.9 million related to discontinued hedging relationships of AFS debt securities as of June 30, 2022. There are no amounts related to discontinued hedging relationships in the cumulative hedge accounting basis adjustment of senior notes and long-term debt as of June 30, 2022.

(2) The cumulative hedge accounting basis adjustment includes $9.6 million related to discontinued hedging relationships of AFS debt securities as of December 31, 2021. There were no amounts related to discontinued hedging relationships in the cumulative hedge accounting basis adjustment of senior notes and long-term debt as of December 31, 2021.

(3) Carrying value represents amortized cost.

Net Investment Hedges. Certain foreign exchange contracts are designated as net investment hedges to minimize Northern Trust’s exposure to variability in the foreign currency translation of net investments in non-U.S. branches and subsidiaries. Net investment hedge gains of $204.3 million and losses of $12.1 million were recognized in AOCI related to foreign exchange contracts for the three months ended June 30, 2022 and 2021, respectively. Net investment hedge gains of $263.7 million and $70.6 million were recognized in AOCI related to foreign exchange contracts for the six months ended June 30, 2022 and 2021, respectively.

Notes to Consolidated Financial Statements (unaudited) (continued)

Derivative Instruments Not Designated as Hedging under GAAP. Northern Trust’s derivative instruments that are not designated as hedging under GAAP include derivatives for purposes of client-related and trading activities, as well as other risk management purposes. These activities consist principally of providing foreign exchange services to clients in connection with Northern Trust’s global custody business. However, in the normal course of business, Northern Trust also engages in trading of currencies for its own account.

Non-designated risk management derivatives include foreign exchange contracts entered into to manage the foreign currency risk of non-U.S.-dollar-denominated assets and liabilities, the net investment in certain non-U.S. affiliates, commercial loans and forecasted foreign-currency-denominated transactions. Swaps related to sales of certain Visa Class B common shares were entered into pursuant to which Northern Trust retains the risks associated with the ultimate conversion of the Visa Class B common shares into Visa Class A common shares. Total return swaps are entered into to manage the equity price risk associated with certain investments.

Changes in the fair value of derivative instruments not designated as hedges under GAAP are recognized currently in income. The following table provides the location and amount of gains and losses recorded in the consolidated statements of income for the three and six months ended June 30, 2022 and 2021 for derivative instruments not designated as hedges under GAAP.

TABLE 76: LOCATION AND AMOUNT OF GAINS AND LOSSES RECORDED IN INCOME FOR DERIVATIVES NOT DESIGNATED AS HEDGING UNDER GAAP


(In Millions)	DERIVATIVE GAINS (LOSSES) LOCATION RECOGNIZED IN INCOME	AMOUNT OF DERIVATIVE GAINS (LOSSES) RECOGNIZED IN INCOME
THREE MONTHS ENDED JUNE 30,		SIX MONTHS ENDED JUNE 30,
2022	2021	2022		2021
Non-designated risk management derivatives
Foreign Exchange Contracts	Other Operating Income	$	(4.1)	$	2.9	$	(1.4)	$	3.0
Other Financial Derivatives(1)	Other Operating Income	(5.6)		(8.5)		(10.1)		(12.1)
Losses from non-designated risk management derivatives		$	(9.7)	$	(5.6)	$	(11.5)	$	(9.1)
Client-related and trading derivatives
Foreign Exchange Contracts	Foreign Exchange Trading Income	$	77.6	$	70.6	$	158.5	$	149.3
Interest Rate Contracts	Security Commissions and Trading Income	3.2		2.8		4.2		5.8
Gains from client-related and trading derivatives		$	80.8	$	73.4	$	162.7	$	155.1
Total gains from derivatives not designated as hedging under GAAP		$	71.1	$	67.8	$	151.2	$	146.0

(1) This line includes swaps related to the sale of certain Visa Class B common shares.

Notes to Consolidated Financial Statements (unaudited) (continued)

Note 24 – Offsetting of Assets and Liabilities

Northern Trust has elected to net derivative assets and liabilities when legally enforceable master netting arrangements or similar agreements exist between Northern Trust and the counterparty.

The following table provides information regarding the offsetting of derivative assets and securities purchased under agreements to resell within the consolidated balance sheets as of June 30, 2022 and December 31, 2021.

TABLE 77: OFFSETTING OF DERIVATIVE ASSETS AND SECURITIES PURCHASED UNDER AGREEMENTS TO RESELL


	JUNE 30, 2022
(In Millions)	GROSS RECOGNIZED ASSETS		GROSS AMOUNTS OFFSET IN THE BALANCE SHEET(3)		NET AMOUNTS PRESENTED IN THE BALANCE SHEET		GROSS AMOUNTS NOT OFFSET IN THE BALANCE SHEET(4)		NET AMOUNT(5)
Derivative Assets(1)
Foreign Exchange Contracts Over the Counter (OTC)	$	3,402.2	$	1,739.4	$	1,662.8	$	17.2	$	1,645.6
Interest Rate Swaps OTC	102.9		51.4		51.5		—		51.5

Total Derivatives Subject to a Master Netting Arrangement	3,505.1		1,790.8		1,714.3		17.2		1,697.1
Total Derivatives Not Subject to a Master Netting Arrangement	1,359.0		—		1,359.0		—		1,359.0
Total Derivatives	4,864.1		1,790.8		3,073.3		17.2		3,056.1
Securities Purchased under Agreements to Resell(2)	$	4,784.9	$	3,613.1	$	1,171.8	$	1,171.8	$	—


	DECEMBER 31, 2021
(In Millions)	GROSS RECOGNIZED ASSETS		GROSS AMOUNTS OFFSET IN THE BALANCE SHEET(3)		NET AMOUNTS PRESENTED IN THE BALANCE SHEET		GROSS AMOUNTS NOT OFFSET IN THE BALANCE SHEET(4)		NET AMOUNT(5)
Derivative Assets(1)
Foreign Exchange Contracts OTC	$	1,762.7	$	1,530.7	$	232.0	$	2.8	$	229.2
Interest Rate Swaps OTC	140.0		3.1		136.9		—		136.9
Total Derivatives Subject to a Master Netting Arrangement	1,902.7		1,533.8		368.9		2.8		366.1
Total Derivatives Not Subject to a Master Netting Arrangement	444.7		—		444.7		—		444.7
Total Derivatives	2,347.4		1,533.8		813.6		2.8		810.8
Securities Purchased under Agreements to Resell(2)	$	2,078.9	$	1,392.5	$	686.4	$	686.4	$	—

*(1)*Derivative assets are reported in Other Assets on the consolidated balance sheets. Other Assets (excluding derivative assets) totaled $8.3 billion and $7.8 billion as of June 30, 2022 and December 31, 2021, respectively.

*(2)*Offsetting of Securities Purchased under Agreements to Resell primarily relates to our involvement in FICC.

*(3)*Including cash collateral received from counterparties.

*(4)*Including financial assets accepted as collateral which are received from counterparties.

*(5)*Northern Trust did not possess any cash collateral that was not offset in the consolidated balance sheets that could have been used to offset the net amounts presented in the consolidated balance sheets as of June 30, 2022 and December 31, 2021.

Notes to Consolidated Financial Statements (unaudited) (continued)

The following table provides information regarding the offsetting of derivative liabilities and securities sold under agreements to repurchase within the consolidated balance sheets as of June 30, 2022 and December 31, 2021.

TABLE 78: OFFSETTING OF DERIVATIVE LIABILITIES AND SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE


	JUNE 30, 2022
(In Millions)	GROSS RECOGNIZED LIABILITIES		GROSS AMOUNTS OFFSET IN THE BALANCE SHEET(3)		NET AMOUNTS PRESENTED IN THE BALANCE SHEET		GROSS AMOUNTS NOT OFFSET IN THE BALANCE SHEET(4)		NET AMOUNT(5)
Derivative Liabilities(1)
Foreign Exchange Contracts OTC	$	3,999.7	$	3,779.4	$	220.3	$	—	$	220.3
Interest Rate Swaps OTC	286.1		22.5		263.6		—		263.6

Other Financial Derivatives	31.1		—		31.1		—		31.1
Total Derivatives Subject to a Master Netting Arrangement	4,316.9		3,801.9		515.0		—		515.0
Total Derivatives Not Subject to a Master Netting Arrangement	469.3		—		469.3		—		469.3
Total Derivatives	4,786.2		3,801.9		984.3		—		984.3
Securities Sold under Agreements to Repurchase(2)	$	4,412.5	$	3,613.1	$	799.4	$	799.4	$	—


	DECEMBER 31, 2021
(In Millions)	GROSS RECOGNIZED LIABILITIES		GROSS AMOUNTS OFFSET IN THE BALANCE SHEET(3)		NET AMOUNTS PRESENTED IN THE BALANCE SHEET		GROSS AMOUNTS NOT OFFSET IN THE BALANCE SHEET(4)		NET AMOUNT(5)
Derivative Liabilities(1)
Foreign Exchange Contracts OTC	$	1,430.1	$	1,234.5	$	195.6	$	—	$	195.6
Interest Rate Swaps OTC	98.7		48.1		50.6		—		50.6
Interest Rate Swaps Exchange Cleared	0.2		—		0.2		—		0.2
Other Financial Derivatives	37.5		0.9		36.6		—		36.6
Total Derivatives Subject to a Master Netting Arrangement	1,566.5		1,283.5		283.0		—		283.0
Total Derivatives Not Subject to a Master Netting Arrangement	568.7		—		568.7		—		568.7
Total Derivatives	2,135.2		1,283.5		851.7		—		851.7
Securities Sold under Agreements to Repurchase(2)	$	1,924.4	$	1,392.5	$	531.9	$	531.9	$	—

*(1)*Derivative liabilities are reported in Other Liabilities on the consolidated balance sheets. Other Liabilities (excluding derivative liabilities) totaled $3.0 billion and $3.3 billion as of June 30, 2022 and December 31, 2021, respectively.

*(2)*Offsetting of Securities Sold under Agreements to Repurchase primarily relates to our involvement in FICC.

*(3)*Including cash collateral deposited with counterparties.

*(4)*Including financial assets accepted as collateral which are deposited with counterparties.

*(5)*Northern Trust did not place any cash collateral with counterparties that was not offset in the consolidated balance sheets that could have been used to offset the net amounts presented in the consolidated balance sheets as of June 30, 2022 and December 31, 2021.

All of Northern Trust’s securities sold under agreements to repurchase (repurchase agreements) and securities purchased under agreements to resell (reverse repurchase agreements) involve the transfer of financial assets in exchange for cash subject to a right and obligation to repurchase those assets for an agreed upon amount. In the event of a repurchase failure, the cash or financial assets are available for offset. All of Northern Trust’s repurchase agreements and reverse repurchase agreements are subject to a master netting arrangement, which sets forth the rights and obligations for repurchase and offset. Under the master netting arrangement, Northern Trust is entitled to offset receivables from and collateral placed with a single counterparty against obligations owed to that counterparty. In addition, collateral held by Northern Trust can be offset against receivables from that counterparty. Northern Trust’s repurchase agreements and reverse repurchase agreements, other than those in which the counterparty is FICC, do not meet the requirements to net under GAAP.

Derivative asset and liability positions with a single counterparty can be offset against each other in cases where legally enforceable master netting arrangements or similar agreements exist. Derivative assets and liabilities can be further offset by cash collateral received from, and deposited with, the transacting counterparty. The basis for this view is that, upon termination of transactions subject to a master netting arrangement or similar agreement, the individual derivative receivables do not represent resources to which general creditors have rights and individual derivative payables do not represent claims that are equivalent to the claims of general creditors.

Credit risk associated with derivative instruments relates to the failure of the counterparty and the failure of Northern Trust to pay based on the contractual terms of the agreement, and is generally limited to the unrealized fair value gains and losses on these instruments, net of any collateral received or deposited. The amount of credit risk will increase or decrease during the lives of the instruments as interest rates, foreign exchange rates, or equity prices fluctuate. Northern Trust’s risk is controlled by

Notes to Consolidated Financial Statements (unaudited) (continued)

limiting such activity to an approved list of counterparties and by subjecting such activity to the same credit and quality controls as are followed in lending and investment activities. Credit Support Annexes and other similar agreements are currently in place with a number of Northern Trust’s counterparties which mitigate the aforementioned credit risk associated with derivative activity conducted with those counterparties by requiring that significant net unrealized fair value gains be supported by collateral placed with Northern Trust.

Additional cash collateral received from and deposited with derivative counterparties totaling $100.9 million and $208.4 million, respectively, as of June 30, 2022, and $93.5 million and $43.4 million, respectively, as of December 31, 2021, was not offset against derivative assets and liabilities in the consolidated balance sheets as the amounts exceeded the net derivative positions with those counterparties.

Certain master netting arrangements Northern Trust enters into with derivative counterparties contain credit-risk-related contingent features in which the counterparty has the option to declare Northern Trust in default and accelerate cash settlement of net derivative liabilities with the counterparty in the event Northern Trust’s credit rating falls below specified levels. The aggregate fair value of all derivative instruments with credit-risk-related contingent features that were in a liability position was $718.8 million and $111.5 million at June 30, 2022 and December 31, 2021, respectively. Cash collateral amounts deposited with derivative counterparties on those dates included $611.9 million and $84.2 million, respectively, posted against these liabilities, resulting in a net maximum amount of termination payments that could have been required at June 30, 2022 and December 31, 2021, of $106.9 million and $27.3 million, respectively. Accelerated settlement of these liabilities would not have a material effect on the consolidated financial position or liquidity of Northern Trust.

Note 25 - Subsequent Events

For capital management purposes, in July 2022, the Corporation transferred government sponsored agency and municipal investment securities that had a fair value of $6.38 billion from the AFS to HTM classification. These transferred securities had a total unrealized loss of $889.5 million and included a $665.8 million reduction in AOCI, net of tax. Upon transfer of a debt security from the AFS to HTM classification, the amortized cost is reset to fair value. Any unrealized gain or loss, net of tax, at the date of transfer will remain in AOCI and be amortized into net interest income over the remaining life of the securities using the effective interest method. The amortization of amounts retained in AOCI will offset the effect on interest income of the amortization of the premium or discount resulting from transferring the securities at fair value.

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