NORTHERN TRUST CORP - Annual Report: 2022 (Form 10-K)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

____________________________________________________________

FORM 10-K

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

For the fiscal year ended December 31, 2022


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

For the transition period from to

Commission File No. 001-36609

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NORTHERN TRUST CORPORATION

(Exact name of registrant as specified in its charter)

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


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

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

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


Title of Each Class	Trading Symbol	Name of Each Exchange On Which Registered
Common Stock, $1.66 2/3 Par Value	NTRS	The NASDAQ Stock Market LLC
Depositary Shares, each representing 1/1,000th interest in a share of Series E Non-Cumulative Perpetual Preferred Stock	NTRSO	The NASDAQ Stock Market LLC

Securities registered pursuant to Section 12(g) of the Act: None

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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

☒

Accelerated filer

☐

Emerging growth company

☐

Non-accelerated filer

☐

Smaller reporting 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


		Page
PART I
Item 1	Business	1
Item 1A	Risk Factors	13
Item 1B	Unresolved Staff Comments	30
Item 2	Properties	31
Item 3	Legal Proceedings	31
Item 4	Mine Safety Disclosures	31
Supplemental Item	Information About Our Executive Officers	31

PART II
Item 5	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	33
Item 6	Reserved	34
Item 7	Management’s Discussion and Analysis of Financial Condition and Results of Operations	35
Item 7A	Quantitative and Qualitative Disclosures About Market Risk	92
Item 8	Financial Statements and Supplementary Data	92
Item 9	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	168
Item 9A	Controls and Procedures	168
Item 9B	Other Information	170
Item 9C	Disclosure Regarding Foreign Jurisdictions that Prevent Inspections	170

PART III
Item 10	Directors, Executive Officers and Corporate Governance	170
Item 11	Executive Compensation	170
Item 12	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	170
Item 13	Certain Relationships and Related Transactions, and Director Independence	170
Item 14	Principal Accountant Fees and Services	170

PART IV
Item 15	Exhibits and Financial Statement Schedules	171
Item 16	Form 10-K Summary	174

Signatures		175


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GLOSSARY OF TERMS

When the following terms and abbreviations appear in the text of this report, they have the meanings indicated below:


AFS			Available for Sale
AIFMD			Alternative Investment Fund Managers Directive
ALCO			Asset and Liability Management Committee
AMA			Basel Advanced Measurement Approach
AML			Anti-Money Laundering
AOCI			Accumulated Other Comprehensive Income
ARRC			Alternative Reference Rate Committee
AS			Asset Servicing
ASC			Accounting Standards Codification
ASU			Accounting Standards Update
AUC/A			Assets Under Custody/Administration
Bank			The Northern Trust Company
Banking book			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.
Basel Committee			International Basel Committee on Banking Supervision
Basel III			Industry-standard guidelines published by the Basel Committee
BMR			European Union Benchmarks Regulation
BRRD			Bank Recovery and Resolution Directive (EU)
CCAR			Comprehensive Capital Analysis and Review
CCPA			California Consumer Privacy Act
CDFIs			Community Development Financial Institutions
CEOC			Compliance & Ethics Oversight Committee
CFA			Criminal Finances Act (UK)
CFPB			Consumer Financial Protection Bureau
CFTC			U.S. Commodity Futures Trading Commission
Commission			European Commission
Corporation			Northern Trust Corporation
CPRA			California Privacy Rights Act of 2020
CRA			Community Reinvestment Act
CRC			Credit Risk Committee
CRD			Capital Requirements Directive of June 26, 2013 (EU)
CRD V			European Commission revisions to the CRD, effective December 29, 2020
CRO			Chief Risk Officer
CRR			Capital Requirements Regulation of June 26, 2013 (EU)
CRR II			European Commission revisions to the CRR, effective June 28, 2021
CSD			Central Securities Depositories
CSDR			Central Securities Depositories Regulation (EU)
CSSF			Commission de Surveillance du Secteur Financier (Luxembourg)
DE&I			Diversity, Equity, and Inclusion
DFAST			Dodd-Frank Act Stress Tests
DGS			Deposit Guarantee Schemes
DGSD			Deposit Guarantee Schemes Directive
Dodd-Frank Act			Dodd-Frank Wall Street Reform and Consumer Protection Act
EBA			European Banking Authority
ECB			European Central Bank
EEA			European Economic Area


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GLOSSARY OF TERMS (continued)


EMIR			European Market Infrastructure Regulation 648/2012
EOP			End of Period
ESG			Environmental, Social and Governance
EU			European Union
Exchange Act			Securities Exchange Act of 1934, as amended
FASB			Financial Accounting Standards Board
FCA			Financial Conduct Authority
FDIA			Federal Deposit Insurance Act
FDIC			Federal Deposit Insurance Corporation
Federal Reserve Board			The Board of Governors of the Federal Reserve System
FICC			Fixed Income Clearing Corporation
FinCEN			Financial Crimes Enforcement Network
FINRA			Financial Industry Regulatory Authority
FRC			Fiduciary Risk Committee
FTE			Fully Taxable Equivalent
FTP			Funds Transfer Pricing
FX			Foreign Exchange
GAAP			Generally Accepted Accounting Principles
GDPR			General Data Protection Regulation
GERC			Global Enterprise Risk Committee
GFX			Global Foreign Exchange
GILTI			Global Intangible Low-Taxed Income
GSIB			Global Systemically Important Banks
HTM			Held to Maturity
HQLAs			High-Quality Liquid Assets
IBA			ICE Benchmark Administration
IBOR			Interbank Offered Rates
IR			Interest Rate
ITRC			Information Technology Risk Committee
LCR			Liquidity Coverage Ratio
LCR Final Rule			Regulation promulgated by U.S. federal banking regulators to implement LCR requirements in the United States for certain banking organizations.
LGD			Loss Given Default
LIBOR			London Interbank Offered Rate
LIBOR Act			Adjustable Interest Rate (LIBOR) Act
MD&A			Management’s Discussion and Analysis
MIFID			Market in Financial Instruments Directive
MIFIR			Markets in Financial Instruments Regulation
MLD5			Fifth EU Money Laundering Directive
MLRC			Market & Liquidity Risk Committee
MREL			Minimum requirements for own funds and eligible liabilities (EU)
MROC			Model Risk Oversight Committee
MSDC			Macroeconomic Scenario Development Committee
MVE			Market Value of Equity
NAICS			North American Industry Classification System
NAV			Net Asset Value
NFA			National Futures Association
NFTS			Northern Trust Fiduciary Services (Guernsey) Limited


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GLOSSARY OF TERMS (continued)


NII			Net Interest Income
N/M			Not Meaningful
NSFR			Net Stable Funding Ratio requirement in the United States
NSFR Final Rule			Regulation promulgated by U.S. federal banking regulators to implement NSFR requirements in the United States for certain banking organizations.
ORC			Operational Risk Committee
OREO			Other Real Estate Owned
OTC			Over-the-Counter
OTTI			Other-Than-Temporary Impairment
PD			Probability of Default
PIPL			Personal Information Protection Law (China)
PPP			Paycheck Protection Program
PRA			Prudential Regulation Authority
Regulatory Relief Act			Economic Growth, Regulatory Relief, and Consumer Protection Act
ROU			Right-of-use
RWA			Risk-Weighted Assets
SBA			U.S. Small Business Administration
SEC			U.S. Securities and Exchange Commission
Series D Preferred Stock			Series D Non-Cumulative Perpetual Preferred Stock
Series E Preferred Stock			Series E Non-Cumulative Perpetual Preferred Stock
SOFR			Secured Overnight Finance Rate
SFDR			Sustainable Finance Disclosure Regulations (EU)
SRD II			Shareholder Rights Directive (EU)
SFTR			Securities Financing Transactions and Reuse of Collateral
Taxonomy Regulations			Regulation (EU) 2020/852
TDR			Troubled Debt Restructuring
Trading book			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			Undertakings for the Collective Investment in Transferable Securities
UK			United Kingdom
USD LIBOR			U.S. Dollar LIBOR
VaR			Value-at-Risk
VIE			Variable Interest Entity
WM			Wealth Management
WRC			Workforce Risk Committee


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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 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.



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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.



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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



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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.



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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.



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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
Northern Trust Corporation	10.8	%	11.5	%	11.8	%	12.5	%	13.9	%	14.5	%	7.1	%	7.1	%	7.9	%
The Northern Trust Company	11.6	%	12.4	%	11.6	%	12.4	%	13.5	%	14.2	%	6.9	%	6.9	%	7.7	%
Minimum required ratio	4.5	%	4.5	%	6.0	%	6.0	%	8.0	%	8.0	%	4.0	%	4.0	%	3.0	%
“Well-capitalized” minimum ratios, as applicable
Northern Trust Corporation	N/A		N/A		6.0	%	6.0	%	10.0	%	10.0	%	N/A		N/A		N/A
The Northern Trust Company	6.5	%	6.5	%	8.0	%	8.0	%	10.0	%	10.0	%	5.0	%	5.0	%	3.0	%

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.



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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.



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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



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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.



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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



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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



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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



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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


	DECEMBER 31, 2022
	FEMALE	MALE	WHITE	BLACK	HISPANIC	ASIAN
Board of Directors	25%	75%	59%	25%	8%	8%
Executive Officers	40%	60%	90%	10%	—%	—%

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.”



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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.



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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.



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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



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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.



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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.



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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



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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.



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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



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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



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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.



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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.



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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.



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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.



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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.



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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	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
October 1 - 31, 2022	—	$	—	—	25,000,000
November 1 - 30, 2022	—	—		—	25,000,000
December 1 - 31, 2022	—	—		—	25,000,000
Total (Fourth Quarter)	—	$	—	—	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.”



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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


	DECEMBER 31,
	2017		2018		2019		2020		2021		2022
Northern Trust	$	100	$	85	$	112	$	101	$	133	$	102
S&P 500	100		96		126		149		192		157
KBW Bank Index	100		82		112		100		139		109

ITEM 6 – [RESERVED]



34 2022 ANNUAL REPORT \| NORTHERN TRUST CORPORATION

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


	FOR THE YEAR ENDED DECEMBER 31,
($ In Millions)	2022			2021			2020
Noninterest Income	$	4,874.0		$	5,081.8		$	4,657.6
Net Interest Income	1,887.2			1,382.7			1,443.2
Total Revenue	$	6,761.2		$	6,464.5		$	6,100.8
Provision for Credit Losses	12.0			(81.5)			125.0
Noninterest Expense	4,982.9			4,535.9			4,348.2
Income before Income Taxes	$	1,766.3		$	2,010.1		$	1,627.6
Provision for Income Taxes	430.3			464.8			418.3
Net Income	$	1,336.0		$	1,545.3		$	1,209.3
Preferred Stock Dividends	41.8			41.8			56.2
Net Income Applicable to Common Stock	$	1,294.2		$	1,503.5		$	1,153.1
PER COMMON SHARE
Net Income – Basic	$	6.16		$	7.16		$	5.48
– Diluted	6.14			7.14			5.46
Cash Dividends Declared Per Common Share	2.90			2.80			2.80
Book Value – End of Period (EOP)	49.78			53.58			51.87
Market Price – EOP	88.49			119.61			93.14
SELECTED RATIOS AND METRICS
Return on Average Common Equity	12.7		%	13.9		%	11.2		%
Return on Average Assets	0.88			0.99			0.88
Dividend Payout Ratio	47.2			39.2			51.3
Average Stockholders’ Equity to Average Assets	7.3			7.5			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


	FOR THE YEAR ENDED DECEMBER 31,
($ In Millions)	2022		2021		2020
Noninterest Income
Trust, Investment and Other Servicing Fees	$	4,432.6	$	4,361.1	$	3,995.0
Foreign Exchange Trading Income	288.6		292.6		290.4
Treasury Management Fees	39.3		44.3		45.4
Security Commissions and Trading Income	136.2		140.2		133.2
Other Operating Income	191.3		243.9		194.0
Investment Security Gains (Losses), net	(214.0)		(0.3)		(0.4)
Total Noninterest Income	$	4,874.0	$	5,081.8	$	4,657.6
Net Interest Income(1)	1,887.2		1,382.7		1,443.2
Total Revenue	$	6,761.2	$	6,464.5	$	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


	FOR THE YEAR ENDED DECEMBER 31,						CHANGE
($ In Millions)	2022		2021		2020		2022 / 2021		2021 / 2020
Asset Servicing Trust, Investment and Other Servicing Fees
Custody and Fund Administration	$	1,700.1	$	1,818.8	$	1,586.1	(7)	%	15	%
Investment Management	555.1		443.5		511.1		25		(13)
Securities Lending	81.4		76.7		88.0		6		(13)
Other	159.7		148.3		136.4		8		9
Total Asset Servicing Trust, Investment and Other Servicing Fees	$	2,496.3	$	2,487.3	$	2,321.6	—	%	7	%
Wealth Management Trust, Investment and Other Servicing Fees
Central	$	692.6	$	698.7	$	607.3	(1)	%	15	%
East	504.0		509.3		442.1		(1)		15
West	382.1		380.2		337.7		—		13
Global Family Office	357.6		285.6		286.3		25		—
Total Wealth Management Trust, Investment and Other Servicing Fees	$	1,936.3	$	1,873.8	$	1,673.4	3	%	12	%
Total Consolidated Trust, Investment and Other Servicing Fees	$	4,432.6	$	4,361.1	$	3,995.0	2	%	9	%

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


	DECEMBER 31,						CHANGE
($ In Billions)	2022		2021		2020		2022 / 2021		2021 / 2020
North America	$	5,703.1	$	6,566.4	$	5,746.4	(13)	%	14	%
Europe, Middle East, and Africa	3,037.6		3,894.3		3,478.2		(22)		12
Asia Pacific	823.3		898.5		976.2		(8)		(8)
Securities Lending	148.3		195.6		186.9		(24)		5
Total Assets Under Custody	$	9,712.3	$	11,554.8	$	10,387.7	(16)	%	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


	DECEMBER 31,						CHANGE
($ In Billions)	2022		2021		2020		2022 / 2021		2021 / 2020
North America	$	586.0	$	789.2	$	676.8	(26)	%	17	%
Europe, Middle East, and Africa	121.3		148.5		143.5		(18)		4
Asia Pacific	42.5		57.7		50.3		(26)		15
Securities Lending	148.3		195.6		186.9		(24)		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


	DECEMBER 31,						CHANGE
($ In Billions)	2022		2021		2020		2022 / 2021		2021 / 2020
Global Family Office	$	614.9	$	742.6	$	600.7	(17)	%	24	%
Central	124.2		139.1		120.0		(11)		16
East	92.0		105.0		89.1		(12)		18
West	61.2		70.8		65.3		(13)		8
Total Assets Under Custody	$	892.3	$	1,057.5	$	875.1	(16)	%	21	%

TABLE 10: WEALTH MANAGEMENT ASSETS UNDER MANAGEMENT


	DECEMBER 31,						CHANGE
($ In Billions)	2022		2021		2020		2022 / 2021		2021 / 2020
Global Family Office	$	119.9	$	144.9	$	114.0	(17)	%	27	%
Central	110.2		128.7		109.3		(14)		18
East	71.4		84.5		73.3		(16)		15
West	49.9		58.0		51.2		(14)		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


	DAILY AVERAGES				YEAR-END
	2022	2021	CHANGE		2022	2021	CHANGE
S&P 500	4,101	4,271	(4)	%	3,840	4,766	(19)	%
MSCI EAFE (U.S. dollars)	1,976	2,289	(14)		1,944	2,336	(17)
MSCI EAFE (local currency)	1,249	1,294	(4)		1,232	1,362	(10)

TABLE 12: FIXED INCOME MARKET INDICES


	AS OF DECEMBER 31,
	2022	2021	CHANGE
Barclays Capital U.S. Aggregate Bond Index	2,049	2,355	(13)	%
Barclays Capital Global Aggregate Bond Index	446	532	(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


	DECEMBER 31,						CHANGE
($ In Billions)	2022		2021		2020		2022 /2021		2021 /2020
Asset Servicing	$	12,705.5	$	15,183.2	$	13,653.1	(16)	%	11	%
Wealth Management	898.5		1,065.6		879.4		(16)		21
Total Assets Under Custody/Administration	$	13,604.0	$	16,248.8	$	14,532.5	(16)	%	12	%

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

TABLE 14: ASSETS UNDER CUSTODY BY REPORTING SEGMENT


	DECEMBER 31,						CHANGE
($ In Billions)	2022		2021		2020		2022 /2021		2021 / 2020
Asset Servicing	$	9,712.3	$	11,554.8	$	10,387.7	(16)	%	11	%
Wealth Management	892.3		1,057.5		875.1		(16)		21
Total Assets Under Custody	$	10,604.6	$	12,612.3	$	11,262.8	(16)	%	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


	DECEMBER 31,
	2022						2021						2020
	AS		WM		TOTAL		AS		WM		TOTAL		AS		WM		TOTAL
Equities	44	%	56	%	45	%	47	%	61	%	48	%	46	%	62	%	47	%
Fixed Income Securities	33		15		32		35		13		33		36		15		34
Cash and Other Assets	21		29		22		16		26		17		16		23		17
Securities Lending Collateral	2		—		1		2		—		2		2		—		2

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

TABLE 16: ASSETS UNDER CUSTODY BY INVESTMENT TYPE


	DECEMBER 31,						CHANGE
($ In Billions)	2022		2021		2020		2022 / 2021		2021 / 2020
Equities	$	4,810.7	$	6,049.1	$	5,293.9	(20)	%	14	%
Fixed Income Securities	3,386.1		4,139.6		3,870.9		(18)		7
Cash and Other Assets	2,259.5		2,228.0		1,911.1		1		17
Securities Lending Collateral	148.3		195.6		186.9		(24)		5
Total Assets Under Custody	$	10,604.6	$	12,612.3	$	11,262.8	(16)	%	12	%

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

TABLE 17: ASSETS UNDER MANAGEMENT BY REPORTING SEGMENT


	DECEMBER 31,						CHANGE
($ In Billions)	2022		2021		2020		2022 / 2021		2021 / 2020
Asset Servicing	$	898.1	$	1,191.0	$	1,057.5	(25)	%	13	%
Wealth Management	351.4		416.1		347.8		(16)		20
Total Assets Under Management	$	1,249.5	$	1,607.1	$	1,405.3	(22)	%	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


	DECEMBER 31,
	2022						2021						2020
	AS		WM		TOTAL		AS		WM		TOTAL		AS		WM		TOTAL
Equities	54	%	53	%	54	%	53	%	55	%	53	%	52	%	52	%	52	%
Fixed Income Securities	12		23		15		11		20		13		11		25		15
Cash and Other Assets	17		24		19		20		25		22		19		23		20
Securities Lending Collateral	17		—		12		16		—		12		18		—		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


	DECEMBER 31,
	2022						2021						2020
	AS		WM		TOTAL		AS		WM		TOTAL		AS		WM		TOTAL
Index	62	%	23	%	51	%	60	%	24	%	50	%	58	%	24	%	50	%
Active	35		37		36		37		39		38		38		39		38
Multi-Manager	3		10		5		3		9		5		4		8		5
Other	—		30		8		—		28		7		—		29		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


	FOR THE YEAR ENDED DECEMBER 31,						CHANGE
($ In Millions)	2022		2021		2020		2022 / 2021		2021 / 2020
Foreign Exchange Trading Income	$	288.6	$	292.6	$	290.4	(1)	%	1	%
Treasury Management Fees	39.3		44.3		45.4		(11)		(3)
Security Commissions and Trading Income	136.2		140.2		133.2		(3)		5
Other Operating Income	191.3		243.9		194.0		(22)		26
Investment Security Gains (Losses), net	(214.0)		(0.3)		(0.4)		N/M		N/M
Total Other Noninterest Income	$	441.4	$	720.7	$	662.6	(39)	%	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)


	2022						2021						2020
($ In Millions)	INTEREST		AVERAGE BALANCE		AVERAGE RATE(7)		INTEREST		AVERAGE BALANCE		AVERAGE RATE(7)		INTEREST		AVERAGE BALANCE		AVERAGE RATE(7)
INTEREST-EARNING ASSETS
Federal Reserve and Other Central Bank Deposits	$	472.0	$	36,248.8	1.30	%	$	11.3	$	39,028.2	0.03	%	$	28.8	$	27,904.2	0.10	%
Interest-Bearing Due from and Deposits with Banks(2)	46.6		4,192.5		1.11		9.1		5,779.7		0.16		22.4		5,400.8		0.41
Federal Funds Sold	0.1		5.5		3.22		—		0.1		0.41		—		2.3		1.37
Securities Purchased under Agreements to Resell(3)	103.7		1,071.2		9.68		3.5		1,067.4		0.33		3.9		1,253.1		0.31
Debt Securities
Available For Sale	612.8		32,060.2		1.91		497.6		38,986.9		1.28		720.2		40,642.7		1.77
Held To Maturity	289.5		22,970.0		1.26		164.3		20,617.0		0.80		85.0		14,353.3		0.59
Trading Account	0.4		12.1		3.84		—		0.6		1.59		—		1.1		3.27
Total Debt Securities	902.7		55,042.3		1.64		661.9		59,604.5		1.11		805.2		54,997.1		1.46
Loans and Leases(4)	1,348.0		41,030.6		3.28		715.6		37,207.5		1.92		778.5		33,498.8		2.32
Other Interest-Earning Assets(5)	50.2		1,248.1		4.03		40.7		1,185.6		3.43		39.1		1,076.6		3.63
Total Interest-Earning Assets	2,923.3		138,839.0		2.11		1,442.1		143,873.0		1.00		1,677.9		124,132.9		1.35
Cash and Due from Banks and Other Central Bank Deposits(6)	—		2,069.5		—		—		2,285.9		—		—		2,603.0		—
Other Noninterest-Earning Assets	—		11,643.4		—		—		10,204.3		—		—		10,075.2		—
Total Assets	$	—	$	152,551.9	—	%	$	—	$	156,363.2	—	%	$	—	$	136,811.1	—	%
AVERAGE SOURCE OF FUNDS
Deposits
Savings, Money Market, and Other	$	222.3	$	30,205.0	0.74	%	$	12.8	$	28,339.0	0.05	%	$	47.6	$	23,396.4	0.20	%
Savings Certificates and Other Time	17.8		1,059.7		1.68		4.8		887.2		0.55		16.5		1,266.4		1.30
Non-U.S. Offices – Interest-Bearing	362.7		65,031.3		0.56		(78.9)		69,713.4		(0.11)		(15.7)		60,486.3		(0.03)
Total Interest-Bearing Deposits	602.8		96,296.0		0.63		(61.3)		98,939.6		(0.06)		48.4		85,149.1		0.06
Federal Funds Purchased	34.1		1,407.8		2.43		(0.4)		190.6		(0.19)		2.2		980.9		0.22
Securities Sold under Agreements to Repurchase(3)	90.7		433.6		20.94		0.2		232.0		0.07		1.0		218.3		0.47
Other Borrowings	126.2		5,463.5		2.31		14.2		5,049.8		0.28		45.3		6,401.1		0.71
Senior Notes	92.7		2,756.0		3.36		48.3		2,856.4		1.69		72.7		3,233.8		2.24
Long-Term Debt	44.0		1,258.9		3.49		21.1		1,166.1		1.81		26.5		1,189.2		2.24
Floating Rate Capital Debt	—		—		—		1.7		218.4		0.78		4.2		277.7		1.52
Total Interest-Related Funds	990.5		107,615.8		0.92		23.8		108,652.9		0.02		200.3		97,450.1		0.21
Interest Rate Spread	—		—		1.19		—		—		0.98		—		—		1.14
Demand and Other Noninterest-Bearing Deposits	—		29,296.4		—		—		31,143.5		—		—		23,362.0		—
Other Noninterest-Bearing Liabilities	—		4,558.3		—		—		4,869.8		—		—		4,806.4		—
Stockholders’ Equity	—		11,081.4		—		—		11,697.0		—		—		11,192.6		—
Total Liabilities and Stockholders’ Equity	$	—	$	152,551.9	—	%	$	—	$	156,363.2	—	%	$	—	$	136,811.1	—	%
Net Interest Income/Margin (FTE Adjusted)	$	1,932.8	$	—	1.39	%	$	1,418.3	$	—	0.99	%	$	1,477.6	$	—	1.19	%
Net Interest Income/Margin (Unadjusted)	$	1,887.2	$	—	1.36	%	$	1,382.7	$	—	0.96	%	$	1,443.2	$	—	1.16	%

(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)	2022/2021 CHANGE DUE TO						2021/2020 CHANGE DUE TO
(In Millions)	AVERAGE BALANCE		AVERAGE RATE		NET (DECREASE) INCREASE		AVERAGE BALANCE		AVERAGE RATE		NET (DECREASE) INCREASE
Increase (Decrease) in Net Interest Income (FTE)
Federal Reserve and Other Central Bank Deposits	$	(0.9)	$	461.6	$	460.7	$	7.8	$	(25.3)	$	(17.5)
Interest-Bearing Due from and Deposits with Banks	(3.1)		40.6		37.5		1.5		(14.8)		(13.3)
Federal Funds Sold	0.1		—		0.1		—		—		—
Securities Purchased under Agreements to Resell	—		100.2		100.2		(0.6)		0.2		(0.4)
Debt Securities
Available For Sale	(78.2)		193.4		115.2		(6.4)		(216.2)		(222.6)
Held To Maturity	20.6		104.6		125.2		66.1		13.2		79.3
Trading Account	0.4		—		0.4		—		—		—
Total Debt Securities	(57.2)		298.0		240.8		59.7		(203.0)		(143.3)
Loans and Leases	80.1		552.3		632.4		164.0		(226.9)		(62.9)
Other Interest-Earning Assets	$	2.2	$	7.3	$	9.5	$	3.9	$	(2.3)	$	1.6
Total Interest Income	$	21.2	$	1,460.0	$	1,481.2	$	236.3	$	(472.1)	$	(235.8)

Interest-Bearing Deposits
Savings, Money Market and Other	$	1.0	$	208.5	$	209.5	$	7.8	$	(42.6)	$	(34.8)
Savings Certificates and Other Time	1.1		11.9		13.0		(4.0)		(7.7)		(11.7)
Non-U.S. Offices - Interest-Bearing	(3.6)		445.2		441.6		33.4		(96.6)		(63.2)
Total Interest-Bearing Deposits	(1.5)		665.6		664.1		37.2		(146.9)		(109.7)
Federal Funds Purchased	7.7		26.8		34.5		(0.8)		(1.8)		(2.6)
Securities Sold under Agreements to Repurchase	0.2		90.3		90.5		0.1		(0.9)		(0.8)
Other Borrowings	1.3		110.7		112.0		(8.1)		(23.0)		(31.1)
Senior Notes	(1.8)		46.2		44.4		(7.9)		(16.5)		(24.4)
Long-Term Debt	1.8		21.1		22.9		(0.5)		(4.9)		(5.4)
Floating Rate Capital Debt	(1.7)		—		(1.7)		(0.8)		(1.7)		(2.5)
Total Interest Expense	$	6.0	$	960.7	$	966.7	$	19.2	$	(195.7)	$	(176.5)
(Decrease) Increase in Net Interest Income (FTE)	$	15.2	$	499.3	$	514.5	$	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


	FOR THE YEAR ENDED DECEMBER 31,						CHANGE
($ In Millions)	2022		2021		2020		2022 / 2021		2021 / 2020
Compensation	$	2,248.0	$	2,011.0	$	1,947.1	12	%	3	%
Employee Benefits	437.4		431.4		387.7		1		11
Outside Services	880.3		849.4		763.1		4		11
Equipment and Software	838.8		736.3		673.5		14		9
Occupancy	219.1		208.7		230.1		5		(9)
Other Operating Expense	359.3		299.1		346.7		20		(14)
Total Noninterest Expense	$	4,982.9	$	4,535.9	$	4,348.2	10	%	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


	FOR THE YEAR ENDED DECEMBER 31,						CHANGE
($ In Millions)	2022		2021		2020		2022 / 2021		2021 / 2020
Noninterest Income
Trust, Investment and Other Servicing Fees	$	4,432.6	$	4,361.1	$	3,995.0	2	%	9	%
Foreign Exchange Trading Income	288.6		292.6		290.4		(1)		1
Other Noninterest Income	152.8		428.1		372.2		(64)		15
Total Noninterest Income	4,874.0		5,081.8		4,657.6		(4)		9
Net Interest Income	1,887.2		1,382.7		1,443.2		36		(4)
Revenue	6,761.2		6,464.5		6,100.8		5		6
Provision for Credit Losses	12.0		(81.5)		125.0		N/M		N/M
Noninterest Expense	4,982.9		4,535.9		4,348.2		10		4
Income before Income Taxes	1,766.3		2,010.1		1,627.6		(12)		24
Provision for Income Taxes	430.3		464.8		418.3		(7)		11
Net Income	$	1,336.0	$	1,545.3	$	1,209.3	(14)	%	28	%
Average Assets	$	152,551.9	$	156,363.2	$	136,811.1	(2)	%	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


	FOR THE YEAR ENDED DECEMBER 31,									CHANGE
($ In Millions)	2022			2021			2020			2022 / 2021		2021 / 2020
Noninterest Income
Trust, Investment and Other Servicing Fees	$	2,496.3		$	2,487.3		$	2,321.6		—	%	7	%
Foreign Exchange Trading Income	281.0			279.0			276.3			1		1
Other Noninterest Income	250.7			261.2			222.5			(4)		17
Total Noninterest Income	3,028.0			3,027.5			2,820.4			—		7
Net Interest Income(1)	1,072.7			637.2			665.5			68		(4)
Revenue(1)	4,100.7			3,664.7			3,485.9			12		5
Provision for Credit Losses	2.4			(33.8)			38.1			N/M		N/M
Noninterest Expense	3,092.7			2,863.0			2,752.7			8		4
Income before Income Taxes(1)	1,005.6			835.5			695.1			20		20
Provision for Income Taxes(1)	243.2			194.1			174.4			25		11
Net Income	$	762.4		$	641.4		$	520.7		19	%	23	%
Percentage of Consolidated Net Income	57		%	41		%	43		%
Average Assets	$	115,646.4		$	120,883.2		$	104,790.6		(4)	%	15	%

(1) Non-GAAP financial measures stated on an FTE basis.



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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


	FOR THE YEAR ENDED DECEMBER 31,									CHANGE
($ In Millions)	2022			2021			2020			2022 / 2021		2021 / 2020
Noninterest Income
Trust, Investment and Other Servicing Fees	$	1,936.3		$	1,873.8		$	1,673.4		3	%	12	%
Foreign Exchange Trading Income	7.6			13.6			14.1			(44)		(4)
Other Noninterest Income	137.7			188.2			168.0			(27)		12
Total Noninterest Income	2,081.6			2,075.6			1,855.5			—		12
Net Interest Income(1)	860.1			781.1			812.1			10		(4)
Revenue(1)	2,941.7			2,856.7			2,667.6			3		7
Provision for Credit Losses	9.6			(47.7)			86.9			N/M		N/M
Noninterest Expense	1,815.5			1,651.1			1,559.7			10		6
Income before Income Taxes(1)	1,116.6			1,253.3			1,021.0			(11)		23
Provision for Income Taxes(1)	310.0			317.0			291.8			(2)		9
Net Income	$	806.6		$	936.3		$	729.2		(14)	%	28	%
Percentage of Consolidated Net Income	60		%	61		%	60		%
Average Assets	$	36,905.5		$	35,480.0		$	32,020.5		4	%	11	%

(1) Non-GAAP financial measures stated on an FTE basis.

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


	FOR THE YEAR ENDED DECEMBER 31,									CHANGE
($ In Millions)	2022			2021			2020			2022 / 2021	2021 / 2020
Noninterest Income	$	(235.6)		$	(21.3)		$	(18.3)		N/M	N/M
Net Interest Income(1)	—			—			—			N/M	N/M
Revenue(1)	(235.6)			(21.3)			(18.3)			N/M	N/M
Noninterest Expense	74.7			21.8			35.8			N/M	(39)
Income (Loss) before Income Taxes(1)	(310.3)			(43.1)			(54.1)			N/M	N/M
Provision (Benefit) for Income Taxes(1)	(77.3)			(10.7)			(13.5)			N/M	N/M
Net Income	$	(233.0)		$	(32.4)		$	(40.6)		N/M	N/M
Percentage of Consolidated Net Income	(17)		%	(2)		%	(3)		%
Average Assets	$	—		$	—		$	—		N/M	N/M

(1) Non-GAAP financial measures stated on an FTE basis.

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


	DECEMBER 31,						CHANGE
($ In Billions)	2022		2021		2020		2022 / 2021		2021 / 2020
Equities	$	671.3	$	856.5	$	733.7	(22)	%	17	%
Fixed Income Securities	186.5		216.1		204.8		(14)		6
Cash and Other Assets	243.4		338.9		279.9		(28)		21
Securities Lending Collateral	148.3		195.6		186.9		(24)		5
Total Assets Under Management	$	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)		2022		2021		2020
Balance as of January 1		$	1,607.1	$	1,405.3	$	1,231.3
Inflows by Product
	Equities	187.7		292.9		193.0
	Fixed Income	48.7		63.7		65.0
	Cash and Other Assets	643.2		810.2		802.4
	Securities Lending Collateral	235.3		270.6		268.8
Total Inflows		1,114.9		1,437.4		1,329.2
Outflows by Product
	Equities	(231.9)		(321.0)		(212.6)
	Fixed Income	(55.5)		(56.2)		(68.5)
	Cash and Other Assets	(743.2)		(745.4)		(746.5)
	Securities Lending Collateral	(282.6)		(261.9)		(245.0)
Total Outflows		(1,313.2)		(1,384.5)		(1,272.6)
Net Inflows (Outflows)		(198.3)		52.9		56.6
Market Performance, Currency & Other
	Market Performance & Other	(143.0)		159.8		109.1
	Currency	(16.3)		(10.9)		8.3
Total Market Performance, Currency & Other		(159.3)		148.9		117.4
Balance as of December 31		$	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)	DECEMBER 31, 2022		DECEMBER 31, 2021		CHANGE
Assets
Federal Reserve and Other Central Bank Deposits	$	40.0	$	64.5	$	(24.5)	(38)	%
Interest-Bearing Due from and Deposits with Banks(1)	4.9