UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________________________________________________
FORM 10-K
____________________________________________________________
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2022
OR
☐ 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
(State or other jurisdiction of incorporation or organization)
36-2723087
(I.R.S. Employer Identification No.)
50 South La Salle Street
Chicago, Illinois
(Address of principal executive offices)
60603
(Zip Code)
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
Depositary Shares, each representing 1/1,000th interest in a
share of Series E Non-Cumulative Perpetual Preferred Stock
NTRS
NTRSO
The NASDAQ Stock Market LLC
The NASDAQ Stock Market LLC
Securities registered pursuant to Section 12(g) of the Act: None
____________________________________________________________
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
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 ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of
Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ 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
Non-accelerated filer
☒
☐
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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal
control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that
prepared or issued its audit report. ☒
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the
filing reflect the correction of an error to previously issued financial statements. □
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received
by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). □
Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2). Yes ☐ No ☒
The aggregate market value of the registrant’s common stock as of June 30, 2022 (the last business day of the registrant’s most recently completed second
quarter), based upon the last sale price of the common stock at June 30, 2022 as reported by The NASDAQ Stock Market LLC, held by non-affiliates was
approximately $20.0 billion. Determination of stock ownership by non-affiliates was made solely for the purpose of responding to this requirement and
the registrant is not bound by this determination for any other purpose.
At January 31, 2023, 208,196,935 shares of common stock, $1.66 2/3 par value, were outstanding.
Portions of the registrant’s Proxy Statement for its 2023 Annual Meeting of Stockholders are incorporated by reference into Part III hereof.
NORTHERN TRUST CORPORATION
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
PART I
Item 1
Item 1A
Item 1B
Item 2
Item 3
Item 4
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
Supplemental Item Information About Our Executive Officers
PART II
Item 5
Item 6
Item 7
Item 7A
Item 8
Item 9
Item 9A
Item 9B
Item 9C
PART III
Item 10
Item 11
Item 12
Item 13
Item 14
PART IV
Item 15
Item 16
Signatures
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases
of Equity Securities
Reserved
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accountant Fees and Services
Exhibits and Financial Statement Schedules
Form 10-K Summary
Page
1
13
30
31
31
31
31
33
34
35
92
92
168
168
170
170
170
170
170
170
170
171
174
175
2022 ANNUAL REPORT | NORTHERN TRUST CORPORATION i
When the following terms and abbreviations appear in the text of this report, they have the meanings indicated below:
GLOSSARY OF TERMS
AFS
AIFMD
ALCO
AMA
AML
AOCI
ARRC
AS
ASC
ASU
AUC/A
Bank
Banking book
Basel Committee
Basel III
BMR
BRRD
CCAR
CCPA
CDFIs
CEOC
CFA
CFPB
CFTC
Commission
Corporation
CPRA
CRA
CRC
CRD
CRD V
CRO
CRR
CRR II
CSD
CSDR
CSSF
DE&I
DFAST
DGS
DGSD
Dodd-Frank Act
EBA
ECB
EEA
Available for Sale
Alternative Investment Fund Managers Directive
Asset and Liability Management Committee
Basel Advanced Measurement Approach
Anti-Money Laundering
Accumulated Other Comprehensive Income
Alternative Reference Rate Committee
Asset Servicing
Accounting Standards Codification
Accounting Standards Update
Assets Under Custody/Administration
The Northern Trust Company
Northern Trust’s structural assets, liabilities, net investments, and off-balance sheet
instruments subject to interest rate risk and/or foreign currency risk. It is distinct from the
trading book.
International Basel Committee on Banking Supervision
Industry-standard guidelines published by the Basel Committee
European Union Benchmarks Regulation
Bank Recovery and Resolution Directive (EU)
Comprehensive Capital Analysis and Review
California Consumer Privacy Act
Community Development Financial Institutions
Compliance & Ethics Oversight Committee
Criminal Finances Act (UK)
Consumer Financial Protection Bureau
U.S. Commodity Futures Trading Commission
European Commission
Northern Trust Corporation
California Privacy Rights Act of 2020
Community Reinvestment Act
Credit Risk Committee
Capital Requirements Directive of June 26, 2013 (EU)
European Commission revisions to the CRD, effective December 29, 2020
Chief Risk Officer
Capital Requirements Regulation of June 26, 2013 (EU)
European Commission revisions to the CRR, effective June 28, 2021
Central Securities Depositories
Central Securities Depositories Regulation (EU)
Commission de Surveillance du Secteur Financier (Luxembourg)
Diversity, Equity, and Inclusion
Dodd-Frank Act Stress Tests
Deposit Guarantee Schemes
Deposit Guarantee Schemes Directive
Dodd-Frank Wall Street Reform and Consumer Protection Act
European Banking Authority
European Central Bank
European Economic Area
ii 2022 ANNUAL REPORT | NORTHERN TRUST CORPORATION
EMIR
EOP
ESG
EU
Exchange Act
FASB
FCA
FDIA
FDIC
Federal Reserve Board
FICC
FinCEN
FINRA
FRC
FTE
FTP
FX
GAAP
GDPR
GERC
GFX
GILTI
GSIB
HTM
HQLAs
IBA
IBOR
IR
ITRC
LCR
LCR Final Rule
LGD
LIBOR
LIBOR Act
MD&A
MIFID
MIFIR
MLD5
MLRC
MREL
MROC
MSDC
MVE
NAICS
NAV
NFA
NFTS
GLOSSARY OF TERMS (continued)
European Market Infrastructure Regulation 648/2012
End of Period
Environmental, Social and Governance
European Union
Securities Exchange Act of 1934, as amended
Financial Accounting Standards Board
Financial Conduct Authority
Federal Deposit Insurance Act
Federal Deposit Insurance Corporation
The Board of Governors of the Federal Reserve System
Fixed Income Clearing Corporation
Financial Crimes Enforcement Network
Financial Industry Regulatory Authority
Fiduciary Risk Committee
Fully Taxable Equivalent
Funds Transfer Pricing
Foreign Exchange
Generally Accepted Accounting Principles
General Data Protection Regulation
Global Enterprise Risk Committee
Global Foreign Exchange
Global Intangible Low-Taxed Income
Global Systemically Important Banks
Held to Maturity
High-Quality Liquid Assets
ICE Benchmark Administration
Interbank Offered Rates
Interest Rate
Information Technology Risk Committee
Liquidity Coverage Ratio
Regulation promulgated by U.S. federal banking regulators to implement LCR requirements in
the United States for certain banking organizations.
Loss Given Default
London Interbank Offered Rate
Adjustable Interest Rate (LIBOR) Act
Management’s Discussion and Analysis
Market in Financial Instruments Directive
Markets in Financial Instruments Regulation
Fifth EU Money Laundering Directive
Market & Liquidity Risk Committee
Minimum requirements for own funds and eligible liabilities (EU)
Model Risk Oversight Committee
Macroeconomic Scenario Development Committee
Market Value of Equity
North American Industry Classification System
Net Asset Value
National Futures Association
Northern Trust Fiduciary Services (Guernsey) Limited
2022 ANNUAL REPORT | NORTHERN TRUST CORPORATION iii
GLOSSARY OF TERMS (continued)
NII
N/M
NSFR
NSFR Final Rule
Net Interest Income
Not Meaningful
Net Stable Funding Ratio requirement in the United States
Regulation promulgated by U.S. federal banking regulators to implement NSFR requirements
in the United States for certain banking organizations.
Operational Risk Committee
Other Real Estate Owned
Over-the-Counter
Other-Than-Temporary Impairment
Probability of Default
Personal Information Protection Law (China)
Paycheck Protection Program
Prudential Regulation Authority
Economic Growth, Regulatory Relief, and Consumer Protection Act
Right-of-use
Risk-Weighted Assets
U.S. Small Business Administration
U.S. Securities and Exchange Commission
ORC
OREO
OTC
OTTI
PD
PIPL
PPP
PRA
Regulatory Relief Act
ROU
RWA
SBA
SEC
Series D Preferred Stock Series D Non-Cumulative Perpetual Preferred Stock
Series E Preferred Stock Series E Non-Cumulative Perpetual Preferred Stock
SOFR
SFDR
SRD II
SFTR
Taxonomy Regulations
TDR
Trading book
Secured Overnight Finance Rate
Sustainable Finance Disclosure Regulations (EU)
Shareholder Rights Directive (EU)
Securities Financing Transactions and Reuse of Collateral
Regulation (EU) 2020/852
Troubled Debt Restructuring
Foreign (non-U.S.) currency trading positions subject to foreign currency risk, as well as
trading securities and interest rate derivative transactions, both subject to interest rate risk.
UCITS
UK
USD LIBOR
VaR
VIE
WM
WRC
Undertakings for the Collective Investment in Transferable Securities
United Kingdom
U.S. Dollar LIBOR
Value-at-Risk
Variable Interest Entity
Wealth Management
Workforce Risk Committee
iv 2022 ANNUAL REPORT | NORTHERN TRUST CORPORATION
PART I
ITEM 1 – BUSINESS
Northern Trust Corporation
Northern Trust Corporation (Corporation) is a leading provider of wealth management, asset servicing, asset management
and banking solutions to corporations, institutions, families and individuals. The Corporation is a financial holding
company conducting business through various U.S. and non-U.S. subsidiaries, including The Northern Trust Company
(Bank).
The Bank is an Illinois banking corporation headquartered in Chicago and the Corporation’s principal subsidiary.
Founded in 1889, the Bank conducts its business through its U.S. operations and its various U.S. and non-U.S. branches
and subsidiaries. At December 31, 2022, the Bank had consolidated assets of $154.5 billion and common bank equity
capital of $10.9 billion.
The Corporation was formed as a holding company for the Bank in 1971. The Corporation has a global presence with
offices in 25 U.S. states and Washington, D.C., and across 23 locations in Canada, Europe, the Middle East and the Asia-
Pacific region. At December 31, 2022, the Corporation had consolidated total assets of $155.0 billion and stockholders’
equity of $11.3 billion.
The Corporation expects that the Bank will continue in the foreseeable future to be the major source of the
Corporation’s consolidated assets, revenues, and net income. Except where the context otherwise requires, references to
“Northern Trust,” “we,” “us,” “our,” “its,” or similar terms mean Northern Trust Corporation and its subsidiaries on a
consolidated basis.
Business Overview
Northern Trust focuses on managing and servicing client assets through its two client-focused reporting segments: Asset
Servicing and Wealth Management. During the first quarter of 2022, the Corporation changed the name of its Corporate &
Institutional Services segment to “Asset Servicing.” Accordingly, the disclosures herein will refer to this segment as Asset
Servicing. Asset management and related services are provided to Asset Servicing and Wealth Management clients
primarily by the Asset Management business. The revenue and expenses of Asset Management and certain other support
functions are allocated fully to Asset Servicing and Wealth Management. Northern Trust reports certain income and
expense items not allocated to Asset Servicing and Wealth Management in a third reporting segment, Other.
ASSET SERVICING
Asset Servicing is a leading global provider of asset servicing and related services to corporate and public retirement
funds, foundations, endowments, fund managers, insurance companies, sovereign wealth funds, and other institutional
investors around the globe. Asset servicing and related services encompass a full range of capabilities including but not
limited to: custody; fund administration; investment operations outsourcing; investment management; investment risk and
analytical services; employee benefit services; securities lending; foreign exchange; treasury management; brokerage
services; transition management services; banking; and cash management. Client relationships are managed through the
Bank and the Bank’s and the Corporation’s other subsidiaries, including support from locations in North America, Europe,
the Middle East, and the Asia-Pacific region. At December 31, 2022, total Asset Servicing assets under custody/
administration (AUC/A), assets under custody, and assets under management were $12.71 trillion, $9.71 trillion, and
$898.1 billion, respectively.
WEALTH MANAGEMENT
Wealth Management focuses on high-net-worth individuals and families, business owners, executives, professionals,
retirees, and established privately-held businesses in its target markets. In supporting these targeted segments, Wealth
Management provides trust, investment management, custody, and philanthropic services; financial consulting;
guardianship and estate administration; family business consulting; family financial education; brokerage services; and
private and business banking. Wealth Management also includes Global Family Office, which provides customized
services, including but not limited to: investment consulting; global custody; fiduciary; and private banking; family office
consulting, and technology solutions, to meet the complex financial and reporting needs of ultra-high-net-worth individuals
and family offices across the globe.
Wealth Management is one of the largest providers of advisory services in the United States, with AUC/A, assets
under custody, and assets under management of $898.5 billion, $892.3 billion, and $351.4 billion, respectively, at
December 31, 2022. Wealth Management services are delivered by multidisciplinary teams through a network of offices in
19 U.S. states and Washington, D.C., as well as offices in London, Guernsey, and Abu Dhabi.
2022 ANNUAL REPORT | NORTHERN TRUST CORPORATION 1
ASSET MANAGEMENT
Asset Management, through the Corporation’s various subsidiaries, supports the Asset Servicing and Wealth
Management reporting segments by providing a broad range of asset management and related services and other products
to clients around the world. Investment solutions are delivered through separately managed accounts, bank common and
collective funds, registered investment companies, exchange traded funds, non-U.S. collective investment funds, and
unregistered private investment funds. Asset Management’s capabilities include active and passive equity; active and
passive fixed income; cash management; multi-asset and alternative asset classes (such as private equity and hedge funds
of funds); and multi-manager advisory services and products. Asset Management’s activities also include overlay services
and other risk management services. Asset Management operates internationally through subsidiaries and distribution
arrangements and its revenue and expense are fully allocated to Asset Servicing and Wealth Management. As discussed
above, Northern Trust managed $1.25 trillion in assets as of December 31, 2022, including $898.1 billion for Asset
Servicing clients and $351.4 billion for Wealth Management clients.
Competition
Northern Trust faces intense competition in all aspects and areas of its business. Competition comes from both
regulated and unregulated financial services organizations, whose products and services span the local, national, and global
markets in which Northern Trust conducts operations. Our competitors include a broad range of financial institutions and
service companies, including other custodial banks, deposit-taking institutions, asset management firms, benefits
consultants, trust companies, investment banking firms, insurance companies, investment counseling firms, and various
financial technology companies, including software providers and data services firms. As our businesses grow and markets
evolve, we may encounter increasing and new forms of competition around the world.
Northern Trust’s business strategy is to provide quality financial services to targeted market segments in which it
believes it has a competitive advantage and favorable growth prospects. As part of this strategy, Northern Trust seeks to
differentiate itself from its competitors with premier, holistic solutions and exceptional experiences tailored to meet clients’
needs. In addition, Northern Trust emphasizes the development and growth of recurring sources of fee-based income and
continual productivity improvements. Northern Trust also seeks to maintain its foundational strength with a strong,
conservative balance sheet and a globally respected brand.
Economic Conditions And Government Policies
The earnings of Northern Trust are affected by numerous external influences. Chief among these are general economic
conditions, both domestic and international, and actions that governments and their central banks take in managing their
economies. These general conditions affect all of Northern Trust’s businesses, as well as the quality, value, and
profitability of its loan and investment portfolios.
The Board of Governors of the Federal Reserve System (Federal Reserve Board) implements monetary policy through
its open market operations in United States Government securities, its setting of the discount rate at which member banks
may borrow from Federal Reserve Banks, and its changes in the reserve requirements for deposits. The policies adopted by
the Federal Reserve Board directly affect interest rates and therefore what banks earn on their loans and investments and
what they pay on their savings and time deposits and other purchased funds.
Supervision and Regulation
Northern Trust is subject to extensive regulation under state and federal laws in the United States and in each of the
jurisdictions in which it does business. The discussion below outlines significant elements of selected laws and regulations
applicable to Northern Trust. Changes in laws or regulations applicable to Northern Trust may have a material effect on its
businesses and results of operations.
FINANCIAL HOLDING COMPANY REGULATION
Under U.S. law, the Corporation is a bank holding company that has elected to be a financial holding company subject
to the supervision, examination, and regulation of the Federal Reserve Board. A financial holding company is permitted to
engage in a broader range of financial activities than a bank holding company. The Federal Reserve Board has authority to
limit the activities that a financial holding company may conduct if any depository institution controlled by the financial
holding company is found to no longer be “well-capitalized” and “well-managed” or has not received at least a
“satisfactory” rating in its most recent Community Reinvestment Act (CRA) examination. Failure to meet one or more of
these requirements may result in restrictions on the Corporation’s ability to exercise powers granted to financial holding
companies, to engage in new activities, to continue current activities, or to make acquisitions.
2 2022 ANNUAL REPORT | NORTHERN TRUST CORPORATION
SUBSIDIARY REGULATION
The Bank is a member of the Federal Reserve System, with deposits insured by the Federal Deposit Insurance
Corporation (FDIC), and is subject to regulation by both agencies. As an Illinois banking corporation, the Bank is also
subject to Illinois state laws and regulations and to examination and supervision by the Division of Banking of the Illinois
Department of Financial and Professional Regulation. The Bank is also registered as a transfer agent with the Federal
Reserve Board and is registered provisionally as a swap dealer with the U.S. Commodity Futures Trading Commission
(CFTC) under the Commodity Exchange Act. As a result, the Bank is subject to supervision, examination and enforcement
by certain other regulatory bodies, including the CFTC and the National Futures Association (NFA).
The Corporation’s nonbanking affiliates are subject to examination by the Federal Reserve Board and, in certain
circumstances, other functional regulators. The Corporation’s broker-dealer subsidiary is a member of the Financial
Industry Regulatory Authority (FINRA), is registered with the U.S. Securities and Exchange Commission (SEC) as a
broker-dealer and investment adviser, is registered with the Municipal Securities Rulemaking Board (MSRB) as a
municipal securities dealer, is a member of the NFA and is registered with the CFTC as a commodity trading advisor, and
is subject to the rules and regulations of these bodies. Certain nonbanking affiliates are registered with the CFTC as
commodity trading advisors and commodity pool operators and subject to supervision and regulation by the CFTC and
NFA. Other subsidiaries of the Corporation are registered with the SEC as investment advisers and are subject to regulation
by the SEC. Subsidiaries may also be regulated by state regulators in various states.
THE DODD-FRANK ACT, AS AMENDED
The following items provide a brief description of certain provisions of the Dodd-Frank Wall Street Reform and
Consumer Protection Act (Dodd-Frank Act), as implemented through final rules promulgated by the Federal Reserve
Board and other agencies and amended by the Economic Growth, Regulatory Relief, and Consumer Protection Act (the
Regulatory Relief Act), most relevant to the Corporation and its subsidiaries, including the Bank.
Enhanced Prudential Standards. The Dodd-Frank Act, as implemented by the Federal Reserve Board through various
rulemakings and amended by the Regulatory Relief Act, generally imposes enhanced prudential requirements on U.S. bank
holding companies with at least $100 billion in total consolidated assets, including the Corporation. The enhanced
prudential standards include stringent risk-based capital, leverage, liquidity, risk management, and stress testing
requirements and single counterparty credit limits for large bank holding companies, including the Corporation. The
Federal Reserve Board also has the discretion to require these large U.S. bank holding companies to limit their short-term
debt, to issue contingent capital instruments, and to provide enhanced public disclosures.
In October 2019, the Federal Reserve Board finalized a proposed rule implementing changes made by the Regulatory
Relief Act. This rule introduced a new four-category framework to determine which enhanced prudential standards and
other requirements are applicable to institutions with total consolidated assets of at least $100 billion, based on asset
thresholds and other risk-based factors. Under the new rules, the Corporation is classified as a Category II institution.
The requirements under the new framework that apply to the Corporation are largely unchanged as a result of the
Federal Reserve Board’s final tailoring rule for enhanced prudential standards. The Corporation must submit annual capital
plans to the Federal Reserve Board, conduct supervisory and internal periodic stress tests to evaluate capital adequacy in
adverse economic conditions, maintain enhanced risk management procedures, comply with a liquidity risk management
framework (discussed below in “Liquidity Standards”) and aggregate credit exposure limits, conduct liquidity stress tests,
and hold a buffer of liquid assets estimated to meet funding needs during a financial stress event. The Corporation is not
subject to the total loss-absorbing capacity requirement, capital surcharge, enhanced supplementary leverage ratio, or
aggregate credit exposure limit that apply to U.S. bank holding companies that are global systemically important bank
holding companies.
Resolution Planning. As required by Section 165(d) of the Dodd-Frank Act, the Corporation is required to submit
periodically to regulators a resolution plan for its rapid and orderly resolution in the event of material financial distress or
failure. In addition, under an FDIC rule (the CIDI Resolution Plan Rule) the Bank must submit to the FDIC periodic plans
for resolution in the event of its failure.
On December 15, 2022, the Federal Reserve Board and the FDIC provided joint written feedback to the Corporation
regarding the resolution plan submitted by the Corporation on December 13, 2021, pursuant to Section 165(d) of the Dodd-
Frank Act (the 2021 165(d) Plan). The joint written feedback stated that the Federal Reserve Board and FDIC did not
identify shortcomings or deficiencies in the 2021 165(d) Plan. In it, the FDIC and Federal Reserve Board also confirmed
that the next resolution plan submission required of the Corporation under Section 165(d) of the Dodd-Frank Act (the 2024
165(d) Plan) would be required to be a full plan (as opposed to a targeted plan) and that guidance would be issued to assist
the Corporation in its development of the 2024 165(d) Plan. The 2024 165(d) Plan submission is due to the FDIC and
Federal Reserve Board by July 1, 2024.
In addition, on June 27, 2018, the Bank submitted its resolution plan (the 2018 CIDI Plan) to the FDIC under the CIDI
Resolution Plan Rule. To date, no formal written feedback or guidance has been received regarding the 2018 CIDI Plan.
On January 19, 2021, the FDIC announced that it will resume requiring resolution plan submissions for insured depository
2022 ANNUAL REPORT | NORTHERN TRUST CORPORATION 3
institutions with $100 billion or more in assets. The FDIC announcement indicated that no firm will be required to submit a
resolution plan without at least 12 months advance notice provided to the firm. On August 27, 2021, the Bank received
written notice from the FDIC indicating the next CIDI resolution plan will be due on or before December 1, 2023.
On October 24, 2022, the Federal Reserve Board and FDIC published an advance notice of proposed rulemaking
(ANPR) to seek public input regarding resolution-related resource requirements for large banking organizations, potentially
including the Corporation. Specifically, the agencies are soliciting comments about how appropriately adapted elements of
the resolution-related standards for global systemically important banks (GSIBs)—including a long-term debt requirement
—could be applied to non-GSIB large banking organizations, potentially including the Corporation, as well as whether to
establish separability requirements in the recovery or resolution contexts. The public comment period on this ANPR ran
through January 23, 2023.
Separately, the European Union Bank Recovery and Resolution Directive (BRRD) sets out the framework for the
recovery and resolution of European Union (EU) credit institutions and investment firms, including certain of the Bank’s
subsidiaries and branches. The BRRD establishes a set of harmonized rules for early intervention measures, recovery and
resolution planning, bail-in powers and requirements for total loss absorbing capital for EU institutions, collectively known
as minimum requirements for own funds and eligible liabilities (MREL). The BRRD was materially amended, including
with respect to the MREL requirements, effective as of December 28, 2020. Consequential amendments to the BRRD
following amendments to the Capital Requirements Regulation (575/2013) relating to MREL and total loss absorbing
capacity (TLAC) became effective as of November 14, 2022. Further consequential amendments relating to the indirect
subscription of internal MREL eligible instruments within resolution groups must be made effective by EU member states
by November 15, 2023. Northern Trust Global Services SE, a Luxembourg-incorporated indirect subsidiary of the Bank, is
authorized and supervised by the European Central Bank (ECB) and subject to the prudential supervision of the ECB and
the Luxembourg Commission de Surveillance du Secteur Financier (CSSF). As such, Northern Trust Global Services SE
falls within the scope of the BRRD and its recovery and resolution planning is overseen by the CSSF and the Single
Resolution Board (the resolution authority for ECB-supervised institutions).
The United Kingdom (UK) has established a special resolution regime and a resolvability assessment framework
overseen by the Bank of England (as the UK resolution authority) with many similar features to the BRRD, which was
substantially incorporated into UK law following the withdrawal of the UK from the EU. A revised Prudential Regulation
Authority (PRA) policy on operational continuity in resolution became effective on January 1, 2023, and PRA expectations
on trading activity wind-down will become effective on March 23, 2025. The special resolution regime applies to firms that
are permitted to accept deposits under Part 4A of the Financial Services and Markets Act 2000. As such, the London
branch of the Bank, as a UK branch of a third-country institution that accepts deposits, falls within the scope of the special
resolution regime.
Orderly Liquidation Authority. Under the Dodd-Frank Act, certain financial companies, such as the Corporation and
certain of its covered subsidiaries, can be subjected to an orderly liquidation authority if in default or danger of default and
their resolution under the U.S. Bankruptcy Code would have serious adverse effects on financial stability in the United
States, among other requirements set by statute. If the Corporation were subject to orderly liquidation authority, the FDIC
would be appointed as its receiver, which would give the FDIC considerable powers to resolve the Corporation. Absent
such actions, the Corporation, as a bank holding company, would remain subject to the U.S. Bankruptcy Code.
The Volcker Rule. The Volcker Rule bans proprietary trading subject to exceptions, such as for market-making,
hedging, certain trading activities in U.S. and foreign sovereign debt, and trading activities related to liquidity management.
The Volcker Rule also imposes significant restrictions on sponsoring or investing in certain “covered funds,” such as hedge
funds or private equity funds, again subject to exceptions. Northern Trust maintains an enterprise-wide compliance
program to comply with the Volcker Rule.
Swaps and Other Derivatives. The Dodd-Frank Act imposed a regulatory structure on the over-the-counter derivatives
market, including requirements for clearing, exchange trading, capital, margin, trade reporting, and recordkeeping. The
Dodd-Frank Act also requires certain entities to register as a “major swap participant,” a “swap dealer,” a “major-security-
based swap participant” or a “security-based swap dealer.” The Bank is registered provisionally as a swap dealer and its
swap dealer activities are subject to the CFTC’s and NFA’s rules and regulations, including those regarding internal and
external business conduct standards, transaction reporting and recordkeeping, mandatory clearing for certain swaps, trade
documentation and confirmation requirements, risk management, and cross-border swap activities. The Bank is also subject
to Federal Reserve Board regulations regarding mandatory posting and collection of margin by certain swap counterparties.
The Corporation has not registered and does not expect that it, or any of its affiliates, will be required to register as a
security-based swap dealer with the SEC.
4 2022 ANNUAL REPORT | NORTHERN TRUST CORPORATION
HOLDING COMPANY SUPPORT UNDER THE FEDERAL DEPOSIT INSURANCE ACT
The Dodd-Frank Act amended the Federal Deposit Insurance Act (FDIA) to obligate the Federal Reserve Board to
require bank holding companies, such as the Corporation, to serve as a source of financial and managerial strength for any
subsidiary depository institution. Under this requirement, the Corporation in the future could be required to provide
financial assistance to the Bank should the Bank experience financial distress.
PAYMENT OF DIVIDENDS
The Corporation may pay dividends, repurchase stock, and make other capital distributions only in accordance with
the capital plan rules and capital adequacy standards of the Federal Reserve Board, including the stress capital buffer
requirement, discussed further in “—Capital Adequacy Requirements” below. Dividends from the Bank are a significant
source of funds for the Corporation, and the Corporation’s ability to pay dividends on its common stock therefore depends
in part on the ability of the Bank to pay sufficient dividends to the Corporation.
Various other federal and state laws and regulations limit the amount of dividends that may be paid by the Bank to the
Corporation without regulatory consent. The Bank may not pay any dividends if it is undercapitalized, or if the payment of
the dividend would cause it to become undercapitalized. In general, the amount of dividends that may be paid in a calendar
year is limited to its “recent earnings” (the current year’s net income combined with the retained net income of the two
preceding years), or its “undivided profits” (generally, accumulated net profits that have not been paid out as dividends or
transferred to surplus), whichever is less. The ability of the Bank to pay dividends to the Corporation may also be affected
by the capital adequacy standards applicable to the Bank (discussed further below), which include minimum requirements
and buffers.
CAPITAL PLANNING AND STRESS TESTING
The Corporation’s capital distributions are subject to the Federal Reserve Board’s capital plan rules, which require the
Corporation to submit annual capital plans to the Federal Reserve Board for review.
The major components of that oversight are the Federal Reserve Board’s Comprehensive Capital Analysis and Review
(CCAR) and Dodd-Frank Act stress tests (DFAST). These requirements involve both company-run and supervisory-run
testing of capital under various scenarios, including baseline and severely adverse scenarios provided by the appropriate
banking regulator.
Under the DFAST regulations, the Corporation is required to undergo regulatory stress tests conducted by the Federal
Reserve Board annually. The Bank also is required to conduct its own annual internal stress test (although it is permitted to
combine certain reporting and disclosure of its stress test results with the results of the Corporation). Results from the
Corporation’s and the Bank’s annual company-run stress tests are reported to the appropriate regulators and made publicly
available. Northern Trust published the results of its most recent company-run stress tests on June 23, 2022.
CAPITAL ADEQUACY REQUIREMENTS
The Corporation, as a bank holding company, is subject to risk-based and leverage capital guidelines implemented by
the Federal Reserve Board that are based on industry-standard guidelines published by the International Basel Committee
on Banking Supervision (Basel Committee), known as Basel III. The Bank, as an FDIC-insured depository institution, is
also required to meet risk-based and leverage capital guidelines established by regulators which are generally similar to
those established by the Federal Reserve Board for bank holding companies.
Under the Basel III rules, the Corporation, with the Bank, is a “core” banking organization that is required to use the
advanced approaches methodologies to calculate and disclose publicly its risk-based capital ratios. The Corporation also is
subject to a capital floor that is based on the Basel III standardized approach to calculating risk-based capital ratios. The
Corporation is therefore required to calculate its risk-based capital ratios under both the standardized and advanced
approaches, and is subject to the more stringent of the two in the assessment of its capital adequacy.
2022 ANNUAL REPORT | NORTHERN TRUST CORPORATION 5
The Bank’s risk-based and leverage capital ratios at December 31, 2022, were well above the regulatory requirements
established by U.S. banking regulators. The risk-based and leverage capital ratios for the Corporation and the Bank,
together with the regulatory minimum ratios and the ratios required for classification as “well-capitalized,” are provided in
the following chart.
TABLE 1: RISK-BASED AND LEVERAGE CAPITAL RATIOS AS OF DECEMBER 31, 2022
COMMON EQUITY
TIER 1 CAPITAL
TIER 1 CAPITAL
TOTAL CAPITAL
TIER 1 LEVERAGE
SUPPLEMENTARY
LEVERAGE
STANDARDIZED
APPROACH
ADVANCED
APPROACH
STANDARDIZED
APPROACH
ADVANCED
APPROACH
STANDARDIZED
APPROACH
ADVANCED
APPROACH
STANDARDIZED
APPROACH
ADVANCED
APPROACH
ADVANCED
APPROACH
10.8 %
11.5 %
11.8 %
12.5 %
13.9 %
14.5 %
7.1 %
7.1 %
11.6 %
12.4 %
11.6 %
12.4 %
13.5 %
14.2 %
6.9 %
6.9 %
4.5 %
4.5 %
6.0 %
6.0 %
8.0 %
8.0 %
4.0 %
4.0 %
7.9 %
7.7 %
3.0 %
N/A
N/A
6.0 %
6.0 %
10.0 %
10.0 %
N/A
N/A
N/A
6.5 %
6.5 %
8.0 %
8.0 %
10.0 %
10.0 %
5.0 %
5.0 %
3.0 %
Northern Trust
Corporation
The Northern Trust
Company
Minimum required
ratio
“Well-capitalized”
minimum ratios, as
applicable
Northern Trust
Corporation
The Northern
Trust Company
Advanced approaches institutions, such as the Corporation and the Bank, are subject to a minimum supplementary
leverage ratio of 3.0%. Advanced approaches institutions that are insured depository institutions, such as the Bank, also
must maintain at least a 3.0% supplementary leverage ratio to be considered “well-capitalized.” The Corporation is also
subject to a stress capital buffer, which integrates forward-looking stress test results with non-stress capital requirements,
and the Bank is also subject to a capital conservation buffer, which respectively requires the Corporation and the Bank to
hold a buffer of Common Equity Tier 1 capital above the minimum risk-based capital requirements in order to avoid
constraints on dividends, equity repurchases and compensation. The minimum capital buffer requirement for advanced
approaches banking organizations, such as the Corporation and the Bank, is 2.5%.
A “countercyclical buffer” of 0% to 2.5% of a banking organization’s total risk-weighted assets (RWA) for advanced
approaches banking organizations, such as the Corporation, is also a component of the capital adequacy framework. In
general, the amount of the countercyclical capital buffer is a weighted average of the countercyclical capital buffer
established in the various jurisdictions in which the banking organization has credit exposures. The U.S. countercyclical
buffer is currently set at 0%.
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.
LIQUIDITY STANDARDS
Northern Trust is subject to the U.S. liquidity coverage ratio (LCR) requirement, which is designed to ensure that
covered banking organizations, including the Corporation and the Bank, maintain an adequate level of unencumbered high-
quality liquid assets equal to their expected net cash outflow for a 30-day time horizon under a prescribed regulatory
liquidity stress scenario. As of December 31, 2022, the Corporation and the Bank were in compliance with applicable LCR
requirements.
Northern Trust also is subject to the U.S. net stable funding ratio (NSFR) requirement, designed to promote more
medium- and long-term funding of the assets and activities of banking entities over a one-year time horizon. As of
December 31, 2022, the Corporation and the Bank were in compliance with applicable NSFR requirements.
The enhanced prudential standards imposed by the Dodd-Frank Act, as amended by the Regulatory Relief Act, specify
certain required liquidity risk management practices for large bank holding companies and banks. The Federal Reserve
Board’s October 2019 final tailoring rule targets certain aspects of these requirements based on banking organizations’
business model and risk profile, as delineated into four risk-based categories. The Corporation, a Category II institution
under the final tailoring rule, is subject to the liquidity risk management, monthly liquidity stress testing, liquidity buffer,
and daily liquidity reporting requirements.
6 2022 ANNUAL REPORT | NORTHERN TRUST CORPORATION
PROMPT CORRECTIVE ACTION
Federal banking regulators are required to take “prompt corrective action” with respect to a depository institution if
that institution does not meet certain capital adequacy standards, and are also authorized to take appropriate action against a
parent bank holding company of an under-capitalized banking subsidiary. In certain instances, the Corporation could be
required to guarantee the performance of a capital restoration plan for the Bank if it were under-capitalized.
RESTRICTIONS ON TRANSACTIONS WITH AFFILIATES
The Bank is subject to restrictions governing transactions between it and affiliated entities, including the Corporation,
its affiliates, and its subsidiaries. These transactions must be on terms and conditions that are, or in good faith would be,
offered to nonaffiliated companies (i.e., on terms not less favorable to the Bank than market terms). Further, extensions of
credit must be secured fully with qualifying collateral and are limited to 10% of the Bank’s capital and surplus for
transactions with a single affiliate and to 20% of the Bank’s capital and surplus for transactions with all affiliates.
ANTI-MONEY LAUNDERING, ANTI-TERRORISM LEGISLATION, AND OFFICE OF FOREIGN ASSETS CONTROL
The Corporation and certain of its subsidiaries are subject to the Bank Secrecy Act of 1970, as amended by the USA
PATRIOT Act of 2001 and implemented in the regulation of the federal banking regulators and Financial Crimes
Enforcement Network (FinCEN), which contain anti-money laundering (AML) and financial transparency requirements for
conducting due diligence, verifying client and beneficial owner identification, and monitoring client transactions and
detecting and reporting suspicious activities. AML laws outside the United States contain similar requirements.
On September 30, 2022, FinCEN issued a final rule implementing one of three rulemakings planned in connection
with the Corporate Transparency Act, which imposes new beneficial ownership information reporting requirements
(Beneficial Ownership Reporting Rule). In order to comply with the Beneficial Ownership Reporting Rule, both domestic
reporting companies and foreign reporting companies registered to do business in the United States generally will be
required to report information regarding themselves, their beneficial owners, and their company applicants. The Beneficial
Ownership Reporting Rule will be effective January 1, 2024 and may affect certain companies that the Corporation invests
in, manages, or does business with. Additionally, on December 16, 2022, FinCEN published a Notice of Proposed
Rulemaking for its second set of rulemakings in connection with the Corporate Transparency Act, which addresses how
authorized recipients can access beneficial ownership information that will be reported to FinCEN and may affect certain
activities conducted by the Bank. The public comment period on this proposal ended on February 14, 2023.
Various legal requirements prohibit Northern Trust entities from engaging in business in or with certain jurisdictions
and parties, such as organizations and countries suspected of aiding, harboring or engaging in terrorist acts or undermining
the sovereignty and territorial integrity of democratic countries. The U.S. Department of the Treasury’s Office of Foreign
Assets Control publishes lists of these prohibited parties. If the Corporation or the Bank finds a sanctioned name or
jurisdiction on any transaction, asset or account, the Corporation or the Bank must reject or block such account or
transaction and notify the appropriate authorities.
Failure to comply with these requirements could result in fines, penalties, lawsuits, regulatory sanctions or difficulties
in obtaining approvals, restrictions on their business activities or harm to reputation. Many other countries have imposed
similar laws and regulations that apply to the Corporation’s non-U.S. offices. The Corporation has established policies and
procedures to comply with these laws and the related regulations.
DEPOSIT INSURANCE AND ASSESSMENTS
The Bank accepts deposits and eligible deposits have the benefit of FDIC insurance up to the applicable limit, which is
currently $250,000 for each depositor account. Under the FDIA, insurance of deposits may be terminated by the FDIC
upon a finding that the insured depository institution has engaged in unsafe and unsound practices, is in an unsafe or
unsound condition, or has violated laws, regulations, or orders from a regulatory agency. Certain liquid assets are excluded
from the deposit insurance assessment base of custody banks that satisfy certain institutional eligibility criteria. This has the
effect of reducing the amount of deposit insurance fund insurance premiums payable by custody banks. The Bank qualifies
as a custody bank for this purpose.
COMMUNITY REINVESTMENT ACT
The Bank is subject to the Community Reinvestment Act (CRA). The CRA and the regulations issued thereunder are
intended to encourage banks to help meet the credit needs of their service areas, including low and moderate income
neighborhoods, consistent with the safe and sound operations of the banks. The Bank fulfills its CRA obligations by
making qualified investments for the purposes of community development. The Bank received an “outstanding” CRA
rating from the Federal Reserve Board in its most recent CRA examination.
2022 ANNUAL REPORT | NORTHERN TRUST CORPORATION 7
PRIVACY AND SECURITY
Federal law establishes a minimum federal standard of financial privacy by, among other provisions, requiring
financial institutions to adopt, disclose, and enforce privacy policies with respect to consumer information, setting
limitations on disclosure to third parties of consumer information, setting standards for protecting client information and
preventing unlawful access to such information, and requiring notice of data breaches in certain circumstances.
Most states, the EU and other non-U.S. jurisdictions also have adopted their own statutes and/or regulations
concerning data privacy and security and requiring notification of data breaches―for example, the General Data Protection
Regulation (GDPR) in Europe, the Personal Information Protection Law (PIPL) in China, and the California Consumer
Privacy Act (CCPA) and California Privacy Rights Act (CPRA) in the United States. GDPR, a European data protection
framework, was adopted on April 8, 2016, and became effective in all European Economic Area (EEA) member states on
May 25, 2018. GDPR is designed to harmonize data privacy laws across the EEA, to protect EEA citizens’ data privacy
and to reshape the way organizations across the region approach data privacy. GDPR has extraterritorial effect as its scope
includes all data controllers and processors outside the EEA whose processing activities relate to the offering of goods or
services to, or monitoring the behavior of, EEA individuals. Organizations that violate certain provisions of GDPR could
be fined up to €20 million or 4% of their annual worldwide revenue for the preceding fiscal year, whichever is greater.
GDPR also has been implemented into UK law as part of the arrangements following the UK’s withdrawal from the EU
and operates in conjunction with other local data privacy requirements.
In the United States, the CCPA was adopted by the State of California and became effective January 1, 2020. The
CCPA substantially increased the rights of California residents to understand how their personal data is collected and used
by commercial businesses. The CCPA includes a private right of action (permitting lawsuits to be brought by private
individuals instead of the state Attorney General or other government actor for breaches), and contemplates civil penalties
of up to $2,500 for each violation and up to $7,500 for each intentional violation. On November 3, 2020, the CPRA, which
amends and supersedes portions of the CCPA, was approved by a majority of California voters. Among other changes, the
CPRA establishes the California Privacy Protection Agency to administer, implement, and enforce the CCPA and CPRA.
The CPRA took effect on January 1, 2023, and applies to personal information collected on or after January 1, 2022. On
July 8, 2022, the California Privacy Protection Agency commenced the formal rulemaking process to adopt regulations to
implement the CPRA and published a Notice of Modifications to Text of Proposed Regulations in November 2022. The
regulations did not come into effect prior to the CPRA’s effective date, with a statement by the California Privacy
Protection Agency that the earliest proposed regulations could be in effect is April 2023. The proposed regulations would
(1) update existing CCPA regulations to harmonize them with CPRA amendments to the CCPA; (2) operationalize new
rights and concepts introduced by the CPRA to provide clarity and specificity to implement the law; and (3) reorganize and
consolidate requirements set forth in the law to make the regulations easier to follow and understand. Final regulations are
expected to be issued in early 2023.
The Corporation has adopted and disseminated privacy policies and communicates required information relating to
financial privacy and data security in accordance with applicable law.
CONSUMER LAWS AND REGULATIONS
The Corporation’s banking subsidiaries are subject to certain federal and state laws and regulations designed to protect
consumers in transactions with banks. Failure to comply with these laws and regulations could lead to substantial penalties,
operating restrictions and reputational damage to the financial institution. Consumer laws and regulations are enforced by
the Consumer Financial Protection Bureau (CFPB) and other federal and state regulators.
NON-U.S. REGULATION
Northern Trust is subject to the laws and regulatory authorities of the jurisdictions in which its non-U.S. branches and
subsidiaries operate. For example, the Bank is licensed as a foreign authorized deposit-taking institution in Australia under
the Banking Act (Australia) and as a wholesale bank in Singapore under the Banking Act (Singapore) and as a result is
subject to the supervision of the Australian Prudential Regulation Authority and the Monetary Authority of Singapore,
respectively. Additionally, branches and subsidiaries conducting banking and asset servicing businesses in the UK are
authorized to do so pursuant to the UK Financial Services and Markets Act 2000. They are authorized by the PRA and/or
the Financial Conduct Authority (FCA). The PRA and FCA exercise broad supervisory and disciplinary powers that
include the power to revoke temporarily or permanently authorization to conduct a regulated business upon breach of the
relevant regulations, impose capital requirements, suspend registered employees, and impose censures and fines on both
regulated businesses and their regulated employees.
Northern Trust’s European branches and subsidiaries are subject to the laws and regulatory authorities of the EU and
the member states in which they are domiciled. For example, Northern Trust Global Services SE, as an EU-domiciled
credit institution in Luxembourg, is subject to the prudential supervision of the ECB and the CSSF. Moreover, Northern
Trust’s non-EU branches and subsidiaries conducting financial services activities in the EU may fall within the scope of the
8 2022 ANNUAL REPORT | NORTHERN TRUST CORPORATION
laws of the EU and, given the increasing extraterritorial effect of EU legislation, non-EU branches and subsidiaries may
still fall within the scope of EU law if they transact outside of the EU with EU clients.
Since January 31, 2020, the UK has not been a member of the EU. EU legislation as it applied to the UK on December
31, 2020 is a part of UK domestic legislation, under the control of the UK’s parliament and assemblies. Most UK law
relevant to the Corporation and its subsidiaries is still closely aligned with the EU legislative framework in place in
December 2020. However, in 2022, the UK government proposed significant reforms to the UK’s financial services
regulations. The Financial Services and Markets Bill 2022-23 includes measures revoking retained EU law relating to
financial services. In addition, the UK government announced a package of post-Brexit reforms to drive growth and
competitiveness in the financial services sector. These legislative proposals may directly and indirectly impact the
Corporation.
The following items provide a brief description of certain key regulatory requirements in the EU and the UK relevant
to the Corporation and its subsidiaries, in addition to the BRRD and GDPR discussed under “The Dodd-Frank Act, as
Amended—Resolution Planning” and “Privacy and Security,” respectively, above.
EU and UK Prudential Regulatory Frameworks. The EU Capital Requirements Directive of June 26, 2013 (CRD)
and the EU Capital Requirements Regulation of June 26, 2013 (CRR) set out the framework for prudential regulation of
credit institutions in the EU, including, among other things, capital and liquidity requirements, leverage, and disclosure and
reporting. CRR and CRD have been subject to extensive amendments by a new directive (CRD V) and the revised CRR
(CRR II). CRD V and CRR II entered into force on June 27, 2019. CRD V has largely applied since December 29, 2020,
and CRD II has largely applied since June 28, 2021. The key changes introduced by CRD V and CRR II include changes to
the requirements for the leverage ratio, the net stable funding ratio, large exposures, and market and counterparty credit
risk. On October 27, 2021, the European Commission adopted legislative proposals to reform CRD V and CRR II (also
known as CRD VI and CRR III, respectively). The measures are designed to ensure that EU banks become more resilient
to potential future economic shocks, while contributing to Europe’s recovery from the COVID-19 pandemic and the
transition to climate neutrality. The package finalizes the implementation of the Basel III agreement in the EU. On
November 8, 2022, the Council of the EU reached its position (i.e. general approach) on the proposals amending CRD V
and CRR II. Consequential amendments to the BRRD will also become effective on a staggered basis. For more
information on the EU BRRD, see “Supervision and Regulation―Resolution Planning.” Since June 26, 2021, investment
firms under the Markets in Financial Instruments Directive (MIFID) have been subject to a new prudential regime under
the EU Investment Firm Directive and Investment Firm Regulation. In April 2021, the Financial Services Act came into
force in the UK establishing among other things, (i) a framework for the new investment firm prudential framework to
apply in the UK and (ii) the UK implementation of Basel III standards, including amendments to CRR implemented into
the UK following the withdrawal from the EU. UK and EU branches and subsidiaries of the Corporation may also be
subject to local rules on outsourcing and operational resilience.
Markets Regulation. MIFID (which came into force in 2018), the linked Markets in Financial Instruments Regulation
(MIFIR), and the European Market Infrastructure Regulation 648/2012 (EMIR) are the primary pieces of EU legislation
which regulate, among other things, trading in derivative and securities markets, transaction reporting, investor protection,
clearing and risk mitigation. MIFID, MIFIR and EMIR, with applicable amendments, now form part of UK law under the
legislation implemented when the UK left the EU. Reforms to the onshored version of MIFIR have been proposed in the
UK Financial Services and Markets Bill 2022-23. The reforms, if implemented, will impact, among other things, the share
trading obligation and derivatives trading obligation.
Central Securities Depositories Regulation. On September 17, 2014, the EU Central Securities Depositories
Regulation (CSDR) entered into force (subject to a number of transitional provisions). The CSDR aims principally to
ensure that transactions between buyers and sellers of dematerialized securities are settled in a safe and timely manner by
introducing common securities settlement standards across the EU. Key features of the CSDR include shorter settlement
periods, settlement discipline measures (including mandatory cash penalties and “buy-ins” for settlement fails and
settlement fails reporting) and an obligation regarding dematerialization for most securities. In March 2022, the European
Commission published a legislative proposal for amendments to the CSDR. The proposals include amendments to the
settlement discipline regime, cooperation between competent authorities and relevant authorities, wind-down of central
securities depositories (CSDs), review and evaluation of CSDs, passporting and third-country CSDs. In October 2022, EU
legislators announced a delay to the implementation of the CSDR mandatory buy-in rules under the settlement discipline
regime until November 2, 2025. The Financial Services and Markets Bill 2022-23 includes draft amendments to the
Financial Services and Markets Act of 2000 which will revise the onshored EU regime applying to CSDs.
Securities Financing Transactions and Reuse of Collateral Regulation. On November 25, 2015, the EU adopted a
regulation on securities financing transactions and reuse of collateral (SFTR) as part of its approach to addressing shadow
banking. The regulation includes provisions for enhanced transparency and reporting of securities financing transactions.
2022 ANNUAL REPORT | NORTHERN TRUST CORPORATION 9
The SFTR entered into force on January 12, 2016. The reporting obligations under the SFTR were phased in over several
periods through January 11, 2021.
UK Criminal Finances Act. On September 30, 2017, the UK Criminal Finances Act (CFA) entered into force. The
CFA has extra-territorial effect, introducing certain new corporate criminal offenses in circumstances where a corporate
entity or partnership (a relevant body) fails to prevent an “associated person” (broadly meaning an employee, agent or
person who performs services for or on behalf of the relevant body) from criminally facilitating the evasion of tax, whether
the tax evaded is owed (i) in the UK or (ii) in a foreign country if the relevant body has a nexus, or any conduct
constituting part of the foreign tax evasion facilitation offense takes place, in the UK. These corporate offenses are strict
liability offenses, such that in circumstances where an associated person of a relevant body criminally facilitates the
evasion of tax and such relevant body has failed to prevent the associated person from committing such criminal facilitation
of tax evasion, the relevant body will itself be guilty of a criminal offense carrying unlimited fines, unless it can show that
it put in place reasonable prevention procedures (or by showing that it was not reasonable in all the circumstances to expect
the relevant body to have any prevention procedures in place).
Benchmarks Regulation. On January 1, 2018, the EU Benchmarks Regulation (BMR) became applicable in all EU
member states. The principal objectives of the BMR are to restore investor confidence in the accuracy, robustness and
integrity of indices used as benchmarks in financial instruments and financial contracts or to measure the performance of
investment funds, and the benchmark-setting process itself. The BMR aims to achieve these objectives by ensuring that
benchmarks are not subject to conflicts of interest, are used appropriately, and reflect the actual market or economic reality
they are intended to measure. BMR has been incorporated into UK law following the withdrawal from the EU, with
applicable amendments. In 2017, the FCA and the Bank of England’s Financial Policy Committee raised questions about
the future sustainability of the London Interbank Offered Rate (LIBOR) benchmarks and began planning the transition to
alternative reference rates beginning December 31, 2021. The UK and EU legislators have each taken legislative steps to
manage the transition from LIBOR. In the UK, the FCA has exercised powers under the BMR to effect the publication of a
synthetic LIBOR rate for one-month, three-month and six-month sterling and U.S. Dollar LIBOR (USD LIBOR) beyond
their respective dates of cessation. In December 2021, the Critical Benchmarks (References and Administrators’ Liability)
Act 2021 was passed in the UK. That legislation includes “safe harbor” provisions to mitigate certain litigation risks
associated with contractual continuity following the transition to synthetic LIBOR.
Sustainable Finance Disclosure Regulations. On December 29, 2019, the EU Sustainable Finance Disclosure
Regulations (SFDR) entered into force. SFDR aims to prevent “greenwashing” (conveying a misleading or false
impression a product is more environmentally favorable than it actually is) by requiring disclosure of how sustainability
risks and environmental, social and governance (ESG) factors are part of the investment and business processes of asset
managers. Mandatory disclosures are required to be published at product and manager levels in a variety of ways, including
on websites, in pre-contractual documents (e.g. prospectuses) and in annual reports. Certain significant provisions apply
since March 10, 2021. In October 2021, the UK government announced that it will launch its own consultation with
stakeholders on sustainable finance disclosures rules for certain UK market participants and certain investment products.
On October 25, 2022, the FCA issued a consultation paper on new measures for a UK regime on sustainability disclosure
requirements and investment labels. The new measures are expected to be finalized in 2023.
Taxonomy Regulation. On July 12, 2020, Regulation (EU) 2020/852 (Taxonomy Regulations) entered into force. The
Taxonomy Regulations are part of the EU’s recent measures designed to encourage environmentally sustainable investment
decision making and introduce a technical framework to ascertain how sustainable an economic activity is. The Taxonomy
Regulations apply to financial market participants including MiFID firms, Undertakings for the Collective Investment in
Transferable Securities (UCITS) management companies, and alternative investment fund managers, and will require them
to make further entity, pre-contractual and periodic disclosures. The UK government is in the process of implementing its
own “green” taxonomy for guiding companies and investors on “green” investments, similar to the EU regime, and intends
to release an update on the new measures as part of its publication of the Green Finance Strategy in early 2023.
Deposit Guarantee Scheme. Eligible deposits held with EU credit institutions and certain other financial entities are
subject to the recast Deposit Guarantee Schemes Directive (DGSD) implemented in 2014. It required EU member states to
introduce legislation establishing at least one deposit guarantee scheme (DGS). A DGS which is established and recognized
in one member state is obliged to cover the depositors (up to certain prescribed amounts) at branches of the same institution
in other EU member states. In the UK, the Financial Services Compensation Scheme is the national DGS for the protection
and reimbursement of depositors of failed financial institutions.
Fifth EU Money Laundering Directive. On July 9, 2018, the Fifth EU Money Laundering Directive (MLD5) entered
into force. MLD5 was required to be transposed into local law by EU member states by January 10, 2020 and introduced
the following key changes to the previous EU AML regime: (i) EU member states must ensure that registers of ultimate
beneficial owners of companies and other legal entities are accessible to the general public; (ii) the previous AML regime
was extended to additional service providers, such as electronic wallet providers, virtual currency exchange service
providers, and art dealers, and further specifications regarding the scope of application of MLD5 with respect to tax
10 2022 ANNUAL REPORT | NORTHERN TRUST CORPORATION
advisors and estate agents were provided; (iii) the threshold for identifying holders of prepaid cards was lowered to €150;
and (iv) EU member states were required to implement enhanced due diligence measures to monitor suspicious transactions
involving high-risk countries more strictly. In May 2018, the UK’s Sanctions and Anti-Money Laundering Act came into
force. The UK government transposed MLD5 into UK law and, therefore, the UK anti-money laundering regime is
currently broadly aligned with the EU. On December 7, 2022, the Council of the EU agreed its position on AML regulation
through the Sixth EU Money Laundering Directive. The new rules will extend to, among other items, the entire crypto-
asset sector, third-party intermediaries, persons trading in precious metals, precious stones and cultural goods. The new
measures include limiting of cash payments, EU listing of third countries listed by the Financial Action Task Force, making
beneficial ownership rules more transparent and harmonized, the clarification of outsourcing provisions and the powers of
supervisors and improved cooperation among authorities.
Shareholder Rights Directive. On May 17, 2017, the recast Shareholder Rights Directive (EU) 2017/828 was
published (SRD II). Member states of the EU were required to bring into force the laws, regulations and administrative
provisions necessary to comply with the Directive by June 10, 2019. SRD was designed to establish requirements in
relation to the exercise of shareholder rights and, recognizing that shares are often held through complex chains of
intermediaries, SRD II is designed to improve mechanisms for the identification of shareholders by companies, as well as
improve the transmission of information along the chain of intermediaries to facilitate the exercise of shareholder rights.
Non-EU intermediaries are required to comply with the requirements if they provide services with respect to shares of
companies that have their registered office in the EU. The Commission Implementing Regulation (EU) 2018/1212 of
September 3, 2018 set out minimum requirements for implementing SRD II, which have applied since September 3, 2020.
SRD II has been incorporated into UK law and remains largely aligned with the EU.
Depositary Books & Records. Following the European Securities and Markets Authority’s opinion on asset
segregation and application of depositary delegation rules to CSDs published on July 20, 2017, changes were introduced by
two EU regulations modifying the existing Alternative Investment Fund Managers Directive (AIFMD) and UCITS Level 2
Regulations: Commission Delegated Regulation (EU) No 2018/1618 relating to the safe-keeping duties of depositaries of
alternative investment funds and Commission Delegated Regulation (EU) No 2018/1619 relating to the safe-keeping duties
of depositaries of UCITS. The changes aim to better define asset segregation requirements and to add additional
safeguards, primarily focusing on information flow between the depositary and any third party to whom safe-keeping
functions have been delegated. The key changes (i) impact the frequency of reconciliations between the depositary’s
internal accounts and records and those of any third party in the custody chain, (ii) require the depositary to maintain an
independent record separate from the record maintained by the third party, and (iii) increase due diligence obligations
where custody of assets is delegated to third parties outside of the EU. AIFMD and the UCITS directive were incorporated
into UK law and remain largely aligned with the EU. The regulations became effective as of April 1, 2020. The changes
impact Northern Trust’s subsidiaries providing depositary services to European-domiciled fund clients.
In addition to the above, the Bank’s and the Corporation’s subsidiary banks located outside the United States are subject to
regulatory capital requirements in the jurisdictions in which they operate. As of December 31, 2022, each of our non-U.S.
banking subsidiaries had capital ratios above their specified minimum requirements.
Human Capital Management
The success of our company relies heavily on the strength of the people we employ. Attracting, engaging, developing and
retaining Northern Trust talent is critical. We invest in our employees holistically to continually build a diverse pipeline of
future leaders and enable internal professional advancement. The overview below outlines Northern Trust’s human capital
objectives—talent management, total rewards, and diversity, equity and inclusion.
EMPLOYEES
Northern Trust employed approximately 23,600 full-time equivalent employees as of December 31, 2022. The regional
breakout of our employee base is 42% North America, 42% Asia-Pacific, and 16% Europe, Middle East, and Africa.
TALENT ACQUISITION, DEVELOPMENT, AND MANAGEMENT
We pride ourselves in attracting strong talent and have identified the development of our talent as a strategic priority.
Our focus on well-being, diversity, and a culture of trust, care and collaboration contribute to our employer brand.
Sourcing and Recruitment. We target our talent identification, sourcing methods, and recruitment strategies to specific
locations using various channels such as job boards, colleges, professional networks, associations and online social
networks. We base hiring decisions on a variety of factors including relevant experience and accomplishments, educational
background, professional licensing, and strong evidence of integrity and ethical behavior.
Onboarding. Northern Trust is committed to helping all new hires succeed from day one. New employees begin their
onboarding journey with a comprehensive learning roadmap that orients them to our history, brand, businesses, and
2022 ANNUAL REPORT | NORTHERN TRUST CORPORATION 11
culture. Orientation programs also augment the onboarding experience by providing global, regional, and/or local
information along with networking activities to help connect new hires to each other and other colleagues.
Learning and Development. An integrated partnership between our enterprise-wide and functional learning and
development teams ensures we deliver holistic training solutions. Through our online learning portal, Northern Trust
University, all employees can access a portfolio of professional and functional training offerings most helpful to their role.
We provide targeted development opportunities for employees transitioning into management and throughout their
management and leadership career. Our training content is dynamic as we regularly evaluate its quality and utilization and
we refresh and organize courses and resources to enable employees to develop skills most critical to servicing our clients
and developing their careers. An emerging area of focus is helping expand digital, analytical and financial acumen and
skills across the enterprise. Many of our programs are interactive, include peer networking, and offer direct access to expert
facilitators. Training is offered through online libraries of self-study content and in both virtual and classroom instructor-led
formats.
Talent Planning and Organizational Effectiveness. Northern Trust is committed to identifying and developing talent
with the breadth, depth, and diversity of technical and leadership skills to execute business strategies today and in the
future. Managers conduct talent assessments for employees annually and business and regional leadership teams hold
regular talent review discussions focused on specific topics, such as workforce needs, retention risks, diversity, top talent,
readiness for promotion, readiness-to-move, and succession plans. Senior level talent reviews are also conducted each year
by our senior management and Board of Directors, led by our Chairman and Chief Executive Officer and Chief Human
Resources Officer.
Performance Management. Northern Trust’s annual performance management process includes goal setting, mid-year
check-ins, multi-rater feedback, and year-end reviews. Strategic corporate priorities are set by our Chairman and Chief
Executive Officer and are applied to each business, department, team and individual. Managers are encouraged to provide
regular feedback and real-time coaching to drive performance outcomes and facilitate development.
Engagement and Recognition. Building an inclusive, connected and engaged employee culture is essential to
retaining our talent. We collect employee perspectives and ideas through an annual Employee Engagement Survey. Results
are evaluated to identify strengths, progress, and opportunities to strengthen employee engagement, and are shared with
employees and the Board of Directors. We also offer an online employee recognition platform that strengthens the unity
that binds us as a company and connects employees in new and meaningful ways.
TOTAL REWARDS
Our compensation and benefit programs are designed to be market-competitive and enable us to attract and retain
talent to deliver on Northern Trust’s strategy.
Compensation Programs. Our compensation programs are intended to motivate our employees to deliver the highest-
quality service to our clients and achieve the greatest collective business results while appropriately managing risk. They
are designed, implemented, and communicated to promote behaviors that are consistent with Northern Trust’s desired
culture, character and enduring values of service, expertise, and integrity. We also regularly review our compensation
processes and programs and take appropriate measures to ensure we can attract and retain talent in relevant markets.
Northern Trust’s base salary programs provide a competitive level of fixed pay reflecting each employee’s position,
experience, qualifications and tenure. Additionally, all employees are eligible for incentive compensation to reward
performance that delivers strong team or individual results. Incentive compensation is linked to both financial and non-
financial performance criteria, including risk considerations, as determined by our Board of Directors and senior
management. Select senior leaders and individual contributors may receive a percentage of their incentive in Northern
Trust stock to encourage retention of key talent and to align rewards with company performance.
Employee Benefits. While the exact composition of the employee benefit package varies by country, our benefit
programs are designed to be locally competitive, to meet the needs of our employees and their families, and to reflect the
cultural values of the organization. Typical benefit programs include retirement, health care, paid time off, income
protection such as disability and life insurance, leaves of absence, and access to our Employee Assistance Program. Our
expanded employee well-being programs and resources focus on how to manage stress, build resiliency, and be attuned to
mental health issues; accessing flexible or voluntary benefits; and enhancements to various parental leave offerings.
DIVERSITY, EQUITY, AND INCLUSION (DE&I)
Northern Trust embraces the benefits of diversity, equity and inclusion and strives to create a work environment in
which all individuals are welcomed, respected, supported, and valued so that they can fully participate in, and contribute to,
our success and the success of our stakeholders.
Embedding DE&I. Our DE&I strategy is designed to develop a diverse, equitable, and inclusive workplace that
represents a broad range of perspectives, attributes, experiences and backgrounds. Our Board of Directors, through its
Human Capital and Compensation Committee, engages in active oversight of our DE&I strategies, programs, and
principles. Our Head of Corporate Sustainability, Inclusion and Social Impact serves as an Executive Vice President, and
12 2022 ANNUAL REPORT | NORTHERN TRUST CORPORATION
reports directly to our Chairman and Chief Executive Officer. The following table presents the gender and ethnic diversity
of our Board of Directors and executive officers.
TABLE 2: BOARD OF DIRECTORS AND EXECUTIVE OFFICERS REPRESENTATION
Board of Directors
Executive Officers
DECEMBER 31, 2022
FEMALE
MALE
WHITE
BLACK
HISPANIC
ASIAN
25%
40%
75%
60%
59%
90%
25%
10%
8%
—%
8%
—%
As of December 31, 2022, our global employees were 46% female and 54% male, and 40% of our U.S. employees
identified as a member of an underrepresented race or ethnicity.
Progress and Accountability. We utilize a global DE&I dashboard to track the organization’s progress and integrate
these metrics as part of our overall corporate strategy and goals. To drive accountability for increasing diverse
representation across the organization, we measure representation in three contexts: hiring, retention and promotion. Each
business unit evaluates this data and acts as needed to improve overall diversity within its organization. Our executive
leaders report their progress through the DE&I Executive Council co-chaired by our Chairman and Chief Executive Officer
and our Head of Corporate Sustainability, Inclusion and Social Impact. Our Global Executive DE&I Council is responsible
for providing strategic oversight and defining and driving accountability on the global DE&I priorities.
Available Information
Through the Corporation’s website at www.northerntrust.com, the Corporation makes available free of charge its Annual
Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and all other reports and all
amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934,
as amended (Exchange Act), as soon as reasonably practicable after it files such material with, or furnishes such material
to, the SEC. The contents of the Corporation’s website, the website of the SEC or any other website referenced herein are
not a part of this Annual Report on Form 10-K.
ITEM 1A - RISK FACTORS
In the normal course of our business activities, we are exposed to a variety of risks. The following discussion sets forth the
risk factors that we have identified as being most significant to Northern Trust. Although we discuss these risk factors
primarily in the context of their potential effects on our business, financial condition or results of operations, you should
understand that these effects can have further negative implications such as: reducing the price of our common stock and
other securities; reducing our capital, which can have regulatory and other consequences; affecting the confidence that
clients, counterparties and/or applicable regulators have in us, with a resulting negative effect on our ability to conduct and
grow our businesses; and reducing the attractiveness of our securities to rating agencies and potential purchasers, which
may affect adversely our ability to raise capital and secure other funding or the cost at which we are able to do so.
Additional risks beyond those discussed below, elsewhere in this Annual Report on Form 10-K or in other of our reports
filed with, or furnished to, the SEC also could affect us adversely. Further, we cannot assure you that the risk factors herein
or elsewhere in our other reports address all potential risks that we may face and you should not interpret discussion of any
risk to imply that such risk has not already materialized.
These risk factors also serve to describe factors which may cause our results to differ materially from those described
in forward-looking statements included herein or in other documents or statements that make reference to this Annual
Report on Form 10-K. Forward-looking statements and other factors that may affect future results are discussed under
“Forward-Looking Statements” included in Item 7, “Management’s Discussion and Analysis of Financial Condition and
Results of Operations.”
2022 ANNUAL REPORT | NORTHERN TRUST CORPORATION 13
Summary
Our business, financial condition or results of operations may be materially and adversely affected by various risk types
and considerations, including market risks, operational risks, credit risks, liquidity risks, regulatory and legal risks, strategic
risks, and other risks, including as a result of the following:
Market Risks
• We are dependent on fee-based business for a majority of our revenues, which may be affected adversely by
market volatility, a downturn in economic conditions, underperformance and/or negative trends in investment
preferences.
Changes in interest rates can affect our earnings negatively.
Changes in the monetary, trade and other policies of various regulatory authorities, central banks, governments
and international agencies may reduce our earnings and affect our growth prospects negatively.
•
•
• Macroeconomic conditions and uncertainty in the global economy, including the financial stability of various
regions or countries across the globe, including the risk of defaults on sovereign debt and related stresses on
financial markets, could have a significant adverse effect on our earnings.
Declines in the value of securities held in our investment portfolio can affect us negatively.
Volatility levels and fluctuations in foreign currency exchange rates may affect our earnings.
Changes in a number of particular market conditions can affect our earnings negatively.
•
•
•
Operational Risks
•
•
•
• Many types of operational risks can affect our earnings negatively.
•
Failures of, or disruptions to, our technological systems or breaches of our security measures, including, but not
limited to, those resulting from cyber-attacks, may result in losses.
Errors, breakdowns in controls or other mistakes in the provision of services to clients or in carrying out
transactions for our own account can subject us to liability, result in losses or have a negative effect on our
earnings in other ways.
Our dependence on technology, and the need to update frequently our technology infrastructure, exposes us to
risks that also can result in losses.
A failure or circumvention of our controls and procedures could have a material adverse effect on our business,
financial condition and results of operations.
Failure of any of our third-party vendors (or their vendors) to perform can result in losses.
•
• We are subject to certain risks inherent in operating globally which may affect our business adversely.
•
•
Failure to control our costs and expenses adequately could affect our earnings negatively.
Pandemics, natural disasters, global climate change, acts of terrorism, geopolitical tensions, and global conflicts
may have a negative impact on our business and operations.
Credit Risks
•
Failure to evaluate accurately the prospects for repayment when we extend credit or maintain an adequate
allowance for credit losses can result in losses or the need to make additional provisions for credit losses, both of
which reduce our earnings.
• Market volatility and/or weak economic conditions can result in losses or the need for additional provisions for
•
•
credit losses, both of which reduce our earnings.
The failure or perceived weakness of any of our significant counterparties could expose us to loss.
The transition away from LIBOR or changes in the method pursuant to which other interest rate benchmarks are
determined could adversely impact our business and results of operations.
Liquidity Risks
•
•
If we do not manage our liquidity effectively, our business could suffer.
If the Bank is unable to supply the Corporation with funds over time, the Corporation could be unable to meet its
various obligations.
• We may need to raise additional capital in the future, which may not be available to us or may only be available
•
on unfavorable terms.
Any downgrades in our credit ratings, or an actual or perceived reduction in our financial strength, could affect
our borrowing costs, capital costs and liquidity adversely.
14 2022 ANNUAL REPORT | NORTHERN TRUST CORPORATION
Regulatory and Legal Risks
•
•
Failure to comply with regulations and/or supervisory expectations can result in penalties and regulatory
constraints that restrict our ability to grow or even conduct our business, or that reduce earnings.
Changes by the U.S. and other governments to laws, regulations and policies applicable to the financial services
industry may heighten the challenges we face and make regulatory compliance more difficult and costly.
• We may be impacted adversely by claims or litigation, including claims or litigation relating to our fiduciary
responsibilities.
• We may be impacted adversely by supervisory and/or regulatory enforcement matters.
• We may fail to set aside adequate reserves for, or otherwise underestimate our liability relating to, pending and
•
•
threatened claims, with a negative effect on our earnings.
The ultimate impact on us of the United Kingdom’s withdrawal from the European Union remains uncertain.
If we fail to comply with legal standards, we could incur liability to our clients or lose clients, which could affect
our earnings negatively.
Strategic Risks
•
•
If we are not able to attract, retain and motivate personnel, our business could be negatively affected.
Our operations, businesses and clients could be materially adversely affected by the effects of climate change or
concerns related thereto.
If we do not develop and execute strategic plans successfully, our growth may be impacted negatively.
•
• We are subject to intense competition in all aspects of our businesses, which could have a negative effect on our
•
ability to maintain satisfactory prices and grow our earnings.
Damage to our reputation could have a direct and negative effect on our ability to compete, grow and generate
revenue.
• We need to invest in innovation constantly, and the inability or failure to do so may affect our businesses and
•
•
earnings negatively.
Failure to understand or appreciate fully the risks associated with development or delivery of new product and
service offerings may affect our businesses and earnings negatively.
Our success with large, complex clients requires an understanding of the market and legal, regulatory and
accounting standards in various jurisdictions.
• We may take actions to maintain client satisfaction that result in losses or reduced earnings.
Other Risks
•
•
•
•
The systems and models we employ to analyze, monitor and mitigate risks, as well as for other business purposes,
are inherently limited, may not be effective in all cases and, in any case, cannot eliminate all risks that we face.
Changes in tax laws and interpretations and tax challenges may affect our earnings negatively.
Changes in accounting standards may be difficult to predict and could have a material impact on our consolidated
financial statements.
Our ability to return capital to stockholders is subject to the discretion of our Board of Directors and may be
limited by U.S. banking laws and regulations, applicable provisions of Delaware law, or our failure to pay full and
timely dividends on our preferred stock and the terms of our outstanding debt.
2022 ANNUAL REPORT | NORTHERN TRUST CORPORATION 15
Market Risks
We are dependent on fee-based business for a majority of our revenues, which may be affected adversely by market
volatility, a downturn in economic conditions, underperformance and/or negative trends in investment preferences.
Our principal operational focus is on fee-based business, which is distinct from commercial banking institutions that earn
most of their revenues from loans and other traditional interest-generating products and services. Fees for many of our
products and services are based on the market value of assets under management, custody or administration; the volume of
transactions processed; securities lending volume and spreads; fees for other services rendered; and in certain businesses,
fees calculated as a percentage of our clients’ earnings, all of which may be impacted negatively by market volatility, a
downturn in economic conditions, underperformance and/or negative trends in investment preferences. For example,
downturns in equity markets and decreases in the value of debt-related investments resulting from market disruption,
illiquidity or other factors historically have reduced the valuations of the assets we manage or service for others, which
generally impacted our earnings negatively. Further, although we do not hold, invest in, or custody cryptocurrency assets,
the markets in which they trade are highly volatile and volatility in these markets may impact the markets for other assets
that we hold, invest in, or custody, which could also impact our fees or financial condition. Market volatility and/or weak
economic conditions also may affect wealth creation, investment preferences, trading activities, and savings patterns, which
impact demand for certain products and services that we provide.
Our earnings also may be affected by poor investment returns or changes in investment preferences driven by factors
beyond market volatility or weak economic conditions. Poor absolute or relative investment performance in funds or client
accounts that we manage or in investment products that we design or provide may result in declines in the market values of
portfolios that we manage and/or administer and may affect our ability to retain existing assets and to attract new clients or
additional assets from existing clients. For example, in 2022, outflows we experienced in certain of our products as a result
of the impact of weaker markets and relative investment performance adversely impacted our overall fees derived from
assets that we manage. Broader changes in investment preferences that lead to less investment in mutual funds or other
collective funds, such as the shift in investor preference to lower fee products, could also impact our earnings negatively.
Changes in interest rates can affect our earnings negatively.
The direction and level of interest rates are important factors in our earnings. Interest rate changes could affect the interest
earned on assets differently than interest paid on liabilities. In response to rising inflation, the Federal Reserve Board has
increased interest rates from historically low levels. While a rising interest rate environment generally has a positive effect
on our net interest margin, in some circumstances, a rise in interest rates also may affect us negatively. For example, the
recent rapid increases in interest rates has adversely impacted the value of certain of our investment securities, with
resultant impacts on our capital, liquidity, and earnings. Additionally, recent higher interest rates have caused, and may in
the future cause: market volatility and downturns in equity markets, resulting in a decrease in the valuations of the assets
we manage or service for others, which generally impact our earnings negatively; our clients to transfer funds into
investments with higher rates of return, resulting in decreased deposit levels and higher fund or account redemptions; our
borrowers to experience difficulties in making higher interest payments, resulting in increased credit costs, provisions for
loan and lease losses and charge-offs; reduced bond and fixed income fund liquidity, resulting in lower performance, yields
and fees; or higher funding costs.
Conversely, low-interest-rate environments generally result in a compressed net interest margin and also have a
negative impact on our fees earned on certain of our products. For example, in the past we waived certain fees associated
with money market funds due to the low level of short-term interest rates. Low net interest margins and fee waivers each
negatively impact our earnings.
Although we have policies and procedures in place to assess and mitigate potential impacts of interest rate risks, if our
assumptions about any number of variables are incorrect, these policies and procedures to mitigate risk may be ineffective,
which could impact earnings negatively.
Please see “Market Risk” in the “Risk Management” section included in Item 7, “Management’s Discussion and
Analysis of Financial Condition and Results of Operations,” for a more detailed discussion of interest rate and market risks
we face.
Changes in the monetary, trade and other policies of various regulatory authorities, central banks, governments and
international agencies may reduce our earnings and affect our growth prospects negatively.
The monetary, trade and other policies of U.S. and international governments, agencies and regulatory bodies have a
significant impact on economic conditions and overall financial market performance. For example, the Federal Reserve
Board regulates the supply of money and credit in the United States, and its policies determine in large part the level of
interest rates and our cost of funds for lending and investing, and play a role in contributing to or moderating levels of
inflation, all of which meaningfully impact our earnings. Recent actions of the Federal Reserve Board and other regulatory
authorities have reduced the value of financial instruments we hold and may continue to do so in the future. Further, their
policies can affect our borrowers by increasing interest rates or making sources of funding less available, which may
16 2022 ANNUAL REPORT | NORTHERN TRUST CORPORATION
increase the risk that borrowers fail to repay their loans from us. Changes in monetary, trade and other governmental
policies are beyond our control and can be difficult to predict, and we cannot determine the ultimate effect that any such
changes would have upon our business, financial condition or results of operations.
Macroeconomic conditions and uncertainty in the global economy, including the financial stability of various regions
or countries across the globe, including the risk of defaults on sovereign debt and related stresses on financial markets,
could have a significant adverse effect on our earnings.
Risks and concerns about the financial stability of various regions or countries across the globe could have a detrimental
impact on economic and market conditions in these or other markets across the world. Foreign market and economic
disruptions have affected, and may in the future affect, consumer confidence levels and spending, international trade
policy, personal bankruptcy rates, levels of incurrence of and default on consumer debt, and home prices. Additionally,
financial markets may be adversely affected by the current or anticipated impact of military conflict (including the
continuing military conflict involving Ukraine and the Russian Federation), terrorism, political or civil unrest, sovereign
debt downgrades or debt crises (including any uncertainty over the U.S. government debt ceiling), public health epidemics
or pandemics, the exit or potential exit of one or more countries from the EU, or other geopolitical events. The cumulative
effect of uncertain business conditions or economic challenges faced in various foreign markets, including fiscal or
monetary concerns, rising inflation and interest rates, economic downturns and the possibility of a recession in some
jurisdictions, other economic factors (including changes in foreign currency exchange rates and changes to tax laws or the
application or enforcement practices of such laws), or volatility or lack of confidence in the financial markets may
adversely affect certain portions of our business, financial condition, and results of operations.
Declines in the value of securities held in our investment portfolio can affect us negatively.
Our investment securities portfolio represents a greater proportion, and our loan and lease portfolios represent a smaller
proportion, of our total consolidated assets in comparison to many other financial institutions. The value of securities
available for sale and held to maturity within our investment portfolio, which is generally determined based upon market
values available from third-party sources, have fluctuated, and may continue in the future to fluctuate, as a result of market
volatility and economic or financial market conditions. Declines in the value of securities held in our investment portfolio
negatively impact our levels of capital, liquidity, and, to the extent we realize losses, earnings. Although we have policies
and procedures in place to assess and mitigate potential impacts of market risks, including hedging-related strategies, those
policies and procedures are inherently limited because they cannot anticipate the existence or future development of
currently unanticipated or unknown risks. Accordingly, market risks have, from time to time, negatively affected the value
of securities held in our investment portfolio and in the future we could suffer additional adverse effects as a result of our
failure to anticipate and manage these risks properly.
Volatility levels and fluctuations in foreign currency exchange rates may affect our earnings.
We provide foreign exchange services to our clients, primarily in connection with our global custody business. Foreign
currency volatility influences our foreign exchange trading income as does the level of client activity. Foreign currency
volatility and changes in client activity may result in reduced foreign exchange trading income. Fluctuations in exchange
rates may raise the potential for losses resulting from foreign currency trading positions where aggregate obligations to
purchase and sell a currency other than the U.S. dollar do not offset each other or offset each other in different time
periods. We also are exposed to non-trading foreign currency risk as a result of our holdings of non-U.S. dollar
denominated assets and liabilities, investments in non-U.S. subsidiaries, and future non-U.S. dollar denominated revenue
and expense.
We have policies and procedures in place to assess and mitigate potential impacts of foreign exchange risks, including
hedging-related strategies. Any failure or circumvention of our procedures to mitigate risk may impact earnings negatively.
Please see “Market Risk” in the “Risk Management” section included in Item 7, “Management’s Discussion and Analysis
of Financial Condition and Results of Operations,” for a more detailed discussion of market risks we face.
Changes in a number of particular market conditions can affect our earnings negatively.
In past periods, reductions in the volatility of currency-trading markets, the level of cross-border investing activity, and the
demand for borrowing securities or willingness to lend such securities have affected our earnings from activities such as
foreign exchange trading and securities lending negatively. If these conditions occur in the future, our earnings from these
activities may be affected negatively. In certain of our businesses, such as securities lending, our fee is calculated as a
percentage of our clients’ earnings, such that market and other factors that reduce our clients’ earnings from investments or
trading activities also reduce our revenues.
2022 ANNUAL REPORT | NORTHERN TRUST CORPORATION 17
Operational Risks
Many types of operational risks can affect our earnings negatively.
We regularly assess and monitor operational risk in our businesses. Despite our efforts to assess and monitor operational
risk, our risk management program may not be effective in all cases. Factors that can impact operations and expose us to
risks varying in size, scale and scope, some or all of which may be exacerbated by the increase in hybrid and remote
working arrangements in recent years, include:
•
failures of technological systems or breaches of security measures, including, but not limited to, those resulting from
computer viruses or cyber-attacks;
human errors or omissions, including failures to comply with applicable laws or corporate policies and procedures;
theft, fraud or misappropriation of assets, whether arising from the intentional actions of internal personnel or external
third parties;
defects or interruptions in computer or communications systems;
breakdowns in processes; over-reliance on manual processes, which are less scalable, and inherently more prone to
error, than automated processes; breakdowns in internal controls or failures of the systems and facilities that support
our operations;
unsuccessful or difficult implementation of computer systems upgrades;
defects in product design or delivery;
difficulty in accurately pricing assets, which can be aggravated by market volatility and illiquidity and lack of reliable
pricing from third-party vendors;
negative developments in relationships with key counterparties, third-party vendors, employees or associates in our
day-to-day operations; and
external events that are wholly or partially beyond our control, such as pandemics, geopolitical events, political or
social unrest, natural disasters or acts of terrorism.
•
•
•
•
•
•
•
•
•
While we have in place many controls and business continuity plans designed to address many of these factors, these plans
may not operate successfully to mitigate these risks effectively. We also may fail to identify or fully understand the
implications and risks associated with changes in the financial markets or our businesses—particularly as our geographic
footprint, product pipeline and client needs and expectations evolve—and consequently fail to enhance our controls and
business continuity plans to address those changes in an adequate or timely fashion. If our controls and business continuity
plans do not address the factors noted above and operate to mitigate the associated risks successfully, such factors may
have a negative impact on our business (including operational resilience), financial condition or results of operations. In
addition, an important aspect of managing our operational risk is creating a risk culture in which all employees fully
understand the inherent risk in our business and the importance of managing risk as it relates to their job functions. We
continue to enhance our risk management program to support our risk culture, ensuring that it is sustainable and
appropriate for our role as a major financial institution. Nonetheless, if we fail to provide the appropriate environment that
sensitizes all of our employees to managing risk, our business could be impacted adversely. Please see “Other Risks” in
this “Risk Factors” section for further description of risks associated with the systems and models we employ to analyze,
monitor and mitigate risks.
Failures of, or disruptions to, our technological systems or breaches of our security measures, including, but not limited
to, those resulting from cyber-attacks, may result in losses.
Our business is dependent on our and third parties’ information technology systems. Despite our implementation of a
variety of security measures, our computer systems, networks, and data could be subject to cyber-attacks and unauthorized
access, use, alteration, or destruction, such as from physical and electronic break-ins or unauthorized tampering, malware
and computer virus attacks, or system failures and disruptions. Any failure, interruption or breach in the security of our
systems could severely disrupt our operations and could subject us to liability claims, harm our reputation, interrupt our
operations, or otherwise adversely affect our business, financial condition or results of operations.
Our systems involve the processing, storage and transmission of clients’ and our proprietary and confidential
information, and security breaches, including cyber-attacks, could expose us to a risk of theft, loss or other
misappropriation of this information. Our security measures may be breached due to the actions of outside parties,
employee error, failure of our controls with respect to access to our systems, malfeasance or otherwise, and, as a result, an
unauthorized party may obtain access to our or our clients’ proprietary and confidential information, resulting in the theft,
loss, destruction, gathering, monitoring, dissemination, or other misappropriation of this information. Additionally, our
computer, communications, data processing, networks, backup, business continuity or other operating, information or
technology systems, including those that we outsource to other providers, may fail to operate properly or become disabled,
overloaded or damaged as a result of a number of factors, including events that are wholly or partially beyond our control,
which could have a negative effect on our ability to conduct our business activities.
18 2022 ANNUAL REPORT | NORTHERN TRUST CORPORATION
Additionally, we are subject to complex and evolving laws and regulations governing cybersecurity, data privacy and
data protection, which may differ and potentially conflict, in various jurisdictions. Regulators globally are introducing the
potential for greater monetary fines on institutions that suffer from breaches leading to the misappropriation of such
information. Most states, the EU and other non-U.S. jurisdictions also have adopted their own statutes and/or regulations
concerning data privacy and security and notification of data breaches. These and other changes in laws or regulations
associated with the enhanced protection of personal and other types of information could greatly increase compliance costs
and the size of potential fines related to the protection of such information.
Information security and data privacy risks for large financial institutions like us are significant in part because of the
evolving proliferation of new technologies, the use of internet-based solutions, mobile devices, and cloud technologies to
conduct financial transactions and the increased sophistication and rapidly evolving techniques of hackers, terrorists,
organized crime and other external parties, including foreign state actors. If we fail to continue to upgrade our technology
infrastructure to ensure effective information security and data privacy relative to the type, size and complexity of our
operations, we could become more vulnerable to cyber-attack and, consequently, subject to significant regulatory penalties
and reputational damage. Also, like many large enterprises, in response to the COVID-19 pandemic in recent years, a
significant portion of our workforce has shifted to a hybrid work environment that includes a combination of in-office and
remote work. The increase in remote work and remote access to our systems, initially driven by the COVID-19 pandemic,
also introduces potential vulnerabilities to cyber threats.
The third parties with which we do business also are susceptible to the foregoing risks (including regarding the third
parties with which they are similarly interconnected or on which they otherwise rely), and our or their business operations
and activities may therefore be affected adversely, perhaps materially, by failures, terminations, errors or malfeasance by,
or attacks or constraints on, one or more financial, technology, infrastructure or government institutions or intermediaries
with whom we or they are interconnected or conduct business. While we conduct security assessments on third-party
vendors, we cannot be certain that their information security protocols are sufficient to withstand a cyber-attack or other
security breach. In addition, our clients often use personal devices, such as computers, smart phones and tablets, which are
particularly vulnerable to loss and theft, as well as third parties with whom they share information used for authentication,
to access our systems and manage their accounts, which may heighten the risk of system failures, interruptions or security
breaches.
Moreover, the increased use of mobile and cloud technologies could heighten these and other operational risks.
Reliance on mobile or cloud technology or any failure by mobile technology and cloud service providers to adequately
safeguard their systems and prevent cyber-attacks could disrupt our operations or the operations of our or their service
providers and result in misappropriation, corruption or loss of personal, confidential or proprietary information or the
inability to conduct ordinary business operations. In addition, there is a risk that encryption and other protective measures
may be circumvented, particularly to the extent that new computing technologies increase the speed and computing power
available.
In recent years, several financial services firms suffered successful cyber-attacks launched both domestically and from
abroad, resulting in the disruption of services to clients, loss or misappropriation of sensitive or private information, and
reputational harm. We and our clients have been, and expect to continue to be, subject to a wide variety of cyber-attacks
and threats, including computer viruses, ransomware and other malicious code, distributed denial of service attacks, and
phishing and vishing attacks, and it is possible that we could suffer material losses resulting from a breach. Because the
techniques used to obtain unauthorized access, disable or degrade service or sabotage systems change frequently and often
are not recognized until launched against a target, we may be unable to anticipate these techniques, to implement adequate
preventative measures, or to address them until they are discovered. In addition, successful cyber-attacks may persist for an
extended period of time before being detected. Because any investigation of an information security incident would be
inherently unpredictable, the extent of a particular information security incident and the path of investigating the incident
may not be immediately clear. It may take a significant amount of time before such an investigation can be completed and
full and reliable information about the incident is known. While such an investigation is ongoing, we may not necessarily
know the extent of the harm or how best to remediate it, certain errors or actions could be repeated or compounded before
they are discovered and remediated, and communication to the public, regulators, clients and other stakeholders may be
inaccurate, any or all of which could further increase the costs and consequences of an information security incident.
We could be the subject of legal claims or proceedings related to security incidents, including regulatory investigations
and actions. Further, the market perception of the effectiveness of our security measures could be harmed, our reputation
could suffer and we could lose clients in conjunction with security incidents, each of which could have a negative effect on
our business, financial condition and results of operations. A breach of our security also may affect adversely our ability to
effect transactions, service our clients, manage our exposure to risk or expand our business. An event that results in the loss
of information also may require us to reconstruct lost data or reimburse clients for data and credit monitoring services,
which could be costly and have a negative impact on our business and reputation. Although we maintain insurance
coverage in the event of information theft, damage, or destruction from cyber breach incidents, there can be no assurance
2022 ANNUAL REPORT | NORTHERN TRUST CORPORATION 19
that liabilities or losses we may incur will be covered under such policies or that the amount of insurance will be adequate
to cover such losses.
Further, even if not directed at us, attacks on financial or other institutions important to the overall functioning of the
financial system or on our counterparties could affect, directly or indirectly, aspects of our business.
Errors, breakdowns in controls or other mistakes in the provision of services to clients or in carrying out transactions
for our own account can subject us to liability, result in losses or have a negative effect on our earnings in other ways.
In our asset servicing, investment management, fiduciary administration and other business activities, we effect or process
transactions for clients and for ourselves that involve very large amounts of money. Failure to manage or mitigate
operational risks properly can have adverse consequences, and increased volatility in the financial markets may increase
the magnitude of resulting losses. Further, remote working and other modified business practices initiated in response to
the COVID-19 pandemic, combined with the increasing sophistication and frequency of potential cyber incidents, have
heightened our operational and execution risk. Given the high volume of transactions we process, errors that affect earnings
may be repeated or compounded before they are discovered and corrected.
Our dependence on technology, and the need to update frequently our technology infrastructure, exposes us to risks that
also can result in losses.
Our businesses depend on information technology infrastructure, both internal and external, to record and process, among
other things, a large volume of increasingly complex transactions and other data, in many currencies, on a daily basis,
across numerous and diverse markets and jurisdictions. Due to our dependence on technology and the important role it
plays in our business operations, combined with the increasing sophistication and frequency of potential cyber incidents,
we must constantly improve and update our information technology infrastructure. Upgrading, replacing, and modernizing
these systems can require significant resources and often involves implementation, integration and security risks that could
cause financial, reputational, and operational harm. In some cases, the COVID-19 pandemic has accelerated the transition
from traditional to digital financial services and heightened customer expectations in this area, and this transition may
require us to invest greater resources in technological advancements. Failure to ensure adequate review and consideration
of critical business and regulatory issues prior to and during the introduction and deployment of key technological systems
or failure to align operational capabilities adequately with evolving client commitments and expectations may have a
negative impact on our results of operations. The failure to respond properly to, and invest in, changes and advancements
in technology and/or to compete for and retain employees with the necessary technical skills and expertise could limit our
ability to attract and retain clients, prevent us from offering products and services comparable to those offered by our
competitors, inhibit our ability to meet regulatory requirements or otherwise have a material adverse effect on our
operations.
A failure or circumvention of our controls and procedures could have a material adverse effect on our business,
financial condition and results of operations.
We regularly review and update our internal controls, disclosure controls and procedures, and corporate governance
policies and procedures. Any system of controls, however well designed and operated, is based in part on certain
assumptions and can provide only reasonable, not absolute, assurances that the objectives of the system will be met. Any
failure or circumvention of our controls and procedures or failure to comply with regulations related to controls and
procedures could have a material adverse effect on our business, financial condition and results of operations. If we identify
material weaknesses in our internal control over financial reporting or are otherwise required to restate our financial
statements, we could be required to implement expensive and time-consuming remedial measures and could lose investor
confidence in the accuracy and completeness of our financial reports. In addition, there are risks that individuals, either
employees or contractors, consciously circumvent established control mechanisms by, for example, exceeding trading or
investment management limitations, or committing fraud.
Failure of any of our third-party vendors (or their vendors) to perform can result in losses.
Third-party vendors provide key components of our business operations such as data processing, recording and monitoring
transactions, online banking interfaces and services, and network access. Our use of third-party vendors exposes us to the
risk that such vendors (or their vendors) may not comply with their servicing and other contractual obligations, including
with respect to indemnification and information security, and to the risk that we may not satisfy applicable regulatory
responsibilities regarding the management and oversight of third parties and outsourcing providers. While we have
established risk management processes and continuity plans, any disruptions in service from a key vendor for any reason or
poor performance of services could have a negative effect on our ability to deliver products and services to our clients and
conduct our business. Replacing these third-party vendors or performing the tasks they perform for ourselves could create
significant delay and expense.
20 2022 ANNUAL REPORT | NORTHERN TRUST CORPORATION
We are subject to certain risks inherent in operating globally which may affect our business adversely.
In conducting our U.S. and non-U.S. business, we are subject to risks of loss from various unfavorable political, economic,
legal, public health, or other developments, including social or political instability, changes in governmental policies or
policies of central banks, expropriation, nationalization, confiscation of assets, price controls, capital controls, exchange
controls, unfavorable tax rates and tax court rulings and changes in laws and regulations. Less mature and often less
regulated business and investment environments heighten these risks in various emerging markets. Our non-U.S. operations
accounted for 34% of our revenue in 2022. Our non-U.S. businesses are subject to extensive regulation by various non-U.S.
regulators, including governments, securities exchanges, central banks and other regulatory bodies in the jurisdictions in
which those businesses operate. In many countries, the laws and regulations applicable to the financial services industry are
uncertain and evolving and may be applied with extra scrutiny to foreign companies. Moreover, the regulatory and
supervisory standards and expectations in one jurisdiction may not conform with standards or expectations in other
jurisdictions. Even within a particular jurisdiction, the standards and expectations of multiple supervisory agencies
exercising authority over our affairs may not be harmonized fully. Accordingly, it may be difficult for us to determine the
exact requirements of local laws in every market or manage our relationships with multiple regulators in various
jurisdictions. Our inability to remain in compliance with local laws in a particular market and manage our relationships
with regulators could have an adverse effect not only on our businesses in that market but also on our reputation generally.
The failure to mitigate properly such risks or the failure of our operating infrastructure to support such international
activities could result in operational failures and regulatory fines or sanctions, which could affect our business and results
of operations adversely.
We actively strive to optimize our geographic footprint. This optimization may occur by establishing operations in
lower-cost locations or by outsourcing to third-party vendors in various jurisdictions. These efforts expose us to the risk
that we may not maintain service quality, control or effective management within these operations. In addition, we are
exposed to the relevant macroeconomic, political, public health, and similar risks generally involved in doing business in
those jurisdictions. The increased elements of risk that arise from conducting certain operating processes in some
jurisdictions could lead to an increase in reputational risk. During periods of transition, greater operational risk and client
concern exist with respect to maintaining a high level of service delivery.
In addition, we are subject in our global operations to rules and regulations relating to corrupt and illegal payments,
money laundering, and laws relating to doing business with certain individuals, groups and countries, such as the U.S.
Foreign Corrupt Practices Act, the USA PATRIOT Act, the UK Bribery Act, and economic sanctions and embargo
programs administered by the U.S. Office of Foreign Assets Control and similar agencies worldwide. While we have
invested and continue to invest significant resources in training and in compliance monitoring, the geographic diversity of
our operations, employees, clients and customers, as well as the vendors and other third parties with whom we deal,
presents the risk that we may be found in violation of such rules, regulations, laws or programs and any such violation
could subject us to significant penalties or affect our reputation adversely.
Failure to control our costs and expenses adequately could affect our earnings negatively.
Our success in controlling the costs and expenses of our business operations also impacts operating results. Through
various parts of our business strategy, we aim to produce efficiencies in operations that help reduce and control costs and
expenses, including the costs of losses associated with operating risks attributable to servicing and managing financial
assets. Recently, increased expenses have affected, and a failure to control our costs and expenses in the future as a result
of an overall inflationary environment or otherwise could affect, our earnings negatively.
Pandemics, natural disasters, global climate change, acts of terrorism, geopolitical tensions, and global conflicts may
have a negative impact on our business and operations.
Pandemics, natural disasters, global climate change, acts of terrorism, geopolitical tensions, global conflicts (including the
continuing military conflict involving Ukraine and the Russian Federation) or other similar events have had in the past, or
may in the future have, a negative impact on our business and operations. While we have in place business continuity
plans, such events may still damage our facilities, disrupt or delay the normal operations of our business (including
communications and technology), result in harm to or cause travel limitations on our employees, impose significant
compliance costs with new financial and economic sanctions regimes, and have a similar impact on our clients, suppliers,
third-party vendors and counterparties. For example, in some jurisdictions such as the Russian Federation, local market
restrictions, laws, sanctions programs or government intervention inhibit our clients’ and our ability to access or transfer
cash or securities held for clients through subcustodians and clearing agencies. When such client deposit liabilities are on
our consolidated balance sheet, we maintain a corresponding amount of cash on deposit with the subcustodian or clearing
agency, which increases our credit exposure to that entity and can accumulate over time based upon distributions on, or
other activities related to, our clients’ assets. If the subcustodian or clearing agency were to become insolvent in
circumstances not involving expropriation of assets or other sovereign risk events and/or factors or events beyond our
reasonable control that excuse performance under force majeure or other contractual provisions, the risk of loss on such
2022 ANNUAL REPORT | NORTHERN TRUST CORPORATION 21
cash on deposit may potentially be incurred by us. As of December 31, 2022, we held cash that accumulates in relation to
Russian securities with our subcustodian and/or clearing agencies for the benefit of certain clients in our Asset Servicing
business which are subject to restrictions which inhibit our ability to access or transfer such deposits, and which amount is
expected to increase significantly over time as long as the sanctions and other relevant restrictions remain in effect.
The foregoing or similar events also could impact us negatively to the extent that they result in reduced capital markets
activity, lower asset price levels, or disruptions in general economic activity in the United States or abroad, or in financial
market settlement functions. In addition, these or similar events may impact economic growth negatively, which could
have an adverse effect on our business and operations, and may have other adverse effects on us in ways that we are unable
to predict. Please see “Strategic Risks” in this “Risk Factors” section for further description of risks associated with climate
change.
Credit Risks
Failure to evaluate accurately the prospects for repayment when we extend credit or maintain an adequate allowance
for credit losses can result in losses or the need to make additional provisions for credit losses, both of which reduce our
earnings.
We evaluate extensions of credit before we make them and provide for credit risks based on our assessment of the credit
losses inherent in our loan portfolio, including undrawn credit commitments. This process requires us to make difficult and
complex judgments. Challenges associated with our credit risk assessments include identifying the proper factors to be
used in assessments and accurately estimating the impacts of those factors. Allowances that prove to be inadequate may
require us to realize increased provisions for credit losses or write down the value of certain assets on our balance sheet,
which result in losses and/or increased provisions for credit losses and in turn would affect earnings negatively.
Market volatility and/or weak economic conditions can result in losses or the need for additional provisions for credit
losses, both of which reduce our earnings.
Credit risk levels and our earnings can be affected by market volatility and/or weakness in the economy in general and in
the particular locales in which we extend credit, a deterioration in credit quality, or a reduced demand for credit. Adverse
changes in the financial performance or condition of our borrowers resulting from market volatility and/or weakened
economic conditions could impact the borrowers’ abilities to repay outstanding loans, which could in turn impact our
financial condition and results of operations negatively.
The failure or perceived weakness of any of our significant counterparties could expose us to loss.
The financial markets are characterized by extensive interconnections among financial institutions, including banks,
broker/dealers, collective investment funds and insurance companies. As a result of these interconnections, we and many of
our clients have counterparty exposure to other financial institutions. This counterparty exposure presents risks to us and to
our clients because the failure or perceived weakness of any of our counterparties has the potential to expose us to risk of
loss. Instability in the financial markets has resulted historically in some financial institutions becoming less creditworthy.
During such periods of instability, we are exposed to increased counterparty risks, both as principal and in our capacity as
agent for our clients. Changes in market perception of the financial strength of particular financial institutions can occur
rapidly, are often based upon a variety of factors and can be difficult to predict. In addition, the criteria for and manner of
governmental support of financial institutions and other economically important sectors remain uncertain. Further, the
consolidation of financial services firms and the failures of other financial institutions has in the past increased, and may in
the future increase, the concentration of our counterparty risk. These risks are heightened by the fact that our operating
model relies on the use of unaffiliated sub-custodians to a greater degree than certain of our competitors that have banking
operations in more jurisdictions than we do. We are not able to mitigate all of our and our clients’ counterparty credit risk.
If a significant individual counterparty defaults on an obligation to us, we could incur financial losses that have a material
and adverse effect on our business, financial condition and results of operations.
The transition away from LIBOR or changes in the method pursuant to which other interest rate benchmarks are
determined could adversely impact our business and results of operations.
Global regulators have taken steps to discontinue the publication and use of interbank offered rates (each, an IBOR),
encourage the development and use of alternative reference rates, and examine the progress regulated entities such as
Northern Trust are making to transition from IBORs to alternative reference rates. Publication of 1-week and 2-month USD
LIBOR ceased as of December 31, 2021, and publication of the remaining USD LIBOR tenors are expected to continue
until June 30, 2023. USD LIBOR historically has been a widely used interest rate benchmark and the reference rate for our
floating-rate funding, certain of the products that we own, various lending and securities transactions in which we are
involved, and certain of the derivatives that we use to manage our or our clients’ risk.
Some regulators have prohibited the use of any LIBOR benchmarks in new contracts and have required that regulated
entities transition existing contracts to another benchmark prior to June 30, 2023. Although the setting of such LIBOR
benchmarks may continue to be available, such prohibitions and requirements or any other change in the availability or
22 2022 ANNUAL REPORT | NORTHERN TRUST CORPORATION
calculation of LIBOR or other interest rate benchmarks may affect adversely the cost or availability of floating-rate
funding; the yield on loans or securities held by us; the amounts received and paid on derivative instruments we have
entered into; the value of loans, securities, or derivative instruments held by us or our clients, which, in the case of assets
held by our clients, could also negatively impact the amount of fees we earn in relation to such assets; the trading market
for securities based on LIBOR or other benchmarks; the terms of new loans being made using different or modified
reference rates; or our ability to use derivative instruments to manage risk effectively.
Various regulators, industry bodies and other market participants in the United States and other countries have
developed and continue to refine alternative rate benchmarks for various financial products. While there is no consensus on
what rate or rates may become accepted by market participants as alternatives to LIBOR for new contracts after LIBOR
publication ceases, a group of large banks and the Alternative Reference Rate Committee (ARRC) identified, and the
Federal Reserve Bank of New York in May 2018 started to publish, the Secured Overnight Finance Rate (SOFR) as its
preferred alternative to LIBOR. The Adjustable Interest Rate (LIBOR) Act (the LIBOR Act) signed into law in March
2022, provides for the use of interest rates based on SOFR in certain contracts currently based on LIBOR and a safe harbor
from liability for utilizing SOFR-based interest rates as a replacement for LIBOR. In December 2022, the Federal Reserve
Board adopted a final rule implementing the LIBOR Act by identifying benchmark rates based on SOFR that will replace
LIBOR in certain financial contracts after June 30, 2023. SOFR has different characteristics than LIBOR and may
demonstrate less predictable behavior over time and across different monetary, market, and economic environments;
therefore, it is unclear the extent to which SOFR will become a widely accepted replacement for LIBOR.
We are working to facilitate an orderly transition from USD LIBOR to alternative interest rate benchmarks for us and
our clients and, in accordance with guidance from U.S. regulators, including the Federal Reserve Board, we stopped
offering USD LIBOR in new contracts and began offering SOFR as an alternative to USD LIBOR in 2021. While some
existing USD LIBOR loans will mature or be prepaid, a portion of our loans will remain and potentially require us to name
a replacement index before June 30, 2023, the date USD LIBOR ceases. We are currently in the process of evaluating all
such transitions. The language in our USD LIBOR-based contracts and financial instruments has developed over time and
may have various events that trigger when a successor rate to the designated rate would be selected. If a trigger is satisfied,
contracts and financial instruments may give a party discretion to determine the substitute index or indices for the
calculation of interest rates to be selected. Additionally, the transition to alternative rates may change our market risk
profile, requiring changes to risk and pricing models. While some instruments may contemplate a scenario where LIBOR is
no longer available by providing an alternative rate setting methodology, not all instruments may have such provisions and
there is significant uncertainty regarding the effectiveness of any such alternative methodologies. There continues to be
uncertainty regarding the effect that these developments, any discontinuance, modification or other reforms to LIBOR or
any other interest rate benchmarks, or the establishment of alternative reference rates may have on LIBOR or other interest
rate benchmarks. Further, the transition away from the use of LIBOR and the adoption of alternative interest rate
benchmarks, and uncertainty related to any such transition or adoption, has caused, and may in the future cause, us to
recognize additional costs. It may also cause us to experience operational disruptions or result in client disputes or
litigation, which may negatively impact our business, financial condition or results of operations.
Liquidity Risks
If we do not manage our liquidity effectively, our business could suffer.
Liquidity is essential for the operation of our business. Market conditions, unforeseen outflows of funds or other events
could have a negative effect on our level or cost of funding, affecting our ongoing ability to accommodate liability
maturities and deposit withdrawals, meet contractual obligations, and fund new business transactions at a reasonable cost
and in a timely manner. If our access to stable and low-cost sources of funding, such as customer deposits, is reduced, we
may need to use alternative funding, which could be more expensive or of limited availability. Further evolution in the
regulatory requirements relating to liquidity and risk management also may impact us negatively. Additional regulations
may impose more stringent liquidity requirements for large financial institutions, including the Corporation and the Bank.
Given the overlap and complex interactions of these regulations with other regulatory changes, the full impact of the
adopted and proposed regulations remains uncertain until their full implementation.
In addition, a significant portion of our business involves providing certain services to large, complex clients, which,
by their nature, require substantial liquidity. Our failure to manage successfully the liquidity and balance sheet issues
attendant to this portion of our business may have a negative impact on our ability to meet client needs and grow.
For more information on regulations and other regulatory changes relating to liquidity, see “Supervision and
Regulation—Liquidity Standards” in Item 1, “Business.” Any substantial, unexpected or prolonged changes in the level or
cost of liquidity could affect our business adversely.
2022 ANNUAL REPORT | NORTHERN TRUST CORPORATION 23
If the Bank is unable to supply the Corporation with funds over time, the Corporation could be unable to meet its
various obligations.
The Corporation is a legal entity separate and distinct from the Bank and the Corporation’s other subsidiaries. The
Corporation relies in large part on dividends paid to it by the Bank to meet its obligations and to pay dividends to
stockholders of the Corporation. There are various legal limitations on the extent to which the Bank and the Corporation’s
other subsidiaries can supply funds to the Corporation by dividend or otherwise. Dividend payments by the Bank to the
Corporation in the future will require continued generation of earnings by the Bank and could require regulatory approval
under certain circumstances. For more information on dividend restrictions, see “Supervision and Regulation—Payment of
Dividends” in Item 1, “Business.”
We may need to raise additional capital in the future, which may not be available to us or may only be available on
unfavorable terms.
We may need to raise additional capital to provide sufficient resources to meet our business needs and commitments, to
accommodate the transaction and cash management needs of our clients, to maintain our credit ratings in response to
regulatory changes, including capital rules, or for other purposes. However, our ability to access the capital markets, if
needed, will depend on a number of factors, including the state of the financial markets. Rising interest rates, disruptions in
financial markets, negative perceptions of our business or our financial strength, or other factors may impact our ability to
raise additional capital, if needed, on terms acceptable to us. Any diminished ability to raise additional capital, if needed,
could subject us to liability, restrict our ability to grow, require us to take actions that would affect our earnings negatively
or otherwise affect our business and our ability to implement our business plan, capital plan and strategic goals adversely.
Any downgrades in our credit ratings, or an actual or perceived reduction in our financial strength, could affect our
borrowing costs, capital costs and liquidity adversely.
Rating agencies publish credit ratings and outlooks on our creditworthiness and that of our obligations or securities,
including long-term debt, short-term borrowings, preferred stock and other securities. Our credit ratings are subject to
ongoing review by the rating agencies and thus may change from time to time based on a number of factors, including our
own financial strength, performance, prospects and operations as well as factors not under our control, such as rating-
agency-specific criteria or frameworks for our industry or certain security types, which are subject to revision from time to
time, and conditions affecting the financial services industry generally.
Downgrades in our credit ratings may affect our borrowing costs, our capital costs and our ability to raise capital and,
in turn, our liquidity adversely. A failure to maintain an acceptable credit rating also may preclude us from being
competitive in certain products. Additionally, our counterparties, as well as our clients, rely on our financial strength and
stability and evaluate the risks of doing business with us. If we experience diminished financial strength or stability, actual
or perceived, a decline in our stock price or a reduced credit rating, our counterparties may be less willing to enter into
transactions, secured or unsecured, with us, our clients may reduce or place limits on the level of services we provide them
or seek other service providers, or our prospective clients may select other service providers, all of which may have other
adverse effects on our business.
The risk that we may be perceived as less creditworthy relative to other market participants is higher in a market
environment in which the consolidation, and in some instances failure, of financial institutions, including major global
financial institutions, could result in a smaller number of larger counterparties and competitors. If our counterparties
perceive us to be a less viable counterparty, our ability to enter into financial transactions on terms acceptable to us or our
clients, on our or our clients’ behalf, will be compromised materially. If our clients reduce their deposits with us or select
other service providers for all or a portion of the services we provide to them, our revenues will decrease accordingly.
Regulatory and Legal Risks
Failure to comply with regulations and/or supervisory expectations can result in penalties and regulatory constraints
that restrict our ability to grow or even conduct our business, or that reduce earnings.
Virtually every aspect of our business around the world is regulated, generally by domestic and foreign governmental
agencies that have broad supervisory powers and the ability to impose sanctions. These regulations cover a variety of
matters, including prohibited activities, required capital levels, resolution planning, human trafficking and modern slavery,
and privacy and data protection. Some of these requirements are directed specifically at protecting depositors of the Bank,
the federal deposit insurance fund and the banking system as a whole, not our stockholders or other security holders.
Regulatory violations or the failure to meet formal or informal commitments made to regulators could generate penalties,
require corrective actions that increase costs of conducting business, result in limitations on our ability to conduct business,
restrict our ability to expand or impact our reputation adversely. Failure to obtain necessary approvals from regulatory
agencies, whether formal or based upon supervisory expectations, on a timely basis could affect proposed business
opportunities and results of operations adversely. Similarly, changes in laws or failure to comply with new requirements or
with future changes in laws or regulations may impact our results of operations and financial condition negatively.
24 2022 ANNUAL REPORT | NORTHERN TRUST CORPORATION
Changes by the U.S. and other governments to laws, regulations and policies applicable to the financial services
industry may heighten the challenges we face and make regulatory compliance more difficult and costly.
Various regulatory bodies have demonstrated heightened enforcement scrutiny of financial institutions through many
regulatory initiatives. These initiatives have increased compliance costs and regulatory risks and may lead to financial and
reputational damage in the event of a compliance violation. While we have programs in place, including policies, training
and various forms of monitoring, designed to ensure compliance with legislative and regulatory requirements, these
programs and policies may not always protect us from conduct by individual employees. Governments and regulatory
agencies may take further actions to change significantly the way financial institutions are regulated, either through new
legislation, new regulations, new applications of existing regulations or a combination of all of these methods. We cannot
currently predict the impact, if any, of these changes to our business. Additionally, governments and regulators may take
actions that increase intervention in the normal operation of our businesses and the businesses of our competitors in the
financial services industry, and these likely would involve additional legislative and regulatory requirements imposed on
banks and other financial services companies. Any such actions could increase compliance costs and regulatory risks, lead
to financial and reputational damage in the event of a violation, affect our ability to compete successfully, and also may
impact the nature and level of competition in the industry in unpredictable ways. The full scope and impact of possible
legislative or regulatory changes and the extent of regulatory activity is uncertain and difficult to predict.
For example, we are unable to predict what, if any, changes to financial services laws and regulations applicable to the
financial services industry may be enacted by the U.S. Congress and what the impact of any such changes will be upon our
business, financial condition, and results of operations. Moreover, the current U.S. presidential administration has made,
and is expected to make further, changes in the leadership and senior staffs of the federal banking agencies which are likely
to impact the rulemaking, supervision, examination and enforcement priorities and policies of such agencies, the potential
impacts of which, if any, we cannot predict with certainty at this time.
We may be impacted adversely by claims or litigation, including claims or litigation relating to our fiduciary
responsibilities.
Our businesses involve the risk that clients or others may sue us, claiming that we have failed to perform under a contract
or otherwise failed to carry out a duty perceived to be owed to them. Our trust, custody and investment management
businesses are particularly subject to this risk. This risk is heightened when we act as a fiduciary for our clients and may be
further heightened during periods when credit, equity or other financial markets are deteriorating in value or are
particularly volatile, or when clients or investors are experiencing losses. In addition, regulators, tax authorities and courts
have increasingly sought to hold financial institutions liable for the misconduct of their clients where such regulators and
courts have determined that the financial institution should have detected that the client was engaged in wrongdoing, even
though the financial institution had no direct knowledge of the wrongdoing.
Claims made or actions brought against us, whether founded or unfounded, may result in injunctions, settlements,
damages, fines or penalties, which could have a material adverse effect on our financial condition or results of operations
or require changes to our business. Even if we defend ourselves successfully, the cost of litigation is often substantial, and
public reports regarding claims made against us may cause damage to our reputation among existing and prospective
clients or negatively impact the confidence of counterparties, rating agencies and stockholders, consequently affecting
our earnings negatively.
We may be impacted adversely by supervisory and/or regulatory enforcement matters.
In the ordinary course of our business, we are subject to various governmental enforcement inquiries, supervisory
examinations, investigations and subpoenas. These may be directed generally to participants in the businesses in which we
are involved or may be directed specifically at us. In conjunction with both supervisory and enforcement matters, we may
face limits on our ability to conduct or expand our business, be required to implement corrective actions that increase the
costs of conducting business, or become subject to civil or criminal penalties or other remedial sanctions, any of which
could result in reputational damage or otherwise have an adverse impact on us. For example, the current U.S. presidential
administration, or future administrations, could support an enhanced regulatory enforcement agenda or propose new
regulations that impose greater costs on financial services companies. Any such heightened enforcement activity or new
regulations could have a material adverse effect on our business, financial condition and results of operations.
We may fail to set aside adequate reserves for, or otherwise underestimate our liability relating to, pending and
threatened claims, with a negative effect on our earnings.
We estimate our potential liability for pending and threatened claims and record reserves when appropriate pursuant to
generally accepted accounting principles (GAAP). The process is inherently subject to risk, including the risks that a judge
or jury could decide a case contrary to our evaluation of the law or the facts or that a court could change or modify existing
law on a particular issue important to the case. Our earnings will be adversely affected if our reserves are not adequate.
2022 ANNUAL REPORT | NORTHERN TRUST CORPORATION 25
The ultimate impact on us of the United Kingdom’s withdrawal from the European Union remains uncertain.
While the UK’s withdrawal from the EU, commonly referred to as “Brexit,” officially became effective on December 31,
2020, certain items remain to be negotiated; therefore, the final impact remains uncertain. In December 2020, the UK and
the EU agreed on a trade and cooperation agreement that entered into force on May 1, 2021. While the trade and
cooperation agreement covers the general objectives and framework of the relationship between the UK and the EU, it
generally does not address the regulation of financial services. Instead, in March 2021, the UK and the EU agreed upon a
framework for voluntary regulatory cooperation and dialogue on financial services issues between the parties in a
memorandum of understanding, which is expected to be signed after certain formal steps are completed, although this has
not yet occurred.
Consequently, the ultimate impact of Brexit on the Corporation and the Bank remains uncertain and will depend on the
terms of the post-Brexit relationships that remain to be negotiated between the UK and other EU nations, particularly in the
area of financial services. We have incurred, and may in the future continue to incur, costs associated with Brexit planning
measures, while unforeseen political, regulatory, or other developments related to Brexit, or operational issues associated
with any organizational restructuring related thereto, may result in additional costs and disruption to our UK and EU
businesses. A failure to agree to a sustainable and practical financial services regulatory relationship between the UK and
the EU, whether on the basis of equivalence, mutual recognition or otherwise, could harm our business, financial condition
and results of operations. Any further exits from the EU, or the possibility of such exits, would likely cause additional
market disruption globally and introduce new legal and regulatory uncertainties.
If we fail to comply with legal standards, we could incur liability to our clients or lose clients, which could affect
our earnings negatively.
Managing or servicing assets with reasonable prudence in accordance with the terms of governing documents and
applicable laws is an important part of our business. Failure to comply with the terms of governing documents and
applicable laws, manage adequately the risks or manage appropriately the differing interests often involved in the exercise
of fiduciary responsibilities may subject us to liability or cause client dissatisfaction, which may impact negatively our
earnings and growth.
Strategic Risks
If we are not able to attract, retain and motivate personnel, our business could be negatively affected.
Our success depends, in large part, on our ability to attract new employees, retain and motivate our existing employees, and
continue to compensate our employees competitively. Competition for the best employees in most activities in which we
engage can be intense, and there can be no assurance that we will be successful in our efforts to recruit and retain necessary
personnel. Factors that affect our ability to attract and retain talented and diverse employees include our compensation and
benefits programs, our profitability and our reputation for rewarding and promoting qualified employees. Our ability to
attract and retain key executives and other employees may be hindered as a result of existing and potential regulations
applicable to incentive compensation and other aspects of our compensation programs. These regulations may not apply to
some of our competitors and to other institutions with which we compete for talent. In addition, our current or future
approach to in-office and remote work arrangements may not meet the needs or expectations of our current or prospective
employees, may not be perceived as favorable as compared to the arrangements offered by competitors and may not be
conducive to a collaborative working environment, which could adversely affect our ability to attract, retain and motivate
employees. The unexpected loss of services of necessary personnel, both in businesses and corporate functions, could have
a material adverse impact on our business because of their skills, knowledge of our markets, operations and clients, years of
industry experience and, in some cases, the difficulty of promptly finding qualified replacement personnel. Similarly, the
loss of necessary employees, either individually or as a group, could affect our clients’ perception of our abilities adversely.
The current competitive labor market may also have the effect of heightening many of these risks.
26 2022 ANNUAL REPORT | NORTHERN TRUST CORPORATION
Our operations, businesses and clients could be materially adversely affected by the effects of climate change or
concerns related thereto.
Risks related to climate change may impact our business, financial condition, and results of operations adversely. The
physical risks of climate change include rising average global temperatures, rising sea levels, and an increase in the
frequency and severity of extreme weather events. Such developments could disrupt our operations and resilience
capabilities, those of our clients, or third parties on which we rely. Further, the consequences of climate change could
negatively impact our clients’ ability to pay outstanding loans, reduce the value of collateral, or result in insurance
shortfalls.
Climate change could also result in transition risk arising from changes in regulations or market preferences toward a
low-carbon economy. Changes in consumer and/or investor preferences, new legislation, and expanded regulatory
requirements related to climate risk could adversely impact us or our clients. Our reputation and business prospects may
also be damaged if we do not, or are perceived not to, effectively prepare for the potential business and operational
opportunities and risks associated with climate change, including through the development and marketing of effective and
competitive new products and services designed to address our clients’ climate risk-related needs. These risks include
negative market perception, diminished sales effectiveness and regulatory and litigation consequences associated with
greenwashing claims or a failure to execute on our public climate-related commitments or driven by association with
individuals, entities, industries or products that may be inconsistent with our stated positions on climate change issues. At
the same time, certain financial institutions have also been subject to significant scrutiny by regulatory agencies and
government officials and other criticism and negative publicity as a result of their decisions to reduce their involvement in
certain industries or projects perceived to be associated with climate change. If we do not identify, quantify, and mitigate
such risks successfully, we may experience financial losses, litigation, reputational harm, and losses of investor and
stakeholder confidence.
Even as regulators begin to mandate additional disclosure of climate-related information by companies across sectors,
there may continue to be a lack of information for more robust climate-related risk analyses. Third-party exposures to
climate-related risks and other data generally are limited in availability and variable in quality. Modeling capabilities across
the industry to analyze climate-related risks and interconnections are improving but remain incomplete. Legislative or
regulatory uncertainties and changes regarding climate-related risk management and disclosures are likely to result in
higher regulatory, compliance, credit, reputational and other risks and costs, and may subject us to evolving and potentially
conflicting requirements in the various jurisdictions in which we operate.
If we do not develop and execute strategic plans successfully, our growth may be impacted negatively.
Our growth depends upon successful, consistent development and execution of our business strategies. A failure to develop
and execute these strategies may impact growth negatively. A failure to grow organically or to integrate successfully an
acquisition could have an adverse effect on our business. The challenges arising from generating organic growth or the
integration of an acquired business may include preserving valuable relationships with employees, clients, suppliers and
other business partners, delivering enhanced products and services, as well as combining accounting, data processing and
internal control systems. To the extent we enter into transactions to acquire complementary businesses and/or technologies,
we may not achieve the expected benefits of such transactions, which could result in increased costs, lowered revenues,
ineffective deployment of capital, regulatory concerns, exit costs or diminished competitive position or reputation. These
risks may be increased if the acquired company operates internationally or in a geographic location where we do not
already have significant business operations.
Execution of our business strategies also may require certain regulatory approvals or consents, which may include
approvals of the Federal Reserve Board and other domestic and non-U.S. regulatory authorities. These regulatory
authorities have the ability to impose conditions on the activities or transactions contemplated by our business strategies
which may impact negatively our ability to realize fully the expected benefits of certain opportunities. Further, acquisitions
we announce may not be completed, or completed in the time frame anticipated, if we do not receive the required
regulatory approvals, if regulatory approvals are significantly delayed or if other closing conditions are not satisfied.
2022 ANNUAL REPORT | NORTHERN TRUST CORPORATION 27
We are subject to intense competition in all aspects of our businesses, which could have a negative effect on our ability
to maintain satisfactory prices and grow our earnings.
We provide a broad range of financial products and services in highly competitive markets. We compete against large,
well-capitalized, and geographically diverse companies that are capable of offering a wide array of financial products and
services at competitive prices. In certain businesses, such as foreign exchange trading, electronic networks present a
competitive challenge. Additionally, technological advances and the growth of internet-based commerce have made it
possible for other types of institutions to offer a variety of products and services competitive with certain areas of our
business. Many of these nontraditional service providers have fewer regulatory constraints and some have lower cost
structures. The same may be said for competitors based in non-U.S. jurisdictions, where legal and regulatory environments
may be more favorable than those applicable to the Corporation and the Bank as U.S.-domiciled financial institutions.
These competitive pressures may have a negative effect on our earnings and ability to grow. Pricing pressures, as a result of
the willingness of competitors to offer comparable or improved products or services at a lower price, also may result in a
reduction in the price we can charge for our products and services, which could have, and in some cases has had, a negative
effect on our ability to maintain or increase our profitability.
Damage to our reputation could have a direct and negative effect on our ability to compete, grow and generate revenue.
The failure or perceived failure to meet or appropriately address client expectations or fiduciary or other obligations,
operational failures, legal and regulatory requirements, potential conflicts of interest, cybersecurity and privacy, social and
sustainability concerns related to our business activities or any other of the risks discussed in this Item 1A could materially
and adversely affect our reputation as well as our ability to attract and retain clients or employees. Additionally, the actual
or alleged actions of our affiliates, vendors or other third parties with which we do business, the actual or alleged actions or
statements of our employees or adverse publicity could negatively impact our reputation and significantly harm our
business prospects. Damage to our reputation for delivery of a high level of service could undermine the confidence of
clients and prospects in our ability to serve them and accordingly affect our earnings negatively. Damage to our reputation
also could affect the confidence of rating agencies, regulators, stockholders and other parties in a wide range of transactions
that are important to our business and the performance of our common stock. Failure to maintain our reputation ultimately
could have an adverse effect on our ability to manage our balance sheet or grow our business. Actions by the financial
services industry generally or by other members of or individuals in the financial services industry also could impact our
reputation negatively or lead to a general loss of confidence in, or impact market perception of, financial institutions that
could negatively affect us. Further, whereas negative public opinion once was driven primarily by adverse news coverage
in traditional media, the proliferation of social media channels utilized by us and third parties, as well as the personal use of
social media by our employees and others, may increase the risk of negative publicity, including through the rapid
dissemination of inaccurate, misleading or false information, which could harm our reputation or have other negative
consequences.
We need to invest in innovation constantly, and the inability or failure to do so may affect our businesses and earnings
negatively.
Our success in the competitive environment in which we operate requires consistent investment of capital and human
resources in innovation, particularly in light of the current “FinTech” environment, in which the financial services industry
is undergoing rapid technological changes and financial institutions are investing significantly in evaluating new
technologies, such as artificial intelligence, machine learning, blockchain and other distributed ledger technologies, and
developing potentially industry-changing new products, services and industry standards. Our investment is directed at
generating new products and services, and adapting existing products and services to the evolving standards and demands
of the marketplace. Among other things, investing in innovation helps us maintain a mix of products and services that
keeps pace with our competitors and achieve acceptable margins. Our investment also focuses on enhancing the delivery of
our products and services in order to compete successfully for new clients or gain additional business from existing clients,
and includes investment in technological innovation as well. Effectively identifying gaps or weaknesses in our product
offerings also is important to our success. Failure to keep pace with our competition in any of these areas could affect our
business opportunities, growth and earnings adversely. There are substantial risks and uncertainties associated with
innovation efforts, including an increased risk that new and emerging technologies may expose us to increased
cybersecurity and other information technology threats. We must invest significant time and resources in developing and
marketing new products and services, and expected timetables for the introduction and development of new products or
services may not be achieved and price and profitability targets may not be met. Further, our revenues and costs may
fluctuate because new products and services generally require start-up costs while corresponding revenues take time to
develop or may not develop at all.
28 2022 ANNUAL REPORT | NORTHERN TRUST CORPORATION
Failure to understand or appreciate fully the risks associated with development or delivery of new product and service
offerings may affect our businesses and earnings negatively.
The success of our innovation efforts depends, in part, on the successful implementation of new product and service
initiatives. Not only must we keep pace with competitors in the development of these new offerings, but we must
accurately price them (as well as existing products) on a risk-adjusted basis and deliver them to clients effectively. Our
identification of risks arising from new products and services, both in their design and implementation, and effective
responses to those identified risks, including pricing, is key to the success of our efforts at innovation and investment in
new product and service offerings.
Our success with large, complex clients requires an understanding of the market and legal, regulatory and accounting
standards in various jurisdictions.
A significant portion of our business involves providing certain services to large, complex clients which requires an
understanding of the market and legal, regulatory and accounting standards in various jurisdictions. Any failure to
understand, address or comply with those standards appropriately could affect our growth prospects or affect our reputation
negatively. We identify and manage risk through our business strategies and plans and our risk management practices and
controls. If we fail to identify and manage significant risks successfully, we could incur financial loss, suffer damage to our
reputation that could restrict our ability to grow or conduct business profitably, or become subject to regulatory penalties or
constraints that could limit some of our activities or make them significantly more expensive. In addition, our businesses
and the markets in which we operate are continuously evolving. We may fail to understand fully the implications of
changes in legal or regulatory requirements, our businesses or the financial markets or fail to enhance our risk framework
to address those changes in a timely fashion. If our risk framework is ineffective, either because it fails to keep pace with
changes in the financial markets, legal and regulatory requirements, our businesses, our counterparties, clients or service
providers or for other reasons, we could incur losses, suffer reputational damage or find ourselves out of compliance with
applicable regulatory or contractual mandates or expectations. These risks are magnified as client requirements become
more complex and as our increasingly global business requires end-to-end management of operational and other processes
across multiple time zones and many inter-related products and services.
We may take actions to maintain client satisfaction that result in losses or reduced earnings.
We may take action or incur expenses in order to maintain client satisfaction or preserve the usefulness of investments or
investment vehicles we manage in light of changes in security ratings, liquidity or valuation issues or other developments,
even though we are not required to do so by law or the terms of governing instruments. The risk that we will decide to take
actions to maintain client satisfaction that result in losses or reduced earnings is greater in periods when credit or equity
markets are deteriorating in value or are particularly volatile and liquidity in markets is disrupted.
Other Risks
The systems and models we employ to analyze, monitor and mitigate risks, as well as for other business purposes, are
inherently limited, may not be effective in all cases and, in any case, cannot eliminate all risks that we face.
We use various systems and models in analyzing and monitoring several risk categories, as well as for other business
purposes. While we assess and improve these systems and models on an ongoing basis, there can be no assurance that they,
along with other related controls, will effectively mitigate risk under all circumstances, or that they will adequately mitigate
any risk or loss to us. As with any systems and models, there are inherent limitations because they involve techniques and
judgments that cannot anticipate every economic and financial outcome in the markets in which we operate, nor can they
anticipate the specifics and timing of such outcomes. Further, these systems and models may fail to quantify accurately the
magnitude of the risks we face or they may not be effective against all types of risk, including risks that are unidentified or
unanticipated. Our measurement methodologies rely on many assumptions and historical analyses and correlations. These
assumptions may be incorrect, and the historical correlations on which we rely may not continue to be relevant.
Consequently, the measurements that we make may not adequately capture or express the true risk profiles of our
businesses or provide accurate data for other business purposes, each of which ultimately could have a negative impact on
our business, financial condition and results of operations. Errors in the underlying model or model assumptions, or
inadequate model assumptions, could result in unanticipated and adverse consequences, including material loss or
noncompliance with regulatory requirements or expectations.
2022 ANNUAL REPORT | NORTHERN TRUST CORPORATION 29
Changes in tax laws and interpretations and tax challenges may affect our earnings negatively.
Both U.S. and non-U.S. governments and tax authorities, including states and municipalities, from time to time issue new,
or modify existing, tax laws and regulations. These authorities may also issue new, or modify existing, interpretations of
those laws and regulations. These new laws, regulations or interpretations, and our actions taken in response to, or reliance
upon, such changes in the tax laws may impact our tax position in a manner that affects our earnings negatively.
In the course of our business, we are sometimes subject to challenges from U.S. and non-U.S. tax authorities, including
states and municipalities, regarding the amount of taxes due. These challenges may result in adjustments to the timing or
amount of taxable income, deductions, tax credits, or the allocation of income among tax jurisdictions, all of which may
require a greater provision for taxes or otherwise affect earnings negatively.
Changes in accounting standards may be difficult to predict and could have a material impact on our consolidated
financial statements.
New accounting standards, changes to existing accounting standards, or changes in the interpretation of existing accounting
standards by the Financial Accounting Standards Board, the SEC or bank regulatory agencies, or otherwise reflected in
GAAP, potentially could have a material impact on our financial condition and results of operations. These changes are
difficult to predict and in some cases we could be required to apply a new or revised standard retroactively, resulting in the
revised treatment of certain transactions or activities, or even the restatement of consolidated financial statements for prior
periods.
Our ability to return capital to stockholders is subject to the discretion of our Board of Directors and may be limited by
U.S. banking laws and regulations, applicable provisions of Delaware law, or our failure to pay full and timely
dividends on our preferred stock and the terms of our outstanding debt.
Holders of our common stock are entitled to receive only such dividends and other distributions of capital as our Board of
Directors may declare out of funds legally available for such payments under Delaware law. Although we have declared
cash dividends on shares of our common stock historically, we are not required to do so. In addition to the approval of our
Board of Directors, our ability to take certain actions, including our ability to pay dividends, repurchase stock, and make
other capital distributions, is dependent upon, among other things, their payment being made in accordance with the capital
plan rules and capital adequacy standards of the Federal Reserve Board.
A significant source of funds for the Corporation is dividends from the Bank. As a result, our ability to pay dividends
on the Corporation’s common stock will depend in large part on the ability of the Bank to pay dividends to the
Corporation. There are various legal limitations on the extent to which the Bank and the Corporation’s other subsidiaries
can supply funds to the Corporation by dividend or otherwise. Dividend payments by the Bank to the Corporation in the
future will require continued generation of earnings by the Bank and could require regulatory approval under certain
circumstances. If the Bank is unable to pay dividends to the Corporation in the future, our ability to pay dividends on the
Corporation’s common stock would be affected adversely.
Our ability to declare or pay dividends on, or purchase, redeem or otherwise acquire, shares of our common stock or
any of our shares that rank junior to our preferred stock as to the payment of dividends and/or the distribution of any assets
on any liquidation, dissolution or winding-up of the Corporation also generally will be prohibited in the event that we do
not declare and pay in full dividends on our Series D Non-Cumulative Perpetual Preferred Stock (Series D Preferred Stock)
and Series E Non-Cumulative Perpetual Preferred Stock (Series E Preferred Stock). Further, in the future if we default on
certain of our outstanding debt we will be prohibited from making dividend payments on our common stock until such
payments have been brought current.
Any reduction or elimination of our common stock dividend, or even our failure to maintain the common stock
dividend level in a manner comparable to our competitors, likely would have a negative effect on the market price of our
common stock. For more information on dividend restrictions, see “Supervision and Regulation—Payment of Dividends”
and “Supervision and Regulation—Capital Planning and Stress Testing” in Item 1, “Business.”
Additionally, on October 19, 2021, we announced that our Board authorized a share repurchase program to repurchase
up to 25.0 million shares of the Corporation’s outstanding common stock. The Corporation retains the ability to repurchase
when circumstances warrant and applicable regulation permits. The Inflation Reduction Act of 2022, which was signed into
law in August 2022, imposes a 1% excise tax on the fair market value of stock repurchases after December 31, 2022. There
have been recent proposals to significantly increase this excise tax rate. Any such material increases may impact our future
strategies relating to the return of capital to our shareholders, including the size of, or execution against, current or future
repurchase programs related to shares of our common stock.
ITEM 1B – UNRESOLVED STAFF COMMENTS
None.
30 2022 ANNUAL REPORT | NORTHERN TRUST CORPORATION
ITEM 2 – PROPERTIES
The executive offices of the Corporation and the Bank are located at 50 South La Salle Street in Chicago. This Bank-
owned building is occupied by various divisions of Northern Trust’s businesses. Adjacent to this building is one office
building in which the Bank leases space principally for corporate support functions. Financial services are provided by the
Bank and other subsidiaries of the Corporation through a network of offices in 25 U.S. states and Washington, D.C., and
across 23 locations in Canada, Europe, the Middle East and the Asia-Pacific region. The majority of those offices are
leased. The Bank’s other primary U.S. operations are located in five facilities: a leased facility at 333 South Wabash
Avenue in Chicago; a leased facility in Tempe, Arizona; and one leased and two Bank-owned supplementary operations/
data center buildings located in the western suburbs of Chicago. A majority of the Bank’s London-based staff is located at
a leased facility at Canary Wharf in London. Additional support and operations activity originates from four facilities in
India, two facilities in Ireland, and one facility in the Philippines, all of which are leased. The Bank and the Corporation’s
other subsidiaries operate from various other facilities in North America, Europe, the Asia-Pacific region, and the Middle
East, most of which are leased.
The Corporation believes that its owned and leased facilities are suitable and adequate for its business needs. The
Corporation continues to evaluate its owned and leased facilities and may determine from time to time that certain of its
facilities are no longer necessary for its operations. There is no assurance that the Corporation will be able to dispose of any
excess facilities or that it will not incur costs in connection with such dispositions, which could be material to its operating
results in a given period.
For additional information relating to properties and lease commitments, refer to Note 9, “Buildings and Equipment”
and Note 10, “Lease Commitments,” included under Item 8, “Financial Statements and Supplementary Data,” and which
information is incorporated herein by reference.
ITEM 3 – LEGAL PROCEEDINGS
The information presented under the caption “Legal Proceedings” in Note 25, “Commitments and Contingent Liabilities,”
included under Item 8, “Financial Statements and Supplementary Data,” is incorporated herein by reference.
ITEM 4 – MINE SAFETY DISCLOSURES
Not applicable.
2022 ANNUAL REPORT | NORTHERN TRUST CORPORATION 31
SUPPLEMENTAL ITEM – INFORMATION ABOUT OUR EXECUTIVE OFFICERS
The following sets forth certain information with regard to each executive officer of the Corporation.
Michael G. O’Grady - Mr. O’Grady, age 57, joined Northern Trust in 2011 and has served as Chairman of the Board
since 2019, as Chief Executive Officer since 2018 and as President since 2017. Prior to that, Mr. O’Grady served as
Executive Vice President and President of Corporate & Institutional Services from 2014 to 2016 and as Chief Financial
Officer from 2011 to 2014. Before joining Northern Trust, Mr. O’Grady served as a Managing Director in Bank of
America Merrill Lynch’s Investment Banking Group.
Lauren E. Allnutt - Ms. Allnutt, age 46, joined Northern Trust in 2008 and has served as an Executive Vice President
since 2020 and as Controller since 2019. Prior to that, Ms. Allnutt served as manager of Global Financial Control from
2014 to 2019 and led International Accounting Policy and Control from 2013 to 2014.
Peter B. Cherecwich - Mr. Cherecwich, age 58, joined Northern Trust in 2007 and has served as Executive Vice
President and President of Asset Servicing since 2017. Prior to that, Mr. Cherecwich served as Executive Vice President
and President of Global Fund Services from 2010 to 2017 and as Chief Operating Officer of Corporate & Institutional
Services from 2008 to 2014. From 2007 to 2008, he served as Head of Institutional Strategy & Product Development.
Before joining Northern Trust, Mr. Cherecwich served in several executive and operational roles at State Street
Corporation.
Steven L. Fradkin - Mr. Fradkin, age 61, joined Northern Trust in 1985 and has served as Executive Vice President
and President of Wealth Management since 2014. Prior to that, Mr. Fradkin served as President of Corporate &
Institutional Services from 2009 to 2014. From 2004 to 2009, he served as Chief Financial Officer.
Mark C. Gossett - Mr. Gossett, age 61, joined Northern Trust in 1983 and has served as Executive Vice President and
Chief Risk Officer since 2020. Prior to that, Mr. Gossett served as Chief Credit Officer and Head of Market and Liquidity
Risk from 2014 to 2020 and as Co-Head of Global Foreign Exchange from 2012 to 2014. Mr. Gossett also previously
served as the Chief Risk Officer of Asset Management from 2009 to 2012 and as the Chief Operating Officer of Asset
Management from 2005 to 2009.
Susan C. Levy - Ms. Levy, age 65, joined Northern Trust in 2014 and has served as Executive Vice President and
General Counsel since that time. Ms. Levy also previously served as Corporate Secretary from 2018 to 2021. Before
joining Northern Trust, Ms. Levy served as Managing Partner of the law firm Jenner & Block from 2008 to 2014, where
she was a partner since 1990.
Teresa A. Parker - Ms. Parker, age 62, joined Northern Trust in 1982 and has served as Executive Vice President and
President of Europe, Middle East and Africa since 2017. Prior to that, Ms. Parker served as Chief Operating Officer of
Corporate & Institutional Services from 2014 to 2017. From 2009 to 2014, she served as Executive Vice President,
Corporate & Institutional Services for the Asia-Pacific region.
Thomas A. South - Mr. South, age 53, joined Northern Trust in 1999 and has served as Executive Vice President and
Chief Information Officer since 2018. Prior to that, Mr. South served as Chief Business Architect from 2014 to 2018 and as
Chief Operating Officer of Operations & Technology from 2013 to 2014.
Alexandria Taylor - Ms. Taylor, age 40, joined Northern Trust as Executive Vice President and Chief Human
Resources Officer in October 2022. Prior to joining Northern Trust, Ms. Taylor spent nearly two decades at Bank of
America based in New York City where she was the head of Human Resources for corporate, institutional and wealth
management businesses. She also oversaw the team responsible for Global Human Resources regulatory relations. Prior to
that, Ms. Taylor held positions of increasing responsibility and complexity at Bank of America.
Jason J. Tyler - Mr. Tyler, age 51, joined Northern Trust in 2011 and has served as Executive Vice President and
Chief Financial Officer since 2020. Prior to that, Mr. Tyler served as Chief Financial Officer of Wealth Management from
2018 to 2019, as Global Head of Asset Management’s Institutional Group from 2014 to 2018, and as Global Head of
Strategy from 2011 to 2014. Before joining Northern Trust, Mr. Tyler served in certain executive and operational roles at
Ariel Investments and Bank One/American National Bank.
All officers are appointed annually by the Board of Directors. Officers continue to hold office until their successors are
duly elected or until their death, resignation or removal by the Board.
32 2022 ANNUAL REPORT | NORTHERN TRUST CORPORATION
PART II
ITEM 5 – MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
Our common stock is listed on The NASDAQ Stock Market LLC under the symbol “NTRS.” There were 1,545
shareholders of record as of January 31, 2023.
The following table shows certain information relating to the Corporation’s purchases of common stock for the three
months ended December 31, 2022.
TABLE 3: REPURCHASES OF COMMON STOCK IN THE FOURTH QUARTER OF 2022
PERIOD
October 1 - 31, 2022
November 1 - 30, 2022
December 1 - 31, 2022
Total (Fourth Quarter)
TOTAL NUMBER
OF SHARES
PURCHASED
AVERAGE PRICE
PAID PER SHARE
— $
—
—
— $
—
—
—
—
TOTAL NUMBER
OF SHARES
PURCHASED AS
PART OF A
PUBLICLY
ANNOUNCED PLAN
MAXIMUM
NUMBER OF
SHARES THAT
MAY YET BE
PURCHASED
UNDER THE PLAN
—
—
—
—
25,000,000
25,000,000
25,000,000
25,000,000
On October 19, 2021, the Corporation announced a share repurchase program under which the Corporation’s Board of
Directors authorized the Corporation to repurchase up to 25.0 million shares of the Corporation’s common stock. The
repurchase authorization approved by the Board of Directors has no expiration date, thus the Corporation retains the ability
to repurchase when circumstances warrant and applicable regulation permits. For more information, please refer to Note
14, “Stockholders’ Equity,” provided in Item 8, “Financial Statements and Supplementary Data.”
2022 ANNUAL REPORT | NORTHERN TRUST CORPORATION 33
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
The following graph compares the cumulative total stockholder return on the Corporation’s common stock to the
cumulative total return of the S&P 500 Index and the KBW Bank Index for the five fiscal years ended December 31, 2022.
The cumulative total stockholder return assumes the investment of $100 in the Corporation’s common stock and in each
index on December 31, 2017 and assumes reinvestment of dividends. The KBW Bank Index is a modified-capitalization-
weighted index made up of 24 of the largest banking companies in the United States. The Corporation is included in the
S&P 500 Index and the KBW Bank Index.
Total Return Assumes $100 Invested on
December 31, 2017 with Reinvestment of Dividends
$
2017
100 $
100
100
2018
85 $
96
82
DECEMBER 31,
2019
112 $
126
112
2020
101 $
149
100
2021
133 $
192
139
2022
102
157
109
Northern Trust
S&P 500
KBW Bank Index
ITEM 6 – [RESERVED]
34 2022 ANNUAL REPORT | NORTHERN TRUST CORPORATION
Five-Year Cumulative Total ReturnNorthern TrustS&P 500KBW Bank Index201720182019202020212022$75$100$125$150$175$200$225$250
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ITEM 7 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following is management’s discussion and analysis of the financial condition and results of operations (MD&A) of
Northern Trust Corporation (Corporation) for the year ended December 31, 2022. The following should be read in
conjunction with the consolidated financial statements and related footnotes included in this report. Investors also should
read the section entitled “Forward-Looking Statements.”
BUSINESS OVERVIEW
The Corporation is a leading provider of wealth management, asset servicing, asset management and banking solutions to
corporations, institutions, families and individuals. The Corporation focuses on managing and servicing client assets
through its two client-focused reporting segments: Asset Servicing and Wealth Management. During the first quarter of
2022, the Corporation changed the name of its Corporate & Institutional Services segment to “Asset Servicing.” Asset
management and related services are provided to Asset Servicing and Wealth Management clients primarily by the Asset
Management business.
The Corporation conducts business through various U.S. and non-U.S. subsidiaries, including The Northern Trust
Company (the Bank). The Corporation was formed as a holding company for the Bank in 1971. The Corporation has a
global presence with offices in 25 U.S. states and Washington, D.C., and across 23 locations in Canada, Europe, the Middle
East and the Asia-Pacific region. Except where the context requires otherwise, the terms “Northern Trust,” “we,” “us,”
“our,” “its,” or similar terms refers to the Corporation and its subsidiaries on a consolidated basis.
FINANCIAL OVERVIEW
TABLE 4: FINANCIAL HIGHLIGHTS
($ In Millions)
Noninterest Income
Net Interest Income
Total Revenue
Provision for Credit Losses
Noninterest Expense
Income before Income Taxes
Provision for Income Taxes
Net Income
Preferred Stock Dividends
Net Income Applicable to Common Stock
PER COMMON SHARE
Net Income – Basic
– Diluted
Cash Dividends Declared Per Common Share
Book Value – End of Period (EOP)
Market Price – EOP
SELECTED RATIOS AND METRICS
Return on Average Common Equity
Return on Average Assets
Dividend Payout Ratio
Average Stockholders’ Equity to Average Assets
$
$
$
$
$
$
FOR THE YEAR ENDED DECEMBER 31,
2022
2021
2020
4,874.0
$
5,081.8
$
1,887.2
1,382.7
6,761.2
$
6,464.5
$
12.0
4,982.9
(81.5)
4,535.9
1,766.3
$
2,010.1
$
430.3
464.8
1,336.0
$
1,545.3
$
41.8
41.8
1,294.2
$
1,503.5
$
6.16
$
7.16
$
6.14
2.90
49.78
88.49
12.7 %
0.88
47.2
7.3
7.14
2.80
53.58
119.61
13.9 %
0.99
39.2
7.5
4,657.6
1,443.2
6,100.8
125.0
4,348.2
1,627.6
418.3
1,209.3
56.2
1,153.1
5.48
5.46
2.80
51.87
93.14
11.2 %
0.88
51.3
8.2
Net Income decreased $209.3 million, or 14%, to $1.34 billion in 2022 from $1.55 billion in 2021. Earnings per diluted
common share was $6.14 in 2022 compared to $7.14 in 2021. Return on average common equity decreased to 12.7% in
2022 from 13.9% in 2021. Included 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
2022 ANNUAL REPORT | NORTHERN TRUST CORPORATION 35
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
indices, adversely impacting fees earned based on market values. Trust, Investment and Other Servicing Fees increased 2%
in 2022, as compared to a 9% increase in 2021. The impacts of tightening in the labor market is reflected in our
Compensation expense. Inflationary pressures were also reflected in higher Equipment and Software and Outside Services
expense. Results in 2022 also included $213.0 million of pre-tax losses recognized in conjunction with an intent to sell
certain available for sale debt securities, $44.1 million of pre-tax pension settlement charges, $32.0 million of pre-tax
severance-related charges, and $14.0 million of pre-tax occupancy charges related to early lease exits.
Revenue increased $296.7 million to $6.76 billion in 2022 from $6.46 billion in the prior year, primarily driven by
increases in Net Interest Income of 36% and Trust, Investment and Other Servicing Fees of 2%, partially offset by
increased investment securities losses and a decrease in Other Operating Income of 22%. Beginning in 2022, Trust,
Investment and Other Servicing Fees were impacted by the change in classification of certain fees that were previously
recorded in Other Operating Income or as a reduction of Other Operating Expense. This change resulted in no impact to
Net Income. The accounting reclassification increased Trust, Investment and Other Servicing Fees in the current year by
$65.6 million, with a $25.6 million decrease in Other Operating Income and a $40.0 million increase in Other Operating
Expense. The classification changes are considered by the Corporation’s management to be a better representation of the
underlying nature of the business as they are directly tied to client asset levels and the related services are more akin to our
core service offerings. Prior-year amounts have not been reclassified.
Client AUC/A decreased 16% from $16.25 trillion as of December 31, 2021 to $13.60 trillion as of December 31,
2022, primarily reflecting unfavorable markets and unfavorable currency translation. Client assets under custody, a
component of AUC/A, decreased 16% from $12.61 trillion as of December 31, 2021 to $10.60 trillion as of December 31,
2022. Client assets under custody included $6.91 trillion of global custody assets as of December 31, 2022, which
decreased 16% from $8.24 trillion as of December 31, 2021. Client assets under management decreased 22% to $1.25
trillion as of December 31, 2022 from $1.61 trillion as of December 31, 2021 due to net outflows, unfavorable markets and
unfavorable currency translation.
The Provision for Credit Losses in 2022 was $12.0 million as compared to a release of credit reserves of $81.5 million
in 2021. The provision during 2022 was primarily due to an increase in the reserve evaluated on a collective basis, which
relates to pooled financial assets sharing similar risk characteristics. The increase was driven by weaker macroeconomic
conditions and portfolio growth, partially offset by improvements in credit quality. The increase in the collective basis
reserve was primarily reflected in the commercial real estate and commercial and institutional portfolios. The prior-year
release of credit reserves primarily reflected a decrease in the reserve evaluated on a collective basis, driven by
improvements in projected economic conditions at the time and portfolio credit quality, partially offset by portfolio growth.
The decrease in the collective basis reserve was primarily reflected in the commercial and institutional portfolio.
Noninterest Expense of $4.98 billion in 2022 increased $447.0 million, or 10%, from $4.54 billion in 2021, primarily
reflecting increased Compensation, Equipment and Software, Other Operating Expense and Outside Services.
The Provision for Income Taxes in 2022 totaled $430.3 million, representing an effective tax rate of 24.4%. The
Provision for Income Taxes in 2021 totaled $464.8 million, representing an effective tax rate of 23.1%. The increase in the
effective tax rate was primarily driven by a higher net impact from international operations, including limitations on the
U.S. foreign tax credit and reserves for uncertain tax positions, partially offset by increased tax benefits from tax-credit
investments and tax-exempt income.
Northern Trust continued to maintain a strong capital position during 2022, with all capital ratios exceeding those
required for classification as “well-capitalized” under federal bank regulatory capital requirements. For additional
information, please refer to the “Capital Management” section.
CONSOLIDATED RESULTS OF OPERATIONS
The following information summarizes our consolidated results of operations for 2022 compared to 2021. For a discussion
related to the consolidated results of operations for 2021 compared to 2020, refer to Part II, Item 7. Management’s
Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year
ended December 31, 2021 (2021 Form 10-K), which was filed with the United States Securities and Exchange Commission
on February 28, 2022.
Revenue
Northern Trust generates the majority of its revenue from Noninterest Income that primarily consists of Trust, Investment
and Other Servicing Fees. Net Interest Income comprises the remainder of revenue and consists of Interest Income
generated by earning assets, net of Interest Expense on deposits and borrowed funds.
Revenue in 2022 of $6.76 billion increased $296.7 million, or 5%, from $6.46 billion in 2021. Noninterest Income
represented 72% and 79% of total revenue in 2022 and 2021, respectively, and totaled $4.87 billion in 2022, which
decreased $207.8 million, or 4%, from $5.08 billion in 2021.
36 2022 ANNUAL REPORT | NORTHERN TRUST CORPORATION
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Noninterest Income in 2022 decreased primarily due to increased investment securities losses and lower Other
Operating Income, partially offset by higher Trust, Investment and Other Servicing Fees. Investment Security Gains
(Losses), net of $214.0 million of losses in 2022 increased $213.7 million from $0.3 million of losses in 2021 primarily due
to a $213 million loss arising from an intent to sell certain available for sale debt securities, which were sold in January
2023. Other Operating Income of $191.3 million in 2022 decreased $52.6 million, or 22%, from $243.9 million in the prior
year, primarily due to lower miscellaneous income, the accounting reclassification, and gains from property sales in the
prior-year, partially offset by increased income related to a bank-owned life insurance program. Trust, Investment and
Other Servicing Fees of $4.43 billion in 2022 increased $71.5 million, or 2%, from $4.36 billion in 2021, primarily due to
lower money market fee waivers, the accounting reclassification and new business, partially offset by unfavorable markets
and unfavorable currency translation.
Net Interest Income on a fully taxable equivalent (FTE) basis in 2022 of $1.93 billion increased $514.5 million, or
36%, from $1.42 billion in 2021, due to higher average interest rates and favorable balance sheet mix shift. The net interest
margin on an FTE basis increased to 1.39% in 2022 from 0.99% in 2021, primarily due to higher average interest rates and
favorable balance sheet mix shift. Average earning assets decreased $5.0 billion, or 3%, from $143.9 billion in 2021 to
$138.8 billion in 2022, primarily reflecting lower levels of Securities and short-term interest bearing deposits, partially
offset by higher levels of Loans.
Additional information regarding Northern Trust’s revenue by type is provided in the following table.
TABLE 5: REVENUE
($ In Millions)
Noninterest Income
Trust, Investment and Other Servicing Fees
Foreign Exchange Trading Income
Treasury Management Fees
Security Commissions and Trading Income
Other Operating Income
Investment Security Gains (Losses), net
Total Noninterest Income
Net Interest Income(1)
Total Revenue
FOR THE YEAR ENDED DECEMBER 31,
2022
2021
2020
$
4,432.6 $
4,361.1 $
3,995.0
288.6
39.3
136.2
191.3
292.6
44.3
140.2
243.9
(214.0)
(0.3)
4,874.0 $
5,081.8 $
1,887.2
1,382.7
6,761.2 $
6,464.5 $
$
$
290.4
45.4
133.2
194.0
(0.4)
4,657.6
1,443.2
6,100.8
(1) Net Interest Income stated on a GAAP basis. Net Interest Income on an FTE basis includes FTE adjustments of $45.6 million, $35.6 million, and $34.4 million for 2022,
2021, and 2020, respectively. A reconciliation of total consolidated revenue, Net Interest Income and net interest margin on a GAAP basis to revenue, Net Interest Income and
net interest margin on an FTE basis, respectively, (each of which is a non-GAAP financial measure) is provided in “Supplemental Information—Reconciliation to Fully
Taxable Equivalent” within this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section.
Trust, Investment and Other Servicing Fees
Trust, Investment and Other Servicing Fees were $4.43 billion in 2022 compared with $4.36 billion in 2021, and 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 $64.2 million of money market fund fees in 2022 and $287.8 million of money market
fund fees in 2021.
Beginning in 2022, Trust, Investment and Other Servicing Fees were impacted by the change in classification of certain
fees that were previously recorded in Other Operating Income or as a reduction of Other Operating Expense. The
accounting reclassification increased Trust, Investment and Other Servicing Fees in the current year by $65.6 million, with
a $25.6 million decrease in Other Operating Income and a $40.0 million increase in Other Operating Expense. Prior-year
amounts have not been reclassified.
2022 ANNUAL REPORT | NORTHERN TRUST CORPORATION 37
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The components of Trust, Investment and Other Servicing Fees are provided in the following table.
TABLE 6: TRUST, INVESTMENT AND OTHER SERVICING FEES
($ In Millions)
Asset Servicing Trust, Investment and Other Servicing Fees
FOR THE YEAR ENDED DECEMBER 31,
CHANGE
2022
2021
2020
2022 / 2021
2021 / 2020
Custody and Fund Administration
$
1,700.1 $
1,818.8 $
1,586.1
(7) %
Investment Management
Securities Lending
Other
Total Asset Servicing Trust, Investment and Other Servicing Fees
Wealth Management Trust, Investment and Other Servicing Fees
Central
East
West
Global Family Office
$
$
555.1
81.4
159.7
443.5
76.7
148.3
511.1
88.0
136.4
25
6
8
2,496.3 $
2,487.3 $
2,321.6
— %
15 %
(13)
(13)
9
7 %
692.6 $
698.7 $
504.0
382.1
357.6
509.3
380.2
285.6
607.3
442.1
337.7
286.3
1,673.4
3,995.0
(1) %
15 %
(1)
—
25
3 %
2 %
15
13
—
12 %
9 %
Total Wealth Management Trust, Investment and Other Servicing Fees $
1,936.3 $
1,873.8 $
Total Consolidated Trust, Investment and Other Servicing Fees
$
4,432.6 $
4,361.1 $
Asset Servicing
Asset Servicing Trust, Investment and Other Servicing Fees are primarily attributable to services related to custody, fund
administration, investment management, and securities lending. Custody and Fund Administration fees, the largest
component of Asset Servicing fees, are driven primarily by values of client 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 in 2022 from 2021 primarily due to unfavorable currency translation
and unfavorable markets. Investment Management fees in 2022 increased from 2021 primarily due to lower money market
fund fee waivers, partially offset by asset outflows, unfavorable currency translation and unfavorable markets. Other Trust,
Investment and Other Servicing Fees increased in 2022 from 2021 primarily due to the accounting reclassification.
The following tables provide a breakdown of the Asset Servicing assets under custody and under management.
TABLE 7: ASSET SERVICING ASSETS UNDER CUSTODY
($ In Billions)
North America
Europe, Middle East, and Africa
Asia Pacific
Securities Lending
Total Assets Under Custody
DECEMBER 31,
CHANGE
2022
2021
2020
2022 / 2021
2021 / 2020
$
5,703.1 $
6,566.4 $
5,746.4
(13) %
3,037.6
3,894.3
3,478.2
823.3
148.3
898.5
195.6
976.2
186.9
(22)
(8)
(24)
$
9,712.3 $
11,554.8 $
10,387.7
(16) %
14 %
12
(8)
5
11 %
38 2022 ANNUAL REPORT | NORTHERN TRUST CORPORATION
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
TABLE 8: ASSET SERVICING ASSETS UNDER MANAGEMENT
($ In Billions)
North America
Europe, Middle East, and Africa
Asia Pacific
Securities Lending
DECEMBER 31,
CHANGE
2022
2021
2020
2022 / 2021
2021 / 2020
$
586.0 $
789.2 $
121.3
42.5
148.3
148.5
57.7
195.6
676.8
143.5
50.3
186.9
(26) %
17 %
(18)
(26)
(24)
4
15
5
Total Assets Under Management
$
898.1 $
1,191.0 $
1,057.5
(25) %
13 %
Cash and other assets deposited by investment firms as collateral for securities borrowed from custody clients are managed
by Northern Trust and are included in assets under custody and under management. This securities lending collateral
totaled $148.3 billion and $195.6 billion at December 31, 2022 and 2021, respectively.
Wealth Management
Wealth Management fee income is calculated primarily based on market values and is impacted by both one-month and
one-quarter lagged asset values. Fee income in the regions (Central, East and West) decreased in 2022 from 2021 primarily
due to unfavorable markets, partially offset by lower money market fund fee waivers. Global Family Office fee income
increased primarily due to lower money market fund fee waivers and new business. The following tables provide a
summary of Wealth Management assets under custody and under management.
TABLE 9: WEALTH MANAGEMENT ASSETS UNDER CUSTODY
($ In Billions)
Global Family Office
Central
East
West
DECEMBER 31,
CHANGE
2022
2021
2020
2022 / 2021
2021 / 2020
$
614.9 $
742.6 $
124.2
92.0
61.2
139.1
105.0
70.8
600.7
120.0
89.1
65.3
(17) %
24 %
(11)
(12)
(13)
16
18
8
Total Assets Under Custody
$
892.3 $
1,057.5 $
875.1
(16) %
21 %
TABLE 10: WEALTH MANAGEMENT ASSETS UNDER MANAGEMENT
($ In Billions)
Global Family Office
Central
East
West
DECEMBER 31,
CHANGE
2022
2021
2020
2022 / 2021
2021 / 2020
$
119.9 $
144.9 $
110.2
71.4
49.9
128.7
84.5
58.0
114.0
109.3
73.3
51.2
(17) %
27 %
(14)
(16)
(14)
18
15
13
Total Assets Under Management
$
351.4 $
416.1 $
347.8
(16) %
20 %
The Wealth Management regions shown are comprised of the following: Central includes Illinois, Michigan, Minnesota,
Missouri, Ohio and Wisconsin; East includes Connecticut, Delaware, Florida, Georgia, Massachusetts, New York,
Pennsylvania, and Washington, D.C.; West includes Arizona, California, Colorado, Nevada, Texas, and Washington.
Global Family Office provides customized services, including but not limited to investment consulting, global custody,
fiduciary, and private banking, to meet the complex financial needs of ultra-high-net-worth individuals and family offices
across the globe.
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.
2022 ANNUAL REPORT | NORTHERN TRUST CORPORATION 39
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
TABLE 11: EQUITY MARKET INDICES
S&P 500
MSCI EAFE (U.S. dollars)
MSCI EAFE (local currency)
DAILY AVERAGES
YEAR-END
2022
4,101
1,976
1,249
2021
4,271
2,289
1,294
CHANGE
(4) %
(14)
(4)
2022
3,840
1,944
1,232
2021
4,766
2,336
1,362
CHANGE
(19) %
(17)
(10)
TABLE 12: FIXED INCOME MARKET INDICES
Barclays Capital U.S. Aggregate Bond Index
Barclays Capital Global Aggregate Bond Index
2022
2,049
446
AS OF DECEMBER 31,
2021
CHANGE
2,355
532
(13) %
(16)
Client Assets
Northern Trust, in the normal course of business, holds assets under custody/administration and management in a fiduciary
or agency capacity for its clients. In accordance with GAAP, these assets are not assets of Northern Trust and are not
included in its consolidated balance sheets. AUC/A and assets under management are a driver 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.
At December 31, 2022, AUC/A decreased from December 31, 2021, primarily reflecting unfavorable markets and
unfavorable currency translation. Assets under custody, a component of AUC/A, at December 31, 2022, decreased from
December 31, 2021 and included $6.91 trillion of global custody assets compared to $8.24 trillion at December 31, 2021.
The following table presents AUC/A by reporting segment.
TABLE 13: ASSETS UNDER CUSTODY/ADMINISTRATION BY REPORTING SEGMENT
($ In Billions)
Asset Servicing
Wealth Management
Total Assets Under Custody/Administration
DECEMBER 31,
CHANGE
2022
2021
2020
2022 /2021
2021 /2020
$
12,705.5 $
15,183.2 $
13,653.1
898.5
1,065.6
879.4
$
13,604.0 $
16,248.8 $
14,532.5
(16) %
(16)
(16) %
11 %
21
12 %
The following table presents assets under custody, a component of AUC/A, by reporting segment.
TABLE 14: ASSETS UNDER CUSTODY BY REPORTING SEGMENT
($ In Billions)
Asset Servicing
Wealth Management
Total Assets Under Custody
DECEMBER 31,
CHANGE
2022
2021
2020
2022 /2021
2021 / 2020
$
9,712.3 $
11,554.8 $
10,387.7
892.3
1,057.5
875.1
$
10,604.6 $
12,612.3 $
11,262.8
(16) %
(16)
(16) %
11 %
21
12 %
Consolidated assets under custody decreased from the prior year, primarily reflecting unfavorable markets and unfavorable
currency translation.
40 2022 ANNUAL REPORT | NORTHERN TRUST CORPORATION
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following table presents the investment allocation of Northern Trust’s custodied assets by reporting segment.
TABLE 15: ALLOCATION OF ASSETS UNDER CUSTODY
2022
DECEMBER 31,
2021
2020
AS
WM
TOTAL
AS
WM
TOTAL
AS
WM
TOTAL
Equities
44 %
56 %
45 %
47 %
61 %
48 %
46 %
62 %
47 %
Fixed Income Securities
Cash and Other Assets
Securities Lending Collateral
33
21
2
15
29
—
32
22
1
35
16
2
13
26
—
33
17
2
36
16
2
15
23
—
34
17
2
The following table presents Northern Trust’s assets under custody by investment type.
TABLE 16: ASSETS UNDER CUSTODY BY INVESTMENT TYPE
($ In Billions)
Equities
Fixed Income Securities
Cash and Other Assets
Securities Lending Collateral
Total Assets Under Custody
DECEMBER 31,
CHANGE
2022
2021
2020
2022 / 2021
2021 / 2020
$
4,810.7 $
6,049.1 $
5,293.9
3,386.1
2,259.5
148.3
4,139.6
2,228.0
195.6
3,870.9
1,911.1
186.9
$
10,604.6 $
12,612.3 $
11,262.8
(20) %
(18)
1
(24)
(16) %
14 %
7
17
5
12 %
The following table presents Northern Trust’s assets under management by reporting segment.
TABLE 17: ASSETS UNDER MANAGEMENT BY REPORTING SEGMENT
($ In Billions)
Asset Servicing
Wealth Management
Total Assets Under Management
DECEMBER 31,
CHANGE
2022
2021
2020
2022 / 2021
2021 / 2020
$
$
898.1 $
1,191.0 $
1,057.5
351.4
416.1
347.8
1,249.5 $
1,607.1 $
1,405.3
(25) %
(16)
(22) %
13 %
20
14 %
Assets under management at the end of 2022 decreased from 2021. The decrease primarily reflected net outflows,
unfavorable markets and unfavorable currency translation.
The following tables present the investment allocation and management style of Northern Trust’s assets under management
by reporting segment.
TABLE 18: ASSETS UNDER MANAGEMENT BY INVESTMENT TYPE
2022
DECEMBER 31,
2021
2020
AS
WM
TOTAL
AS
WM
TOTAL
AS
WM
TOTAL
Equities
54%
53%
54%
53%
55%
53%
52%
52%
52%
Fixed Income Securities
Cash and Other Assets
Securities Lending Collateral
12
17
17
23
24
—
15
19
12
11
20
16
20
25
—
13
22
12
11
19
18
25
23
—
15
20
13
2022 ANNUAL REPORT | NORTHERN TRUST CORPORATION 41
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
TABLE 19: ASSETS UNDER MANAGEMENT BY MANAGEMENT STYLE
2022
DECEMBER 31,
2021
2020
Index
Active
Multi-Manager
Other
AS
WM
TOTAL
AS
WM
TOTAL
AS
WM
TOTAL
62 %
23 %
51 %
60 %
24 %
50 %
58 %
24 %
50 %
35
3
—
37
10
30
36
5
8
37
3
—
39
9
28
38
5
7
38
4
—
39
8
29
38
5
7
Other Noninterest Income
The components of Other Noninterest Income, and a discussion of significant changes during 2022 and 2021, are provided
below.
TABLE 20: OTHER NONINTEREST INCOME
($ In Millions)
Foreign Exchange Trading Income
Treasury Management Fees
Security Commissions and Trading Income
Other Operating Income
Investment Security Gains (Losses), net
Total Other Noninterest Income
$
FOR THE YEAR ENDED DECEMBER 31,
CHANGE
2022
2021
$
288.6 $
292.6 $
39.3
136.2
191.3
(214.0)
441.4 $
44.3
140.2
243.9
(0.3)
720.7 $
2020
290.4
45.4
133.2
194.0
(0.4)
662.6
2022 / 2021
2021 / 2020
(1) %
(11)
(3)
(22)
N/M
(39) %
1 %
(3)
5
26
N/M
9 %
Beginning in 2022, Other Operating Income was impacted by the change in classification of certain fees to Trust,
Investment and Other Servicing Fees. The impact to Other Operating Income in the current year was a decrease of
$25.6 million relating to amounts now recorded in Trust, Investment and Other Servicing Fees. Prior-year amounts have
not been reclassified.
Foreign Exchange Trading Income
Northern Trust provides foreign exchange services in the normal course of business as an integral part of its global custody
services. Active management of currency positions, within conservative limits, also contributes to foreign exchange trading
income. Foreign Exchange Trading Income in 2022 decreased from 2021, primarily driven by lower foreign exchange
swap activity in Treasury, partially offset by higher client volumes.
Treasury Management Fees
Treasury Management Fees, generated from cash and treasury management products and services provided to clients, in
2022 decreased from 2021, primarily due to an increase in the earnings credit rate applied to client balances.
Security Commissions and Trading Income
Security Commissions and Trading Income, generated primarily from securities brokerage services provided by Northern
Trust Securities, Inc., in 2022 decreased from 2021, primarily driven by lower interest rate swap activity and lower bond
underwriting referral fees, partially offset by higher revenue from core brokerage.
Other Operating Income
Other Operating Income in 2022 decreased from 2021 primarily due to lower miscellaneous income, the accounting
reclassification, and gains from property sales in the prior-year, partially offset by increased income related to a bank-
owned life insurance program.
Please refer to Note 19, “Other Operating Income” included under Item 8, “Financial Statements and Supplementary
Data,” for additional details related to other operating income.
42 2022 ANNUAL REPORT | NORTHERN TRUST CORPORATION
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Investment Security Gains (Losses), Net
Investment Security Gains (Losses), net included a $213.0 million loss arising from an intent to sell $2.1 billion of
available for sale debt securities, which were sold in January 2023 as part of a balance sheet repositioning.
Please refer to Note 34, “Subsequent Event” included under Item 8, “Financial Statements and Supplementary Data,”
for additional details related to the January 2023 sale of the available for sale debt securities.
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 Leases, 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 also are 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 an FTE basis is a non-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 “Supplemental Information—Reconciliation to Fully Taxable
Equivalent” within this “Management’s Discussion and Analysis of Financial Condition and Results of Operations”
section.
2022 ANNUAL REPORT | NORTHERN TRUST CORPORATION 43
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 21: AVERAGE CONSOLIDATED BALANCE SHEETS WITH ANALYSIS OF NET INTEREST INCOME (INTEREST AND RATE
ON A FULLY TAXABLE EQUIVALENT BASIS)
(1)
($ In Millions)
INTEREST-EARNING ASSETS
Federal Reserve and Other Central Bank Deposits
Interest-Bearing Due from and Deposits with Banks(2)
Federal Funds Sold
Securities Purchased under Agreements to Resell(3)
Debt Securities
Available For Sale
Held To Maturity
Trading Account
Total Debt Securities
Loans and Leases(4)
Other Interest-Earning Assets(5)
Total Interest-Earning Assets
Cash and Due from Banks and Other Central Bank Deposits(6)
Other Noninterest-Earning Assets
Total Assets
AVERAGE SOURCE OF FUNDS
Deposits
Savings, Money Market, and Other
Savings Certificates and Other Time
Non-U.S. Offices – Interest-Bearing
Total Interest-Bearing Deposits
Federal Funds Purchased
Securities Sold under Agreements to Repurchase(3)
Other Borrowings
Senior Notes
Long-Term Debt
Floating Rate Capital Debt
Total Interest-Related Funds
Interest Rate Spread
Demand and Other Noninterest-Bearing Deposits
Other Noninterest-Bearing Liabilities
Stockholders’ Equity
2022
2021
2020
INTEREST
AVERAGE
BALANCE
AVERAGE
RATE(7)
INTEREST
AVERAGE
BALANCE
AVERAGE
RATE(7)
INTEREST
AVERAGE
BALANCE
AVERAGE
RATE(7)
$
472.0 $ 36,248.8
1.30 % $
11.3 $ 39,028.2
0.03 % $
28.8 $ 27,904.2
0.10 %
46.6
4,192.5
0.1
5.5
103.7
1,071.2
612.8
32,060.2
289.5
22,970.0
0.4
12.1
902.7
55,042.3
1,348.0
41,030.6
50.2
1,248.1
2,923.3
138,839.0
1.11
3.22
9.68
1.91
1.26
3.84
1.64
3.28
4.03
2.11
9.1
5,779.7
—
0.1
3.5
1,067.4
497.6
38,986.9
164.3
20,617.0
—
0.6
661.9
59,604.5
715.6
37,207.5
40.7
1,185.6
1,442.1
143,873.0
—
2,069.5
—
—
11,643.4
—
—
2,285.9
—
10,204.3
0.16
0.41
0.33
1.28
0.80
1.59
1.11
1.92
3.43
1.00
—
—
22.4
5,400.8
—
2.3
3.9
1,253.1
720.2
40,642.7
85.0
14,353.3
—
1.1
805.2
54,997.1
778.5
33,498.8
39.1
1,076.6
1,677.9
124,132.9
—
2,603.0
—
10,075.2
0.41
1.37
0.31
1.77
0.59
3.27
1.46
2.32
3.63
1.35
—
—
$
— $ 152,551.9
— % $
— $ 156,363.2
— % $
— $ 136,811.1
— %
$
222.3 $ 30,205.0
0.74 % $
12.8 $ 28,339.0
0.05 % $
47.6 $ 23,396.4
0.20 %
17.8
1,059.7
362.7
65,031.3
602.8
96,296.0
34.1
1,407.8
1.68
0.56
0.63
2.43
90.7
433.6
20.94
126.2
5,463.5
92.7
2,756.0
44.0
1,258.9
—
—
990.5
107,615.8
—
—
2.31
3.36
3.49
—
0.92
1.19
—
29,296.4
—
—
4,558.3
—
—
11,081.4
—
4.8
887.2
0.55
16.5
1,266.4
1.30
(15.7) 60,486.3
(0.03)
(78.9) 69,713.4
(61.3) 98,939.6
(0.4)
0.2
190.6
232.0
14.2
5,049.8
48.3
2,856.4
21.1
1,166.1
1.7
218.4
23.8
108,652.9
—
—
—
31,143.5
—
4,869.8
—
11,697.0
(0.11)
(0.06)
(0.19)
0.07
0.28
1.69
1.81
0.78
0.02
0.98
—
—
—
48.4
85,149.1
2.2
1.0
980.9
218.3
45.3
6,401.1
72.7
3,233.8
26.5
1,189.2
4.2
277.7
200.3
97,450.1
—
—
—
23,362.0
—
4,806.4
—
11,192.6
0.06
0.22
0.47
0.71
2.24
2.24
1.52
0.21
1.14
—
—
—
— %
1.19 %
1.16 %
Total Liabilities and Stockholders’ Equity
$
— $ 152,551.9
— % $
— $ 156,363.2
— % $
— $ 136,811.1
Net Interest Income/Margin (FTE Adjusted)
Net Interest Income/Margin (Unadjusted)
$ 1,932.8 $
$ 1,887.2 $
—
—
1.39 % $ 1,418.3 $
1.36 % $ 1,382.7 $
—
—
0.99 % $ 1,477.6 $
0.96 % $ 1,443.2 $
—
—
(1) Northern Trust’s non-U.S. activities are primarily related to its asset servicing, asset management, foreign exchange, cash management, and commercial banking businesses.
The operations of Northern Trust are managed on a reporting segment basis and include components of both U.S and non-U.S. source income and assets. Non-U.S. source
income and assets are not separately identified in Northern Trust’s internal management reporting system. However, Northern Trust is required to disclose non-U.S. activities
based on the domicile of the customer. Due to the complex and integrated nature of Northern Trust’s activities, it is difficult to segregate with precision revenues, expenses and
assets between U.S. and non-U.S.-domiciled customers. On the basis of averages, the percentage of total assets attributable to foreign activities was 18%, 19%, and 20% as of
December 31, 2022, 2021 and 2020, respectively. On the basis of averages, the percentage of total liabilities attributable to foreign activities was 55%, 58%, and 56% as of
December 31, 2022, 2021 and 2020, respectively. For additional information, refer to the Geographic Area Information section of Note 31, “Reporting Segments and Related
Information,” provided in Item 8, “Financial Statements and Supplementary Data.”
(2) Interest-Bearing Due from and Deposits with Banks includes the interest-bearing component of Cash and Due from Banks and Interest-Bearing Deposits with Banks as
presented on the consolidated balance sheets.
(3) Includes the impact of balance sheet netting under master netting arrangements of approximately $3.6 billion in 2022. Excluding the impact of netting, the average interest
rate on Securities Purchased under Agreements to Resell would be approximately 2.23% in 2022. Excluding the impact of netting, the average interest rate on Securities Sold
under Agreements to Repurchase would be approximately 2.27% in 2022. Beginning in the third quarter of 2021, Northern Trust became an approved Government Securities
Division (GSD) netting and sponsoring member in the Fixed Income Clearing Corporation (FICC) sponsored member program, through which Northern Trust submits eligible
repurchase and reverse repurchase transactions in U.S. Government securities between Northern Trust and its sponsored member clients for novation and clearing. Northern
Trust nets securities sold under repurchase agreements against those purchased under resale agreements when FICC is the counterparty.
(4) Average balances include nonaccrual loans and leases.
(5) Other Interest-Earning Assets include certain community development investments, collateral deposits with certain securities depositories and clearing houses, and Federal
Home Loan Bank and Federal Reserve stock, which are classified in Other Assets on the consolidated balance sheets.
(6) 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.
(7) 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.
44 2022 ANNUAL REPORT | NORTHERN TRUST CORPORATION
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
TABLE 22: ANALYSIS OF NET INTEREST INCOME CHANGES DUE TO VOLUME AND RATE
(INTEREST AND RATE ON A FULLY TAXABLE
EQUIVALENT BASIS)
(In Millions)
Increase (Decrease) in Net Interest Income (FTE)
Federal Reserve and Other Central Bank Deposits
$
Interest-Bearing Due from and Deposits with Banks
Federal Funds Sold
Securities Purchased under Agreements to Resell
Debt Securities
Available For Sale
Held To Maturity
Trading Account
Total Debt Securities
Loans and Leases
Other Interest-Earning Assets
Total Interest Income
Interest-Bearing Deposits
Savings, Money Market and Other
Savings Certificates and Other Time
Non-U.S. Offices - Interest-Bearing
Total Interest-Bearing Deposits
Federal Funds Purchased
Securities Sold under Agreements to Repurchase
Other Borrowings
Senior Notes
Long-Term Debt
Floating Rate Capital Debt
Total Interest Expense
(Decrease) Increase in Net Interest Income (FTE)
2022/2021 CHANGE DUE TO
2021/2020 CHANGE DUE TO
AVERAGE
BALANCE
AVERAGE
RATE
NET
(DECREASE)
INCREASE
AVERAGE
BALANCE
AVERAGE
RATE
NET
(DECREASE)
INCREASE
461.6 $
460.7 $
7.8 $
(0.9) $
(3.1)
0.1
—
(78.2)
20.6
0.4
(57.2)
80.1
40.6
—
100.2
193.4
104.6
—
298.0
552.3
37.5
0.1
100.2
115.2
125.2
0.4
240.8
632.4
1.5
—
(0.6)
(25.3) $
(14.8)
—
0.2
(17.5)
(13.3)
—
(0.4)
(6.4)
(216.2)
(222.6)
66.1
—
59.7
164.0
13.2
—
(203.0)
(226.9)
79.3
—
(143.3)
(62.9)
$
$
$
$
$
2.2 $
7.3 $
9.5 $
3.9 $
(2.3) $
1.6
21.2 $
1,460.0 $
1,481.2 $
236.3 $
(472.1) $
(235.8)
1.0 $
208.5 $
209.5 $
1.1
(3.6)
(1.5)
7.7
0.2
1.3
(1.8)
1.8
(1.7)
6.0 $
15.2 $
11.9
445.2
665.6
26.8
90.3
110.7
46.2
21.1
—
960.7 $
499.3 $
13.0
441.6
664.1
34.5
90.5
112.0
44.4
22.9
(1.7)
966.7 $
514.5 $
7.8 $
(4.0)
33.4
37.2
(0.8)
0.1
(8.1)
(7.9)
(0.5)
(0.8)
(42.6) $
(7.7)
(96.6)
(34.8)
(11.7)
(63.2)
(146.9)
(109.7)
(1.8)
(0.9)
(23.0)
(16.5)
(4.9)
(1.7)
(2.6)
(0.8)
(31.1)
(24.4)
(5.4)
(2.5)
19.2 $
(195.7) $
(176.5)
217.1 $
(276.4) $
(59.3)
(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 $45.6 million in 2022, $35.6 million in 2021 and $34.4 million in 2020. 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 “Supplemental Information—Reconciliation to Fully Taxable Equivalent” within this “Management’s Discussion and Analysis of
Financial Condition and Results of Operations” section. Net interest margin is calculated by dividing annualized net interest income by average interest-earning
assets.
Interest revenue on cash collateral positions is reported above within Interest-Bearing Due from and Deposits with Banks and within Loans and Leases. Interest
expense on cash collateral positions is reported above within Non-U.S. Offices Interest-Bearing Deposits. Related cash collateral received from and deposited with
derivative counterparties is recorded net of the associated derivative contract in Other Assets and Other Liabilities, respectively.
Net Interest Income in 2022 increased from 2021. Net Interest Income, stated on an FTE basis, increased from 2021,
due to a higher net interest margin, partially offset by lower levels of average earning assets. Average earning assets in
2022 decreased from 2021, primarily reflecting lower levels of Securities and short-term interest bearing deposits, partially
offset by higher levels of Loans. Funding of the balance sheet reflected lower levels of client deposits, partially offset by
higher short-term borrowing activity.
The net interest margin in 2022 increased from 2021. The net interest margin on an FTE basis in 2022 increased from
2021, primarily due to higher average interest rates and favorable balance sheet mix shift.
Federal Reserve and Other Central Bank Deposits averaged $36.2 billion in 2022, which decreased $2.8 billion, or 7%,
from $39.0 billion in 2021, due to deposit outflows. Average Securities were $55.0 billion and decreased $4.6 billion, or
8%, from $59.6 billion in 2021. Average Other Interest-Earning Assets include certain community development
investments, Federal Home Loan Bank stock, Federal Reserve stock, and collateral deposits with certain securities
depositories and clearing houses, of $936.2 million, $149.3 million, $70.0 million, and $44.6 million respectively, which
are recorded in Other Assets on the consolidated balance sheets. Average taxable Securities were $52.4 billion in 2022 and
2022 ANNUAL REPORT | NORTHERN TRUST CORPORATION 45
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
$56.6 billion in 2021. Average nontaxable Securities, which represent securities that are primarily exempt from U.S.
federal and state income taxes, were $2.6 billion in 2022 and $3.0 billion in 2021. Interest-Bearing Due From and Deposits
with Banks averaged $4.2 billion in 2022 and $5.8 billion in 2021.
Loans and Leases averaged $41.0 billion, which increased $3.8 billion, or 10%, from $37.2 billion in 2021, primarily
reflecting higher levels of commercial and institutional, non-U.S., commercial real estate, private client and residential real
estate loans. Commercial and institutional loans averaged $12.3 billion and increased $1.9 billion, or 18%, from $10.4
billion for 2021. Non-U.S. loans averaged $3.5 billion and increased $946.8 million, or 37%, from $2.5 billion for 2021.
Commercial real estate loans averaged $4.4 billion and increased $455.2 million, or 11%, from $4.0 billion for 2021.
Private client loans averaged $13.9 billion and increased $191.3 million, or 1%, from $13.7 billion for 2021. Residential
real estate loans averaged $6.4 billion and increased $161.9 million, or 3%, from $6.2 billion for 2021.
Northern Trust utilizes a diverse mix of funding sources. Average Interest-Bearing Deposits decreased $2.6 billion, or
3%, to $96.3 billion in 2022 from $98.9 billion in 2021. Average Interest-Related Funds decreased $1.1 billion, or 1%, to
$107.6 billion in 2022 from $108.7 billion in 2021. The balances within short-term borrowing classifications vary based on
funding requirements and strategies, interest rate levels, changes in the volume of lower-cost deposit sources, and the
availability of collateral to secure these borrowings. Average net noninterest-related funds decreased $4.0 billion, or 11%,
to $31.2 billion in 2022 from $35.2 billion in 2021, primarily resulting from lower levels of Demand and Other
Noninterest-Bearing Deposits. Average Demand and Other Noninterest-Bearing Deposits decreased $1.9 billion , or 6%, to
$29.3 billion in 2022 from $31.1 billion in 2021. The average rate on total source of funds was 0.70% in 2022 and 0.02%
in 2021.
Interest expense for Interest-Bearing Deposits in the current year was driven by higher interest rates. Average Non-
U.S. Offices Interest-Bearing Deposits comprised 68% and 70% of total average Interest-Bearing Deposits for the years
ended December 31, 2022 and 2021, respectively.
Stockholders’ Equity
Stockholders’ Equity averaged $11.1 billion in 2022, compared with $11.7 billion in 2021. The decrease in average
Stockholders’ Equity of $615.6 million, or 5%, was primarily attributable to lower Accumulated Other Comprehensive
Income relative to the prior year, partially offset by higher Retained Earnings. During the year ended December 31, 2022,
the Corporation, through common stock dividends and repurchase of 311,536 shares of common stock, returned $648.4
million in capital to common stockholders. During the year ended December 31, 2021, the Corporation maintained its
quarterly common stock dividend at $0.70 per share and repurchased 2,527,544 shares of common stock, returning $861.5
million in capital to common stockholders.
The Corporation’s current stock repurchase authorization to repurchase up to 25.0 million shares was approved by the
Board of Directors in October 2021. Shares are repurchased by the Corporation to, among other things, manage the
Corporation’s capital levels. Repurchased shares are used for general purposes, including the issuance of shares under
stock option and other equity incentive plans. The repurchase authorization approved by the Board of Directors has no
expiration date, thus the Corporation retains the ability to resume repurchases thereunder when circumstances warrant and
applicable regulations permit. The 2021 purchases were predominantly made pursuant to the repurchase program
authorized by the Board of Directors in July 2018. Please refer to Note 14, “Stockholders’ Equity,” provided in Item 8,
“Financial Statements and Supplementary Data.”
Provision for Credit Losses
There was a $12.0 million Provision for Credit Losses in 2022, as compared to a release of credit reserves of $81.5
million in 2021. The provision during 2022 was primarily due to an increase in the reserve evaluated on a collective basis,
which relates to pooled financial assets sharing similar risk characteristics. The increase was driven by weaker
macroeconomic conditions and portfolio growth, partially offset by improvements in credit quality. The increase in the
collective basis reserve was primarily reflected in the commercial real estate and commercial and institutional portfolios.
The prior-year release of credit reserves primarily reflected a decrease in the reserve evaluated on a collective basis, driven
by improvements in projected economic conditions at the time and portfolio credit quality, partially offset by portfolio
growth. The decrease in the collective basis reserve was primarily reflected in the commercial and institutional portfolio.
Net recoveries in 2022 totaled $4.2 million resulting from $6.0 million of charge-offs and $10.2 million of recoveries,
compared to net recoveries of $6.3 million in 2021 resulting from $0.7 million of charge-offs and $7.0 million of
recoveries.
For additional discussion of the Allowance for Credit Losses, refer to the “Asset Quality” section.
46 2022 ANNUAL REPORT | NORTHERN TRUST CORPORATION
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Noninterest Expense
Beginning in 2022, Other Operating Expense was impacted by the change in classification of certain amounts previously
reported as a reduction of Other Operating Expense to Trust, Investment and Other Servicing Fees. The impact to Other
Operating Expense in 2022 was $40.0 million relating to amounts now recorded in Trust, Investment and Other Servicing
Fees rather than as a reduction of Other Operating Expense. Prior-year amounts have not been reclassified.
Noninterest Expense for 2022 increased from 2021, primarily reflecting increased Compensation, Equipment and
Software, Other Operating Expense and Outside Services. Employee Benefits expense in 2022 included pension settlement
charges of $44.1 million as compared to $27.9 million for the U.S. Qualified Plan.
The components of Noninterest Expense and a discussion of significant changes during 2022 and 2021 are provided below.
TABLE 23: NONINTEREST EXPENSE
($ In Millions)
Compensation
Employee Benefits
Outside Services
Equipment and Software
Occupancy
Other Operating Expense
Total Noninterest Expense
FOR THE YEAR ENDED DECEMBER 31,
CHANGE
2022
2021
2020
2022 / 2021
2021 / 2020
$
2,248.0 $
2,011.0 $
1,947.1
12 %
437.4
880.3
838.8
219.1
359.3
431.4
849.4
736.3
208.7
299.1
387.7
763.1
673.5
230.1
346.7
1
4
14
5
20
$
4,982.9 $
4,535.9 $
4,348.2
10 %
3 %
11
11
9
(9)
(14)
4 %
Compensation
Compensation expense, the largest component of Noninterest Expense, increased in 2022 from 2021, primarily reflecting
higher salary expense and equity incentives. The current year reflects $30.4 million of severance-related charges. Staff on a
full-time equivalent basis totaled approximately 23,600 at December 31, 2022, up 12% from approximately 21,100 at
December 31, 2021.
Employee Benefits
Employee Benefits expense in 2022 increased from 2021, primarily due to higher medical costs and pension settlement
charge, partially offset by lower ongoing pension expense associated with a plan remeasurement. There were $44.1 million
and $27.9 million of pension settlement charges in 2022 and 2021, respectively.
Outside Services
Outside Services expense in 2022 increased from 2021, primarily due to higher technical services costs and consulting
services, partially offset by lower third-party advisory fees.
Equipment and Software
Equipment and Software expense in 2022 increased from 2021, primarily reflecting higher software costs driven by
continued technology investments as well as amortization.
Occupancy
Occupancy expense in 2022 increased from 2021, primarily due to a $14.0 million charge related to early lease exits in
2022.
Other Operating Expense
Other Operating Expense in 2022 increased from 2021 primarily due to the accounting reclassification, higher staff-related
expense and business promotion, partially offset by lower supplemental compensation plan expense. Please refer to Note
20, “Other Operating Expense” included under Item 8, “Financial Statements and Supplementary Data,” for additional
details related to other operating expenses.
2022 ANNUAL REPORT | NORTHERN TRUST CORPORATION 47
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Provision for Income Taxes
The 2022 Provision for Income Taxes was $430.3 million, representing an effective rate of 24.4%. This compares with a
Provision for Income Taxes of $464.8 million and an effective rate of 23.1% in 2021. The increase in the effective tax rate
was primarily driven by a higher net impact from international operations, including limitations on the U.S. foreign tax
credit and reserves for uncertain tax positions, partially offset by increased tax benefits from tax-credit investments and tax-
exempt income.
See Note 21, “Income Taxes,” provided in Item 8, “Financial Statements and Supplementary Data,” for more
information on income taxes.
REPORTING SEGMENTS AND RELATED INFORMATION
The following information summarizes our consolidated results of operations by reporting segment for 2022 compared
to 2021. For a discussion related to the consolidated results of operations by reporting segment for 2021 compared
to 2020, refer to Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
in our 2021 Form 10-K, which was filed with the SEC on February 28, 2022.
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.
Equity is allocated to the reporting segments based on a variety of factors including, but not limited to, risk, regulatory
considerations, and internal metrics. Allocations of capital and certain corporate expense may not be representative of
levels that would be required if the segments were independent entities. The accounting policies used for management
reporting are consistent with those described in Note 1, “Summary of Significant Accounting Policies.” Transfers of
income and expense items are recorded at cost; there is no consolidated profit or loss on sales or transfers between
reporting segments. Northern Trust’s presentations are not necessarily consistent with similar information for other
financial institutions.
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, which are reported within the Other 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.
48 2022 ANNUAL REPORT | NORTHERN TRUST CORPORATION
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following table presents the earnings and average assets for the Corporation.
TABLE 24: CONSOLIDATED FINANCIAL INFORMATION
($ In Millions)
Noninterest Income
FOR THE YEAR ENDED DECEMBER 31,
CHANGE
2022
2021
2020
2022 / 2021
2021 / 2020
Trust, Investment and Other Servicing Fees
$
4,432.6 $
4,361.1 $
3,995.0
2 %
9 %
Foreign Exchange Trading Income
Other Noninterest Income
Total Noninterest Income
Net Interest Income
Revenue
Provision for Credit Losses
Noninterest Expense
Income before Income Taxes
Provision for Income Taxes
Net Income
Average Assets
288.6
152.8
4,874.0
1,887.2
6,761.2
12.0
4,982.9
1,766.3
430.3
292.6
428.1
5,081.8
1,382.7
6,464.5
(81.5)
4,535.9
2,010.1
464.8
1,336.0 $
1,545.3 $
290.4
372.2
4,657.6
1,443.2
6,100.8
125.0
4,348.2
1,627.6
418.3
1,209.3
152,551.9 $
156,363.2 $
136,811.1
$
$
(1)
(64)
(4)
36
5
N/M
10
(12)
(7)
(14) %
(2) %
1
15
9
(4)
6
N/M
4
24
11
28 %
14 %
Segment results are stated on an FTE basis which has no impact on Net Income. Net Interest Income on an FTE basis
includes FTE adjustments of $45.6 million, $35.6 million, and $34.4 million for 2022, 2021, and 2020, respectively. A
reconciliation of total consolidated revenue, Net Interest Income and net interest margin on a GAAP basis to revenue, Net
Interest Income and net interest margin on an FTE basis, respectively, (each of which is a non-GAAP financial measure) is
provided in “Supplemental Information—Reconciliation to Fully Taxable Equivalent” within this “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” section.
Asset Servicing
Asset Servicing is a leading global provider of asset servicing and related services to corporate and public retirement funds,
foundations, endowments, fund managers, insurance companies, sovereign wealth funds, and other institutional investors
around the globe. Asset servicing and related services encompass a full range of capabilities including but not limited to:
custody; fund administration; investment operations outsourcing; investment management; investment risk and analytical
services; employee benefit services; securities lending; foreign exchange; treasury management; brokerage services;
transition management services; banking; and cash management. Client relationships are managed through the Bank and
the Bank’s and the Corporation’s other subsidiaries, including support from locations in North America, Europe, the
Middle East, and the Asia-Pacific region. The following table summarizes the results of operations of Asset Servicing for
the years ended December 31, 2022, 2021, and 2020 on a management-reporting basis.
TABLE 25: ASSET SERVICING RESULTS OF OPERATIONS
($ In Millions)
Noninterest Income
FOR THE YEAR ENDED DECEMBER 31,
CHANGE
2022
2021
2020
2022 / 2021
2021 / 2020
Trust, Investment and Other Servicing Fees
$
2,496.3
$
2,487.3
$
2,321.6
— %
7 %
Foreign Exchange Trading Income
Other Noninterest Income
Total Noninterest Income
Net Interest Income(1)
Revenue(1)
Provision for Credit Losses
Noninterest Expense
Income before Income Taxes(1)
Provision for Income Taxes(1)
Net Income
281.0
250.7
3,028.0
1,072.7
4,100.7
2.4
3,092.7
1,005.6
243.2
762.4
$
279.0
261.2
3,027.5
637.2
3,664.7
(33.8)
2,863.0
835.5
194.1
$
641.4
$
276.3
222.5
2,820.4
665.5
3,485.9
38.1
2,752.7
695.1
174.4
520.7
Percentage of Consolidated Net Income
57 %
41 %
43 %
Average Assets
$ 115,646.4
$
120,883.2
$
104,790.6
(1) Non-GAAP financial measures stated on an FTE basis.
1
(4)
—
68
12
N/M
8
20
25
19 %
(4) %
1
17
7
(4)
5
N/M
4
20
11
23 %
15 %
2022 ANNUAL REPORT | NORTHERN TRUST CORPORATION 49
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Asset Servicing Net Income
Asset Servicing Net Income increased in 2022 compared to 2021, primarily reflecting higher Net Interest Income and
Trust, Investment and Other Servicing Fees, partially offset by higher Noninterest Expense, Provision for Income Taxes, a
provision for credit losses compared to a release in the prior year, and lower Other Noninterest Income.
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 Other Noninterest Income
Other Noninterest Income for 2022 decreased from 2021, primarily due to lower Other Operating Income and Treasury
Management Fees, partially offset by higher Security Commissions and Trading Income.
Asset Servicing Net Interest Income
Net Interest Income on an FTE basis increased in 2022 from 2021, due to a higher net interest margin, partially offset by a
decrease in average earning assets. Net interest margin on an FTE basis increased to 1.03% from 0.60%. Average earning
assets of $104.8 billion, decreased $6.2 billion, or 6%, from $111.0 billion in the prior year. The earning assets in Asset
Servicing consisted primarily of intercompany assets and loans. Funding sources were primarily comprised of non-U.S.
custody-related interest-bearing deposits, which averaged $65.0 billion in 2022 as compared to $69.7 billion in 2021.
Asset Servicing Provision for Credit Losses
There was a Provision for Credit Losses of $2.4 million for 2022 compared to a release of credit reserves of $33.8 million
for 2021. The 2022 Provision for Credit Losses was primarily due to weaker macroeconomic conditions. The release of
credit reserves during 2021 reflected a decrease in the reserve evaluated on a collective basis driven by improvements in
projected economic conditions at the time and portfolio credit quality.
Asset Servicing Noninterest Expense
Asset Servicing 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 in 2022 from 2021. The increase primarily reflects higher expense allocations and Compensation expense.
Wealth Management
Wealth Management focuses on high-net-worth individuals and families, business owners, executives, professionals,
retirees, and established privately-held businesses in its target markets. In supporting these targeted segments, Wealth
Management provides trust, investment management, custody, and philanthropic services; financial consulting;
guardianship and estate administration; family business consulting; family financial education; brokerage services; and
private and business banking. Wealth Management also includes Global Family Office, which provides customized
services, including but not limited to: investment consulting; global custody; fiduciary; and private banking; family office
consulting, and technology solutions, to meet the complex financial and reporting needs of ultra-high-net-worth individuals
and family offices across the globe. Wealth Management is one of the largest providers of advisory services in the United
States with AUC/A, and assets under management of $898.5 billion, $892.3 billion, and $351.4 billion, respectively, at
December 31, 2022. Wealth Management services are delivered by multidisciplinary teams through a network of offices in
19 U.S. states and Washington, D.C., as well as offices in London, Guernsey, and Abu Dhabi.
50 2022 ANNUAL REPORT | NORTHERN TRUST CORPORATION
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following table summarizes the results of operations of Wealth Management for the years ended December 31, 2022,
2021, and 2020 on a management-reporting basis.
TABLE 26: WEALTH MANAGEMENT RESULTS OF OPERATIONS
($ In Millions)
Noninterest Income
FOR THE YEAR ENDED DECEMBER 31,
CHANGE
2022
2021
2020
2022 / 2021
2021 / 2020
Trust, Investment and Other Servicing Fees
$
1,936.3
$
1,873.8
$
1,673.4
3 %
Foreign Exchange Trading Income
Other Noninterest Income
Total Noninterest Income
Net Interest Income(1)
Revenue(1)
Provision for Credit Losses
Noninterest Expense
Income before Income Taxes(1)
Provision for Income Taxes(1)
Net Income
7.6
137.7
2,081.6
860.1
2,941.7
9.6
1,815.5
1,116.6
310.0
806.6
$
13.6
188.2
2,075.6
781.1
2,856.7
(47.7)
1,651.1
1,253.3
317.0
$
936.3
$
14.1
168.0
1,855.5
812.1
2,667.6
86.9
1,559.7
1,021.0
291.8
729.2
(44)
(27)
—
10
3
N/M
10
(11)
(2)
(14) %
Percentage of Consolidated Net Income
60 %
61 %
60 %
Average Assets
$
36,905.5
$
35,480.0
$
32,020.5
4 %
(1) Non-GAAP financial measures stated on an FTE basis.
12 %
(4)
12
12
(4)
7
N/M
6
23
9
28 %
11 %
Wealth Management Net Income
Wealth Management Net Income decreased in 2022, primarily reflecting higher Noninterest Expense, a provision for credit
losses compared to a release of credit reserves in the prior year, and lower Other Noninterest Income, partially offset by
higher Net Interest Income and Trust, Investment and Other Servicing Fees.
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 Foreign Exchange Trading Income
Foreign Exchange Trading Income for 2022 decreased from 2021, primarily due to lower allocations.
Wealth Management Other Noninterest Income
Other Noninterest Income for 2022 decreased from 2021, primarily due to lower Other Operating Income due to prior-year
gains on property sales and lower allocations.
Wealth Management Net Interest Income
Net Interest Income on an FTE basis for 2022 increased from 2021, primarily attributable to an increase in earning assets
and net interest margin. Net interest margin on an FTE basis increased to 2.53% from 2.47%. Average earning assets of
$34.0 billion in 2022, increased $1.2 billion, or 4%, from $32.8 billion in 2021. Earning assets and funding sources for the
year ended December 31, 2022 were primarily comprised of loans and domestic interest-bearing deposits, respectively.
Wealth Management Provision for Credit Losses
There was a Provision for Credit Losses of $9.6 million for 2022 compared to a release of credit reserves of $47.7 million
in 2021. The Provision for Credit Losses during 2022 was primarily due to an increase in the reserve evaluated on a
collective basis, driven by weaker economic conditions and portfolio growth, partially offset by improvements in portfolio
quality. The increase in the collective basis reserve was primarily reflected in the commercial and institutional and
commercial real estate portfolios. The 2021 release of credit reserves reflected a decrease in the reserve evaluated on a
collective basis driven by improvements in projected economic conditions at the time and portfolio credit quality, partially
offset by portfolio growth.
Wealth Management Noninterest Expense
Wealth Management Noninterest Expense, which includes the direct expense of the reporting segment, indirect expense
allocations for product and operating support, and indirect expense allocations for certain corporate support services,
increased in 2022 from 2021. The increase primarily reflects higher expense allocations and Compensation expense.
2022 ANNUAL REPORT | NORTHERN TRUST CORPORATION 51
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Other
Income and expenses associated with non-recurring activities such as certain costs associated with acquisitions,
divestitures, litigation, restructuring, and tax adjustments are included within Other. The following table summarizes the
results of operations of the Other segment for the years ended December 31, 2022, 2021, and 2020 on a management-
reporting basis.
TABLE 27: OTHER RESULTS OF OPERATIONS
($ In Millions)
Noninterest Income
Net Interest Income(1)
Revenue(1)
Noninterest Expense
Income (Loss) before Income Taxes(1)
Provision (Benefit) for Income Taxes(1)
Net Income
Percentage of Consolidated Net Income
Average Assets
(1) Non-GAAP financial measures stated on an FTE basis.
FOR THE YEAR ENDED DECEMBER 31,
CHANGE
2022
2021
2020
2022 / 2021
2021 / 2020
$
(235.6)
$
(21.3)
$
—
(235.6)
74.7
(310.3)
(77.3)
—
(21.3)
21.8
(43.1)
(10.7)
$
$
(233.0)
$
(32.4)
$
(17) %
—
$
(2) %
—
$
(18.3)
—
(18.3)
35.8
(54.1)
(13.5)
(40.6)
(3) %
—
N/M
N/M
N/M
N/M
N/M
N/M
N/M
N/M
N/M
N/M
N/M
(39)
N/M
N/M
N/M
N/M
Other—Noninterest Income
Noninterest Income in 2022 decreased from 2021 primarily due to a $213.0 million loss recognized in Investment Security
Gains (Losses), net on the consolidated statements of income arising from an intent to sell available for sale debt securities,
which were sold in January 2023.
Other—Noninterest Expense
Noninterest Expense in 2022 increased from 2021, primarily due to higher non-allocated occupancy expense due to early
lease exits and higher pension settlement charges compared to the prior year.
52 2022 ANNUAL REPORT | NORTHERN TRUST CORPORATION
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Asset Management
Asset Management, through the Corporation’s various subsidiaries, supports the Asset Servicing and Wealth Management
reporting segments by providing a broad range of asset management and related services and other products to clients
around the world. Investment solutions are delivered through separately managed accounts, bank common and collective
funds, registered investment companies, exchange traded funds, non-U.S. collective investment funds, and unregistered
private investment funds. Asset Management’s capabilities include active and passive equity; active and passive fixed
income; cash management; multi-asset and alternative asset classes (such as private equity and hedge funds of funds); and
multi-manager advisory services and products. Asset Management’s activities also include overlay services and other risk
management services. Asset Management operates internationally through subsidiaries and distribution arrangements and
its revenue and expense are allocated fully to Asset Servicing and Wealth Management.
At December 31, 2022, Northern Trust managed $1.25 trillion in assets for personal and institutional clients, including
$898.1 billion for Asset Servicing clients and $351.4 billion for Wealth Management clients. The following table presents
consolidated assets under management as of December 31, 2022, 2021 and 2020 by investment type.
TABLE 28: CONSOLIDATED ASSETS UNDER MANAGEMENT BY INVESTMENT TYPE
($ In Billions)
Equities
Fixed Income Securities
Cash and Other Assets
Securities Lending Collateral
Total Assets Under Management
DECEMBER 31,
CHANGE
2022
2021
2020
2022 / 2021
2021 / 2020
$
671.3 $
856.5 $
186.5
243.4
148.3
216.1
338.9
195.6
733.7
204.8
279.9
186.9
(22) %
17 %
(14)
(28)
(24)
6
21
5
$
1,249.5 $
1,607.1 $
1,405.3
(22) %
14 %
Assets under management decreased at year-end 2022 from year-end 2021. The decrease primarily reflected net outflows,
unfavorable markets and unfavorable currency translation. The following table presents activity in consolidated assets
under management by product during the years ended December 31, 2022, 2021 and 2020.
TABLE 29: ACTIVITY IN CONSOLIDATED ASSETS UNDER MANAGEMENT BY PRODUCT
($ In Billions)
Balance as of January 1
Inflows by Product
Equities
Fixed Income
Cash and Other Assets
Securities Lending Collateral
Total Inflows
Outflows by Product
Equities
Fixed Income
Cash and Other Assets
Securities Lending Collateral
Total Outflows
Net Inflows (Outflows)
Market Performance, Currency & Other
Market Performance & Other
Currency
Total Market Performance, Currency & Other
Balance as of December 31
2022
2021
2020
$
1,607.1 $
1,405.3 $
1,231.3
187.7
48.7
643.2
235.3
292.9
63.7
810.2
270.6
193.0
65.0
802.4
268.8
1,114.9
1,437.4
1,329.2
(231.9)
(55.5)
(743.2)
(282.6)
(321.0)
(56.2)
(745.4)
(261.9)
(212.6)
(68.5)
(746.5)
(245.0)
(1,313.2)
(1,384.5)
(1,272.6)
(198.3)
52.9
56.6
(143.0)
(16.3)
(159.3)
159.8
(10.9)
148.9
109.1
8.3
117.4
$
1,249.5 $
1,607.1 $
1,405.3
2022 ANNUAL REPORT | NORTHERN TRUST CORPORATION 53
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CONSOLIDATED BALANCE SHEET REVIEW
The following tables summarize selected consolidated balance sheet information.
TABLE 30: SELECT CONSOLIDATED BALANCE SHEET INFORMATION
($ In Billions)
Assets
Federal Reserve and Other Central Bank Deposits
Interest-Bearing Due from and Deposits with Banks(1)
Securities Purchased under Agreements to Resell
Total Securities
Loans and Leases
Other Interest-Earning Assets(2)
Total Earning Assets
Total Assets
Liabilities and Stockholders' Equity
Total Interest-Bearing Deposits
Demand and Other Noninterest-Bearing Deposits
Federal Funds Purchased
Securities Sold under Agreements to Repurchase
Other Borrowings
Total Stockholders’ Equity
DECEMBER 31, 2022 DECEMBER 31, 2021
CHANGE
$
40.0 $
64.5 $
(24.5)
(38) %
4.9
1.1
51.8
42.9
1.8
142.5
155.0
98.6
25.3
1.9
0.6
7.6
11.3
3.9
0.7
61.6
40.5
1.1
172.3
183.9
111.6
48.3
—
0.5
3.6
12.0
1.0
0.4
(9.8)
2.4
0.7
(29.8)
(28.9)
(13.0)
(23.0)
1.9
0.1
4.0
(0.7)
28
56
(16)
6
49
(17)
(16)
(12)
(48)
N/M
7
112
(6)
(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, and Federal
Home Loan Bank and Federal Reserve stock, which are classified in Other Assets on the consolidated balance sheets.
TABLE 31: SELECT AVERAGE CONSOLIDATED BALANCE SHEET INFORMATION
($ In Billions)
Assets
Federal Reserve and Other Central Bank Deposits
Interest-Bearing Due from and Deposits with Banks(1)
Securities Purchased under Agreements to Resell
Total Securities
Loans and Leases
Other Interest-Earning Assets(2)
Total Earning Assets
Total Assets
Liabilities and Stockholders' Equity
Total Interest-Bearing Deposits
Demand and Other Noninterest-Bearing Deposits
Federal Funds Purchased
Securities Sold under Agreements to Repurchase
Other Borrowings
Total Stockholders’ Equity
TWELVE MONTHS ENDED DECEMBER 31,
2022
2021
CHANGE
$
36.2 $
39.0 $
4.2
1.1
55.0
41.0
1.3
138.8
152.6
96.3
29.3
1.4
0.4
5.5
11.1
5.8
1.1
59.6
37.2
1.2
143.9
156.4
98.9
31.1
0.2
0.2
5.0
11.7
(2.8)
(1.6)
—
(4.6)
3.8
0.1
(5.1)
(3.8)
(2.6)
(1.8)
1.2
0.2
0.5
(0.6)
(7) %
(27)
—
(8)
10
5
(3)
(2)
(3)
(6)
N/M
87
8
(5)
(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, and Federal
Home Loan Bank and Federal Reserve stock, which are classified in Other Assets on the consolidated balance sheets.
Average balances are considered to be a better measure of balance sheet trends, as period-end balances can be impacted by
the timing of deposit and withdrawal activity involving large client balances.
Short-Term Borrowings. Short-term borrowings includes Federal Funds Purchased, Securities Sold under Agreements to
Repurchase, and Other Borrowings. Securities Sold under Agreements to Repurchase are accounted for as collateralized
54 2022 ANNUAL REPORT | NORTHERN TRUST CORPORATION
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
financings and recorded at the amounts at which the securities were sold plus accrued interest. To minimize any potential
credit risk associated with these transactions, the fair value of the securities sold is monitored, limits are set on exposure
with counterparties, and the financial condition of counterparties is regularly assessed. Securities Sold under Agreements to
Repurchase are held by the counterparty until the repurchase. See Note 5, “Securities Purchased Under Agreements
to Resell and Securities Sold Under Agreements to Repurchase,” Note 25, “Commitments and Contingent Liabilities” and
Note 27, “Offsetting of Assets and Liabilities” to the consolidated financial statements provided in Item 8, “Financial
Statements and Supplementary Data” for additional information on Northern Trust’s repurchase and reverse repurchase
agreements.
Stockholders’ Equity. The decrease in average Stockholders’ Equity was primarily attributable to lower Accumulated
Other Comprehensive Income relative to the prior year, partially offset by higher Retained Earnings.
During the year ended December 31, 2022, the Corporation declared cash dividends totaling $613.0 million to
common stockholders and repurchased 311,536 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 $35.4 million ($113.70 average price per
share). During the year ended December 31, 2022, the Corporation declared cash dividends totaling $41.8 million to
preferred stockholders.
During the year ended December 31, 2021, the Corporation declared cash dividends totaling $593.9 million to
common stockholders and repurchased 2,527,544 shares of common stock, including 394,326 shares withheld to satisfy tax
withholding obligations related to share-based compensation, at a total cost of $267.6 million ($105.90 average price per
share). During the year ended December 31, 2021, the Corporation declared cash dividends totaling $41.8 million to
preferred stockholders.
2022 ANNUAL REPORT | NORTHERN TRUST CORPORATION 55
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Asset Quality
Securities Portfolio
The following table presents the remaining maturity and average yield of Northern Trust's held to maturity (HTM) debt
securities and available for sale (AFS) debt securities by security type as of December 31, 2022.
TABLE 32: REMAINING MATURITY AND AVERAGE YIELD OF HELD TO MATURITY AND AVAILABLE FOR SALE DEBT
SECURITIES
TOTAL
ONE YEAR OR
LESS
ONE TO FIVE
YEARS
FIVE TO TEN
YEARS
OVER TEN
YEARS
BOOK
YIELD
BOOK
YIELD
BOOK
YIELD
BOOK
YIELD
BOOK YIELD
AVERAGE
MATURITY
DECEMBER 31, 2022
($ in Millions)
Held to Maturity Debt
Securities
U.S. Government
$
50.0
3.32% $
50.0
3.32% $ — —% $ —
— % $ — —%
2 mos.
Obligations of States
and Political
Subdivisions
Government
Sponsored Agency
2,565.3
2.76
36.4
3.28
753.0
3.42
1,325.5
3.32
450.4
3.92
81 mos.
9,407.7
Non-U.S. Government
3,234.0
Corporate Debt
713.3
Covered Bonds
2,530.3
1.90
0.45
0.36
0.85
879.8
1,742.3
91.8
410.5
1.99
0.42
0.12
1.22
2,957.6
1,344.7
606.4
1,699.8
2.02
0.49
0.41
0.88
3,629.7
147.0
1.80
0.49
15.1
(0.20)
420.0
0.37
Certificates of Deposit
35.9
11.88
35.9
11.88
— —
—
—
1,940.6
1.88
— —
— —
— —
— —
81 mos.
19 mos.
28 mos.
38 mos.
0 mos.
Sub-Sovereign,
Supranational and
Non-U.S. Agency
Bonds
5,703.3
0.88
1,019.0
1.37
4,554.6
0.81
129.7
(0.23)
— —
31 mos.
Other Asset-Backed
263.7
1.76
88.6
1.55
102.9
2.08
72.2
1.58
— —
69 mos.
Other
532.6
1.17
46.5
1.51
301.2
1.22
34.5
2.55
150.4
0.66
104 mos.
Total Held to Maturity Debt
Securities
Available for Sale Debt
Securities
$ 25,036.1 1.42% $ 4,400.8
1.21% $ 12,320.2 1.24% $ 5,773.7
1.96 % $ 2,541.4 1.47%
56 mos.
U.S. Government
$ 2,747.4
1.87% $ 1,574.5
1.72% $ 1,172.9
2.08% $ —
— % $ — —%
20 mos.
Obligations of States
and Political
Subdivisions
Government
Sponsored Agency
787.6
2.15
— —
105.5
2.43
646.5
2.10
35.6
2.29
77 mos.
11,545.2
Non-U.S. Government
360.0
Corporate Debt
1,747.6
Covered Bonds
388.7
3.67
1.16
1.98
2.89
2,404.0
101.1
551.8
159.2
3.60
2.61
2.41
3.36
5,441.7
258.9
1,180.3
229.5
3.72
0.59
1.79
2.56
2,962.5
3.71
737.0
3.27
—
—
14.8
1.20
—
—
— —
0.7
1.20
— —
48 mos.
31 mos.
21 mos.
22 mos.
Sub-Sovereign,
Supranational and
Non-U.S. Agency
Bonds
2,479.4
1.96
494.3
2.42
1,802.7
1.89
182.4
1.39
— —
32 mos.
Other Asset-Backed
5,256.2
3.40
848.6
1.71
3,035.5
3.04
1,219.7
5.24
152.4
5.27
41 mos.
Commercial
Mortgage-Backed
Total Available for Sale
Debt Securities
1,387.8
3.86
17.5
3.53
1,145.3
4.11
225.0
2.60
— —
46 mos.
$ 26,699.9 3.08% $ 6,151.0
2.64% $ 14,372.3 3.00% $ 5,250.9
3.73 % $ 925.7 3.56%
41 mos.
Note: Yield is calculated on amortized cost and presented on a taxable equivalent basis giving effect to the applicable federal and state tax rates.
56 2022 ANNUAL REPORT | NORTHERN TRUST CORPORATION
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 AFS debt
securities and amortized cost of HTM debt securities by credit rating.
TABLE 33: FAIR VALUE OF AVAILABLE FOR SALE DEBT SECURITIES BY CREDIT RATING
($ In Millions)
U.S. Government
AAA
AA
A
BBB
NOT RATED
TOTAL
AS OF DECEMBER 31, 2022
$ 2,747.4
$
—
$
Obligations of States and Political Subdivisions
136.4
651.2
Government Sponsored Agency
Non-U.S. Government
Corporate Debt
Covered Bonds
Sub-Sovereign, Supranational and Non-U.S. Agency Bonds
Other Asset-Backed
Commercial Mortgage-Backed
11,545.2
360.0
302.5
367.0
1,816.3
5,256.2
1,387.8
—
—
462.6
—
451.5
—
—
—
—
—
—
938.7
21.7
211.6
—
—
$
$
—
—
—
—
—
—
—
—
19.6
24.2
—
—
—
—
—
—
—
—
$ 2,747.4
787.6
11,545.2
360.0
1,747.6
388.7
2,479.4
5,256.2
1,387.8
Total
Percent of Total
($ In Millions)
U.S. Government
$ 23,918.8
$ 1,565.3
$ 1,172.0
$
19.6
$
24.2
$ 26,699.9
90 %
6 %
4 %
— %
— %
100 %
AAA
AA
A
BBB
NOT RATED
TOTAL
AS OF DECEMBER 31, 2021
$ 2,426.1
$
—
$
Obligations of States and Political Subdivisions
1,133.2
2,742.9
Government Sponsored Agency
Non-U.S. Government
Corporate Debt
Covered Bonds
Sub-Sovereign, Supranational and Non-U.S. Agency Bonds
Other Asset-Backed
Commercial Mortgage-Backed
Total
Percent of Total
18,075.6
374.0
442.0
364.1
2,030.9
5,941.6
1,424.7
—
—
466.2
—
783.7
—
—
$
—
—
—
—
1,206.6
23.5
230.5
—
—
$
—
—
—
—
29.4
—
—
—
—
—
—
—
—
197.5
118.0
—
—
—
$ 2,426.1
3,876.1
18,075.6
374.0
2,341.7
505.6
3,045.1
5,941.6
1,424.7
$ 32,212.2
$ 3,992.8
$ 1,460.6
$
29.4
$
315.5
$ 38,010.5
84 %
11 %
4 %
— %
1 %
100 %
As of 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.
As of December 31, 2021, the 1% of AFS debt securities not rated by Moody’s, S&P Global or Fitch Ratings consisted of
corporate debt securities and covered bonds.
TABLE 34: AMORTIZED COST OF HELD TO MATURITY DEBT SECURITIES BY CREDIT RATING
($ In Millions)
U.S. Government
AAA
AA
A
BBB
NOT RATED
TOTAL
AS OF DECEMBER 31, 2022
$
50.0
$
—
$
Obligations of States and Political Subdivisions
926.8
1,638.5
Government Sponsored Agency
Non-U.S. Government
Corporate Debt
Covered Bonds
Certificates of Deposit
9,407.7
762.2
2.1
2,530.3
—
—
926.5
305.7
—
—
Sub-Sovereign, Supranational and Non-U.S. Agency Bonds
4,171.3
1,502.0
Other Asset-Backed
Other
Total
Percent of Total
$
—
—
—
$
—
—
—
1,223.0
322.3
405.5
—
—
28.9
—
—
—
—
—
1.1
—
—
—
—
—
—
—
—
35.9
—
—
466.8
502.7
$
50.0
2,565.3
9,407.7
3,234.0
713.3
2,530.3
35.9
5,703.3
263.7
532.6
$ 25,036.1
263.7
65.8
—
—
$ 18,179.9
$ 4,372.7
$ 1,657.4
$
323.4
$
73 %
17 %
7 %
1 %
2 %
100 %
2022 ANNUAL REPORT | NORTHERN TRUST CORPORATION 57
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(In Millions)
U.S. Government
Obligations of States and Political Subdivisions
Government Sponsored Agency
Non-U.S. Government
Corporate Debt
Covered Bonds
Certificates of Deposit
Sub-Sovereign, Supranational and Non-U.S. Agency Bonds
Other Asset-Backed
Other
Total
Percent of Total
AAA
AA
A
BBB
NOT RATED
TOTAL
AS OF DECEMBER 31, 2021
$
47.0
$
—
5,927.6
398.0
2.3
2,942.4
—
4,207.6
682.6
—
—
0.8
—
942.6
386.7
—
—
1,858.0
—
—
$
$
—
—
—
4,088.8
512.8
—
—
31.3
—
—
$
—
—
—
343.9
—
—
—
1.1
—
—
—
—
—
—
—
—
674.7
—
—
516.3
$
47.0
0.8
5,927.6
5,773.3
901.8
2,942.4
674.7
6,098.0
682.6
516.3
$ 14,207.5
$ 3,188.1
$ 4,632.9
$
345.0
$ 1,191.0
$ 23,564.5
60 %
14 %
20 %
1 %
5 %
100 %
As of December 31, 2022 and December 31, 2021, 2% and 5%, respectively, of HTM debt securities not rated by Moody’s,
S&P Global or Fitch Ratings consisted of certificates of deposit with a remaining life of less than six months, as well as
investments purchased by Northern Trust to fulfill its obligations under the Community Reinvestment Act (CRA).
Northern Trust fulfills its obligations under the CRA by making qualified investments for purposes of supporting
institutions and programs that benefit low-to-moderate income communities within Northern Trust’s market area.
Net unrealized losses within the investment securities portfolio totaled $3.2 billion at December 31, 2022, compared to
net unrealized losses of $187.1 million as of December 31, 2021. 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. Net unrealized losses as of
December 31, 2021 were comprised of $345.1 million and $532.2 million of gross unrealized gains and losses,
respectively.
As of 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 market interest rates
and credit spreads since their purchase. As of December 31, 2021, the $38.0 billion AFS debt securities portfolio had
unrealized losses of $110.2 million related to government-sponsored agency, which are primarily attributable to changes in
market interest rates and credit spreads since their purchase.
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. As of December 31, 2021, the $23.6 billion HTM debt securities portfolio had an unrealized loss of $106.1
million and $80.0 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. During the year ended December 31, 2022, for capital management purposes, the Corporation transferred
government sponsored agency and obligation of states and political subdivisions securities that had a fair value of
$6.6 billion from the AFS to HTM classification, all of which were transferred in the third quarter of 2022. During the year
ended December 31, 2021, the Corporation transferred government sponsored agency securities that had a fair value of
$6.9 billion from AFS to HTM for capital management purposes, all of which were transferred in the second quarter of
2021. Upon transfer of a debt security from the AFS to HTM classification, the amortized cost is reset to fair value. Any
net unrealized gain or loss at the date of transfer will remain in Accumulated Other Comprehensive Income (Loss) (AOCI)
and be amortized into Net Interest Income over the remaining life of the securities using the effective interest method. The
amortization of amounts retained in AOCI will offset the effect on interest income of the amortization of the premium or
discount resulting from transferring the securities at fair value.
For additional information relating to the securities portfolio, refer to Note 4, “Securities,” provided in Item 8,
“Financial Statements and Supplementary Data.”
58 2022 ANNUAL REPORT | NORTHERN TRUST CORPORATION
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Loans and Leases
For additional information relating to the loan and leases portfolio, refer to Note 6, “Loans and Leases,” and Note 8,
“Concentrations of Credit Risk” provided in Item 8, “Financial Statements and Supplementary Data.”
The following table presents the remaining maturity of loans and leases by segment and class as of December 31, 2022.
TABLE 35: REMAINING MATURITY OF LOANS AND LEASES
(In Millions)
U.S.:
Commercial
Commercial and Institutional
Commercial Real Estate
Other
Personal
Private Client
Residential Real Estate
Other
Total U.S.
Non-U.S.:
Non-U.S. - Commercial
Non-U.S. - Personal
Total Non-U.S.
Total Loans and Leases
DECEMBER 31, 2022
TOTAL
ONE YEAR OR
LESS
ONE TO FIVE
YEARS
FIVE TO
FIFTEEN
YEARS
OVER FIFTEEN
YEARS
$
12,415.0 $
5,535.5 $
6,598.2 $
280.9 $
4,773.0
1,316.5
14,119.0
6,413.5
215.2
1,410.9
1,316.5
9,594.8
299.6
215.2
2,711.1
—
4,366.8
1,009.8
—
651.0
—
156.9
1,971.3
—
0.4
—
—
0.5
3,132.8
—
$
$
$
$
39,252.2 $
18,372.5 $
14,685.9 $
3,060.1 $
3,133.7
3,131.1 $
2,833.9 $
510.0
316.8
3,641.1 $
3,150.7 $
277.2 $
137.0
414.2 $
20.0 $
30.2
50.2 $
—
26.0
26.0
42,893.3 $
21,523.2 $
15,100.1 $
3,110.3 $
3,159.7
Note: Non-U.S. loans primarily include short duration exposures related to custodied client investments.
2022 ANNUAL REPORT | NORTHERN TRUST CORPORATION 59
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
TABLE 36: INTEREST RATE SENSITIVITY OF LOANS AND LEASES
(In Millions)
Fixed Rate:
Commercial
Commercial and Institutional
Commercial Real Estate
Non-U.S.
Total Commercial
Personal
Private Client
Residential Real Estate
Non-U.S.
Total Personal
Total Fixed Rate
Variable Rate:
Commercial
Commercial and Institutional
Commercial Real Estate
Non-U.S.
Other
Total Commercial
Personal
Private Client
Residential Real Estate
Non-U.S.
Other
Total Personal
Total Variable Rate
Total Loans and Leases
DECEMBER 31, 2022
TOTAL
ONE YEAR
OR LESS
ONE TO FIVE
YEARS
FIVE TO
FIFTEEN
YEARS
OVER FIFTEEN
YEARS
$
$
$
$
$
317.1 $
129.3 $
178.8
26.9
64.4
26.9
155.7 $
104.9
31.9 $
9.5
—
522.8 $
220.6 $
260.6 $
41.4 $
395.0 $
47.0 $
342.5 $
5.2 $
783.9
10.0
1,188.9 $
1,711.7 $
76.0
—
123.0 $
343.6 $
264.2
10.0
616.7 $
877.3 $
414.6
—
419.8 $
461.2 $
$
12,097.9 $
5,406.3 $
6,442.4 $
249.0 $
4,594.2
3,104.2
1,316.5
1,346.5
2,807.0
1,316.5
2,606.3
277.2
—
641.4
20.0
—
21,112.8 $
10,876.3 $
9,325.9 $
910.4 $
13,724.0 $
9,547.7 $
4,024.4 $
151.7 $
0.2
—
—
0.2
0.3
29.1
—
29.4
29.6
0.2
—
—
—
0.2
0.2
5,629.6
500.0
215.2
223.8
316.6
215.2
745.3
127.2
—
20,068.8 $
10,303.3 $
4,896.9 $
41,181.6 $
21,179.6 $
14,222.8 $
42,893.3 $
21,523.2 $
15,100.1 $
1,556.8
3,103.7
30.2
—
1,738.7 $
2,649.1 $
3,110.3 $
26.0
—
3,129.9
3,130.1
3,159.7
$
$
$
$
$
Nonaccrual Assets and 90 Days Past Due Loans
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. Loans that are delinquent 90 days or more and still
accruing interest can fluctuate widely at any reporting period based on the timing of cash collections, renegotiation and
renewals. For additional information relating to nonaccrual loans, refer to Note 6, “Loans and Leases,” provided in Item 8,
“Financial Statements and Supplementary Data.”
60 2022 ANNUAL REPORT | NORTHERN TRUST CORPORATION
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following table presents nonaccrual assets and loans that were delinquent 90 days or more and still accruing
interest at December 31, 2022 and 2021.
TABLE 37: NONACCRUAL ASSETS
($ In Millions)
Nonaccrual Loans and Leases
Commercial
Commercial and Institutional
Commercial Real Estate
Total Commercial
Personal
Residential Real Estate
Private Client
Total Personal
Total Nonaccrual Loans and Leases
Other Real Estate Owned
Total Nonaccrual Assets
90 Day Past Due Loans Still Accruing
Nonaccrual Loans and Leases to Total Loans and Leases
Allowance for Credit Losses Assigned to Loans and Leases
to Nonaccrual Loans and Leases
% OF 2022
NONACCRUAL
LOANS AND
LEASES TO TOTAL
NONACCRUAL
LOANS AND
DECEMBER 31, 2022
LEASES DECEMBER 31, 2021
% OF 2021
NONACCRUAL
LOANS AND LEASES
TO TOTAL
NONACCRUAL
LOANS AND LEASES
$
$
$
$
$
$
17.4
10.2
27.6
18.3
—
18.3
45.9
—
45.9
54.2
0.11 %
3.1x
38 % $
22 %
60 % $
40 % $
— %
40 % $
$
$
19.5
66.6
86.1
36.2
—
36.2
122.3
3.0
125.3
28.3
0.30 %
1.1x
16 %
54 %
70 %
30 %
—
30 %
Nonaccrual assets as of December 31, 2022 decreased from December 31, 2021, primarily in commercial real estate
due to two upgrades to performing status and one payoff. 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.
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.
As of December 31, 2022, the Allowance for Credit Losses related to loans and leases, undrawn loan commitments
and standby letters of credit, HTM debt securities, and other financial assets, was $144.3 million, $38.5 million, $16.0
million, and $0.8 million, respectively. As of December 31, 2021, the allowance for credit losses related to loans and
leases, undrawn loan commitments and standby letters of credit, HTM debt securities, and other financial assets, was
$138.4 million, $34.1 million, $11.2 million, and $1.0 million, respectively. For additional information relating to the
Allowance for Credit Losses and the changes in the Allowance for Credit Losses during the years ended December 31,
2022 and 2021 due to charge-offs, recoveries and provisions for credit losses, refer to Note 7, “Allowance for Credit
Losses,” provided in Item 8, “Financial Statements and Supplementary Data.”
2022 ANNUAL REPORT | NORTHERN TRUST CORPORATION 61
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following table shows the net recoveries (charge-offs) to average loans and leases by segment and class at
December 31, 2022, 2021, and 2020.
TABLE 38: NET RECOVERIES (CHARGE-OFFS) TO AVERAGE LOANS AND LEASES
($ in Millions)
Net Recoveries (Charge-Offs) to Average Loans and Leases
Commercial
Commercial and Institutional
Commercial Real Estate
Lease Financing, net(1)
Total Commercial
Personal
Private Client
Residential Real Estate
Total Personal
2022
2021
2020
— %
0.05
(61.3)
(0.02)
—
0.11
0.03
0.01 %
(0.01)
—
—
0.01
0.07
0.03
0.02 %
(0.18)
—
(0.03)
—
0.02
—
Total Net Recoveries (Charge-Offs) to Select Average Loans and Leases
0.01 %
0.02 %
(0.01) %
Net Recoveries (Charge-Offs)
Commercial
Commercial and Institutional
Commercial Real Estate
Lease Financing, net
Total Commercial
Personal
Private Client
Residential Real Estate
Total Personal
Total Net Recoveries (Charge-Offs)
Average Loans and Leases
Commercial
Commercial and Institutional
Commercial Real Estate
Lease Financing, net
Total Select Commercial
Personal
Private Client
Residential Real Estate
Total Select Personal
$
0.9
$
$
$
0.1
2.2
(4.9)
(2.6)
—
6.8
6.8
4.2
(0.3)
—
0.6
1.3
4.4
5.7
6.3
$
1.8
(5.7)
—
(3.9)
(0.5)
1.2
0.7
$
(3.2)
$ 12,258.9
$
10,428.6
$
10,347.1
4,432.2
8.0
3,977.0
11.2
3,253.8
48.9
16,699.1
14,416.8
13,649.8
13,877.9
6,352.5
20,230.4
13,686.7
6,190.6
19,877.3
11,452.9
6,116.4
17,569.3
Total Select Average Loans and Leases
(1) The ratio reflects a charge-off in the third quarter of 2022 in association with a sale of the last lease remaining in Northern Trust’s lease portfolio. As
of December 31, 2022, there were no leases outstanding.
$ 36,929.5
34,294.1
31,219.1
$
$
Net recoveries (charge-offs) for the following segments were zero and therefore excluded from the above table as the
ratio of net recoveries (charge-offs) to average loans and leases is also zero: Other, and Non-U.S. The average loans and
leases balances were also not provided in the table for Other and Non-U.S. Total average loans and leases for all loan
portfolio categories were $41.0 billion, $37.2 billion, and $33.5 billion for the years ended December 31, 2022, 2021, and
2020, respectively. As of December 31, 2022, there were no leases outstanding.
The SEC requires the disclosure of the Allowance for Credit Losses that is applicable to international operations. The
disclosure has been prepared in compliance with this disclosure requirement and is used in determining non-U.S. operating
performance. The amounts disclosed should not be construed as being the only amounts that are available for non-U.S. loan
charge-offs, since the entire Allowance for Credit Losses assigned to Loans and Leases is available to absorb losses on both
U.S. and non-U.S. loans. In addition, these amounts are not intended to be indicative of future charge-off trends. Please
refer to Table 39 below for the non-U.S. allowance balances.
62 2022 ANNUAL REPORT | NORTHERN TRUST CORPORATION
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following table shows the allowance evaluated on an individual and collective basis for the loans and leases
portfolio by segment and class at December 31, 2022 and 2021.
TABLE 39: ALLOCATION OF THE ALLOWANCE FOR CREDIT LOSSES
($ In Millions)
Evaluated on an Individual Basis
Evaluated on a Collective Basis
Commercial
Commercial and Institutional
Commercial Real Estate
Non-U.S.
Lease Financing, net
Other
Total Commercial
Personal
Private Client
Residential Real Estate
Non-U.S.
Other
Total Personal
Total Allowance Evaluated on a Collective Basis
Total Allowance for Credit Losses
Allowance Assigned to:
Loans and Leases
Undrawn Commitments and Standby Letters of Credit
Total Allowance for Credit Losses
DECEMBER 31,
2022
2021
ALLOWANCE
AMOUNT
$
10.4
PERCENT OF
LOANS TO
TOTAL LOANS
ALLOWANCE
AMOUNT
PERCENT OF
LOANS TO
TOTAL LOANS
— % $
10.1
— %
27
11
5
—
2
45
38
16
1
—
55
57.0
76.5
8.3
—
0.3
142.1
11.2
18.0
1.1
—
30.3
172.4
182.8
$
$
29
11
7
—
3
50
33
15
1
1
50
50.6
68.2
7.7
0.4
—
126.9
11.1
23.3
1.1
—
35.5
162.4
172.5
$
$
$
144.3
38.5
$
182.8
$
138.4
34.1
$
172.5
Allowance Assigned to Loans and Leases to Total Loans and Leases
0.34 %
0.34 %
Allowance Related to Credit Exposure Evaluated on an Individual Basis: The allowance is determined through an
individual evaluation of loans, leases, and lending-related commitments that have defaulted, generally those with Borrower
Ratings of 8 and 9, that is based on expected future cash flows, the value of collateral, and other factors that may impact the
borrower’s ability to pay.
The allowance evaluated on an individual basis for Loans and Leases increased $0.3 million from $10.1 million at
December 31, 2021 to $10.4 million at December 31, 2022, primarily attributable to an increase in outstanding loans in the
commercial and institutional portfolio, partially offset by a decrease in outstanding loans in the commercial real estate
portfolio.
Allowance Related to Credit Exposure Evaluated on a Collective Basis: Expected credit losses are measured on a
collective basis as long as the financial assets included in the respective pool share similar risk characteristics. If financial
assets are deemed to not share similar risk characteristics, an individual assessment is warranted.
The allowance evaluated on a collective basis for Loans and Leases increased $10.0 million to $172.4 million at
December 31, 2022, compared with $162.4 million at December 31, 2021, primarily due to an increase in the reserve
evaluated on a collective basis, which relates to pooled financial assets sharing similar risk characteristics. The increase
was driven by weaker macroeconomic conditions and portfolio growth, partially offset by improvements in credit quality.
The increase in the collective basis reserve was primarily reflected in the commercial real estate and commercial and
institutional portfolios.
Overall Allowance: The evaluation of the reserve evaluated on an individual and collective basis resulted in a total
Allowance for Credit Losses of $200.9 million at December 31, 2022, compared with $184.7 million at the end of 2021.
The allowance of $144.3 million assigned to Loans and Leases, as a percentage of total Loans and Leases, was 0.34% at
December 31, 2022, which increased from a $138.4 million allowance assigned to Loans and Leases, representing 0.34%
of total Loans and Leases at December 31, 2021. Allowances assigned to undrawn loan commitments and standby letters of
2022 ANNUAL REPORT | NORTHERN TRUST CORPORATION 63
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
credit totaled $38.5 million and $34.1 million at December 31, 2022 and 2021, respectively, and are included in Other
Liabilities on the consolidated balance sheets.
Capital Expenditures
Capital expenditures in 2022 included continued investments to enhance Northern Trust’s software and hardware
capabilities, as well as renovation and relocation projects to reduce our real estate footprint and modernize our existing
offices for new ways of working. Capital expenditures for 2022 totaled $723.5 million, of which $594.9 million was for
software, $84.0 million was for computer hardware, $35.5 million was for building and leasehold improvements, and $9.1
million was for furnishings. These capital expenditures principally support, enhance, and protect Northern Trust’s
investment management, asset servicing and wealth management systems and capabilities, with focus on delivering
innovative solutions to better serve our clients. Additional capital expenditures committed for technology platforms will
result in future expense for the depreciation of hardware and amortization of software. Software amortization and
depreciation on computer hardware are charged to Equipment and Software expense. Depreciation on building and
leasehold improvements and on furnishings is charged to Occupancy expense and equipment expense, respectively. Capital
expenditures for 2021 totaled $515.1 million, of which $419.6 million was for software, $52.6 million was for computer
hardware, $40.2 million was for building and leasehold improvements, and $2.7 million was for furnishings.
Deposits
The following table provides the scheduled maturity of total time deposits in denominations of $250,000 or greater at
December 31, 2022. For additional information, refer to Note 12, “Deposits,” provided in Item 8, “Financial Statements
and Supplementary Data.”
TABLE 40: REMAINING MATURITY OF TIME DEPOSITS $250,000 OR MORE
(In Millions)
3 Months or Less
Over 3 Months through 6 Months
Over 6 Months through 12 Months
Over 12 Months
Total
U.S. OFFICE
CERTIFICATES OF
DEPOSIT
DECEMBER 31, 2022
NON-U.S. OFFICES
OTHER TIME
TOTAL
$
$
572.8 $
1,979.9 $
363.8
664.0
97.0
5.9
38.4
—
1,697.6 $
2,024.2 $
2,552.7
369.7
702.4
97.0
3,721.8
Deposits not insured by the FDIC as of December 31, 2022 and 2021 totaled $116.1 billion and $150.3 billion,
respectively. These deposit amounts are derived by adding estimated domestic office uninsured deposits as allowed by
Federal Financial Institutions Examination Council instructions to all foreign office deposits. Estimated uninsured domestic
office deposits are determined by calculating and totaling the deposits in excess of the deposit insurance limit on an
individual account basis.
Short-Term Borrowings
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 any 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 either directly held by, or pledged
to the counterparty until the repurchase. Northern Trust nets securities sold under repurchase agreements against those
purchased under resale agreements when the requirements to net are met. See Note 5, “Securities Purchased Under
Agreements to Resell and Securities Sold Under Agreements to Repurchase,” Note 25, “Commitments and Contingent
Liabilities” and Note 27, “Offsetting of Assets and Liabilities” provided in Item 8, “Financial Statements and
Supplementary Data” for additional information on our repurchase and reverse repurchase agreements.
64 2022 ANNUAL REPORT | NORTHERN TRUST CORPORATION
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Geographic Area Information
Northern Trust’s non-U.S. activities are primarily related to its asset servicing, asset management, foreign exchange, cash
management, and commercial banking businesses. The operations of Northern Trust are managed on a reporting segment
basis and include components of both U.S and non-U.S. source assets. Non-U.S. source assets are not separately identified
in Northern Trust’s internal management reporting system. However, Northern Trust is required to disclose non-U.S.
activities based on the domicile of the customer. Due to the complex and integrated nature of Northern Trust’s activities, it
is difficult to segregate with precision assets between U.S. and non-U.S.-domiciled customers. Therefore, certain subjective
estimates and assumptions have been made to allocate assets between U.S. and non-U.S. operations.
The following tables present selected average assets and liabilities attributable to non-U.S. operations (based on the
obligor’s domicile) and the percent of those balances to total consolidated average assets. For additional information refer
to Note 31, “Reporting Segments and Related Information,” provided in Item 8, “Financial Statements and Supplementary
Data.”
TABLE 41: SELECTED AVERAGE ASSETS AND LIABILITIES ATTRIBUTABLE TO NON-U.S. OPERATIONS
($ In Millions)
Total Assets
Time Deposits with Banks
Loans
Non-U.S. Investments
Total Liabilities
Deposits
2022
2021
$
26,904.3 $
29,902.8
2,082.2
2,562.7
16,002.1
77,481.6
75,808.6
3,619.3
1,496.1
18,252.5
84,230.9
83,001.7
Non-U.S. Outstandings
As used in this discussion, non-U.S. outstandings are cross-border outstandings as defined by the SEC. They consist of
loans, securities, interest-bearing deposits with financial institutions, accrued interest and other monetary assets. Not
included are letters of credit, loan commitments, and non-U.S. office local currency claims on residents. Non-U.S.
outstandings related to a country are net of guarantees given by third parties resident outside the country and the value of
tangible, liquid collateral realizable outside the country. However, transactions with branches of non-U.S. banks are
included in these outstandings and are classified according to the country location of the non-U.S. bank’s head office.
Short-term interbank time deposits with non-U.S. banks represent the largest category of non-U.S. outstandings.
Northern Trust actively participates in the interbank market with U.S. and non-U.S. banks.
Northern Trust places deposits with non-U.S. counterparties that have strong internal (Northern Trust) risk ratings and
external credit ratings. These non-U.S. banks are approved and monitored by Northern Trust’s Capital Markets Credit
Committee, which has credit authority for exposure to all non-U.S. banks and approves credit limits. This process includes
financial analysis of the non-U.S. banks, use of an internal risk rating system and consideration of external market
indicators. Each counterparty is reviewed at least annually and potentially more frequently based on credit fundamentals or
general market conditions. Separate from the entity-specific review process, the average life to maturity of deposits with
non-U.S. banks is deliberately maintained on a short-term basis in order to respond quickly to changing credit conditions.
Northern Trust also utilizes certain risk mitigation tools and agreements that may reduce exposures through use of
collateral and/or balance sheet netting. Additionally, the Capital Markets Credit Committee oversees country-risk analyses
and imposes limits on country exposure. For additional information refer to Note 31, “Reporting Segments and Related
Information,” provided in Item 8, “Financial Statements and Supplementary Data.”
2022 ANNUAL REPORT | NORTHERN TRUST CORPORATION 65
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
STATEMENTS OF CASH FLOWS
The following discusses the statement of cash flow activities for the years ended December 31, 2022, 2021, and 2020.
TABLE 42: CASH FLOW ACTIVITY SUMMARY
(In Millions)
Net cash provided by (used in):
Operating activities
Investing activities
Financing activities
Effect of Foreign Currency Exchange Rates on Cash
Change in Cash and Due from Banks
FOR THE YEAR ENDED DECEMBER 31,
2022
2021
2020
$
$
2,392.4 $
1,356.0 $
25,929.8
(26,437.4)
(287.4)
1,597.4 $
(18,602.6)
16,073.5
(159.6)
(1,332.7) $
1,896.8
(29,923.0)
27,871.9
84.6
(69.7)
Operating Activities
Net cash provided by operating activities of $2.4 billion for the year ended December 31, 2022 was primarily attributable
to period earnings, lower net collateral deposited with derivative counterparties, and the impact of higher non-cash charges
such as depreciation and amortization, partially offset by the impact of other operating activities, net.
For the year ended December 31, 2021, net cash provided by operating activities of $1.4 billion primarily reflected
period earnings and the impact of higher non-cash charges such as depreciation and amortization, partially offset by higher
net collateral deposited with derivative counterparties and in receivables.
Investing Activities
Net cash provided by investing activities of $25.9 billion for the year ended December 31, 2022 was primarily attributable
to lower levels of deposits with the Federal Reserve and other central banks and net proceeds from held to maturity debt
securities, partially offset by higher levels of loans.
For the year ended December 31, 2021, net cash used in investing activities of $18.6 billion primarily reflected higher
levels of deposits with the Federal Reserve and other central banks, higher levels of loans and leases and net purchases of
AFS debt securities, partially offset by lower levels of interest-bearing deposits with banks.
Financing Activities
Net cash used in financing activities of $26.4 billion for the year ended December 31, 2022 was primarily attributable to
decreased levels of total deposits, partially offset by higher short-term other borrowings, proceeds from the issuance of
4.00% senior notes and 6.125% subordinated notes, and higher federal funds purchased. The decrease in total deposits was
primarily attributable to lower levels of non-U.S. office noninterest-bearing deposits, non-U.S. office interest-bearing
deposits, and demand and other noninterest-bearing deposits.
For the year ended December 31, 2021, net cash provided by financing activities of $16.1 billion primarily reflected
higher levels of total deposits and securities sold under agreements to repurchase, partially offset by dividends paid on
common stock, repayment of the 3.375% senior notes previously issued by the Corporation that matured in August 2021,
lower short-term other borrowings, and the repayment of floating rate capital debt. The increase in total deposits was
primarily attributable to higher levels of savings, money market and other interest-bearing deposits, non-U.S. interest-
bearing deposits, and demand and other noninterest-bearing deposits.
CAPITAL MANAGEMENT
One of Northern Trust’s primary objectives is to maintain a strong capital position to merit the confidence of clients,
counterparties, creditors, regulators and stockholders. A strong capital position helps Northern Trust execute its strategies
and withstand unforeseen adverse developments.
Senior management, with oversight from the Capital Governance Committee of the Board of Directors and the full
Board of Directors, is responsible for capital management and planning. Northern Trust manages its capital on both a total
Corporation basis and a legal entity basis. The Capital Committee is responsible for measuring and managing capital
metrics against levels set forth within the Capital Policy approved by the Capital Governance Committee of the Board of
Directors. In establishing the metrics related to capital, a variety of factors are taken into consideration, including the
unique risk profiles of Northern Trust’s businesses, regulatory requirements, capital levels relative to peers, economic and
market forecasts, and the impact on credit ratings.
Capital levels declined in 2022 as average stockholders’ equity decreased $615.6 million, or 5%, to $11.1 billion. Total
stockholders’ equity was $11.3 billion at December 31, 2022, as compared to $12.0 billion at December 31, 2021.
66 2022 ANNUAL REPORT | NORTHERN TRUST CORPORATION
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Preferred dividends totaling $41.8 million were declared in 2022. During 2022, the Corporation increased its quarterly
common stock dividend to $0.75 per common share. Common dividends totaling $613.0 million were declared in 2022.
During the year ended December 31, 2022, the Corporation repurchased 311,536 shares of common stock, all of which
were shares withheld to satisfy tax withholding obligations related to share-based compensation, at an average price per
share of $113.70.
In accordance with Basel III requirements, capital ratios are calculated using both the standardized and advanced
approaches. As required by the Dodd-Frank Act, the lower of each capital ratio calculated under the standardized approach
and the advanced approach serves as the effective ratio for purposes of determining capital adequacy. The following table
provides a reconciliation of the Corporation’s common stockholders’ equity to total risk-based capital and its risk-based
capital ratios, under the applicable U.S. regulatory rules as of December 31, 2022 and 2021.
TABLE 43: CAPITAL ADEQUACY
($ In Millions)
Common Equity Tier 1 Capital
Common Stockholders’ Equity
DECEMBER 31, 2022
DECEMBER 31, 2021
STANDARDIZED
APPROACH
ADVANCED
APPROACH
STANDARDIZED
APPROACH
ADVANCED
APPROACH
$
10,374.6
$
10,374.6
$
11,131.9
$
11,131.9
Goodwill and Other Intangible Assets, net of Deferred Tax Liability
Other
Total Common Equity Tier 1 Capital
Additional Tier 1 Capital
Preferred Stock
Other
Total Additional Tier 1 Capital
Total Tier 1 Capital
Tier 2 Capital
Qualifying Allowance for Credit Losses
Qualifying Subordinated Debt
Total Tier 2 Capital
Total Risk-Based Capital
Risk-Weighted Assets(1)
Total Assets – End of Period (EOP)
Adjusted Average Fourth Quarter Assets(2)
Total Loans and Leases – EOP
Common Stockholders’ Equity to:
Total Loans and Leases – EOP
Total Assets – EOP
Risk-Based Capital Ratios
Common Equity Tier 1 Capital
Tier 1 Capital
Total Capital (Tier 1 and Tier 2)
Tier 1 Leverage
Supplementary Leverage
(719.7)
(115.2)
9,539.7
884.9
(27.2)
857.7
(719.7)
(115.2)
9,539.7
884.9
(27.2)
857.7
(751.3)
(103.5)
(751.3)
(103.5)
10,277.1
10,277.1
884.9
(19.8)
865.1
884.9
(19.8)
865.1
10,397.4
10,397.4
11,142.2
11,142.2
$
$
199.6
1,648.5
1,848.1
12,245.5
88,107.7
155,036.7
146,883.8
42,893.3
$
$
—
1,648.5
1,648.5
12,045.9
83,181.2
155,036.7
146,883.8
42,893.3
184.8
799.8
984.6
$
$
12,126.8
86,292.6
$
$
183,889.8
160,506.3
40,480.6
—
799.8
799.8
11,942.0
77,807.2
183,889.8
160,506.3
40,480.6
24.19 %
6.69
24.19 %
6.69
27.50 %
6.05
27.50 %
6.05
10.8 %
11.5 %
11.9 %
13.2 %
11.8
13.9
7.1
N/A
12.5
14.5
7.1
7.9
12.9
14.1
6.9
N/A
14.3
15.3
6.9
8.2
(1) Risk-weighted assets exclude, as applicable under each regulatory approach, amounts primarily related to goodwill, certain other intangible assets, and net unrealized gains
or losses on securities and reflect adjustments for excess allowances for credit losses that have been excluded from Tier 1 and Tier 2 capital, if any.
(2) Adjusted average fourth quarter assets exclude amounts primarily related to goodwill, other intangible assets, and net unrealized gains or losses on securities.
As of December 31, 2022 and 2021, the Corporation’s capital ratios exceeded the requirements for classification as
“well-capitalized” under applicable U.S. regulatory requirements. The results of the 2022 Dodd-Frank Act Stress Test,
published by the Federal Reserve 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.
Further information regarding the Corporation’s and the Bank’s capital ratios and the minimum requirements for
classification as “well-capitalized” is provided in the “Supervision and Regulation—Capital Adequacy Requirements”
section of Item 1, “Business,” and Note 32, “Regulatory Capital Requirements,” provided in Item 8, “Financial Statements
and Supplementary Data.”
2022 ANNUAL REPORT | NORTHERN TRUST CORPORATION 67
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CRITICAL ACCOUNTING ESTIMATES
Our significant accounting policies are described in Note 1, “Summary of Significant Accounting Policies,” provided in
Item 8, “Financial Statements and Supplementary Data.” The use of estimates and assumptions is required in the
preparation of financial statements in conformity with GAAP and actual results could differ from those estimates. The SEC
has issued guidance relating to the disclosure of critical accounting estimates. Critical accounting estimates are those that
require management to make subjective or complex judgments about the effect of matters that are inherently uncertain and
may change in subsequent periods. Changes that may be required in the underlying assumptions or estimates in these areas
could have a material impact on Northern Trust’s future financial condition and results of operations.
For Northern Trust, accounting estimates that are viewed as critical are those relating to the allowance for credit losses
and pension plan accounting. Management has discussed the development and selection of each critical accounting
estimate with the Audit Committee of the Board of Directors (Audit Committee).
Allowance for Credit Losses
The Allowance for Credit Losses — which represents management’s 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. Due to the inherent imprecision in accounting estimates, other
estimates or assumptions could reasonably have been used in 2022 and changes in estimates are reasonably likely to occur
from period to period.
The Allowance for Credit Losses consists of the following components:
Evaluated on a Collective Basis. Expected credit losses are measured on a collective basis as long as the financial
assets included in the respective pool share similar risk characteristics. If financial assets are deemed to not share similar
risk characteristics, an individual assessment is warranted.
The allowance estimation methodology for the collective assessment is based on data representative of the
Corporation’s financial asset portfolio from a historical observation period that includes both expansionary and
recessionary periods. The estimation methodology and the related qualitative adjustment framework segregate the loan
portfolio into segments based on loan and obligor-specific factors, including loan type, borrower type, collateral type, loan
size, and borrower credit quality. For each segment, the probability of default and loss given default are derived for each
quarter of the remaining life of each instrument. For the first two years (the reasonable and supportable period), these
factors are derived by applying quarterly macroeconomic projections using models developed from historical data on
macroeconomic factors and loans with similar factors. For periods beyond the reasonable and supportable period, Northern
Trust reverts to its long-run historical loss experiences on a straight-line basis over four quarters. The projected exposure at
default for every quarter is based on contractual balance projections as of each quarter-end, with adjustments made for
potential draws on off-balance sheet commitments.
For each of the different parameters, specific credit models for the individual loan segments were developed. For each
segment, the probability of default and the loss given default are applied to the exposure at default for each projected
quarter to determine the quantitative component of the allowance. The quantitative allowance is then reviewed within the
qualitative adjustment framework, through which management applies judgment by assessing internal risk factors, potential
limitations in the quantitative methodology, and environmental factors that are not fully contemplated in the forecast to
compute adjustments to the quantitative allowance that may impact individual or multiple segments of the loan portfolio.
ASC 326-20-30 requires the use of projected macroeconomic factors. The Corporation uses multiple forecasts
approved by Northern Trust’s Macroeconomic Scenario Development Committee (MSDC). The baseline forecast aligns
with the Corporation’s latest thinking on macroeconomic projections for the next eight quarters. An alternative scenario is
also considered, which reflects a recession that incorporates the experiences of a wider set of historical economic cycles.
The forecasts are weighted at each evaluation period and are management’s best estimate of future economic projections at
that time.
The allowance estimate is sensitive to changes in portfolio composition, portfolio quality, and macroeconomic
forecasts. Increases in the amount of borrowing and material downgrades to the quality of the lending portfolio will
increase the reserve, all else equal. Similarly, deteriorating projections for macroeconomic conditions will increase the
reserve. Macroeconomic factors that are particularly correlated to Northern Trust’s loan portfolio are equity market values,
68 2022 ANNUAL REPORT | NORTHERN TRUST CORPORATION
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
market volatility, corporate profits, residential and commercial real estate price indices, unemployment, and disposable
income. To demonstrate the sensitivity to changes in macroeconomic conditions, Northern Trust applied a 100%
probability weighting to downturn conditions, resulting in an increase to the collective component of the allowance for the
loan portfolio of approximately $72.6 million. The investment security and other financial assets portfolios are less
sensitive to macroeconomic factors in terms of overall reserve impact due to factors such as high credit quality, short
duration, and low historical losses.
The commercial and institutional (C&I) portfolio utilizes Northern Trust’s internal borrower rating assessments to
determine initial credit quality. A sensitivity analysis was performed to determine the impact of upgrades or downgrades by
shifting the rating up or down by one rating class, assuming no changes to other factors, such as macroeconomic
projections or qualitative adjustments. The analysis excludes defaulted loans and does not assume a default event; hence,
borrowers at the lowest non-default rating were not downgraded. Similarly, those at the highest rating could not be
upgraded. Assuming the final forecast probability weighting, the collective component of the allowance assigned to the
C&I portfolio would increase by approximately $93.0 million if all C&I borrowers were downgraded by one performing
rating class. The C&I collective allowance would decrease by approximately $35.4 million if borrower ratings were
upgraded by one rating class (if possible).
The results of the credit reserve estimation methodology are reviewed quarterly by Northern Trust’s Credit Loss
Reserve Committee, which receives input from Credit Risk Management, Treasury, Corporate Finance, the Economic
Research group, and each of Northern Trust’s business units. The Credit Loss Reserve Committee determines the
probability weights applied to each forecast approved by MSDC, and also reviews and approves qualitative adjustments to
the collective allowance in line with Northern Trust’s qualitative adjustment framework.
Evaluated on an Individual Basis. The allowance is determined through an individual evaluation of financial assets
that have defaulted that is based on expected future cash flows, the value of collateral, and other factors that may impact
the borrower’s ability to pay. For defaulted loans for which the amount of allowance, if any, is determined based on the
value of the underlying real estate collateral, third-party appraisals are typically obtained and utilized by management.
These appraisals are generally less than twelve months old and are subject to adjustments to reflect management’s
judgment as to the realizable value of the collateral.
Analysis and Controls. The quarterly analysis of the individual and collective allowance components and the control
process maintained by Credit Risk Management and the lending staff are the principal methods relied upon by management
for the timely identification and estimation of individual expected credit losses. In addition to Northern Trust’s own
experience, management also considers regulatory guidance. Control processes and analyses employed to determine an
appropriate level of allowance for credit losses are reviewed at least annually and modified as considered appropriate.
Management believes that the Allowance for Credit Losses adequately considers these uncertainties and has been
established at an appropriate level. Actual losses may vary from current estimates and the amount of the provision for
credit losses may be greater or less than actual net charge-offs in any particular period.
Pension Plan Accounting
Northern Trust maintains a noncontributory defined benefit pension plan covering substantially all U.S. employees (U.S.
Qualified Plan) and a U.S. noncontributory supplemental pension plan (U.S. Non-Qualified Plan). Certain European-based
employees also retain benefits in local defined benefit pension plans, of which the majority are closed to new employees
and to future benefit accruals. Measuring cost and reporting liabilities resulting from defined benefit pension plans requires
the use of several assumptions regarding future interest rates, asset returns, compensation increases, mortality rates, and
other actuarial-based projections relating to the plans. Due to the long-term nature of this obligation and the estimates that
are required to be made, the assumptions used in determining the periodic pension expense and the projected benefit
obligation are closely monitored and reviewed annually for adjustments that may be required. Pension accounting guidance
requires that differences between estimates and actual experience be recognized as other comprehensive income in the
period in which they occur. The differences are amortized into net periodic pension expense from accumulated other
comprehensive income over the average remaining service period of eligible participants. As a result, differences between
the estimates made in the calculation of periodic pension expense and the projected benefit obligation and actual
experience affect stockholders’ equity in the period in which they occur but continue to be recognized as expense
systematically and gradually over subsequent periods.
Northern Trust recognizes the significant impact that these pension-related assumptions have on the determination of
the pension obligations and related expense and has established procedures for monitoring and setting these assumptions
each year. These procedures include an annual review of actual demographic and investment experience with the pension
plans’ actuaries. In addition to actual experience, adjustments to these assumptions consider observable yields on fixed
income securities, known compensation trends and policies, as well as economic conditions and investment strategies that
may impact the estimated long-term rate of return on plan assets.
2022 ANNUAL REPORT | NORTHERN TRUST CORPORATION 69
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
In determining the pension expense for the U.S. Qualified Plan in 2022, Northern Trust utilized a discount rate of
3.03% as of December 31, 2021, 4.81% as of June 30, 2022, and 5.49% as of September 30, 2022. The application of
settlement accounting in 2022 required interim re-measurements of the U.S. Qualified Plan throughout 2022. The discount
rate utilized for the U.S. Non-Qualified Plan as of December 31, 2021 was 2.80%. For both plans, the rate of increase in
the compensation level is based on a graded schedule from 9.00% to 2.50% that averaged 4.97%. The expected long-term
rate of return on U.S. Qualified Plan assets was 5.25% as of December 31, 2021, 6.00% as of June 30, 2022, and 6.50% as
of September 30, 2022.
In evaluating possible revisions to pension-related assumptions for the U.S. pension plans as of Northern Trust’s
December 31, 2022 measurement date, the following were considered:
•
•
•
Discount Rate: Northern Trust estimates the discount rate for its U.S. pension plans by applying the plan specific
projected cash flows for future benefit payments for each plan to the Aon AA Above Median yield curve as of the
measurement date. This yield curve is composed of individual zero-coupon interest rates for 198 different time periods
over a 99-year time horizon. Zero-coupon rates utilized by the yield curve are mathematically derived from observable
market yields for AA-rated corporate bonds. This yield curve model referenced by Northern Trust in establishing the
discount rate resulted in a rate of 5.22% and 5.15% at December 31, 2022 for the U.S. Qualified and U.S. Non-
Qualified Plans, respectively.
Compensation Level: Based on a review of actual and anticipated salary experience, the compensation scale
assumption is based on a graded schedule from 9.00% to 2.50% that averages 5.56%.
Rate of Return on Plan Assets: The expected return on plan assets is based on an estimate of the long-term (30 years)
rate of return on plan assets, which is determined using a building block approach that considers the current asset mix
and estimates of return by asset class based on historical experience, giving proper consideration to diversification and
rebalancing. Current market factors such as inflation and interest rates are also evaluated before long-term capital
market assumptions are determined. Peer data and historical returns are reviewed to check for reasonability and
appropriateness. As a result of these analyses, Northern Trust’s rate of return assumption for the U.S. Qualified Plan is
7.25% for 2023. The increase in the expected rate of return from 5.25% as of January 1, 2022, to 7.25% as of January
1, 2023, is primarily due to the increased interest rate environment and the associated impact on fixed income
securities returns as well as to the change in the target asset allocation to allow for a greater component of return
seeking investments as of the beginning of 2023.
• Mortality Table: Northern Trust had adopted the aggregate Pri-2012 mortality table with a 2012 base year, which was
released by the Society of Actuaries in October 2019. Northern Trust’s pension obligations reflect proposed future
improvement under scale MP-2021, which was released by the Society of Actuaries in October 2021. No change to
these assumptions was made in 2022 since the Society of Actuaries did not release any updates to its mortality tables
and improvement scales in 2022. Mortality assumptions on lump sum payments remain static and continue to be in
line with the IRS prescribed table for minimum lump sums in 2023.
Excluding any pension settlement charges, net pension expense in 2023 is expected to decrease by approximately $20.9
million, primarily driven by increased interest rates and expected rate of return on plan assets as well as lower loss
amortization due to the 2021 and 2022 settlement recognition.
In order to illustrate the sensitivity of these assumptions on the expected U.S pension plans’ periodic pension expense in
2023 and the projected benefit obligation as of December 31, 2022, the following table is presented to show the effect of
increasing or decreasing each of these assumptions by 25 basis points.
TABLE 44: SENSITIVITY OF U.S. PENSION PLANS ASSUMPTIONS
($ In Millions)
Increase (Decrease) in 2023 Pension Expense
Discount Rate Change
Compensation Level Change
Rate of Return on Plan Assets Change
Increase (Decrease) in 2022 Projected Benefit Obligation
Discount Rate Change
Compensation Level Change
25 BASIS
POINT INCREASE
25 BASIS
POINT DECREASE
$
(1.3) $
2.0
(3.5)
(30.4)
7.7
2.8
(2.0)
3.5
31.9
(7.6)
Pension Contributions. The deduction limits specified by the Internal Revenue Code for contributions made by sponsors
of defined benefit pension plans are based on a “Target Liability” under the provisions of the Pension Protection Act of
70 2022 ANNUAL REPORT | NORTHERN TRUST CORPORATION
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
2006. There were no contributions to the U.S. Qualified Plan for the 2022 plan year. The minimum required contribution to
the U.S. Qualified Plan is expected to be zero in 2023. The maximum deductible contribution is estimated at $561.0 million
for 2023.
FAIR VALUE MEASUREMENTS
The preparation of financial statements in conformity with GAAP requires certain assets and liabilities to be reported at fair
value. As of December 31, 2022, approximately 18% of Northern Trust’s total assets and 1% of total liabilities were
carried on the consolidated balance sheets at fair value. As of December 31, 2021, approximately 21% of Northern Trust’s
total assets and less than 1% of total liabilities were carried on the consolidated balance sheets at fair value. As discussed
more fully in Note 3, “Fair Value Measurements,” provided in Item 8, “Financial Statements and Supplementary Data,”
GAAP requires entities to categorize financial assets and liabilities carried at fair value according to a three-level valuation
hierarchy. The hierarchy gives the highest priority to quoted, active market prices for identical assets and liabilities (Level
1) and the lowest priority to valuation techniques that require significant management judgment because one or more of the
significant inputs are unobservable in the market place (Level 3). Approximately 10% and 6% of Northern Trust’s assets
carried at fair value are classified as Level 1 as of December 31, 2022 and 2021, respectively. Northern Trust typically does
not hold equity securities or other instruments that are actively traded on an exchange.
As of December 31, 2022, approximately 90% of Northern Trust’s assets and 100% of its liabilities carried at fair
value are categorized as Level 2, as they are valued using models in which all significant inputs are observable in active
markets. Investment debt securities classified as AFS make up 96% of Level 2 assets with the remaining 4% primarily
consisting of derivative financial instruments. Level 2 liabilities are comprised solely of derivative financial instruments.
As of December 31, 2021, approximately 94% of Northern Trust’s assets and 96% of its liabilities carried at fair value
are categorized as Level 2, as they are valued using models in which all significant inputs are observable in active markets.
Investment debt securities classified as AFS make up 98% of Level 2 assets with the remaining 2% primarily consisting of
derivative financial instruments. Level 2 liabilities are comprised solely of derivative financial instruments.
Northern Trust’s Level 2 assets include AFS and certain trading account debt securities, the fair values of which are
determined predominantly by external pricing vendors. Northern Trust has a well-established process to validate prices
received from pricing vendors as discussed more fully in Note 3, “Fair Value Measurements,” provided in Item 8,
“Financial Statements and Supplementary Data.”
As of December 31, 2022 and 2021, all derivative assets and liabilities, excluding the swap related to the sale of
certain Visa Class B common shares described below, were classified as Level 2 and approximately 97% and 96%,
respectively, were measured on a notional value basis, related to client-related and trading activities, predominantly
consisting of foreign exchange contracts. Derivative instruments are valued internally using widely accepted income-based
models that incorporate inputs readily observable in actively quoted markets and reflect contractual terms of contracts.
Northern Trust evaluated the impact of counterparty credit risk and its own credit risk on the valuation of derivative
instruments. Factors considered included the likelihood of default by Northern Trust and its counterparties, the remaining
maturities of the instruments, net exposures after giving effect to master netting agreements, available collateral, and other
credit enhancements in determining the appropriate fair value of derivative instruments. The resulting valuation
adjustments are not considered material.
As of December 31, 2022 and 2021, Northern Trust’s Level 3 liabilities consisted of swaps that Northern Trust entered
into with the purchaser of 1.1 million and 1.0 million shares of Visa Inc. Class B common stock (Visa Class B common
shares) previously held by Northern Trust and sold in June 2016 and 2015, respectively. Pursuant to the swaps, Northern
Trust retains the risks associated with the ultimate conversion of the Visa Class B common shares into shares of Visa Inc.
Class A common stock (Visa Class A common shares), such that the counterparty will be compensated for any dilutive
adjustments to the conversion ratio and Northern Trust will be compensated for any anti-dilutive adjustments to the ratio.
The swaps also require periodic payments from Northern Trust to the counterparty calculated by reference to the market
price of Visa Class A common shares and a fixed rate of interest. The fair value of the swaps are determined using a
discounted cash flow methodology. The significant unobservable inputs used in the fair value measurement are Northern
Trust’s own assumptions about estimated changes in the conversion rate of the Visa Class B common shares into Visa
Class A common shares, the date on which such conversion is expected to occur and the estimated growth rate of the Visa
Class A common share price. See “Visa Class B Common Shares” under Note 25, “Commitments and Contingent
Liabilities,” provided in Item 8, “Financial Statements and Supplementary Data,” for further information.
Northern Trust believes its valuation methods for its assets and liabilities carried at fair value are appropriate; however,
the use of different methodologies or assumptions, particularly as applied to Level 3 assets, could have a material effect on
the computation of their estimated fair values.
2022 ANNUAL REPORT | NORTHERN TRUST CORPORATION 71
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RECENT ACCOUNTING PRONOUNCEMENTS AND DEVELOPMENTS
In March 2022, the Financial Accounting Standards Board (FASB) issued ASU No. 2022-01, “Derivatives and Hedging
(Topic 815): Fair Value Hedging—Portfolio Layer Method” (ASU 2022-01). The amendments in ASU 2022-01 expand the
current last-of-layer hedging model from a single-layer method to allow multiple hedged layers of a single closed portfolio.
To reflect that expansion, the last-of-layer method is renamed the portfolio layer method. In addition, ASU 2022-01 (1)
expands the scope of the portfolio layer method to include non-prepayable assets, (2) specifies eligible hedging instruments
in a single-layer hedge, (3) provides additional guidance on the accounting for and disclosure of hedge basis adjustments
under the portfolio layer method and (4) specifies how hedge basis adjustments should be considered when determining
credit losses for the assets included in the closed portfolio. ASU 2022-01 is effective for interim and annual periods
beginning after December 15, 2022, although early adoption is permitted. Upon adoption, ASU 2022-01 is not expected to
have a significant impact on Northern Trust’s consolidated balance sheets or consolidated statements of income.
In March 2022, the FASB issued ASU No. 2022-02, “Financial Instruments—Credit Losses (Topic 326): Troubled Debt
Restructurings and Vintage Disclosures” (ASU 2022-02). The amendments in ASU 2022-02 eliminate the accounting
guidance for troubled debt restructurings (TDRs) for creditors that have adopted CECL while enhancing disclosure
requirements for certain loan refinancings and restructurings made to borrowers experiencing financial difficulty. In
addition, ASU 2022-02 requires that a public business entity disclose current-period gross write-offs by year of origination
for financing receivables and net investment in leases. ASU 2022-02 is effective for interim and annual periods beginning
after December 15, 2022, although early adoption is permitted. Upon adoption, ASU 2022-02 is not expected to have a
significant impact on Northern Trust’s consolidated balance sheets or consolidated statements of income.
In June 2022, the FASB issued ASU No. 2022-03, “Fair Value Measurement (Topic 820): Fair Value Measurement of
Equity Securities Subject to Contractual Sale Restrictions” (ASU 2022-03). The amendments in ASU 2022-03 clarify that a
contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security
and, therefore, is not considered in measuring fair value. ASU 2022-03 also clarifies that an entity cannot, as a separate unit
of account, recognize and measure a contractual sale restriction. In addition, ASU 2022-03 introduces new disclosure
requirements to provide investors with information about contractual sale restrictions including the nature and remaining
duration of these restrictions. ASU 2022-03 is effective for interim and annual periods beginning after December 15, 2023,
although early adoption is permitted. Upon adoption, ASU 2022-03 is not expected to have a significant impact on
Northern Trust’s consolidated balance sheets or consolidated statements of income.
In September 2022, the FASB issued ASU No. 2022-04, “Liabilities—Supplier Finance Programs (Topic 405-50):
Disclosure of Supplier Finance Program Obligations” (ASU 2022-04). The amendments in ASU 2022-04 enhance the
transparency about the use of supplier finance programs for investors or other allocators of capital. Specifically, ASU
2022-04 requires that a buyer in a supplier finance program disclose sufficient qualitative and quantitative information
about the program to allow a user of financial statements to understand the program’s nature, activity during the period,
changes from period to period, and potential magnitude. ASU 2022-04 is effective for interim and annual periods
beginning after December 15, 2022, except for the amendment requiring disclosure of roll forward information, which is
effective beginning after December 15, 2023. Early adoption is permitted. Upon adoption, ASU 2022-04 is not expected to
have a significant impact on Northern Trust’s consolidated balance sheets or consolidated statements of income.
RISK MANAGEMENT
Risk Management Overview
Northern Trust employs an integrated risk management framework to enable a risk informed profile and support its
business decisions and the execution of its corporate strategies. The framework provides a methodology to identify,
manage, report and govern both internal and external risks to Northern Trust, and promotes a culture of risk awareness and
good conduct across the organization. Northern Trust’s risk culture encompasses the general awareness, attitude and
conduct of employees with respect to risk and the management of risk across all lines of defense within the organization.
Northern Trust cultivates a culture of effective risk management by defining and embedding risk management
accountabilities in all employee performance expectations and provides training, development and performance rewards to
reinforce this culture.
Northern Trust’s risk management framework contains three inter-related elements, designed to support consistent
enterprise risk identification, management and reporting: a comprehensive risk inventory, a static taxonomy of risk
categories and a dynamic taxonomy of risk themes. The risk inventory is a detailed register of the risks inherently faced by
Northern Trust. The risk categories and risk themes are classification systems used for classifying and managing the risk
inventory and enabling different risk profile views. All identified risks inherent in Northern Trust’s business activities are
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
cataloged into the following risk categories: credit, operational, fiduciary, compliance, liquidity, market, and strategic risk.
All material risks are also dynamically cataloged into various risk themes which are defined groupings that share common
characteristics, focus on business outcomes and span across risk categories.
Northern Trust implements its risk management framework through a “three lines of defense” operating model,
embedding a robust risk management capability within its businesses. The model, used to communicate risk management
expectations across the organization, contains three roles, each with a complementary level of risk management
accountability. Within this operating model, Northern Trust’s businesses are the first line of defense for protecting it
against the risks inherent in its businesses and are supported by dedicated business risk management teams. The Risk
Management function, the second line of defense, sets the direction for Northern Trust’s risk management activities and
provides aggregate risk oversight and reporting in support of risk governance. Audit Services, the third line of defense,
provides independent assurance as to the effectiveness of the integrated risk framework.
Risk Governance and Oversight Overview
Risk governance is an integral aspect of corporate governance at Northern Trust, and includes clearly defined
accountabilities, expectations, internal controls and processes for risk-based decision-making and escalation of issues. The
following diagram provides a high-level overview of Northern Trust’s risk governance structure, highlighting oversight by
the Board of Directors and key risk-related committees.
TABLE 45: RISK GOVERNANCE STRUCTURE
Northern Trust Corporation Board of Directors
Audit Committee
Business Risk Committee
–
Cybersecurity Risk
Oversight Subcommittee
Capital Governance Committee
Human Capital and Compensation
Committee
Credit Risk
Committee
Market &
Liquidity Risk
Committee
Operational Risk
Committee
Fiduciary Risk
Committee
Compliance &
Ethics Oversight
Committee
Information
Technology Risk
Committee
Model Risk
Oversight
Committee
Workforce Risk
Committee
Global Enterprise Risk Committee (GERC)
The Board of Directors provides oversight of risk management directly and through certain of its committees: the Audit
Committee, the Business Risk Committee, the Capital Governance Committee and the Human Capital and Compensation
Committee. The Board of Directors annually approves Northern Trust’s Risk Management Framework and Corporate Risk
Appetite Statement.
The Audit Committee provides oversight with respect to financial reporting and legal risk.
The Business Risk Committee assumes primary responsibility and oversight with respect to the credit risk, operational
risk, fiduciary risk, compliance risk, market risk, liquidity risk, strategic risk, and associated risk themes. The
Cybersecurity Risk Oversight Subcommittee is a subcommittee of the Business Risk Committee and assists the
Business Risk Committee in discharging its duties with respect to risks related to cybersecurity inherent in Northern
Trust’s businesses.
The Human Capital and Compensation Committee oversees the development and operation of Northern Trust’s
incentive compensation program. The Committee annually reviews management’s assessment of the effectiveness of
the design and performance of Northern Trust’s incentive compensation arrangements and practices in providing
incentives that are consistent with Northern Trust’s safety, soundness, and culture. This assessment includes an
evaluation of whether Northern Trust’s incentive compensation arrangements and practices discourage inappropriate
risk-taking behavior by participants.
The Capital Governance Committee assists the Board of Directors in discharging its oversight duties with respect to
capital management and resolution planning activities. Among other responsibilities, the Capital Governance
Committee oversees Northern Trust’s capital management assessments, forecasting, and stress testing processes and
activities, including the annual CCAR exercise, and challenges management, as appropriate, on various elements of
such processes and activities. Accordingly, the Capital Governance Committee provides oversight with respect to
Northern Trust’s linkage of material risks to the capital adequacy assessment process.
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Chief Risk Officer (CRO) oversees Northern Trust’s management of risk and compliance, promotes risk
awareness and fosters a proactive risk management environment wherein risks inherent in the business strategy are
identified, understood, appropriately monitored and mitigated. The CRO reports directly to the Business Risk Committee
and the Corporation’s Chief Executive Officer. The CRO regularly advises the Business Risk Committee and reports to the
Committee at least quarterly on risk exposures, risk management deficiencies and emerging risks. In accordance with the
risk management framework, the CRO, Chief Compliance and Ethics Officer, Head of Financial Risk & Chief Credit
Officer, Head of Non-Financial Risk & Chief Operational Risk Officer, Chief Information Risk Officer, Chief Economist
& Head of Strategic Risk and Risk Analytics, Chief Administrative Officer, Business Unit and Regional Chief Risk
Officers, Chief Financial Officer, Head of Capital Resolution and Management Reporting Planning and Analysis, General
Counsel, Chief Human Resources Officer and Head of Corporate Sustainability, Inclusion and Social Impact, meet as the
Global Enterprise Risk Committee (GERC) to provide executive management oversight and guidance with respect to the
management of the categories of risk and risk themes within Northern Trust. The Chief Audit Executive, or his or her
designee, also attends GERC meetings as a non-voting member. Among other risk management responsibilities, GERC
receives reports, escalations, or recommendations from senior risk committees that are responsible for the management of
risk, and from time to time may delegate responsibility to such committees for risk issues. Senior risk committees include:
The Credit Risk Committee (CRC) establishes and monitors credit-related policies and practices throughout Northern
Trust and promotes their uniform application.
The Market & Liquidity Risk Committee (MLRC) oversees activities relating to the management of market and
liquidity risks by facilitating a focused review of market and liquidity risk exposures and providing rigorous challenge
of related policies, key assumptions, and practices.
The Operational Risk Committee (ORC) provides independent oversight and is responsible for setting the operational
risk-related policies and developing and implementing the operational risk management framework and programs that
support coordination of operational risk activities.
The Fiduciary Risk Committee (FRC) is responsible for establishing and reviewing the fiduciary risk policies and
establishing the fiduciary risk framework, governance and programs that support the coordination of fiduciary risk
activities.
The Compliance & Ethics Oversight Committee (CEOC) provides oversight and direction with respect to compliance
policies, implementation of the compliance and ethics program, and the coordination of regulatory compliance
initiatives across the Corporation.
The Information Technology Risk Committee (ITRC) provides oversight and direction with respect to information
security, technology and cyber risk. The committee is responsible for recommending the policies related to, and
overseeing development and implementation of the risk management framework, standards and processes supporting
coordination and governance of, information security, technology and cyber risk management activities.
The Model Risk Oversight Committee (MROC) is responsible for providing management attention, direction, and
oversight of the model risk management framework and model risk within Northern Trust.
The Workforce Risk Committee (WRC) is responsible for assessing workforce risk and monitoring initiatives associated
with workforce risk management.
In addition to the aforementioned committees, Northern Trust establishes business and regional risk committees that also
report into GERC.
Risk Assessment, Appetite and Reporting Processes
As part of the integrated risk framework, Northern Trust has established key risk identification and risk management
processes, embedded within its businesses to enable a risk-informed profile that supports its business decisions and the
execution of its corporate strategies. Northern Trust’s risk assessment process consists of a series of programs across the
first and second lines of defense that identify, measure, manage and report risks in line with risk appetite and guidelines.
Northern Trust defines its risk appetite as the aggregate level and types of risk the Board of Directors and senior
management are willing to assume to achieve the Corporation’s strategic objectives and business plan, consistent with
prudent management of risk and applicable capital, liquidity, and other regulatory requirements. It includes consideration
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
of the likelihood and impact of risks, using both monetary loss and non-financial measures across risk themes to monitor
against tolerance thresholds and guideline levels that trigger escalation to risk committees, senior management, and the
Board of Directors or committees thereof, as appropriate.
Risk Control
Risk Control is an internal, independent review function within the Risk Management function. Risk Control is managed
by the Head of Risk Control and is comprised of Model Risk Management, Credit Review, and Global Compliance Testing
groups, each with its own risk focus and oversight. Model Risk Management is responsible for the implementation and
management of the enterprise-wide model risk framework and independently validating new models and reviewing and re-
validating existing models. Credit Review provides an independent, ongoing assessment of credit exposure and related
credit risk management processes across Northern Trust. Lastly, Global Compliance Testing evaluates the effectiveness of
procedures and controls designed to comply with relevant laws and regulations, as well as corresponding Northern Trust
policies governing regulatory compliance activities. The Business Risk Committee has oversight responsibility with respect
to Risk Control generally as well as each of these groups.
Audit Services
Audit Services is an independent control function that assesses and validates controls within Northern Trust’s risk
management framework. Audit Services is managed by the Chief Audit Executive with oversight from the Audit
Committee. Audit Services tests the overall adequacy and effectiveness of the system of internal controls associated with
the framework on an ongoing basis and reports the results of these audits directly to the Audit Committee. Audit Services
includes professionals with a broad range of audit and industry experience, including risk management expertise. The Chief
Audit Executive reports directly to the Audit Committee and administratively reports to the Corporation’s Chief Executive
Officer and is a non-voting member of GERC.
Credit Risk
Credit risk is the risk to interest income or principal from the failure of a borrower, issuer, or counterparty to perform on an
obligation.
Credit Risk Overview
Credit risk is inherent in many of Northern Trust’s activities. A significant component of credit risk relates to loans, leases,
securities, and wholesale counterparty-related exposures, such as over-the-counter (OTC) derivatives and repo-style
transactions. Northern Trust’s loan portfolio differs significantly from those of other large U.S. financial institutions in that
Northern Trust is generally:
•
not an originator of loan products intended to be sold into a secondary market or to be bundled into asset
securitizations;
not an agent bank or syndicator of loans, where risk management is achieved post-close through the sale of
participations; and
not a participant in leveraged financial transactions, such as project finance, private-equity-originated acquisition
financing, hedge fund leveraging, or prime brokerage finance activities.
•
•
Credit Risk Framework and Governance
The CRC is the most senior credit committee at Northern Trust, with responsibility for establishing, approving, and
monitoring credit-related policies and programs throughout the Bank. The Chief Credit Officer reports directly to the CRO,
chairs the CRC, and heads the Credit Risk Management function at Northern Trust.
The Credit Risk Management function is the focal point of the credit risk framework and, while independent of the
business units that manage client relationships, it works closely with them to achieve the goal of assuring proactive
management of credit risk. To monitor and control credit risk, the Credit Risk Management function maintains a
framework that consists of policies, standards, and programs designed to promote a prudent credit culture and monitors
adherence to those internal policies, standards, and programs, as well as external regulations. Independent oversight and
review of the credit risk framework also is provided by Risk Control.
The credit risk framework stipulates authority levels for approval of the extension of credit. Individual credit authority
for commercial and personal loans is limited to specified amounts and maturities. Credit requests exceeding policies or
standards because of amount, maturity, rating, or other conditions, are referred to the relevant Group Credit Approval
Committee. Credit decisions involving requests in excess of Group Credit Approval Committee limits require the approval
of the Senior Credit Committee. The Capital Markets Credit Committee has sole authority for the approval, modification,
or renewal of credit exposure limits to all wholesale market counterparties. The Senior Credit Committee and Capital
Markets Credit Committee are both direct sub-committees of the CRC. The Treasury Credit Committee provides similar
approval for investments in assets subject to credit risk, such as bonds and equities.
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Credit Risk Measurement
The credit risk framework covers a number of different measurements of credit risk at Northern Trust, including risk-
weighted assets (RWA), the allowance for credit losses, and stress tests using various macroeconomic scenarios, such as
the internal capital adequacy approval program and CCAR.
An integral component of credit risk measurement is Northern Trust’s internal risk rating system. Northern Trust’s
internal risk rating system enables identification, measurement, approval and monitoring of the Corporation’s credit risk.
Calculations include entity-specific information about the obligor’s or counterparty’s probability of default (PD) and
exposure-specific information about loss given default (LGD), exposure at default (EAD), and maturity. Northern Trust’s
internal risk rating system is intended to rank its credit risk without any direct linkage to external credit ratings.
Obligors are assigned PDs after consideration of both quantitative and qualitative factors. Although the criteria vary,
the objective is for assigned PDs to be consistent in the measurement and ranking of risk. LGD and EAD are assigned
based on obligor, product, collateral and instrument characteristics.
Risk ratings are assigned at the time a counterparty or an obligation is approved, renewed, or amended. Risk ratings
are reviewed annually or when new information relevant to the rating is received. Risk ratings are utilized for credit
underwriting, management reporting, and the calculation of regulatory capital.
The Credit Risk Management function is responsible for the ongoing oversight of each model that supports the internal
risk-rating system. Independent model governance and oversight is further supported by the activities of Risk Control.
Loans and Other Extensions of Credit
A significant component of credit risk relates to the loan portfolio, including contractual obligations such as legally binding
commitments to extend credit, commercial letters of credit, and standby letters of credit. These contractual obligations and
arrangements are discussed in Note 25, “Commitments and Contingent Liabilities,” provided in Item 8, “Financial
Statements and Supplementary Data.”
Undrawn commitments to extend credit generally have fixed expiration dates or other termination clauses. Since a
significant portion of the commitments are expected to expire without being drawn upon, the total commitment amount
does not necessarily represent future loans or liquidity requirements. The following table provides information about the
industry sector and expiration dates of undrawn commitments to extend credit as of December 31, 2022 and 2021.
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TABLE 46: UNDRAWN COMMITMENTS TO EXTEND CREDIT BY INDUSTRY SECTOR
DECEMBER 31, 2022
DECEMBER 31, 2021
COMMITMENTS
COMMITMENTS
TOTAL
ONE YEAR
AND LESS
OVER ONE
YEAR
OUTSTANDING
LOANS
TOTAL
ONE YEAR
AND LESS
OVER ONE
YEAR
OUTSTANDING
LOANS
($ In Millions)
Commercial
Commercial and Institutional
Finance and Insurance
$
6,694.8 $
3,981.3 $
2,713.5 $
5,044.9 $ 4,778.8 $
2,769.7 $ 2,009.1 $
4,950.5
Holding Companies
Manufacturing
Mining
Public Administration
Retail Trade
Services
Transportation and
Warehousing
Utilities
Wholesale Trade
Other Commercial
Commercial and Institutional(1)
Commercial Real Estate
Non-U.S.
Lease Financing, net
Other
Total Commercial
Personal
Private Client
Residential Real Estate
Non-U.S.
Other
Total Personal
Total
—
6,063.3
499.0
50.0
1,158.2
5,860.6
243.9
1,220.7
741.4
147.5
—
764.2
36.8
50.0
369.0
2,357.7
—
67.7
118.8
89.4
—
5,299.1
462.2
—
789.2
3,502.9
243.9
1,153.0
622.6
58.1
45.0
—
1,855.0
6,721.6
60.7
13.3
203.7
758.0
100.0
812.7
—
786.2
236.0
50.0
207.3
—
5,935.4
522.0
50.0
605.4
4,099.0
5,742.0
2,126.0
3,616.0
251.8
279.6
8.6
1,208.0
484.7
348.3
797.7
230.4
1.5
25.4
171.5
197.9
278.1
1,182.6
626.2
32.5
22,679.4
7,834.9
14,844.5
12,415.0
21,428.8
6,571.5
14,857.3
449.3
2,137.6
—
91.4
124.4
1,572.5
—
91.4
324.9
565.1
—
—
4,773.0
357.9
61.8
3,131.1
1,514.4
1,096.1
—
1,316.5
—
97.2
—
97.2
296.1
418.3
—
—
34.6
1,602.2
94.1
14.6
235.5
3,532.6
262.8
21.5
396.4
344.4
11,489.2
4,326.3
1,990.2
11.0
670.7
25,357.7
9,623.2
15,734.5
21,635.6
23,398.3
7,826.6
15,571.7
18,487.4
3,970.0
3,090.4
783.4
849.5
—
125.6
800.0
—
879.6
657.8
49.5
—
14,119.0
2,499.5
6,413.5
510.0
215.2
665.9
858.5
—
766.4
118.4
855.6
—
1,733.1
547.5
2.9
—
5,602.9
4,016.0
1,586.9
21,257.7
4,023.9
1,740.4
2,283.5
$ 30,960.6 $
13,639.2 $ 17,321.4 $
42,893.3 $ 27,422.2 $
9,567.0 $ 17,855.2 $
15,256.3
6,319.9
381.8
35.2
21,993.2
40,480.6
(1) The commercial and institutional industry sector information is presented on the basis of the North American Industry Classification System (NAICS).
As part of Northern Trust’s credit processes, the Credit Risk Management function oversees a range of portfolio
reviews that focus on significant and/or weaker-rated credits. This approach allows management to take remedial action in
an effort to deal with potential problems. An integral part of the Credit Risk Management function is a formal review of
past due and potential problem loans to determine which credits, if any, need to be placed on nonaccrual status or charged
off. Northern Trust maintains a loan portfolio “watch list” for adversely classified credit exposures that includes all
nonaccrual credits as well as other loans with elevated risk of default. Independent from the Credit Risk Management
function, Credit Review undertakes both on-site and off-site file reviews that evaluate the effectiveness of management’s
implementation of Credit Risk Management’s requirements.
Counterparty Credit Risk
Counterparty credit risk for Northern Trust primarily arises from a variety of funding, treasury, trading and custody-related
activities, including trading OTC foreign exchange and interest rate derivatives, indemnified securities lending transactions,
and sponsored repurchase and reverse repurchase transactions. Credit exposure to counterparties is managed by use of a
framework for setting limits by product type and exposure tenor.
To calculate exposure, Northern Trust treats repurchase agreements, reverse repurchase agreements, indemnified
securities lending, and sponsored repurchase and reverse repurchase transactions as repo-style transactions. Foreign
exchange exposures and interest rate derivatives are treated as OTC derivatives. The exposure at default measurement
methodology for each eligible type of counterparty credit exposure, including the use of netting and collateral as risk
mitigants, is determined based on regulatory requirements.
2022 ANNUAL REPORT | NORTHERN TRUST CORPORATION 77
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Credit Risk Mitigation
Northern Trust considers cash flow to be the primary source of repayment for client-related credit exposures. However,
Northern Trust employs several different types of credit risk mitigants to manage its overall credit risk in the event cash
flow is not sufficient to repay a credit exposure. Northern Trust broadly groups its risk mitigation techniques into the
following three primary categories.
Physical and Financial Collateral: One of Northern Trust’s primary credit risk mitigation approaches is the
requirement of collateral. Residential and commercial real estate exposures are typically secured by properly margined
mortgages on the property. Various other types of physical and financial collateral are also accepted for certain
commercial and personal loans, in line with Northern Trust’s lending standards. In cases where loans to clients are
secured by marketable securities, the daily values of the securities are monitored closely to ensure adherence to
collateral coverage policies.
Netting: On-balance sheet netting is employed where applicable for counterparties with master netting agreements.
Netting is primarily related to foreign exchange transactions with major banks and institutional clients subject to
eligible master netting agreements.
Guarantees: Personal and corporate guarantees are accepted, as warranted, to reduce risk of default, facilitate
potential collection efforts, and protect Northern Trust’s claims relative to other creditors.
Another important risk management practice is the avoidance of undue concentrations of exposure, such as in any single
(or small number of related) obligor/counterparty, loan type, industry, geography, country or risk mitigant. Processes are in
place to establish limits on certain concentrations and the monitoring of adherence to the limits.
Operational Risk
Operational risk is the risk of loss from inadequate or failed internal processes, human factors and systems, or from
external events.
Operational Risk Overview
Operational risk is inherent in each of Northern Trust’s businesses and corporate functions and reflects the potential for
inadequate information systems, operating problems, challenges related to reliance on third parties, product design and
delivery difficulties, potential legal actions or catastrophes to result in losses. This includes the potential that continuity of
service and resilience may be impacted.
Operational risk includes information technology and cybersecurity, compliance, fiduciary and legal risks, which under the
Corporation’s risk structure are governed and managed explicitly.
Operational Risk Framework and Governance
To monitor and control operational risk, Northern Trust maintains a framework consisting of risk management policies,
programs and practices designed to promote a sound operational environment and maintain the Corporation’s operational
risk profile and losses within approved risk appetites and guidelines. The framework implements a structured approach to
establishing and communicating operational risk management practices and responsibilities. This structured approach to
measuring and managing operational risk addresses operational resilience which requires that Northern Trust minimize
service disruptions and limit systemic impacts from adverse events as well as risk quantification. The framework is
deployed consistently and globally across all businesses and its objective is to identify and measure the factors that
influence risk and drive action to maintain operational resilience and reduce future loss events. The Operational Risk
Management function is responsible for defining the operational risk management framework and providing independent
oversight of the framework implementation and application across Northern Trust. It is the responsibility of each business
to implement the enterprise-wide operational risk framework and business-specific risk management programs to identify,
monitor, measure, manage and report on operational risk and mitigate Northern Trust’s exposure to service disruptions and
loss. Several key programs support the operational risk framework, including:
•
Loss Event Data Program - a program that collects internal and external loss data for use in monitoring operational
risk exposure, various business analyses and a Basel Advanced Measurement Approach (AMA) capital quantification.
Risk and Control Self-Assessment - a comprehensive, structured risk management process used by Northern Trust’s
businesses to identify, measure, monitor and mitigate operational risk exposures throughout the enterprise.
Operational Risk Scenario Analysis - a systematic process of obtaining expert opinions from business managers and
risk management experts to derive reasoned assessments of the likelihood of occurrence and the potential loss impact
of plausible operational losses.
•
•
78 2022 ANNUAL REPORT | NORTHERN TRUST CORPORATION
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
•
•
•
•
•
•
•
•
•
•
Product and Process Risk Management Program - a program used for evaluating and managing risks associated with
the introduction of new and modified noncredit products and services, significant changes to operating processes, and
related significant loss events.
Operational Resilience - a program that outlines the business service lifecycle assessment, designed to identify
Northern Trust’s most important business services, ensure the continuity business service delivery and promote the
ability to prevent, respond to, recover and learn from disruptions.
Third-Party Risk Management Program - a program that provides processes for evaluating, quantifying and
qualifying appropriate risk assessment, measurement, monitoring and management of third and fourth parties
(inclusive of external and internal, e.g., Northern Trust legal entity to legal entity relationships).
Global Fraud Risk - a program designed to prevent, detect and respond to attempted or actual fraud impacting the
bank and its clients globally.
Data Management - a program that embeds data management and data governance related activities into Northern
Trust processes in order to manage data risk.
Data Privacy Program - a program that sets forth a consistent, global approach to compliance with all applicable laws,
rules, and regulations relating to privacy and establishes overarching principles for the responsible use and protection
of confidential information. The Program is designed to guide Northern Trust to more effectively identify, assess,
manage and mitigate privacy risks and privacy incidents.
Information Security, Technology, and Cyber Risk Management - a program that sets forth a consistent, global
approach to communicate risk management processes and controls addressing information security, including cyber
threats, technology, and related compliance risks to the organization.
Operational Resiliency and Recovery Management Program - a program designed to protect life safety, minimize
and manage the business impact and support the recovery of critical functions for clients following an incident.
Physical Security - a program that provides for the life safety of Northern Trust partners, clients, and visitors
worldwide.
Insurance Management Program - a program designed to reduce the monetary impact of certain operational loss
events through the securing of appropriate insurance policy protection.
As discussed in “Risk Control” above, Model Risk Management also is part of the operational risk framework.
The ORC is responsible for overseeing the activities of Northern Trust related to the management of operational risk
including establishing and maintaining the Corporate Operational Risk Policy and approving the operational risk
framework and programs. This committee has the expanded role of coordinating operational risk issues related to
information technology, cybersecurity, compliance and fiduciary risks. The purpose of this committee is to provide
executive management’s insight and guidance to the management of existing and emerging operational risks. This includes
identification and assessment of evolving risk trends across the operational risk framework and how these can be best
managed.
Operational Risk Measurement
Northern Trust utilizes the AMA capital quantification process to estimate required capital for the Corporation and
applicable U.S. banking subsidiaries. Northern Trust’s AMA capital quantification process incorporates outputs from the
Loss Event Data, Risk and Control Self-Assessment and Operational Risk Scenario Analysis programs to derive required
capital. Business environment factor information is used to estimate loss frequency. The AMA capital quantification
process uses a Loss Distribution Approach methodology to combine frequency and severity distributions to arrive at an
estimate of the potential aggregate loss at the 99.9th percentile of the aggregate loss distribution over a one-year time
horizon.
Information Security, Technology, and Cyber Risk Management
Effective management of risks related to the confidentiality, integrity and availability of information is crucial in an
environment of increasing cyber threats and requires a structured approach to establish and communicate expectations and
required practices. Northern Trust’s information security, technology, and cyber risk management program provides the
overall structure for managing the respective risks in a sustainable manner. The program is supported by the Information
Security, Technology, and Cyber Risk Management Policy, which is the highest-level governing document and is approved
by the Business Risk Committee. In addition, the program is supported by an organizational structure that reflects support
from executive management and includes risk committees comprised of members from across the business, including the
Information Technology Risk Committee (ITRC). The ITRC is chaired by the Chief Information Risk Officer, who
regularly reports to the Board of Directors and its subcommittees, as appropriate, on the status of the information security,
technology, and cyber risk profile.
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The governance process, internal controls and risk management practices are designed to keep risk at levels
appropriate to Northern Trust’s overall risk appetite and the inherent risk in the markets in which Northern Trust
operates. Northern Trust employees are responsible for promoting information security as well as adhering to applicable
policies and standards to safeguard electronic information and business systems within their care. In cases where Northern
Trust relies on vendors to perform services, controls are routinely reviewed for alignment with industry standards and their
ability to protect information. Any findings identified are remediated following a risk-based approach.
In addition to the information security controls managed and monitored within the organization, Northern Trust uses
external third-party security teams on a regular basis to assess effectiveness. These teams perform program maturity
assessments, penetration tests, security assessments and reviews of Northern Trust’s vulnerability to cyber-
attacks. Northern Trust also operates a global security operations center for threat identification and response. This center
aggregates security threat information from systems and platforms across the business and alerts the organization in
accordance with its documented Cybersecurity Incident Response Plan.
The Cybersecurity Incident Response Plan is used to respond to cybersecurity incidents. A cybersecurity incident is
defined as any event that has a negative effect on the confidentiality, integrity, or availability of Northern Trust’s or its
clients’ assets resulting from malicious or intentional actions. These can include, but are not limited to, disruptions of
service, denials of service, compromises of information systems, data exfiltration or data corruption. The plan provides a
streamlined approach that can be invoked rapidly to address matters that raise enterprise concern and to communicate
impact, actions, and status to senior management, including the Chief Information Security Officer, Chief Information Risk
Officer, and appropriate stakeholders. The plan is designed to work with enterprise-level response plans, and is reviewed,
tested, and updated regularly.
Northern Trust’s disclosure procedures and controls also address cybersecurity incidents and include elements to
ensure an analysis of potential disclosure obligations arising from any such incidents. Northern Trust maintains compliance
programs to address the applicability of restrictions on securities trading while in possession of material, nonpublic
information, including instances in which such information may relate to cybersecurity incidents.
Northern Trust also maintains a comprehensive Information and Cyber Security Training and Awareness practice
providing baseline and targeted education and awareness for employees and contractors. This program includes at least one
required annual online training class for all employees and contractors, supplemental refresher training throughout the year,
targeted training based on roles and risk levels, multiple simulated phishing and vishing attacks with associated training,
the distribution of regular information security awareness materials, and the designation of individuals as Information
Security and Privacy champions within the businesses.
Operational Resilience and Recovery Management
Northern Trust’s operational resilience approach encompasses operational resilience and recovery processes enterprise-
wide (including staff, technology and facilities) to anticipate and limit disruptions and to ensure that following a disaster or
business interruption Northern Trust is able to resume critical business functions and fulfills all regulatory and legal
requirements.
Northern Trust’s operational resilience mitigation and preventative measures include sophisticated physical security,
resilient designs and peer capacity for its corporate data centers, a highly redundant global network, robust network
security, resilience centers that offer alternative workstations and transfer of work and work-from-home programs that
provide further capability.
All of Northern Trust’s businesses are required to risk-assess all their functions regularly and develop business
continuity plans covering resource requirements (people, systems, vendor relationships and other assets), arrangements for
obtaining these resources and prioritizing the resumption of each function in compliance with corporate standards. The
business continuity programs of all critical third-party vendors to Northern Trust are reviewed on a regular basis. All of
Northern Trust’s businesses test their plans at least annually. The ORC annually reviews and presents the corporate
business continuity plan to the Business Risk Committee.
Fiduciary Risk
Fiduciary risks are risks arising from the failure in administering or managing financial and other assets in clients’ fiduciary
accounts: i) to adhere to a fiduciary standard of care if required under the terms of governing documents or applicable laws;
or ii) to properly discharge fiduciary duties. Fiduciary status may hinge on the nature of a particular function being
performed and fiduciary standards may vary by jurisdiction, type of relationship and governing document.
80 2022 ANNUAL REPORT | NORTHERN TRUST CORPORATION
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Fiduciary Risk Overview
The fiduciary risk management framework identifies, assesses, measures, monitors and reports on fiduciary risk matters
deemed significant. Fiduciary risk is mitigated through internal controls and risk management practices that are designed to
identify, understand and keep such risk at levels consistent with the organization’s overall risk appetite while also
managing the inherent risk in each relationship for which Northern Trust serves in a fiduciary capacity. Each business is
responsible for complying with all corporate policies and external regulations and for establishing specific procedures,
standards and guidelines to manage fiduciary risk within the desired risk appetite.
Fiduciary Risk Framework and Governance
The FRC is responsible for overseeing activities related to the exercise of fiduciary powers throughout the organization in
clients’ fiduciary accounts, and for establishing and reviewing the fiduciary risk policies and the fiduciary risk framework
that supports the coordination of activities to identify, monitor, manage and report on fiduciary risk. In addition, the FRC
serves as an escalation point for significant issues raised by its subcommittees or elsewhere in the organization.
Compliance Risk
Compliance risk is the risk of legal or regulatory sanctions, financial loss, or damage to reputation resulting from failure to
comply with laws, regulations, rules, other regulatory requirements, or codes of conduct and other standards of self-
regulatory organizations applicable to Northern Trust. Compliance risk includes the following two subcategories:
•
Regulatory Risk - risk arising from failure to comply with prudential and conduct of business or other regulatory
requirements.
Financial Crime Risk - risk arising from financial crime (e.g., money laundering, sanctions violations, fraud, insider
dealing, theft, etc.) in relation to the products, services, or accounts of the institution, its clients, or others associated
with the same.
•
Compliance Risk Framework and Governance
The compliance risk management framework identifies, assesses, controls, measures, monitors and reports on compliance
risk. The framework is designed to minimize compliance risk and maintain an environment in which criminal or regulatory
violations do not occur. The framework includes a comprehensive governance structure and a Compliance and Ethics
Program approved by the Business Risk Committee.
Each business is responsible for the implementation and effectiveness of the Compliance and Ethics Program and
specific compliance policies within their respective businesses. Each business is responsible for its respective employees’
compliance with corporate policies and external regulations and for establishing specific procedures, standards and
guidelines to manage compliance risk in accordance with Northern Trust’s Compliance and Ethics Program.
The CEOC establishes and monitors adherence to Northern Trust’s Compliance and Ethics Program. The Chief
Compliance and Ethics Officer reports to the Business Risk Committee, as appropriate, and chairs the CEOC.
Liquidity Risk Management
Liquidity Risk Overview
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 maintains a strong liquidity position and liquidity risk profile. Northern Trust’s balance sheet is
primarily liability-driven. That is, the main driver of balance sheet changes comes from changing levels of client deposits,
which are generally related to the level of custody assets serviced and commercial and personal deposits and can also be
influenced by market conditions. This liability-driven business model differs from a typical asset-driven business model,
where increased levels of deposits and wholesale borrowings are required to support, for example, increased levels of
lending. Northern Trust’s balance sheet is generally comprised of high-quality assets that are managed to meet anticipated
obligations under stress, resulting in low liquidity risk.
Liquidity Risk Framework and Governance
Northern Trust maintains a liquidity risk framework consisting of risk management policies and practices to keep its risk
profile within the Board-approved Corporate Risk Appetite Statement. All liquidity risk activities are overseen by the Risk
Management function, which is independent of the businesses undertaking the activities.
The Liquidity Management Policy and exposure limits for liquidity risk are set by the Board of Directors, and
committee structures have been established to implement and monitor adherence to corporate policies, external regulations
and established procedures. Limits are monitored based on measures such as the liquidity coverage ratio (LCR), the NSFR,
and the liquidity stress-testing buffer across a range of time horizons. Treasury, in the first line of defense, proposes
liquidity risk management strategies and is responsible for performing liquidity management activities. The Asset and
2022 ANNUAL REPORT | NORTHERN TRUST CORPORATION 81
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liability Management Committee (ALCO) provides first-line management oversight and is responsible for approving
strategies and activities within the risk appetite, monitoring risk metrics, overseeing balance sheet resources, and reviewing
reporting such as cash flows, LCR, NSFR, and stress test results.
Market and Liquidity Risk Management, in the second line of defense, provides challenge to the first-line activities,
evaluates compliance with regulatory requirements and process effectiveness, and escalates material items for corrective
action. The Market and Liquidity Risk Committee (MLRC) provides second-line oversight and is responsible for reviewing
market and liquidity risk exposures, approving and monitoring risk metrics, and approving key methodologies and
assumptions that drive liquidity risk measurement.
Liquidity Risk Analysis, Monitoring, and Reporting
Liquidity risk is analyzed and monitored in order to ensure compliance with the approved risk appetite. Various liquidity
analysis and monitoring activities are employed by Northern Trust to understand better the nature and sources of its
liquidity risks, including: liquidity stress testing, liquidity metric monitoring, collateral management, intraday management,
cash flow projections, operational deposit modeling, liquid asset buffer measurement, funds transfer pricing, and
contingency funding planning.
The liquidity risk management process is supported through management and regulatory reporting. Both Northern
Trust’s Treasury and Market and Liquidity Risk Management functions produce management reports that enable oversight
bodies to make informed decisions and support management of liquidity risk within the approved risk appetite. Holistic
liquidity metrics such as LCR, NSFR and internal liquidity stress testing are actively monitored, along with a suite of other
metrics that provide early warning indicators of changes in the risk profile.
Regulatory Environment
Northern Trust actively follows regulatory developments and regularly evaluates its liquidity risk management framework
against proposed rule-making and industry best practices in order to comply with applicable regulations and further
enhance its liquidity policies. Please refer to “Supervision and Regulation—Liquidity Standards” in Item 1, “Business,” for
a discussion of applicable liquidity standards.
Liquidity Coverage Ratio (LCR)
The LCR Final Rule requires covered banking organizations, which include the Corporation, to maintain an amount of
high-quality liquid assets (HQLAs) equal to or greater than 100% of the banking organization’s total net cash outflows
over a 30 calendar-day standardized supervisory liquid stress scenario. The requirements of the LCR Final Rule are
intended to promote the short-term resilience of the liquidity risk profile of covered banking organizations, improve the
banking industry’s ability to absorb shocks arising from financial and economic stress, and improve the measurement and
management of liquidity risk. The Corporation and the Bank each satisfied the U.S. liquidity coverage ratio requirements
during 2022.
U.S. Net Stable Funding Ratio (NSFR)
The NSFR Final Rule requires covered banking organizations, which include the Corporation, to maintain an amount of
available stable funding (ASF) equal to or greater than the banking organization’s projected minimum funding needs, or
required stable funding (RSF), over a one-year time horizon. The NSFR is designed to reduce the likelihood that
disruptions to a banking organization’s regular sources of funding will compromise its liquidity position, promote effective
liquidity risk management, and support the ability of banking organizations to provide financial intermediation to
businesses and households across a range of market conditions. The NSFR supports financial stability by requiring banking
organizations to fund their activities with stable sources of funding on an ongoing basis, reducing the possibility that
funding shocks would substantially increase distress at individual banking organizations. The Corporation and the Bank
each satisfied the NSFR requirements during 2022.
Funding
Northern Trust maintains a very liquid balance sheet, with cash and due from banks, deposits with the Federal Reserve and
other central banks, short-term money market assets and investment securities in aggregate representing 63% and 71% of
total assets as of December 31, 2022 and 2021, respectively. The market value of unencumbered securities at the Bank,
which include those placed at the Federal Reserve discount window, totaled $46.2 billion and $59.0 billion at
December 31, 2022 and 2021, respectively.
As the Corporation’s principal subsidiary encompassing all of Northern Trust’s banking activities, the Bank centrally
manages liquidity for all U.S. and international banking operations. Liquidity is provided by a variety of sources, including
client deposits (institutional and personal) from the Asset Servicing and Wealth Management businesses, wholesale
funding from the capital markets, maturities of short-term investments, interest earned on investment securities and money
82 2022 ANNUAL REPORT | NORTHERN TRUST CORPORATION
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
market assets, Federal Home Loan Bank advances, and unencumbered liquid assets that can be sold or pledged to secure
additional funds. While management does not view central bank discount windows as primary sources of liquidity, at
December 31, 2022 and 2021, the Bank had over $39.0 billion and $55.0 billion, respectively of securities and loans
readily available as collateral to support discount window borrowings. The Bank also is active in the U.S. interbank
funding market, providing an important source of additional liquidity and low-cost funds.
The liquidity of the Corporation is managed separately from that of the Bank. The primary sources of cash for the
Corporation are issuances of debt or equity and dividend payments from the Bank. For further information on issuances or
redemptions of debt or equity, please refer to Note 13, “Senior Notes and Long-Term Debt” provided in Item 8, “Financial
Statements and Supplementary Data.” The Corporation received no dividends and $751.1 million of dividends from the
Bank in 2022 and 2021, respectively. Dividends from the Bank are subject to certain restrictions, as discussed in further
detail in Note 30, “Restrictions on Subsidiary Dividends and Loans or Advances,” provided in Item 8, “Financial
Statements and Supplementary Data.”
The Corporation’s liquidity, defined as the amount of cash and highly marketable assets, was $601.4 million and $1.7
billion at December 31, 2022 and 2021, respectively. During, and at year-end, 2022 and 2021, these assets were comprised
almost entirely of cash in a demand deposit account at the Bank or overnight money market placements, both of which
were fully available to the Corporation to support its own cash flow requirements or those of its subsidiaries, as needed.
Average liquidity during 2022 and 2021 was $1.2 billion and $1.8 billion, respectively. The cash flows of the Corporation
are shown in Note 33, “Northern Trust Corporation (Corporation only),” provided in Item 8, “Financial Statements and
Supplementary Data.”
Uses of Liquidity
Liquidity supports a variety of activities, including client withdrawals, purchases of securities, net loan growth, and draws
on commitments to extend credit.
The Corporation’s uses of cash consist mainly of dividend payments to the Corporation’s stockholders; the payment of
principal and interest to note holders; repurchases of its common stock; and investments in, or loans to, its subsidiaries. The
most significant uses of cash by the Corporation during 2022 were $750.2 million of common stock dividends and $35.4
million of common stock repurchases. The most significant uses of cash by the Corporation during 2021 were $583.3
million of common stock dividends, repayments of senior notes and floating rate capital debt of $500.0 million and $278.8
million, respectively, and $267.6 million of common stock repurchases.
Credit Ratings
A significant source of liquidity for both the Corporation and the Bank is the ability to draw funding from capital markets
globally. The credit ratings of the Corporation and the Bank as of December 31, 2022, provided in the following table,
allow Northern Trust to access capital markets on favorable terms.
TABLE 47: NORTHERN TRUST CREDIT RATINGS AS OF DECEMBER 31, 2022
Northern Trust Corporation:
Senior Debt
Subordinated Debt
Preferred Stock
Outlook
The Northern Trust Company:
Short-Term Deposit
Long-Term Deposit/Debt
Subordinated Debt
Outlook
CREDIT RATING
STANDARD &
POOR’S
MOODY’S FITCH RATINGS
A+
A
BBB+
Stable
A-1+
AA-
A+
Stable
A2
A2
Baa1
Stable
P-1
Aa2
A2
Stable
A+
A+
BBB
Stable
F1+
AA
A+
Stable
A significant downgrade in one or more of these ratings could limit Northern Trust’s access to capital markets and/or
increase the rates paid for short-term borrowings, including deposits, and future long-term debt issuances. The size of these
rate increases would depend on multiple factors, including the extent of the downgrade, Northern Trust’s relative debt
rating compared to other financial institutions, current market conditions, and other factors. In addition, as discussed in
Note 27, “Offsetting of Assets and Liabilities,” provided in Item 8, “Financial Statements and Supplementary Data,”
Northern Trust enters into certain master netting arrangements with derivative counterparties that contain credit-risk-related
2022 ANNUAL REPORT | NORTHERN TRUST CORPORATION 83
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
contingent features in which the counterparty has the option to declare Northern Trust in default and accelerate cash
settlement of net derivative liabilities with the counterparty in the event Northern Trust’s credit rating falls below specified
levels. At December 31, 2022, the net maximum amount of these termination payments that Northern Trust could have
been required to pay was $135.8 million. Other than these credit-risk-related contingent derivative counterparty payments,
Northern Trust had no long-term debt covenants or other credit-risk-related payments at December 31, 2022, that would be
triggered by a significant downgrade in its debt ratings.
Off-Balance Sheet Arrangements
Please refer to Note 25, “Commitments and Contingent Liabilities,” provided in Item 8, “Financial Statements and
Supplementary Data” for information on off-balance sheet arrangements and the Credit Risk discussion in the “Risk
Management” section for further detail on undrawn commitments.
Market Risk Management
There are two types of market risk, interest rate risk associated with the banking book and trading risk. Interest rate risk
associated with the banking book is the potential for movements in interest rates to cause changes in Net Interest Income
and the market value of equity, including Accumulated Other Comprehensive Income (Loss) from the available for sale
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.
Market Risk Framework and Governance
Northern Trust maintains a market risk framework consisting of risk management policies and practices to keep its risk
profile within the Board-approved Corporate Risk Appetite Statement. All market risk activities are overseen by the Risk
Management function, which is independent of the businesses undertaking the activities.
The Asset and Liability Management Policy, Policy on Dealer Trading Activities, and exposure limits for market risk
are set by Board-level committees, and committee structures have been established to implement and monitor adherence to
corporate policies, external regulations and established procedures. Limits are monitored based on measures such as
sensitivity of Net Interest Income (NII), sensitivity of market value of equity (MVE), and value-at-risk (VaR) across a
range of time horizons.
Treasury, in the first line of defense, proposes market risk management strategies and is responsible for performing
market risk management activities. The ALCO provides first-line management oversight and is responsible for approving
strategies and activities within the risk appetite, monitoring risk metrics, overseeing balance sheet resources, overseeing the
execution of strategies, and reviewing reporting such as stress test results.
Market and Liquidity Risk Management, in the second line of defense, provides challenge to the first-line activities,
evaluates compliance with regulatory requirements and process effectiveness, and escalates material items for corrective
action. The MLRC provides second-line oversight and is responsible for reviewing market risk exposures, establishing and
monitoring risk metrics, and approving key methodologies and assumptions that drive market risk measurement.
Interest Rate Risk Overview
Interest rate risk in the banking book is the potential for deterioration in Northern Trust's financial position (e.g. interest
income, market value of equity, or capital) due to changes in interest rates. NII and MVE sensitivity are the primary
metrics used for measurement and management of interest rate risk. Changes in interest rates can have a positive or
negative impact on NII depending on the positioning of assets, liabilities and off-balance sheet instruments. Changes in
interest rates also can impact the values of assets, liabilities and off-balance sheet positions, which directly impact the
MVE. 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. To mitigate interest rate risk, the balance
sheet is managed so that movements of interest rates on assets and liabilities (adjusted for hedges) are sufficiently
correlated, which allows Northern Trust to manage its interest rate risk within its risk appetite.
There are four commonly recognized types of structural interest rate risk in the banking book:
•
•
•
repricing risk, which arises from differences in the maturity and repricing terms of assets and liabilities;
yield curve risk, which arises from changes in the shape of the yield curve;
basis risk, which arises from imperfect correlation in the adjustment of the rates earned and paid on different financial
instruments with otherwise similar repricing characteristics; and
embedded optionality risk, which arises from client or counterparty behavior in response to interest rate changes.
•
84 2022 ANNUAL REPORT | NORTHERN TRUST CORPORATION
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Interest Rate Risk Analysis, Monitoring, and Reporting
Northern Trust uses two primary measurement techniques to manage interest rate risk: NII and 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.
Northern Trust limits aggregate interest rate risk (as measured by the NII sensitivity and MVE sensitivity simulation
techniques) to an acceptable level within the context of risk appetite. A variety of actions may be used to implement risk
management strategies to modify interest rate risk including:
•
•
•
•
•
purchase of investment securities;
sale of investment securities that are classified as available for sale;
issuance of senior notes and subordinated notes;
collateralized borrowings from the Federal Home Loan Bank; and
hedging with various types of derivative financial instruments.
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 NII simulation:
•
the balance sheet size and mix remains constant over the simulation horizon with maturing assets and liabilities
replaced with instruments with similar terms as those that are maturing, with the exception of certain nonmaturity
deposits that are considered short-term in nature and therefore receive a more conservative interest-bearing treatment;
prepayments on mortgage loans and securities collateralized by mortgages are projected under each rate scenario using
a third-party mortgage analytics system that incorporates market prepayment assumptions;
cash flows for structured securities are estimated using a third-party vendor in conjunction with the prepayments
provided by the third-party mortgage analytics vendor;
nonmaturity deposit pricing is projected based on Northern Trust’s actual historical patterns and management
judgment, depending upon the availability of historical data and current pricing strategies/or judgment; and
new business rates are based on current spreads to market indices.
•
•
•
•
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 December 31, 2022 and
2021. A 200 basis point ramp downward movement in interest rate relative to forward rate is provided as of December 31,
2022. 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 December 31, 2021 would not provide meaningful results and is therefore not provided.
TABLE 48: NET INTEREST INCOME SENSITIVITY
INCREASE/(DECREASE) ESTIMATED IMPACT ON NEXT TWELVE MONTHS OF NET INTEREST INCOME
($ In Millions)
DECEMBER 31, 2022
DECEMBER 31, 2021
INCREASE IN INTEREST RATES ABOVE MARKET IMPLIED FORWARD RATES
100 Basis Points
200 Basis Points
DECREASE IN INTEREST RATES BELOW MARKET IMPLIED FORWARD RATES
100 Basis Points
200 Basis Points
$
$
41 $
80
(31) $
(64)
302
514
(229)
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.
2022 ANNUAL REPORT | NORTHERN TRUST CORPORATION 85
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 available for sale debt securities, held to maturity 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.
The following table shows the estimated impact on MVE of 100 and 200 basis point shocks up and 100 basis point
shock down from current market implied forward rates at December 31, 2022 and 2021. A 200 basis point shock down
from current market implied forward rate is provided at December 31, 2022. Each rate movement is assumed to occur
gradually over a one-year period. The 200 basis point shock down from current market implied forward rate at December
31, 2021 would not provide meaningful results and is therefore not provided.
TABLE 49: MARKET VALUE OF EQUITY SENSITIVITY
INCREASE/(DECREASE) ESTIMATED IMPACT ON MARKET VALUE OF EQUITY
($ In Millions)
DECEMBER 31, 2022
DECEMBER 31, 2021
INCREASE IN INTEREST RATES ABOVE MARKET IMPLIED FORWARD RATES
100 Basis Points
200 Basis Points
DECREASE IN INTEREST RATES BELOW MARKET IMPLIED FORWARD RATES
100 Basis Points
200 Basis Points
$
$
(472) $
(965)
596 $
842
241
(60)
(384)
N/M
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 Risk Overview
Northern Trust’s balance sheet is exposed to nontrading foreign currency risk as a result of its holdings of non-U.S. dollar
denominated assets and liabilities, investment in non-U.S. subsidiaries, and future non-U.S. dollar denominated revenue
and expense. To manage currency exposures on the balance sheet, Northern Trust attempts to match its assets and liabilities
by currency. If those currency offsets do not exist on the balance sheet, Northern Trust will use foreign exchange derivative
contracts to mitigate its currency exposure. Foreign exchange contracts are also used to reduce Northern Trust’s currency
exposure to future non-U.S. dollar denominated revenue and expense.
In addition, Northern Trust provides global foreign exchange (GFX) services to clients. Most of these services are
provided in connection with Northern Trust’s global custody business. In the normal course of business, Northern Trust
also engages in trading of non-U.S. currencies for its own account. Both activities are considered trading activities.
Foreign currency trading positions exist when aggregate obligations to purchase and sell a currency other than the U.S.
dollar do not offset each other in amount, or offset each other over different time periods. The GFX trading portfolio at
Northern Trust is composed of spot, forward, and non-deliverable foreign currency transactions. For GFX, spot risk is
driven primarily by foreign exchange rate (FX) risk, and forward risk is driven primarily by interest rate (IR) risk.
86 2022 ANNUAL REPORT | NORTHERN TRUST CORPORATION
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Foreign Currency Risk Measurement
Northern Trust measures daily the risk of loss associated with all non-U.S. currency positions using a VaR model and
applying the historical simulation methodology. This statistical model provides estimates, based on high confidence levels,
of the potential loss in value that might be incurred if an adverse shift in non-U.S. currency exchange rates and interest
rates were to occur over a small number of days. The model incorporates foreign currency and interest rate volatilities and
correlations in price movements among the currencies. VaR is computed for each trading desk and for the global portfolio.
VaR measures are computed in a vendor software application which reads foreign exchange positions from Northern
Trust’s trading systems each day. Data vendors provide foreign exchange rates and interest rates for all currencies. The
Risk Management function monitors on a daily basis VaR model inputs and outputs for reasonableness.
Foreign Currency Risk Monitoring, Reporting and Analysis
Northern Trust monitors several variations of the 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 FX
drivers and only 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.
Automated daily reports are produced and distributed to business managers and risk managers. The Risk Management
function also reviews and reports several variations of the VaR measures in historical time series format to provide
management with a historical perspective on risk.
The following table presents the levels of total regulatory VaR and its subcomponents for GFX in the years 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 50: GLOBAL FOREIGN CURRENCY VALUE-AT-RISK
($ In Millions)
FOR THE YEAR ENDED DECEMBER 31,
High
Low
Average
As of December 31,
TOTAL VaR
(FX AND IR DRIVERS)
FX VaR (FX DRIVERS ONLY)
IR VaR (IR DRIVERS ONLY)
$
2022
0.2 $
0.1
0.1
0.1
2021
0.9 $
—
0.2
0.1
2022
0.2 $
—
0.1
0.1
2021
0.4 $
—
0.1
0.1
2022
0.3 $
—
0.1
0.1
2021
0.7
—
0.2
0.1
During 2022 and 2021, Northern Trust did not incur an actual GFX trading loss in excess of the daily GFX VaR estimate.
Other Nonmaterial Trading Activities
Market risk associated with other trading activities is immaterial. Northern Trust’s broker-dealer subsidiary, Northern Trust
Securities, Inc., maintains a portfolio of trading securities held for customer accommodation purposes and, beginning in
2022, invests excess cash balances in short-term investment vehicles. These activities averaged $12.1 million and $0.6
million for the year ended December 31, 2022 and 2021, respectively.
Northern Trust is also party to interest rate derivative contracts consisting mostly of interest rate swaps and swaptions
entered into to meet clients’ interest rate risk management needs, but also including a small number of caps and floors. All
interest rate derivative transactions are executed by Northern Trust's Treasury department. When Northern Trust enters into
client transactions, its practice is to mitigate the resulting market risk with offsetting interbank derivative transactions with
matching terms and maturities.
Strategic Risk
Strategic risk is the vulnerability of the organization to internal or external developments that render corporate strategy
ineffective or unachievable. The consequences of strategic risk can be diminished long-term earnings and capital, as well as
reputational damage to the firm. Strategic risk encompasses two main areas:
• Macroeconomic and geopolitical risk centers on external events or developments that would have a detrimental impact
•
on financial markets and/or financial services firms.
Business risk arises from internal, secular, competitive, or regulatory trends that impact Northern Trust’s stated
strategy or its achievability.
2022 ANNUAL REPORT | NORTHERN TRUST CORPORATION 87
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Strategic Risk Framework and Governance
The Corporate Strategic Risk Framework has been developed in conjunction with the Corporation’s risk appetite and risk
management policies, and defines the mission and expectations of the Strategic Risk Management function to identify and
analyze the sources and consequences of strategic risk.
This is achieved through participation in the establishment and review of business line strategy, coordination of risk
input to the evaluation of key strategic opportunities, and developing and maintaining a risk inventory and set of metrics
which attempt to gauge the level of strategic risk within the organization.
In addition, the Strategic Risk Management function maintains the Global Event Response Program, which aims to
anticipate and prepare for stress scenarios, and provide an outline for responding to them when they occur.
Both GERC and the Business Risk Committee are responsible for reviewing the general methods, guidelines and
frameworks by which Northern Trust monitors and evaluates strategic risk.
Climate Risk
Climate risk continues to be a growing strategic risk for the Corporation. Climate risk refers to the risk of loss arising from
climate change and is comprised of both physical risk and transition risk. Physical risk refers to the risks related to the
physical impacts of climate change, driven by extreme weather events, such as hurricanes and floods, as well as chronic
longer-term shifts, such as rising average global temperatures and sea-level rise. Transition risk refers to the transition to a
low-carbon economy, which may entail extensive policy, regulatory, legal, technology and market changes. These risks can
impact both financial and nonfinancial risk types and can have broad impacts on operations, supply chains, distribution
networks, customers and markets.
Effective management of climate risk requires coordinated governance, clearly defined roles and responsibilities and
well-developed processes to identify, measure, monitor and control risks. We continue to build out and enhance our climate
risk management capabilities. Our climate risk management efforts are overseen by the Director of Climate Risk who
reports indirectly to the CRO. The Risk Management function has created a dedicated climate and sustainability risk unit to
monitor, oversee and take account of the increasing impact that climate change has, or may in the future have, on
operations, credit conditions, and regulatory compliance across the globe. The climate and sustainability risk unit will also
work to continually evolve the risk management framework to ensure the Corporation meets the expectations of all
stakeholders as well as all climate-related commitments made by the Corporation to external agencies.
The Board of Directors, and in particular its Corporate Governance Committee, engages in active oversight of ESG
matters of significance to the Corporation and its subsidiaries, including climate-related risk. In addition, the Business Risk
Committee provides oversight of certain financial and operational risks associated with climate change and other
environmental factors through its oversight of the Corporation’s global risk management framework and risk management
policies. The Business Risk Committee also engages in periodic discussions with management and members of the Risk
Management function regarding strategic risks, including climate-related risk.
The Corporation expects that climate change will increasingly impact the risk types it manages, and the Corporation
will continue to integrate climate considerations into its risk management framework as its understanding of climate change
and risks driven by it evolve. Various regulatory agencies, investors, and other stakeholders have increased expectations
and scrutiny in this area. The Corporation is committed to helping mitigate the impacts of climate change related to its
activities and to partner with key stakeholders to do the same.
88 2022 ANNUAL REPORT | NORTHERN TRUST CORPORATION
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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;
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 LIBOR or changes in the calculation of alternative interest rate benchmarks;
the pace and extent of continued globalization of investment activity and growth in worldwide financial assets;
changes in the legal, regulatory and enforcement framework and oversight applicable to financial institutions,
including Northern Trust;
increased costs of compliance and other risks associated with changes in regulation, the current regulatory
environment, and areas of increased regulatory emphasis and oversight in the United States and other countries, such
as anti-money laundering, anti-bribery, and data privacy;
failure to satisfy regulatory standards or to obtain regulatory approvals when required, including for the use and
distribution of capital;
changes in tax laws, accounting requirements or interpretations and other legislation in the United States or other
countries that could affect Northern Trust or its clients;
changes in the nature and activities of Northern Trust’s competition;
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
2022 ANNUAL REPORT | NORTHERN TRUST CORPORATION 89
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
•
•
•
•
•
•
•
•
•
•
Northern Trust’s success in maintaining existing business and continuing to generate new business in existing and
targeted markets and its ability to deploy deposits in a profitable manner consistent with its liquidity requirements;
Northern Trust’s ability to address the complex needs of a global client base and manage compliance with legal, tax,
regulatory and other requirements;
Northern Trust’s ability to maintain a product mix that achieves acceptable margins;
Northern Trust’s ability to continue to generate investment results that satisfy clients and to develop an array of
investment products;
uncertainties inherent in Northern Trust’s assumptions concerning its pension plan, including discount rates and
expected contributions, returns and payouts;
Northern Trust’s success in continuing to enhance its risk management practices and controls and managing risks
inherent in its businesses, including credit risk, operational risk, market and liquidity risk, fiduciary risk, compliance
risk and strategic risk;
risks and uncertainties inherent in the litigation and regulatory process, including the possibility that losses may be in
excess of Northern Trust’s recorded liability and estimated range of possible loss for litigation exposures;
risks associated with being a holding company, including Northern Trust’s dependence on dividends from its
principal subsidiary;
the risk of damage to Northern Trust’s reputation which may undermine the confidence of clients, counterparties,
rating agencies, and stockholders; and
other factors identified elsewhere in this Annual Report on Form 10-K, 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.
90 2022 ANNUAL REPORT | NORTHERN TRUST CORPORATION
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SUPPLEMENTAL INFORMATION
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 51: RECONCILIATION TO FULLY TAXABLE EQUIVALENT
($ In Millions)
Net Interest Income
Interest Income - GAAP
Add: FTE Adjustment
Interest Income (FTE) - Non-GAAP
Net Interest Income - GAAP
Add: FTE Adjustment
Net Interest Income (FTE) - Non-GAAP
Net Interest Margin - GAAP
Net Interest Margin (FTE) - Non-GAAP
Total Revenue
Total Revenue - GAAP
Add: FTE Adjustment
Total Revenue (FTE) - Non-GAAP
FOR THE YEAR ENDED DECEMBER 31,
2022
2021
2020
2,877.7
$
1,406.5
$
45.6
35.6
2,923.3
$
1,442.1
$
1,887.2
$
1,382.7
$
45.6
35.6
1,932.8
$
1,418.3
$
1,643.5
34.4
1,677.9
1,443.2
34.4
1,477.6
1.36 %
1.39 %
0.96 %
0.99 %
1.16 %
1.19 %
6,761.2
$
6,464.5
$
45.6
35.6
6,806.8
$
6,500.1
$
6,100.8
34.4
6,135.2
$
$
$
$
$
$
2022 ANNUAL REPORT | NORTHERN TRUST CORPORATION 91
ITEM 7A – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information called for by this item is incorporated herein by reference to the “Risk Management” section of Item 7,
“Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Annual Report on Form
10-K.
ITEM 8 – FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors
Northern Trust Corporation:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Northern Trust Corporation and subsidiaries (the
Corporation) as of December 31, 2022 and 2021, the related consolidated statements of income, comprehensive income,
changes in stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2022,
and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial
statements present fairly, in all material respects, the financial position of the Corporation as of December 31, 2022 and
2021, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31,
2022, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) (PCAOB), the Corporation’s internal control over financial reporting as of December 31, 2022, based on criteria
established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of
the Treadway Commission, and our report dated February 28, 2023 expressed an unqualified opinion on the effectiveness
of the Corporation’s internal control over financial reporting.
Basis for Opinion
These consolidated financial statements are the responsibility of the Corporation’s management. Our responsibility is to
express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm
registered with the PCAOB and are required to be independent with respect to the Corporation in accordance with the U.S.
federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the
PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material
misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material
misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that
respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and
disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and
significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial
statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial
statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts
or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging,
subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on
the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below,
providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
92 2022 ANNUAL REPORT | NORTHERN TRUST CORPORATION
Assessment of the allowance for credit losses for commercial loans and leases evaluated on a collective basis
As discussed in Notes 1 and 7 to the consolidated financial statements, the Corporation’s allowance for credit losses
for commercial loans and leases evaluated on a collective basis (the collective ACL) was $105.8 million of a total
allowance for credit losses assigned to loans and leases of $144.3 million as of December 31, 2022. Expected credit
losses are measured on a collective basis as long as the financial assets included in the respective pool share similar
risk characteristics. The allowance estimation methodology for the collective assessment is based on data
representative of the Corporation’s financial asset portfolio from a historical observation period that includes both
expansionary and recessionary periods. The estimation methodology and the related qualitative adjustment framework
segregate the loan and lease portfolio into segments based on loan and obligor specific factors, including loan type,
borrower type, collateral type, loan size, and borrower credit quality. The estimation methodology applies probability
of default and loss given default assumptions to the projected exposure at default on a pool basis. For each segment,
the probability of default (PD) and loss given default (LGD) are derived for each quarter of the remaining life of each
instrument. For the first two years (the reasonable and supportable period), these factors are derived by applying
quarterly macroeconomic projections using models developed from historical data on macroeconomic factors and
loans with similar factors, including the borrower rating assigned to individual obligors, as applicable. For periods
beyond the reasonable and supportable period, the Corporation reverts to its own long-run historical loss experience on
a straight-line basis over four quarters. The projected exposure at default for every quarter is based on contractual
balance projections as of each quarter-end. Estimating expected lifetime credit losses requires the consideration of the
effect of future economic conditions. The Corporation employs multiple scenarios over a reasonable and supportable
period to project future conditions. The Corporation determines the probability weights assigned to each scenario at
each quarter-end. The quantitative allowance is then reviewed within the qualitative adjustment framework, through
which the Corporation applies judgment by assessing internal risk factors, potential limitations in the quantitative
methodology, and environmental factors that are not fully contemplated in the forecast to compute adjustments to the
quantitative allowance that may impact individual or multiple segments of the loan portfolio.
We identified the assessment of the quantitative component of the collective ACL as a critical audit matter. A high
degree of audit effort, including specialized skills and knowledge, and subjective and complex auditor judgment was
involved in the assessment of the quantitative component of the collective ACL due to significant measurement
uncertainty. Specifically, the assessment encompassed the evaluation of the quantitative component of the collective
ACL methodology, including the methods and models used to estimate the PD and LGD and their significant
assumptions, the multiple economic forecast scenarios and macroeconomic factors and their respective weightings, and
borrower ratings for certain commercial loans and leases. In addition, auditor judgment was required to evaluate the
sufficiency of audit evidence obtained.
The following are the primary procedures we performed to address this critical audit matter. We evaluated the design
and operating effectiveness of certain internal controls related to the critical audit matter. This included controls related
to the Corporation’s measurement of the quantitative component of the collective ACL estimate, including controls
over:
•
•
•
•
•
development of the quantitative component of the collective ACL methodology
development, calibration and/or performance monitoring of certain PD and LGD models
development and approval of the multiple economic forecast scenarios, macroeconomic factors and their
respective weightings
identification and determination of the significant assumptions used in certain PD and LGD models
analysis of the allowance for credit losses for loans and leases results.
We evaluated the Corporation’s process to develop the quantitative component of the collective ACL estimate by
testing certain sources of data, factors, and assumptions that the Corporation used, and considered the relevance and
reliability of such data, factors and assumptions. In addition, we involved credit risk professionals with specialized
skills and knowledge, who assisted in:
•
•
•
evaluating the quantitative component of the Corporation’s collective ACL methodology for compliance with U.S.
generally accepted accounting principles
evaluating judgments made by the Corporation relative to the development, calibration and/or performance
monitoring of certain PD and LGD models
assessing the conceptual soundness and performance testing of certain PD and LGD models by inspecting model
documentation to determine whether the models were suitable for their intended use
2022 ANNUAL REPORT | NORTHERN TRUST CORPORATION 93
•
•
assessing the economic forecast scenarios, the economic input variables and their respective weightings through
comparison to publicly available forecasts and the Corporation’s business environment
testing individual borrower ratings for a selection of commercial loan and lease relationships by evaluating the
financial performance of the borrower, sources of repayment, and any relevant guarantees or underlying collateral.
We also assessed the sufficiency of the audit evidence obtained related to the quantitative component of the collective
ACL by evaluating the:
•
•
•
cumulative results of the procedures
qualitative aspects of the Corporation’s accounting practices
potential bias in the accounting estimate
We have served as the Corporation’s auditor since 2002.
Chicago, Illinois
February 28, 2023
94 2022 ANNUAL REPORT | NORTHERN TRUST CORPORATION
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
(In Millions Except Share Information)
ASSETS
Cash and Due from Banks
Federal Reserve and Other Central Bank Deposits
Interest-Bearing Deposits with Banks
Federal Funds Sold
Securities Purchased under Agreements to Resell
Debt Securities
Available for Sale (Amortized cost of $27,760.0 and $37,948.5)
Held to Maturity (Fair value of $22,879.3 and $23,315.4)
Trading Account
Total Debt Securities
Loans and Leases
Commercial
Personal
Total Loans and Leases (Net of unearned income of $9.0 and $10.4)
Allowance for Credit Losses
Buildings and Equipment
Client Security Settlement Receivables
Goodwill
Other Assets
Total Assets
LIABILITIES
Deposits
Demand and Other Noninterest-Bearing
Savings, Money Market and Other Interest-Bearing
Savings Certificates and Other Time
Non U.S. Offices — Noninterest-Bearing
— Interest-Bearing
Total Deposits
Federal Funds Purchased
Securities Sold Under Agreements to Repurchase
Other Borrowings
Senior Notes
Long-Term Debt
Other Liabilities
Total Liabilities
STOCKHOLDERS' EQUITY
Preferred Stock, No Par Value; Authorized 10,000,000 shares:
Series D, outstanding shares of 5,000
Series E, outstanding shares of 16,000
Common Stock, $1.66 2/3 Par Value; Authorized 560,000,000 shares; Outstanding shares of 208,428,309 and 207,761,875
Additional Paid-In Capital
Retained Earnings
Accumulated Other Comprehensive Loss
Treasury Stock (36,743,215 and 37,409,649 shares, at cost)
Total Stockholders’ Equity
Total Liabilities and Stockholders’ Equity
See accompanying notes to consolidated financial statements on pages 99-167.
DECEMBER 31,
2022
2021
$
4,654.2 $
3,056.8
40,030.4
64,582.2
1,941.1
1,949.4
32.0
1,070.3
—
686.4
26,699.9
38,010.5
25,036.1
23,564.5
95.2
0.3
51,831.2
61,575.3
21,635.6
18,487.4
21,257.7
21,993.2
42,893.3
40,480.6
(161.1)
(150.6)
500.5
488.7
1,698.3
1,941.2
691.3
706.2
9,855.2
8,573.6
$ 155,036.7 $ 183,889.8
$ 16,582.7 $ 22,028.2
31,128.6
35,003.1
1,981.3
8,757.6
842.7
26,287.3
65,481.9
75,767.1
123,932.1
159,928.4
1,896.9
567.2
7,592.3
2,724.2
2,066.2
4,998.3
0.2
531.9
3,583.8
2,505.5
1,145.7
4,177.5
143,777.2
171,873.0
493.5
391.4
408.6
983.5
493.5
391.4
408.6
939.3
13,798.5
13,117.3
(1,569.2)
(35.6)
(3,246.8)
(3,297.7)
11,259.5
12,016.8
$ 155,036.7 $ 183,889.8
2022 ANNUAL REPORT | NORTHERN TRUST CORPORATION 95
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF INCOME
(In Millions Except Share Information)
Noninterest Income
FOR THE YEAR ENDED DECEMBER 31,
2022
2021
2020
Trust, Investment and Other Servicing Fees
$
4,432.6 $
4,361.1 $
3,995.0
Foreign Exchange Trading Income
Treasury Management Fees
Security Commissions and Trading Income
Other Operating Income
Investment Security Gains (Losses), net
Total Noninterest Income
Net Interest Income
Interest Income
Interest Expense
Net Interest Income
Provision for Credit Losses
Net Interest Income after Provision for Credit Losses
Noninterest Expense
Compensation
Employee Benefits
Outside Services
Equipment and Software
Occupancy
Other Operating Expense
Total Noninterest Expense
Income before Income Taxes
Provision for Income Taxes
NET INCOME
Preferred Stock Dividends
Net Income Applicable to Common Stock
PER COMMON SHARE
Net Income – Basic
– Diluted
Average Number of Common Shares Outstanding – Basic
– Diluted
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In Millions)
Net Income
288.6
39.3
136.2
191.3
(214.0)
4,874.0
2,877.7
990.5
1,887.2
12.0
1,875.2
292.6
44.3
140.2
243.9
(0.3)
5,081.8
1,406.5
23.8
1,382.7
(81.5)
1,464.2
290.4
45.4
133.2
194.0
(0.4)
4,657.6
1,643.5
200.3
1,443.2
125.0
1,318.2
2,248.0
2,011.0
1,947.1
437.4
880.3
838.8
219.1
359.3
4,982.9
1,766.3
430.3
431.4
849.4
736.3
208.7
299.1
4,535.9
2,010.1
464.8
1,336.0 $
1,545.3 $
41.8
41.8
387.7
763.1
673.5
230.1
346.7
4,348.2
1,627.6
418.3
1,209.3
56.2
1,294.2 $
1,503.5 $
1,153.1
6.16 $
6.14
7.16 $
7.14
5.48
5.46
208,309,331
208,075,522
208,319,412
208,867,264
208,899,230
209,007,986
$
$
$
FOR THE YEAR ENDED DECEMBER 31,
2022
2021
2020
$
1,336.0 $
1,545.3 $
1,209.3
Other Comprehensive Income (Loss) (Net of Tax and Reclassifications)
Net Unrealized Gains (Losses) on Available for Sale Debt Securities
(1,474.7)
(534.7)
Net Unrealized Gains (Losses) on Cash Flow Hedges
Net Foreign Currency Adjustments
Net Pension and Other Postretirement Benefit Adjustments
Other Comprehensive Income (Loss)
Comprehensive Income (Loss)
See accompanying notes to consolidated financial statements on pages 99-167.
3.6
9.4
(71.9)
(1,533.6)
0.8
10.5
59.8
(463.6)
$
(197.6) $
1,081.7 $
527.8
0.5
26.9
67.5
622.7
1,832.0
96 2022 ANNUAL REPORT | NORTHERN TRUST CORPORATION
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(In Millions Except Per Share Information)
Balance at January 1, 2020
Net Income
Other Comprehensive Income (Loss) (Net of Tax
and Reclassifications)
Dividends Declared:
Common Stock, $2.80 per share
Preferred Stock
Redemption of Preferred Stock, Series C
(388.5)
Stock Awards and Options Exercised
Stock Purchased
—
—
PREFERRED
STOCK
COMMON
STOCK
ADDITIONAL
PAID-IN
CAPITAL
RETAINED
EARNINGS
ACCUMULATED
OTHER
COMPREHENSIVE
INCOME (LOSS)
TREASURY
STOCK
TOTAL
$
1,273.4 $
408.6 $
1,013.1 $ 11,646.6 $
(194.7) $
(3,066.1) $ 11,080.9
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
1,209.3
—
(592.0)
(44.7)
(11.5)
(49.5)
—
—
—
—
622.7
—
—
—
—
—
—
—
—
—
—
161.4
1,209.3
622.7
(592.0)
(44.7)
(400.0)
111.9
(299.8)
(299.8)
Balance at December 31, 2020
$
884.9 $
408.6 $
963.6 $ 12,207.7 $
428.0 $
(3,204.5) $ 11,688.3
Net Income
Other Comprehensive Income (Loss) (Net of Tax
and Reclassifications)
Dividends Declared:
Common Stock, $2.80 per share
Preferred Stock
Stock Awards and Options Exercised
Stock Purchased
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(593.9)
(41.8)
(24.3)
—
—
—
—
1,545.3
—
—
1,545.3
—
(463.6)
—
(463.6)
—
—
—
—
—
—
174.4
(593.9)
(41.8)
150.1
(267.6)
(267.6)
Balance at December 31, 2021
$
884.9 $
408.6 $
939.3 $ 13,117.3 $
(35.6) $
(3,297.7) $ 12,016.8
Net Income
Other Comprehensive Income (Loss) (Net of Tax
and Reclassifications)
Dividends Declared:
Common Stock, $2.90 per share
Preferred Stock
Stock Awards and Options Exercised
Stock Purchased
—
—
—
—
—
—
—
—
—
—
—
—
—
—
1,336.0
—
—
—
1,336.0
(1,533.6)
—
(1,533.6)
—
—
44.2
—
(613.0)
(41.8)
—
—
—
—
—
—
—
—
86.3
(613.0)
(41.8)
130.5
(35.4)
(35.4)
Balance at December 31, 2022
$
884.9 $
408.6 $
983.5 $ 13,798.5 $
(1,569.2) $
(3,246.8) $ 11,259.5
See accompanying notes to consolidated financial statements on pages 99-167.
2022 ANNUAL REPORT | NORTHERN TRUST CORPORATION 97
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Millions)
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities
Investment Security Gains (Losses), net
Amortization and Accretion of Securities and Unearned Income, net
Provision for Credit Losses
Depreciation and Amortization
Change in Accrued Income Taxes
Pension Plan Contributions
Deferred Income Tax Provision
Change in Receivables
Change in Interest Payable
Change in Collateral With Derivative Counterparties, net
Other Operating Activities, net
Net Cash Provided by Operating Activities
CASH FLOWS FROM INVESTING ACTIVITIES
Change in Federal Funds Sold
Change in Securities Purchased under Agreements to Resell
Change in Interest-Bearing Deposits with Banks
Net Change in Federal Reserve and Other Central Bank Deposits
Purchases of Held to Maturity Debt Securities
Proceeds from Maturity and Redemption of Held to Maturity Debt Securities
Purchases of Available for Sale Debt Securities
Proceeds from Maturity and Redemption of Available for Sale Debt Securities
Change in Loans and Leases
Purchases of Buildings and Equipment
Purchases and Development of Computer Software
Change in Client Security Settlement Receivables
Bank-Owned Life Insurance Policy Premiums
Other Investing Activities, net
Net Cash Provided by (Used in) Investing Activities
CASH FLOWS FROM FINANCING ACTIVITIES
Change in Deposits
Change in Federal Funds Purchased
Change in Securities Sold under Agreements to Repurchase
Change in Short-Term Other Borrowings
Redemption of Preferred Stock - Series C
Proceeds from Senior Notes and Long-Term Debt
Repayments of Senior Notes
Repayment of Floating Rate Capital Debt
Treasury Stock Purchased
Net Proceeds from Stock Options
Cash Dividends Paid on Common Stock
Cash Dividends Paid on Preferred Stock
Other Financing Activities, net
Net Cash (Used in) Provided by Financing Activities
Effect of Foreign Currency Exchange Rates on Cash
Change in Cash and Due from Banks
Cash and Due from Banks at Beginning of Period
Cash and Due from Banks at End of Period
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest Paid
Income Taxes Paid
Transfers from Loans to OREO
Transfers from Available for Sale Debt Securities to Held to Maturity Debt Securities
See accompanying notes to consolidated financial statements on pages 99-167.
$
$
98 2022 ANNUAL REPORT | NORTHERN TRUST CORPORATION
FOR THE YEAR ENDED DECEMBER 31,
2022
2021
2020
$
1,336.0 $
1,545.3 $
1,209.3
1.1
59.2
12.0
553.6
61.3
(24.3)
(142.7)
57.9
172.6
639.4
(333.7)
2,392.4
(32.0)
(419.0)
(158.9)
23,483.8
(32,830.8)
37,667.8
(4,567.7)
6,513.0
(2,441.6)
(128.6)
(594.9)
258.0
(500.0)
(319.3)
25,929.8
(32,996.9)
1,896.7
35.3
3,966.9
—
1,988.8
(500.0)
—
(35.4)
3.9
(750.2)
(46.5)
—
(26,437.4)
(287.4)
1,597.4
3,056.8
4,654.2 $
0.3
99.7
(81.5)
515.6
37.2
(11.2)
2.0
(460.9)
(7.8)
(466.5)
183.8
1,356.0
—
897.7
2,344.5
(9,970.4)
(54,734.9)
54,902.6
(13,896.2)
10,079.0
(6,744.7)
(95.5)
(419.6)
(801.4)
—
(163.7)
(18,602.6)
17,885.5
(260.0)
492.1
(426.5)
—
—
(500.0)
(278.8)
(267.6)
53.8
(583.3)
(41.8)
0.1
16,073.5
(159.6)
(1,332.7)
4,389.5
3,056.8 $
822.4 $
459.9
—
30.8 $
371.0
12.9
6,623.3
6,864.1
0.4
88.9
125.0
500.3
25.4
(15.6)
16.4
4.5
(23.6)
(17.8)
(16.4)
1,896.8
5.0
(700.9)
712.6
(19,845.2)
(40,187.9)
35,658.6
(10,886.8)
8,748.2
(2,316.7)
(135.8)
(424.6)
(226.8)
—
(322.7)
(29,923.0)
32,137.9
(292.7)
(450.0)
(2,698.3)
(400.0)
993.2
(508.6)
—
(299.8)
19.5
(584.6)
(45.9)
1.2
27,871.9
84.6
(69.7)
4,459.2
4,389.5
226.8
327.7
0.2
301.5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 – Summary of Significant Accounting Policies
The consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles
(GAAP) and reporting practices prescribed for the banking industry. A description of the more significant accounting
policies follows.
A. Basis of Presentation. The consolidated financial statements include the accounts of Northern Trust Corporation
(Corporation) and its wholly-owned subsidiary, The Northern Trust Company (Bank), and various other wholly-owned
subsidiaries of the Corporation and Bank. Throughout the notes to the consolidated financial statements, the term
“Northern Trust” refers to the Corporation and its subsidiaries. Intercompany balances and transactions have been
eliminated in consolidation. The consolidated statements of income include results of acquired subsidiaries from the dates
of acquisition. Certain prior-year balances have been reclassified consistent with the current year’s presentation. During
2022, the Corporation changed the name of the Corporate & Institutional Services segment to “Asset Servicing.”
Accordingly, the disclosures herein refer to this segment as Asset Servicing.
B. Nature of Operations. The Corporation is a bank holding company that has elected to be a financial holding company
under the Bank Holding Company Act of 1956, as amended. The Bank is an Illinois banking corporation headquartered in
Chicago and the Corporation’s principal subsidiary. The Corporation conducts business in the United States (U.S.) and
internationally through various U.S. and non-U.S. subsidiaries, including the Bank.
Northern Trust generates the majority of its revenue from 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.
Asset Servicing is a leading global provider of asset servicing and related services to corporate and public retirement
funds, foundations, endowments, fund managers, insurance companies, sovereign wealth funds, and other institutional
investors around the globe. Asset servicing and related services encompass a full range of capabilities including but not
limited to: custody; fund administration; investment operations outsourcing; investment management; investment risk and
analytical services; employee benefit services; securities lending; foreign exchange; treasury management; brokerage
services; transition management services; banking; and cash management. Client relationships are managed through the
Bank and the Bank’s and the Corporation’s other subsidiaries, including support from locations in North America, Europe,
the Middle East, and the Asia-Pacific region.
Wealth Management focuses on high-net-worth individuals and families, business owners, executives, professionals,
retirees, and established privately-held businesses in its target markets. In supporting these targeted segments, Wealth
Management provides trust, investment management, custody, and philanthropic services; financial consulting;
guardianship and estate administration; family business consulting; family financial education; brokerage services; and
private and business banking. Wealth Management also includes Global Family Office, which provides customized
services, including but not limited to: investment consulting; global custody; fiduciary; and private banking; family office
consulting, and technology solutions, to meet the complex financial and reporting needs of ultra-high-net-worth individuals
and family offices across the globe. Wealth Management services are delivered by multidisciplinary teams through a
network of offices in 19 U.S. states and Washington, D.C., as well as offices in London, Guernsey, and Abu Dhabi.
C. Use of Estimates in the Preparation of Financial Statements. The preparation of financial statements in conformity
with GAAP requires management to make estimates and assumptions in the application of certain of our significant
accounting policies that affect the reported amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expense during the
reporting period. Actual results could differ from those estimates.
D. Foreign Currency Remeasurement and Translation. Asset and liability accounts denominated in nonfunctional
currencies are remeasured into functional currencies at period-end rates of exchange, except for certain balance sheet items
including but not limited to buildings and equipment, goodwill and other intangible assets, which are remeasured at
historical exchange rates. Results from remeasurement of asset and liability accounts are reported in Other Operating
Income on the consolidated statements of income. Income and expense accounts are remeasured at period-average rates of
exchange.
Asset and liability accounts of entities with functional currencies that are not the U.S. dollar are translated at period-
end rates of exchange. Income and expense accounts are translated at period-average rates of exchange. Translation
adjustments, net of applicable taxes, are reported directly to accumulated other comprehensive income (AOCI), a
component of stockholders’ equity.
E. Securities. Available for Sale (AFS) Securities are reported at fair value, with unrealized gains and losses credited or
charged, net of the tax effect, to AOCI. Realized gains and losses on AFS securities are determined on a specific
2022 ANNUAL REPORT | NORTHERN TRUST CORPORATION 99
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
identification basis and are reported within Investment Security Gains (Losses), net, on the consolidated statements of
income. Interest income is recorded on the accrual basis, adjusted for the amortization of premium and accretion of
discount.
Held to Maturity (HTM) Securities consist of debt securities that management intends to, and Northern Trust has the
ability to, hold until maturity. Such securities are reported at cost, adjusted for amortization of premium and accretion of
discount. Interest income is recorded on the accrual basis adjusted for the amortization of premium and accretion of
discount.
Held for Trading Securities are reported at fair value. Realized and unrealized gains and losses on securities held for
trading are reported within Security Commissions and Trading Income on the consolidated statements of income.
Nonmarketable Securities primarily consist of Federal Reserve Bank of Chicago and Federal Home Loan Bank stock
and community development investments, each of which are recorded in Other Assets on the consolidated balance sheets.
Federal Reserve Bank of Chicago and Federal Home Loan Bank stock are reported at cost, which represents redemption
value. Community development investments are typically reported at amortized cost. Those community development
investments that are designed to generate a return primarily through realization of tax credits and other tax benefits, which
are discussed in further detail in Note 28, “Variable Interest Entities,” are amortized over the lives of the related tax credits
and other tax benefits.
F. Securities Purchased Under Agreements to Resell and Securities Sold Under Agreements to Repurchase.
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 any 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 either directly held by, or pledged
to the counterparty until the repurchase. Northern Trust nets securities sold under repurchase agreements against those
purchased under resale agreements when the requirements to net are met.
G. Derivative Financial Instruments. Northern Trust is a party to various derivative financial instruments that are used in
the normal course of business to meet the needs of its clients, as part of its trading activity for its own account, and as part
of its risk management activities. These instruments generally include foreign exchange contracts, interest rate contracts,
total return swap contracts and credit default swap contracts. All derivative financial instruments, whether designated as
hedges or not, are recorded at fair value within Other Assets and Other Liabilities on the consolidated balance sheets.
Derivative asset and liability positions with the same counterparty are reflected on a net basis on the consolidated balance
sheets in cases where legally enforceable master netting arrangements or similar agreements exist. These derivative assets
and liabilities are further reduced by cash collateral received from, and deposited with, derivative counterparties. The
accounting for changes in the fair value of a derivative on the consolidated statements of income depends on whether or not
the contract has been designated as a hedge and qualifies for hedge accounting under GAAP. Derivative financial
instruments are recorded within the line item, Other Operating Activities, net, on the consolidated statement of cash flows,
except for net investment hedges which are recorded within Other Investing Activities, net.
Changes in the fair value of client-related and trading derivative instruments, which are not designated hedges under
GAAP, are recognized currently in either Foreign Exchange Trading Income or Security Commissions and Trading Income
on the consolidated statements of income. Changes in the fair value of derivative instruments entered into for risk
management purposes but not designated as hedges are recognized currently in Other Operating Income on the
consolidated statements of income. Certain derivative instruments used by Northern Trust to manage risk are formally
designated and qualify for hedge accounting as fair value, cash flow, or net investment hedges.
Derivatives designated as fair value hedges are used to limit Northern Trust’s exposure to changes in the fair value of
assets and liabilities due to movements in interest rates. Changes in the fair value of the derivative instrument and changes
in the fair value of the hedged asset or liability attributable to the hedged risk are recognized currently in Interest Income or
Interest Expense on the consolidated statements of income. For substantially all fair value hedges, Northern Trust applies
the “shortcut” method of accounting, available under GAAP. As a result, changes recorded in the fair value of the hedged
item are assumed to equal the offsetting gain or loss on the derivative. For fair value hedges that do not qualify for the
“shortcut” method of accounting, Northern Trust utilizes regression analysis in assessing whether these hedging
relationships are highly effective at inception and quarterly thereafter.
Derivatives designated as cash flow hedges are used to minimize the variability in cash flows of earning assets or
forecasted transactions caused by movements in interest or foreign exchange rates. Changes in the fair value of such
derivatives are recognized in AOCI, a component of stockholders’ equity, and there is no change to the accounting for the
hedged item. Balances in AOCI are reclassified to earnings when the hedged forecasted transaction impacts earnings, and
are reflected in the same income statement line item. Northern Trust applies the “shortcut” method of accounting for cash
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flow hedges of certain available for sale investment securities. For cash flow hedges of certain other available for sale
investment securities, foreign currency denominated investment securities, and forecasted foreign currency denominated
revenue and expenditure transactions, Northern Trust closely matches all terms of the hedged item and hedging derivative
at inception and on an ongoing basis. For cash flow hedges of available for sale investment securities, to the extent all
terms are not perfectly matched, effectiveness is assessed using regression analysis. For cash flow hedges of forecasted
foreign currency denominated revenue and expenditure transactions and investment securities, to the extent all terms are
not perfectly matched, effectiveness is assessed using the dollar-offset method.
Foreign exchange contracts and qualifying non-derivative instruments designated as net investment hedges are used to
minimize Northern Trust’s exposure to variability in the foreign currency translation of net investments in non-U.S.
branches and subsidiaries. Changes in the fair value of the hedging instrument are recognized in AOCI consistent with the
related translation gains and losses of the hedged net investment. For net investment hedges, all critical terms of the hedged
item and the hedging instrument are matched at inception and on an ongoing basis. Amounts recorded in AOCI are
reclassified to earnings only upon the sale or liquidation of an investment in a non-U.S. branch or subsidiary.
Fair value, cash flow, and net investment hedges are designated and formally documented as such contemporaneous
with the transaction. The formal documentation describes the hedge relationship and identifies the hedging instruments and
hedged items. Included in the documentation is a discussion of the risk management objectives and strategies for
undertaking such hedges, the nature of the risk being hedged, and a description of the method for assessing hedge
effectiveness at inception and on an ongoing basis. For hedges that do not qualify for the “shortcut” or the critical terms
match methods of accounting, a formal assessment is performed on a calendar quarter basis to verify that derivatives used
in hedging transactions continue to be highly effective in offsetting the changes in fair value or cash flows of the hedged
item. Hedge accounting is discontinued if a derivative ceases to be highly effective, matures, is terminated or sold, if a
hedged forecasted transaction is no longer expected to occur, or if Northern Trust removes the derivative’s hedge
designation. Subsequent gains and losses on these derivatives are included in Foreign Exchange Trading Income or
Security Commissions and Trading Income on the consolidated statements of income. For discontinued cash flow hedges,
the accumulated gain or loss on the derivative remains in AOCI and is reclassified to earnings in the period in which the
previously hedged forecasted transaction impacts earnings or is no longer probable of occurring. For discontinued fair
value hedges, the previously hedged asset or liability ceases to be adjusted for changes in its fair value. Previous
adjustments to the hedged item are amortized over the remaining life of the hedged item.
H. Loans and Leases. Loans and leases are recognized assets that represent a contractual right to receive money either on
demand or on fixed or determinable dates. Loans and leases are disaggregated for disclosure purposes by portfolio segment
(segment) and by class. Northern Trust has defined its segments as commercial and personal. A class of loans and leases is
a subset of a segment, the components of which have similar risk characteristics, measurement attributes, or risk
monitoring methods. The classes within the commercial segment have been defined as commercial and institutional,
commercial real estate, lease financing, net, non-U.S. and other. The classes within the personal segment have been defined
as residential real estate, private client and other.
Loan Classification. Loans that are held for investment are reported at the principal amount outstanding, net of
unearned income. Loans classified as held for sale are reported at the lower of cost or fair value. Undrawn commitments
relating to loans that are not held for sale are recorded in Other Liabilities and are carried at the amount of unamortized fees
with an allowance for credit loss liability recognized for any estimated expected losses.
Nonaccrual Loans and Recognition of Income. Interest income on loans and leases is recorded on an accrual basis
unless, in the opinion of management, there is a question as to the ability of the debtor to meet the terms of the loan
agreement, or interest or principal is more than 90 days contractually past due and the loan is not well-secured and in the
process of collection. Loans meeting such criteria are classified as nonaccrual and interest income is recorded on a cash
basis. Northern Trust’s accounting policies for material nonaccrual loans is consistent across all classes of loans and leases.
Past due status is based on how long since the contractual due date a principal or interest payment has been past due. For
disclosure purposes, loans that are 29 days past due or less are reported as current. At the time a loan is determined to be
nonaccrual, interest accrued but not collected is reversed against interest income in the current period. Interest collected on
nonaccrual loans is applied to principal unless, in the opinion of management, collectability of principal is not in doubt.
Management’s assessment of indicators of loan and lease collectability, and its policies relative to the recognition of
interest income, including the suspension and subsequent resumption of income recognition, do not meaningfully vary
between loan and lease classes. Nonaccrual loans are returned to performing status when factors indicating doubtful
collectability no longer exist. Factors considered in returning a loan to performing status are consistent across all classes of
loans and leases and, in accordance with regulatory guidance, relate primarily to expected payment performance. A loan is
eligible to be returned to performing status when: (i) no principal or interest that is due is unpaid and repayment of the
remaining contractual principal and interest is expected or (ii) the loan has otherwise become well-secured (possessing
realizable value sufficient to discharge the debt, including accrued interest, in full) and is in the process of collection
(through action reasonably expected to result in debt repayment or restoration to a current status in the near future). A loan
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that has not been brought fully current may be restored to performing status provided there has been a sustained period of
repayment performance (generally a minimum of six payment periods) by the borrower in accordance with the contractual
terms, and Northern Trust is reasonably assured of repayment within a reasonable period of time. Additionally, a loan that
has been formally restructured so as to be reasonably assured of repayment and performance according to its modified
terms may be returned to accrual status, provided there was a well-documented credit evaluation of the borrower’s financial
condition and prospects of repayment under the revised terms, and there has been a sustained period of repayment
performance (generally a minimum of six payment periods) under the revised terms.
Troubled Debt Restructurings (TDRs). A loan that has been modified as a concession by Northern Trust or a
bankruptcy court resulting from the debtor’s financial difficulties is referred to as a troubled debt restructuring (TDR). All
TDRs are reported starting in the calendar year of their restructuring. In subsequent years, a TDR may cease being reported
if the loan was modified at a market rate and has performed according to the modified terms for at least six payment
periods. A loan that has been modified at a below market rate will return to accrual status if it satisfies the six-payment-
period performance requirement.
The expected credit loss is measured based upon the present value of expected future cash flows, discounted at the
effective interest rate based on the original contractual rate. If a loan’s contractual interest rate varies based on subsequent
changes in an independent factor, such as an index or rate, the loan’s effective interest rate is calculated based on the factor
as it changes over the life of the loan. Northern Trust elected not to project changes in the factor for purposes of estimating
expected future cash flows. Further, Northern Trust elected not to adjust the effective interest rate for prepayments. If the
loan is collateral dependent, the expected loss is measured based on the fair value of the collateral at the reporting date.
If the loan valuation is less than the recorded value of the loan, either an allowance is established, or a charge-off is
recorded, for the difference. Smaller balance (individually less than $1 million) homogeneous loans are collectively
evaluated.
All loans and leases with TDR modifications are evaluated for additional expected credit losses. The nature and extent
of further deterioration in credit quality, including a subsequent default, is considered in the determination of an
appropriate level of allowance for credit losses.
Collateral Dependent Financial Assets. A financial asset is collateral-dependent when the borrower is experiencing
financial difficulty and repayment is expected to be provided substantially through the sale or operation of the collateral.
Most of Northern Trust’s collateral dependent credit exposure relates to its residential real estate portfolio for which the
collateral is usually the underlying real estate property. For collateral dependent financial assets, it is Northern Trust’s
policy to reserve or charge-off the difference between the amortized cost basis of the loan and the value of the collateral.
Premium, Discounts, Origination Costs and Fees. Premiums and discounts on loans are recognized as an adjustment
of yield using the interest method based on the contractual terms of the loan. Certain direct origination costs and fees are
netted, deferred and amortized over the life of the related loan as an adjustment to the loan’s yield.
I. Allowance for Credit Losses.
The allowance for credit losses 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.
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.
Forecasting and Reversion. Estimating expected lifetime credit losses requires the consideration of the effect of future
economic conditions. Northern Trust employs multiple scenarios over a reasonable and supportable period (currently two
years) to project future conditions. Key variables determined to be relevant for projecting credit losses on the portfolios in
scope include macroeconomic factors, such as corporate profits, unemployment, and real estate price indices, as well as
financial market factors such as equity prices, volatility, and credit spreads. For periods beyond the reasonable and
supportable period, Northern Trust reverts to its own historical loss experiences on a straight-line basis over four quarters.
Allowance for Loans and Leases. The allowance estimation methodology for the collective assessment is primarily
based on internally developed loss data specific to the Northern Trust financial asset portfolio from a historical observation
period that includes both expansionary and recessionary periods. The estimation methodology and the related qualitative
adjustment framework segregate the loan and lease portfolio into homogeneous segments based on similar risk
characteristics or risk monitoring methods.
Northern Trust utilizes a quantitative probability of default/loss given default approach for the calculation of its credit
allowance on a collective basis. For each of the different parameters, specific credit models or qualitative estimation
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methodologies for the individual loan segments were developed. For each segment, the probability of default and the loss
given default are applied to the exposure at default for each projected quarter to determine the quantitative component of
the allowance. The quantitative allowance is then reviewed within a qualitative adjustment framework, through which
management applies judgment by assessing internal risk factors, potential limitations in the quantitative methodology, and
environmental factors that are not fully contemplated in the forecast to compute an adjustment to the quantitative allowance
for each segment of the loan portfolio.
The allowance related to credit exposure evaluated on an individual basis is determined through an individual
evaluation of loans, leases, and lending-related commitments that have defaulted, generally those with Borrower Ratings of
8 and 9, that is based on expected future cash flows, the value of collateral, and other factors that may impact the
borrower’s ability to pay. For defaulted loans for which the amount of allowance, if any, is determined based on the value
of the underlying real estate collateral, third-party appraisals are typically obtained and utilized by management. These
appraisals are generally less than twelve months old and are subject to adjustments to reflect management’s judgment as to
the realizable value of the collateral.
Northern Trust analyzes its exposure to credit losses from both on-balance sheet and off-balance sheet activity using a
consistent methodology for the quantitative framework as well as the qualitative framework. For purposes of estimating the
allowance for credit losses for undrawn loan commitments and standby letters of credit, the exposure at default includes an
estimated drawdown of unused credit based on credit utilization factors, resulting in a proportionate amount of expected
credit losses.
Allowance for HTM Securities. HTM debt securities classified as U.S. government, government sponsored agency,
and certain securities classified as obligations of states and political subdivisions are considered to be guarantees of the
U.S. government or an agency of the U.S. government and therefore an allowance for credit losses is not estimated for such
investments as the expected probability of non-payment of the amortized cost basis is zero.
HTM debt securities classified as “other asset-backed securities” represent pools of underlying receivables from which
the cash flows are used to pay the bonds that vary in seniority. Utilizing a qualitative estimation approach, the allowance
for other asset-backed securities is assessed by evaluating underlying pool performance based on delinquency rates and
available credit support.
HTM debt securities classified as “other” relate to investments purchased by Northern Trust to fulfill its obligations
under the Community Reinvestment Act (CRA). Northern Trust fulfills its obligations under the CRA by making qualified
investments for purposes of supporting institutions and programs that benefit low-to-moderate income communities within
Northern Trust’s market area. The allowance for CRA investments is assessed using a qualitative estimation approach
primarily based on internal historical performance experience and default history of the underlying CRA portfolios to
determine a quantitative component of the allowance.
The allowance estimation methodology for all other HTM debt securities is developed using a combination of external
and internal data. The estimation methodology groups securities with shared characteristics for which the probability of
default and the loss given default are applied to the total exposure at default to determine a quantitative component of the
allowance.
Allowance for AFS Securities. AFS securities impairment reviews are conducted quarterly to identify and evaluate
securities that have indications of possible credit losses. A determination as to whether a security’s decline in market value
is related to credit impairment takes into consideration numerous factors and the relative significance of any single factor
can vary by security. Factors Northern Trust considers in determining whether impairment is credit related include, but are
not limited to, the severity of the impairment; the cause of the impairment and the financial condition and near-term
prospects of the issuer; activity in the market of the issuer, which may indicate adverse credit conditions; Northern Trust’s
intent regarding the sale of the security as of the balance sheet date; and the likelihood that Northern Trust will not be
required to sell the security for a period of time sufficient to allow for the recovery of the security’s amortized cost basis.
For each security meeting the requirements of Northern Trust’s internal screening process, an extensive review is
conducted to determine if a credit loss has occurred that is then based on the best estimate of cash flows to be collected
from the security, discounted using the security’s effective interest rate. If the present value of the expected cash flows is
found to be less than the current amortized cost of the security, an allowance for credit losses is generally recorded equal to
the difference between the two amounts, limited to the amount the amortized cost basis exceeds the fair value of the
security.
If management intends to sell, or will more likely than not be required to sell, an AFS security prior to recovery of its
amortized cost basis, the security is written down to fair value with unrealized losses recognized in Investment Security
Gains (Losses), net on the consolidated statements of income.
Allowance for Other Financial Assets. The allowance for other financial assets consists of the allowance for those
other financial assets presented in Due from Banks, Other Central Bank Deposits, Interest-Bearing Deposits with Banks,
Federal Funds Sold, and Other Assets. The Other Assets category includes other miscellaneous credit exposures reported in
Other Assets on the consolidated balance sheets. The allowance estimation methodology for other financial assets primarily
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utilizes a similar approach as the one used for the HTM debt securities portfolio. It consists of a combination of externally
and internally developed loss data, adjusted for the appropriate contractual term. Northern Trust’s portfolio is composed
mostly of institutions within the “1 to 3” internal borrower rating category and is expected to exhibit minimal to modest
likelihood of loss.
The portion of the allowance assigned to loans and leases, HTM debt securities, and other financial assets is presented
as a contra asset in Allowance for Credit Losses on the consolidated balance sheets. The portion of the allowance assigned
to undrawn loan commitments and standby letters of credit is reported in Other Liabilities on the consolidated balance
sheets. The allowance for AFS securities is presented parenthetically with the amortized cost basis of AFS securities on the
consolidated balance sheets.
Provision for Credit Losses. Provision for Credit Losses on the consolidated statements of income represents the
change in the Allowance for Credit Losses on the consolidated balance sheets and is the charge to current period earnings.
It represents the amount needed to maintain the Allowance for Credit Losses on the consolidated balance sheets at an
appropriate level to absorb lifetime expected credit losses related to financial assets in scope. Actual losses may vary from
current estimates and the amount of the Provision for Credit Losses may be either greater than or less than actual net
charge-offs.
Contractual Term. Northern Trust estimates expected credit losses over the contractual term of the financial assets
adjusted for prepayments, unless prepayments are not relevant to specific portfolios or sub-portfolios. Extension and
renewal options are typically not considered since it is not Northern Trust’s practice to enter into arrangements where the
borrower has the unconditional option to renew, or a conditional extension option whereby the conditions are beyond
Northern Trust’s control.
Accrued Interest. Northern Trust elected not to measure an allowance for credit losses for accrued interest receivables
related to its loan and securities portfolios as its policy is to write-off uncollectible accrued interest receivable balances in a
timely manner. Accrued interest is written off by reversing interest income during the quarter the financial asset is moved
from an accrual to a nonaccrual status.
J. Standby Letters of Credit. Fees on standby letters of credit are recognized in Other Operating Income on the
consolidated statements of income using the straight-line method over the lives of the underlying agreements. Northern
Trust’s recorded other liability for standby letters of credit, reflecting the obligation it has undertaken, is measured as the
amount of unamortized fees on these instruments.
K. Buildings and Equipment. Buildings and equipment owned are carried at original cost less accumulated depreciation.
The charge for depreciation is computed using the straight-line method based on the following range of lives: buildings –
up to 30 years; equipment – 3 to 10 years; and leasehold improvements – the shorter of the lease term or 15 years.
L. Other Real Estate Owned (OREO). OREO is comprised of commercial and residential real estate properties acquired
in partial or total satisfaction of loans. OREO assets are carried at the lower of cost or fair value less estimated costs to sell
and are recorded in Other Assets on the consolidated balance sheets. Fair value is typically based on third-party appraisals.
Appraisals of OREO properties are updated on an annual basis and are subject to adjustments to reflect management’s
judgment as to the realizable value of the properties. Losses identified during the 90-day period after the acquisition of such
properties are charged against the Allowance for Credit Losses assigned to Loans and Leases. Subsequent write-downs to
the carrying value of these assets that may be required and gains or losses realized from asset sales are recorded within
Other Operating Expense on the consolidated statements of income.
M. Goodwill and Other Intangible Assets. Goodwill is not subject to amortization. Separately identifiable acquired
intangible assets with finite lives are amortized over their estimated useful lives, primarily on a straight-line basis.
Purchased software, software licenses, and allowable internal costs, including compensation relating to software developed
for internal use, are capitalized. Software is amortized using the straight-line method over the estimated useful lives of the
assets, generally ranging from 3 to 10 years. Fees paid for the use of software services that do not convey a software
license are expensed as incurred.
Goodwill and other intangible assets are reviewed for impairment on an annual basis or more frequently if events or
changes in circumstances indicate the carrying amounts may not be recoverable.
N. Trust, Investment and Other Servicing Fees. Trust, Investment and Other Servicing Fees are recorded on an accrual
basis, over the period in which the service is provided. Fees are primarily a function of the market value of assets
custodied, managed and serviced, transaction volumes, and securities lending volume and spreads, as set forth in the
underlying client agreement. This revenue recognition involves the use of estimates and assumptions, including
components that are calculated based on estimated asset valuations and transaction volumes.
O. Client Security Settlement Receivables. These receivables result from custody client withdrawals from short-term
investment funds that settle on the following business day as well as custody client security sales executed under
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contractual settlement date accounting that have not yet settled. Northern Trust advances cash to the client on the date of
either client withdrawal or trade execution and awaits collection from either the short-term investment funds or via the
settled trade.
P. Income Taxes. Northern Trust follows an asset and liability approach to account for income taxes. The objective is to
recognize the amount of taxes payable or refundable for the current year, and to recognize deferred tax assets and liabilities
resulting from temporary differences between the amounts reported in the financial statements and the tax bases of assets
and liabilities. The measurement of tax assets and liabilities is based on enacted tax laws and applicable tax rates.
Tax positions taken or expected to be taken on a tax return are evaluated based on their likelihood of being sustained
upon examination by tax authorities. Only tax positions that are considered more-likely-than-not to be sustained are
recorded on the consolidated financial statements. A valuation allowance is established for deferred tax assets if it is more-
likely-than-not that all or a portion will not be realized. Northern Trust recognizes any interest and penalties related to
unrecognized tax benefits in the Provision for Income Taxes on the consolidated statements of income.
Q. Cash Flow Statements. Cash and cash equivalents in the cash flow statements have been defined as “Cash and Due
from Banks” on the consolidated balance sheets.
R. Pension and Other Postretirement Benefits. Northern Trust records the funded status of its defined benefit pension
and other postretirement plans on the consolidated balance sheets. Overfunded pension and postretirement benefits are
reported in Other Assets and underfunded pension and postretirement benefits are reported in Other Liabilities on the
consolidated balance sheets. Plan assets and benefit obligations are measured annually at December 31, unless specific
circumstances require an interim remeasurement. Plan assets are determined based on fair value generally representing
observable market prices. The projected benefit obligations are determined based on the present value of projected benefit
distributions at an assumed discount rate. Actuarial gains and losses accumulated in AOCI are amortized as a component of
net periodic pension cost if they exceed 10% of the greater of the projected benefit obligation or the market-related value of
plan assets as of the beginning of the year. Amortization is recognized on a straight-line basis over the expected average
remaining service period of the active employees or over the expected remaining lifetime of plan participants for plans that
have been previously frozen.
S. Share-Based Compensation Plans. Northern Trust recognizes as expense the grant-date fair value of stock and stock
unit awards and other share-based compensation granted to employees as Compensation on the consolidated statements of
income. The fair values of stock and stock unit awards, including performance stock unit awards and director awards, are
based on the closing price of the Corporation’s stock on the date of grant adjusted for certain awards that do not accrue
dividends while vesting.
Compensation expense for share-based award grants with terms that provide for a graded vesting schedule, whereby
portions of the award vest in increments over the requisite service period, are recognized on a straight-line basis over the
requisite service period for the entire award. Compensation expense for performance stock unit awards are recognized on a
straight-line basis over the requisite service period of the award based on expected achievement of the performance
condition. Adjustments are made for employees that meet certain eligibility criteria at the grant date or during the requisite
service period.
Northern Trust does not include an estimate of future forfeitures in its recognition of share-based compensation
expense. Share-based compensation expense is adjusted based on forfeitures as they occur. Dividend equivalents are
accrued for performance stock unit awards, most restricted stock unit awards, and director awards not yet vested, and are
paid upon vesting. Certain restricted stock units are not entitled to dividend equivalents during the vesting period. Cash
flows resulting from the realization of excess tax benefits are classified as operating cash flows on the consolidated
statements of cash flows.
T. Net Income Per Common Share. Basic net income per common share is computed by dividing net income/loss
applicable to common stock by the weighted average number of common shares outstanding during each period. Diluted
net income per common share is computed by dividing net income applicable to common stock and potential common
shares by the aggregate of the weighted average number of common shares outstanding during the period and common
share equivalents calculated for stock options outstanding using the treasury stock method. In a period of a net loss, diluted
net income per common share is calculated in the same manner as basic net income per common share.
Northern Trust calculates net income applicable to common stock using the two-class method, whereby net income is
allocated between common stock and participating securities.
Note 2 – Recent Accounting Pronouncements
On January 1, 2022, Northern Trust adopted Accounting Standards Update (ASU) No. 2020-06, “Debt—Debt with
Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contract in Entity's Own Equity
(Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity” (ASU 2020-06).
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ASU 2020-06 simplifies the convertible instrument accounting framework through the elimination of the beneficial
conversion and cash conversion accounting models used to account for convertible debt and convertible preferred stock.
ASU 2020-06 also amends the accounting for certain contracts in an entity’s own equity that are currently accounted for as
derivatives because of specific settlement provisions in Accounting Standards Codification 815—Derivatives and Hedging.
In addition, ASU 2020-06 modifies how particular convertible instruments and certain contracts that may be settled in cash
or shares impact the diluted earnings per share computation. Upon adoption of ASU 2020-06, there was no significant
impact to Northern Trust’s consolidated balance sheets or consolidated statements of income.
On January 1, 2022, Northern Trust adopted ASU No. 2021-10, “Government Assistance (Topic 832): Disclosures by
Business Entities about Government Assistance” (ASU 2021-10). ASU 2021-10 requires annual disclosures about
transactions with a government that are accounted for by applying a grant or contribution accounting model by analogy to
other accounting guidance within Topic 958, Not-for-Profit Entities, or International Accounting Standards 20, Accounting
for Government Grants and Disclosure of Government Assistance. Upon adoption of ASU 2021-10, there was no
significant impact to Northern Trust’s consolidated balance sheets or consolidated statements of income.
On March 31, 2022, the Securities and Exchange Commission (SEC) released Staff Accounting Bulletin No. 121 (SAB
121) which expresses the SEC staff’s view regarding the accounting for entities that have obligations to safeguard “crypto-
assets” held for their platform users. SAB 121 requires that entities that perform custodial activities for crypto-assets,
whether directly or through an agent acting on its behalf, should recognize a liability and a corresponding asset in respect
of the crypto-assets safeguarded for their platform users, with the liability and asset measured at the fair value of the
crypto-assets. SAB 121 further requires an entity to provide certain disclosures related to safeguarding obligations for
crypto-assets. The guidance is effective for interim and annual periods ending after June 15, 2022, with retrospective
application as of the beginning of the fiscal year to which the interim or annual period relates. The release of SAB 121 did
not have an impact to Northern Trust’s consolidated balance sheets or consolidated statements of income.
On December 21, 2022, Northern Trust adopted ASU No. 2022-06, “Reference Rate Reform (Topic 848) and Derivatives
and Hedging (Topic 815): Deferral of the Sunset Date of Topic 848” (ASU 2022-06). In March 2020, the FASB issued
ASU No. 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial
Reporting” (ASU 2020-04) to provide optional guidance to ease the potential burden in accounting for (or recognizing the
effects of) reference rate reform on financial reporting. ASU 2020-04 established Topic 848 to provide relief during the
temporary transition period and includes a sunset provision based on expectations of when the London Interbank Offered
Rate (LIBOR) would cease being published. ASU 2022-06 further defers the sunset provision date of Topic 848 from
December 31, 2022, to December 31, 2024, after which entities will no longer be permitted to apply the relief in Topic 848.
Upon adoption of ASU 2022-06, there was no significant impact to Northern Trust’s consolidated balance sheets or
consolidated statements of income.
Note 3 – Fair Value Measurements
Fair value under GAAP is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit
price) in an orderly transaction between market participants on the measurement date.
Fair Value Hierarchy. The following describes the hierarchy of valuation inputs (Levels 1, 2, and 3) used to measure fair
value and the primary valuation methodologies used by Northern Trust for financial instruments measured at fair value on a
recurring basis. Observable inputs reflect market data obtained from sources independent of the reporting entity;
unobservable inputs reflect the entity’s own assumptions about how market participants would value an asset or liability
based on the best information available. GAAP requires an entity measuring fair value to maximize the use of observable
inputs and minimize the use of unobservable inputs and establishes a fair value hierarchy of inputs. Financial instruments
are categorized within the hierarchy based on the lowest level input that is significant to their valuation. Northern Trust’s
policy is to recognize transfers into and transfers out of fair value levels as of the end of the reporting period in which the
transfer occurred. No transfers into or out of Level 3 occurred during the years ended December 31, 2022, or 2021.
Level 1 – Quoted, active market prices for identical assets or liabilities. Northern Trust’s Level 1 assets are comprised
primarily of AFS investments in U.S. Treasury securities.
Level 2 – Observable inputs other than Level 1 prices, such as quoted active market prices for similar assets or
liabilities, quoted prices for identical or similar assets in inactive markets, and model-derived valuations in which all
significant inputs are observable in active markets. Northern Trust’s Level 2 assets include AFS and certain trading
account debt securities, the fair values of which are determined predominantly by external pricing vendors. Prices received
from vendors are compared to other vendor and third-party prices. If a security price obtained from a pricing vendor is
determined to exceed pre-determined tolerance levels that are assigned based on an asset type’s characteristics, the
exception is researched and, if the price is not able to be validated, an alternate pricing vendor is utilized, consistent with
106 2022 ANNUAL REPORT | NORTHERN TRUST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Northern Trust’s pricing source hierarchy. As of December 31, 2022, Northern Trust’s AFS debt securities portfolio
included 1,163 Level 2 securities with an aggregate market value of $24.0 billion. All 1,163 debt securities were valued by
external pricing vendors. As of December 31, 2021, Northern Trust’s AFS debt securities portfolio included 2,547 Level 2
debt securities with an aggregate market value of $35.6 billion. All 2,547 debt securities were valued by external pricing
vendors.
Northern Trust has established processes and procedures to assess the suitability of valuation methodologies used by
external pricing vendors, including reviews of valuation techniques and assumptions used for selected securities. On a daily
basis, periodic quality control reviews of prices received from vendors are conducted which include comparisons to prices
on similar security types received from multiple pricing vendors and to the previous day’s reported prices for each security.
Predetermined tolerance level exceptions are researched and may result in additional validation through available market
information or the use of an alternate pricing vendor. Quarterly, Northern Trust reviews documentation from third-party
pricing vendors regarding the valuation processes and assumptions used in their valuations and assesses whether the fair
value levels assigned by Northern Trust to each security classification are appropriate. Annually, valuation inputs used
within third-party pricing vendor valuations are reviewed for propriety on a sample basis through a comparison of inputs
used to comparable market data, including security classifications that are less actively traded and security classifications
comprising significant portions of the portfolio.
Level 2 assets and liabilities also include derivative contracts which are valued internally using widely accepted
income-based models that incorporate inputs readily observable in actively quoted markets and reflect the contractual terms
of the contracts. Observable inputs include foreign exchange rates and interest rates for foreign exchange contracts; credit
spreads, default probabilities, and recovery rates for credit default swap contracts; interest rates for interest rate swap
contracts and forward contracts; and interest rates and volatility inputs for interest rate option contracts. Northern Trust
evaluates the impact of counterparty credit risk and its own credit risk on the valuation of its derivative instruments. Factors
considered include the likelihood of default by Northern Trust and its counterparties, the remaining maturities of the
instruments, net exposures after giving effect to master netting arrangements or similar agreements, available collateral,
and other credit enhancements in determining the appropriate fair value of derivative instruments. The resulting valuation
adjustments have not been considered material.
Level 3 – Valuation techniques in which one or more significant inputs are unobservable in the marketplace.
Northern Trust’s Level 3 liabilities consist of swaps that Northern Trust entered into with the purchaser of 1.1 million
and 1.0 million shares of Visa Inc. Class B common stock (Visa Class B common shares) previously held by Northern
Trust and sold in June 2016 and 2015, respectively. Pursuant to the swaps, Northern Trust retains the risks associated with
the ultimate conversion of the Visa Class B common shares into shares of Visa Inc. Class A common stock (Visa Class A
common shares), such that the counterparty will be compensated for any dilutive adjustments to the conversion ratio and
Northern Trust will be compensated for any anti-dilutive adjustments to the ratio. The swaps also require periodic
payments from Northern Trust to the counterparty calculated by reference to the market price of Visa Class A common
shares and a fixed rate of interest. The fair value of the swaps is determined using a discounted cash flow methodology.
The significant unobservable inputs used in the fair value measurement are Northern Trust’s own assumptions about
estimated changes in the conversion rate of the Visa Class B common shares into Visa Class A common shares, the date on
which such conversion is expected to occur and the estimated growth rate of the Visa Class A common share price. See
“Visa Class B Common Shares” under Note 25, “Commitments and Contingent Liabilities,” for further information.
Northern Trust believes its valuation methods for its assets and liabilities carried at fair value are appropriate; however,
the use of different methodologies or assumptions, particularly as applied to Level 3 assets and liabilities, could have a
material effect on the computation of their estimated fair values.
Management of various businesses and departments of Northern Trust (including Corporate Market Risk, Credit Risk
Management, Corporate Finance, Asset Servicing and Wealth Management) reviews valuation methods and models for
Level 3 assets and liabilities. Fair value measurements are performed upon acquisitions of an asset or liability.
Management of the appropriate business or department reviews assumed inputs, especially when unobservable in the
marketplace, in order to substantiate their use in each fair value measurement. When appropriate, management reviews
forecasts used in the valuation process in light of other relevant financial projections to understand any variances between
current and previous fair value measurements. In certain circumstances, third party information is used to support the fair
value measurements. If certain third party information seems inconsistent with consensus views, a review of the
information is performed by management of the respective business or department to determine the appropriate fair value
of the asset or liability.
The following table presents the fair values of Northern Trust’s Level 3 liabilities as of December 31, 2022 and 2021,
as well as the valuation techniques, significant unobservable inputs, and quantitative information used to develop
significant unobservable inputs for such liabilities as of such dates.
2022 ANNUAL REPORT | NORTHERN TRUST CORPORATION 107
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
TABLE 52: LEVEL 3 SIGNIFICANT UNOBSERVABLE INPUTS
FINANCIAL INSTRUMENT
Swaps Related to Sale of Certain
Visa Class B Common Shares
FAIR VALUE
$34.8 million
DECEMBER 31, 2022
VALUATION
TECHNIQUE
Discounted Cash
Flow
UNOBSERVABLE
INPUTS
Conversion Rate
Visa Class A
Appreciation
INPUT VALUES
1.60x
8.53%
WEIGHTED-
AVERAGE INPUT
VALUES(1)
1.60x
8.53%
Expected Duration
12 - 33 months
20 months
(1) Weighted average of expected duration based on scenario probability.
FINANCIAL INSTRUMENT
Swaps Related to Sale of Certain
Visa Class B Common Shares
FAIR VALUE
$37.5 million
DECEMBER 31, 2021
VALUATION
TECHNIQUE
Discounted Cash
Flow
UNOBSERVABLE
INPUTS
Conversion Rate
Visa Class A
Appreciation
INPUT VALUES
1.62x
10.10%
WEIGHTED-
AVERAGE INPUT
VALUES(1)
1.62x
10.10%
Expected Duration
12 - 33 months
20 months
(1) Weighted average of expected duration based on scenario probability.
The following presents assets and liabilities measured at fair value on a recurring basis as of December 31, 2022 and 2021,
segregated by fair value hierarchy level.
TABLE 53: RECURRING BASIS HIERARCHY LEVELING
(In Millions)
Debt Securities
Available for Sale
U.S. Government
Obligations of States and Political Subdivisions
Government Sponsored Agency
Non-U.S. Government
Corporate Debt
Covered Bonds
Sub-Sovereign, Supranational and Non-U.S. Agency
Bonds
Other Asset-Backed
Commercial Mortgage-Backed
Total Available for Sale
Trading Account
Total Available for Sale and Trading Debt Securities
Other Assets
Derivative Assets
Foreign Exchange Contracts
Interest Rate Contracts
Other Financial Derivatives(1)
Total Derivative Assets
Other Liabilities
Derivative Liabilities
Foreign Exchange Contracts
Interest Rate Contracts
Other Financial Derivatives(2)
DECEMBER 31, 2022
LEVEL 1
LEVEL 2
LEVEL 3
NETTING
ASSETS/
LIABILITIES
AT FAIR
VALUE
$
2,747.4 $
— $
— $
— $
2,747.4
—
—
—
—
—
—
—
—
787.6
11,545.2
360.0
1,747.6
388.7
2,479.4
5,256.2
1,387.8
2,747.4
23,952.5
95.0
0.2
2,842.4
23,952.7
—
—
—
—
—
—
—
3,510.1
222.0
0.3
3,732.4
3,187.5
431.8
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
787.6
11,545.2
360.0
1,747.6
388.7
2,479.4
5,256.2
1,387.8
26,699.9
95.2
26,795.1
(2,666.4)
(144.3)
—
(2,810.7)
843.7
77.7
0.3
921.7
—
—
34.8
(1,826.7)
1,360.8
(5.9)
(33.3)
425.9
1.5
Total Derivative Liabilities
$
— $
3,619.3 $
34.8 $
(1,865.9) $
1,788.2
Note: Northern Trust has elected to net derivative assets and liabilities when legally enforceable master netting arrangements or similar agreements exist between Northern
Trust and the counterparty. As of December 31, 2022, derivative assets and liabilities shown above also include reductions of $1,140.2 million and $195.3 million, respectively,
as a result of cash collateral received from and deposited with derivative counterparties.
(1) This line consists of total return swap contracts.
(2) This line consists of swaps related to the sale of certain Visa Class B common shares.
108 2022 ANNUAL REPORT | NORTHERN TRUST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Millions)
Debt Securities
Available for Sale
U.S. Government
Obligations of States and Political Subdivisions
Government Sponsored Agency
Non-U.S. Government
Corporate Debt
Covered Bonds
Sub-Sovereign, Supranational and Non-U.S. Agency
Bonds
Other Asset-Backed
Commercial Mortgage Backed
Total Available for Sale
Trading Account
Total Available for Sale and Trading Debt Securities
Other Assets
Derivative Assets
Foreign Exchange Contracts
Interest Rate Contracts
Total Derivatives Assets
Other Liabilities
Derivative Liabilities
Foreign Exchange Contracts
Interest Rate Contracts
Other Financial Derivative(1)
DECEMBER 31, 2021
LEVEL 1
LEVEL 2
LEVEL 3
NETTING
ASSETS/
LIABILITIES
AT FAIR
VALUE
$
2,426.1 $
— $
— $
— $
—
—
—
—
—
—
—
—
3,876.1
18,075.6
374.0
2,341.7
505.6
3,045.1
5,941.6
1,424.7
2,426.1
35,584.4
—
0.3
2,426.1
35,584.7
—
—
—
—
—
—
2,207.4
140.0
2,347.4
1,998.8
98.9
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(1,530.7)
(3.1)
(1,533.8)
—
—
37.5
(1,234.5)
(48.1)
(0.9)
2,426.1
3,876.1
18,075.6
374.0
2,341.7
505.6
3,045.1
5,941.6
1,424.7
38,010.5
0.3
38,010.8
676.7
136.9
813.6
764.3
50.8
36.6
851.7
Total Derivative Liabilities
$
— $
2,097.7 $
37.5 $
(1,283.5) $
Note: Northern Trust has elected to net derivative assets and liabilities when legally enforceable master netting arrangements or similar agreements exist between Northern
Trust and the counterparty. As of December 31, 2021, derivative assets and liabilities shown above also include reductions of $389.4 million and $139.0 million, respectively,
as a result of cash collateral received from and deposited with derivative counterparties.
(1) This line consists of swaps related to the sale of certain Visa Class B common shares.
The following table presents the changes in Level 3 liabilities for the years ended December 31, 2022 and 2021.
TABLE 54: CHANGES IN LEVEL 3 LIABILITIES
LEVEL 3 LIABILITIES
(In Millions)
Fair Value at January 1
Total (Gains) Losses:
Included in Earnings(1)
Purchases, Issues, Sales, and Settlements
Settlements
Fair Value at December 31
Unrealized Losses (Gains) Included in Earnings Related to Financial Instruments Held at December 31(1)
(1) Gains (losses) are recorded in Other Operating Income on the consolidated statements of income.
SWAPS RELATED TO SALE OF
CERTAIN VISA CLASS B
COMMON SHARES
2022
37.5 $
22.6
(25.3)
34.8 $
16.6 $
2021
35.3
21.3
(19.1)
37.5
22.0
$
$
$
Carrying values of assets and liabilities that are not measured at fair value on a recurring basis may be adjusted to fair
value in periods subsequent to their initial recognition, for example, to record an impairment of an asset. GAAP requires
entities to separately disclose these subsequent fair value measurements and to classify them under the fair value hierarchy.
2022 ANNUAL REPORT | NORTHERN TRUST CORPORATION 109
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Assets measured at fair value on a nonrecurring basis at December 31, 2022 and 2021, all of which were categorized
as Level 3 under the fair value hierarchy, were comprised of nonaccrual loans whose values were based on real estate and
other available collateral, and of OREO properties.
Fair values of real estate loan collateral were estimated using a market approach typically supported by third-party
valuations and property-specific fees and taxes. The fair values of real estate loan collateral were subject to adjustments to
reflect management’s judgment as to realizable value and consisted of discount factors ranging from 15.0% to 20.0% with
a weighted average based on fair values of 17.2% and 15.4% as of December 31, 2022 and 2021, respectively. Other loan
collateral, which typically consists of accounts receivable, inventory and equipment, is valued using a market approach
adjusted for asset-specific characteristics and in limited instances third-party valuations are used. OREO assets are carried
at the lower of cost or fair value less estimated costs to sell, with fair value typically based on third-party appraisals.
Collateral-dependent nonaccrual loans that have been adjusted to fair value totaled $6.6 million and $15.0 million at
December 31, 2022 and 2021, respectively.
The following table presents the fair values of Northern Trust’s Level 3 assets that were measured at fair value on a
nonrecurring basis as of December 31, 2022 and 2021, as well as the valuation technique, significant unobservable inputs,
and quantitative information used to develop the significant unobservable inputs for such assets as of such dates.
TABLE 55: LEVEL 3 NONRECURRING BASIS SIGNIFICANT UNOBSERVABLE INPUTS
DECEMBER 31, 2022
FINANCIAL INSTRUMENT
FAIR VALUE(1)
VALUATION
TECHNIQUE
UNOBSERVABLE INPUTS
INPUT VALUES
WEIGHTED-AVERAGE
INPUT VALUES
Loans
$6.6 million Market Approach
Discount factor applied to real
estate collateral-dependent loans
to reflect realizable value
15.0% – 20.0%
17.2%
(1) Includes real estate collateral-dependent loans and other collateral-dependent loans.
DECEMBER 31, 2021
FINANCIAL INSTRUMENT
Loans
FAIR VALUE(1)
$15.0 million
VALUATION
TECHNIQUE
UNOBSERVABLE INPUTS
INPUT VALUES
WEIGHTED-AVERAGE
INPUT VALUES
Market Approach Discount factor applied to real estate
collateral-dependent loans to reflect
realizable value
15.0% – 20.0%
15.4%
(1) Includes real estate collateral-dependent loans and other collateral-dependent loans.
110 2022 ANNUAL REPORT | NORTHERN TRUST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following tables presents the book value and estimated fair value, including the fair value hierarchy level, of
Northern Trust’s financial instruments that are not measured at fair value on the consolidated balance sheets as of
December 31, 2022 and 2021. The following tables exclude those items measured at fair value on a recurring basis.
TABLE 56: FAIR VALUE OF FINANCIAL INSTRUMENTS
Demand, Noninterest-Bearing, Savings, Money Market and
Other Interest-Bearing
$
(In Millions)
FINANCIAL ASSETS
Cash and Due from Banks
Federal Reserve and Other Central Bank Deposits
Interest-Bearing Deposits with Banks
Federal Funds Sold
Securities Purchased under Agreements to Resell
Debt Securities - Held to Maturity
Loans (excluding Leases)
Held for Investment
Other Assets
FINANCIAL LIABILITIES
Deposits
Savings Certificates and Other Time
Non U.S. Offices Interest-Bearing
Federal Funds Purchased
Securities Sold Under Agreements to Repurchase
Other Borrowings
Senior Notes
Long-Term Debt
Unfunded Commitments
Other Liabilities
(In Millions)
FINANCIAL ASSETS
Cash and Due from Banks
Federal Reserve and Other Central Bank Deposits
Interest-Bearing Deposits with Banks
Securities Purchased under Agreements to Resell
Debt Securities - Held to Maturity
Loans (excluding Leases)
Held for Investment
Held for Sale
Other Assets
FINANCIAL LIABILITIES
Deposits
Demand, Noninterest-Bearing, Savings, Money Market and
Other Interest-Bearing
$
Savings Certificates and Other Time
Non U.S. Offices Interest-Bearing
Federal Funds Purchased
Securities Sold Under Agreements to Repurchase
Other Borrowings
Senior Notes
Long-Term Debt
Unfunded Commitments
Other Liabilities
DECEMBER 31, 2022
ESTIMATED FAIR VALUE
BOOK VALUE
TOTAL ESTIMATED
FAIR VALUE
LEVEL 1
LEVEL 2
LEVEL 3
4,654.2 $
40,030.4
1,941.1
32.0
1,070.3
25,036.1
42,749.0
1,476.9
56,468.9 $
1,981.3
65,481.9
1,896.9
567.2
7,592.3
2,724.2
2,066.2
218.9
73.2
4,654.2 $
40,030.4
1,941.1
32.0
1,070.3
22,879.3
4,654.2 $
—
—
—
—
50.0
— $
40,030.4
1,941.1
32.0
1,070.3
22,829.3
—
—
—
—
—
—
42,636.5
1,460.4
—
94.7
—
1,365.7
42,636.5
—
56,468.9 $
1,976.1
65,481.9
1,896.9
567.2
7,592.8
2,729.8
2,110.7
218.9
73.2
56,468.9 $
— $
—
—
—
—
—
—
—
—
—
1,976.1
65,481.9
1,896.9
567.2
7,592.8
2,729.8
2,110.7
218.9
—
DECEMBER 31, 2021
ESTIMATED FAIR VALUE
—
—
—
—
—
—
—
—
—
73.2
BOOK VALUE
TOTAL ESTIMATED
FAIR VALUE
LEVEL 1
LEVEL 2
LEVEL 3
$
$
3,056.8 $
64,582.2
1,949.4
686.4
23,564.5
40,319.3
12.3
1,275.3
83,318.6 $
842.7
75,767.1
0.2
531.9
3,583.8
2,505.5
1,145.7
289.3
75.5
3,056.8 $
64,582.2
1,949.4
686.4
23,315.4
3,056.8 $
—
—
—
47.0
40,208.2
24.5
1,279.8
—
—
119.1
— $
64,582.2
1,949.4
686.4
23,268.4
—
24.5
1,160.7
—
—
—
—
—
40,208.2
—
—
83,318.6 $
843.8
75,767.1
0.2
531.9
3,583.9
2,591.4
1,189.4
289.3
75.5
83,318.6 $
— $
—
—
—
—
—
—
—
—
—
843.8
75,767.1
0.2
531.9
3,583.9
2,591.4
1,189.4
289.3
—
—
—
—
—
—
—
—
—
—
75.5
2022 ANNUAL REPORT | NORTHERN TRUST CORPORATION 111
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 4 – Securities
Available for Sale Debt Securities. The following tables provide the amortized cost, fair values, and remaining maturities
of AFS debt securities.
TABLE 57: RECONCILIATION OF AMORTIZED COST TO FAIR VALUE OF AVAILABLE FOR SALE DEBT SECURITIES
(In Millions)
U.S. Government
Obligations of States and Political Subdivisions
Government Sponsored Agency
Non-U.S. Government
Corporate Debt
Covered Bonds
Sub-Sovereign, Supranational and Non-U.S. Agency Bonds
Other Asset-Backed
Commercial Mortgage-Backed
Total
(In Millions)
U.S. Government
Obligations of States and Political Subdivisions
Government Sponsored Agency
Non-U.S. Government
Corporate Debt
Covered Bonds
Sub-Sovereign, Supranational and Non-U.S. Agency Bonds
Other Asset-Backed
Commercial Mortgage-Backed
Total
DECEMBER 31, 2022
AMORTIZED
COST
GROSS
UNREALIZED
GAINS
GROSS
UNREALIZED
LOSSES
$
2,837.7 $
2.5 $
92.8 $
817.8
11,892.5
387.6
1,774.3
403.1
2,645.8
5,544.3
1,456.9
—
4.3
—
0.2
0.3
0.3
—
0.1
30.2
351.6
27.6
26.9
14.7
166.7
288.1
69.2
FAIR
VALUE
2,747.4
787.6
11,545.2
360.0
1,747.6
388.7
2,479.4
5,256.2
1,387.8
$
27,760.0 $
7.7 $
1,067.8 $
26,699.9
DECEMBER 31, 2021
AMORTIZED
COST
GROSS
UNREALIZED
GAINS
GROSS
UNREALIZED
LOSSES
$
2,406.2 $
29.3 $
9.4 $
3,841.0
18,092.1
383.4
2,319.8
502.6
3,052.4
5,962.0
1,389.0
73.7
93.7
0.1
31.6
3.9
28.1
11.3
38.9
38.6
110.2
9.5
9.7
0.9
35.4
31.7
3.2
FAIR
VALUE
2,426.1
3,876.1
18,075.6
374.0
2,341.7
505.6
3,045.1
5,941.6
1,424.7
$
37,948.5 $
310.6 $
248.6 $
38,010.5
TABLE 58: REMAINING MATURITY OF AVAILABLE FOR SALE DEBT SECURITIES
DECEMBER 31, 2022
ONE YEAR OR LESS ONE TO FIVE YEARS FIVE TO TEN YEARS
OVER TEN YEARS
TOTAL
Amortized
Cost
Fair Value
Amortized
Cost
Fair Value
Amortized
Cost
Fair Value
Amortized
Cost
Fair Value
Amortized
Cost
Fair Value
$ 1,576.6 $ 1,574.5 $ 1,261.1 $ 1,172.9 $
— $
— $
— $
— $ 2,837.7 $ 2,747.4
(In Millions)
U.S. Government
Obligations of States and
Political Subdivisions
Non-U.S. Government
Corporate Debt
Covered Bonds
Sub-Sovereign, Supranational
and Non-U.S. Agency Bonds
Other Asset-Backed
Commercial Mortgage-Backed
101.3
555.8
159.5
498.9
893.7
17.3
Government Sponsored Agency 2,452.0
2,404.0
5,602.6
5,441.7
3,060.2
2,962.5
—
—
105.5
105.5
675.4
646.5
101.1
286.3
258.9
551.8
1,199.3
1,180.3
159.2
243.6
229.5
—
18.3
—
—
14.8
—
494.3
1,923.7
1,802.7
223.2
182.4
36.9
777.7
35.6
817.8
787.6
737.0
11,892.5
11,545.2
—
0.9
—
—
—
387.6
360.0
0.7
1,774.3
1,747.6
—
403.1
388.7
—
2,645.8
2,479.4
848.6
3,244.1
3,035.5
1,250.2
1,219.7
156.3
152.4
5,544.3
5,256.2
17.5
1,188.1
1,145.3
251.5
225.0
—
—
1,456.9
1,387.8
Total
$ 6,255.1 $ 6,151.0 $ 15,054.3 $ 14,372.3 $ 5,478.8 $ 5,250.9 $
971.8 $
925.7 $ 27,760.0 $ 26,699.9
Note: Mortgage-backed and asset-backed securities are included in the above table taking into account anticipated future prepayments.
112 2022 ANNUAL REPORT | NORTHERN TRUST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Available for Sale Debt Securities with Unrealized Losses. The following table provides information regarding AFS
debt securities with no credit losses reported that had been in a continuous unrealized loss position for less than twelve
months and for twelve months or longer as of December 31, 2022 and 2021.
TABLE 59: AVAILABLE FOR SALE DEBT SECURITIES IN UNREALIZED LOSS POSITION WITH NO CREDIT LOSSES REPORTED
AS OF DECEMBER 31, 2022
LESS THAN 12 MONTHS
12 MONTHS OR LONGER
TOTAL
(In Millions)
U.S. Government
Obligations of States and Political Subdivisions
Government Sponsored Agency
Non-U.S. Government
Corporate Debt
Covered Bonds
Sub-Sovereign, Supranational and Non-U.S. Agency Bonds
Other Asset-Backed
Commercial Mortgage-Backed
Total
FAIR
VALUE
UNREALIZED
LOSSES
FAIR
VALUE
UNREALIZED
LOSSES
FAIR
VALUE
UNREALIZED
LOSSES
$
1,123.6 $
64.1 $
343.1 $
28.7 $
1,466.7 $
160.0
7,631.4
235.4
427.3
238.0
1,305.4
3,873.4
670.9
16.8
262.1
17.3
14.6
13.5
74.4
217.5
47.4
120.6
2,737.7
124.6
130.3
42.8
807.1
1,247.6
215.6
13.4
89.5
10.3
2.8
1.2
83.2
70.6
21.8
280.6
10,369.1
360.0
557.6
280.8
2,112.5
5,121.0
886.5
92.8
30.2
351.6
27.6
17.4
14.7
157.6
288.1
69.2
$ 15,665.4 $
727.7 $
5,769.4 $
321.5 $ 21,434.8 $
1,049.2
Note: Three corporate debt AFS securities with a fair value of $93.8 million and unrealized losses of $9.5 million and one sub-sovereign, supranational
and non-U.S. agency bonds AFS security with a fair value of $68.3 million and unrealized loss of $9.1 million have been excluded from the table above as
these AFS securities have a $1.3 million allowance for credit losses reported as of December 31, 2022. Refer to the discussion further below and Note 7,
“Allowance for Credit Losses” for further information.
AS OF DECEMBER 31, 2021
LESS THAN 12 MONTHS
12 MONTHS OR LONGER
TOTAL
(In Millions)
U.S. Government
Obligations of States and Political Subdivisions
Government Sponsored Agency
Non-U.S. Government
Corporate Debt
Covered Bonds
Sub-Sovereign, Supranational and Non-U.S. Agency Bonds
Other Asset-Backed
Commercial Mortgage-Backed
Total
FAIR
VALUE
UNREALIZED
LOSSES
FAIR
VALUE
UNREALIZED
LOSSES
FAIR
VALUE
UNREALIZED
LOSSES
$
239.0 $
9.4 $
— $
— $
239.0 $
1,699.5
8,207.3
230.0
693.7
92.1
1,116.8
3,815.5
566.8
37.4
90.2
9.5
9.7
0.9
31.9
31.4
3.2
31.6
1,821.4
—
—
—
172.3
11.7
—
1.2
20.0
1,731.1
10,028.7
—
—
—
3.5
0.3
—
230.0
693.7
92.1
1,289.1
3,827.2
566.8
9.4
38.6
110.2
9.5
9.7
0.9
35.4
31.7
3.2
$ 16,660.7 $
223.6 $
2,037.0 $
25.0 $ 18,697.7 $
248.6
As of December 31, 2022, 1,030 AFS debt securities with a combined fair value of $21.4 billion were in an unrealized
loss position without an allowance for credit losses, with their unrealized losses totaling $1.0 billion. As of December 31,
2022, unrealized losses in AFS debt securities 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 market interest rates and credit spreads since their purchase.
As of December 31, 2021, 1,233 AFS debt securities with a combined fair value of $18.7 billion were in an unrealized
loss position without an allowance for credit losses, with their unrealized losses totaling $248.6 million. As of
December 31, 2021, unrealized losses in AFS debt securities of $110.2 million related to government-sponsored agency,
which are primarily attributable to changes in market interest rates and credit spreads since their purchase.
As of December 31, 2022, Northern Trust had the intent to sell a portfolio of AFS debt securities with an amortized
cost of $2.3 billion and a fair value of $2.1 billion. The amortized cost basis of the securities were written down to their fair
value and a loss of $213.0 million was recognized in Investment Security Gains (Losses), net on the consolidated
statements of income in 2022. Please see Note 34, “Subsequent Event” for discussion on the January 2023 sale of these
securities.
AFS debt securities impairment reviews are conducted quarterly to identify and evaluate securities that have
indications of possible credit losses. A determination as to whether a security’s decline in market value is related to credit
impairment takes into consideration numerous factors and the relative significance of any single factor can vary by
security. Factors Northern Trust considers in determining whether impairment is credit-related include, but are not limited
to, the severity of the impairment; the cause of the impairment and the financial condition and near-term prospects of the
issuer; activity in the market of the issuer, which may indicate adverse credit conditions; Northern Trust’s intent regarding
2022 ANNUAL REPORT | NORTHERN TRUST CORPORATION 113
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
the sale of the security as of the balance sheet date; and the likelihood that Northern Trust will not be required to sell the
security for a period of time sufficient to allow for the recovery of the security’s amortized cost basis. For each security
meeting the requirements of Northern Trust’s internal screening process, an extensive review is conducted to determine if a
credit loss has occurred.
There was a $1.3 million provision for credit losses and allowance for credit losses for AFS securities for the year
ended December 31, 2022, primarily for corporate debt securities. There was no provision for credit losses or allowance for
credit losses for AFS securities for the year ended December 31, 2021. The process for identifying credit losses for AFS
securities is based on the best estimate of cash flows to be collected from the security, discounted using the security’s
effective interest rate. If the present value of the expected cash flows is found to be less than the current amortized cost of
the security, an allowance for credit losses is generally recorded equal to the difference between the two amounts, limited
to the amount the amortized cost basis exceeds the fair value of the security. For additional information, please refer to
Note 7, “Allowance for Credit Losses.”
Held to Maturity Debt Securities. The following tables provide the amortized cost, fair values and remaining maturities
of held to maturity (HTM) debt securities.
TABLE 60: RECONCILIATION OF AMORTIZED COST TO FAIR VALUES OF HELD TO MATURITY DEBT SECURITIES
(In Millions)
U.S. Government
Obligations of States and Political Subdivisions
Government Sponsored Agency
Non-U.S. Government
Corporate Debt
Covered Bonds
Certificates of Deposit
Sub-Sovereign, Supranational and Non-U.S. Agency Bonds
Other Asset-Backed
Other
Total
(In Millions)
U.S. Government
Obligations of States and Political Subdivisions
Government Sponsored Agency
Non-U.S. Government
Corporate Debt
Covered Bonds
Certificates of Deposit
Sub-Sovereign, Supranational and Non-U.S. Agency Bonds
Other Asset-Backed
Other
Total
DECEMBER 31, 2022
AMORTIZED
COST
GROSS
UNREALIZED
GAINS
GROSS
UNREALIZED
LOSSES
$
50.0 $
— $
— $
2,565.3
9,407.7
3,234.0
713.3
2,530.3
35.9
5,703.3
263.7
532.6
—
—
0.1
—
0.3
—
1.0
—
—
149.8
1,076.0
133.8
45.4
158.7
—
436.1
1.0
157.4
FAIR
VALUE
50.0
2,415.5
8,331.7
3,100.3
667.9
2,371.9
35.9
5,268.2
262.7
375.2
$
25,036.1 $
1.4 $
2,158.2 $
22,879.3
DECEMBER 31, 2021
AMORTIZED
COST
GROSS
UNREALIZED
GAINS
GROSS
UNREALIZED
LOSSES
$
47.0 $
— $
— $
0.8
5,927.6
5,773.3
901.8
2,942.4
674.7
6,098.0
682.6
516.3
—
1.1
3.9
2.5
8.3
—
14.3
1.0
3.4
—
106.1
9.8
6.5
9.6
—
80.0
—
71.6
FAIR
VALUE
47.0
0.8
5,822.6
5,767.4
897.8
2,941.1
674.7
6,032.3
683.6
448.1
$
23,564.5 $
34.5 $
283.6 $
23,315.4
As of December 31, 2022, the $25.0 billion HTM debt securities portfolio had unrealized losses 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. As of December 31, 2021, the $23.6 billion HTM debt securities portfolio had an unrealized loss of
$106.1 million and $80.0 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.
114 2022 ANNUAL REPORT | NORTHERN TRUST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
TABLE 61: REMAINING MATURITY OF HELD TO MATURITY DEBT SECURITIES
DECEMBER 31, 2022
ONE YEAR OR LESS ONE TO FIVE YEARS FIVE TO TEN YEARS
OVER TEN YEARS
TOTAL
(In Millions)
U.S. Government
Amortized
Cost
Fair Value
Amortized
Cost
Fair Value
Amortized
Cost
Fair Value
Amortized
Cost
Fair Value
Amortized
Cost
Fair Value
$
50.0 $
50.0 $
— $
— $
— $
— $
— $
— $
50.0 $
50.0
Obligations of States and
Political Subdivisions
Government Sponsored Agency
36.4
879.8
36.0
753.0
725.8
1,325.5
1,242.3
450.4
411.4
2,565.3
2,415.5
775.0
2,957.6
2,624.9
3,629.7
3,232.7
1,940.6
1,699.1
9,407.7
8,331.7
Non-U.S. Government
1,742.3
1,741.8
1,344.7
1,233.0
91.8
410.5
35.9
90.9
606.4
565.0
408.6
1,699.8
1,607.6
35.9
—
—
147.0
15.1
420.0
—
125.5
12.0
355.7
—
1,019.0
1,006.8
4,554.6
4,154.1
129.7
107.3
88.6
46.5
88.4
44.6
102.9
301.2
102.4
261.7
72.2
34.5
71.9
24.8
Corporate Debt
Covered Bonds
Certificates of Deposit
Sub-Sovereign, Supranational
and Non-U.S. Agency Bonds
Other Asset-Backed
Other
Total
—
—
—
—
—
—
150.4
—
3,234.0
3,100.3
—
713.3
667.9
—
2,530.3
2,371.9
—
35.9
35.9
—
5,703.3
5,268.2
—
44.1
263.7
532.6
262.7
375.2
$ 4,400.8 $ 4,278.0 $ 12,320.2 $ 11,274.5 $ 5,773.7 $ 5,172.2 $ 2,541.4 $ 2,154.6 $ 25,036.1 $ 22,879.3
Note: Mortgage-backed and asset-backed securities are included in the above table taking into account anticipated future prepayments.
HTM debt securities consist of securities that management intends to, and Northern Trust has the ability to, hold until
maturity. During the year ended December 31, 2022, for capital management purposes, the Corporation transferred
government sponsored agency and obligations of states and political subdivisions securities that had a fair value of $6.6
billion from the AFS to HTM classification, all of which were transferred in the third quarter of 2022. During the year
ended December 31, 2021, the Corporation transferred government sponsored agency securities that had a fair value of
$6.9 billion from AFS to HTM for capital management purposes, all of which were transferred in the second quarter of
2021. Upon transfer of a debt security from the AFS to HTM classification, the amortized cost is reset to fair value. Any
net unrealized gain or loss at the date of transfer will remain in AOCI and be amortized into Net Interest Income over the
remaining life of the securities using the effective interest method. The amortization of amounts retained in AOCI will
offset the effect on interest income of the amortization of the premium or discount resulting from transferring the securities
at fair value.
Credit Quality Indicators. The following table provides the amortized cost of HTM debt securities by credit rating.
TABLE 62: AMORTIZED COST OF HELD TO MATURITY DEBT SECURITIES BY CREDIT RATING
(In Millions)
U.S. Government
Obligations of States and Political Subdivisions
Government Sponsored Agency
Non-U.S. Government
Corporate Debt
Covered Bonds
Certificates of Deposit
Other Asset-Backed
Other
Total
Percent of Total
Sub-Sovereign, Supranational and Non-U.S. Agency Bonds
4,171.3
1,502.0
AAA
AA
A
BBB
NOT RATED
TOTAL
AS OF DECEMBER 31, 2022
$
50.0
$
—
$
926.8
9,407.7
762.2
2.1
2,530.3
—
1,638.5
—
926.5
305.7
—
—
263.7
65.8
—
—
$
—
—
—
$
—
—
—
1,223.0
322.3
405.5
—
—
28.9
—
—
—
—
—
1.1
—
—
$ 18,179.9
$ 4,372.7
$ 1,657.4
$
323.4
$
—
—
—
—
—
—
35.9
—
—
466.8
502.7
$
50.0
2,565.3
9,407.7
3,234.0
713.3
2,530.3
35.9
5,703.3
263.7
532.6
$ 25,036.1
73 %
17 %
7 %
1 %
2 %
100 %
2022 ANNUAL REPORT | NORTHERN TRUST CORPORATION 115
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Millions)
U.S. Government
Obligations of States and Political Subdivisions
Government Sponsored Agency
Non-U.S. Government
Corporate Debt
Covered Bonds
Certificates of Deposit
Sub-Sovereign, Supranational and Non-U.S. Agency Bonds
Other Asset-Backed
Other
Total
Percent of Total
AAA
AA
A
BBB
NOT RATED
TOTAL
AS OF DECEMBER 31, 2021
$
47.0
$
—
5,927.6
398.0
2.3
2,942.4
—
4,207.6
682.6
—
—
0.8
—
942.6
386.7
—
—
1,858.0
—
—
$
$
—
—
—
4,088.8
512.8
—
—
31.3
—
—
$
—
—
—
343.9
—
—
—
1.1
—
—
—
—
—
—
—
—
674.7
—
—
516.3
$
47.0
0.8
5,927.6
5,773.3
901.8
2,942.4
674.7
6,098.0
682.6
516.3
$ 14,207.5
$ 3,188.1
$ 4,632.9
$
345.0
$ 1,191.0
$ 23,564.5
60 %
14 %
20 %
1 %
5 %
100 %
Credit quality indicators are metrics that provide information regarding the relative credit risk of debt securities. Northern
Trust maintains a high quality debt securities portfolio, with 97% and 94% of the HTM portfolio comprised of securities
rated A or higher as of December 31, 2022 and 2021, respectively. The remaining HTM debt securities portfolio was
comprised of 1% rated BBB at both December 31, 2022 and 2021, and 2% and 5% not rated by Moody’s, S&P Global, or
Fitch Ratings at December 31, 2022 and 2021, respectively. Securities not explicitly rated were grouped where possible
under the credit rating of the issuer of the security.
Investment Security Gains and Losses. During the fourth quarter of 2022, losses of $213.0 million were recognized in
conjunction with the intent to sell certain AFS debt securities which is included in the tables below. Refer to Note 34,
“Subsequent Event” for the January 2023 sale of such securities. Proceeds of $138.7 million, $116.7 million and $879.9
million in 2022, 2021 and 2020, respectively, from the sale of debt securities resulted in the following pre-tax Investment
Security Gains (Losses), net shown in the following tables.
TABLE 63: INVESTMENT SECURITY GAINS AND LOSSES
(In Millions)
Gross Realized Debt Securities Gains
Gross Realized Debt Securities Losses
Investment Security Gains (Losses), net(1)
(1)
DECEMBER 31,
$
$
2022
— $
(214.0)
(214.0) $
2021
1.4 $
(1.7)
(0.3) $
2020
3.4
(3.8)
(0.4)
$214.0 million of Investment Security Gains (Losses), net includes a $213.0 million loss recognized in 2022 in conjunction with the intent to sell certain
AFS debt securities.
TABLE 64: INVESTMENT SECURITY GAINS AND LOSSES BY SECURITY TYPE
(In Millions)
Obligations of States and Political Subdivisions
$
Government Sponsored Agency
Corporate Debt(1)
Other Asset-Backed
Commercial Mortgage-Backed
Investment Security Gains (Losses), net(2)
(1)
DECEMBER 31,
2022
(95.8) $
—
(67.3)
(17.1)
(33.8)
2021
— $
—
(0.3)
—
—
$
(214.0) $
(0.3) $
2020
—
(1.8)
(0.4)
(0.7)
2.5
(0.4)
Proceeds of $138.7 million from the sale of corporate debt securities in 2022 resulted in a $1.0 million loss in pre-tax Investment Security Gains
(Losses), net.
(2)
$214.0 million of Investment Security Gains (Losses), net includes a $213.0 million loss recognized in 2022 in conjunction with the intent to sell certain
AFS debt securities.
116 2022 ANNUAL REPORT | NORTHERN TRUST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 5 – Securities Purchased Under Agreements to Resell and Securities Sold Under Agreements to Repurchase
Securities purchased under agreements to resell and securities sold under agreements to repurchase are accounted for as
collateralized financings and recorded at the amounts at which the securities were acquired or sold plus accrued interest. To
minimize any potential credit risk associated with these transactions, the fair value of the securities purchased or sold is
monitored, limits are set on exposure with counterparties, and the financial condition of counterparties is regularly
assessed. It is Northern Trust’s policy to take possession, either directly or via third-party custodians, of securities
purchased under agreements to resell. Securities sold under agreements to repurchase are either directly held by, or pledged
to the counterparty until the repurchase.
During the third quarter of 2021, Northern Trust became a Government Securities Division (GSD) netting and
sponsoring member in the Fixed Income Clearing Corporation (FICC) sponsored member program. FICC, a wholly-owned
subsidiary of The Depository Trust & Clearing Corporation, is a central counterparty and provides netting and settlement
for the U.S. Government securities marketplace. Northern Trust nets securities sold under repurchase agreements against
those purchased under resale agreements when the Fixed Income Clearing Corporation (FICC) is the counterparty. Refer to
Note 25, “Commitments and Contingent Liabilities.”
The following tables summarize information related to Securities Purchased under Agreements to Resell and Securities
Sold under Agreements to Repurchase.
TABLE 65: SECURITIES PURCHASED UNDER AGREEMENTS TO RESELL
($ In Millions)
Balance at December 31
Average Balance During the Year
Average Interest Rate Earned During the Year
Maximum Month-End Balance During the Year
2022
2021
$ 1,070.3
$
686.4
1,071.2
1,067.4
9.68 %
0.33 %
$ 1,320.8
$ 1,819.1
Note: Northern Trust nets securities sold under repurchase agreements against those purchased under resale agreements when FICC is the counterparty. The table above
includes the impact of balance sheet netting under master netting arrangements. Refer to Note 27, “Offsetting of Assets and Liabilities.”
TABLE 66: SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
($ In Millions)
Balance at December 31
Average Balance During the Year
Average Interest Rate Paid During the Year
Maximum Month-End Balance During the Year
2022
2021
$
$
567.2
433.6
531.9
232.0
20.94 %
0.07 %
$
869.0
$
892.6
Note: Northern Trust nets securities sold under repurchase agreements against those purchased under resale agreements when FICC is the counterparty. The table above
includes the impact of balance sheet netting under master netting arrangements. Refer to Note 27, “Offsetting of Assets and Liabilities.”
TABLE 67: REPURCHASE AGREEMENTS ACCOUNTED FOR AS SECURED BORROWINGS
REMAINING CONTRACTUAL MATURITY OF THE AGREEMENTS
December 31, 2022
December 31, 2021
($ In Millions)
OVERNIGHT
AND
CONTINUOUS
UP TO 30
DAYS
TOTAL
OVERNIGHT
AND
CONTINUOUS
UP TO 30
DAYS
TOTAL
U.S. Treasury and Agency Securities
$
567.2 $
— $
567.2 $
32.4 $
499.5 $
Total Borrowings
Net Amount of Recognized Liabilities for
Repurchase Agreements in Note 27
567.2
567.2
—
—
567.2
567.2
32.4
32.4
499.5
499.5
531.9
531.9
531.9
2022 ANNUAL REPORT | NORTHERN TRUST CORPORATION 117
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 6 – Loans and Leases
Amounts outstanding for Loans and Leases, by segment and class, are shown in the following table.
TABLE 68: LOANS AND LEASES
(In Millions)
Commercial
Commercial and Institutional(1)
Commercial Real Estate
Non-U.S.(1)
Lease Financing, net
Other
Total Commercial
Personal
Private Client
Residential Real Estate
Non-U.S.
Other
Total Personal
Total Loans and Leases
DECEMBER 31,
2022
2021
$
12,415.0 $
11,489.2
4,773.0
3,131.1
—
1,316.5
21,635.6
14,119.0
6,413.5
510.0
215.2
21,257.7
$
42,893.3 $
4,326.3
1,990.2
11.0
670.7
18,487.4
15,256.3
6,319.9
381.8
35.2
21,993.2
40,480.6
(1) Commercial and institutional and commercial-non-U.S. combined include $5.6 billion and $4.9 billion of private equity capital call finance loans at December 31, 2022 and
2021, respectively.
Residential real estate loans consist of traditional first lien mortgages and equity credit lines that generally require a loan-
to-collateral value ratio of no more than 65% to 80% at inception. Northern Trust’s equity credit line products generally
have draw periods of up to 10 years and a balloon payment of any outstanding balance is due at maturity. Payments are
interest-only with variable interest rates. Northern Trust does not offer equity credit lines that include an option to convert
the outstanding balance to an amortizing payment loan. As of December 31, 2022 and 2021, equity credit lines totaled
$248.6 million and $258.2 million, respectively. Equity credit lines for which first liens were held by Northern Trust
represented 98% and 97% of the total equity credit lines as of December 31, 2022 and 2021, respectively.
Included within the commercial-non-U.S., commercial-other, and personal-other classes are short duration advances,
primarily related to the processing of custodied client investments, totaling $2.9 billion and $1.6 billion at December 31,
2022 and 2021, respectively. Demand deposit overdrafts reclassified as loan balances, primarily in personal-other, totaled
$24.4 million and $8.0 million at December 31, 2022 and 2021, respectively. There were no loans classified as held for sale
at December 31, 2022. There were $12.3 million loans classified as held for sale at December 31, 2021 related to the
decision to exit a non-strategic loan portfolio primarily within residential real estate. Loans classified as held for sale are
recorded at the lower of cost or fair value. There was $11.2 million and $118.8 million loans sold during the year ended
December 31, 2022 and 2021, respectively, which were primarily residential real estate loans.
As of December 31, 2022 and 2021, there were no leases classified as held for sale. As of December 31, 2022, there
were no leases outstanding.
118 2022 ANNUAL REPORT | NORTHERN TRUST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Credit Quality Indicators. Credit quality indicators are statistics, measurements or other metrics that provide information
regarding the relative credit risk of loans and leases. Northern Trust utilizes a variety of credit quality indicators to assess
the credit risk of loans and leases at the segment, class, and individual credit exposure levels.
As part of its credit process, Northern Trust utilizes an internal borrower risk rating system to support identification,
approval, and monitoring of credit risk. Borrower risk ratings are used in credit underwriting and management reporting.
Risk ratings are used for ranking the credit risk of borrowers and the probability of their default. Each borrower is rated
using one of a number of ratings models, which consider both quantitative and qualitative factors. The ratings models vary
among classes of loans and leases in order to capture the unique risk characteristics inherent within each particular type of
credit exposure. Provided below are the more significant performance indicator attributes considered within Northern
Trust’s borrower rating models, by loan and lease class.
•
•
•
•
•
•
•
Commercial and Institutional: leverage, profit margin, liquidity, asset size and capital levels;
Commercial Real Estate: debt service coverage, loan-to-value ratio, leasing status and guarantor support;
Lease Financing and Commercial-Other: leverage, profit margin, liquidity, asset size and capital levels;
Non-U.S.: leverage, profit margin, liquidity, return on assets and capital levels;
Residential Real Estate: payment history, credit bureau scores and loan-to-value ratio;
Private Client: cash-flow-to-debt and net worth ratios, leverage and liquidity; and
Personal-Other: cash-flow-to-debt and net worth ratios.
While the criteria vary by model, the objective is for the borrower ratings to be consistent in both the measurement and
ranking of risk. Each model is calibrated to a master rating scale to support this consistency. Ratings for borrowers not in
default range from “1” for the strongest credits to “7” for the weakest non-defaulted credits. Ratings of “8” or “9” are used
for defaulted borrowers. Borrower risk ratings are monitored and are revised when events or circumstances indicate a
change is required. Risk ratings are generally validated at least annually.
Loan and lease segment and class balances as of December 31, 2022 are provided in the following table, segregated by
borrower ratings into “1 to 3,” “4 to 5” and “6 to 9” (watch list and nonaccrual status) categories by year of origination at
amortized cost basis. Loans that are held for investment are reported at the principal amount outstanding, net of unearned
income.
2022 ANNUAL REPORT | NORTHERN TRUST CORPORATION 119
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
TABLE 69: CREDIT QUALITY INDICATOR AT AMORTIZED COST BASIS BY ORIGINATION YEAR
DECEMBER 31, 2022
TERM LOANS AND LEASES
2022
2021
2020
2019
2018
PRIOR
REVOLVING
LOANS
REVOLVING LOANS
CONVERTED TO
TERM LOANS
TOTAL
(In Millions)
Commercial
Commercial and Institutional
Risk Rating:
1 to 3 Category
4 to 5 Category
6 to 9 Category
Total Commercial and
Institutional
Commercial Real Estate
Risk Rating:
Non-U.S.
Risk Rating:
1 to 3 Category
4 to 5 Category
6 to 9 Category
Total Non-U.S.
Other
Risk Rating:
1 to 3 Category
4 to 5 Category
Total Other
Total Commercial
Personal
Private Client
Risk Rating:
Non-U.S.
Risk Rating:
1 to 3 Category
4 to 5 Category
6 to 9 Category
Total Non-U.S.
Other
Risk Rating:
1 to 3 Category
4 to 5 Category
Total Other
Total Personal
Total Loans and Leases
$ 753.3 $ 1,087.5 $ 209.8 $ 159.3 $
744.1
50.8
740.6
30.5
300.8
—
191.1
13.7
45.9 $ 511.3 $
151.4
—
174.7
—
6,032.8 $
1,102.3
64.5
17.7 $ 8,817.6
3,437.9
32.9
159.5
—
1,548.2
1,858.6
510.6
364.1
197.3
686.0
7,199.6
50.6
12,415.0
1 to 3 Category
4 to 5 Category
6 to 9 Category
318.7
968.5
7.7
Total Commercial Real Estate 1,294.9
227.4
1,040.0
22.7
1,290.1
123.6
637.8
—
761.4
109.6
—
—
109.6
123.5
447.3
49.1
619.9
14.8
—
23.1
37.9
39.8
153.0
—
192.8
—
—
—
—
39.1
256.9
—
296.0
6.5
214.9
—
221.4
991.9
459.0
0.1
1,451.0
46.2
—
—
46.2
993.9
322.6
1,316.5
5,610.6
—
—
—
3,194.9
—
—
—
1,381.6
—
—
—
1,021.9
—
—
—
390.1
—
—
—
1,203.4
113.4
181.5
2.5
297.4
1,158.3
89.5
15.4
1,263.2
—
—
—
8,760.2
3.0
17.5
—
20.5
988.5
3,702.5
82.0
4,773.0
—
1.8
—
1.8
2,327.3
765.2
38.6
3,131.1
—
—
—
72.9
993.9
322.6
1,316.5
21,635.6
1 to 3 Category
4 to 5 Category
6 to 9 Category
Total Private Client
Residential Real Estate
Risk Rating:
1 to 3 Category
4 to 5 Category
6 to 9 Category
Total Residential Real Estate
395.5
430.3
0.9
826.7
159.9
755.1
—
915.0
50.5
192.4
0.1
243.0
871.6
354.3
—
1,225.9
666.7
656.7
6.8
1,330.2
567.7
597.6
1.5
1,166.8
3.0
24.2
—
27.2
3.7
40.3
—
44.0
—
—
—
—
13.4
38.7
18.6
70.7
18.5
160.0
—
178.5
5,352.5
5,728.6
3.7
11,084.8
28.2
267.2
—
295.4
6,332.1
7,763.6
23.3
14,119.0
313.6
191.3
—
504.9
168.1
290.0
1.1
459.2
—
21.3
—
21.3
102.9
170.9
3.7
277.5
750.8
838.2
35.9
1,624.9
4.6
3.2
—
7.8
2.3
2.9
0.1
5.3
128.4
180.4
11.3
320.1
124.6
272.0
—
396.6
7.9
1.0
—
8.9
3,264.1
3,089.1
60.3
6,413.5
—
7.8
—
7.8
138.2
371.7
0.1
510.0
190.8
—
24.4
—
215.2
—
312.1
21,257.7
385.0 $ 42,893.3
190.8
24.4
215.2
2,295.0
$ 7,905.6 $ 5,484.1 $ 2,791.4 $ 2,007.3 $ 746.1 $ 3,012.1 $ 20,561.7 $
—
—
—
1,409.8
—
—
—
2,289.2
—
—
—
1,808.7
—
—
—
11,801.5
—
—
—
356.0
—
—
—
985.4
120 2022 ANNUAL REPORT | NORTHERN TRUST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2021
(In Millions)
Commercial
Commercial and Institutional
Risk Rating:
1 to 3 Category
4 to 5 Category
6 to 9 Category
Total Commercial and
Institutional
Commercial Real Estate
Risk Rating:
TERM LOANS AND LEASES
2021
2020
2019
2018
2017
PRIOR
REVOLVING
LOANS
REVOLVING LOANS
CONVERTED TO
TERM LOANS
TOTAL
$ 1,042.0 $ 310.2 $ 468.9 $ 163.9 $
993.4
44.0
441.7
6.0
406.7
47.1
193.6
30.2
55.4 $ 541.6 $
243.3
9.9
230.2
1.9
4,946.0 $
1,217.8
62.2
0.1 $ 7,528.1
3,759.8
33.1
201.3
—
2,079.4
757.9
922.7
387.7
308.6
773.7
6,226.0
33.2
11,489.2
1 to 3 Category
4 to 5 Category
6 to 9 Category
472.0
912.7
50.1
Total Commercial Real Estate 1,434.8
298.7
644.8
—
943.5
68.9
—
—
68.9
279.8
491.5
50.6
821.9
38.4
—
23.1
61.5
816.5
167.0
2.9
986.4
—
—
—
—
—
—
65.8
205.4
—
271.2
16.6
89.6
—
106.2
—
1.9
—
1.9
—
—
9.1
—
—
9.1
—
—
79.5
390.6
2.9
473.0
—
191.9
—
191.9
11.0
11.0
67.5
182.3
2.5
252.3
582.0
73.3
13.4
668.7
—
—
551.5
119.2
670.7
5,171.3
—
—
—
1,770.3
—
—
—
1,806.1
—
—
—
660.8
—
—
—
423.9
—
—
—
1,449.6
—
—
—
7,147.0
432.5
567.8
1.9
1,002.2
116.6
335.2
2.4
454.2
1,018.1
434.0
0.3
1,452.4
660.3
676.6
9.9
1,346.8
27.5
36.1
—
63.6
—
—
—
—
90.3
396.9
3.0
490.2
213.0
325.5
6.5
545.0
1.2
20.6
—
21.8
14.9
213.3
20.4
248.6
110.4
190.9
5.3
306.6
—
10.4
—
10.4
139.8
172.1
6.3
318.2
763.1
1,145.9
55.1
1,964.1
—
—
—
—
1.0
3.8
0.2
5.0
161.5
218.1
5.0
384.6
44.1
229.1
—
273.2
13.4
21.8
35.2
2,553.4
$ 7,724.7 $ 3,571.3 $ 2,863.1 $ 1,226.4 $ 836.4 $ 3,588.4 $ 20,378.9 $
—
—
—
1,057.0
—
—
—
1,801.0
—
—
—
2,138.8
—
—
—
13,231.9
—
—
—
565.6
—
—
—
412.5
Non-U.S.
Risk Rating:
1 to 3 Category
4 to 5 Category
6 to 9 Category
Total Non-U.S.
Lease Financing, net
Risk Rating:
6 to 9 Category
Total Lease Financing, net
Other
Risk Rating:
1 to 3 Category
4 to 5 Category
Total Other
Total Commercial
Personal
Private Client
Risk Rating:
1 to 3 Category
4 to 5 Category
6 to 9 Category
Total Private Client
Residential Real Estate
Risk Rating:
1 to 3 Category
4 to 5 Category
6 to 9 Category
Total Residential Real Estate
Non-U.S.
Risk Rating:
1 to 3 Category
4 to 5 Category
6 to 9 Category
Total Non-U.S.
Other
Risk Rating:
1 to 3 Category
4 to 5 Category
Total Other
Total Personal
Total Loans and Leases
2.9
20.5
—
23.4
1,282.8
2,937.4
106.1
4,326.3
—
1.8
—
1.8
1,514.9
435.9
39.4
1,990.2
—
—
11.0
11.0
—
—
—
58.4
551.5
119.2
670.7
18,487.4
—
2.2
—
2.2
3,066.2
3,165.3
88.4
6,319.9
—
7.8
—
7.8
73.8
307.8
0.2
381.8
—
13.4
—
21.8
—
35.2
21,993.2
233.0
291.4 $ 40,480.6
39.3
55.0
—
94.3
129.8
39.9
—
169.7
7,592.8
4,979.8
1.5
12,574.1
44.7
178.3
—
223.0
8,460.9
6,766.2
29.2
15,256.3
Loans and leases in the “1 to 3” category are expected to exhibit minimal to modest probabilities of default and are
characterized by borrowers having the strongest financial qualities, including above average financial flexibility, cash flows
2022 ANNUAL REPORT | NORTHERN TRUST CORPORATION 121
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
and capital levels. Borrowers assigned these ratings are anticipated to experience very little to moderate financial pressure
in adverse down-cycle scenarios. As a result of these characteristics, borrowers within this category exhibit a minimal to
modest likelihood of loss.
Loans and leases in the “4 to 5” category are expected to exhibit moderate to acceptable probabilities of default and are
characterized by borrowers with less financial flexibility than those in the “1 to 3” category. Cash flows and capital levels
are generally sufficient to allow for borrowers to meet current requirements, but have fewer financial resources to manage
through economic downturns. As a result of these characteristics, borrowers within this category exhibit a moderate
likelihood of loss.
Loans and leases in the watch list category have elevated credit risk profiles that are monitored through internal watch
lists, and consist of credits with borrower ratings of “6 to 9.” These credits, which include all nonaccrual credits, are
expected to exhibit probabilities of default, elevated risk of default, or are currently in default. Borrowers associated with
these risk profiles that are not currently in default have limited financial flexibility. Cash flows and capital levels range
from acceptable to potentially insufficient to meet current requirements, particularly in adverse down cycle scenarios. As a
result of these characteristics, borrowers in this category exhibit an elevated to probable likelihood of loss.
Past Due Status. Past due status is based on the length of time from the contractual due date a principal or interest
payment has been past due. For disclosure purposes, loans and leases that are 29 days past due or less are reported as
current.
The following table provides balances and delinquency status of accrual and nonaccrual loans and leases by segment
and class, as well as the other real estate owned and nonaccrual asset balances, as of December 31, 2022 and 2021.
TABLE 70: DELINQUENCY STATUS
ACCRUAL
CURRENT
30 –
59 DAYS
PAST DUE
60 –
89 DAYS
PAST DUE
90 DAYS
OR MORE
PAST DUE
TOTAL
ACCRUAL NONACCRUAL
TOTAL LOANS
AND LEASES
NONACCRUAL
WITH NO
ALLOWANCE
(In Millions)
December 31, 2022
Commercial
Commercial and
Institutional
Commercial Real Estate
Non-U.S.
Other
4,761.5
3,131.1
1,316.5
1.3
—
—
41.5
Total Commercial
21,562.8
Personal
Private Client
13,843.5
192.3
Residential Real Estate
Non-U.S.
Other
6,373.2
509.9
215.2
9.6
—
—
$ 12,353.7 $
40.2 $
3.0 $
0.7 $ 12,397.6 $
17.4 $
12,415.0 $
—
—
—
3.0
29.9
12.3
—
—
—
—
—
4,762.8
3,131.1
1,316.5
0.7
21,608.0
53.3
14,119.0
0.1
0.1
—
6,395.2
510.0
215.2
10.2
—
—
27.6
—
18.3
—
—
18.3
4,773.0
3,131.1
1,316.5
21,635.6
14,119.0
6,413.5
510.0
215.2
21,257.7
4.4
6.2
—
—
10.6
—
18.3
—
—
18.3
28.9
Total Personal
20,941.8
201.9
42.2
53.5
21,239.4
Total Loans and Leases
$ 42,504.6 $
243.4 $
45.2 $
54.2 $ 42,847.4 $
45.9 $
42,893.3 $
Other Real Estate Owned $
Total Nonaccrual Assets $
—
45.9
122 2022 ANNUAL REPORT | NORTHERN TRUST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ACCRUAL
CURRENT
30 –
59 DAYS
PAST DUE
60 –
89 DAYS
PAST DUE
90 DAYS
OR MORE
PAST DUE
TOTAL
ACCRUAL NONACCRUAL
TOTAL LOANS
AND LEASES
NONACCRUAL
WITH NO
ALLOWANCE
(In Millions)
December 31, 2021
Commercial
Commercial and
Institutional
Commercial Real Estate
Non-U.S.
Lease Financing, net
Other
$ 11,434.7 $
32.5 $
2.1 $
0.4 $ 11,469.7 $
19.5 $
11,489.2 $
4,256.6
1,990.2
11.0
670.7
3.1
—
—
—
—
—
—
—
2.1
—
—
—
—
4,259.7
1,990.2
11.0
670.7
66.6
—
—
—
4,326.3
1,990.2
11.0
670.7
0.4
18,401.3
86.1
18,487.4
Total Commercial
18,363.2
35.6
Personal
Private Client
14,927.3
229.5
71.8
27.7
15,256.3
Residential Real Estate
Non-U.S
Other
Total Personal
6,273.2
381.6
35.2
7.0
0.2
—
3.3
—
—
0.2
—
—
6,283.7
381.8
35.2
21,617.3
236.7
75.1
27.9
21,957.0
—
36.2
—
—
36.2
15,256.3
6,319.9
381.8
35.2
21,993.2
Total Loans and Leases
$ 39,980.5 $
272.3 $
77.2 $
28.3 $ 40,358.3 $
122.3 $
40,480.6 $
Other Real Estate Owned $
Total Nonaccrual Assets $
3.0
125.3
8.8
52.3
—
—
—
61.1
—
36.2
—
—
36.2
97.3
Interest income that would have been recorded for nonaccrual loans and leases in accordance with their original terms was
$4.1 million in 2022, $4.6 million in 2021, and $4.6 million in 2020.
Collateral Dependent Financial Assets. A financial asset is collateral-dependent when the borrower is experiencing
financial difficulty and repayment is expected to be provided substantially through the sale or operation of the collateral.
Most of Northern Trust’s collateral dependent credit exposure relates to its residential real estate portfolio for which the
collateral is usually the underlying real estate property. For collateral-dependent financial assets, it is Northern Trust’s
policy to reserve or charge-off the difference between the amortized cost basis of the loan and the value of the collateral.
The collateral-dependent financial asset balance as of December 31, 2022 was immaterial to Northern Trust’s financial
statements.
Nonaccrual Loans and Troubled Debt Restructurings (TDRs). A loan that has been modified as a concession by
Northern Trust or a bankruptcy court resulting from the debtor’s financial difficulties is referred to as a troubled debt
restructuring. There were $35.3 million and $76.7 million of nonaccrual TDRs included within nonaccrual loans as of
December 31, 2022 and 2021, respectively. There were $39.7 million and $16.5 million of accrual TDRs included within
nonaccrual loans as of December 31, 2022 and 2021, respectively. There were $0.2 million of aggregate undrawn loan
commitments and standby letters of credit at both December 31, 2022 and 2021, issued to borrowers with TDR
modifications of loans.
2022 ANNUAL REPORT | NORTHERN TRUST CORPORATION 123
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table provides, by segment and class, the number of TDR modifications of loans and leases during the years
ended December 31, 2022, and 2021, and the recorded investments and unpaid principal balances as of December 31, 2022
and 2021.
TABLE 71: TROUBLED DEBT RESTRUCTURINGS
($ In Millions)
December 31, 2022
Commercial
LOAN MODIFICATION DETAIL
NUMBER OF
LOANS AND
LEASES
RECORDED
INVESTMENT
UNPAID
PRINCIPAL
BALANCE
Commercial and Institutional
Interest rate concession, extension of term, and other
modification
Commercial Real Estate
Interest rate concession and other modification
Total Commercial
Personal
Residential Real Estate
Interest rate concession, deferrals of principal, extension of
term, and other modification
Private Client
Interest rate concession and extension of term
Total Personal
Total Loans and Leases
Note: Period-end balances reflect all paydowns and charge-offs during the year.
2 $
0.6 $
0.6
1
3
3
1
4
31.6
32.2
0.2
0.4
0.6
32.5
33.1
0.2
0.4
0.6
7 $
32.8 $
33.7
($ In Millions)
December 31, 2021
Commercial
LOAN MODIFICATION DETAIL
NUMBER OF
LOANS AND
LEASES
RECORDED
INVESTMENT
UNPAID
PRINCIPAL
BALANCE
Commercial and Institutional Deferrals of principal
Commercial Real Estate
Deferrals of principal, interest rate concessions, other
modifications, and extension of term
Total Commercial
Personal
Residential Real Estate
Deferrals of principal, extension of term, and other
modifications
Total Personal
Total Loans and Leases
Note: Period-end balances reflect all paydowns and charge-offs during the year.
6 $
3
9
10
10
19.6 $
36.0
55.6
1.3
1.3
19 $
56.9 $
19.6
42.4
62.0
1.5
1.5
63.5
TDR modifications involve extensions of term, deferrals of principal, interest rate concessions, and other modifications.
Other modifications typically reflect other nonstandard terms which Northern Trust would not offer in non-troubled
situations.
There were no loan or lease TDR modifications during the previous twelve-month period which subsequently had a
payment default during the year ended December 31, 2022.
There were two loan or lease TDR modifications during the previous twelve-month period which subsequently had a
payment default during the year ended December 31, 2021. The total recorded investment for these loans was
approximately $5.6 million and the unpaid principal balance for these loans was approximately $5.6 million.
Northern Trust may obtain physical possession of real estate via foreclosure on an in-substance repossession. As of
December 31, 2022 and 2021, Northern Trust held foreclosed real estate properties with an immaterial carrying value for
both years as a result of obtaining physical possession. In addition, as of December 31, 2022 and 2021, Northern Trust had
loans with a carrying value of $1.1 million and $2.6 million, respectively, for which formal foreclosure proceedings were
in process.
Note 7 – Allowance for Credit Losses
Allowance and Provision for Credit Losses. The allowance for credit losses—which represents management’s best
estimate of lifetime expected credit losses related to various portfolios subject to credit risk, off-balance sheet credit
exposures, and specific borrower relationships—is determined by management through a disciplined credit review process.
Northern Trust measures expected credit losses of financial assets with similar risk characteristics on a collective basis. A
financial asset is measured individually if it does not share similar risk characteristics with other financial assets and the
related allowance is determined through an individual evaluation.
124 2022 ANNUAL REPORT | NORTHERN TRUST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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. Northern Trust employs multiple scenarios over a reasonable and
supportable period (currently two years) to project future conditions. For periods beyond the reasonable and supportable
period, Northern Trust reverts to its own historical loss experiences on a straight-line basis over four quarters. While
uncertainty and volatility have increased recently due to geopolitical events and higher levels of inflation and interest rates,
the primary forecast provides for continued economic growth, recognizing the current strength of the labor market,
consumer spending, and business investment. An alternative scenario is also considered, which reflects a recession that
incorporates the experiences of a wider set of historical economic cycles.
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. The Credit Loss Reserve Committee determines
the probability weights applied to each forecast approved by Northern Trust’s Macroeconomic Scenario Development
Committee, and also reviews and approves qualitative adjustments to the collective allowance in line with Northern Trust’s
qualitative adjustment framework.
The following table provides information regarding changes in the total allowance for credit losses.
TABLE 72: CHANGES IN THE ALLOWANCE FOR CREDIT LOSSES
(In Millions)
Balance at Beginning of Period
$
Charge-Offs
Recoveries
Net Recoveries (Charge-Offs)
Provision for Credit Losses(1)
Balance at End of Period
138.4 $
(6.0)
10.2
4.2
1.7
LOANS AND
LEASES
UNDRAWN LOAN
COMMITMENTS
AND STANDBY
LETTERS OF CREDIT
HELD TO
MATURITY DEBT
SECURITIES
OTHER
FINANCIAL
ASSETS
2022
34.1 $
11.2 $
1.0 $
—
—
—
4.4
—
—
—
4.8
—
—
—
(0.2)
0.8 $
(1)
The table excludes a provision for credit losses of $1.3 million for the year ended December 31, 2022 for AFS debt securities. See further detail in Note
4, “Securities.”
$
144.3 $
38.5 $
16.0 $
(In Millions)
Balance at Beginning of Period
Charge-Offs
Recoveries
Net Recoveries (Charge-Offs)
Provision for Credit Losses
Balance at End of Period
LOANS AND
LEASES
UNDRAWN LOAN
COMMITMENTS AND
STANDBY LETTERS
OF CREDIT
HELD TO
MATURITY DEBT
SECURITIES
OTHER FINANCIAL
ASSETS
2021
$
$
190.7 $
(0.7)
7.0
6.3
(58.6)
138.4 $
61.1 $
7.3 $
0.8 $
—
—
—
(27.0)
34.1 $
—
—
—
3.9
—
—
—
0.2
11.2 $
1.0 $
(In Millions)
Balance at End of Prior Period
$
Cumulative Effect Adjustment
Balance at Beginning of Period
Charge-Offs
Recoveries
Net Recoveries (Charge-Offs)
Provision for Credit Losses
Balance at End of Period
2020
UNDRAWN LOAN
COMMITMENTS
AND STANDBY
LETTERS OF
CREDIT
LOANS AND
LEASES
HELD TO MATURITY
DEBT SECURITIES
OTHER FINANCIAL
ASSETS
104.5 $
(2.2)
102.3
(9.7)
6.5
(3.2)
91.6
$
190.7 $
19.9 $
— $
— $
8.9
28.8
—
—
—
32.3
61.1 $
6.6
6.6
—
—
—
0.7
0.4
0.4
—
—
—
0.4
7.3 $
0.8 $
TOTAL
184.7
(6.0)
10.2
4.2
10.7
199.6
TOTAL
259.9
(0.7)
7.0
6.3
(81.5)
184.7
TOTAL
124.4
13.7
138.1
(9.7)
6.5
(3.2)
125.0
259.9
2022 ANNUAL REPORT | NORTHERN TRUST CORPORATION 125
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Provision for Credit Losses, excluding the provision for available for sale debt securities of $1.3 million, was a
provision of $10.7 million for the year ended December 31, 2022, as compared to a $81.5 million release of credit reserves
in the year ended December 31, 2021. The provision for loans and undrawn commitments and standby letters of credit was
primarily due to an increase in the reserve evaluated on a collective basis, driven by a weaker macroeconomic outlook and
growth in the commercial and institutional and commercial real estate portfolios, partially offset by improvements in credit
quality, mainly within the commercial and institutional portfolio during the year ended December 31, 2022. There were net
recoveries of $4.2 million during the year ended December 31, 2022, as compared to net recoveries of $6.3 million for the
year ended December 31, 2021. For further detail, please see the Allowance for the Loan and Lease Portfolio and the
Allowance for Held to Maturity Debt Securities Portfolio sections below.
For credit exposure and the associated allowance related to fee receivables, please refer to Note 17, “Revenue from
Contracts with Clients.” For information related to the allowance for AFS debt securities, please refer to Note 4,
“Securities.” For the allowance pertaining to all other financial assets recognized at amortized cost, which include Due
from Banks, Other Central Bank Deposits, Interest Bearing Deposits with Banks, and Other Assets, please refer to the
Allowance for Other Financial Assets section within this footnote.
126 2022 ANNUAL REPORT | NORTHERN TRUST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Allowance for the Loan and Lease Portfolio. The following table provides information regarding changes in the total
allowance for credit losses related to loans and leases, including undrawn loan commitments and standby letters of credit,
by segment.
TABLE 73: CHANGES IN THE ALLOWANCE FOR CREDIT LOSSES RELATED TO LOANS AND LEASES
LOANS AND LEASES
UNDRAWN LOAN COMMITMENTS AND STANDBY
LETTERS OF CREDIT
2022
(In Millions)
COMMERCIAL
PERSONAL
TOTAL
COMMERCIAL
PERSONAL
Balance at Beginning of Period
$
105.6 $
Charge-Offs
Recoveries
Net Recoveries (Charge-Offs)
Provision for Credit Losses
(5.3)
2.7
(2.6)
13.2
Balance at End of Period
$
116.2 $
32.8 $
(0.7)
7.5
6.8
(11.5)
28.1 $
31.4 $
2.7 $
TOTAL
34.1
—
—
—
4.4
38.5
—
—
—
(0.5)
2.2 $
138.4 $
(6.0)
10.2
4.2
1.7
—
—
—
4.9
144.3 $
36.3 $
2021
LOANS AND LEASES
UNDRAWN LOAN COMMITMENTS AND STANDBY
LETTERS OF CREDIT
(In Millions)
COMMERCIAL
PERSONAL
TOTAL
COMMERCIAL
PERSONAL
Balance at Beginning of Period
$
Charge-Offs
Recoveries
Net Recoveries (Charge-Offs)
Provision for Credit Losses
Balance at End of Period
$
142.2 $
(0.3)
0.9
0.6
(37.2)
105.6 $
48.5 $
(0.4)
6.1
5.7
(21.4)
32.8 $
190.7 $
(0.7)
7.0
6.3
(58.6)
138.4 $
2020
57.6 $
3.5 $
—
—
—
(26.2)
31.4 $
—
—
—
(0.8)
2.7 $
TOTAL
61.1
—
—
—
(27.0)
34.1
LOANS AND LEASES
UNDRAWN LOAN COMMITMENTS AND STANDBY
LETTERS OF CREDIT
(In Millions)
COMMERCIAL
PERSONAL
TOTAL
COMMERCIAL
PERSONAL
TOTAL
Balance at End of Prior Period
Cumulative Effect Adjustment
Balance at Beginning of Period
$
$
Charge-Offs
Recoveries
Net Recoveries (Charge-Offs)
Provision for Credit Losses
58.1 $
(5.9)
52.2 $
(6.3)
2.4
(3.9)
93.9
Balance at End of Period
$
142.2 $
46.4 $
3.7
50.1 $
(3.4)
4.1
0.7
(2.3)
48.5 $
104.5 $
(2.2)
102.3 $
(9.7)
6.5
(3.2)
91.6
190.7 $
15.8 $
11.9
27.7 $
—
—
—
29.9
57.6 $
4.1 $
(3.0)
1.1 $
—
—
—
2.4
3.5 $
19.9
8.9
28.8
—
—
—
32.3
61.1
2022 ANNUAL REPORT | NORTHERN TRUST CORPORATION 127
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table provides information regarding the recorded investments in loans and leases and the allowance for
credit losses for loans and leases and undrawn loan commitments and standby letters of credit by segment as of
December 31, 2022 and 2021.
TABLE 74: RECORDED INVESTMENTS IN LOANS AND LEASES
(In Millions)
Loans and Leases
Evaluated on an Individual Basis
Evaluated on a Collective Basis
Total Loans and Leases
Allowance for Credit Losses on Loans and Leases
Evaluated on an Individual Basis
Evaluated on a Collective Basis
Allowance Assigned to Loans and Leases
Allowance for Undrawn Loan Commitments and Standby
Letters of Credit
Evaluated on an Individual Basis
Evaluated on a Collective Basis
Allowance Assigned to Undrawn Loan Commitments and
Standby Letters of Credit
Total Allowance Assigned to Loans and Leases and Undrawn
Loan Commitments and Standby Letters of Credit
DECEMBER 31, 2022
DECEMBER 31, 2021
COMMERCIAL PERSONAL
TOTAL COMMERCIAL PERSONAL
TOTAL
$
63.0 $
46.1 $
109.1 $
92.1 $
74.5 $
166.6
21,572.6
21,211.6
42,784.2
18,395.3
21,918.7
40,314.0
21,635.6
21,257.7
42,893.3
18,487.4
21,993.2
40,480.6
10.4
105.8
116.2
—
36.3
36.3
—
28.1
28.1
—
2.2
2.2
10.4
133.9
144.3
—
38.5
38.5
10.1
95.5
105.6
—
31.4
31.4
—
32.8
32.8
—
2.7
2.7
10.1
128.3
138.4
—
34.1
34.1
$
152.5 $
30.3 $
182.8 $
137.0 $
35.5 $
172.5
Allowance for Held to Maturity Debt Securities Portfolio. The following table provides information regarding changes
in the total allowance for credit losses for HTM debt securities during 2022 and 2021.
TABLE 75: CHANGES IN THE ALLOWANCE FOR CREDIT LOSSES RELATED TO HELD TO MATURITY DEBT SECURITIES
2022
(In Millions)
Balance at Beginning of Period
Provision for Credit Losses
Balance at End of Period
$
$
CORPORATE
DEBT
NON-U.S.
GOVERNMENT
SUB-SOVEREIGN,
SUPRANATIONAL,
AND NON-U.S.
AGENCY BONDS
OBLIGATIONS
OF STATES AND
POLITICAL
SUBDIVISIONS (1)
COVERED
BONDS OTHER
TOTAL
1.4 $
0.5
1.9 $
1.9 $
1.7
3.6 $
3.0 $
1.0
4.0 $
— $
1.5
1.5 $
0.1 $
4.8 $
11.2
—
0.1
4.8
0.1 $
4.9 $
16.0
(1) The allowance for Obligations of States and Political Subdivisions is related to (non pre-refunded) municipal securities that do not fall under Northern Trust’s zero-loss
assumption.
2021
SUB-
SOVEREIGN,
SUPRANATIONA
L, AND NON-U.S.
AGENCY BONDS
OBLIGATIONS
OF STATES AND
POLITICAL
SUBDIVISIONS
CORPORATE
DEBT
NON-U.S.
GOVERNMENT
COVERED
BONDS
OTHER
TOTAL
0.8 $
0.6
1.4 $
0.2 $
1.7
1.9 $
1.2 $
1.8
3.0 $
— $
—
— $
0.1 $
5.0 $
—
(0.2)
7.3
3.9
0.1 $
4.8 $
11.2
(In Millions)
Balance at Beginning of Period
Provision for Credit Losses
Balance at End of Period
$
$
Allowance for Other Financial Assets. The allowance for Other Financial Assets consists of the allowance for Due from
Banks, Other Central Bank Deposits, Interest Bearing Deposits with Banks, and Other Assets. Northern Trust’s portfolio is
composed mostly of institutions within the “1 to 3” internal borrower rating category and is expected to exhibit minimal to
modest likelihood of loss. The Allowance for Credit Losses related to Other Financial Assets was $0.8 million and $1.0
million as of December 31, 2022 and 2021, respectively.
Accrued Interest. Accrued interest balances are reported within Other Assets on the consolidated balance sheets. Northern
Trust elected not to measure an allowance for credit losses for accrued interest receivables related to its loan and securities
portfolios as its policy is to write-off uncollectible accrued interest receivable balances in a timely manner. Accrued interest
is written off by reversing interest income during the period the financial asset is moved from an accrual to a nonaccrual
status.
128 2022 ANNUAL REPORT | NORTHERN TRUST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table provides the amount of accrued interest excluded from the amortized cost basis of the following
portfolios.
TABLE 76: ACCRUED INTEREST
(In Millions)
Loans and Leases
Debt Securities
Held to Maturity
Available for Sale
Other Financial Assets
Total
DECEMBER 31, 2022
DECEMBER 31, 2021
203.1 $
63.2
147.1
43.8
457.2 $
62.6
30.4
129.7
2.3
225.0
$
$
Accrued interest in 2022 increased compared to 2021, primarily due to higher interest rates. The amount of accrued
interest reversed through interest income for loans and leases was immaterial and there was no accrued interest reversed
through interest income related to any other financial assets during the years ended 2022 and 2021.
Note 8 – Concentrations of Credit Risk
Concentrations of credit risk exist if a number of borrowers or other counterparties are engaged in similar activities and
have similar economic characteristics that would cause their ability to meet contractual obligations to be similarly affected
by changes in economic or other conditions. The fact that a credit exposure falls into one of these groups does not
necessarily indicate that the credit has a higher than normal degree of credit risk. These groups are: banks and bank holding
companies, residential real estate, and commercial real estate.
Banks and Bank Holding Companies. At December 31, 2022, on-balance sheet credit risk to banks and bank holding
companies, both U.S. and non-U.S., consisted primarily of Interest-Bearing Deposits with Banks of $1.9 billion, demand
balances maintained at correspondent banks of $4.6 billion, and Securities Purchased under Agreements to Resell of $1.1
billion. At December 31, 2021, on-balance sheet credit risk to banks and bank holding companies, both U.S. and non-U.S.,
consisted primarily of Interest-Bearing Deposits with Banks of $1.9 billion, demand balances maintained at correspondent
banks of $3.0 billion, and Securities Purchased under Agreements to Resell of $686.4 million. Credit risk associated with
U.S. and non-U.S. banks and bank holding companies deemed to be counterparties by Credit Risk Management is managed
by the Capital Markets Credit Committee. Credit limits are established through a review process that includes an internally-
prepared financial analysis, use of an internal risk rating system and consideration of external ratings from rating agencies.
Northern Trust places deposits with banks that have strong internal and external credit ratings and the average life to
maturity of deposits with banks is maintained on a short-term basis in order to respond quickly to changing credit
conditions.
Residential Real Estate. Residential real estate loans totaled $6.4 billion at December 31, 2022 and $6.3 billion at
December 31, 2021, representing 16% and 17%, respectively, of total U.S. loans and leases. Residential real estate loans
consist of traditional first lien mortgages and equity credit lines, which generally require a loan-to-collateral value ratio of
no more than 65% to 80% at inception. Revaluations of supporting collateral are obtained upon refinancing or default or
when otherwise considered warranted. Collateral revaluations for mortgages are performed by independent third parties.
Legally binding undrawn commitments to extend residential real estate credit, which are primarily equity credit lines,
totaled $783.4 million and $665.9 million at December 31, 2022 and 2021, respectively. The table below provides
additional detail regarding residential real estate loans by geographic region.
TABLE 77: RESIDENTIAL REAL ESTATE LOANS BY GEOGRAPHIC REGION
(In Millions)
Residential Real Estate by geographic region:
Florida
California
Illinois
New York
Colorado
Texas
All other(1)
Total Residential Real Estate
$
6,413.5 $
(1) The remainder is distributed throughout the other geographic regions within the U.S. served by Northern Trust.
DECEMBER 31,
2022
2021
$
1,603.2 $
1,508.1
686.9
498.7
364.2
312.4
1,440.0
1,554.8
1,449.0
738.8
449.4
309.0
320.3
1,498.6
6,319.9
2022 ANNUAL REPORT | NORTHERN TRUST CORPORATION 129
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Commercial Real Estate. In managing its credit exposure, management has defined a commercial real estate loan as
one where: (1) the borrower’s principal business activity is the acquisition or the development of real estate for commercial
purposes; (2) the principal collateral is real estate held for commercial purposes, and loan repayment is expected to flow
from the operation of the property; or (3) the loan repayment is expected to flow from the sale or refinance of real estate as
a normal and ongoing part of the business. Unsecured lines of credit to firms or individuals engaged in commercial real
estate endeavors are included without regard to the use of loan proceeds. 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 borrowers through guarantees is also commonly required. Commercial mortgage
financing is provided for the acquisition or refinancing of income-producing properties. Cash flows from the properties
generally are sufficient to amortize the loan. These loans are primarily located in the California, Illinois, Florida, Texas,
and New York markets. Construction, acquisition and development loans provide financing for commercial real estate prior
to rental income stabilization. The intent is generally that the borrower will sell the project or refinance the loan through a
commercial mortgage with Northern Trust or another financial institution upon completion. At December 31, 2022, legally
binding commitments to extend credit and standby letters of credit to commercial real estate borrowers totaled $449.3
million and $69.7 million, respectively. At December 31, 2021, legally binding commitments to extend credit and standby
letters of credit to commercial real estate borrowers totaled $357.9 million and $30.0 million, respectively.
The table below provides additional detail regarding commercial real estate loan types.
TABLE 78: COMMERCIAL REAL ESTATE LOANS
(In Millions)
Commercial Mortgages
Office
Apartment/ Multi-family
Retail
Industrial/ Warehouse
Other
Total Commercial Mortgages
Construction, Acquisition and Development Loans
Total Commercial Real Estate Loans
Note 9 – Buildings and Equipment
A summary of Buildings and Equipment is presented in the following table.
TABLE 79: BUILDINGS AND EQUIPMENT
(In Millions)
Land and Improvements
Buildings
Equipment
Leasehold Improvements
Total Buildings and Equipment
(In Millions)
Land and Improvements
Buildings
Equipment
Leasehold Improvements
Total Buildings and Equipment
DECEMBER 31,
2022
2021
$
1,054.0 $
1,392.7
572.2
596.2
548.0
4,163.1
609.9
$
4,773.0 $
1,011.4
1,288.8
601.8
442.9
516.8
3,861.7
464.6
4,326.3
ORIGINAL
COST
DECEMBER 31, 2022
ACCUMULATED
DEPRECIATION
NET BOOK
VALUE
$
11.5 $
0.3 $
224.7
499.7
514.1
137.7
281.9
329.6
$
1,250.0 $
749.5 $
11.2
87.0
217.8
184.5
500.5
ORIGINAL
COST
DECEMBER 31, 2021
ACCUMULATED
DEPRECIATION
NET BOOK
VALUE
$
11.5 $
0.3 $
217.6
478.4
513.6
136.5
275.4
320.2
$
1,221.1 $
732.4 $
11.2
81.1
203.0
193.4
488.7
The charge for depreciation amounted to $110.1 million in 2022, $110.8 million in 2021, and $116.5 million in 2020 on the
consolidated statements of income.
130 2022 ANNUAL REPORT | NORTHERN TRUST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 10 – Lease Commitments
At December 31, 2022, Northern Trust was obligated under a number of non-cancelable operating leases, primarily for real
estate. Certain leases contain rent escalation clauses based on market indices, renewal option clauses calling for increased
rentals, and rental payments based on usage. There are no restrictions imposed by any lease agreement regarding the
payment of dividends, debt financing or Northern Trust entering into further lease agreements.
The components of lease costs for the years ended December 31, 2022 and 2021 were as follows.
TABLE 80: LEASE COST COMPONENTS
(In Millions)
Operating Lease Cost
Variable Lease Cost (1)
Sublease Income
Total Lease Cost
FOR THE YEAR ENDED DECEMBER 31,
2022
104.5 $
82.2
(2.9)
183.8 $
2021
96.2
76.9
(4.5)
168.6
$
$
(1) Variable Lease Cost includes rental payments based on usage, common-area maintenance costs and property taxes.
The following table presents a maturity analysis of lease liabilities as of December 31, 2022.
TABLE 81: MATURITY OF LEASE LIABILITIES
(In Millions)
2023
2024
2025
2026
2027
Later Years
Total Lease Payments
Less: Imputed Interest
Present Value of Lease Liabilities
MATURITY OF LEASE
LIABILITIES
$
$
88.3
86.3
88.5
71.9
71.4
319.2
725.6
(99.4)
626.2
As of December 31, 2022, Northern Trust had commitments for operating leases in addition to the above that have not yet
commenced for approximately $122.7 million. These operating leases are for the use of office space with lease terms of
between 7 and 20 years and are expected to commence in the first and third quarter of 2023.
Northern Trust uses its incremental borrowing rate to determine the present value of lease payments for operating
leases. Operating lease right-of-use (ROU) assets and lease liabilities may include options to extend or terminate the lease
only when it is reasonably certain that Northern Trust will exercise that option. Northern Trust elects not to separate lease
and non-lease components of a contract for its real estate leases. The location and amount of ROU assets and lease
liabilities recorded on the consolidated balance sheets as of December 31, 2022 and 2021 are presented in the following
table.
TABLE 82: LOCATION AND AMOUNT OF LEASE ASSETS AND LIABILITIES
(In Millions)
Assets
Operating Lease Right-of-Use Asset
Liabilities
Operating Lease Liability
LOCATION OF LEASE ASSETS
AND LEASE LIABILITIES ON
THE BALANCE SHEET
DECEMBER 31, 2022 DECEMBER 31, 2021
Other Assets
Other Liabilities
$
$
484.8 $
531.2
626.2 $
663.1
2022 ANNUAL REPORT | NORTHERN TRUST CORPORATION 131
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The weighted-average remaining lease term and weighted-average discount rate applied to leases as of December 31, 2022
and 2021 were as follows:
TABLE 83: WEIGHTED-AVERAGE REMAINING LEASE TERM AND DISCOUNT RATE
Operating Leases
Weighted-Average Remaining Lease Term
Weighted-Average Discount Rate
DECEMBER 31, 2022 DECEMBER 31, 2021
9.3 years
3.0 %
9.6 years
2.4 %
The following table provides supplemental cash flow information related to leases for the years ended December 31, 2022
and 2021.
TABLE 84: SUPPLEMENTAL CASH FLOW INFORMATION
(In Millions)
Supplemental cash flow information
Cash paid for amounts included in the measurement of lease liabilities - operating cash flows
Supplemental non-cash information
Right-of-use assets obtained in exchange for new operating lease liabilities
$
$
FOR THE YEAR ENDED DECEMBER 31,
2022
70.3 $
61.0 $
2021
69.5
58.5
Note 11 – Goodwill and Other Intangibles
Goodwill. Changes by reporting segment in the carrying amount of Goodwill for the years ended December 31, 2022 and
2021, including the effect of foreign exchange rates on non-U.S.-dollar denominated balances, were as follows.
TABLE 85: GOODWILL
(In Millions)
Balance at December 31, 2020
Goodwill Acquired
Foreign Exchange Rates
Balance at December 31, 2021
Foreign Exchange Rates
Balance at December 31, 2022
ASSET
SERVICING
WEALTH
MANAGEMENT
626.7 $
80.5 $
4.2
(5.2)
625.7 $
(14.7)
611.0 $
—
—
80.5 $
(0.2)
80.3 $
$
$
$
TOTAL
707.2
4.2
(5.2)
706.2
(14.9)
691.3
The goodwill impairment test is performed at least annually at the reporting-unit level. The Corporation has
determined its reporting units for this purpose to be Asset Servicing and Wealth Management. Goodwill was tested for
impairment during the fourth quarter of 2022 using a quantitative assessment in which the estimated fair values of the
reporting units are compared to their carrying values. Impairment is deemed to exist if the carrying value of a reporting unit
exceeds its estimated fair value. Based upon the quantitative assessments, there were no impairments to goodwill in 2022.
Other Intangible Assets Subject to Amortization. The gross carrying amount and accumulated amortization of other
intangible assets subject to amortization as of December 31, 2022 and 2021 were as follows.
TABLE 86: OTHER INTANGIBLE ASSETS
(In Millions)
Gross Carrying Amount
Less: Accumulated Amortization
Net Book Value
DECEMBER 31,
2022
197.9 $
120.3
77.6 $
2021
206.4
114.8
91.6
$
$
Other intangible assets consist primarily of the value of acquired client relationships and are included in Other Assets on
the consolidated balance sheets. Amortization expense related to other intangible assets was $9.3 million, $14.8 million,
and $16.9 million for the years ended December 31, 2022, 2021, and 2020, respectively. Amortization for the years 2023,
132 2022 ANNUAL REPORT | NORTHERN TRUST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2024, 2025, 2026, and 2027 is estimated to be $9.2 million, $9.1 million, $8.5 million, $8.1 million, and $7.9 million
respectively.
Capitalized Software. The gross carrying amount and accumulated amortization of capitalized software as of
December 31, 2022 and 2021 were as follows.
TABLE 87: CAPITALIZED SOFTWARE
(In Millions)
Gross Carrying Amount
Less: Accumulated Amortization
Net Book Value
DECEMBER 31,
2022
3,479.3 $
1,517.4
1,961.9 $
2021
2,982.1
1,299.5
1,682.6
$
$
Capitalized software, which is included in Other Assets on the consolidated balance sheets, consists primarily of purchased
software, software licenses, and allowable internal costs, including compensation relating to software developed for
internal use. Fees paid for the use of software licenses that are not hosted by Northern Trust are expensed as incurred.
Amortization expense, which is included in Equipment and Software on the consolidated statements of income, totaled
$434.2 million in 2022, $390.1 million in 2021, and $366.9 million in 2020.
Note 12 – Deposits
The following table provides the scheduled maturity of total time deposits in denominations of $250,000 or greater at
December 31, 2022.
TABLE 88: REMAINING MATURITY OF TIME DEPOSITS $250,000 OR MORE
(In Millions)
1 Year or Less
Over 1 Year to 2 Years
Over 2 Years to 3 Years
Over 3 Years to 4 Years
Over 4 Years to 5 Years
Over 5 Years
Total
U.S. OFFICE
DECEMBER 31, 2022
NON-U.S. OFFICES
CERTIFICATES OF DEPOSIT
OTHER TIME
TOTAL
$
$
1,600.6 $
2,024.2 $
91.4
2.3
1.3
2.0
—
—
—
—
—
—
3,624.8
91.4
2.3
1.3
2.0
—
1,697.6 $
2,024.2 $
3,721.8
As of December 31, 2021, there were $1,025.2 million of time deposits in denominations of $250,000 or greater, of which
$641.7 million were Certificates of Deposit and $383.5 million were non-U.S.
Note 13 – Senior Notes and Long-Term Debt
Senior Notes. On May 10, 2022, the Corporation issued $1.0 billion of 4.00% senior notes, due May 10, 2027. The senior
notes bear interest at an annual rate of 4.00%, payable semi-annually in arrears. The senior notes are unsecured and rank
equally with all of the Corporation’s existing and future senior debt. On or after April 10, 2027, the senior notes may be
redeemed, in whole or in part, at a redemption price equal to 100% of the principal amount of the senior notes to be
redeemed plus accrued and unpaid interest to, but excluding, the redemption date.
A summary of Senior Notes outstanding at December 31, 2022 and 2021 is presented in the following table.
2022 ANNUAL REPORT | NORTHERN TRUST CORPORATION 133
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
TABLE 89: SENIOR NOTES
($ In Millions)
Corporation-Senior Notes
Fixed Rate Due Aug. 2022
(1)
Fixed Rate Due May 2027
(2)
Fixed Rate Due Aug. 2028
(3)(4)
Fixed Rate Due May 2029
(3)(4)
Fixed Rate Due May 2030
(3)(4)
Total Senior Notes
DECEMBER 31,
RATE
2022
2021
2.375 % $
— $
4.00
3.65
3.15
1.95
995.0
476.6
460.3
792.3
499.8
—
548.5
533.9
923.3
$
2,724.2 $
2,505.5
(1) Not redeemable prior to maturity.
(2) Redeemable within one month of maturity.
(3) Redeemable within three months of maturity.
(4) Interest rate swap contracts were entered into to modify the interest expense from fixed rates to floating rates. The swaps are recorded as fair value hedges and (decreases)
increases in the carrying values of senior notes outstanding of $(264.7) million and $12.5 million were recorded as of December 31, 2022 and 2021, respectively. See further
detail in Note 26, “Derivative Financial Instruments.”
Long-Term Debt. On November 2, 2022, the Corporation issued $1.0 billion of 6.125% subordinated notes, due
November 2, 2032. The subordinated notes bear interest at an annual rate of 6.125%, payable semi-annually in arrears. The
subordinated notes are unsecured and rank junior to all of the Corporation’s existing and future senior debt. On or after
August 2, 2032, the subordinated notes may be redeemed, in whole or in part, at a redemption price equal to 100% of the
principal amount of the subordinated notes to be redeemed plus accrued and unpaid interest to, but excluding, the
redemption date.
A summary of Long-Term Debt outstanding at December 31, 2022 and 2021 is presented in the following table.
TABLE 90: LONG-TERM DEBT
($ In Millions)
Corporation-Subordinated Debt
Fixed Rate Notes due October 2025
(1)(2)
Fixed-to-Floating Rate Notes due May 2032
Fixed Rate Notes due November 2032(4)
(3)
Total Long-Term Debt
Long-Term Debt Qualifying as Risk-Based Capital
DECEMBER 31,
RATE
2022
2021
3.95 % $
720.1 $
3.375
6.125
349.7
996.4
$
$
2,066.2 $
1,648.5 $
796.2
349.5
—
1,145.7
799.8
(1) Not redeemable prior to maturity.
(2) Interest rate swap contracts were entered into to modify the interest expense from fixed rates to floating rates. The swaps are recorded as fair value hedges and (decreases)
increases in the carrying values of the subordinated notes outstanding of $(29.3) million and $46.9 million were recorded as of December 31, 2022 and 2021, respectively. See
further detail in Note 26, “Derivative Financial Instruments.”
(3) The subordinated notes will bear interest from the date they were issued to, but excluding, May 8, 2027, at an annual rate of 3.375%, payable semi-annually in arrears.
Effective February 27, 2023, the Board of Governors of the Federal Reserve adopted a final rule to implement the Adjustable Interest Rate (LIBOR) Act (the “LIBOR Act”).
The final rule establishes benchmark replacements for contracts governed by U.S. law that reference certain tenors of U.S. dollar LIBOR after June 30, 2023. Pursuant to the
final rule, three-month LIBOR will be replaced by the three-month CME Term SOFR Reference Rate, as administered by CME Group Benchmark Administration, Ltd. (“three-
month CME Term SOFR”) plus the statutory spread adjustment of 0.26161% as set forth in the final rule. As a result, from, and including, May 8, 2027, the subordinated notes
will bear interest at an annual rate equal to three-month CME Term SOFR plus 0.26161% plus 1.131%, payable quarterly in arrears. The subordinated notes are unsecured
and may be redeemed, in whole but not in part, on, and only on, May 8, 2027, at a redemption price equal to 100% of the principal amount of the subordinated notes to be
redeemed, plus accrued and unpaid interest, if any, up to but excluding the redemption date.
(4) Redeemable within three months of maturity.
Note 14 – Stockholders’ Equity
Preferred Stock. The Corporation is authorized to issue 10 million shares of preferred stock without par value. The Board
of Directors is authorized to fix the particular designations, preferences and relative, participating, optional and other
special rights and qualifications, limitations or restrictions for each series of preferred stock issued.
As of December 31, 2022, 5,000 shares of Series D Non-Cumulative Perpetual Preferred Stock (“Series D Preferred
Stock”) and 16,000 shares of Series E Non-Cumulative Perpetual Preferred Stock (“Series E Preferred Stock”) were
outstanding.
Series D Preferred Stock. As of December 31, 2022, the Corporation had issued and outstanding 500,000 depositary
shares, each representing a 1/100th ownership interest in a share of Series D Preferred Stock, issued in August 2016.
Equity related to Series D Preferred Stock as of December 31, 2022 and 2021 was $493.5 million. Shares of the Series D
Preferred Stock have no par value and a liquidation preference of $100,000 per share (equivalent to $1,000 per depositary
share).
134 2022 ANNUAL REPORT | NORTHERN TRUST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Dividends on the Series D Preferred Stock, which are not mandatory, accrue and are payable on the liquidation
preference amount, on a non-cumulative basis, at a rate per annum equal to (i) 4.60% from the original issue date of the
Series D Preferred Stock to but excluding October 1, 2026; and (ii) a floating rate equal to three-month CME Term SOFR
plus a statutory spread adjustment of 0.26161% (as set forth in the final rule to implement the LIBOR Act) plus 3.202%
from and including October 1, 2026. Fixed rate dividends are payable in arrears on the first day of April and October of
each year, through and including October 1, 2026, and floating rate dividends will be payable in arrears on the first day of
January, April, July and October of each year, commencing on January 1, 2027.
The Series D Preferred Stock has no maturity date and is redeemable at the Corporation’s option in whole, or in part,
on any dividend payment date on or after October 1, 2026. The Series D Preferred Stock is redeemable at the Corporation’s
option in whole, but not in part, including prior to October 1, 2026, within 90 days of a regulatory capital treatment event,
as described in the Series D Preferred Stock Certificate of Designation.
Shares of the Series D Preferred Stock rank senior to the Corporation’s common stock, and will rank at least equally
with any other series of preferred stock it may issue (except for any senior series that may be issued with the requisite
consent of the holders of the Series D Preferred Stock) and all other parity stock, with respect to the payment of dividends
and distributions upon liquidation, dissolution or winding up.
Series E Preferred Stock. As of December 31, 2022, the Corporation had issued and outstanding 16 million depositary
shares, each representing 1/1,000th ownership interest in a share of Series E Preferred Stock, issued in November 2019.
Equity related to Series E Preferred Stock as of December 31, 2022 and 2021 was $391.4 million. Shares of the Series E
Preferred Stock have no par value and a liquidation preference of $25,000 per share (equivalent to $25 per depositary
share).
Dividends on the Series E Preferred Stock, which are not mandatory, accrue and are payable on the liquidation
preference amount, on a non-cumulative basis, quarterly in arrears on the first day of January, April, July and October of
each year, at a rate per annum equal to 4.70%. On October 18, 2022, the Corporation declared a cash dividend of $293.75
per share of Series E Preferred Stock payable on January 1, 2023, to stockholders of record as of December 15, 2022.
The Series E Preferred Stock has no maturity date and is redeemable at the Corporation’s option in whole, or in part,
on any dividend payment date on or after January 1, 2025. The Series E Preferred Stock is redeemable at the Corporation’s
option in whole, but not in part, including prior to January 1, 2025, within 90 days of a regulatory capital treatment event,
as described in the Series E Preferred Stock Certificate of Designation.
Shares of the Series E Preferred Stock rank senior to the Corporation’s common stock, and will rank at least equally
with any other series of preferred stock it may issue (except for any senior series that may be issued with the requisite
consent of the holders of the Series E Preferred Stock) and all other parity stock, with respect to the payment of dividends
and distributions upon liquidation, dissolution or winding up.
Common Stock. The Corporation’s current stock repurchase authorization to repurchase up to 25.0 million shares was
approved by the Board of Directors in October 2021. Shares are repurchased by the Corporation to, among other things,
manage the Corporation’s capital levels. Repurchased shares are used for general purposes, including the issuance of shares
under stock option and other incentive plans. The repurchase authorization approved by the Board of Directors has no
expiration date. During the year ended December 31, 2022, the Corporation repurchased 311,536 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 $35.4 million. During the year ended December 31, 2021, the Corporation repurchased 2,527,544 shares of common
stock, including 394,326 shares withheld related to share-based compensation, at a total cost of $267.6 million. During the
year ended December 31, 2020, the Corporation repurchased 3,276,589 shares of common stock, including 532,713 shares
withheld related to share-based compensation, at a total cost of $299.8 million. The 2021 and 2020 purchases were made
pursuant to the repurchase program authorized by the Board of Directors in July 2018.
The average price paid per share for common stock repurchased in 2022, 2021, and 2020 was $113.70, $105.90, and
$91.49, respectively.
An analysis of changes in the number of shares of common stock outstanding follows:
TABLE 91: SHARES OF COMMON STOCK
Balance at January 1
Incentive Plan and Awards
Stock Options Exercised
Treasury Stock Purchased
Balance at December 31
2022
2021
2020
207,761,875
208,289,178
209,709,046
914,404
63,566
1,162,484
837,757
(311,536)
(2,527,544)
208,428,309
207,761,875
1,512,035
344,686
(3,276,589)
208,289,178
2022 ANNUAL REPORT | NORTHERN TRUST CORPORATION 135
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 15 – Accumulated Other Comprehensive Income (Loss)
The following tables summarize the components of Accumulated Other Comprehensive Income (Loss) (AOCI) at
December 31, 2022, 2021, and 2020, and changes during the years then ended.
TABLE 92: SUMMARY OF CHANGES IN ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
(In Millions)
Balance at December 31, 2019
Net Change
Balance at December 31, 2020
Net Change
Balance at December 31, 2021
Net Change
Balance at December 31, 2022
NET UNREALIZED
GAINS (LOSSES) ON
AVAILABLE FOR SALE
DEBT SECURITIES(1)
NET UNREALIZED
(LOSSES) GAINS
ON CASH FLOW
HEDGES
NET FOREIGN
CURRENCY
ADJUSTMENT
NET PENSION AND
OTHER
POSTRETIREMENT
BENEFIT
ADJUSTMENTS
TOTAL
$
$
$
$
114.0 $
527.8
641.8 $
(534.7)
107.1 $
(1,474.7)
(1,367.6) $
(3.7) $
117.8 $
(422.8) $
(194.7)
0.5
26.9
67.5
(3.2) $
144.7 $
(355.3) $
622.7
428.0
0.8
(2.4) $
3.6
1.2 $
10.5
155.2 $
9.4
59.8
(463.6)
(295.5) $
(35.6)
(71.9)
(1,533.6)
164.6 $
(367.4) $
(1,569.2)
(1) Includes net unrealized gains (losses) on debt securities transferred from AFS to HTM. Refer to Note 4, “Securities” for further information.
TABLE 93: DETAILS OF CHANGES IN ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
FOR THE YEAR ENDED DECEMBER 31,
2022
PRE-
TAX
TAX
AFTER
TAX
PRE-
TAX
2021
TAX
AFTER
TAX
PRE-
TAX
2020
TAX
AFTER
TAX
(In Millions)
Unrealized Gains (Losses) on Available for Sale Debt
Securities
Unrealized Gains (Losses) on Available for Sale
Debt Securities
Reclassification Adjustments for Losses (Gains)
Included in Net Income:
Interest Income on Debt Securities(1)
Net Losses on Debt Securities(2)
$ (2,263.8) $ 580.2 $ (1,683.6) $ (685.0) $ 177.5 $
(507.5) $ 706.8 $ (179.3) $
527.5
65.1
(16.4)
48.7
(36.6)
9.2
(27.4)
—
—
214.0
(53.8)
160.2
0.3
(0.1)
0.2
0.4
(0.1)
—
0.3
Net Change
$ (1,984.7) $ 510.0 $ (1,474.7) $ (721.3) $ 186.6 $
(534.7) $ 707.2 $ (179.4) $
527.8
Unrealized (Losses) Gains on Cash Flow Hedges
Foreign Exchange Contracts
$
1.0 $
(0.3) $
0.7 $
5.6 $ (1.4) $
4.2 $ 28.9 $ (7.3) $
21.6
Reclassification Adjustment for (Gains) Losses
Included in Net Income(3)
Net Change
Foreign Currency Adjustments
3.7
(0.8)
2.9
(4.5)
1.1
(3.4)
(28.1)
7.0
(21.1)
$
4.7 $
(1.1) $
3.6 $
1.1 $ (0.3) $
0.8 $
0.8 $ (0.3) $
0.5
Foreign Currency Translation Adjustments
$ (200.1) $
3.0 $
(197.1) $ (133.8) $ 4.1 $
(129.7) $ 169.1 $ (8.3) $
160.8
Long-Term Intra-Entity Foreign Currency
Transaction (Losses) Gains
(2.6)
0.7
(1.9)
0.6
(0.1)
0.5
2.1
(0.5)
1.6
Net Investment Hedge Gains (Losses)
278.7
(70.3)
208.4
186.6
(46.9)
139.7
(178.7) 43.2
(135.5)
Net Change
$
76.0 $ (66.6) $
9.4 $ 53.4 $ (42.9) $
10.5 $
(7.5) $ 34.4 $
26.9
Pension and Other Postretirement Benefit Adjustments
Net Actuarial (Losses) Gains
$ (163.9) $ 44.7 $
(119.2) $
7.9 $ 0.2 $
8.1 $ 47.4 $ (12.3) $
35.1
Reclassification Adjustment for Losses (Gains)
Included in Net Income(4)
Amortization of Net Actuarial Loss
19.1
(4.7)
14.4
41.4
(10.3)
31.1
42.2
(10.4)
Amortization of Prior Service Cost (Credit)
(1.0)
0.3
(0.7)
(1.0)
0.3
(0.7)
(0.1) —
Settlement Loss
Net Change
Total Net Change
44.9
(11.3)
33.6
28.3
(7.0)
21.3
0.8
(0.1)
$ (100.9) $ 29.0 $
(71.9) $ 76.6 $ (16.8) $
59.8 $ 90.3 $ (22.8) $
67.5
$ (2,004.9) $ 471.3 $ (1,533.6) $ (590.2) $ 126.6 $
(463.6) $ 790.8 $ (168.1) $
622.7
(1) The before-tax reclassification adjustment is related to the unrealized gains (losses) amortization on AFS debt securities that were transferred to HTM debt securities during
the second quarter of 2021 and third quarter of 2022. Refer to Note 4, “Securities” for further information.
(2) The net losses on AFS debt securities before-tax reclassification adjustment is recorded in Investment Security Gains (Losses), net on the consolidated statements of income.
Refer to Note 4, “Securities” for further information.
(3) See Note 26, "Derivative Financial Instruments" for the location of the reclassification adjustment related to cash flow hedges.
(4) The pension and other postretirement benefit before-tax reclassification adjustment is recorded in Employee Benefits expense on the consolidated statements of income.
136 2022 ANNUAL REPORT | NORTHERN TRUST CORPORATION
31.8
(0.1)
0.7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 16 – Net Income per Common Share
The computations of net income per common share are presented in the following table.
TABLE 94: NET INCOME PER COMMON SHARE
($ In Millions Except Per Common Share Information)
BASIC NET INCOME PER COMMON SHARE
Average Number of Common Shares Outstanding
Net Income
Less: Dividends on Preferred Stock
Net Income Applicable to Common Stock
Less: Earnings Allocated to Participating Securities
Earnings Allocated to Common Shares Outstanding
Basic Net Income Per Common Share
DILUTED NET INCOME PER COMMON SHARE
Average Number of Common Shares Outstanding
Plus Dilutive Effect of Share-based Compensation
Average Common and Potential Common Shares
FOR THE YEAR ENDED DECEMBER 31,
2022
2021
2020
208,309,331
208,075,522
208,319,412
$
1,336.0 $
1,545.3 $
1,209.3
41.8
1,294.2
11.8
41.8
1,503.5
12.9
56.2
1,153.1
12.1
$
1,282.4 $
1,490.6 $
1,141.0
6.16
7.16
5.48
208,309,331
208,075,522
208,319,412
557,933
823,708
688,574
208,867,264
208,899,230
209,007,986
Earnings Allocated to Common and Potential Common Shares
$
1,282.4 $
1,490.6 $
1,141.1
Diluted Net Income Per Common Share
6.14
7.14
5.46
Note: For the years ended December 31, 2022, 2021, and 2020, there were no common stock equivalents excluded in the computation of diluted net income per share.
Note 17 – Revenue from Contracts with Clients
Trust, Investment, and Other Servicing Fees. Custody and Fund Administration income is comprised of revenues
received from our core asset servicing business for providing custody, fund administration, and middle-office-related
services, primarily to Asset Servicing clients. Investment Management and Advisory income contains revenue received
from providing asset management and related services to Wealth Management and Asset Servicing clients and to Northern
Trust sponsored funds. Securities Lending income represents revenues generated from securities lending arrangements that
Northern Trust enters into as agent, mainly with Asset Servicing clients. Other income largely consists of revenues
received from providing employee benefit, investment risk and analytic and other services to Asset Servicing and Wealth
Management clients.
Other Noninterest Income. Treasury management income represents revenues received from providing cash and liquidity
management services to Asset Servicing and Wealth Management clients. The portion of Security Commissions and
Trading Income that relates to revenue from contracts with clients is primarily comprised of commissions earned from
providing securities brokerage services to Wealth Management and Asset Servicing clients. The portion of Other Operating
Income that relates to revenue from contracts with clients is mainly comprised of service fees for banking-related services
provided to Wealth Management and Asset Servicing clients.
Performance Obligations. Clients are typically charged monthly or quarterly in arrears based on the fee arrangement
agreed to with each client; payment terms will vary depending on the client and services offered.
Substantially all revenues generated from contracts with clients for asset servicing, asset management, securities
lending, treasury management and banking-related services are recognized on an accrual basis, over the period in which
services are provided. The nature of Northern Trust’s performance obligations is to provide a series of distinct services in
which the customer simultaneously receives and consumes the benefits of the promised services as they are performed. Fee
arrangements are mainly comprised of variable amounts based on market value of client assets managed and serviced,
transaction volumes, number of accounts, and securities lending volume and spreads. Revenue is recognized using the
output method in an amount that reflects the consideration to which Northern Trust expects to be entitled in exchange for
providing each month or quarter of service. For contracts with multiple performance obligations, revenue is allocated to
each performance obligation based on the price agreed to with the client, representing its relative standalone selling price.
Security brokerage revenue is primarily represented by securities commissions received in exchange for providing
trade execution related services. Control is transferred at a point in time, on the trade date of the transaction, and fees are
typically variable based on transaction volumes and security types.
2022 ANNUAL REPORT | NORTHERN TRUST CORPORATION 137
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Northern Trust’s contracts with its clients are typically open-ended arrangements and are therefore considered to have
an original duration of less than one year. Northern Trust has elected the practical expedient to not disclose the value of
remaining performance obligations for contracts with an original expected duration of one year or less.
The following table presents revenues disaggregated by major revenue source.
TABLE 95: REVENUE DISAGGREGATION
(In Millions)
Noninterest Income
Trust, Investment and Other Servicing Fees
Custody and Fund Administration
Investment Management and Advisory
Securities Lending
Other
Total Trust, Investment and Other Servicing Fees
Other Noninterest Income
Foreign Exchange Trading Income
Treasury Management Fees
Security Commissions and Trading Income
Other Operating Income
Investment Security Gains (Losses), net
Total Other Noninterest Income
Total Noninterest Income
FOR THE YEAR ENDED DECEMBER 31,
2022
2021
2020
$
1,816.0 $
1,917.5 $
2,299.1
81.6
235.9
2,140
76.9
226.7
1,674.3
2,029.3
88.3
203.1
$
$
$
$
4,432.6 $
4,361.1 $
3,995.0
288.6 $
292.6 $
39.3
136.2
191.3
(214.0)
441.4 $
4,874.0 $
44.3
140.2
243.9
(0.3)
720.7 $
5,081.8 $
290.4
45.4
133.2
194.0
(0.4)
662.6
4,657.6
On the consolidated statements of income, Trust, Investment and Other Servicing Fees and Treasury Management Fees
represent revenue from contracts with clients. For the year ended December 31, 2022, revenue from contracts with clients
also includes $116.8 million of the $136.2 million total Security Commissions and Trading Income and $37.2 million of
the $191.3 million total Other Operating Income. For the year ended December 31, 2021, revenue from contracts with
clients also includes $112.1 million of the $140.2 million total Security Commissions and Trading Income and $53.9
million of the $243.9 million total Other Operating Income. For the year ended December 31, 2020, revenue from contracts
with clients also includes $102.4 million of the $133.2 million total Security Commissions and Trading Income and $42.8
million of the $194.0 million total Other Operating Income.
Receivables Balances. The following table represents receivables balances from contracts with clients, which are included
in Other Assets on the consolidated balance sheets, at December 31, 2022 and 2021.
TABLE 96: CLIENT RECEIVABLES
(In Millions)
Trust Fees Receivable, net(1)
Other
Total Client Receivables
DECEMBER 31,
2022
882.5 $
55.4
2021
925.2
126.9
937.9 $
1,052.1
$
$
(1)Trust Fees Receivable is net of a $13.5 million and $10.9 million fee receivable allowance as of December 31, 2022 and 2021, respectively.
138 2022 ANNUAL REPORT | NORTHERN TRUST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 18 – Net Interest Income
The components of Net Interest Income were as follows:
TABLE 97: NET INTEREST INCOME
(In Millions)
Interest Income
Federal Reserve and Other Central Bank Deposits
Interest-Bearing Due from and Deposits with Banks(1)
Securities Purchased under Agreements to Resell
Securities – Taxable
– Non-Taxable(2)
Loans and Leases
Other Interest-Earning Assets(3)
Total Interest Income
Interest Expense
Deposits
Federal Funds Purchased
Securities Sold under Agreements to Repurchase
Other Borrowings
Senior Notes
Long-Term Debt
Floating Rate Capital Debt
Total Interest Expense
Net Interest Income
FOR THE YEAR ENDED DECEMBER 31,
2022
2021
2020
$
472.1 $
11.3 $
46.6
103.7
899.9
1.3
1,344.3
9.8
9.1
3.5
658.8
1.5
713.5
8.8
28.8
22.4
3.9
801.2
1.4
774.6
11.2
$
$
$
$
2,877.7 $
1,406.5 $
1,643.5
602.8 $
34.1
90.7
126.2
92.7
44.0
—
(61.3) $
(0.4)
0.2
14.2
48.3
21.1
1.7
48.4
2.2
1.0
45.3
72.7
26.5
4.2
990.5 $
23.8 $
1,887.2 $
1,382.7 $
200.3
1,443.2
(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) Non-taxable Securities represent securities that are exempt from U.S. federal income taxes.
(3) Other Interest-Earning Assets include certain community development investments, collateral deposits with certain securities depositories and clearing houses, and Federal
Home Loan Bank and Federal Reserve stock, which are classified in Other Assets on the consolidated balance sheets.
Note 19 – Other Operating Income
The components of Other Operating Income were as follows:
TABLE 98: OTHER OPERATING INCOME
(In Millions)
Loan Service Fees
Banking Service Fees
Other Income
Total Other Operating Income
Note 20 – Other Operating Expense
The components of Other Operating Expense were as follows:
TABLE 99: OTHER OPERATING EXPENSE
(In Millions)
Business Promotion
Staff Related
FDIC Insurance Premiums
Other Intangibles Amortization
Other Expenses
Total Other Operating Expense
FOR THE YEAR ENDED DECEMBER 31,
2022
71.5 $
49.8
70.0
2021
66.6 $
50.9
126.4
2020
52.5
46.1
95.4
191.3 $
243.9 $
194.0
FOR THE YEAR ENDED DECEMBER 31,
2022
76.7 $
34.6
17.8
9.3
220.9
359.3 $
2021
65.5 $
33.9
14.6
14.8
170.3
299.1 $
2020
59.2
29.4
11.8
16.9
229.4
346.7
$
$
$
$
2022 ANNUAL REPORT | NORTHERN TRUST CORPORATION 139
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 21 – Income Taxes
The following table reconciles the statutory federal tax rate with the effective tax rate for the periods presented below.
TABLE 100: INCOME TAXES
Statutory Federal Tax Rate
Tax Exempt Income
Foreign Tax Rate Differential
Excess Tax Benefit Related to Share-Based Compensation
Tax Credits
Reversal of Tax Benefits Previously Recognized through Earnings
State Taxes, net
Valuation Allowance
Other
Effective Tax Rate
FOR THE YEAR ENDED DECEMBER 31,
2022
21.0 %
(0.9)
0.1
(0.2)
(2.0)
—
3.3
1.5
1.6
2021
21.0 %
(0.6)
0.1
(0.4)
(1.6)
—
3.4
0.6
0.6
2020
21.0 %
(0.9)
0.7
(0.6)
(1.7)
1.6
3.2
1.6
0.8
24.4 %
23.1 %
25.7 %
Income tax expense for the year ended December 31, 2022 and 2021 was $430.3 million and $464.8 million,
representing an effective tax rate of 24.4% and 23.1%, respectively. For the year ended December 31, 2022, the increase in
the effective tax rate was primarily driven by a higher net impact from international operations, including limitations on the
U.S. foreign tax credit and reserves for uncertain tax positions, partially offset by increased tax benefits from tax-credit
investments and tax-exempt income.
For the year ended December 31, 2021, the decrease in the effective tax rate was primarily driven by the lower net tax
impact from international operations and $26.8 million of prior-year tax expense related to the reversal of tax benefits
previously recognized through earnings.
For the year ended December 31, 2020, the increase in the effective tax rate was primarily driven by $26.8 million of
tax expense related to the reversal of tax benefits previously recognized through earnings and higher taxes payable on the
income of the Corporation’s non-U.S. branches.
The Corporation files income tax returns in the U.S. federal, various state, and foreign jurisdictions. The Corporation is
no longer subject to income tax examinations by U.S. federal authorities before 2013, U.S. state or local tax authorities for
years before 2011, or non-U.S. tax authorities for years before 2013.
Included in Other Liabilities on the consolidated balance sheets at December 31, 2022 and 2021 were $40.7 million
and $25.3 million of unrecognized tax benefits, respectively. If recognized, the amounts would reduce 2022 and 2021
income tax expense by $37.4 million and $23.9 million, respectively. A reconciliation of the beginning and ending amount
of unrecognized tax benefits is as follows.
TABLE 101: UNRECOGNIZED TAX BENEFITS
(In Millions)
Balance at January 1
Additions for Tax Positions Taken in the Current Year
Additions for Tax Positions Taken in Prior Years
Reductions for Tax Positions Taken in Prior Years
Reductions Resulting from Expiration of Statutes
Balance at December 31
$
2022
25.3 $
1.7
13.7
—
—
2021
22.4 $
1.2
4.2
(2.5)
—
$
40.7 $
25.3 $
2020
25.3
0.9
0.4
(4.2)
—
22.4
It is possible that changes in the amount of unrecognized tax benefits could occur in the next 12 months due to changes
in judgment related to recognition or measurement, settlements with taxing authorities, or expiration of statute of
limitations. Management does not believe that future changes, if any, would have a material effect on the consolidated
financial position or liquidity of Northern Trust, although they could have a material effect on operating results for a
particular period.
A provision for interest and penalties of $11.1 million, net of tax, was included in the Provision for Income Taxes for
the year ended December 31, 2022. This compares to a benefit for interest and penalties of $0.4 million, net of tax, and a
provision of $1.2 million, net of tax, for the year ended December 31, 2021 and 2020, respectively. As of December 31,
2022 and 2021, the liability for the potential payment of interest and penalties totaled $22.2 million and $9.2 million, net of
tax, respectively.
140 2022 ANNUAL REPORT | NORTHERN TRUST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The components of the consolidated Provision for Income Taxes for each of the three years ended December 31 are
as follows.
TABLE 102: PROVISION FOR INCOME TAXES
(In Millions)
Current Tax Provision:
Federal
State
Non-U.S.
Total
Deferred Tax Provision:
Federal
State
Non-U.S.
Total
Provision for Income Taxes
FOR THE YEAR ENDED DECEMBER 31,
2022
2021
2020
$
$
$
$
$
357.7 $
241.5 $
84.7
130.6
74.0
147.3
573.0 $
462.8 $
(126.0) $
(11.7) $
(10.7)
(6.0)
(142.7) $
430.3 $
12.0
1.7
2.0 $
464.8 $
203.0
57.2
141.7
401.9
8.8
5.4
2.2
16.4
418.3
In addition to the amounts shown above, tax charges (benefits) have been recorded directly to Stockholders’ Equity for the
following. For further detail, refer to Note 15, “Accumulated Other Comprehensive Income (Loss).”
TABLE 103: TAX CHARGES (BENEFITS) RECORDED DIRECTLY TO STOCKHOLDERS’ EQUITY
(In Millions)
Tax Effect of Other Comprehensive Income
FOR THE YEAR ENDED DECEMBER 31,
2022
2021
$
(471.3) $
(126.6) $
2020
168.1
Deferred taxes result from temporary differences between the amounts reported on the consolidated financial statements
and the tax bases of assets and liabilities. Deferred tax assets and liabilities have been computed as follows.
TABLE 104: DEFERRED TAX ASSETS AND LIABILITIES
(In Millions)
Deferred Tax Liabilities:
Lease Financing
Software Development
Depreciation and Amortization
Unrealized Gains on Securities, net
Compensation and Benefits
State Taxes, net
Other Liabilities
Gross Deferred Tax Liabilities
Deferred Tax Assets:
Allowance for Credit Losses
Unrealized Losses on Securities, net
Tax Credit and Loss Carryforwards
Other Assets
Gross Deferred Tax Assets
Valuation Reserve
Deferred Tax Assets, net of Valuation Reserve
Net Deferred Tax Assets (Liabilities)
DECEMBER 31,
2022
2021
$
— $
354.7
122.6
—
5.2
58.3
42.1
582.9
41.8
427.3
95.3
143.7
708.1
(95.3)
612.8
29.9 $
$
7.0
271.8
181.3
82.8
65.6
76.3
23.3
708.1
38.6
—
68.2
85.4
192.2
(68.2)
124.0
(584.1)
The Corporation generated a foreign tax credit carryforward during the years ended December 31, 2022 and 2021,
expiring in 2032 and 2031, respectively. A cumulative valuation allowance related to the credit carryforward of $94.9
2022 ANNUAL REPORT | NORTHERN TRUST CORPORATION 141
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
million and $67.8 million was recorded at December 31, 2022 and 2021, respectively, as management believes the foreign
tax credit carryforwards will not be fully realized.
Northern Trust had various state net operating loss carryforwards as of December 31, 2022 and 2021. The income tax
benefits associated with these loss carryforwards were approximately $0.4 million as of both December 31, 2022 and 2021.
A valuation allowance related to the loss carryforwards of $0.4 million was recorded at both December 31, 2022 and 2021,
as management believes the net operating losses will not be fully realized.
Note 22 – Employee Benefits
The Corporation and certain of its subsidiaries provide various benefit programs, including defined benefit pension,
postretirement health care, and defined contribution plans. A description of each major plan and related disclosures are
provided below.
Pension. A noncontributory qualified defined benefit pension plan covers substantially all U.S. employees of Northern
Trust. Employees of certain European subsidiaries retain benefits in local defined benefit plans, although those plans are
closed to new participants and to future benefit accruals. Employees continue to accrue benefits under the Swiss pension
plan, which is accounted for as a defined benefit plan under U.S. GAAP.
Northern Trust also maintains a noncontributory supplemental pension plan for participants whose retirement benefits
under the U.S. Qualified Plan are expected to exceed the limits imposed by federal tax law. Northern Trust has a
nonqualified trust, referred to as a “Rabbi” Trust, used to hold assets designated for the funding of benefits in excess of
those permitted in certain of its qualified retirement plans. This arrangement offers participants a degree of assurance for
payment of benefits in excess of those permitted in the related qualified plans. As the “Rabbi” Trust assets remain subject
to the claims of creditors and are not the property of the employees, they are accounted for as corporate assets and are
included in Other Assets on the consolidated balance sheets. Total assets in the “Rabbi” Trust related to the nonqualified
pension plan at December 31, 2022 and 2021 amounted to $92.3 million and $117.8 million, respectively. Contributions of
$20.7 million and $6.7 million were made to the “Rabbi” Trust in 2022 and 2021, respectively.
The following tables set forth the status, amounts included in AOCI, and net periodic pension expense of the U.S.
Qualified Plan, Non-U.S. Pension Plans, and U.S. Non-Qualified Plan for 2022, 2021, and 2020. Prior service credits for
the U.S. Qualified Plan were amortized on a straight-line basis over 11 years and were amortized in full as of December 31,
2022. Prior service costs for the U.S. Non-Qualified Plan were amortized on a straight-line basis over 10 years and were
amortized in full as of December 31, 2021.
TABLE 105: EMPLOYEE BENEFIT PLAN STATUS
U.S. QUALIFIED PLAN
NON-U.S. PENSION PLANS
U.S. NON-QUALIFIED PLAN
($ In Millions)
2022
2021
2022
2021
Accumulated Benefit Obligation
$
963.3
$ 1,246.6
$ 1,077.7
$ 1,401.3
1,176.8
1,708.9
$
$
$
$
126.2
129.0
134.5
$
$
204.5
210.1
198.7
2022
97.4
113.6
—
$
$
2021
125.5
147.7
—
$
99.1
$
307.6
$
5.5
$
(11.4)
$
(113.6)
$
(147.7)
5.22 %
3.03 %
3.76 %
1.34 %
5.15 %
2.80 %
Projected Benefit Obligation
Plan Assets at Fair Value
Funded Status at December 31
Weighted-Average Assumptions:
Discount Rates
Rate of Increase in Compensation Level
Expected Long-Term Rate of Return on Assets
5.56
7.25
4.97
5.25
1.75
3.99
1.50
1.79
5.56
N/A
4.97
N/A
TABLE 106: AMOUNTS INCLUDED IN ACCUMULATED OTHER COMPREHENSIVE INCOME
(In Millions)
Net Actuarial Loss
Prior Service (Credit) Cost
Gross Amount in Accumulated Other Comprehensive
Income
Income Tax Effect
Net Amount in Accumulated Other Comprehensive
Income
U.S. QUALIFIED PLAN
NON-U.S. PENSION PLANS
U.S. NON-QUALIFIED PLAN
2022
2021
2022
2021
2022
$
418.3 $
273.8 $
24.3 $
40.4 $
59.2 $
—
(0.1)
418.3
105.1
273.7
68.7
0.2
24.5
4.9
0.6
41.0
5.2
—
59.2
14.8
2021
86.6
—
86.6
21.7
$
313.2 $
205.0 $
19.6 $
35.8 $
44.4 $
64.9
142 2022 ANNUAL REPORT | NORTHERN TRUST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
TABLE 107: NET PERIODIC PENSION EXPENSE
($ In Millions)
Service Cost
Interest Cost
Expected Return on Plan Assets
Amortization:
Net Actuarial Loss
Prior Service (Credit) Cost
Net Periodic Pension Expense
Settlement Expense
Total Pension Expense
Weighted-Average Assumptions:
$
$
$
U.S. QUALIFIED PLAN(1)
NON-U.S. PENSION PLANS U.S. NON-QUALIFIED PLAN
2022
48.0 $
46.3
(85.7)
11.4
(0.1)
19.9 $
44.1
64.0 $
2021
2020
2022
2021
2020
2022
2021
2020
52.3 $
47.4 $ 1.7 $ 2.2 $ 1.9 $ 5.6 $ 5.3 $ 4.6
40.4
43.3
2.5
2.2
2.9
3.9
3.7
4.8
(79.0)
(76.8)
(3.2)
(3.2)
(3.1)
—
—
—
32.4
(0.4)
35.0
0.6
(0.4)
—
1.0
0.2
0.8
0.4
7.4
—
8.2
0.1
7.0
0.2
45.7 $
48.5 $ 1.6 $ 2.4 $ 2.9 $ 16.9 $ 17.3 $ 16.6
27.9
—
0.8
0.4
0.8
—
—
—
73.6 $
48.5 $ 2.4 $ 2.8 $ 3.7 $ 16.9 $ 17.3 $ 16.6
Discount Rates
3.03%
4.81%
2.75%
3.05%
3.37 % 1.34 % 0.93 % 1.40 % 2.80 % 2.45 % 3.37 %
5.49%
5.22%
3.06%
3.03%
Rate of Increase in Compensation
Level
Expected Long-Term Rate of
Return on Assets
5.25
4.97
6.00
6.50
4.97
4.97
1.50
1.50
1.50
4.97
4.97
4.97
5.25
5.00
5.25
1.79
1.28
1.72 N/A
N/A
N/A
(1) In determining the pension expense for the U.S. Qualified Plan for 2022, Northern Trust utilized a discount rate of 3.03% as of December 31, 2021, 4.81% as of June 30,
2022, 5.49% as of September 30, 2022, and 5.22% as of December 31, 2022 and the expected long-term rate of return was 5.25% as of December 31, 2021, 6.00% as of
June 30, 2022, and 6.50% as of September 30, 2022.
In determining the pension expense for the U.S. Qualified Plan for 2021, Northern Trust utilized a discount rate of 2.75% as of December 31, 2020, 3.05% as of June 30,
2021, 3.06% as of September 30, 2021, and 3.03% as of December 31, 2021 and an expected long-term rate of return of 5.25% as of both December 31, 2020 and June 30,
2021, and 5.00% as of September 30, 2021.
Northern Trust’s U.S. Qualified Plan provides participants the option to select lump-sum benefit payments upon retirement
and termination of service. In the second quarter of both 2022 and 2021, it became probable that total lump-sum payments
during each year would exceed the settlement threshold of the sum of annual service and interest cost. Therefore, Northern
Trust recognized settlement charges related to its U.S. Qualified Plan in the second, third, and fourth quarter of both 2022
and 2021, which required interim remeasurements of the U.S. Qualified Plan as of each respective quarter-end. The
settlement charge represents the pro rata amount of the net loss in AOCI that is charged to income based on the proportion
of the Projected Benefit Obligation settled to the total Projected Benefit Obligation and amounted to a total of $44.1 million
and $27.9 million in 2022 and 2021, respectively.
The components of net periodic pension expense are included in Employee Benefits expense on the consolidated
statements of income.
TABLE 108: CHANGE IN PROJECTED BENEFIT OBLIGATION
U.S. QUALIFIED PLAN
NON-U.S. PENSION PLANS
U.S. NON-QUALIFIED PLAN
(In Millions)
Beginning Balance
Service Cost
Interest Cost
Employee Contributions
Plan Amendment
Actuarial Loss (Gain)
Settlements
Benefits Paid
Foreign Exchange Rate Changes
2022
2021
2022
2021
2022
$
1,401.3 $
1,470.6 $
210.1 $
236.1 $
147.7 $
48.0
46.3
—
—
(281.2)
(125.0)
(11.7)
—
52.3
40.4
—
—
(19.1)
(132.1)
(10.8)
—
1.7
2.5
0.7
(0.3)
(64.3)
(0.9)
(4.6)
(15.9)
129.0 $
2.2
2.2
0.6
(1.4)
(10.4)
(9.4)
(5.5)
(4.3)
5.6
3.9
—
—
(20.0)
—
(23.6)
—
210.1 $
113.6 $
2021
162.3
5.3
3.7
—
—
(2.0)
—
(21.6)
—
147.7
Ending Balance
$
1,077.7 $
1,401.3 $
Actuarial gains of $365.5 million in 2022 were primarily caused by substantial increases in discount rates, while actuarial
gains of $31.5 million in 2021 were primarily also caused by increases in discount rates, but to a lesser extent.
2022 ANNUAL REPORT | NORTHERN TRUST CORPORATION 143
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
TABLE 109: ESTIMATED FUTURE BENEFIT PAYMENTS
(In Millions)
2023
2024
2025
2026
2027
2028-2032
TABLE 110: CHANGE IN PLAN ASSETS
(In Millions)
Fair Value of Assets at Beginning of Period
Actual Return on Assets(1)
Employer Contributions
Employee Contributions
Settlements
Benefits Paid
Foreign Exchange Rate Changes
Fair Value of Assets at End of Period
U.S. QUALIFIED PLAN NON-U.S.PENSION PLANS U.S. NON-QUALIFIED PLAN
$
90.7 $
4.2 $
90.7
93.9
93.5
95.3
464.7
4.4
4.3
5.2
6.4
33.6
20.2
13.6
14.1
11.6
12.2
54.4
U.S. QUALIFIED PLAN
NON-U.S PENSION PLANS
2022
2021
$
1,708.9 $
1,793.7 $
(395.4)
—
—
(125.0)
(11.7)
—
58.1
—
—
(132.1)
(10.8)
—
$
1,176.8 $
1,708.9 $
2022
198.7 $
(46.9)
3.6
0.7
(0.9)
(4.6)
(16.1)
134.5 $
2021
211.5
(0.8)
4.5
0.6
(9.4)
(5.5)
(2.2)
198.7
(1) The 2021 actual return on assets for the U.S. Qualified Plan includes a reimbursement of $0.1 million of historical investment expenses paid from the pension trust.
The decrease in plan assets of $532.1 million from the prior year was driven by unfavorable market conditions in 2022.
The minimum required and maximum remaining deductible contributions for the U.S. Qualified Plan in 2023 are
estimated to be zero and $561.0 million, respectively.
The investment strategy employed for Northern Trust’s U.S. Qualified Plan utilizes a dynamic glide path based on a
set of pre-approved asset allocations to return-seeking and liability-hedging assets that vary in accordance with the U.S.
Qualified Plan’s projected benefit obligation funded ratio. In general, as the U.S. Qualified Plan’s projected benefit
obligation funded ratio increases beyond an established threshold, the U.S. Qualified Plan’s allocation to liability-hedging
assets will increase while the allocation to return-seeking assets will decrease. Conversely, a decrease in the U.S. Qualified
Plan’s projected benefit obligation funded ratio beyond an established threshold will generally result in a decrease in the
U.S. Qualified Plan’s allocation to liability-hedging assets and increase in the allocation to return-seeking assets. Liability-
hedging assets include U.S. long credit bonds, U.S. long government bonds, and a custom completion strategy used to
hedge more closely the liability duration of projected plan benefits with bond duration across all durations. Return-seeking
assets include: U.S. equity, international developed equity, emerging markets equity, real estate, high yield bonds, global
listed infrastructure, emerging market debt, private equity and hedge funds. During 2022, the funded ratio fell below the
threshold and in early 2023 the asset allocation of the U.S. Qualified Plan was adjusted to a stage of the glide path which
allows for a greater component of return-seeking assets.
Northern Trust utilizes an asset/liability methodology to determine the investment policies that will best meet its short
and long-term objectives. The process is performed by modeling current and alternative strategies for asset allocation,
funding policy and actuarial methods and assumptions. The financial modeling uses projections of expected capital market
returns and expected volatility of those returns to determine alternative asset mixes having the greatest probability of
meeting the U.S. Qualified Plan’s investment objectives. Risk tolerance is established through careful consideration of the
U.S. Qualified Plan liabilities, funded status, and corporate financial condition. The intent of this strategy is to protect the
U.S. Qualified Plan’s healthy funded status and generate returns, which in combination with minimal voluntary
contributions are expected to outpace the U.S. Qualified Plan’s liability growth over the long run.
As of December 31, 2022, the target allocation of the U.S. Qualified Plan assets consisted of 55% U.S. long credit
bonds, 15% global equities (developed and emerging markets), 10% custom completion, 5% private equity, 4% high yield
bonds, 3% emerging market debt, 3% global listed infrastructure, 3% private real estate, and 2% hedge funds.
Global equity investments include common stocks that are listed on an exchange and investments in commingled
funds that invest primarily in publicly traded equities. Equity investments are diversified across country, region, investment
style and market capitalization. Fixed income securities held include U.S. treasury securities, corporate bonds, and
investments in commingled funds that invest in a diversified blend of longer duration fixed income securities; the custom
completion strategy uses U.S. treasury securities and interest rate futures (or similar instruments) to align more closely with
the target hedge ratio across maturities. Diversifying investments, including private equity, hedge funds, private real estate,
144 2022 ANNUAL REPORT | NORTHERN TRUST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
emerging market debt, high yield bonds, and global listed infrastructure, are used judiciously to enhance long-term returns
while improving portfolio diversification. Private equity assets consist primarily of investments in limited partnerships that
invest in individual companies in the form of non-public equity or non-public debt positions. Direct or co-investment in
non-public stock by the U.S. Qualified Plan is prohibited. The U.S. Qualified Plan’s private equity investments are limited
to 20% of each of the total limited partnership or fund of funds and the maximum allowable loss cannot exceed the
commitment amount. The U.S. Qualified Plan invests in one hedge fund of funds, which invests, either directly or
indirectly, in diversified portfolios of funds or other pooled investment vehicles.
Investments in private real estate, high yield bonds, emerging market debt, and global listed infrastructure are designed
to provide income and added diversification.
Derivatives may be used, depending on the nature of the asset class to which they relate, to gain market exposure in an
efficient and timely manner, to hedge foreign currency exposure or interest rate risk, or to alter the duration of a portfolio.
There were four and three derivatives held by the U.S. Qualified Plan at December 31, 2022 and 2021, respectively.
Investment risk is measured and monitored on an ongoing basis through monthly liability measurements, periodic
asset/liability studies, and quarterly investment portfolio reviews. Standards used to evaluate the U.S. Qualified Plan’s
investment manager performance include, but are not limited to, the achievement of objectives, operation within guidelines
and policy, and comparison against a benchmark. In addition, each manager of the investment funds held by the U.S.
Qualified Plan is ranked against a universe of peers and compared to a benchmark. Total U.S. Qualified Plan performance
analysis includes an analysis of the market environment, asset allocation impact on performance, risk and return relative to
other ERISA plans, and manager impacts upon U.S. Qualified Plan performance.
The following describes the hierarchy of inputs used to measure fair value and the primary valuation methodologies
used by Northern Trust for the U.S. Qualified Plan assets measured at fair value.
Level 1 – Quoted, active market prices for identical assets or liabilities. The U.S. Qualified Plan’s Level 1 assets are
comprised primarily of mutual funds and domestic common stocks. The U.S. Qualified Plan’s Level 1 investments that are
exchange traded are valued at the closing price reported by the respective exchanges on the day of valuation.
Level 2 – Observable inputs other than Level 1 prices, such as quoted active market prices for similar assets or
liabilities, quoted prices for identical or similar assets in inactive markets, and model-derived valuations in which all
significant inputs are observable in active markets. The U.S. Qualified Plan’s Level 2 assets are comprised of collective
trust funds, corporate bonds, government obligations, and municipal and provincial bonds. The investments in collective
trust funds fair values are calculated on a scheduled basis using the closing market prices and accruals of securities in the
funds (total value of the funds) divided by the number of fund shares currently issued and outstanding. Redemptions of the
collective trust funds occur by contract at the respective fund’s redemption date net asset value (NAV).
Level 3 – Valuation techniques in which one or more significant inputs are unobservable in the marketplace. The
U.S. Qualified Plan did not hold Level 3 assets as of December 31, 2022 and 2021.
Assets valued at fair value using NAV per share - The U.S. Qualified Plan’s assets valued at fair value using NAV
per share include investments in private equity funds and a hedge fund, which invest in underlying groups of investment
funds or other pooled investment vehicles that are selected by the respective funds’ investment managers. The investment
funds and the underlying investments held by these investment funds are valued at fair value. In determining the fair value
of the underlying investments of each fund, the fund’s investment manager or general partner takes into account the
estimated value reported by the underlying funds as well as any other considerations that may, in their judgment, increase
or decrease such estimated value. The investments in the private equity funds and a hedge fund are considered to be long-
term investments. There are no capital withdrawal options related to the investments in the private equity funds. However,
capital is periodically distributed as underlying investments are sold. It is estimated that the current private equity
investments would be liquidated over 1 to 15 years, depending on the vintage year of a particular fund. With sixty days
advance notice, the Plan’s investment in the hedge fund can be withdrawn at the next calendar quarter end.
The U.S. Qualified Plan’s assets valued at fair value using NAV per share also include investments in real estate funds,
which invest in real estate assets. The investment in properties by the real estate funds are carried at fair value, which is
estimated based on the price that would be received to sell an asset in an orderly transaction between marketplace
participants at the measurement date. The valuation plan for each real estate investment is subject to review on an annual
basis which is based on either an external appraisal from appraisal firms or internal valuations prepared by the real estate
fund’s investment advisor. The Plan’s investment in real estate funds are considered to be long-term investments and, with
forty-five days advance notice, can be withdrawn at the next calendar quarter end to the extent the real estate funds have
liquid assets.
As investments in the private equity funds, hedge fund, and real estate fund are valued at fair value using NAV per
share, they are not required to be categorized within the fair value hierarchy.
While Northern Trust believes its valuation methods for U.S. Qualified Plan assets are appropriate and consistent with
other market participants, the use of different methodologies or assumptions could have a material effect on the
computation of the estimated fair values.
2022 ANNUAL REPORT | NORTHERN TRUST CORPORATION 145
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table presents the fair values of Northern Trust’s U.S. Qualified Plan assets, by major asset category,
and their level within the fair value hierarchy defined by GAAP as of December 31, 2022 and 2021.
TABLE 111: FAIR VALUE OF U.S. QUALIFIED PLAN ASSETS
(In Millions)
Domestic Common Stock
Foreign Common Stock
Domestic Corporate Bonds
Foreign Corporate Bonds
U.S. Government Obligations
Non-U.S. Government Obligations
Domestic Municipal and Provincial Bonds
Foreign Municipal and Provincial Bonds
Collective Trust Funds
Mutual Funds
Cash and Other(1)
DECEMBER 31, 2022
LEVEL 1
LEVEL 2
LEVEL 3
TOTAL
$
14.7 $
— $
— $
0.5
—
—
—
—
—
—
—
61.4
(1.1)
75.5 $
—
263.6
39.6
77.5
13.8
16.8
0.2
522.3
—
—
—
—
—
—
—
—
—
—
—
—
14.7
0.5
263.6
39.6
77.5
13.8
16.8
0.2
522.3
61.4
(1.1)
Total Assets at Fair Value in the Fair Value Hierarchy
$
Assets Valued at NAV per share
Northern Trust Private Equity Funds
Northern Trust Hedge Fund
Real Estate Funds
Total Assets at Fair Value
933.8 $
— $
1,009.3
33.2
35.2
99.1
$
1,176.8
(1) Negative balance in Cash and Other as of December 31, 2022 primarily relates to due to broker for securities purchased.
(In Millions)
Domestic Common Stock
Foreign Common Stock
Domestic Corporate Bonds
Foreign Corporate Bonds
U.S. Government Obligations
Non-U.S. Government Obligations
Domestic Municipal and Provincial Bonds
Foreign Municipal and Provincial Bonds
Collective Trust Funds
Mutual Funds
Cash and Other
DECEMBER 31, 2021
LEVEL 1
LEVEL 2
LEVEL 3
TOTAL
$
17.5 $
— $
— $
0.3
—
—
—
—
—
—
—
108.9
8.6
—
341.7
60.9
103.9
20.0
21.0
0.3
875.3
—
—
—
—
—
—
—
—
—
—
—
—
17.5
0.3
341.7
60.9
103.9
20.0
21.0
0.3
875.3
108.9
8.6
Total Assets at Fair Value in the Fair Value Hierarchy
$
135.3 $
1,423.1 $
— $
1,558.4
Assets Valued at NAV per share
Northern Trust Private Equity Funds
Northern Trust Hedge Fund
Real Estate Funds
Total Assets at Fair Value
34.5
36.7
79.3
$
1,708.9
A building block approach is employed for Northern Trust’s U.S. Qualified Plan in determining the long-term rate of return
for plan assets. Historical markets and long-term historical relationships between equities, fixed income and other asset
classes are studied using the widely accepted capital market principle that assets with higher volatility generate a greater
return over the long-run. Current market factors such as inflation expectations and interest rates are evaluated before long-
term capital market assumptions are determined. The long-term portfolio rate of return is established with consideration
given to diversification and rebalancing. The rate is reviewed against peer data and historical returns to verify the return is
reasonable and appropriate. Based on this approach and the U.S. Qualified Plan’s target asset allocation, the expected long-
term rate of return on assets as of the U.S. Qualified Plan’s December 31, 2022 measurement date was set at 7.25%.
Postretirement Health Care. Northern Trust maintains an unfunded postretirement health care plan under which
those employees who retire at age 55 or older under the provisions of the U.S. defined benefit plan and had attained 15
146 2022 ANNUAL REPORT | NORTHERN TRUST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
years of service as of December 31, 2011 may be eligible for subsidized postretirement health care coverage. The
provisions of this health care plan may be changed further at the discretion of Northern Trust, which also reserves the right
to terminate these benefits at any time.
Northern Trust changed the plan design of its post-retirement health care plan as of January 1, 2021, which resulted in
the recognition of a prior service credit of $12.7 million at the time these changes were communicated to participants in
August 2020. Concurrently, a further shift in population from active to inactive participants required an adjustment to the
amortization period from the average remaining service period of active participants to the average life expectancy of the
inactive participants. Prior service credits are being amortized on a straight-line basis over 13.9 years.
The following tables set forth the postretirement health care plan status and amounts included in AOCI at
December 31, 2022 and 2021, the net periodic postretirement benefit cost of the plan for 2022 and 2021, and the change in
the accumulated postretirement benefit obligation during 2022 and 2021.
TABLE 112: POSTRETIREMENT HEALTH CARE PLAN STATUS
(In Millions)
Accumulated Postretirement Benefit Obligation at Measurement Date:
Retirees and Dependents
Actives Eligible for Benefits
Net Postretirement Benefit Obligation
TABLE 113: AMOUNTS INCLUDED IN ACCUMULATED OTHER COMPREHENSIVE INCOME
(In Millions)
Net Actuarial (Gain) Loss
Prior Service (Credit) Cost
Gross Amount in Accumulated Other Comprehensive Income
Income Tax Effect
$
$
$
DECEMBER 31,
2022
8.1 $
0.7
8.8 $
DECEMBER 31,
2022
(5.6) $
(10.6)
(16.2)
(4.1)
Net Amount in Accumulated Other Comprehensive Income
$
(12.1) $
TABLE 114: NET PERIODIC POSTRETIREMENT EXPENSE (BENEFIT)
(In Millions)
Service Cost
Interest Cost
Expected Return on Plan Assets
Amortization
Net Actuarial (Gain) Loss
Prior Service (Credit) Cost
Net Periodic Postretirement Expense
FOR THE YEAR ENDED DECEMBER 31,
$
$
2022
— $
0.3
—
(0.3)
(0.9)
(0.9) $
2021
— $
0.3
—
(0.2)
(0.9)
(0.8) $
2021
8.7
1.5
10.2
2021
(5.3)
(11.5)
(16.8)
(4.2)
(12.6)
2020
—
0.7
—
(0.6)
(0.3)
(0.2)
TABLE 115: CHANGE IN ACCUMULATED POSTRETIREMENT BENEFIT OBLIGATION
(In Millions)
Beginning Balance
Service Cost
Interest Cost
Plan Amendment
Actuarial (Gain) Loss
Net Claims Paid
Ending Balance
FOR THE YEAR ENDED DECEMBER 31,
$
$
2022
10.2 $
—
0.3
—
1.6
(3.3)
8.8 $
2021
15.7
—
0.3
—
(3.3)
(2.5)
10.2
Northern Trust uses the aggregate Pri-2012 mortality table with a 2012 base year and proposed future improvements under
scale MP-2021, as released by the Society of Actuaries in October 2021. No change to these assumptions was made in
2022 since the Society of Actuaries did not release any updates to its mortality tables and improvement scales in 2022.
2022 ANNUAL REPORT | NORTHERN TRUST CORPORATION 147
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
TABLE 116: ESTIMATED FUTURE BENEFIT PAYMENTS
(In Millions)
2023
2024
2025
2026
2027
2028-2032
$
TOTAL
POSTRETIREMENT
MEDICAL BENEFITS
1.2
1.1
1.1
1.0
0.9
3.8
The weighted average discount rate used in determining the accumulated postretirement benefit obligation was 5.08% at
December 31, 2022, and 2.56% at December 31, 2021. Due to the changes in the plan design as of January 1, 2021, the
health care cost trend rate assumptions including the assumption for drug claims, are not currently impacting the
measurement of the postretirement health care plan.
Defined Contribution Plans. The Corporation and its subsidiaries maintain various defined contribution plans covering
substantially all employees. The Corporation’s contribution to the U.S. plan and to certain European-based plans includes a
matching component. The expense associated with defined contribution plans is charged to Employee Benefits expense on
the consolidated statements of income and totaled $67.2 million in 2022, $65.3 million in 2021, and $62.9 million in 2020.
Note 23 – Share-Based Compensation Plans
Northern Trust recognizes expense for the grant-date fair value of share-based compensation granted to employees and
non-employee directors.
Total compensation expense for share-based payment arrangements to employees and the associated tax impacts were
as follows for the periods presented.
TABLE 117: TOTAL COMPENSATION EXPENSE FOR SHARE-BASED PAYMENT ARRANGEMENTS TO EMPLOYEES
(In Millions)
Restricted Stock Unit Awards
Stock Options
Performance Stock Units
Total Share-Based Compensation Expense
Tax Benefits Recognized
FOR THE YEAR ENDED DECEMBER 31,
$
$
$
2022
96.4 $
—
28.8
125.2 $
31.4 $
2021
78.2 $
—
17.3
95.5 $
24.0 $
2020
78.1
0.5
12.8
91.4
22.9
As of December 31, 2022, there was $91.6 million of unrecognized compensation cost related to unvested share-based
compensation arrangements granted under the Corporation’s share-based compensation plans. That cost is expected to be
recognized as expense over a weighted-average period of approximately 3 years.
The Northern Trust Corporation 2017 Long-Term Incentive Plan (2017 Plan) is administered by the Human Capital
and Compensation Committee (Committee) of the Board of Directors. All employees of the Corporation and its
subsidiaries and all directors of the Corporation are eligible to receive awards under the 2017 Plan. The 2017 Plan provides
for the grant of non-qualified and incentive stock options; tandem and free-standing stock appreciation rights; stock awards
in the form of restricted stock, restricted stock units and other stock awards; and performance awards.
Beginning with grants made on February 21, 2017 under the Northern Trust Corporation 2012 Stock Plan (2012 Plan),
restricted stock unit and performance stock unit grants continue to vest in accordance with the original terms of the award if
the applicable employee retires after satisfying applicable age and service requirements.
Grants are outstanding under the 2017 Plan, the 2012 Plan, and the Amended and Restated Northern Trust Corporation
2002 Stock Plan (2002 Plan). The 2017 Plan was approved by stockholders in April 2017. Upon approval of the 2017 Plan,
no additional shares have been or will be granted under the 2012 Plan or 2002 Plan. The total number of shares of the
Corporation’s common stock authorized for issuance under the 2017 Plan is 20,000,000 plus shares forfeited under the
2012 Plan and 2002 Plan. As of December 31, 2022, shares available for future grant under the 2017 Plan, including shares
forfeited under the 2012 Plan and 2002 Plan, totaled 15,034,880.
The following describes Northern Trust’s share-based payment arrangements and applies to awards under the 2017
Plan, 2012 Plan and the 2002 Plan, as applicable.
148 2022 ANNUAL REPORT | NORTHERN TRUST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Stock Options. Stock options consist of options to purchase common stock at prices not less than 100% of the fair
value thereof on the date the options are granted. Options have a maximum 10 years life and generally vest and become
exercisable in 1 year to 4 years after the date of grant. All options terminate at such time as determined by the Committee
and as provided in the terms and conditions of the respective option grants. There were no options granted during the years
ended December 31, 2022, 2021, and 2020.
The following table provides information about stock options granted, vested, and exercised in the years ended
December 31, 2022, 2021, and 2020.
TABLE 118: STOCK OPTIONS GRANTED, VESTED, AND EXERCISED
(In Millions, Except Per Share Information)
Grant-Date Fair Value of Stock Options Vested
Stock Options Exercised
Intrinsic Value as of Exercise Date
Cash Received
Tax Deduction Benefits Realized
FOR THE YEAR ENDED DECEMBER 31,
$
2022
— $
2021
2.2 $
3.6
3.9
3.5
41.3
53.8
41.3
2020
4.5
13.6
19.5
13.4
A summary of the status of stock options at December 31, 2022, and changes during the year then ended, are presented in
the following table.
TABLE 119: STATUS OF STOCK OPTIONS AND CHANGES
($ In Millions Except Per Share Information)
Options Outstanding, December 31, 2021
Granted
Exercised
Forfeited, Expired or Cancelled
Options Outstanding, December 31, 2022
Options Exercisable, December 31, 2022
WEIGHTED AVERAGE
EXERCISE PRICE
PER SHARE
SHARES
WEIGHTED AVERAGE
REMAINING
CONTRACTUAL
TERM (YEARS)
AGGREGATE
INTRINSIC VALUE
509,888 $
—
(63,566)
(4,775)
441,547 $
441,547 $
71.39
—
61.93
88.06
72.58
72.58
2.7 $
2.7 $
7.0
7.0
Restricted Stock Unit Awards. Restricted stock units may be granted to participants and entitles them to receive a
payment in the Corporation’s common stock or cash and such other terms and conditions as the Committee deems
appropriate. Each restricted stock unit provides the recipient the opportunity to receive one share of stock for each stock
unit that vests. The restricted stock units granted in 2022 predominately vest at a rate equal to 25% per year for four years
on the first day of the month following the month in which the grant date falls. Restricted stock unit grants totaled
1,061,573, 846,433, and 772,848, with weighted average grant-date fair values of $110.99, $99.31, and $99.58 per share,
for the years ended December 31, 2022, 2021, and 2020, respectively. The total fair value of restricted stock units vested
during the years ended December 31, 2022, 2021, and 2020, was $75.6 million, $89.4 million, and $100.2 million,
respectively.
A summary of the status of outstanding restricted stock unit awards at December 31, 2022, and changes during the
year then ended, is presented in the following table.
TABLE 120: OUTSTANDING RESTRICTED STOCK UNIT AWARDS
($ In Millions)
Restricted Stock Unit Awards Outstanding, December 31, 2021
Granted
Distributed
Forfeited
Restricted Stock Unit Awards Outstanding, December 31, 2022
Units Convertible, December 31, 2022
NUMBER
AGGREGATE
INTRINSIC VALUE
2,001,516 $
239.4
1,061,573
(767,775)
(52,131)
2,243,183 $
19,526 $
198.5
1.7
2022 ANNUAL REPORT | NORTHERN TRUST CORPORATION 149
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following is a summary of nonvested restricted stock unit awards at December 31, 2022, and changes during the year
then ended.
TABLE 121: NONVESTED RESTRICTED STOCK UNIT AWARDS
NONVESTED RESTRICTED
STOCK UNITS
Nonvested at December 31, 2021
Granted
Vested
Forfeited
Nonvested at December 31, 2022
WEIGHTED AVERAGE
GRANT- DATE FAIR
VALUE PER UNIT
WEIGHTED AVERAGE
REMAINING VESTING
TERM (YEARS)
NUMBER
1,981,990 $
1,061,573
(767,775)
(52,131)
2,223,657 $
97.56
110.99
98.51
107.70
103.41
2.3
2.4
Performance Stock Units. Each performance stock unit provides the recipient the opportunity to receive one share of the
Corporation’s common stock for each stock unit based on the attainment of certain performance criteria over a three-year
period. For performance stock unit awards granted in 2020, 2021 and 2022, the number of units that will vest are subject to
the attainment of specified performance targets that are a function of average return on equity goals and average return on
equity performance relative to that of a performance peer group, each measured over a three-year period. For performance
stock units outstanding as of December 31, 2022, the number of performance stock units that will vest ranges from 0% to
150% of the original award granted based on the achievement of both absolute and relative return on equity goals over a
three-year period compared to performance targets. Distribution of the shares is then made after vesting.
Performance stock unit grants totaled 211,906, 204,539, and 205,847 for the years ended December 31, 2022, 2021,
and 2020, respectively, with weighted average grant-date fair values of $113.64, $97.77, and $100.83. Performance stock
units outstanding at target level performance totaled 607,892, 622,817, and 660,510 at December 31, 2022, 2021, and
2020, respectively. Performance stock units had aggregate intrinsic values of $53.8 million, $74.5 million, and $61.5
million, and weighted average remaining vesting terms of 1.0 year each at December 31, 2022, 2021, and 2020,
respectively.
Non-employee Director Stock Awards. Stock units with total values of $1.6 million (14,773 units), $1.5 million (13,968
units), and $1.5 million (20,148 units) were granted to non-employee directors in 2022, 2021, and 2020, respectively,
which vest or vested on the date of the annual meeting of the Corporation’s stockholders in the following years. Total
expense recognized on these grants was $1.7 million, $1.6 million, and $1.6 million in 2022, 2021, and 2020, respectively.
Stock units granted to non-employee directors do not have voting rights. Each stock unit entitles a director to one share of
common stock at vesting, unless a director elects to defer receipt of the shares. Directors may elect to defer the payment of
their annual stock unit grant and cash-based compensation until termination of services as director. Deferred cash
compensation is converted into stock units representing shares of common stock of the Corporation. Distributions of
deferred stock units are made in stock. For compensation deferred prior to January 1, 2018, distributions of the stock unit
accounts that relate to cash-based compensation are made in cash based on the fair value of the stock units at the time of
distribution. For compensation deferred on or after January 1, 2018, distributions of the stock unit accounts that relate to
cash-based compensation are made in stock.
Note 24 – Cash-Based Compensation Plans
Various incentive plans provide for cash incentives and bonuses to selected employees based upon accomplishment
of corporate net income objectives, goals of the reporting segments and support functions, and individual performance. The
provision for awards under these plans is charged to Compensation expense and totaled $392.7 million in 2022, $377.1
million in 2021, and $296.2 million in 2020.
Note 25 – Commitments and Contingent Liabilities
Off-Balance Sheet Financial Instruments, Guarantees and Other Commitments. Northern Trust, in the normal course
of business, enters into various types of commitments and issues letters of credit to meet the liquidity and credit
enhancement needs of its clients. The contractual amounts of these instruments represent the maximum potential credit
exposure should the instrument be fully drawn upon and the client default. To control the credit risk associated with
entering into commitments and issuing letters of credit, Northern Trust subjects such activities to the same credit quality
and monitoring controls as its lending activities. Northern Trust does not believe the total contractual amount of these
instruments to be representative of its future credit exposure or funding requirements.
150 2022 ANNUAL REPORT | NORTHERN TRUST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table provides details of Northern Trust's off-balance sheet financial instruments as of December 31,
2022 and 2021.
TABLE 122: SUMMARY OF OFF-BALANCE SHEET FINANCIAL INSTRUMENTS
DECEMBER 31,
2022
2021
($ In Millions)
Undrawn Commitments(1)
Standby Letters of Credit and Financial Guarantees(2)(3)
Commercial Letters of Credit
ONE YEAR
AND LESS
OVER ONE
YEAR
TOTAL
ONE YEAR
AND LESS
OVER ONE
YEAR
TOTAL
$ 13,639.2 $ 17,321.4 $ 30,960.6 $
9,567.0 $ 17,855.2 $ 27,422.2
17,553.0
409.9
17,962.9
3,485.6
25.4
1.3
26.7
68.5
553.9
1.1
4,039.5
69.6
Securities Lent with Indemnification
130,311.0
—
130,311.0
170,445.3
—
170,445.3
Unsettled Reverse Repurchase Agreements
496.8
—
496.8
—
—
—
Total Off-Balance Sheet Financial Instruments
$ 162,025.4 $ 17,732.6 $ 179,758.0 $ 183,566.4 $ 18,410.2 $ 201,976.6
(1) These amounts exclude $266.6 million and $366.6 million of commitments participated to others at December 31, 2022 and 2021, respectively.
(2) These amounts include $35.1 million and $30.5 million of standby letters of credit secured by cash deposits or participated to others as of December 31, 2022 and 2021,
respectively.
(3) This amount includes a $16.3 billion guarantee to the Fixed Income Clearing Corporation (FICC) under the sponsored member program, without taking into consideration
the related collateral, as of December 31, 2022. As of December 31, 2021, there was a $2.3 billion guarantee to the FICC; Northern Trust became a sponsored member during
the third quarter of 2021.
Undrawn Commitments generally have fixed expiration dates or other termination clauses. Since a significant portion
of the commitments are expected to expire without being drawn upon, the total commitment amount does not necessarily
represent future loans or liquidity requirements.
Standby Letters of Credit obligate Northern Trust to meet certain financial obligations of its clients, if, under the
contractual terms of the agreement, the clients are unable to do so. These instruments are primarily issued to support public
and private financial commitments, including commercial paper, bond financing, initial margin requirements on futures
exchanges, and similar transactions. Northern Trust is obligated to meet the entire financial obligation of these agreements
and in certain cases is able to recover the amounts paid through recourse against collateral received or other participants.
Financial Guarantees are issued by Northern Trust to guarantee the performance of a client to a third party under
certain arrangements.
Commercial Letters of Credit are instruments issued by Northern Trust on behalf of its clients that authorize a third
party (the beneficiary) to draw drafts up to a stipulated amount under the specified terms and conditions of the agreement
and other similar instruments. Commercial letters of credit are issued primarily to facilitate international trade.
Securities Lent with Indemnification involves Northern Trust lending securities owned by clients to borrowers who
are reviewed and approved by the Northern Trust Capital Markets Credit Committee, as part of its securities custody
activities and at the direction of its clients. In connection with these activities, Northern Trust has issued indemnifications
to certain clients against certain losses that are a direct result of a borrower’s failure to return securities when due, should
the value of such securities exceed the value of the collateral required to be posted. Borrowers are required to collateralize
fully securities received with cash or marketable securities. As securities are loaned, collateral is maintained at a minimum
100% of the fair value of the securities plus accrued interest. The collateral is revalued on a daily basis. The amount of
securities loaned as of December 31, 2022 and 2021 subject to indemnification was $130.3 billion and $170.4 billion,
respectively. Because of the credit quality of the borrowers and the requirement to fully collateralize securities borrowed,
management believes that the exposure to credit loss from this activity is not significant and no liability was recorded at
December 31, 2022, or 2021 related to these indemnifications.
Unsettled Repurchase and Reverse Repurchase Agreements. Northern Trust enters into repurchase agreements and
reverse repurchase agreements which may settle at a future date. In repurchase agreements, Northern Trust receives cash
from and provides securities as collateral to a counterparty. In reverse repurchase agreements, Northern Trust advances
cash to and receives securities as collateral from a counterparty. These transactions are recorded on the consolidated
balance sheets on the settlement date. As of December 31, 2022, there were no unsettled repurchase agreements and
$496.8 million of unsettled reverse repurchase agreements. As of December 31, 2021, there were no unsettled repurchase
or reverse repurchase agreements.
Sponsored Member Program. Northern Trust is an approved Government Securities Division (GSD) netting and
sponsoring member in the FICC sponsored member program, through which Northern Trust submits eligible repurchase
and reverse repurchase transactions in U.S. government securities between Northern Trust and its sponsored member
clients for novation and clearing. Northern Trust may sponsor clients to clear their eligible repurchase transactions with the
FICC. As a sponsoring member, Northern Trust guarantees to the FICC the prompt and full payment and performance of
2022 ANNUAL REPORT | NORTHERN TRUST CORPORATION 151
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
its sponsored member clients’ respective obligations under the FICC GSD’s rules. To mitigate Northern Trust’s credit
exposure under this guarantee, Northern Trust obtains a security interest in its sponsored member clients’ collateral. Please
refer to Note 27, “Offsetting of Assets and Liabilities” for additional information on Northern Trust’s repurchase and
reverse repurchase agreements.
Clearing and Settlement Organizations. The Bank is a participating member of various cash, securities and foreign
exchange clearing and settlement organizations. It participates in these organizations on behalf of its clients and on its own
behalf as a result of its own activities. A wide variety of cash and securities transactions are settled through these
organizations, including those involving U.S. Treasuries, obligations of states and political subdivisions, asset-backed
securities, commercial paper, dollar placements, and securities issued by the Government National Mortgage Association.
Certain of these industry clearing and settlement exchanges require their members to guarantee their obligations and
liabilities and/or to provide liquidity support in the event other members do not honor their obligations as stipulated in each
clearing organization’s membership agreement. Exposure related to these agreements varies, primarily as a result of
fluctuations in the volume of transactions cleared through the organizations. At December 31, 2022 and 2021, Northern
Trust has not recorded any material liabilities under these arrangements as Northern Trust believes the likelihood that a
clearing or settlement exchange (of which Northern Trust is a member) would become insolvent is remote. Controls related
to these clearing transactions are closely monitored by management to protect the assets of Northern Trust and its clients.
Legal Proceedings. In the normal course of business, the Corporation and its subsidiaries are routinely defendants in
or parties to pending and threatened legal actions, and are subject to regulatory examinations, information-gathering
requests, investigations, and proceedings, both formal and informal. In certain legal actions, claims for substantial
monetary damages are asserted. In regulatory matters, claims for disgorgement, restitution, penalties and/or other remedial
actions or sanctions may be sought.
Based on current knowledge, after consultation with legal counsel and after taking into account current accruals,
management does not believe that losses, fines or penalties, if any, arising from pending litigation or threatened legal
actions or regulatory matters either individually or in the aggregate, after giving effect to applicable reserves and insurance
coverage will have a material adverse effect on the consolidated financial position or liquidity of the Corporation, although
such matters could have a material adverse effect on the Corporation’s operating results for a particular period.
Under GAAP, (i) an event is “probable” if the “future event or events are likely to occur”; (ii) an event is “reasonably
possible” if “the chance of the future event or events occurring is more than remote but less than likely”; and (iii) an event
is “remote” if “the chance of the future event or events occurring is slight.”
The outcome of litigation and regulatory matters is inherently difficult to predict and/or the range of loss often cannot
be reasonably estimated, particularly for matters that (i) will be decided by a jury, (ii) are in early stages, (iii) involve
uncertainty as to the likelihood of a class being certified or the ultimate size of the class, (iv) are subject to appeals or
motions, (v) involve significant factual issues to be resolved, including with respect to the amount of damages, (vi) do not
specify the amount of damages sought or (vii) seek very large damages based on novel and complex damage and liability
legal theories. Accordingly, the Corporation cannot reasonably estimate the eventual outcome of these pending matters, the
timing of their ultimate resolution or what the eventual loss, fines or penalties, if any, related to each pending matter will
be.
In accordance with applicable accounting guidance, the Corporation records accruals for litigation and regulatory
matters when those matters present loss contingencies that are both probable and reasonably estimable. When loss
contingencies are not both probable and reasonably estimable, the Corporation does not record accruals. No material
accruals have been recorded for pending litigation or threatened legal actions or regulatory matters.
For a limited number of matters for which a loss is reasonably possible in future periods, whether in excess of an
accrued liability or where there is no accrued liability, the Corporation is able to estimate a range of possible loss. As
of December 31, 2022, the Corporation has estimated the range of reasonably possible loss for these matters to be from
zero to approximately $20 million in the aggregate. The Corporation’s estimate with respect to the aggregate range of
reasonably possible loss is based upon currently available information and is subject to significant judgment and a variety
of assumptions and known and unknown uncertainties. The matters underlying the estimated range will change from time
to time, and actual results may vary significantly from the current estimate.
In certain other pending matters, there may be a range of reasonably possible loss (including reasonably possible loss
in excess of amounts accrued) that cannot be reasonably estimated for the reasons described above. Such matters are not
included in the estimated range of reasonably possible loss discussed above.
In 2015, Northern Trust Fiduciary Services (Guernsey) Limited (NTFS), an indirect subsidiary of the Corporation, was
charged by a French investigating magistrate judge with complicity in estate tax fraud in connection with the
administration of two trusts for which it serves as trustee. Charges also were brought against a number of other persons and
entities related to this matter. In 2017, a French court found no estate tax fraud had occurred and NTFS and all other
152 2022 ANNUAL REPORT | NORTHERN TRUST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
persons and entities charged were acquitted. The Public Prosecutor’s Office of France appealed the court decision and in
June 2018 a French appellate court issued its opinion on the matter, acquitting all persons and entities charged, including
NTFS. In January 2021, the Cour de Cassation, the highest court in France, reversed the June 2018 appellate court ruling,
requiring a re-trial at the appellate court level. The re-trial proceedings in the appellate court are scheduled to commence in
September 2023. As trustee, NTFS provided no tax advice and had no involvement in the preparation or filing of the
challenged estate tax filings.
Visa Class B Common Shares. Northern Trust, as a member of Visa U.S.A. Inc. (Visa U.S.A.) and in connection
with the 2007 restructuring of Visa U.S.A. and its affiliates and the 2008 initial public offering of Visa Inc. (Visa), received
certain Visa Class B common shares. The Visa Class B common shares are subject to certain selling restrictions until the
final resolution of certain litigation related to interchange fees involving Visa (the covered litigation), at which time the
shares are convertible into Visa Class A common shares based on a conversion rate dependent upon the ultimate cost of
resolving the covered litigation. Since 2018, Visa has deposited an additional $2.1 billion into an escrow account
previously established with respect to the covered litigation. As a result of the additional contributions to the escrow
account, the rate at which Visa Class B common shares will convert into Visa Class A common shares was reduced.
In September 2018, Visa reached a proposed class settlement agreement covering damage claims but not injunctive
relief claims regarding the covered litigation. In December 2019, the district court granted final approval for the proposed
class settlement agreement. Certain merchants have opted out of the class settlement and are pursuing claims separately,
while other merchants have appealed the approval order granted by the district court. The ultimate resolution of the covered
litigation, the timing for removal of the selling restrictions on the Visa Class B common shares and the rate at which such
shares will ultimately convert into Visa Class A common shares are uncertain.
In June 2016 and 2015, Northern Trust recorded a $123.1 million and $99.9 million net gain on the sale of 1.1 million
and 1.0 million of its Visa Class B common shares, respectively. These sales do not affect Northern Trust’s risk related to
the impact of the covered litigation on the rate at which such shares will ultimately convert into Visa Class A common
shares. Northern Trust continued to hold approximately 4.1 million Visa Class B common shares, which are recorded at
their original cost basis of zero, as of both December 31, 2022 and 2021.
Note 26 – Derivative Financial Instruments
Northern Trust is a party to various derivative financial instruments that are used in the normal course of business to meet
the needs of its clients, as part of its trading activity for its own account; and as part of its risk management activities.
These instruments may include foreign exchange contracts, interest rate contracts, total return swap contracts, and swaps
related to the sale of certain Visa Class B common shares. Please refer to Note 1, “Summary of Significant Accounting
Policies” for the significant accounting policies for derivative financial instruments.
Foreign exchange contracts are agreements to exchange specific amounts of currencies at a future date, at a specified
rate of exchange. Foreign exchange contracts are entered into primarily to meet the foreign exchange needs of clients.
Foreign exchange contracts are also used for trading and risk management purposes. For risk management purposes,
Northern Trust uses foreign exchange contracts to reduce its exposure to changes in foreign exchange rates relating to
certain forecasted non-functional currency denominated revenue and expenditure transactions, foreign-currency-
denominated assets and liabilities, including debt securities and net investments in non-U.S. affiliates.
Interest rate contracts include swap and option contracts. Interest rate swap contracts involve the exchange of fixed
and floating rate interest payment obligations without the exchange of the underlying principal amounts. Northern Trust
enters into interest rate swap contracts with its clients and also may utilize such contracts to reduce or eliminate the
exposure to changes in the cash flows or fair value of hedged assets or liabilities due to changes in interest rates. Interest
rate option contracts may include caps, floors, collars and swaptions, and provide for the transfer or reduction of interest
rate risk, typically in exchange for a fee. Northern Trust enters into option contracts primarily as a seller of interest rate
protection to clients. Northern Trust receives a fee at the outset of the agreement for the assumption of the risk of an
unfavorable change in interest rates. This assumed interest rate risk is then mitigated by entering into an offsetting position
with an outside counterparty. Northern Trust may also purchase or enter into option contracts for risk management
purposes including to reduce the exposure to changes in the cash flows of hedged assets due to changes in interest rates.
2022 ANNUAL REPORT | NORTHERN TRUST CORPORATION 153
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table shows the notional and fair values of all derivative financial instruments as of December 31, 2022
and 2021.
TABLE 123: NOTIONAL AND FAIR VALUES OF DERIVATIVE FINANCIAL INSTRUMENTS
12.6
12.3
33.6
0.6
37.5
38.1
(In Millions)
Derivatives Designated as Hedging under GAAP
Interest Rate Contracts
Fair Value Hedges
Foreign Exchange Contracts
Cash Flow Hedges
Net Investment Hedges
DECEMBER 31, 2022
DECEMBER 31, 2021
FAIR VALUE
FAIR VALUE
NOTIONAL
VALUE
ASSET(1) LIABILITY(2)
NOTIONAL
VALUE
ASSET(1)
LIABILITY(2)
$
4,622.0 $
58.5 $
32.7 $
4,430.5 $
7.6 $
8.7
150.9
3,765.0
7.4
283.5
5.7
12.7
3,697.9
4,161.8
61.8
183.3
Total Derivatives Designated as Hedging under GAAP
$
8,537.9 $
349.4 $
51.1 $
12,290.2 $
252.7 $
Derivatives Not Designated as Hedging under GAAP
Non-Designated Risk Management Derivatives
Foreign Exchange Contracts
Other Financial Derivatives(3)
Total Non-Designated Risk Management Derivatives
Client-Related and Trading Derivatives
$
$
55.9 $
717.7
773.6 $
0.1 $
0.3
0.4 $
0.1 $
109.9 $
34.8
738.5
34.9 $
848.4 $
0.2 $
—
0.2 $
Foreign Exchange Contracts
Interest Rate Contracts
$ 288,994.6 $
3,219.1 $
3,169.0 $ 315,532.3 $
1,962.1 $
1,973.3
12,378.2
163.5
399.1
11,570.1
132.4
90.2
Total Client-Related and Trading Derivatives
$ 301,372.8 $
3,382.6 $
3,568.1 $ 327,102.4 $
2,094.5 $
2,063.5
Total Derivatives Not Designated as Hedging under
GAAP
Total Gross Derivatives
Less: Netting(4)
$ 302,146.4 $
3,383.0 $
3,603.0 $ 327,950.8 $
2,094.7 $
2,101.6
$ 310,684.3 $
3,732.4 $
3,654.1 $ 340,241.0 $
2,347.4 $
2,135.2
2,810.7
1,865.9
1,533.8
1,283.5
Total Derivative Financial Instruments
$
921.7 $
1,788.2
$
813.6 $
851.7
(1) Derivative assets are reported in Other Assets on the consolidated balance sheets.
(2) Derivative liabilities are reported in Other Liabilities on the consolidated balance sheets.
(3) This line includes swaps related to sales of certain Visa Class B common shares and total return swap contracts.
(4) See further detail in Note 27, "Offsetting of Assets and Liabilities."
Notional amounts of derivative financial instruments do not represent credit risk, and are not recorded on the consolidated
balance sheets. They are used merely to express the volume of this activity. Northern Trust’s credit-related risk of loss is
limited to the positive fair value of the derivative instrument, net of any collateral received, which is significantly less than
the notional amount.
Hedging Derivative Instruments Designated under GAAP. Northern Trust uses derivative instruments to hedge its
exposure to foreign currency, interest rate, and equity price. Certain hedging relationships are formally designated and
qualify for hedge accounting under GAAP as fair value, cash flow or net investment hedges. Other derivatives that are
entered into for risk management purposes as economic hedges are not formally designated as hedges and changes in fair
value are recognized currently in Other Operating Income within the consolidated statements of income (see below section
“Derivative Instruments Not Designated as Hedging under GAAP”).
Fair Value Hedges. Derivatives are designated as fair value hedges to limit Northern Trust’s exposure to changes in the
fair value of assets and liabilities due to movements in interest rates.
Cash Flow Hedges. Derivatives are also designated as cash flow hedges in order to minimize the variability in cash flows
of earning assets or forecasted transactions caused by movements in interest or foreign exchange rates.
There were no material gains or losses reclassified into earnings during the years ended December 31, 2022, 2021, and
2020 as a result of the discontinuance of cash flow hedges of forecasted transactions that were no longer probable of
occurring. It is estimated that net gains of $1.7 million will be reclassified into net income within the next twelve months
relating to cash flow hedges of foreign-currency-denominated transactions. As of December 31, 2022, 8 months was the
maximum length of time over which the exposure to variability in future cash flows of forecasted foreign-currency-
denominated transactions was being hedged.
154 2022 ANNUAL REPORT | NORTHERN TRUST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table provides fair value and cash flow hedge derivative gains and losses recognized in income during
the years ended December 31, 2022, 2021 and 2020.
TABLE 124: LOCATION AND AMOUNT OF FAIR VALUE AND CASH FLOW HEDGE DERIVATIVE GAINS AND LOSSES RECORDED
IN INCOME
(in Millions)
INTEREST INCOME
INTEREST EXPENSE
OTHER OPERATING
INCOME
For the Year Ended December 31,
2022
2021
2020
2022
2021
2020
2022
2021
2020
Total amounts on the consolidated statements of income
$ 2,877.7 $ 1,406.5 $ 1,643.5 $ 990.5 $ 23.8 $ 200.3 $ 191.3 $ 243.9 $ 194.0
Gains (Losses) on fair value hedges recognized on
Interest Rate Contracts
Recognized on derivatives
Recognized on hedged items
82.8
39.1
(66.3) (373.4) (161.6) 100.2
(82.8)
(39.1)
66.3
373.4
161.6
(100.2)
Amounts related to interest settlements on derivatives
(4.4)
(16.2)
(13.2)
24.1
57.1
29.9
—
—
—
—
—
—
—
—
—
Total gains (losses) recognized on fair value hedges
$
(4.4) $ (16.2) $ (13.2) $ 24.1 $ 57.1 $ 29.9 $ — $ — $ —
Gains (Losses) on cash flow hedges recognized on
Foreign Exchange Contracts
Net gains (losses) reclassified from AOCI to net
income
Interest Rate Contracts
Net gains (losses) reclassified from AOCI to net
income
Total gains (losses) reclassified from AOCI to net
income on cash flow hedges
$
0.6 $ 10.5 $ 27.4 $ — $ — $ — $
(4.3) $
(6.0) $
0.2
—
—
0.5
—
—
—
—
—
—
$
0.6 $ 10.5 $ 27.9 $ — $ — $ — $
(4.3) $
(6.0) $
0.2
The following table provides the impact of fair value hedge accounting on the carrying value of the designated hedged
items as of December 31, 2022 and 2021.
TABLE 125: HEDGED ITEMS IN FAIR VALUE HEDGES
DECEMBER 31, 2022
DECEMBER 31, 2021
(In Millions)
Available for Sale Debt Securities(4)
Senior Notes and Long-Term Subordinated Debt
Total
CARRYING VALUE
OF THE HEDGED
ITEMS
CUMULATIVE HEDGE
ACCOUNTING BASIS
ADJUSTMENT(1)(3)
CARRYING VALUE OF
THE HEDGED ITEMS
CUMULATIVE HEDGE
ACCOUNTING BASIS
ADJUSTMENT(2)(3)
$
$
1,820.8 $
2,746.2
4,567.0 $
(60.2) $
(294.0)
(354.2) $
1,677.4 $
2,745.6
4,423.0 $
11.1
59.5
70.6
(1) The cumulative hedge accounting basis adjustment includes $7.3 million related to discontinued hedging relationships of AFS debt securities as of December 31, 2022. There
are no amounts related to discontinued hedging relationships in the cumulative hedge accounting basis adjustment of senior notes and long-term debt as of December 31, 2022.
(2) The cumulative hedge accounting basis adjustment includes $9.6 million related to discontinued hedging relationships of AFS debt securities as of December 31, 2021. There
were no amounts related to discontinued hedging relationships in the cumulative hedge accounting basis adjustment of senior notes and long-term debt as of December 31,
2021.
(3) Positive (negative) amounts related to AFS securities represent cumulative fair value hedge basis adjustments that will reduce (increase) net interest income in future
periods. Positive (negative) amounts related to Senior Notes and Long-Term Subordinated Debt represent cumulative fair value hedge basis adjustments that will increase
(reduce) net interest income in future periods.
(4) Carrying value represents amortized cost.
Net Investment Hedges. Certain foreign exchange contracts are designated as net investment hedges to minimize Northern
Trust’s exposure to variability in the foreign currency translation of net investments in non-U.S. branches and subsidiaries.
Net investment hedge gains of $278.7 million and $186.6 million were recognized in AOCI related to foreign exchange
contracts for the years ended December 31, 2022 and 2021, respectively.
Derivative Instruments Not Designated as Hedging under GAAP. Northern Trust’s derivative instruments that are not
designated as hedging under GAAP include derivatives for purposes of client-related and trading activities, as well as other
risk management purposes. These activities consist principally of providing foreign exchange services to clients in
connection with Northern Trust’s global custody business. However, in the normal course of business, Northern Trust also
engages in trading of currencies for its own account.
Non-designated risk management derivatives include foreign exchange contracts entered into to manage the foreign
currency risk of non-U.S.-dollar-denominated assets and liabilities, the net investment in certain non-U.S. affiliates,
commercial loans, and forecasted foreign-currency-denominated transactions. Swaps related to sales of certain Visa Class
B common shares were entered into pursuant to which Northern Trust retains the risks associated with the ultimate
2022 ANNUAL REPORT | NORTHERN TRUST CORPORATION 155
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
conversion of the Visa Class B common shares into Visa Class A common shares. Total return swaps are entered into to
manage the equity price risk associated with certain investments.
Changes in the fair value of derivative instruments not designated as hedges under GAAP are recognized currently in
income. The following table provides the location and amount of gains and losses recorded on the consolidated statements
of income for the years ended December 31, 2022, 2021, and 2020 for derivative instruments not designated as hedges
under GAAP.
TABLE 126: LOCATION AND AMOUNT OF GAINS AND LOSSES RECORDED IN INCOME FOR DERIVATIVES NOT DESIGNATED
AS HEDGING UNDER GAAP
(In Millions)
Non-designated risk management derivatives
Foreign Exchange Contracts
Other Financial Derivatives(1)
Gains (Losses) from non-designated risk management derivatives
Client-related and trading derivatives
Foreign Exchange Contracts
Interest Rate Contracts
Gains (Losses) from client-related and trading derivatives
Total gains (losses) from derivatives not designated as hedging
under GAAP
DERIVATIVE GAINS (LOSSES)
LOCATION RECOGNIZED IN INCOME
AMOUNT OF DERIVATIVE GAINS (LOSSES)
RECOGNIZED IN INCOME
2022
2021
2020
Other Operating Income
Other Operating Income
$
$
(3.1) $
(22.2)
(25.3) $
1.2 $
(21.3)
(20.1) $
6.4
(18.3)
(11.9)
Foreign Exchange Trading Income
$
288.6 $
292.6 $
290.4
Security Commissions and Trading
Income
9.6
15.7
298.2 $
308.3 $
22.4
312.8
272.9 $
288.2 $
300.9
$
$
(1) This line includes swaps related to the sale of certain Visa Class B common shares and total return swap contracts.
156 2022 ANNUAL REPORT | NORTHERN TRUST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 27 – Offsetting of Assets and Liabilities
The following table provides information regarding the offsetting of derivative assets and of securities purchased under
agreements to resell within the consolidated balance sheets as of December 31, 2022 and 2021.
TABLE 127: OFFSETTING OF DERIVATIVE ASSETS AND SECURITIES PURCHASED UNDER AGREEMENTS TO RESELL
(In Millions)
Derivative Assets(1)
Foreign Exchange Contracts Over the Counter
(OTC)
Interest Rate Swaps OTC
Interest Rate Swaps Exchange Cleared
Other Financial Derivative
Total Derivatives Subject to a Master Netting
Arrangement
Total Derivatives Not Subject to a Master Netting
Arrangement
Total Derivatives
Securities Purchased under Agreements to Resell(2)
(In Millions)
Derivative Assets(1)
DECEMBER 31, 2022
GROSS
RECOGNIZED
ASSETS
GROSS
AMOUNTS
OFFSET IN THE
BALANCE
SHEET(3)
NET AMOUNTS
PRESENTED IN
THE BALANCE
SHEET
GROSS
AMOUNTS
NOT OFFSET IN
THE BALANCE
SHEET(4) NET AMOUNT(5)
$
2,928.9 $
2,666.4 $
262.5 $
5.0 $
217.6
4.4
0.3
144.3
—
—
3,151.2
2,810.7
581.2
3,732.4
—
2,810.7
73.3
4.4
0.3
340.5
581.2
921.7
—
—
—
5.0
—
5.0
$
12,494.2 $
11,423.9 $
1,070.3 $
1,070.3 $
257.5
73.3
4.4
0.3
335.5
581.2
916.7
—
DECEMBER 31, 2021
GROSS
RECOGNIZED
ASSETS
GROSS
AMOUNTS
OFFSET IN THE
BALANCE
SHEET(3)
NET AMOUNTS
PRESENTED IN
THE BALANCE
SHEET
GROSS
AMOUNTS
NOT OFFSET IN
THE BALANCE
SHEET(4) NET AMOUNT(5)
Foreign Exchange Contracts OTC
$
1,762.7 $
1,530.7 $
Interest Rate Swaps OTC
140.0
3.1
Total Derivatives Subject to a Master Netting
Arrangement
Total Derivatives Not Subject to a Master Netting
Arrangement
1,902.7
1,533.8
444.7
—
232.0 $
136.9
368.9
444.7
2.8 $
—
2.8
—
229.2
136.9
366.1
444.7
Total Derivatives
Securities Purchased under Agreements to Resell(2)
(1) Derivative assets are reported in Other Assets on the consolidated balance sheets. Other Assets (excluding derivative assets) totaled $8.9 billion and $7.8 billion as of
December 31, 2022 and 2021, respectively.
(2) Offsetting of Securities Purchased under Agreements to Resell relates to our involvement in FICC.
(3) Including cash collateral received from counterparties.
(4) Including financial assets accepted as collateral which are received from counterparties.
(5) Northern Trust did not possess any cash collateral that was not offset on the consolidated balance sheets that could have been used to offset the net amounts presented on the
consolidated balance sheets as of December 31, 2022 and 2021.
1,392.5 $
2,078.9 $
686.4 $
686.4 $
2,347.4
1,533.8
813.6
810.8
2.8
—
$
2022 ANNUAL REPORT | NORTHERN TRUST CORPORATION 157
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table provides information regarding the offsetting of derivative liabilities and of securities sold under
agreements to repurchase within the consolidated balance sheets as of December 31, 2022 and 2021.
TABLE 128: OFFSETTING OF DERIVATIVE LIABILITIES AND SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
(In Millions)
Derivative Liabilities(1)
DECEMBER 31, 2022
GROSS
RECOGNIZED
LIABILITIES
GROSS
AMOUNTS
OFFSET IN THE
BALANCE
SHEET(3)
NET AMOUNTS
PRESENTED IN
THE BALANCE
SHEET
GROSS
AMOUNTS
NOT OFFSET IN
THE BALANCE
SHEET(4)
NET
AMOUNT(5)
Foreign Exchange Contracts OTC
$
2,082.3 $
1,826.7 $
Interest Rate Swaps OTC
Interest Rate Swaps Exchange Cleared
Other Financial Derivatives
Total Derivatives Subject to a Master Netting
Arrangement
Total Derivatives Not Subject to a Master Netting
Arrangement
Total Derivatives
Securities Sold under Agreements to Repurchase(2)
(In Millions)
Derivative Liabilities(1)
426.5
5.3
34.8
5.9
—
33.3
255.6 $
420.6
5.3
1.5
2,548.9
1,865.9
683.0
1,105.2
3,654.1
—
1,865.9
1,105.2
1,788.2
— $
—
—
—
—
—
—
255.6
420.6
5.3
1.5
683.0
1,105.2
1,788.2
—
$
11,991.1 $
11,423.9 $
567.2 $
567.2 $
DECEMBER 31, 2021
GROSS
RECOGNIZED
LIABILITIES
GROSS
AMOUNTS
OFFSET IN THE
BALANCE
SHEET(3)
NET AMOUNTS
PRESENTED IN
THE BALANCE
SHEET
GROSS
AMOUNTS
NOT OFFSET IN
THE BALANCE
SHEET(4)
NET
AMOUNT(5)
Foreign Exchange Contracts OTC
$
1,430.1 $
1,234.5 $
195.6 $
— $
Interest Rate Swaps OTC
Interest Rate Swaps Exchange Cleared
Other Financial Derivatives
Total Derivatives Subject to a Master Netting
Arrangement
Total Derivatives Not Subject to a Master Netting
Arrangement
Total Derivatives
Securities Sold under Agreements to Repurchase(2)
98.7
0.2
37.5
48.1
—
0.9
1,566.5
1,283.5
568.7
2,135.2
—
1,283.5
50.6
0.2
36.6
283.0
568.7
851.7
—
—
—
—
—
—
$
1,924.4 $
1,392.5 $
531.9 $
531.9 $
195.6
50.6
0.2
36.6
283.0
568.7
851.7
—
(1) Derivative liabilities are reported in Other Liabilities on the consolidated balance sheets. Other Liabilities (excluding derivative liabilities) totaled $3.2 billion and $3.3
billion as of December 31, 2022 and 2021, respectively.
(2) Offsetting of Securities Sold under Agreements to Repurchase relates to our involvement in FICC.
(3) Including cash collateral deposited with counterparties.
(4) Including financial assets accepted as collateral which are deposited with counterparties.
(5) Northern Trust did not place any cash collateral with counterparties that was not offset on the consolidated balance sheets that could have been used to offset the net
amounts presented on the consolidated balance sheets as of December 31, 2022 and 2021.
All of Northern Trust’s securities sold under agreements to repurchase (repurchase agreements) and securities purchased
under agreements to resell (reverse repurchase agreements) involve the transfer of financial assets in exchange for cash
subject to a right and obligation to repurchase those assets for an agreed upon amount. In the event of a repurchase failure,
the cash or financial assets are available for offset. All of Northern Trust’s repurchase agreements and reverse repurchase
agreements are subject to a master netting arrangement, which sets forth the rights and obligations for repurchase and
offset. Under the master netting arrangement, Northern Trust is entitled to set off receivables from and collateral placed
with a single counterparty against obligations owed to that counterparty. In addition, collateral held by Northern Trust can
be offset against receivables from that counterparty. Northern Trust’s repurchase agreements and reverse repurchase
agreements, other than those in which the counterparty is FICC, do not meet the requirements to net under GAAP.
Derivative asset and liability positions with a single counterparty can be offset against each other in cases where
legally enforceable master netting arrangements or similar agreements exist. Derivative assets and liabilities can be further
offset by cash collateral received from, and deposited with, the transacting counterparty. The basis for this view is that,
upon termination of transactions subject to a master netting arrangement or similar agreement, the individual derivative
receivables do not represent resources to which general creditors have rights and individual derivative payables do not
represent claims that are equivalent to the claims of general creditors.
158 2022 ANNUAL REPORT | NORTHERN TRUST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Credit risk associated with derivative instruments relates to the failure of the counterparty and the failure of Northern
Trust to pay based on the contractual terms of the agreement, and is generally limited to the unrealized fair value gains and
losses on these instruments, net of any collateral received or deposited. The amount of credit risk will increase or decrease
during the lives of the instruments as interest rates, foreign exchange rates, or equity prices fluctuate. Northern Trust’s risk
is controlled by limiting such activity to an approved list of counterparties and by subjecting such activity to the same
credit and quality controls as are followed in lending and investment activities. Credit Support Annexes and other similar
agreements are currently in place with a number of Northern Trust’s counterparties which mitigate the aforementioned
credit risk associated with derivative activity conducted with those counterparties by requiring that significant net
unrealized fair value gains be supported by collateral placed with Northern Trust.
Additional cash collateral received from and deposited with derivative counterparties totaling $131.8 million and $26.3
million, respectively, as of December 31, 2022, and $93.5 million and $43.4 million, respectively, as of December 31,
2021, was not offset against derivative assets and liabilities on the consolidated balance sheets as the amounts exceeded the
net derivative positions with those counterparties.
Certain master netting arrangements Northern Trust enters into with derivative counterparties contain credit risk-
related contingent features in which the counterparty has the option to declare Northern Trust in default and accelerate cash
settlement of net derivative liabilities with the counterparty in the event Northern Trust’s credit rating falls below specified
levels. The aggregate fair value of all derivative instruments with credit-risk-related contingent features that were in a
liability position was $190.9 million and $111.5 million at December 31, 2022 and 2021, respectively. Cash collateral
amounts deposited with derivative counterparties on those dates included $55.1 million and $84.2 million, respectively,
posted against these liabilities, resulting in a net maximum amount of termination payments that could have been required
at December 31, 2022 and 2021 of $135.8 million and $27.3 million, respectively. Accelerated settlement of these
liabilities would not have a material effect on the consolidated financial position or liquidity of Northern Trust.
Note 28 – Variable Interest Entities
Variable Interest Entities (VIEs) are defined within GAAP as entities which either (1) lack sufficient equity at risk to
permit the entity to finance its activities without additional subordinated financial support, (2) have equity investors that
lack attributes typical of an equity investor, such as the ability to make significant decisions through voting rights affecting
the entity’s operations, or the obligation to absorb expected losses or the right to receive residual returns of the entity, or (3)
are structured with voting rights that are disproportionate to the equity investor’s obligation to absorb losses or right to
receive returns, and substantially all of the activities are conducted on behalf of the holder of the equity investment at risk
with disproportionately few voting rights. Investors that finance a VIE through debt or equity interests are variable interest
holders in the entity and the variable interest holder, if any, that has both the power to direct the activities that most
significantly impact the entity’s economic performance and, through its variable interest, the obligation to absorb losses or
the right to receive returns that could potentially be significant to the entity is deemed to be the VIE’s primary beneficiary
and is required to consolidate the VIE.
Tax Credit Structures. Northern Trust invests in qualified affordable housing projects and community development
entities (collectively, community development projects) that are designed to generate a return primarily through the
realization of tax credits. The community development projects are formed as limited partnerships and limited liability
companies in which Northern Trust invests as a limited partner/investor member through equity contributions. The
economic performance of the community development projects, some of which are VIEs, is subject to the performance of
their underlying investment and their ability to operate in compliance with the rules and regulations necessary for the
qualification of tax credits generated by equity investments. Northern Trust has determined that it is not the primary
beneficiary of any community development project VIEs as it lacks the power to direct the activities that most significantly
impact the economic performance of the underlying investments or to affect their ability to operate in compliance with the
rules and regulations necessary for the qualification of tax credits generated by equity investments. This power is held by
the general partners and managing members who exercise full and exclusive control of the operations of the community
development project VIEs.
Northern Trust’s maximum exposure to loss as a result of its involvement with community development projects is
limited to the carrying amounts of its investments, including any undrawn commitments. As of December 31, 2022 and
2021, the carrying amounts of these investments in community development projects that generate tax credits, included in
Other Assets on the consolidated balance sheets, totaled $904.3 million and $916.8 million, respectively, of which $867.2
million and $880.0 million are VIEs as of December 31, 2022 and 2021, respectively. As of December 31, 2022 and 2021,
liabilities related to unfunded commitments on investments in tax credit community development projects, included in
Other Liabilities on the consolidated balance sheets, totaled $218.9 million and $289.3 million, respectively, of which
$210.1 million and $280.5 million related to undrawn commitments on VIEs as of December 31, 2022 and 2021,
respectively.
2022 ANNUAL REPORT | NORTHERN TRUST CORPORATION 159
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Northern Trust’s funding requirements are limited to its invested capital and undrawn commitments for future equity
contributions. Northern Trust has no exposure to loss from liquidity arrangements and no obligation to purchase assets of
the community development projects.
Tax credits and other tax benefits attributable to community development projects totaled $99.1 million and $87.2
million, respectively, as of December 31, 2022 and 2021.
Investment Funds. Northern Trust acts as asset manager for various funds in which clients of Northern Trust are
investors. As an asset manager of funds, Northern Trust earns a competitively priced fee that is based on assets managed
and varies with each fund’s investment objective. Based on its analysis, Northern Trust has determined that it is not the
primary beneficiary of these VIEs under GAAP.
Some of the funds for which Northern Trust acts as asset manager comply or operate in accordance with requirements
that are similar to those in Rule 2a-7 of the Investment Company Act of 1940 for registered money market funds and
therefore the funds are exempt from the consolidation requirements in ASC 810-10. Northern Trust voluntarily waived
$64.2 million of money market fund fees for the year ended December 31, 2022 related to certain competitive factors.
Northern Trust voluntarily waived $287.8 million of money market mutual fund fees for the year ended December 31,
2021 related to the low-interest-rate environment and certain competitive factors. Northern Trust does not have any
contractual obligations to provide financial support to the funds. Any potential future support of the funds will be at the
discretion of Northern Trust after an evaluation of the specific facts and circumstances.
Periodically, Northern Trust makes seed capital investments to certain funds. As of December 31, 2022, Northern
Trust had $19.9 million of investments valued using net asset value per share and included in Other Assets and had no
unfunded commitments related to seed capital investments. As of December 31, 2021, Northern Trust had no seed capital
investments and no unfunded commitments related to seed capital investments.
Note 29 – Pledged and Restricted Assets
Pledged Assets. Certain of Northern Trust’s subsidiaries, as required or permitted by law, pledge assets to secure public
and trust deposits, repurchase agreements and borrowings, as well as for other purposes, including support for securities
settlement, primarily related to client activities, and for derivative contracts.
The following table presents Northern Trust’s pledged assets.
TABLE 129: TYPE OF PLEDGED ASSETS
(In Billions)
Securities
Obligations of States and Political Subdivisions
Government Sponsored Agency and Other Securities
Loans
Total Pledged Assets
FOR THE YEAR ENDED DECEMBER 31,
2022
3.2 $
28.2
11.8
43.2 $
2021
3.7
35.6
15.3
54.6
$
$
Collateral required for these purposes totaled $8.7 billion and $5.6 billion at December 31, 2022 and 2021, respectively.
The following table presents the AFS debt securities pledged as collateral that are included in pledged assets.
TABLE 130: FAIR VALUE OF AVAILABLE FOR SALE DEBT SECURITIES INCLUDED IN PLEDGED ASSETS
(In Millions)
Debt Securities
Available for Sale
SECURITIES SOLD UNDER AGREEMENTS
TO REPURCHASE
DERIVATIVE CONTRACTS
DECEMBER 31, 2022 DECEMBER 31, 2021 DECEMBER 31, 2022 DECEMBER 31, 2021
$
464.7 $
524.1 $
34.7 $
17.6
The secured parties to these transactions have the right to repledge or sell the securities as it relates to $464.7 million
and $524.1 million of the pledged collateral as of December 31, 2022 and 2021, respectively.
Northern Trust accepts financial assets as collateral that it may, in some instances, be permitted to repledge or sell. The
collateral is generally obtained under certain reverse repurchase agreements and derivative contracts.
160 2022 ANNUAL REPORT | NORTHERN TRUST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table presents the fair value of securities accepted as collateral.
TABLE 131: ACCEPTED COLLATERAL
(In Millions)
Collateral that may be repledged or sold
Reverse repurchase agreements(1)
Derivative contracts
Collateral that may not be repledged or sold
Reverse repurchase agreements
Total Collateral Accepted(2)
FOR THE YEAR ENDED DECEMBER 31,
2022
12,119.4 $
5.0
450.0
12,574.4 $
$
$
2021
1,457.0
2.8
650.0
2,109.8
(1) The fair value of securities collateral that was repledged or sold totaled $11.5 billion at December 31, 2022. There was $1.4 billion repledged or sold collateral at
December 31, 2021.
(2) Higher total accepted collateral was due to increased sponsored member program activity.
Restricted Assets. Certain cash may be restricted in terms of usage or withdrawal. As a result of current events involving
Ukraine and the Russian Federation and related sanctions and legal restrictions in place, cash balances denominated in
Russian rubles received for the benefit of certain clients in our Asset Servicing business are subject to distribution
restrictions. As of December 31, 2022, these balances totaled $330.4 million and are reported in Cash and Due from Banks
on the consolidated balance sheet.
At December 31, 2022 and 2021, Northern Trust held cash of $574.2 million and $641.6 million, respectively, to meet
non-U.S. reserve requirements. As a result of the economic environment arising from the COVID-19 pandemic, the Federal
Reserve reduced the U.S. reserve requirement to zero percent on March 26, 2020. There were no deposits required to meet
Federal Reserve Bank reserve requirements at December 31, 2022 and 2021.
Note 30 – Restrictions on Subsidiary Dividends and Loans or Advances
Various federal and state statutory provisions limit the amount of dividends the Bank can pay to the Corporation without
regulatory approval. Approval of the Federal Reserve Board is required for payment of any dividend by a state-chartered
bank that is a member of the Federal Reserve System if the total of all dividends declared by the bank in any calendar year
would exceed the total of its retained net income (as defined by regulatory agencies) for that year combined with its
retained net income for the preceding two years. In addition, a state member bank may not pay a dividend in an amount
greater than its “undivided profits,” as defined, without regulatory and stockholder approval.
Under Illinois law, an Illinois state bank, prior to paying a dividend, must carry over to surplus at least one-tenth of its
net profits since the date of the declaration of the last preceding dividend, until the bank’s surplus is equal to its capital. In
addition, an Illinois state bank may not pay any dividend in an amount greater than its net profits then on hand, after
deduction of losses and bad debts (defined as debts due to a state bank on which interest is past due and unpaid for a period
of six months or more, unless the same are well secured and in the process of collection).
The Bank is also prohibited under federal law from paying any dividends if the Bank is undercapitalized or if the
payment of the dividends would cause the Bank to become undercapitalized. In addition, the federal regulatory agencies
are authorized to prohibit a bank or bank holding company from engaging in an unsafe or unsound banking practice. The
payment of dividends could, depending on the financial condition of the Bank, be deemed to constitute an unsafe or
unsound practice. The Dodd-Frank Act and Basel III impose additional restrictions on the ability of banking institutions to
pay dividends (e.g., the Corporation may pay dividends only in accordance with the capital plan rules and capital adequacy
standards of the Federal Reserve).
Under federal law, financial transactions by the Bank, the Corporation’s insured banking subsidiary, with the
Corporation and its affiliates that are in the form of loans or extensions of credit, investments, guarantees, derivative
transactions, repurchase agreements, securities lending transactions or purchases of assets, are restricted. These transactions
must be on terms and conditions that are, or in good faith would be, offered to non-affiliated companies (i.e. on terms not
less favorable to the Bank than market terms). Further, extensions of credit must be secured fully with qualifying collateral
and are limited to 10% of the Bank’s capital and surplus for transactions with a single affiliate and to 20% of the Bank’s
capital and surplus with all affiliates. Other state and federal laws may limit the transfer of funds by the Corporation’s
banking subsidiaries to the Corporation and certain of its affiliates.
2022 ANNUAL REPORT | NORTHERN TRUST CORPORATION 161
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 31 – Reporting Segments and Related Information
Segment Information. In 2022, the Corporation changed the name of its Corporate and Institutional Services segment to
“Asset Servicing.” This change has not had, and is not expected in the future to have, any impact upon the methodology by
which the Corporation allocates revenue and expense to each of its reporting segments.
Northern Trust is organized around its two client-focused reporting segments: Asset Servicing and Wealth
Management. Asset management and related services are provided to Asset Servicing and Wealth Management clients
primarily by the Asset Management business. The revenue and expenses of Asset Management and certain other support
functions are allocated fully to Asset Servicing and Wealth Management.
Reporting segment financial information, presented on an internal management-reporting basis, is determined by
accounting systems used to allocate revenue and expense to each segment, and incorporates processes for allocating assets,
liabilities, equity and the applicable interest income and expense utilizing a funds transfer pricing (FTP) methodology.
Under the methodology, assets and liabilities receive a funding charge or credit that considers interest rate risk, liquidity
risk, and other product characteristics on an instrument level. Additionally, segment information is presented on an FTE
basis as management believes an FTE presentation provides a clearer indication of net interest income. The adjustment to
an FTE basis has no impact on Net Income.
Equity is allocated to the reporting segments based on a variety of factors including, but not limited to, risk, regulatory
considerations, and internal metrics. Allocations of capital and certain corporate expense may not be representative of
levels that would be required if the segments were independent entities. The accounting policies used for management
reporting are consistent with those described in Note 1, “Summary of Significant Accounting Policies.” Transfers of
income and expense items are recorded at cost; there is no consolidated profit or loss on sales or transfers between
reporting segments. Northern Trust’s presentations are not necessarily consistent with similar information for other
financial institutions.
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, which are reported within the Other 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.
investors around
Asset Servicing. Asset Servicing is a leading global provider of asset servicing and related services to corporate and
public retirement funds, foundations, endowments, fund managers, insurance companies, sovereign wealth funds, and other
institutional
the globe. Asset servicing and related services encompass a full range of
capabilities including but not limited to: custody; fund administration; investment operations outsourcing; investment
management; investment risk and analytical services; employee benefit services; securities lending; foreign exchange;
treasury management; brokerage services; transition management services; banking; and cash management. Client
relationships are managed through the Bank and the Bank’s and the Corporation’s other subsidiaries, including support
from locations in North America, Europe, the Middle East, and the Asia-Pacific region.
Wealth Management. Wealth Management focuses on high-net-worth individuals and families, business owners,
executives, professionals, retirees, and established privately-held businesses in its target markets. In supporting these
targeted segments, Wealth Management provides trust, investment management, custody, and philanthropic services;
financial consulting; guardianship and estate administration; family business consulting; family financial education;
brokerage services; and private and business banking. Wealth Management also includes Global Family Office, which
provides customized services, including but not limited to: investment consulting; global custody; fiduciary; and private
banking; family office consulting, and technology solutions, to meet the complex financial and reporting needs of ultra-
high-net-worth individuals and family offices across the globe. Wealth Management services are delivered by
multidisciplinary teams through a network of offices in 19 U.S. states and Washington, D.C., as well as offices in London,
Guernsey, and Abu Dhabi.
Other. Income and expenses associated with non-recurring activities such as certain costs associated with acquisitions,
divestitures, litigation, restructuring, and tax adjustments are included within Other.
The following tables reflect the earnings contribution and average assets of Northern Trust’s reporting segments for
the years ended December 31, 2022, 2021, and 2020. Segment results are stated on an FTE basis which has no impact on
net income. Financial measures stated on an FTE basis includes FTE adjustments of $45.6 million, $35.6 million, and
$34.4 million for 2022, 2021, and 2020, respectively.
162 2022 ANNUAL REPORT | NORTHERN TRUST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
TABLE 132: ASSET SERVICING RESULTS OF OPERATIONS
($ In Millions)
Noninterest Income
Trust, Investment and Other Servicing Fees
Foreign Exchange Trading Income
Other Noninterest Income
Total Noninterest Income
Net Interest Income(1)
Revenue(1)
Provision for Credit Losses
Noninterest Expense
Income before Income Taxes(1)
Provision for Income Taxes(1)
Net Income
Percentage of Consolidated Net Income
Average Assets
(1) Financial measures stated on an FTE basis.
TABLE 133: WEALTH MANAGEMENT RESULTS OF OPERATIONS
($ In Millions)
Noninterest Income
Trust, Investment and Other Servicing Fees
Foreign Exchange Trading Income
Other Noninterest Income
Total Noninterest Income
Net Interest Income(1)
Revenue(1)
Provision for Credit Losses
Noninterest Expense
Income before Income Taxes(1)
Provision for Income Taxes(1)
Net Income
Percentage of Consolidated Net Income
Average Assets
(1) Financial measures stated on an FTE basis.
TABLE 134: OTHER RESULTS OF OPERATIONS
($ In Millions)
Noninterest Income
Net Interest Income(1)
Revenue(1)
Noninterest Expense
Income (Loss) before Income Taxes(1)
Provision (Benefit) for Income Taxes(1)
Net Income
Percentage of Consolidated Net Income
Average Assets
(1) Financial measures stated on an FTE basis.
FOR THE YEAR ENDED DECEMBER 31,
2022
2021
2020
$
2,496.3
$
2,487.3
$
2,321.6
281.0
250.7
3,028.0
1,072.7
4,100.7
2.4
3,092.7
1,005.6
243.2
762.4
$
279.0
261.2
3,027.5
637.2
3,664.7
(33.8)
2,863.0
835.5
194.1
$
641.4
$
276.3
222.5
2,820.4
665.5
3,485.9
38.1
2,752.7
695.1
174.4
520.7
57 %
41 %
43 %
$ 115,646.4
$
120,883.2
$
104,790.6
FOR THE YEAR ENDED DECEMBER 31,
2022
2021
2020
$
1,936.3
$
1,873.8
$
1,673.4
7.6
137.7
2,081.6
860.1
2,941.7
9.6
1,815.5
1,116.6
310.0
806.6
$
13.6
188.2
2,075.6
781.1
2,856.7
(47.7)
1,651.1
1,253.3
317.0
$
936.3
$
14.1
168.0
1,855.5
812.1
2,667.6
86.9
1,559.7
1,021.0
291.8
729.2
60 %
61 %
60 %
$
36,905.5
$
35,480.0
$
32,020.5
FOR THE YEAR ENDED DECEMBER 31,
2022
2021
2020
$
(235.6)
$
(21.3)
$
—
(235.6)
74.7
(310.3)
(77.3)
—
(21.3)
21.8
(43.1)
(10.7)
$
$
(233.0)
$
(32.4)
$
(17) %
—
$
(2) %
—
$
(18.3)
—
(18.3)
35.8
(54.1)
(13.5)
(40.6)
(3) %
—
2022 ANNUAL REPORT | NORTHERN TRUST CORPORATION 163
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
TABLE 135: CONSOLIDATED FINANCIAL INFORMATION
(In Millions)
Noninterest Income
Trust, Investment and Other Servicing Fees
Foreign Exchange Trading Income
Other Noninterest Income
Total Noninterest Income
Net Interest Income
Revenue
Provision for Credit Losses
Noninterest Expense
Income before Income Taxes
Provision for Income Taxes
Net Income
Average Assets
FOR THE YEAR ENDED DECEMBER 31,
2022
2021
2020
$
4,432.6 $
4,361.1 $
3,995.0
288.6
152.8
4,874.0
1,887.2
6,761.2
12.0
4,982.9
1,766.3
430.3
292.6
428.1
5,081.8
1,382.7
6,464.5
(81.5)
4,535.9
2,010.1
464.8
1,336.0 $
1,545.3 $
290.4
372.2
4,657.6
1,443.2
6,100.8
125.0
4,348.2
1,627.6
418.3
1,209.3
152,551.9 $
156,363.2 $
136,811.1
$
$
Geographic Area Information. Northern Trust’s non-U.S. activities are primarily related to its asset servicing, asset
management, foreign exchange, cash management, and commercial banking businesses. The operations of Northern Trust
are managed on a reporting segment basis and include components of both U.S and non-U.S. source income and assets.
Non-U.S. source income and assets are not separately identified in Northern Trust’s internal management reporting system.
However, Northern Trust is required to disclose non-U.S. activities based on the domicile of the customer. Due to the
complex and integrated nature of Northern Trust’s activities, it is difficult to segregate with precision revenues, expenses
and assets between U.S. and non-U.S.-domiciled customers. Therefore, certain subjective estimates and assumptions have
been made to allocate revenues, expenses and assets between U.S. and non-U.S. operations.
For purposes of this disclosure, all foreign exchange trading income has been allocated to non-U.S. operations. Interest
expense is allocated to non-U.S. operations based on specifically matched or pooled funding. Allocations of indirect
noninterest expenses, when made, are based on various methods such as time, space, and number of employees.
The following table summarizes Northern Trust’s performance based on the allocation process described above
without regard to guarantors or the location of collateral.
TABLE 136: DISTRIBUTION OF TOTAL ASSETS AND OPERATING PERFORMANCE
(In Millions)
TOTAL ASSETS
% OF
TOTAL
TOTAL
REVENUE(1)
% OF
TOTAL
INCOME BEFORE
INCOME TAXES
% OF
TOTAL
NET INCOME
% OF
TOTAL
2022
Non-U.S.
U.S.
Total
2021
Non-U.S.
U.S.
Total
2020
Non-U.S.
U.S.
Total
$
$
$
$
$
$
35,991.3
119,045.4
155,036.7
38,555.3
145,334.5
183,889.8
38,393.8
131,610.1
170,003.9
23 % $
77 %
100 % $
21 % $
79 %
100 % $
23 % $
77 %
100 % $
2,273.3
4,487.9
6,761.2
2,017.5
4,447.0
6,464.5
1,737.6
4,363.2
6,100.8
34 % $
66 %
100 % $
31 % $
69 %
100 % $
28 % $
72 %
100 % $
560.9
1,205.4
1,766.3
569.4
1,440.7
2,010.1
404.0
1,223.6
1,627.6
32 % $
68 %
420.2
915.8
31 %
69 %
100 % $
1,336.0
100 %
28 % $
72 %
100 % $
25 % $
75 %
426.7
1,118.6
1,545.3
302.6
906.7
28 %
72 %
100 %
25 %
75 %
100 % $
1,209.3
100 %
(1) Total revenue is comprised of net interest income and noninterest income.
Note 32 – Regulatory Capital Requirements
The Corporation and the Bank are subject to various regulatory capital requirements administered by the federal bank
regulatory authorities. Under these requirements, banks must maintain specific risk-based capital and leverage ratios in
order to be classified as “well-capitalized.” The regulatory capital requirements impose certain restrictions upon banks that
meet minimum capital requirements but are not “well-capitalized” and obligate the federal bank regulatory authorities to
take “prompt corrective action” with respect to banks that do not maintain such minimum ratios. Such prompt corrective
action could have a direct material effect on a bank’s financial statements.
164 2022 ANNUAL REPORT | NORTHERN TRUST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2022 and 2021, the Bank had capital ratios above the levels required for classification as a “well-
capitalized” institution and had not received any regulatory notification of a lower classification. 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.
Additionally, Northern Trust’s subsidiary banks located outside the U.S. are subject to regulatory capital requirements
in the jurisdictions in which they operate. As of December 31, 2022 and 2021, Northern Trust’s non-U.S. banking
subsidiaries had capital ratios above their specified minimum requirements. There were no conditions or events since
December 31, 2022, that management believes have adversely affected the capital categorization of any Northern Trust
subsidiary bank. The following table provides capital ratios for the Corporation and the Bank determined by Basel III
phased in requirements.
TABLE 137: RISK-BASED AND LEVERAGE CAPITAL AMOUNTS AND RATIOS
($ In Millions)
Common Equity Tier 1 Capital
Northern Trust Corporation
The Northern Trust Company
Minimum to qualify as well-capitalized:
DECEMBER 31, 2022
DECEMBER 31, 2021
STANDARDIZED
APPROACH
ADVANCED
APPROACH
STANDARDIZED
APPROACH
ADVANCED
APPROACH
BALANCE
RATIO BALANCE
RATIO BALANCE
RATIO BALANCE
RATIO
$ 9,539.7
10.8 % $ 9,539.7
11.5 % $ 10,277.1
11.9 % $ 10,277.1
13.2 %
10,111.2
11.6
10,111.2
12.4
10,315.7
12.0
10,315.7
13.5
Northern Trust Corporation
The Northern Trust Company
N/A
5,684.4
N/A
6.5
N/A
5,286.2
N/A
6.5
N/A
5,578.7
N/A
6.5
N/A
4,964.5
N/A
6.5
Tier 1 Capital
Northern Trust Corporation
The Northern Trust Company
10,397.4
10,111.2
11.8
11.6
10,397.4
10,111.2
12.5
12.4
11,142.2
10,315.7
12.9
12.0
11,142.2
10,315.7
Minimum to qualify as well-capitalized:
Northern Trust Corporation
The Northern Trust Company
5,286.5
6,996.2
6.0
8.0
4,990.9
6,506.1
6.0
8.0
5,177.6
6,866.1
6.0
8.0
4,668.4
6,110.2
Total Capital
Northern Trust Corporation
The Northern Trust Company
12,245.5
11,766.8
13.9
13.5
12,045.9
11,567.2
14.5
14.2
12,126.8
11,158.4
14.1
13.0
11,942.0
10,973.7
Minimum to qualify as well-capitalized:
Northern Trust Corporation
The Northern Trust Company
8,810.8
8,745.3
10.0
10.0
8,318.1
8,132.6
10.0
10.0
8,629.3
8,582.6
10.0
10.0
7,780.7
7,637.8
Tier 1 Leverage
Northern Trust Corporation
The Northern Trust Company
10,397.4
10,111.2
7.1
6.9
10,397.4
10,111.2
7.1
6.9
11,142.2
10,315.7
6.9
6.4
11,142.2
10,315.7
Minimum to qualify as well-capitalized:
Northern Trust Corporation
The Northern Trust Company
N/A
7,323.8
N/A
5.0
N/A
7,323.8
Supplementary Leverage(1)
Northern Trust Corporation
The Northern Trust Company
Minimum to qualify as well-capitalized:
Northern Trust Corporation
The Northern Trust Company
N/A
N/A
N/A
N/A
N/A 10,397.4
N/A 10,111.2
N/A
N/A
N/A
3,931.5
N/A
5.0
7.9
7.7
N/A
3.0
N/A
8,019.5
N/A
5.0
N/A
8,019.5
N/A
N/A
N/A
N/A
N/A 11,142.2
N/A 10,315.7
N/A
N/A
N/A
4,081.7
14.3
13.5
6.0
8.0
15.3
14.4
10.0
10.0
6.9
6.4
N/A
5.0
8.2
7.6
N/A
3.0
(1) In November 2019, the Federal Reserve Board and other U.S. federal banking agencies adopted a final rule that established a deduction for central bank deposits from the
total leverage exposures of custodial banking organizations, including the Corporation and the Bank, equal to the lesser of (i) the total amount of funds the custodial banking
organization and its consolidated subsidiaries have on deposit at qualifying central banks and (ii) the total amount of client funds on deposit at the custodial banking
organization that are linked to fiduciary or custodial and safekeeping accounts. The rule became effective on April 1, 2020.
The supplementary leverage ratios at December 31, 2022 and December 31, 2021 for the Corporation and the Bank reflect the impact of the final rule.
Under the final Basel III rules, the Corporation and the Bank are required to calculate and publicly disclose risk-based
capital ratios using two methodologies: an advanced approach and a standardized approach. Under the advanced approach,
credit RWA are based on internal credit models and parameters. Additionally, the advanced approach incorporates
operational risk RWA. Under the standardized approach, RWA are based on supervisory prescribed risk weights that are
primarily dependent on counterparty type and asset class.
2022 ANNUAL REPORT | NORTHERN TRUST CORPORATION 165
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Pursuant to the Federal Reserve Board's implementation in the final Basel III rules of a provision of the Dodd-Frank
Act, the capital adequacy of the Corporation and the Bank is assessed based on the lower of the advanced approach or
standardized approach capital ratios.
Note 33 – Northern Trust Corporation (Corporation only)
Condensed financial information is presented in the following tables. Investments in wholly-owned subsidiaries are carried
on the equity method of accounting.
TABLE 138: CONDENSED BALANCE SHEETS
(In Millions)
ASSETS
Cash on Deposit with Subsidiary Bank
Advances to Wholly-Owned Subsidiaries – Banks
Investments in Wholly-Owned Subsidiaries – Banks
– Nonbank
Other Assets
Total Assets
LIABILITIES
Senior Notes
Long-Term Debt
Other Liabilities
Total Liabilities
STOCKHOLDERS’ EQUITY
Preferred Stock
Common Stock
Additional Paid-in Capital
Retained Earnings
Accumulated Other Comprehensive Income (Loss)
Treasury Stock
Total Stockholders’ Equity
Total Liabilities and Stockholders’ Equity
TABLE 139: CONDENSED STATEMENTS OF INCOME
(In Millions)
OPERATING INCOME
Dividends – Bank Subsidiaries
– Nonbank Subsidiaries
Intercompany Interest and Other Charges
Interest and Other Income
Total Operating Income
OPERATING EXPENSES
Interest Expense
Other Operating Expenses
Total Operating Expenses
Income (Loss) before Income Taxes and Equity in Undistributed Net Income of Subsidiaries
Benefit for Income Taxes
Income (Loss) before Equity in Undistributed Net Income of Subsidiaries
Equity in Undistributed Net Income of Subsidiaries – Banks
– Nonbank
DECEMBER 31,
2022
2021
$
601.4 $
4,010.0
10,897.1
194.7
1,226.3
1,731.7
2,810.0
11,120.9
185.3
890.2
$
$
16,929.5 $
16,738.1
2,724.2 $
2,066.2
879.6
5,670.0
884.9
408.6
983.5
2,505.5
1,145.7
1,070.1
4,721.3
884.9
408.6
939.3
13,798.5
13,117.3
(1,569.2)
(3,246.8)
11,259.5
$
16,929.5 $
(35.6)
(3,297.7)
12,016.8
16,738.1
FOR THE YEAR ENDED DECEMBER 31,
2022
2021
2020
$
— $
751.1 $
—
112.8
(5.7)
107.1
132.3
11.9
144.2
(37.1)
16.9
(20.2)
1,338.5
17.7
8.3
20.1
32.3
811.8
71.3
36.7
108.0
703.8
25.7
729.5
803.3
12.5
900.0
—
46.5
19.1
965.6
104.2
26.2
130.4
835.2
28.2
863.4
326.0
19.9
Net Income
Preferred Stock Dividends
Net Income Applicable to Common Stock
$
$
1,336.0 $
1,545.3 $
1,209.3
41.8
41.8
56.2
1,294.2 $
1,503.5 $
1,153.1
166 2022 ANNUAL REPORT | NORTHERN TRUST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
TABLE 140: CONDENSED STATEMENTS OF CASH FLOWS
(In Millions)
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income
Adjustments to Reconcile Net Income to Net Cash (Used in) Provided by Operating
Activities
FOR THE YEAR ENDED DECEMBER 31,
2022
2021
2020
$
1,336.0 $
1,545.3 $
1,209.3
Equity in Undistributed Net Income of Subsidiaries
(1,356.2)
(815.8)
(345.9)
Change in Prepaid Expenses
Change in Accrued Income Taxes
Other Operating Activities, net
Net Cash (Used in) Provided by Operating Activities
CASH FLOWS FROM INVESTING ACTIVITIES
Investments in and Advances to Subsidiaries, net
Other Investing Activities, net
Net Cash Used in Investing Activities
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from Senior Notes and Long-Term Debt
Repayments of Senior Notes
Repayment of Floating Rate Capital Debt
Redemption of Preferred Stock - Series C
Treasury Stock Purchased
Net Proceeds from Stock Options
Cash Dividends Paid on Common Stock
Cash Dividends Paid on Preferred Stock
Other Financing Activities, net
Net Cash Provided by (Used in) Financing Activities
Net Change in Cash on Deposit with Subsidiary Bank
Cash on Deposit with Subsidiary Bank at Beginning of Year
Cash on Deposit with Subsidiary Bank at End of Year
Note 34 – Subsequent Event
(3.8)
36.6
(608.2)
(595.6)
0.1
2.2
236.6
968.4
(1,200.1)
(140.0)
(0.1)
5.1
(1,200.2)
(134.9)
1,988.8
(500.0)
—
—
(35.4)
3.9
(750.2)
(46.5)
4.9
665.5
(1,130.3)
1,731.7
—
(500.0)
(278.8)
—
(267.6)
53.8
(583.3)
(41.8)
(0.1)
(1,617.8)
(784.3)
2,516.0
$
601.4 $
1,731.7 $
398.5
3.7
300.3
1,565.9
(800.0)
1.8
(798.2)
993.2
(508.6)
—
(400.0)
(299.8)
19.5
(584.6)
(45.9)
15.4
(810.8)
(43.1)
2,559.1
2,516.0
As of December 31, 2022, the Corporation intended to sell certain available-for-sale 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.
2022 ANNUAL REPORT | NORTHERN TRUST CORPORATION 167
ITEM 9 – CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 9A – CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
As of December 31, 2022, the Corporation’s management, with the participation of the Corporation’s Chief Executive
Officer and Chief Financial Officer, evaluated the effectiveness of the Corporation’s disclosure controls and procedures (as
defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) that are designed to ensure that information required to
be disclosed by the Corporation in the reports that it files or submits under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the SEC’s rules and forms. Based on such evaluation, such
officers have concluded that, as of December 31, 2022, the Corporation’s disclosure controls and procedures are effective.
Management’s Report on Internal Control Over Financial Reporting
Management of the Corporation is responsible for establishing and maintaining adequate internal control over financial
reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) to provide reasonable assurance to the
Corporation’s management and Board of Directors regarding the preparation of reliable published financial statements.
This internal control includes monitoring mechanisms, and actions are taken to correct deficiencies identified.
Management assessed the Corporation’s internal control over financial reporting as of December 31, 2022, based on
the criteria for effective internal control over financial reporting described in Internal Control – Integrated Framework
(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment,
management concluded that, as of December 31, 2022, the Corporation maintained effective internal control over financial
reporting. Additionally, KPMG LLP, the independent registered public accounting firm that audited the Corporation’s
consolidated financial statements as of, and for the year ended, December 31, 2022, included in this Annual Report on
Form 10-K, has issued an attestation report on the effectiveness of the Corporation’s internal control over financial
reporting as of December 31, 2022.
Changes in Internal Control Over Financial Reporting
There have been no changes in the Corporation’s internal control over financial reporting identified in connection with the
evaluation required by Rules 13a-15 and 15d-15 under the Exchange Act during the last fiscal quarter that have materially
affected, or are reasonably likely to materially affect, the Corporation’s internal control over financial reporting.
168 2022 ANNUAL REPORT | NORTHERN TRUST CORPORATION
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors
Northern Trust Corporation:
Opinion on Internal Control Over Financial Reporting
We have audited Northern Trust Corporation and subsidiaries’ (the Corporation) internal control over financial reporting as
of December 31, 2022, based on criteria established in Internal Control – Integrated Framework (2013) issued by the
Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Corporation maintained, in all
material respects, effective internal control over financial reporting as of December 31, 2022, based on criteria established
in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) (PCAOB), the consolidated balance sheets of the Corporation as of December 31, 2022 and 2021, the related
consolidated statements of income, comprehensive income, changes in stockholders’ equity, and cash flows for each of the
years in the three-year period ended December 31, 2022, and the related notes (collectively, the consolidated financial
statements), and our report dated February 28, 2023 expressed an unqualified opinion on those consolidated financial
statements.
Basis for Opinion
The Corporation’s management is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s
Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Corporation’s
internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB
and are required to be independent with respect to the Corporation in accordance with the U.S. federal securities laws and
the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in
all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal
control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and
operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other
procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our
opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and
procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded
as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and
that receipts and expenditures of the company are being made only in accordance with authorizations of management and
directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Chicago, Illinois
February 28, 2023
2022 ANNUAL REPORT | NORTHERN TRUST CORPORATION 169
ITEM 9B – OTHER INFORMATION
Not applicable.
ITEM 9C – DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not applicable.
PART III
ITEM 10 – DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information called for by this item is incorporated by reference to “Supplemental Item – Information About Our
Executive Officers” in Part I of this Annual Report on Form 10-K, as well as the following sections of the Corporation’s
definitive Proxy Statement for the 2023 Annual Meeting of Stockholders: “Item 1 – Election of Directors,” “Information
about the Nominees for Director,” “Security Ownership by Directors and Executive Officers,” “Corporate Governance –
Code of Business Conduct and Ethics,” “Corporate Governance – Director Nominations and Qualifications and Proxy
Access,” “Board and Board Committee Information – Audit Committee” and “Board and Board Committee Information –
Board Committees.”
ITEM 11 – EXECUTIVE COMPENSATION
The information called for by this item is incorporated herein by reference to the “Compensation Discussion and Analysis,”
“Human Capital and Compensation Committee Report,” “Executive Compensation,” and “Director Compensation”
sections of the Corporation’s definitive Proxy Statement for the 2023 Annual Meeting of Stockholders.
ITEM 12 – SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
The information called for by this item is incorporated herein by reference to the “Security Ownership by Directors and
Executive Officers,” “Security Ownership of Certain Beneficial Owners,” and “Equity Compensation Plan Information”
sections of the Corporation’s definitive Proxy Statement for the 2023 Annual Meeting of Stockholders.
ITEM 13 – CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
The information called for by this item is incorporated herein by reference to the “Board and Board Committee
Information,” “Corporate Governance – Director Independence” and the “Corporate Governance – Related Person
Transactions Policy” sections of the Corporation’s definitive Proxy Statement for the 2023 Annual Meeting of
Stockholders.
ITEM 14 – PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information called for by this item is incorporated herein by reference to the “Audit Matters” section of the
Corporation’s definitive Proxy Statement for the 2023 Annual Meeting of Stockholders.
170 2022 ANNUAL REPORT | NORTHERN TRUST CORPORATION
PART IV
ITEM 15 – EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
ITEM 15(a)(1) AND (2) – NORTHERN TRUST CORPORATION AND SUBSIDIARIES LIST OF FINANCIAL
STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
The following financial statements of the Corporation and its Subsidiaries included in Item 8, “Financial Statements and
Supplementary Data,” of this Annual Report on Form 10-K are incorporated herein by reference.
For Northern Trust Corporation and Subsidiaries:
Consolidated Balance Sheets - December 31, 2022 and 2021
Consolidated Statements of Income - Years Ended December 31, 2022, 2021, and 2020
Consolidated Statements of Comprehensive Income - Years Ended December 31, 2022, 2021, and 2020
Consolidated Statements of Changes in Stockholders’ Equity - Years Ended December 31, 2022, 2021, and 2020
Consolidated Statements of Cash Flows - Years Ended December 31, 2022, 2021, and 2020
Notes to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm (KPMG LLP, Chicago, IL, Auditor Firm ID: 185)
Financial statement schedules have been omitted for the reason that they are not required or are not applicable.
ITEM 15(a)(3) – EXHIBITS
Exhibit
Number
Description
3.1
3.2
3.3
3.4
4.1
4.2
4.3
4.4
Restated Certificate of Incorporation of Northern Trust Corporation, as amended to date (incorporated herein
by reference to Exhibit 3.1 to the Corporation’s Current Report on Form 8-K filed April 19, 2006).
Certificate of Designation of Series D Non-Cumulative Perpetual Preferred Stock of Northern Trust
Corporation, dated August 4, 2016 (incorporated herein by reference to Exhibit 3.1 to the Corporation’s
Current Report on Form 8-K filed August 8, 2016).
Certificate of Designation of Series E Non-Cumulative Perpetual Preferred Stock of Northern Trust
Corporation, dated October 31, 2019 (incorporated herein by reference to Exhibit 3.1 to the Corporation’s
Current Report on Form 8-K filed November 5, 2019).
By-laws of Northern Trust Corporation, as amended November 15, 2022 (incorporated herein by reference to
Exhibit 3.1 to the Corporation’s Current Report on Form 8-K filed November 18, 2022).
Deposit Agreement, dated August 8, 2016, among Northern Trust Corporation, Wells Fargo Bank, N.A., as
depositary (which, effective February 1, 2018, was succeeded by Equiniti Trust Company), and the holders
from time to time of the depositary receipts described therein (incorporated by reference to Exhibit 4.2 to the
Corporation’s Current Report on Form 8-K filed August 8, 2016).
Deposit Agreement, dated November 5, 2019, among Northern Trust Corporation, Equiniti Trust Company,
as depositary, and the holders from time to time of the depositary receipts described therein (incorporated by
reference to Exhibit 4.2 to the Corporation’s Current Report on Form 8-K filed November 5, 2019).
Description of securities registered pursuant to Section 12 of the Securities Exchange Act of 1934.
Certain instruments defining the rights of the holders of long-term debt of the Corporation and certain of its
subsidiaries, none of which authorize a total amount of indebtedness in excess of 10% of the total assets of
the Corporation and its subsidiaries on a consolidated basis, have not been filed as exhibits. The Corporation
hereby agrees to furnish a copy of any of these agreements to the SEC upon request.
2022 ANNUAL REPORT | NORTHERN TRUST CORPORATION 171
Exhibit
Number
10.1**
(i)**
(ii)**
10.2**
Description
Deferred Compensation Plans Trust Agreement, dated May 11, 1998, between Northern Trust Corporation
and Harris Trust and Savings Bank as Trustee (which, effective August 31, 1999, was succeeded by U.S.
Trust Company, N.A., which effective June 1, 2009, was succeeded by Evercore Trust Company, N.A., and,
which, effective October 19, 2017, was succeeded by Newport Trust Company) regarding the Supplemental
Employee Stock Ownership Plan for Employees of The Northern Trust Company, the Supplemental Thrift-
Incentive Plan for Employees of The Northern Trust Company, the Supplemental Pension Plan for
Employees of The Northern Trust Company, and the Northern Trust Corporation Deferred Compensation
Plan (incorporated herein by reference to Exhibit 10(iv) to the Corporation’s Quarterly Report on Form 10-Q
for the quarter ended June 30, 1998).
Amendment, dated August 31, 1999 (incorporated herein by reference to Exhibit 10(vi) to the Corporation’s
Quarterly Report on Form 10-Q for the quarter ended September 30, 1999).
Second Amendment, dated as of May 16, 2000 (incorporated herein by reference to Exhibit 10(v) to the
Corporation’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2000).
Northern Trust Corporation Supplemental Employee Stock Ownership Plan, as amended and restated
effective as of January 1, 2008 (incorporated herein by reference to Exhibit 10(vi) to the Corporation’s
Annual Report on Form 10-K for the fiscal year ended December 31, 2008).
(i)**
Amendment Number One, dated December 28, 2022 and effective January 1, 2023.
10.3**
(i)**
(ii)**
Northern Trust Corporation Supplemental Thrift-Incentive Plan, as amended and restated effective as of
January 1, 2008 (incorporated herein by reference to Exhibit 10(vii) to the Corporation’s Annual Report on
Form 10-K for the fiscal year ended December 31, 2008).
Amendment Number One, dated October 29, 2009 and effective January 1, 2010 (incorporated herein by
reference to Exhibit 10(vi)(1) to the Corporation’s Annual Report on Form 10-K for the fiscal year ended
December 31, 2009).
Amendment Number Two, dated August 6, 2015 and effective January 1, 2015 (incorporated herein by
reference to Exhibit 10.1 to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended
September 30, 2015).
(iii)**
Amendment Number Three, dated December 28, 2022 and effective January 1, 2023.
10.4**
Northern Trust Corporation Supplemental Pension Plan, as amended and restated effective January 1, 2009
(incorporated herein by reference to Exhibit 10(viii) to the Corporation’s Annual Report on Form 10-K for
the fiscal year ended December 31, 2008).
(i)**
Amendment Number One, dated December 28, 2022 and effective January 1, 2023.
10.5**
Northern Trust Corporation Deferred Compensation Plan, as amended and restated effective as of October
18, 2021 (incorporated herein by reference to Exhibit 10.2 to the Corporation's Quarterly Report on Form 10-
Q for the quarter ended September 30, 2021).
10.6**
Northern Trust Corporation 2012 Stock Plan (incorporated herein by reference to Exhibit 10.1 to the
Corporation’s Current Report on Form 8-K filed April 19, 2012).
(i)**
(ii)**
(iii)**
(iv)**
(v)**
(vi)**
Form of Director Stock Unit Agreement (incorporated herein by reference to Exhibit 10(iii) to the
Corporation’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2012).
Form of Director Prorated Stock Agreement (incorporated herein by reference to Exhibit 10(iv) to the
Corporation’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2012).
Form of New Director Stock Unit Agreement (incorporated herein by reference to Exhibit 10(v) to the
Corporation’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2012).
Form of 2013 Executive Stock Option Terms and Conditions (incorporated herein by reference to
Exhibit 10.7(xii) to the Corporation’s Annual Report on Form 10-K for the fiscal year ended December 31,
2012).
Form of 2014 Executive Stock Option Terms and Conditions (incorporated herein by reference to
Exhibit 10.7(xi) to the Corporation’s Annual Report on Form 10-K for the fiscal year ended December 31,
2013).
Form of 2017 Stock Option Award Terms and Conditions, as amended (incorporated herein by reference to
Exhibit 10.7(x) to the Corporation's Annual Report on Form 10-K for the year ended December 31, 2017).
172 2022 ANNUAL REPORT | NORTHERN TRUST CORPORATION
Exhibit
Number
10.7**
10.8**
10.9**
10.10**
10.11**
10.12**
10.13**
10.14**
(i)**
(ii)**
(iii)**
(iv)**
(v)**
(vi)**
(vii)**
(viii)**
(ix)**
10.15**
10.16**
10.17**
Description
Northern Trust Corporation Management Performance Plan, as amended and restated effective October 16,
2012 (incorporated herein by reference to Exhibit 10(viii) to the Corporation’s Quarterly Report on Form 10-
Q for the quarter ended September 30, 2012).
Northern Trust Corporation 1997 Stock Plan for Non-Employee Directors (incorporated herein by reference
to Exhibit 10(xix) to the Corporation’s Annual Report on Form 10-K for the fiscal year ended December 31,
1998).
Northern Trust Corporation 1997 Deferred Compensation Plan for Non-Employee Directors, as amended and
restated effective as of July 15, 2014 (incorporated herein by reference to Exhibit 10.1 to the Corporation’s
Quarterly Report on Form 10-Q for the quarter ended June 30, 2014).
Northern Trust Corporation 2018 Deferred Compensation Plan for Non-Employee Directors (incorporated
herein by reference to Exhibit 10.11 to the Corporation's Annual Report on Form 10-K for the year ended
December 31, 2017).
Northern Trust Corporation Key Officer Change in Control Severance Plan (incorporated herein by reference
to Exhibit 10.2 to the Corporation’s Current Report on Form 8-K filed April 28, 2017).
Northern Trust Corporation Executive Change in Control Severance Plan (incorporated herein by reference to
Exhibit 10.1 to the Corporation’s Current Report on Form 8-K filed April 28, 2017).
Form of Non-Solicitation Agreement and Confidentiality Agreement (incorporated herein by reference to
Exhibit 10(iii) to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2009).
Northern Trust Corporation 2017 Long-Term Incentive Plan (incorporated herein by reference to Exhibit
10.1 to the Corporation’s Current Report on Form 8-K filed April 26, 2017).
Form of Director Stock Unit Agreement (incorporated herein by reference to Exhibit 10.10 to the
Corporation’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2017).
Form of Director Stock Unit Agreement (prorated) (incorporated herein by reference to Exhibit 10.11 to the
Corporation’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2017).
Form of 2020 Performance Stock Unit Award Terms and Conditions (incorporated herein by reference to
Exhibit 10.1 to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2020).
Form of 2021 Performance Stock Unit Award Terms and Conditions (incorporated herein by reference to
Exhibit 10.1 to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2021).
Form of 2022 Performance Stock Unit Award Terms and Conditions (incorporated herein by reference to
Exhibit 10.1 to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2022).
Form of 2019 Stock Unit Award Terms and Conditions (incorporated herein by reference to Exhibit 10.2 to
the Corporation’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2019).
Form of 2020 Stock Unit Award Terms and Conditions (incorporated herein by reference to Exhibit 10.2 to
the Corporation’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2020).
Form of 2021 Stock Unit Award Terms and Conditions (incorporated herein by reference to Exhibit 10.2 to
the Corporation’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2021).
Form of 2022 Stock Unit Award Terms and Conditions (incorporated herein by reference to Exhibit 10.2 to
the Corporation’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2022).
Northern Trust Corporation Wealth Planning and Tax Consulting Services Plan, as amended and restated
effective January 1, 2021 (incorporated herein by reference to Exhibit 10.1 to the Corporation’s Quarterly
Report on Form 10-Q for the quarter ended September 30, 2021).
Northern Trust Corporation Non-Employee Director Compensation Plan, as amended (incorporated herein by
reference to Exhibit 10.17 to the Corporation’s Annual Report on Form 10-K for the year ended December
31, 2021).
Northern Partners Incentive Plan, as amended and restated on February 22, 2022 (incorporated herein by
reference to Exhibit 10.18 to the Corporation’s Annual Report on Form 10-K for the year ended December
31, 2021).
2022 ANNUAL REPORT | NORTHERN TRUST CORPORATION 173
Exhibit
Number
10.18**
10.19**
(i)**
(ii)**
(iii)**
(iv)**
10.20
21
23
31.1
31.2
32
101
Description
Letter Agreement with Frederick H. Waddell, dated January 23, 2019 (incorporated herein by reference to
Exhibit 10.26 to the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2018).
The Northern Trust Company Death Benefit Plan (incorporated herein by reference to Exhibit 10.1 to the
Corporation’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2019).
Amendment Number One to The Northern Trust Company Death Benefit Plan, dated July 11, 2019 and
effective May 17, 2019 (incorporated herein by reference to Exhibit 10.20(i) to the Corporation’s Annual
Report on Form 10-K for the year ended December 31, 2020).
Amendment Number Two to The Northern Trust Company Death Benefit Plan, dated July 29, 2019 and
effective May 17, 2019 (incorporated herein by reference to Exhibit 10.20(ii) to the Corporation’s Annual
Report on Form 10-K for the year ended December 31, 2020).
Amendment Number Three to The Northern Trust Company Death Benefit Plan, dated March 18, 2020 and
effective May 17, 2019 (incorporated herein by reference to Exhibit 10.20(iii) to the Corporation’s Annual
Report on Form 10-K for the year ended December 31, 2020).
Amendment Number Four to The Northern Trust Company Death Benefit Plan, dated June 22, 2022 and
effective May 4, 2022.
Transition Agreement by and between Northern Trust Corporation and Shundrawn A. Thomas, dated as of
May 3, 2022 (incorporated herein by reference to Exhibit 10.1 to the Corporation’s Current Report on Form
8-K filed May 3, 2022).
Subsidiaries of the Registrant.
Consent of Independent Registered Public Accounting Firm.
Rule 13a-14(a)/15d-14(a) Certification of CEO Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Rule 13a-14(a)/15d-14(a) Certification of CFO Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certifications of CEO and CFO Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
Includes the following financial and related information from the Corporation’s Annual Report on Form 10-
K for the fiscal year ended December 31, 2022, formatted in Inline Extensible Business Reporting Language
(iXBRL): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Income, (iii) the
Consolidated Statements of Comprehensive Income, (iv) the Consolidated Statements of Changes in
Stockholders’ Equity, (v) the Consolidated Statements of Cash Flows, and (vi) Notes to Consolidated
Financial Statements.
104
The cover page from this Annual Report on Form 10-K, formatted in Inline XBRL.
** Indicates a management contract or a compensatory plan or agreement.
ITEM 16 – FORM 10-K SUMMARY
None.
174 2022 ANNUAL REPORT | NORTHERN TRUST CORPORATION
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused
this Annual Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: February 28, 2023
Northern Trust Corporation
(Registrant)
By:
/s/ Michael G. O’Grady
Michael G. O’Grady
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report on Form 10-K has been signed
below by the following persons on behalf of the Registrant and in the capacities and on the date indicated.
2022 ANNUAL REPORT | NORTHERN TRUST CORPORATION 175
Signature
Capacity
/s/ Michael G. O'Grady
Michael G. O’Grady
/s/ Jason J. Tyler
Jason J. Tyler
/s/ Lauren Allnutt
Lauren Allnutt
/s/ Linda Walker Bynoe
Linda Walker Bynoe
/s/ Susan Crown
Susan Crown
/s/ Dean M. Harrison
Dean M. Harrison
/s/ Jay L. Henderson
Jay L. Henderson
/s/ Marcy S. Klevorn
Marcy S. Klevorn
/s/ Siddharth N. (Bobby) Mehta
Siddharth N. (Bobby) Mehta
/s/ Jose Luis Prado
Jose Luis Prado
/s/ Martin P. Slark
Martin P. Slark
/s/ David H.B. Smith, Jr.
David H.B. Smith, Jr.
/s/ Donald Thompson
Donald Thompson
/s/ Charles A. Tribbett, III
Charles A. Tribbett, III
Date: February 28, 2023
176 2022 ANNUAL REPORT | NORTHERN TRUST CORPORATION
Chairman and Chief Executive Officer
(Principal Executive Officer)
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
Executive Vice President and Controller
(Principal Accounting Officer)
Director
Director
Director
Director
Director
Director
Director
Director
Director
Director
Director
Exhibit 31.1
I, Michael G. O’Grady, certify that:
Certification of CEO Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
I have reviewed this report on Form 10-K for the year ended December 31, 2022 of Northern Trust Corporation;
1.
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with
respect to the period covered by this report;
4.
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in
this report;
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act
Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed
under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on
such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the
equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial
information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the
5.
registrant’s internal control over financial reporting.
Date: February 28, 2023
/s/ Michael G. O’Grady
Michael G. O’Grady
Chief Executive Officer
(Principal Executive Officer)
Exhibit 31.2
I, Jason J. Tyler, certify that:
Certification of CFO Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
I have reviewed this report on Form 10-K for the year ended December 31, 2022 of Northern Trust Corporation;
1.
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with
respect to the period covered by this report;
4.
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in
this report;
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act
Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed
under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on
such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the
equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial
information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the
5.
registrant’s internal control over financial reporting.
Date: February 28, 2023
/s/ Jason J. Tyler
Jason J. Tyler
Chief Financial Officer
(Principal Financial Officer)
Exhibit 32
Certifications of CEO and CFO Pursuant to
18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Annual Report of Northern Trust Corporation (the “Corporation”) on Form 10-K for the period ended
December 31, 2022 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Michael G. O’Grady, as
Chief Executive Officer of the Corporation, and Jason J. Tyler, as Chief Financial Officer of the Corporation, each hereby certifies,
pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, to the best of his knowledge,
that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of
the Corporation.
/s/ Michael G. O’Grady
Michael G. O’Grady
Chief Executive Officer
(Principal Executive Officer)
February 28, 2023
/s/ Jason J. Tyler
Jason J. Tyler
Chief Financial Officer
(Principal Financial Officer)
February 28, 2023
This certification accompanies the Report pursuant to section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed filed by
Northern Trust Corporation for purposes of section 18 of the Securities Exchange Act of 1934.
BOARD OF DIRECTORS
Michael G. O’Grady
Chairman and Chief Executive Officer
Northern Trust Corporation
Linda Walker Bynoe
President and Chief Executive Officer
Telemat Limited LLC
Project management and consulting firm
Susan Crown
Jose Luis Prado
Chairman of the Board
Tropicale Foods Group
Manufacturer of frozen foods
Executive Chairman
Palmex Alimentos
Manufacturer of snack product ingredients
Martin P. Slark
Retired Chief Executive Officer
Chairman and Chief Executive Officer
Molex LLC
Owl Creek Partners, LLC
Private equity firm
Chairman and Founder
Susan Crown Exchange Inc.
Social investment organization
Dean M. Harrison
Executive Chairman
Manufacturer of electronic, electrical, and fiber optic
interconnection products and systems
David H. B. Smith Jr.
Executive Vice President, Policy & Legal Affairs
and General Counsel
Mutual Fund Directors Forum
Nonprofit membership organization for investment
Northwestern Memorial HealthCare
company directors
Primary teaching affiliate of Northwestern University
Feinberg School of Medicine and parent corporation of
Donald Thompson
Northwestern Memorial Hospital
Founder and Chief Executive Officer
Cleveland Avenue, LLC
Jay L. Henderson
Food and beverage accelerator and investment company
Retired Vice Chairman, Client Service
Retired President and Chief Executive Officer
PricewaterhouseCoopers LLP
Professional services firm
McDonald’s Corporation
Global foodservice retailer
Marcy S. Klevorn
Charles A. Tribbett III
Retired Executive Vice President and President,
Vice Chairman
Mobility
Ford Motor Company
Global automaker
Siddharth N. (Bobby) Mehta
Russell Reynolds Associates
Global executive recruiting firm
Advisory Director
Retired President and Chief Executive Officer
Lord Charles D. Powell of Bayswater KCMG
TransUnion
Former private secretary and advisor on foreign affairs
Global risk and information solutions provider
and defense to Prime Ministers Margaret Thatcher and
John Major
MANAGEMENT GROUP
Michael G. O’Grady
Chairman and Chief Executive Officer
Peter B. Cherecwich
President – Asset Servicing
Steven L. Fradkin
President – Wealth Management
Mark C. Gossett
Executive Vice President
Chief Risk Officer
Susan C. Levy
Executive Vice President
General Counsel
Teresa A. Parker
Executive Vice President
President – Europe, Middle East and Africa
Thomas A. South
Executive Vice President
Chief Information Officer
Alexandria Taylor
Executive Vice President
Chief Human Resources Officer
Jason J. Tyler
Executive Vice President
Chief Financial Officer
CORPORATE INFORMATION
ANNUAL MEETING
The 2023 Annual Meeting of Stockholders will be held on
Tuesday, April 25, 2023, at 10:30 A.M. (Central Time). If
you plan to attend the Annual Meeting, please review the
information regarding attendance contained in the proxy
statement relating to the Annual Meeting.
STOCK LISTING
The common stock of Northern Trust Corporation is
traded on the NASDAQ Global Select Market under the
symbol “NTRS”.
STOCK TRANSFER AGENT, REGISTRAR,
AND DIVIDEND DISBURSING AGENT
EQ Shareowner Services
1110 Centre Pointe Curve, Suite 101
Mendota Heights, MN 55120
General Phone Number: 1-800-468-9716
Internet Site: shareowneronline.com
AVAILABLE INFORMATION
Through our website at northerntrust.com, we make
available free of charge our Annual Report on Form 10-
K, Quarterly Reports on Form 10-Q, Current Reports on
Form 8-K, and all other reports and all amendments to
those reports filed or furnished pursuant to Section 13(a)
or 15(d) of the Securities Exchange Act of 1934, as
amended, as soon as reasonably practicable after we file
such material with, or furnish such material to, the SEC.
The contents of our website, the website of the SEC or
any other website referenced herein are not a part of this
document.
INVESTOR RELATIONS
Email: investor_relations@ntrs.com
NORTHERNTRUST.COM
Information about the Corporation, including financial
performance and products and services, is available on
Northern Trust’s website at northerntrust.com.