Cover and table of contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

____________________________________________

FORM 10-Q


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

For the quarterly period ended March 31, 2023


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

For the transition period from to

Commission File No. 001-36609

NORTHERN TRUST CORPORATION

(Exact name of registrant as specified in its charter)


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


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

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

____________________________________________

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


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

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No ¨

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


Large accelerated filer	x	Accelerated filer	¨

Non-accelerated filer	¨	Smaller reporting company	☐

		Emerging growth company	☐

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

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

At March 31, 2023, 208,342,348 shares of common stock, $1.66 2/3 par value, were outstanding.

NORTHERN TRUST CORPORATION

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2023

TABLE OF CONTENTS



			Page
Consolidated Financial Highlights (unaudited)			1

Part I – Financial Information
Items 2 and 3: Management’s Discussion and Analysis of Financial Condition and Results of Operations and Quantitative and Qualitative Disclosures About Market Risk			3
Item 1: Consolidated Financial Statements (unaudited)			29
Consolidated Balance Sheets			29
Consolidated Statements of Income			30
Consolidated Statements of Comprehensive Income			30
Consolidated Statements of Changes in Stockholders’ Equity			31
Consolidated Statements of Cash Flows			32
Notes to Consolidated Financial Statements			33
Item 4: Controls and Procedures			73

Part II – Other Information
Item 1: Legal Proceedings			74
Item 2: Unregistered Sales of Equity Securities and Use of Proceeds			74
Item 6: Exhibits			74

Signatures			75

CONSOLIDATED FINANCIAL HIGHLIGHTS

(UNAUDITED)


	THREE MONTHS ENDED MARCH 31,
CONDENSED INCOME STATEMENTS ($ In Millions)	2023		2022		% CHANGE(1)
Noninterest Income	$	1,213.4	$	1,337.7	(9)	%
Net Interest Income	531.2		381.0		39
Total Revenue	1,744.6		1,718.7		2
Provision for Credit Losses	15.0		2.0		N/M
Noninterest Expense	1,285.6		1,205.9		7
Income before Income Taxes	444.0		510.8		(13)
Provision for Income Taxes	109.4		121.5		(10)
Net Income	$	334.6	$	389.3	(14)	%


PER COMMON SHARE
Net Income — Basic	$	1.51	$	1.78	(15)	%
— Diluted	1.51		1.77		(15)
Cash Dividends Declared Per Common Share	0.75		0.70		7
Book Value — End of Period (EOP)	51.37		50.51		2
Market Price — EOP	88.13		116.45		(24)


SELECTED BALANCE SHEET DATA ($ In Millions)	MARCH 31, 2023		DECEMBER 31, 2022		% CHANGE(1)
End of Period:
Total Assets	$	151,108.0	$	155,036.7	(3)	%
Earning Assets	139,277.5		142,484.7		(2)
Deposits	113,727.4		123,932.1		(8)
Stockholders’ Equity	11,587.8		11,259.5		3


	THREE MONTHS ENDED MARCH 31,
	2023		2022		% CHANGE(1)
Average Balances:
Total Assets	$	148,059.9	$	162,143.0	(9)	%
Earning Assets	135,957.4		149,768.4		(9)
Deposits	112,185.6		138,500.2		(19)
Stockholders’ Equity	11,281.5		11,511.2		(2)


CLIENT ASSETS ($ In Billions)	MARCH 31, 2023		DECEMBER 31, 2022		% CHANGE(1)
Assets Under Custody/Administration(2)	$	14,174.8	$	13,604.0	4	%
Assets Under Custody	11,013.2		10,604.6		4
Assets Under Management	1,330.4		1,249.5		6

N/M - Not meaningful

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

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

SELECTED RATIOS AND METRICS


	THREE MONTHS ENDED MARCH 31,
	2023		2022
Financial Ratios:
Return on Average Common Equity	12.4	%	14.2	%
Return on Average Assets	0.92		0.97
Dividend Payout Ratio	49.7		39.5
Net Interest Margin(1)	1.62		1.05


	MARCH 31, 2023				DECEMBER 31, 2022
	STANDARDIZED APPROACH		ADVANCED APPROACH		STANDARDIZED APPROACH		ADVANCED APPROACH		WELL-CAPITALIZED RATIOS		MINIMUM CAPITAL RATIOS
Capital Ratios:
Northern Trust Corporation
Common Equity Tier 1 Capital	11.3	%	11.7	%	10.8	%	11.5	%	N/A		4.5	%
Tier 1 Capital	12.3		12.7		11.8		12.5		6.0		6.0
Total Capital	14.4		14.7		13.9		14.5		10.0		8.0
Tier 1 Leverage	7.3		7.3		7.1		7.1		N/A		4.0
Supplementary Leverage	N/A		8.3		N/A		7.9		N/A		3.0

The Northern Trust Company
Common Equity Tier 1 Capital	12.3	%	12.9	%	11.6	%	12.4	%	6.5	%	4.5	%
Tier 1 Capital	12.3		12.9		11.6		12.4		8.0		6.0
Total Capital	14.2		14.6		13.5		14.2		10.0		8.0
Tier 1 Leverage	7.3		7.3		6.9		6.9		5.0		4.0
Supplementary Leverage	N/A		8.3		N/A		7.7		3.0		3.0

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

PART I – FINANCIAL INFORMATION

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

The following is management’s discussion and analysis of the financial condition and results of operations (MD&A) of Northern Trust Corporation (Corporation) for the first quarter of 2023. The following should be read in conjunction with the consolidated financial statements and related footnotes included in this report as well as the Annual Report on Form 10-K for the year ended December 31, 2022. Investors also should read the section entitled “Forward-Looking Statements.”

Certain terms used in this report are defined in the Glossary included in our Annual Report on Form 10-K for the year ended December 31, 2022.

FIRST QUARTER CONSOLIDATED RESULTS OF OPERATIONS

General

The Corporation is a leading provider of wealth management, asset servicing, asset management and banking solutions to corporations, institutions, families and individuals. The Corporation focuses on managing and servicing client assets through its two client-focused reporting segments: Asset Servicing and Wealth Management. Asset management and related services are provided to Asset Servicing and Wealth Management clients primarily by the Asset Management business. Except where the context requires otherwise, the terms “Northern Trust,” “we,” “us,” “our,” “its,” or similar terms mean the Corporation and its subsidiaries on a consolidated basis.

Overview of Financial Results

Net Income per diluted common share was $1.51 in the current quarter and $1.77 in the first quarter of 2022. Net Income decreased $54.7 million to $334.6 million in the current quarter from $389.3 million in the prior-year quarter. Annualized return on average common equity was 12.4% in the current quarter and 14.2% in the prior-year quarter. The annualized return on average assets was 0.92% in the current quarter as compared to 0.97% in the prior-year quarter. Reflected in Net Income were impacts from the changes in monetary policy implemented by the Federal Reserve Board to address inflation, which positively impacted Net Interest Income while dampening equity market indices, adversely impacting fees earned based on market values. The impacts of a tight labor market are reflected in our Compensation expense. Inflationary pressures were also reflected in higher Equipment and Software expense.

Revenue increased $25.9 million, or 2%, to $1.74 billion in the current quarter from $1.72 billion in the prior-year quarter.

Trust, Investment and Other Servicing Fees decreased $104.8 million, or 9%, from $1.17 billion in the prior-year quarter to $1.06 billion in the current quarter, primarily due to lagged unfavorable markets, asset outflows, and unfavorable currency translation, partially offset by lower money market fund fee waivers.

Other Noninterest Income decreased $19.5 million, or 11%, from $169.3 million in the prior-year quarter to $149.8 million in the current quarter, primarily reflecting lower Foreign Exchange Trading Income, partially offset by changes in Investment Security Gains (Losses), net and higher Other Operating Income.

Net Interest Income increased $150.2 million, or 39%, to $531.2 million in the current quarter as compared to $381.0 million in the prior-year quarter, primarily due to a higher net interest margin, partially offset by lower average earning assets.

There was a $15.0 million Provision for Credit Losses in the current quarter, as compared to a $2.0 million Provision for Credit Losses in the prior-year quarter. The current quarter provision was primarily due to an increase in the reserve evaluated on a collective basis, driven by growth in the size and duration of the commercial real estate portfolio, primarily in multi-family properties, partially offset by improvement in credit quality for the commercial and institutional segment. The reserve evaluated on a collective basis relates to pooled financial assets sharing similar risk characteristics.

Noninterest Expense increased $79.7 million, or 7%, from $1.21 billion in the prior-year quarter to $1.29 billion in the current quarter, primarily attributable to higher Equipment and Software, Compensation, Occupancy, and Other Operating Expense.

The Provision for Income Taxes in the current quarter totaled $109.4 million, representing an effective tax rate of 24.6%. The Provision for Income Taxes in the prior-year quarter totaled $121.5 million, representing an effective tax rate of 23.8%. The effective tax rate increased compared to the prior-year quarter primarily due to a higher net tax impact from international operations and lower tax benefits from share-based compensation, partially offset by a higher level of tax benefits from tax-credit investments and tax-exempt income.

FIRST QUARTER CONSOLIDATED RESULTS OF OPERATIONS (continued)

Trust, Investment and Other Servicing Fees

Trust, Investment and Other Servicing Fees are based primarily on the market value of assets held in custody, managed or serviced; the volume of transactions; securities lending volume and spreads; and fees for other services rendered. Certain market value calculations on which fees are based are performed on a monthly or quarterly basis in arrears.

Northern Trust voluntarily waived $2.0 million of money market fund fees for the three months ended March 31, 2023 and $50.7 million of money market fund fees for the three months ended March 31, 2022.

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

TABLE 1: TRUST, INVESTMENT AND OTHER SERVICING FEES


	THREE MONTHS ENDED MARCH 31,
($ In Millions)	2023		2022		CHANGE
Asset Servicing Trust, Investment and Other Servicing Fees
Custody and Fund Administration	$	413.6	$	452.7	$	(39.1)	(9)	%
Investment Management	126.2		146.9		(20.7)		(14)
Securities Lending	19.1		18.8		0.3		1
Other	44.1		44.0		0.1		—
Total Asset Servicing Trust, Investment and Other Servicing Fees	$	603.0	$	662.4	$	(59.4)	(9)	%
Wealth Management Trust, Investment and Other Servicing Fees
Central	$	163.6	$	181.7	$	(18.1)	(10)	%
East	119.8		134.0		(14.2)		(11)
West	91.2		101.4		(10.2)		(10)
Global Family Office	86.0		88.9		(2.9)		(3)
Total Wealth Management Trust, Investment and Other Servicing Fees	$	460.6	$	506.0	$	(45.4)	(9)	%
Total Consolidated Trust, Investment and Other Servicing Fees	$	1,063.6	$	1,168.4	$	(104.8)	(9)	%

Asset Servicing

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

Custody and Fund Administration fees decreased from the prior-year quarter, primarily due to unfavorable markets and unfavorable currency translation.

Investment Management fees decreased from the prior-year quarter, primarily due to asset outflows and unfavorable markets, partially offset by lower money market fund fee waivers.

Wealth Management

Wealth Management fee income is calculated primarily based on market values and is impacted by both one-month and one-quarter lagged asset values. Fee income in the regions (Central, East and West) decreased from the prior-year quarter, due to unfavorable markets and product-related asset outflows, partially offset by lower money market fund fee waivers.

FIRST QUARTER CONSOLIDATED RESULTS OF OPERATIONS (continued)

Trust, Investment and Other Servicing Fees (continued)

Market Indices

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

TABLE 2: EQUITY MARKET INDICES


	DAILY AVERAGES				PERIOD-END
	THREE MONTHS ENDED MARCH 31,				AS OF MARCH 31,
	2023	2022	CHANGE		2023	2022	CHANGE
S&P 500	3,998	4,469	(11)	%	4,109	4,530	(9)	%
MSCI EAFE (U.S. dollars)	2,059	2,212	(7)		2,093	2,182	(4)
MSCI EAFE (local currency)	1,301	1,304	—		1,315	1,302	1

TABLE 3: FIXED INCOME MARKET INDICES


	AS OF MARCH 31,
	2023	2022	CHANGE
Barclays Capital U.S. Aggregate Bond Index	2,109	2,215	(5)	%
Barclays Capital Global Aggregate Bond Index	459	500	(8)

Client Assets

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

TABLE 4: ASSETS UNDER CUSTODY / ADMINISTRATION BY REPORTING SEGMENT


	MARCH 31, 2023		DECEMBER 31, 2022		MARCH 31, 2022		CHANGE Q1-23/Q4-22		CHANGE Q1-23/Q1-22
($ In Billions)
Asset Servicing	$	13,221.5	$	12,705.5	$	14,513.0	4	%	(9)	%
Wealth Management	953.3		898.5		1,031.1		6		(8)
Total Assets Under Custody / Administration	$	14,174.8	$	13,604.0	$	15,544.1	4	%	(9)	%

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

TABLE 5: ASSETS UNDER CUSTODY BY REPORTING SEGMENT


	MARCH 31, 2023		DECEMBER 31, 2022		MARCH 31, 2022		CHANGE Q1-23/Q4-22		CHANGE Q1-23/Q1-22
($ In Billions)
Asset Servicing	$	10,065.6	$	9,712.3	$	10,987.5	4	%	(8)	%
Wealth Management	947.6		892.3		1,022.9		6		(7)
Total Assets Under Custody	$	11,013.2	$	10,604.6	$	12,010.4	4	%	(8)	%

Consolidated assets under custody increased from the prior quarter primarily reflecting favorable markets and favorable currency translation, partially offset by asset outflows. Consolidated assets under custody decreased from the prior-year quarter, primarily reflecting unfavorable markets, unfavorable currency translation and asset outflows.

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

TABLE 6: ALLOCATION OF ASSETS UNDER CUSTODY


	MARCH 31, 2023						DECEMBER 31, 2022						MARCH 31, 2022
	AS		WM		TOTAL		AS		WM		TOTAL		AS		WM		TOTAL
Equities	45	%	58	%	46	%	44	%	56	%	45	%	46	%	60	%	47	%
Fixed Income Securities	33		14		32		33		15		32		34		14		33
Cash and Other Assets	20		28		20		21		29		22		18		26		19
Securities Lending Collateral	2		—		2		2		—		1		2		—		1

FIRST QUARTER CONSOLIDATED RESULTS OF OPERATIONS (continued)

Trust, Investment and Other Servicing Fees (continued)

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

TABLE 7: ASSETS UNDER CUSTODY BY INVESTMENT TYPE


($ In Billions)	MARCH 31, 2023		DECEMBER 31, 2022		MARCH 31, 2022		CHANGE Q1-23/Q4-22		CHANGE Q1-23/Q1-22
Equities	$	5,091.1	$	4,810.7	$	5,677.7	6	%	(10)	%
Fixed Income Securities	3,501.4		3,386.1		3,909.4		3		(10)
Cash and Other Assets	2,252.8		2,259.5		2,246.1		—		—
Securities Lending Collateral	167.9		148.3		177.2		13		(5)
Total Assets Under Custody	$	11,013.2	$	10,604.6	$	12,010.4	4	%	(8)	%

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

TABLE 8: ASSETS UNDER MANAGEMENT BY REPORTING SEGMENT


	MARCH 31, 2023		DECEMBER 31, 2022		MARCH 31, 2022		CHANGE Q1-23/Q4-22		CHANGE Q1-23/Q1-22
($ In Billions)
Asset Servicing	$	962.1	$	898.1	$	1,091.6	7	%	(12)	%
Wealth Management	368.3		351.4		396.2		5		(7)
Total Assets Under Management	$	1,330.4	$	1,249.5	$	1,487.8	6	%	(11)	%

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

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

TABLE 9: ALLOCATION OF ASSETS UNDER MANAGEMENT


	MARCH 31, 2023						DECEMBER 31, 2022						MARCH 31, 2022
	AS		WM		TOTAL		AS		WM		TOTAL		AS		WM		TOTAL
Equities	54	%	53	%	54	%	54	%	53	%	54	%	54	%	55	%	54	%
Fixed Income Securities	11		22		14		12		23		15		11		21		14
Cash and Other Assets	18		25		19		17		24		19		19		24		20
Securities Lending Collateral	17		—		13		17		—		12		16		—		12

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

TABLE 10: ASSETS UNDER MANAGEMENT BY INVESTMENT TYPE


($ In Billions)	MARCH 31, 2023		DECEMBER 31, 2022		MARCH 31, 2022		CHANGE Q1-23/Q4-22		CHANGE Q1-23/Q1-22
Equities	$	712.1	$	671.3	$	800.9	6	%	(11)	%
Fixed Income Securities	187.6		186.5		204.4		1		(8)
Cash and Other Assets	262.8		243.4		305.3		8		(14)
Securities Lending Collateral	167.9		148.3		177.2		13		(5)
Total Assets Under Management	$	1,330.4	$	1,249.5	$	1,487.8	6	%	(11)	%

FIRST QUARTER CONSOLIDATED RESULTS OF OPERATIONS (continued)

Trust, Investment and Other Servicing Fees (continued)

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

TABLE 11: ACTIVITY IN CONSOLIDATED ASSETS UNDER MANAGEMENT BY PRODUCT


		THREE MONTHS ENDED
($ In Billions)		MARCH 31, 2023		DECEMBER 31, 2022		SEPTEMBER 30, 2022		JUNE 30, 2022		MARCH 31, 2022
Beginning Balance of AUM		$	1,249.5	$	1,209.9	$	1,302.8	$	1,487.8	$	1,607.1
Inflows by Product
	Equities	52.1		37.7		39.5		51.4		59.1
	Fixed Income	14.4		11.6		12.3		11.8		13.0
	Cash and Other Assets	276.7		121.9		128.9		186.5		205.9
	Securities Lending Collateral	66.3		48.2		55.3		61.6		70.2
Total Inflows		409.5		219.4		236.0		311.3		348.2
Outflows by Product
	Equities	(59.2)		(42.8)		(56.5)		(60.6)		(72.0)
	Fixed Income	(16.6)		(12.7)		(12.4)		(14.8)		(15.6)
	Cash and Other Assets	(264.0)		(128.5)		(152.2)		(220.3)		(242.2)
	Securities Lending Collateral	(46.7)		(62.0)		(62.5)		(69.5)		(88.6)
Total Outflows		(386.5)		(246.0)		(283.6)		(365.2)		(418.4)
Net Inflows (Outflows)		23.0		(26.6)		(47.6)		(53.9)		(70.2)
Market Performance, Currency & Other
	Market Performance & Other	52.4		55.9		(35.1)		(118.5)		(45.3)
	Currency	5.5		10.3		(10.2)		(12.6)		(3.8)
Total Market Performance, Currency & Other		57.9		66.2		(45.3)		(131.1)		(49.1)
Ending Balance of AUM		$	1,330.4	$	1,249.5	$	1,209.9	$	1,302.8	$	1,487.8

Other Noninterest Income

The components of Other Noninterest Income are provided below.

TABLE 12: OTHER NONINTEREST INCOME


	THREE MONTHS ENDED MARCH 31,
($ In Millions)	2023		2022		CHANGE
Foreign Exchange Trading Income	$	53.0	$	80.9	$	(27.9)	(35)	%
Treasury Management Fees	8.4		11.1		(2.7)		(25)
Security Commissions and Trading Income	34.7		36.2		(1.5)		(4)
Other Operating Income	46.8		41.1		5.7		14
Investment Security Gains (Losses), net	6.9		—		6.9		N/M
Total Other Noninterest Income	$	149.8	$	169.3	$	(19.5)	(11)	%

N/M - Not meaningful

Foreign Exchange Trading Income decreased compared to the prior-year quarter primarily driven by an unfavorable impact from foreign exchange swap activity and lower client volumes.

Other Operating Income increased compared to the prior-year quarter, primarily driven by increased income related to a bank-owned life insurance program and other miscellaneous income, partially offset by higher expenses related to existing swap agreements related to Visa Inc. Class B common shares. Please refer to Note 15—Other Operating Income to the consolidated financial statements provided in Item 1. Consolidated Financial Statements (unaudited) for further detail.

Investment Security Gains (Losses), Net included a $6.9 million gain upon sale of certain available for sale debt securities in the current quarter. Please refer to Note 4—Securities to the consolidated financial statements provided in Item 1. Consolidated Financial Statements (unaudited) for additional details related to the sale of available for sale debt securities.

FIRST QUARTER CONSOLIDATED RESULTS OF OPERATIONS (continued)

Net Interest Income

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

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

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

FIRST QUARTER CONSOLIDATED RESULTS OF OPERATIONS (continued)

Net Interest Income (continued)

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

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


(INTEREST AND RATE ON A FULLY TAXABLE EQUIVALENT BASIS)	FIRST QUARTER
2023					2022
($ In Millions)	INTEREST		AVERAGE BALANCE		AVERAGE RATE(6)		INTEREST		AVERAGE BALANCE		AVERAGE RATE(6)
Interest-Earning Assets
Federal Reserve and Other Central Bank Deposits	$	377.0	$	36,641.8	4.17	%	$	17.6	$	45,199.5	0.16	%
Interest-Bearing Due from and Deposits with Banks(1)	28.2		4,198.7		2.72		2.6		4,384.0		0.24
Federal Funds Sold	0.2		19.7		4.79		—		0.7		0.45
Securities Purchased under Agreements to Resell(2)	125.9		1,046.1		48.80		0.9		691.6		0.50
Debt Securities
Available for Sale	234.7		25,030.4		3.80		120.5		37,496.3		1.30
Held to Maturity	103.8		25,382.2		1.64		49.3		21,308.0		0.94
Trading Account	—		1.3		7.63		—		0.9		10.09
Total Debt Securities	338.5		50,413.9		2.72		169.8		58,805.2		1.17
Loans and Leases(3)	579.5		41,959.4		5.60		191.7		39,544.3		1.97
Other Interest-Earning Assets(4)	19.3		1,677.8		4.67		7.6		1,143.1		2.69
Total Interest-Earning Assets	1,468.6		135,957.4		4.38		390.2		149,768.4		1.06
Cash and Due from Banks and Other Central Bank Deposits(5)	—		1,795.9		—		—		2,047.0		—
Other Noninterest-Earning Assets	—		10,306.6		—		—		10,327.6		—
Total Assets	$	—	$	148,059.9	—	%	$	—	$	162,143.0	—	%
Average Source of Funds
Deposits
Savings, Money Market and Other	$	158.0	$	27,268.8	2.35	%	$	3.3	$	32,329.2	0.04	%
Savings Certificates and Other Time	21.6		2,360.1		3.70		1.1		842.3		0.51
Non-U.S. Offices — Interest-Bearing	385.0		62,411.1		2.50		(20.3)		68,199.6		(0.12)
Total Interest-Bearing Deposits	564.6		92,040.0		2.49		(15.9)		101,371.1		(0.06)
Federal Funds Purchased	40.1		3,653.9		4.45		—		0.2		0.05
Securities Sold under Agreements to Repurchase(2)	116.1		347.1		135.62		0.3		253.7		0.49
Other Borrowings	135.0		11,324.0		4.83		3.1		3,690.7		0.35
Senior Notes	39.2		2,748.1		5.79		9.6		2,442.4		1.59
Long-Term Debt	29.2		2,066.3		5.73		5.4		1,128.3		1.94

Total Interest-Related Funds	924.2		112,179.4		3.34		2.5		108,886.4		0.01
Interest Rate Spread	—		—		1.04		—		—		1.05
Demand and Other Noninterest-Bearing Deposits	—		20,145.6		—		—		37,129.1		—
Other Noninterest-Bearing Liabilities	—		4,453.4		—		—		4,616.3		—
Stockholders’ Equity	—		11,281.5		—		—		11,511.2		—
Total Liabilities and Stockholders’ Equity	$	—	$	148,059.9	—	%	$	—	$	162,143.0	—	%
Net Interest Income/Margin (FTE Adjusted)	$	544.4	$	—	1.62	%	$	387.7	$	—	1.05	%
Net Interest Income/Margin (Unadjusted)	$	531.2	$	—	1.58	%	$	381.0	$	—	1.03	%

*(1)*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.

*(2)*Includes the impact of balance sheet netting under master netting arrangements of approximately $10.0 billion and $1.1 billion for the three months ended March 31, 2023 and 2022, respectively. Excluding the impact of netting for the three months ended March 31, 2023, the average interest rate on Securities Purchased under Agreements to Resell would be approximately 4.63%. Excluding the impact of netting for the three months ended March 31, 2023, the average interest rate on Securities Sold under Agreements to Repurchase would be approximately 4.56%. Northern Trust is an approved Government Securities Division (GSD) netting and sponsoring member in the Fixed Income Clearing Corporation (FICC) sponsored member program, through which Northern Trust submits eligible repurchase and reverse repurchase transactions in U.S. Government securities between Northern Trust and its sponsored member clients for novation and clearing. Northern Trust nets securities sold under repurchase agreements against those purchased under resale agreements when FICC is the counterparty.

*(3)*Average balances include nonaccrual loans and leases.

*(4)*Other Interest-Earning Assets include certain community development investments, collateral deposits with certain securities depositories and clearing houses, Federal Home Loan Bank and Federal Reserve stock, and money market investments which are classified in Other Assets on the consolidated balance sheets.

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

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

FIRST QUARTER CONSOLIDATED RESULTS OF OPERATIONS (continued)

Net Interest Income (continued)

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


(INTEREST AND RATE ON A FULLY TAXABLE EQUIVALENT BASIS)	THREE MONTHS ENDED MARCH 31, 2023/2022
	CHANGE DUE TO
(In Millions)	AVERAGE BALANCE		AVERAGE RATE		NET (DECREASE) INCREASE
Increase (Decrease) in Net Interest Income (FTE)
Federal Reserve and Other Central Bank Deposits	$	(4.0)	$	363.4	$	359.4
Interest-Bearing Due from and Deposits with Banks	(0.1)		25.7		25.6
Federal Funds Sold	0.1		0.1		0.2
Securities Purchased under Agreements to Resell	0.6		124.4		125.0
Debt Securities
Available for Sale	(75.4)		189.6		114.2
Held to Maturity	11.1		43.4		54.5
Trading Account	—		—		—
Total Debt Securities	(64.3)		233.0		168.7
Loans and Leases	12.4		375.4		387.8
Other Interest-Earning Assets	4.6		7.1		11.7
Total Interest Income	$	(50.7)	$	1,129.1	$	1,078.4

Interest-Bearing Deposits
Savings, Money Market and Other	$	(17.9)	$	172.6	$	154.7
Savings Certificates and Other Time	4.6		15.9		20.5
Non-U.S. Offices - Interest-Bearing	(1.8)		407.1		405.3
Total Interest-Bearing Deposits	(15.1)		595.6		580.5
Federal Funds Purchased	40.1		—		40.1
Securities Sold under Agreements to Repurchase	0.1		115.7		115.8
Other Borrowings	18.1		113.8		131.9
Senior Notes	1.3		28.3		29.6
Long-Term Debt	7.1		16.7		23.8

Total Interest Expense	$	51.6	$	870.1	$	921.7
Increase (Decrease) in Net Interest Income (FTE)	$	(102.3)	$	259.0	$	156.7

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

Notes: Net Interest Income (FTE), a non-GAAP financial measure, includes adjustments to a fully taxable equivalent basis for loans, securities and other interest-earning assets. The adjustments are based on a federal income tax rate of 21.0%, where the rate is adjusted for applicable state income taxes, net of related federal tax benefit. Total taxable equivalent interest adjustments amounted to $13.2 million and $6.7 million for the three months ended March 31, 2023 and 2022, respectively. A reconciliation of Net Interest Income and net interest margin on a GAAP basis to Net Interest Income and net interest margin on an FTE basis (each of which is a non-GAAP financial measure) is provided in “Reconciliation to Fully Taxable Equivalent” within this MD&A. Net interest margin is calculated by dividing annualized Net Interest Income by average interest-earning assets.

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

Net Interest Income, stated on a FTE basis, increased from the prior-year quarter, primarily due to a higher net interest margin, partially offset by lower average earning assets. Average earning assets decreased from the prior-year quarter, primarily due to decreased funding from client deposits, partially offset by higher short-term borrowing activity. For interest-earning assets, this manifested in lower levels of securities and interest-bearing deposits with banks, partially offset by higher level of loans.

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

Federal Reserve and Other Central Bank Deposits averaged $36.6 billion and decreased $8.6 billion, or 19%, from $45.2 billion in the prior-year quarter. Interest-Bearing Due from and Deposits with Banks averaged $4.2 billion and decreased $0.2 billion, or 4%, from $4.4 billion in the prior-year quarter. Average Securities were $50.4 billion and decreased $8.4 billion, or 14%, from $58.8 billion in the prior-year quarter. Average Other Interest-Earning Assets include certain community development investments, Federal Home Loan Bank stock, collateral deposits with certain securities depositories and clearing houses, Federal Reserve stock, and money market investments of $901.3 million, $353.0 million, $166.7 million, $70.0 million, and $62.3 million respectively, which are recorded in Other Assets on the consolidated balance sheets. Average taxable Securities were $47.4 billion in the current quarter and $56.3 billion in the prior-year quarter. Average nontaxable Securities, which represent securities that are primarily exempt from U.S. federal and state income taxes, were $3.0 billion in the current quarter and $2.5 billion in the prior-year quarter.

FIRST QUARTER CONSOLIDATED RESULTS OF OPERATIONS (continued)

Net Interest Income (continued)

Loans and Leases averaged $42.0 billion and increased $2.5 billion, or 6%, from $39.5 billion in the prior-year quarter, primarily reflecting higher levels of commercial and institutional, non-U.S., commercial real estate, and residential real estate loans, partially offset by lower levels of private client loans. Commercial and institutional loans averaged $12.4 billion and increased $740.8 million, or 6%, from $11.7 billion for the prior-year quarter. Non-U.S. loans averaged $3.6 billion and increased $676.6 million or 23%, from $2.9 billion for the prior-year quarter. Commercial real estate loans averaged $4.9 billion and increased $590.0 million, or 14%, from $4.3 billion for the prior-year quarter. Residential real estate loans averaged $6.4 billion and increased $228.6 million, or 4%, from $6.2 billion for the prior-year quarter. Private client loans averaged $13.9 billion and decreased $182.8 million, or 1%, from $14.1 billion for the prior-year quarter.

Northern Trust utilizes a diverse mix of funding sources. Average Interest-Bearing Deposits decreased $9.4 billion, or 9%, to an average of $92.0 billion in the current quarter from $101.4 billion in the prior-year quarter. Other Average Interest-Related Funds increased $12.6 billion, or 168%, to an average of $20.1 billion in the current quarter from $7.5 billion in the prior-year quarter. The balances within short-term borrowing classifications vary based on funding requirements and strategies, interest rate levels, changes in the volume of lower-cost deposit sources, and the availability of collateral to secure these borrowings.

Interest expense for Interest-Bearing Deposits in the current quarter was driven by higher interest rates. Average Non-U.S. Offices Interest-Bearing Deposits comprised 68% and 67% of total average Interest-Bearing Deposits for the three months ended March 31, 2023 and 2022, respectively.

Provision for Credit Losses

There was a $15.0 million Provision for Credit Losses in the current quarter, as compared to a $2.0 million Provision for Credit Losses in the prior-year quarter. The provision in the current quarter was primarily due to an increase in the reserve evaluated on a collective basis, driven by growth in the size and duration of the commercial real estate portfolio, primarily in multi-family properties, partially offset by improvement in credit quality for the commercial and institutional segment. The reserve evaluated on a collective basis relates to pooled financial assets sharing similar risk characteristics.

The Provision for Credit Losses in the prior-year quarter was primarily due to an increase in the reserve evaluated on an individual basis for two commercial borrowers, partially offset by a slight decrease in the reserve evaluated on a collective basis. The decrease in the collective basis reserve was primarily due to continued improvements in credit quality mainly within the commercial real estate portfolio, partially offset by increases in the reserve driven by projected economic conditions at the time.

Net charge-offs in the current quarter were $2.9 million, reflecting $1.1 million of recoveries and $4.0 million of charge-offs. The prior-year quarter included $3.2 million of net recoveries, reflecting $3.3 million of recoveries and $0.1 million of charge-offs. Nonaccrual assets of $48.9 million decreased $52.1 million, or 52%, from $101.0 million at the end of the prior-year quarter.

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

Noninterest Expense

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

TABLE 15: NONINTEREST EXPENSE


	THREE MONTHS ENDED MARCH 31,
($ In Millions)	2023		2022		CHANGE
Compensation	$	595.2	$	563.9	$	31.3	6	%
Employee Benefits	101.0		104.3		(3.3)		(3)
Outside Services	210.8		213.4		(2.6)		(1)
Equipment and Software	231.7		193.5		38.2		20
Occupancy	61.3		51.1		10.2		20
Other Operating Expense	85.6		79.7		5.9		7
Total Noninterest Expense	$	1,285.6	$	1,205.9	$	79.7	7	%

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

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

FIRST QUARTER CONSOLIDATED RESULTS OF OPERATIONS (continued)

Noninterest Expense (continued)

Occupancy expense increased compared to the prior-year quarter primarily due to a $9.8 million charge in the current quarter related to early lease exits.

Other Operating Expense increased compared to the prior-year quarter primarily due to higher business promotion expense.

Provision for Income Taxes

Income tax expense for the three months ended March 31, 2023 was $109.4 million, representing an effective tax rate of 24.6%, compared to $121.5 million in the prior-year quarter, representing an effective tax rate of 23.8%.

The effective tax rate increased compared to the prior-year quarter primarily due to a higher net tax impact from international operations and lower tax benefits from share-based compensation, partially offset by a higher level of tax benefits from tax-credit investments and tax-exempt income.

REPORTING SEGMENTS

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

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

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

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

REPORTING SEGMENTS (continued)

The following table presents the earnings contributions and average assets of Northern Trust’s reporting segments for the three months ended March 31, 2023 and 2022.

TABLE 16: RESULTS OF REPORTING SEGMENTS


($ In Millions)	ASSET SERVICING						WEALTH MANAGEMENT						OTHER						RECONCILING ITEMS				TOTAL CONSOLIDATED
THREE MONTHS ENDED MARCH 31,	2023			2022			2023			2022			2023			2022			2023		2022		2023			2022
Noninterest Income
Trust, Investment and Other Servicing Fees	$	603.0		$	662.4		$	460.6		$	506.0		$	—		$	—		$	—	$	—	$	1,063.6		$	1,168.4
Foreign Exchange Trading Income	54.9			77.4			(1.9)			3.5			—			—			—		—		53.0			80.9
Other Noninterest Income	63.2			61.1			34.3			31.8			(0.7)			(4.5)			—		—		96.8			88.4
Total Noninterest Income	721.1			800.9			493.0			541.3			(0.7)			(4.5)			—		—		1,213.4			1,337.7
Net Interest Income	312.1			190.1			232.3			197.6			—			—			(13.2)		(6.7)		531.2			381.0
Revenue	1,033.2			991.0			725.3			738.9			(0.7)			(4.5)			(13.2)		(6.7)		1,744.6			1,718.7
Provision for Credit Losses	(2.9)			8.4			17.9			(6.4)			—			—			—		—		15.0			2.0
Noninterest Expense	801.0			757.9			469.2			445.1			15.4			2.9			—		—		1,285.6			1,205.9
Income before Income Taxes	235.1			224.7			238.2			300.2			(16.1)			(7.4)			(13.2)		(6.7)		444.0			510.8
Provision for Income Taxes	60.5			51.8			66.1			78.3			(4.0)			(1.9)			(13.2)		(6.7)		109.4			121.5
Net Income	$	174.6		$	172.9		$	172.1		$	221.9		$	(12.1)		$	(5.5)		$	—	$	—	$	334.6		$	389.3
Percentage of Consolidated Net Income	52		%	44		%	52		%	57		%	(4)		%	(1)		%	N/A		N/A		100		%	100		%
Average Assets	$	111,215.3		$	125,234.9		$	36,844.6		$	36,908.1		$	—		$	—		N/A		N/A		$	148,059.9		$	162,143.0

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

Asset Servicing

Asset Servicing Net Income

For the quarter ended March 31, 2023, Net Income increased $1.7 million, or 1%, from the prior-year quarter, primarily reflecting higher Net Interest Income, a release of credit reserves compared to a Provision for Credit Losses in the prior-year quarter, and higher Other Noninterest Income, offset by lower Trust, Investment and Other Servicing Fees, higher Noninterest Expense, lower Foreign Exchange Trading Income, and a higher Provision for Income Taxes.

Asset Servicing Trust, Investment and Other Servicing Fees

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

Asset Servicing Foreign Exchange Trading Income

For the quarter ended March 31, 2023, Foreign Exchange Trading Income decreased $22.5 million, or 29%, from the prior-year quarter, primarily driven by an unfavorable impact from foreign exchange swap activity and lower client volumes.

Asset Servicing Other Noninterest Income

For the quarter ended March 31, 2023, Other Noninterest Income increased $2.1 million, or 3%, from the prior-year quarter, primarily due to higher Other Operating Income, partially offset by lower Security Commissions and Trading Income.

Asset Servicing Net Interest Income

For the quarter ended March 31, 2023, Net Interest Income stated on an FTE basis increased $122.0 million, or 64%, from the prior-year quarter. The increase for the three months ended March 31, 2023 primarily reflected a higher net interest margin. Average earning assets decreased $12.4 billion, or 11%, to $102.0 billion in the current quarter from $114.4 billion in the prior-year quarter. The earning assets and funding sources in Asset Servicing for the quarter ended March 31, 2023 consisted primarily of money market assets, intercompany assets, and loans, and non-U.S. custody-related interest-bearing deposits, respectively.

REPORTING SEGMENTS (continued)

Asset Servicing (continued)

Asset Servicing Provision for Credit Losses

For the quarter ended March 31, 2023, there was a $2.9 million release of credit reserves, compared to an $8.4 million Provision for Credit Losses in the prior-year quarter. The release of credit reserves in the current quarter was primarily due to a decrease in the reserve evaluated on a collective basis driven by improvement in credit quality for the commercial and institutional segment. The reserve evaluated on a collective basis relates to pooled financial assets sharing similar characteristics.

Asset Servicing Noninterest Expense

For the quarter ended March 31, 2023, Noninterest Expense, which includes the direct expense of the reporting segment, indirect expense allocations for product and operating support and indirect expense allocations for certain corporate support services, increased $43.1 million, or 6%, from the prior-year quarter, primarily due to higher expense allocations and Compensation expense.

Wealth Management

Wealth Management Net Income

For the quarter ended March 31, 2023, Net Income decreased $49.8 million, or 22%, from the prior-year quarter primarily due to lower Trust, Investment and Other Servicing Fees, a Provision for Credit Losses compared to a release of credit reserves in the prior-year quarter, and higher Noninterest Expense, partially offset by higher Net Interest Income.

Wealth Management Trust, Investment and Other Servicing Fees

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

Wealth Management Other Noninterest Income

For the quarter ended March 31, 2023, Other Noninterest Income increased $2.5 million, or 8%, from the prior-year quarter primarily due to higher Security Commissions and Trading Income and Other Operating Income.

Wealth Management Net Interest Income

For the quarter ended March 31, 2023, Net Interest Income stated on an FTE basis increased $34.7 million, or 18%, from the prior-year quarter, primarily reflecting higher average loans and a higher net interest margin. Average earning assets decreased $1.4 billion, or 4%, to $34.0 billion in the current quarter from $35.4 billion in the prior-year quarter, primarily due to lower allocations. The earning assets and funding sources in Wealth Management for the quarter ended March 31, 2023 were primarily comprised of loans and domestic interest-bearing deposits, respectively.

Wealth Management Provision for Credit Losses

For the quarter ended March 31, 2023, there was a $17.9 million Provision for Credit Losses, compared to a $6.4 million release of credit reserves from the prior-year quarter. The Provision for Credit Losses for the quarter ended March 31, 2023 reflected an increase in the reserve evaluated on a collective basis, which relates to pooled financial assets sharing similar risk characteristics. The increase in the collective basis reserve was driven by growth in the size and duration of the commercial real estate portfolio, primarily in multi-family properties.

Wealth Management Noninterest Expense

For the quarter ended March 31, 2023, Noninterest Expense, which includes the direct expenses of the reporting segment, indirect expense allocations for product and operating support and indirect expense allocations for certain corporate support services, increased $24.1 million or 5% from the prior-year quarter, primarily reflecting higher Compensation expense and expense allocations.

Other

Other—Noninterest Expense

For the quarter ended March 31, 2023, Other Noninterest Expense increased $12.5 million, primarily due to higher non-allocated occupancy expense related to a $9.8 million charge in the current quarter arising from early lease exits.

CONSOLIDATED BALANCE SHEETS

The following tables summarize selected consolidated balance sheet information.

TABLE 17: SELECT CONSOLIDATED BALANCE SHEET INFORMATION


($ In Billions)	MARCH 31, 2023		DECEMBER 31, 2022		CHANGE
Assets
Federal Reserve and Other Central Bank Deposits	$	39.2	$	40.0	$	(0.8)	(2)	%
Interest-Bearing Due from and Deposits with Banks(1)	5.1		4.9		0.2		3
Securities Purchased under Agreements to Resell	1.1		1.1		—		(1)
Total Debt Securities	49.3		51.8		(2.5)		(5)
Loans	42.4		42.9		(0.5)		(1)
Other Interest-Earning Assets(2)	2.2		1.8		0.4		26
Total Earning Assets	139.3		142.5		(3.2)		(2)
Total Assets	151.1		155.0		(3.9)		(3)
Liabilities and Stockholders' Equity
Total Interest-Bearing Deposits	90.3		98.6		(8.3)		(8)
Demand and Other Noninterest-Bearing Deposits	23.4		25.3		(1.9)		(8)
Federal Funds Purchased	4.5		1.9		2.6		N/M
Securities Sold under Agreements to Repurchase	0.4		0.6		(0.2)		(36)
Other Borrowings	11.4		7.6		3.8		50
Total Stockholders’ Equity	11.6		11.3		0.3		3

(1) 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.

(2) Other Interest-Earning Assets includes certain community development investments, collateral deposits with certain securities depositories and clearing houses, Federal Home Loan Bank and Federal Reserve stock, and money market investments which are classified in Other Assets on the consolidated balance sheets.

N/M - Not meaningful

TABLE 18: SELECT AVERAGE CONSOLIDATED BALANCE SHEET INFORMATION


	THREE MONTHS ENDED MARCH 31,
($ In Billions)	2023		2022		CHANGE
Assets
Federal Reserve and Other Central Bank Deposits	$	36.6	$	45.2	$	(8.6)	(19)	%
Interest-Bearing Due from and Deposits with Banks(1)	4.2		4.4		(0.2)		(4)
Securities Purchased under Agreements to Resell	1.1		0.7		0.4		51
Total Debt Securities	50.4		58.8		(8.4)		(14)
Loans and Leases	42.0		39.5		2.5		6
Other Interest-Earning Assets(2)	1.7		1.1		0.6		47
Total Earning Assets	136.0		149.7		(13.7)		(9)
Total Assets	148.1		162.1		(14.0)		(9)
Liabilities and Stockholders' Equity
Total Interest-Bearing Deposits	92.0		101.4		(9.4)		(9)
Demand and Other Noninterest-Bearing Deposits	20.1		37.1		(17.0)		(46)
Federal Funds Purchased	3.7		—		3.7		N/M
Securities Sold under Agreements to Repurchase	0.3		0.3		—		37
Other Borrowings	11.3		3.7		7.6		N/M
Total Stockholders’ Equity	11.3		11.5		(0.2)		(2)

N/M - Not meaningful

Average balances are considered to be a better measure of balance sheet trends, as period-end balances can be impacted by the timing of deposit and withdrawal activity involving large client balances. Average earning assets decreased from the prior-year quarter primarily due to decreased funding from client deposits, partially offset by higher short-term borrowing activity. For interest-earning assets, this manifested in lower levels of securities and interest-bearing deposits with banks, partially offset by higher level of loans.

CONSOLIDATED BALANCE SHEETS (continued)

Select Earning Assets. Average securities decreased from the prior-year quarter, reflecting the impact of repositioning early in the quarter and reinvesting in short-term securities that will mature usually in one year or less. For additional discussion relating to the securities portfolio, refer to the “Asset Quality” section in this MD&A and to Note 4—Securities to the consolidated financial statements provided in Item 1. Consolidated Financial Statements (unaudited).

Client Deposits. Average Interest-Bearing Deposits and Demand and Other Noninterest-Bearing Deposits decreased from the prior-year quarter as clients migrated into higher yielding products.

Short-Term Borrowings. Short-term borrowings includes Federal Funds Purchased, Securities Sold under Agreements to Repurchase, and Other Borrowings. The increase in average Other Borrowings from the prior-year quarter was primarily due to borrowings executed to help manage our liquidity ratios and as part of an overall net interest income strategy, based on the spread earned on these borrowings.

Stockholders’ Equity. The decrease in average Stockholders’ Equity was primarily attributable to changes in Accumulated Other Comprehensive Loss relative to the prior-year quarter, partially offset by higher Retained Earnings and Additional Paid-In Capital.

During the three months ended March 31, 2023, the Corporation declared cash dividends totaling $158.6 million to common stockholders and cash dividends totaling $16.2 million to preferred stockholders. During the three months ended March 31, 2022, the Corporation declared cash dividends totaling $147.8 million to common stockholders, and cash dividends totaling $16.2 million to preferred stockholders, respectively.

For the three months ended March 31, 2023, the Corporation repurchased 1,050,227 shares of common stock, at a total cost of $100.9 million ($96.04 average price per share), including 326,811 shares withheld to satisfy tax withholding obligations related to share-based compensation.

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

ASSET QUALITY

Securities Portfolio

Northern Trust maintains a high quality debt securities portfolio. Debt securities not explicitly rated were grouped where possible under the credit rating of the issuer of the security. The following tables provide the fair value of available for sale (AFS) debt securities and amortized cost of held to maturity (HTM) debt securities by credit rating.

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


	MARCH 31, 2023
($ In Millions)	AAA			AA			A			BBB			NOT RATED			TOTAL
U.S. Government	$	2,859.9		$	—		$	—		$	—		$	—		$	2,859.9
Obligations of States and Political Subdivisions	89.0			202.9			—			—			—			291.9
Government Sponsored Agency	11,433.4			—			—			—			—			11,433.4
Non-U.S. Government	361.4			—			—			—			—			361.4
Corporate Debt	149.4			125.5			338.5			—			21.1			634.5
Covered Bonds	323.0			—			21.4			—			—			344.4
Sub-Sovereign, Supranational and Non-U.S. Agency Bonds	2,184.5			388.2			215.0			—			—			2,787.7
Other Asset-Backed	5,010.4			—			—			—			—			5,010.4
Commercial Mortgage-Backed	903.9			—			—			—			—			903.9
Total	$	23,314.9		$	716.6		$	574.9		$	—		$	21.1		$	24,627.5
Percent of Total	95		%	3		%	2		%	—		%	—		%	100		%

ASSET QUALITY (continued)

Securities Portfolio (continued)


	DECEMBER 31, 2022
($ In Millions)	AAA			AA			A			BBB			NOT RATED			TOTAL
U.S. Government	$	2,747.4		$	—		$	—		$	—		$	—		$	2,747.4
Obligations of States and Political Subdivisions	136.4			651.2			—			—			—			787.6
Government Sponsored Agency	11,545.2			—			—			—			—			11,545.2
Non-U.S. Government	360.0			—			—			—			—			360.0
Corporate Debt	302.5			462.6			938.7			19.6			24.2			1,747.6
Covered Bonds	367.0			—			21.7			—			—			388.7
Sub-Sovereign, Supranational and Non-U.S. Agency Bonds	1,816.3			451.5			211.6			—			—			2,479.4
Other Asset-Backed	5,256.2			—			—			—			—			5,256.2
Commercial Mortgage-Backed	1,387.8			—			—			—			—			1,387.8
Total	$	23,918.8		$	1,565.3		$	1,172.0		$	19.6		$	24.2		$	26,699.9
Percent of Total	90		%	6		%	4		%	—		%	—		%	100		%

As of both March 31, 2023 and December 31, 2022, the less than 1% of AFS debt securities not rated by Moody’s Investors Service, Inc. (Moody’s), S&P Global Ratings (S&P Global) or Fitch Ratings, Inc. (Fitch Ratings) consisted of corporate debt securities.

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


	MARCH 31, 2023
($ In Millions)	AAA			AA			A			BBB			NOT RATED			TOTAL

Obligations of States and Political Subdivisions	$	929.5		$	1,644.1		$	—		$	—		$	—		$	2,573.6
Government Sponsored Agency	9,259.9			—			—			—			—			9,259.9
Non-U.S. Government	1,021.0			894.8			528.5			327.9			—			2,772.2
Corporate Debt	2.2			302.3			368.5			—			—			673.0
Covered Bonds	2,275.8			—			—			—			—			2,275.8
Certificates of Deposit	501.3			—			—			—			43.4			544.7
Sub-Sovereign, Supranational and Non-U.S. Agency Bonds	4,380.1			1,289.6			29.5			1.1			—			5,700.3
Other Asset-Backed	335.7			—			—			—			—			335.7
Commercial Mortgage-Backed	37.6			—			—			—			—			37.6
Other	63.5			—			—			—			479.9			543.4
Total	$	18,806.6		$	4,130.8		$	926.5		$	329.0		$	523.3		$	24,716.2
Percent of Total	76		%	17		%	4		%	1		%	2		%	100		%


	DECEMBER 31, 2022
(In Millions)	AAA			AA			A			BBB			NOT RATED			TOTAL
U.S. Government	$	50.0		$	—		$	—		$	—		$	—		$	50.0
Obligations of States and Political Subdivisions	926.8			1,638.5			—			—			—			2,565.3
Government Sponsored Agency	9,407.7			—			—			—			—			9,407.7
Non-U.S. Government	762.2			926.5			1,223.0			322.3			—			3,234.0
Corporate Debt	2.1			305.7			405.5			—			—			713.3
Covered Bonds	2,530.3			—			—			—			—			2,530.3
Certificates of Deposit	—			—			—			—			35.9			35.9
Sub-Sovereign, Supranational and Non-U.S. Agency Bonds	4,171.3			1,502.0			28.9			1.1			—			5,703.3
Other Asset-Backed	263.7			—			—			—			—			263.7
Other	65.8			—			—			—			466.8			532.6
Total	$	18,179.9		$	4,372.7		$	1,657.4		$	323.4		$	502.7		$	25,036.1
Percent of Total	73		%	17		%	7		%	1		%	2		%	100		%

As of both March 31, 2023 and December 31, 2022, 2% of HTM debt securities not rated by Moody’s, S&P Global or Fitch Ratings consisted of certificates of deposit with a remaining life of less than six months, as well as investments purchased by Northern Trust to fulfill its obligations under the Community Reinvestment Act (CRA). Northern Trust fulfills its obligations under the CRA by making qualified investments for purposes of supporting institutions and programs that benefit low-to-moderate income communities within Northern Trust’s market area.

Net unrealized losses within the investment securities portfolio totaled $2.7 billion at March 31, 2023, compared to net unrealized losses of $3.2 billion as of December 31, 2022. Net unrealized losses as of March 31, 2023 were comprised of $16.7

ASSET QUALITY (continued)

Securities Portfolio (continued)

million and $2.7 billion of gross unrealized gains and losses, respectively. $849.7 million of the $2.7 billion gross unrealized losses relate to AFS debt securities. Net unrealized losses as of December 31, 2022 were comprised of $9.1 million and $3.2 billion of gross unrealized gains and losses, respectively.

As of March 31, 2023, the $24.6 billion AFS debt securities portfolio had unrealized losses of $258.5 million, $237.7 million, and $106.4 million related to government-sponsored agency securities, other asset-backed and sub-sovereign, supranational and non-U.S. agency bonds respectively, which are primarily attributable to changes in overall market interest rates. As of December 31, 2022, the $26.7 billion AFS debt securities portfolio had unrealized losses of $351.6 million, $288.1 million, and $157.6 million related to government sponsored agency, other asset-backed, 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, 2022, the Corporation intended to sell certain AFS debt securities that were in an unrealized loss position. The securities were written down to their fair value of $2.1 billion with a $213.0 million loss recognized in Investment Security Gains (Losses), net on the consolidated statements of income. In January 2023, the securities were subsequently sold resulting in an incremental $6.9 million gain upon sale as compared to the fair value recorded on the consolidated balance sheets at December 31, 2022.

As of March 31, 2023, the $24.7 billion HTM debt securities portfolio had unrealized losses of $949.8 million and $397.1 million related to government-sponsored agency securities and sub-sovereign, supranational and non-U.S. agency bonds, respectively, which are primarily attributable to changes in overall market interest rates. As of December 31, 2022, the $25.0 billion HTM debt securities portfolio had an unrealized loss of $1.1 billion and $436.1 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.

HTM debt securities consist of securities that management intends to, and Northern Trust has the ability to, hold until maturity.

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

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

For additional information relating to the securities sold under agreements to repurchase, refer to Note 22—Securities Sold Under Agreements to Repurchase to the consolidated financial statements provided in Item 1. Consolidated Financial Statements (unaudited).

Nonaccrual Loans and Other Real Estate Owned

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

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

ASSET QUALITY (continued)

Nonaccrual Loans and Other Real Estate Owned (continued)

TABLE 21: NONACCRUAL ASSETS


	MARCH 31, 2023					DECEMBER 31, 2022
($ In Millions)	AMOUNT			% OF NONACCRUAL LOANS TO TOTAL NONACCRUAL LOANS		AMOUNT			% OF NONACCRUAL LOANS TO TOTAL NONACCRUAL LOANS
Nonaccrual Loans
Commercial
Commercial and Institutional	$	21.9		45	%	$	17.4		38	%
Commercial Real Estate	6.1			12		10.2			22

Total Commercial	$	28.0		57	%	$	27.6		60	%
Personal
Private Client	$	2.0		4	%	$	—		—	%
Residential Real Estate	18.9			39		18.3			40
Total Personal	$	20.9		43	%	$	18.3		40	%
Total Nonaccrual Loans	48.9					45.9
Other Real Estate Owned	—					—
Total Nonaccrual Assets	$	48.9				$	45.9
90 Day Past Due Loans Still Accruing	$	77.4				$	54.2
Nonaccrual Loans to Total Loans	0.12		%			0.11		%
Allowance for Credit Losses Assigned to Loans to Nonaccrual Loans	3.3		x			3.1		x

Nonaccrual assets of $48.9 million as of March 31, 2023 increased from December 31, 2022 primarily due to the addition of three nonaccrual loans, one each in the commercial and institutional, residential real estate, and private client portfolios, partially offset by a charge-off in the commercial real estate portfolio. In addition to the negative impact on Net Interest Income and the risk of credit losses, nonaccrual assets also increase operating costs due to the expense associated with collection efforts. Changes in the level of nonaccrual assets may be indicative of changes in the credit quality of one or more loan classes. Changes in credit quality impact the allowance for credit losses through the resultant adjustment of the allowance evaluated on an individual basis and the quantitative and qualitative factors used in the determination of the allowance evaluated on a collective basis within the allowance for credit losses.

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

The commercial real estate portfolio consists of commercial mortgages and construction, acquisition and development loans extended primarily to experienced investors well known to Northern Trust. Underwriting standards generally reflect conservative loan-to-value ratios and debt service coverage requirements. Recourse to owners through guarantees also is commonly required. For additional information relating to the loans portfolio, refer to Note 5—Loans to the consolidated financial statements provided in Item 1. Consolidated Financial Statements (unaudited).

Allowance for Credit Losses

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

Management’s estimates utilized in establishing an appropriate level of allowance for credit losses are not dependent on any single assumption. In determining an appropriate allowance level, management evaluates numerous variables, many of which are interrelated or dependent on other assumptions and estimates, and takes into consideration past events, current conditions and reasonable and supportable forecasts. The results of the credit reserve estimation methodology are reviewed quarterly by Northern Trust’s Credit Loss Reserve Committee, which receives input from Credit Risk Management, Treasury, Corporate Finance, the Economic Research Department, and each of Northern Trust’s reporting segments.

ASSET QUALITY (continued)

Allowance for Credit Losses (continued)

As of March 31, 2023, the Allowance for Credit Losses related to loans, undrawn loan commitments and standby letters of credit, HTM debt securities, and other financial assets, was $159.9 million, $34.3 million, $16.0 million, and $1.0 million, respectively. As of December 31, 2022, the Allowance for Credit Losses related to loans, undrawn loan commitments and standby letters of credit, HTM debt securities, and other financial assets, was $144.3 million, $38.5 million, $16.0 million, and $0.8 million, respectively. There was a $1.8 million and $1.3 million allowance for credit losses related to AFS debt securities as of March 31, 2023 and December 31, 2022, respectively. For additional information relating to the allowance for credit losses and the changes in the allowance for credit losses during the three months ended March 31, 2023 and March 31, 2022 due to charge-offs, recoveries and provisions for credit losses, refer to Note 6—Allowance for Credit Losses to the consolidated financial statements provided in Item 1. Consolidated Financial Statements (unaudited).

The table provides the allowance evaluated on an individual and collective basis for the loan portfolio by segment and class.

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


	MARCH 31, 2023					DECEMBER 31, 2022
($ In Millions)	ALLOWANCE AMOUNT			PERCENT OF LOANS TO TOTAL LOANS		ALLOWANCE AMOUNT			PERCENT OF LOANS TO TOTAL LOANS
Evaluated on an Individual Basis	$	11.0		—	%	$	10.4		—	%
Evaluated on a Collective Basis
Commercial
Commercial and Institutional	52.3			30		57.0			29
Commercial Real Estate	92.8			12		76.5			11
Non-U.S.	8.0			7		8.3			7
Other	—			2		0.3			3
Total Commercial	153.1			51		142.1			50
Personal
Private Client	11.1			33		11.2			33
Residential Real Estate	18.2			15		18.0			15
Non-U.S.	0.8			1		1.1			1
Other	—			—		—			1
Total Personal	30.1			49		30.3			50
Total Allowance Evaluated on a Collective Basis	$	183.2				$	172.4
Total Allowance for Credit Losses	$	194.2				$	182.8
Allowance Assigned to
Loans	$	159.9				$	144.3
Undrawn Commitments and Standby Letters of Credit	34.3					38.5
Total Allowance for Credit Losses	$	194.2				$	182.8
Allowance Assigned to Loans to Total Loans	0.38		%			0.34		%

Commercial Real Estate Loans

The table below provides additional detail regarding commercial real estate loan types.

TABLE 23: COMMERCIAL REAL ESTATE LOANS



(In Millions)	MARCH 31, 2023		DECEMBER 31, 2022
Commercial Mortgages
Apartment/ Multi-family	$	1,550.4	$	1,392.7
Office	1,041.2		1,054.0
Industrial/ Warehouse	617.6		596.2
Retail	595.8		572.2
Other	561.3		548.0
Total Commercial Mortgages	4,366.3		4,163.1
Construction, Acquisition and Development Loans	615.1		609.9
Total Commercial Real Estate Loans	$	4,981.4	$	4,773.0

For an overall discussion on the loan portfolio and on the allowance, refer to Note 5—Loans and Note 6—Allowance for Credit Losses to the consolidated financial statements provided in Item 1. Consolidated Financial Statements (unaudited).

STATEMENTS OF CASH FLOWS

The following discusses the statement of cash flow activities for the three months ended March 31, 2023 and 2022.

TABLE 24: CASH FLOW ACTIVITY SUMMARY


	THREE MONTHS ENDED MARCH 31,
(In Millions)	2023		2022
Net cash provided by (used in):
Operating activities	$	(164.9)	$	746.9
Investing activities	4,919.2		10,325.6
Financing activities	(4,597.7)		(10,316.6)
Effect of Foreign Currency Exchange Rates on Cash	15.1		(29.5)
Change in Cash and Due from Banks	$	171.7	$	726.4

Operating Activities

Net cash used in operating activities of $164.9 million for the three months ended March 31, 2023, was primarily attributable to higher net collateral deposited with derivative counterparties and an increase in receivables, partially offset by period earnings, net changes in other operating activities, and the impact of lower non-cash charges such as amortization and depreciation.

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

Investing Activities

Net cash provided by investing activities of $4.9 billion for the three months ended March 31, 2023 was primarily attributable to net proceeds associated with AFS and HTM debt securities, and decreased levels of Federal Reserve and other central bank deposits.

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

Financing Activities

Net cash used in financing activities of $4.6 billion for the three months ended March 31, 2023 was primarily attributable to the decreased levels of total deposits, partially offset by increased levels of short-term other borrowings and federal funds purchased. The decrease in total deposits was primarily attributable to lower levels of savings, money market and other interest-bearing deposits.

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

CAPITAL RATIOS

The capital ratios of Northern Trust Corporation and its principal subsidiary, The Northern Trust Company, remained strong at March 31, 2023, exceeding the requirements for classification as “well-capitalized” under applicable U.S. regulatory requirements.

Northern Trust is a Category II institution as defined by the Federal Reserve Board which requires us to adhere to stringent capital standards. In adhering to these standards, Northern Trust engages in a range of reporting and activities with regulators to affirm our financial strength and stability, including but not limited to, capital adequacy reporting that deducts any unrealized losses related to AFS securities from reported capital, and stringent, annual company-run and supervisory stress testing in the form of Comprehensive Capital Analysis and Review (CCAR) exercises, which confirms our ability to remain solvent under severely adverse market conditions.

The results of the 2022 Dodd-Frank Act Stress Test, published by the Federal Reserve Board on June 23, 2022, resulted in Northern Trust’s stress capital buffer and effective Common Equity Tier 1 capital ratio minimum requirement remaining constant at 2.5% and 7.0%, respectively, for the 2022 Capital Plan cycle, which began on October 1, 2022.

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

TABLE 25: REGULATORY CAPITAL RATIOS


Capital Ratios — Northern Trust Corporation	MARCH 31, 2023				DECEMBER 31, 2022				MARCH 31, 2022
STANDARDIZED APPROACH	ADVANCED APPROACH		STANDARDIZED APPROACH		ADVANCED APPROACH		STANDARDIZED APPROACH		ADVANCED APPROACH		WELL-CAPITALIZED RATIOS		MINIMUM CAPITAL RATIOS
Common Equity Tier 1 Capital	11.3	%	11.7	%	10.8	%	11.5	%	11.4	%	12.1	%	N/A	4.5	%
Tier 1 Capital	12.3		12.7		11.8		12.5		12.4		13.2		6.0	6.0
Total Capital	14.4		14.7		13.9		14.5		13.6		14.2		10.0	8.0
Tier 1 Leverage	7.3		7.3		7.1		7.1		6.5		6.5		N/A	4.0
Supplementary Leverage	N/A		8.3		N/A		7.9		N/A		7.9		N/A	3.0


Capital Ratios — The Northern Trust Company	MARCH 31, 2023				DECEMBER 31, 2022				MARCH 31, 2022
STANDARDIZED APPROACH	ADVANCED APPROACH		STANDARDIZED APPROACH		ADVANCED APPROACH		STANDARDIZED APPROACH		ADVANCED APPROACH		WELL-CAPITALIZED RATIOS		MINIMUM CAPITAL RATIOS
Common Equity Tier 1 Capital	12.3	%	12.9	%	11.6	%	12.4	%	11.7	%	12.6	%	6.5	%	4.5	%
Tier 1 Capital	12.3		12.9		11.6		12.4		11.7		12.6		8.0		6.0
Total Capital	14.2		14.6		13.5		14.2		12.6		13.4		10.0		8.0
Tier 1 Leverage	7.3		7.3		6.9		6.9		6.1		6.1		5.0		4.0
Supplementary Leverage	N/A		8.3		N/A		7.7		N/A		7.4		3.0		3.0

RECENT ACCOUNTING PRONOUNCEMENTS AND DEVELOPMENTS

In March 2023, the Financial Accounting Standards Board (FASB) issued ASU No. 2023-02, “Investments—Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method—a consensus of the Emerging Issues Task Force” (ASU 2023-02). The amendments in ASU 2023-02 permit reporting entities to elect to account for their tax equity investments, regardless of the tax credit program from which the income tax credits are received, using the proportional amortization method if certain conditions are met. Under the proportional amortization method, an entity amortizes the initial cost of the investment in proportion to the income tax credits and other income tax benefits received and recognizes the net amortization and income tax credits and other income tax benefits in the income statement as a component of income tax expense (benefit). In addition, ASU 2023-02 requires specific disclosures that must be applied to all investments that generate income tax credits and other income tax benefits from a tax credit program for which the entity has elected to apply the proportional amortization method in accordance with Subtopic 323-740. ASU 2023-02 is effective for interim and annual periods beginning after December 15, 2023, although early adoption is permitted. Northern Trust is currently assessing the impacts of electing the proportional amortization method for qualifying tax equity investments under ASU 2023-02, including early adoption.

RISK MANAGEMENT

Liquidity Risk

Liquidity risk is the risk of not being able to raise sufficient funds or maintain collateral to meet balance sheet and contingent liability cash flow obligations when due, because of firm-specific or market-wide stress events. Northern Trust is a Category II institution as defined by the Federal Reserve Board which requires us to adhere to stringent liquidity standards. In adhering to these standards, Northern Trust engages in a range of reporting and activities with regulators to affirm our financial strength and stability, including but not limited to, daily Liquidity Coverage Ratio calculations to regulators.

We maintain a highly liquid balance sheet consisting principally of cash held at the Federal Reserve and other central banks, money market assets, and short-term investment securities, which were 63% of total assets as of both March 31, 2023 and December 31, 2022. 85% and 81% of Northern Trust’s securities portfolio is composed of U.S. Treasury, government sponsored agency and triple-A rated securities as of March 31, 2023 and December 31, 2022, respectively.

Market Risk

There are two types of market risk, interest rate risk associated with the banking book and trading risk. Interest rate risk associated with the banking book is the potential for movements in interest rates to cause changes in Net Interest Income and the market value of equity, including Accumulated Other Comprehensive Income (Loss) from the AFS debt securities portfolio. Trading risk is the potential for movements in market variables such as foreign exchange and interest rates to cause changes in the value of trading positions.

Northern Trust uses two primary measurement techniques to manage interest rate risk: Net Interest Income (NII) sensitivity and Market Value of Equity (MVE) sensitivity. NII sensitivity provides management with a short-term view of the impact of interest rate changes on NII. MVE sensitivity provides management with a long-term view of interest rate changes on MVE based on the period-end balance sheet. Higher interest rates may impact the fair value of available for sale debt securities which in turn affects Accumulated Other Comprehensive Income (Loss) that can impact regulatory capital ratios.

As part of its risk management activities, Northern Trust also measures daily the risk of loss associated with all non-U.S. currency positions using a Value-at-Risk (VaR) model and applying the historical simulation methodology. The following information about Northern Trust’s management of market risk should be read in conjunction with the Annual Report on Form 10-K for the year ended December 31, 2022.

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

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

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

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

RISK MANAGEMENT (continued)

Market Risk (continued)

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

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

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

The following table shows the estimated NII impact over the next twelve months of 100 and 200 basis point ramps upward and 100 basis point ramp downward movements in interest rates relative to forward rates as of March 31, 2023 and March 31, 2022. A 200 basis point ramp downward movement in interest rate relative to forward rate is also provided as of March 31, 2023. Each rate movement is assumed to occur gradually over a one-year period. Given the low level of interest rates at the time and assumed interest rate floors as rates approach zero, the 200 basis point ramp downward movement in interest rate relative to forward rate as of March 31, 2022 would not provide meaningful results and is therefore not provided.

TABLE 26: NET INTEREST INCOME SENSITIVITY


INCREASE (DECREASE) ESTIMATED IMPACT ON NEXT TWELVE MONTHS OF NET INTEREST INCOME
($ In Millions)	MARCH 31, 2023		MARCH 31, 2022
Increase in Interest Rates Above Market Implied Forward Rates
100 Basis Points	$	15	$	107
200 Basis Points	29		234
Decrease in Interest Rates Below Market Implied Forward Rates
100 Basis Points	$	1	$	(154)
200 Basis Points	5		N/M

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

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

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

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

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

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

RISK MANAGEMENT (continued)

Market Risk (continued)

The following table shows the estimated impact on MVE of 100 and 200 basis point shocks up and a 100 and 200 basis point shock down from current market implied forward rates at March 31, 2023 and December 31, 2022. Each rate movement is assumed to occur gradually over a one-year period.

TABLE 27: MARKET VALUE OF EQUITY SENSITIVITY


INCREASE (DECREASE) ESTIMATED IMPACT ON MARKET VALUE OF EQUITY
($ In Millions)	MARCH 31, 2023		DECEMBER 31, 2022
Increase in Interest Rates Above Market Implied Forward Rates
100 Basis Points	$	(569)	$	(472)
200 Basis Points	(1,143)		(965)
Decrease in Interest Rates Below Market Implied Forward Rates
100 Basis Points	$	675	$	596
200 Basis Points	962		842

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

Foreign Currency Value-At-Risk (VaR) — Northern Trust measures daily the risk of loss associated with non-U.S. currency positions using a VaR model and applying the historical simulation methodology. This statistical model provides estimates, based on high confidence levels, of the potential loss in value that might be incurred if an adverse shift in non-U.S. currency exchange rates and interest rates were to occur over a small number of days. The model incorporates foreign currency and interest rate volatilities and correlations in price movements among the currencies. VaR is computed for each trading desk and for the global portfolio.

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

During the three months ended March 31, 2023, Northern Trust did not incur an actual GFX trading loss in excess of the daily GFX VaR estimate.

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

TABLE 28: GLOBAL FOREIGN CURRENCY VALUE-AT-RISK


($ In Millions)	TOTAL VaR (FX AND IR DRIVERS)						FX VaR (FX DRIVERS ONLY)						IR VaR (IR DRIVERS ONLY)
THREE MONTHS ENDED	MARCH 31, 2023		DECEMBER 31, 2022		MARCH 31, 2022		MARCH 31, 2023		DECEMBER 31, 2022		MARCH 31, 2022		MARCH 31, 2023		DECEMBER 31, 2022		MARCH 31, 2022
High	$	0.3	$	0.2	$	0.2	$	0.2	$	0.2	$	0.2	$	0.3	$	0.2	$	0.3
Low	0.1		0.1		0.1		—		—		—		0.1		—		—
Average	0.2		0.1		0.1		0.1		0.1		0.1		0.2		0.1		0.1
Quarter-End	0.2		0.1		0.2		0.2		0.1		0.1		0.1		0.1		0.1

RECONCILIATION TO FULLY TAXABLE EQUIVALENT

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

TABLE 29: RECONCILIATION TO FULLY TAXABLE EQUIVALENT


	THREE MONTHS ENDED MARCH 31,
($ In Millions)	2023			2022
Net Interest Income
Interest Income - GAAP	$	1,455.4		$	383.5
Add: FTE Adjustment	13.2			6.7
Interest Income (FTE) - Non-GAAP	$	1,468.6		$	390.2

Net Interest Income - GAAP	$	531.2		$	381.0
Add: FTE Adjustment	13.2			6.7
Net Interest Income (FTE) - Non-GAAP	$	544.4		$	387.7

Net Interest Margin - GAAP	1.58		%	1.03		%
Net Interest Margin (FTE) - Non-GAAP	1.62		%	1.05		%

Total Revenue
Total Revenue - GAAP	$	1,744.6		$	1,718.7
Add: FTE Adjustment	13.2			6.7
Total Revenue (FTE) - Non-GAAP	$	1,757.8		$	1,725.4

FORWARD-LOOKING STATEMENTS

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

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

FORWARD-LOOKING STATEMENTS (continued)

Northern Trust’s ability to maintain a product mix that achieves acceptable margins;
Northern Trust’s ability to continue to generate investment results that satisfy clients and to develop an array of investment products;
uncertainties inherent in Northern Trust’s assumptions concerning its pension plan, including discount rates and expected contributions, returns and payouts;
Northern Trust’s success in continuing to enhance its risk management practices and controls and managing risks inherent in its businesses, including credit risk, operational risk, market and liquidity risk, fiduciary risk, compliance risk and strategic risk;
risks and uncertainties inherent in the litigation and regulatory process, including the possibility that losses may be in excess of Northern Trust’s recorded liability and estimated range of possible loss for litigation exposures;
risks associated with being a holding company, including Northern Trust’s dependence on dividends from its principal subsidiary;
the risk of damage to Northern Trust’s reputation which may undermine the confidence of clients, counterparties, rating agencies, and stockholders; and
other factors identified elsewhere in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2022, including those factors described in Item 1A, “Risk Factors,” and other filings with the SEC, all of which are available on Northern Trust’s website.

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

Next: Item 1. Consolidated Financial Statements (unaudited)