Northern Trust 10Q 2021 Q2 Quarterly report

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

____________________________________________

FORM 10-Q


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

For the quarterly period ended June 30, 2021


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

For the transition period from to

Commission File No. 001-36609

NORTHERN TRUST CORPORATION

(Exact name of registrant as specified in its charter)


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


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

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

____________________________________________

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


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

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

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

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


Large accelerated filer	x	Accelerated filer	¨

Non-accelerated filer	¨	Smaller reporting company	☐

		Emerging growth company	☐

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

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

At June 30, 2021, 208,394,779 shares of common stock, $1.66 2/3 par value, were outstanding.

NORTHERN TRUST CORPORATION

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2021

TABLE OF CONTENTS

CONSOLIDATED FINANCIAL HIGHLIGHTS

(UNAUDITED)


	THREE MONTHS ENDED JUNE 30,						SIX MONTHS ENDED JUNE 30,
CONDENSED INCOME STATEMENTS ($ In Millions)	2021		2020		% CHANGE(1)		2021		2020		% CHANGE(1)
Noninterest Income	$	1,244.7	$	1,134.0	10	%	$	2,488.0	$	2,313.6	8	%
Net Interest Income	335.6		372.1		(10)		675.7		780.2		(13)
Total Revenue	1,580.3		1,506.1		5		3,163.7		3,093.8		2
Provision for Credit Losses	(27.0)		66.0		N/M		(57.0)		127.0		N/M
Noninterest Expense	1,120.8		1,036.9		8		2,238.3		2,102.5		6
Income before Income Taxes	486.5		403.2		21		982.4		864.3		14
Provision for Income Taxes	118.4		89.9		32		239.2		190.4		26
Net Income	$	368.1	$	313.3	18	%	$	743.2	$	673.9	10	%


PER COMMON SHARE
Net Income — Basic	$	1.73	$	1.47	18	%	$	3.44	$	3.03	13	%
— Diluted	1.72		1.46		18		3.42		3.02		13
Cash Dividends Declared Per Common Share	0.70		0.70		—		1.40		1.40		—
Book Value — End of Period (EOP)	52.49		50.45		4		52.49		50.45		4
Market Price — EOP	115.62		79.34		46		115.62		79.34		46


SELECTED BALANCE SHEET DATA ($ In Millions)	JUNE 30, 2021		DECEMBER 31, 2020		% CHANGE(1)
End of Period:
Total Assets	$	172,291.1	$	170,003.9	1	%
Earning Assets	159,405.8		158,531.6		1
Deposits	146,210.2		143,878.0		2
Stockholders’ Equity	11,823.0		11,688.3		1


	THREE MONTHS ENDED JUNE 30,						SIX MONTHS ENDED JUNE 30,
	2021		2020		% CHANGE(1)		2021		2020		% CHANGE(1)
Average Balances:
Total Assets	$	154,300.1	$	138,770.6	11	%	$	153,780.8	$	131,470.6	17	%
Earning Assets	142,024.4		125,181.7		13		141,310.4		117,896.5		20
Deposits	127,997.5		110,870.0		15		127,211.2		102,977.9		24
Stockholders’ Equity	11,551.0		11,041.4		5		11,544.2		10,914.2		6


CLIENT ASSETS ($ In Billions)	JUNE 30, 2021		DECEMBER 31, 2020		% CHANGE(1)
Assets Under Custody/Administration(2)	$	15,727.1	$	14,532.5	8	%
Assets Under Custody	12,228.6		11,262.8		9
Assets Under Management	1,539.4		1,405.3		10

N/M - Not meaningful

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

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

SELECTED RATIOS AND METRICS


	THREE MONTHS ENDED JUNE 30,				SIX MONTHS ENDED JUNE 30,
	2021		2020		2021		2020
Financial Ratios:
Return on Average Common Equity	13.7	%	12.2	%	13.7	%	12.8	%
Return on Average Assets	0.96		0.91		0.97		1.03
Dividend Payout Ratio	40.7		47.9		40.9		46.4
Net Interest Margin(1)	0.97		1.22		0.99		1.36


	JUNE 30, 2021				DECEMBER 31, 2020
	STANDARDIZED APPROACH		ADVANCED APPROACH		STANDARDIZED APPROACH		ADVANCED APPROACH		WELL-CAPITALIZED RATIOS		MINIMUM CAPITAL RATIOS
Capital Ratios:
Northern Trust Corporation
Common Equity Tier 1 Capital	12.0	%	13.1	%	12.8	%	13.4	%	N/A		4.5	%
Tier 1 Capital	13.1		14.2		13.9		14.5		6.0		6.0
Total Capital	14.5		15.5		15.6		15.9		10.0		8.0
Tier 1 Leverage	7.1		7.1		7.6		7.6		N/A		4.0
Supplementary Leverage	N/A		8.2		N/A		8.6		N/A		3.0

The Northern Trust Company
Common Equity Tier 1 Capital	12.3	%	13.6	%	13.0	%	13.8	%	6.5	%	4.5	%
Tier 1 Capital	12.3		13.6		13.0		13.8		8.0		6.0
Total Capital	13.6		14.7		14.5		15.0		10.0		8.0
Tier 1 Leverage	6.7		6.7		7.0		7.0		5.0		4.0
Supplementary Leverage	N/A		7.7		N/A		7.7		3.0		3.0

(1) Net interest margin is presented on a fully taxable equivalent (FTE) basis, a non-generally accepted accounting principle (GAAP) financial measure that facilitates the analysis of asset yields. The net interest margin on a GAAP basis and a reconciliation of net interest income on a GAAP basis to net interest income on an FTE basis are presented on page 32.

PART I – FINANCIAL INFORMATION

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

The following is management’s discussion and analysis of the financial condition and results of operations (MD&A) of Northern Trust Corporation (Corporation) for the second quarter of 2021. The following should be read in conjunction with the consolidated financial statements and related footnotes included in this report as well as the Annual Report on Form 10-K for the year ended December 31, 2020. Investors also should read the section entitled “Forward-Looking Statements.”

SECOND QUARTER CONSOLIDATED RESULTS OF OPERATIONS

General

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

COVID-19 Pandemic and Recent Events

During the COVID-19 pandemic, Northern Trust has remained focused on the health and well-being of its workforce, meeting its clients’ needs and supporting its communities. The majority of Northern Trust’s workforce continues to work remotely and the Corporation continues to adjust its response to the pandemic as needed. Plans for return-to-office (RTO) are developed on a location-by-location basis based on business unit needs. Northern Trust continues to consider site readiness, transportation options, technology capabilities, and workforce alignment. To ensure the health and well-being of Northern Trust’s workforce, clients and visitors, several social distancing practices and other protective measures, distribution of personal protective equipment, and workforce health self-certifications, were implemented. Northern Trust provided its employees a total of two days of paid time off, if needed, to travel to, obtain and recover from COVID-19 vaccinations. Plans are underway in some locations to return portions of the workforce on a hybrid or rotational schedule in the third quarter of 2021. The timing of the RTO will be driven by business, client and operational needs, and will be guided by health and safety guidelines.

During the pandemic, Northern Trust offered assistance to affected clients by lending under a government lending program and providing payment deferrals. During the second quarter of 2020, Northern Trust became a lender under the Paycheck Protection Program, as amended (PPP), which is administered by the U.S. Small Business Administration (SBA), an agency of the U.S. Department of the Treasury, which works with financial institutions in providing loans to small businesses. The PPP, which is meant to aid small businesses during the COVID-19 pandemic, was created under the Coronavirus Aid, Relief, and Economic Security (CARES) Act, which was signed into law on March 27, 2020. The PPP Extension Act of 2021, which was enacted on March 30, 2021, extended the PPP application deadline to May 31, 2021 and provided the SBA additional time to process applications through June 30, 2021.

As of June 30, 2021, Northern Trust had outstanding loans totaling $145.4 million under the PPP and 889 applications went through the PPP loan forgiveness process and resulted in an aggregate $153.1 million of loan principal and interest being forgiven. In addition, there have been two forms of relief provided to lenders exempting certain loan modifications which would otherwise be classified as troubled debt restructuring (TDR) from such classification. Northern Trust elected to apply each of these forms of relief, when applicable, in providing borrowers with qualifying loan modifications, including payment deferrals, in response to the COVID-19 pandemic. Both of these assistance measures have declined since the start of the pandemic. For further information on the PPP and TDRs, please refer to Note 6 — Loans and Leases to the consolidated financial statements provided in Item 1. Consolidated Financial Statements (unaudited).

Overview of Financial Results

Net Income per diluted common share increased in the current quarter to $1.72 from $1.46 in the second quarter of 2020. Net Income increased $54.8 million, or 18%, to $368.1 million in the current quarter from $313.3 million in the prior-year quarter. Annualized return on average common equity was 13.7% in the current quarter and 12.2% in the prior-year quarter. The annualized return on average assets was 0.96% in the current quarter as compared to 0.91% in the prior-year quarter.

Revenue increased $74.2 million to $1.58 billion in the current quarter from $1.51 billion in the prior-year quarter.

Trust, Investment and Other Servicing Fees increased $113.9 million, or 12%, from $961.5 million in the prior-year quarter to $1.08 billion in the current quarter, primarily due to favorable markets, new business, and favorable currency translation, partially offset by higher money market mutual fund fee waivers.

SECOND QUARTER CONSOLIDATED RESULTS OF OPERATIONS (continued)

Overview of Financial Results (continued)

Other Noninterest Income decreased $3.2 million, or 2%, from $172.5 million in the prior-year quarter to $169.3 million in the current quarter, primarily reflecting lower Other Operating Income.

Net Interest Income decreased $36.5 million, or 10%, to $335.6 million in the current quarter as compared to $372.1 million in the prior-year quarter, primarily due to a lower net interest margin, partially offset by higher average earning assets.

There was a $27.0 million release of credit reserves in the current quarter, as compared to a provision of $66.0 million in the prior-year quarter. The current quarter release of credit reserves was primarily due to a decrease in the reserve evaluated on a collective basis, which relates to pooled financial assets sharing similar risk characteristics. The decrease in the collective basis reserve was driven by continued improvements in overall projected economic conditions, as well as improved industry-specific conditions, partially offset by credit deterioration associated with a limited number of commercial real estate loans and overall portfolio growth.

Noninterest Expense increased $83.9 million, or 8%, from $1.04 billion in the prior-year quarter to $1.12 billion in the current quarter, primarily attributable to higher Outside Services, Employee Benefits, Compensation and Equipment and Software expense, offset by lower Other Operating Expense and Occupancy expense. Employee Benefits expense included a $17.6 million pension settlement charge in the current quarter.

The Provision for Income Taxes in the current quarter totaled $118.4 million, representing an effective tax rate of 24.3%. The Provision for Income Taxes in the prior-year quarter totaled $89.9 million, representing an effective tax rate of 22.3%. The effective tax rate increased compared to the prior-year quarter primarily due to the deferred tax impact of the UK statutory tax rate increase enacted in the current quarter and a prior-year quarter tax benefit from dispositions of leveraged leases.

Trust, Investment and Other Servicing Fees

Trust, Investment and Other Servicing Fees are based primarily on the market value of assets held in custody, managed or serviced; the volume of transactions; securities lending volume and spreads; and fees for other services rendered. Certain market value calculations on which fees are based are performed on a monthly or quarterly basis in arrears. Low-interest-rate environments have historically had a negative impact on fees earned on certain products. Beginning in the second quarter of 2020, the Corporation began to waive a portion of certain fees associated with money market mutual funds due to the low-interest-rate environment. Northern Trust voluntarily waived $79.2 million and $0.3 million of money market mutual fund fees for the three months ended June 30, 2021 and 2020, respectively. These fee waivers, which are impacted by the level of yields earned and account balances in certain funds, are expected to continue in the current low-interest-rate environment as the yields in these funds remain insufficient to pay the stated fees associated with such funds. This is expected to adversely impact Trust, Investment and Other Servicing Fees within the C&IS and Wealth Management reporting segments.

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

TABLE 1: TRUST, INVESTMENT AND OTHER SERVICING FEES


	THREE MONTHS ENDED JUNE 30,
($ In Millions)	2021		2020		CHANGE
C&IS Trust, Investment and Other Servicing Fees
Custody and Fund Administration	$	454.9	$	376.3	$	78.6	21	%
Investment Management	100.7		128.4		(27.7)		(22)
Securities Lending	19.5		27.3		(7.8)		(29)
Other	36.4		34.2		2.2		6
Total C&IS Trust, Investment and Other Servicing Fees	$	611.5	$	566.2	$	45.3	8	%
Wealth Management Trust, Investment and Other Servicing Fees
Central	$	174.3	$	142.1	$	32.2	23	%
East	127.2		104.2		23.0		22
West	93.8		80.0		13.8		17
Global Family Office	68.6		69.0		(0.4)		(1)
Total Wealth Management Trust, Investment and Other Servicing Fees	$	463.9	$	395.3	$	68.6	17	%
Total Consolidated Trust, Investment and Other Servicing Fees	$	1,075.4	$	961.5	$	113.9	12	%

SECOND QUARTER CONSOLIDATED RESULTS OF OPERATIONS (continued)

Trust, Investment and Other Servicing Fees (continued)

Corporate & Institutional Services

Custody and Fund Administration fees, the largest component of C&IS fees, are driven primarily by values of client assets under custody/administration (AUC/A), transaction volumes and the number of accounts. The asset values used to calculate these fees vary depending on the individual fee arrangements negotiated with each client. Custody fees related to asset values are client-specific and are priced based on month-end market values, quarter-end market values, or the average of month-end market values for the quarter. The fund administration fees that are asset-value-related are priced using month-end, quarter-end, or average daily balances. Investment Management fees are based generally on market values of client assets under management throughout the period. Typically, the asset values used to calculate fee revenue are based on a one-month or one-quarter lag.

Custody and Fund Administration fees increased from the prior-year quarter, primarily due to favorable markets, new business, and favorable currency translation. Investment Management fees decreased from the prior-year quarter, primarily due to higher money market mutual fund fee waivers, partially offset by favorable markets and new business. Securities Lending fees decreased from the prior-year quarter, primarily due to lower spreads, partially offset by higher volumes.

Wealth Management

Wealth Management fee income is calculated primarily based on market values and is impacted by both one-month and one-quarter lagged asset values. Fee income in the regions (Central, East and West) increased from the prior-year quarter, primarily due to favorable markets and new business, partially offset by higher money market mutual fund fee waivers. Global Family Office fee income decreased from the prior-year quarter, primarily due to higher money market mutual fund fee waivers, partially offset by favorable markets and new business.

Market Indices

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

TABLE 2: EQUITY MARKET INDICES


	DAILY AVERAGES				PERIOD-END
	THREE MONTHS ENDED JUNE 30,				AS OF JUNE 30,
	2021	2020	CHANGE		2021	2020	CHANGE
S&P 500	4,180	2,926	43	%	4,298	3,100	39	%
MSCI EAFE (U.S. dollars)	2,306	1,681	37		2,305	1,781	29
MSCI EAFE (local currency)	1,286	1,002	28		1,305	1,050	24

TABLE 3: FIXED INCOME MARKET INDICES


	AS OF JUNE 30,
	2021	2020	CHANGE
Barclays Capital U.S. Aggregate Bond Index	2,354	2,362	—	%
Barclays Capital Global Aggregate Bond Index	541	527	3

Client Assets

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

TABLE 4: ASSETS UNDER CUSTODY / ADMINISTRATION BY REPORTING SEGMENT


	JUNE 30, 2021		MARCH 31, 2021		JUNE 30, 2020		CHANGE Q2-21/Q1-21		CHANGE Q2-21/Q2-20
($ In Billions)	JUNE 30, 2021		MARCH 31, 2021		JUNE 30, 2020		CHANGE Q2-21/Q1-21		CHANGE Q2-21/Q2-20
Corporate & Institutional Services	$	14,754.1	$	13,876.3	$	11,347.1	6	%	30	%
Wealth Management	973.0		918.8		751.2		6		30
Total Assets Under Custody / Administration	$	15,727.1	$	14,795.1	$	12,098.3	6	%	30	%

SECOND QUARTER CONSOLIDATED RESULTS OF OPERATIONS (continued)

Trust, Investment and Other Servicing Fees (continued)

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

TABLE 5: ASSETS UNDER CUSTODY BY REPORTING SEGMENT


	JUNE 30, 2021		MARCH 31, 2021		JUNE 30, 2020		CHANGE Q2-21/Q1-21		CHANGE Q2-21/Q2-20
($ In Billions)	JUNE 30, 2021		MARCH 31, 2021		JUNE 30, 2020		CHANGE Q2-21/Q1-21		CHANGE Q2-21/Q2-20
Corporate & Institutional Services	$	11,260.8	$	10,618.0	$	8,542.7	6	%	32	%
Wealth Management	967.8		916.2		747.9		6		29
Total Assets Under Custody	$	12,228.6	$	11,534.2	$	9,290.6	6	%	32	%

Consolidated assets under custody increased from the prior quarter and prior-year quarter, primarily reflecting the impact of favorable markets, net inflows and favorable currency translation.

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

TABLE 6: ALLOCATION OF ASSETS UNDER CUSTODY


	JUNE 30, 2021						MARCH 31, 2021						JUNE 30, 2020
	C&IS		WM		TOTAL		C&IS		WM		TOTAL		C&IS		WM		TOTAL
Equities	47	%	64	%	48	%	47	%	63	%	48	%	43	%	59	%	44	%
Fixed Income Securities	35		14		33		35		14		33		38		17		36
Cash and Other Assets	16		22		17		16		23		17		17		24		18
Securities Lending Collateral	2		—		2		2		—		2		2		—		2

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

TABLE 7: ASSETS UNDER CUSTODY BY INVESTMENT TYPE


($ In Billions)	JUNE 30, 2021		MARCH 31, 2021		JUNE 30, 2020		CHANGE Q2-21/Q1-21		CHANGE Q2-21/Q2-20
Equities	$	5,951.0	$	5,580.7	$	4,102.8	7	%	45	%
Fixed Income Securities	4,029.6		3,818.7		3,337.1		6		21
Cash and Other Assets	2,048.7		1,933.6		1,685.0		6		22
Securities Lending Collateral	199.3		201.2		165.7		(1)		20
Total Assets Under Custody	$	12,228.6	$	11,534.2	$	9,290.6	6	%	32	%

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

TABLE 8: ASSETS UNDER MANAGEMENT BY REPORTING SEGMENT


	JUNE 30, 2021		MARCH 31, 2021		JUNE 30, 2020		CHANGE Q2-21/Q1-21		CHANGE Q2-21/Q2-20
($ In Billions)	JUNE 30, 2021		MARCH 31, 2021		JUNE 30, 2020		CHANGE Q2-21/Q1-21		CHANGE Q2-21/Q2-20
Corporate & Institutional Services	$	1,168.3	$	1,093.7	$	954.0	7	%	22	%
Wealth Management	371.1		355.4		303.8		4		22
Total Assets Under Management	$	1,539.4	$	1,449.1	$	1,257.8	6	%	22	%

Consolidated assets under management increased compared to the prior quarter and prior-year quarter, primarily reflecting favorable markets and net inflows.

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

TABLE 9: ALLOCATION OF ASSETS UNDER MANAGEMENT


	JUNE 30, 2021						MARCH 31, 2021						JUNE 30, 2020
	C&IS		WM		TOTAL		C&IS		WM		TOTAL		C&IS		WM		TOTAL
Equities	53	%	57	%	54	%	52	%	55	%	53	%	48	%	48	%	49	%
Fixed Income Securities	11		22		14		11		23		14		12		26		15
Cash and Other Assets	19		21		19		19		22		19		23		26		23
Securities Lending Collateral	17		—		13		18		—		14		17		—		13

SECOND QUARTER CONSOLIDATED RESULTS OF OPERATIONS (continued)

Trust, Investment and Other Servicing Fees (continued)

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

TABLE 10: ASSETS UNDER MANAGEMENT BY INVESTMENT TYPE


($ In Billions)	JUNE 30, 2021		MARCH 31, 2021		JUNE 30, 2020		CHANGE Q2-21/Q1-21		CHANGE Q2-21/Q2-20
Equities	$	827.8	$	769.6	$	608.5	8	%	36	%
Fixed Income Securities	214.9		198.9		193.1		8		11
Cash and Other Assets	297.4		279.4		290.5		6		2
Securities Lending Collateral	199.3		201.2		165.7		(1)		20
Total Assets Under Management	$	1,539.4	$	1,449.1	$	1,257.8	6	%	22	%

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

TABLE 11: ACTIVITY IN CONSOLIDATED ASSETS UNDER MANAGEMENT BY PRODUCT


		THREE MONTHS ENDED
($ In Billions)		JUNE 30, 2021		MARCH 31, 2021		DECEMBER 31, 2020		SEPTEMBER 30, 2020		JUNE 30, 2020
Beginning Balance of AUM		$	1,449.1	$	1,405.3	$	1,311.7	$	1,257.8	$	1,119.3
Inflows by Product
	Equities	72.0		84.2		52.0		42.6		46.7
	Fixed Income	13.1		15.3		18.7		16.4		16.4
	Cash and Other Assets	197.2		165.6		188.5		189.9		219.3
	Securities Lending Collateral	64.0		74.1		64.2		57.2		67.7
Total Inflows		346.3		339.2		323.4		306.1		350.1
Outflows by Product
	Equities	(72.9)		(88.4)		(58.1)		(48.3)		(46.3)
	Fixed Income	(10.6)		(14.8)		(17.5)		(13.9)		(18.5)
	Cash and Other Assets	(184.9)		(163.9)		(203.0)		(195.3)		(180.0)
	Securities Lending Collateral	(65.8)		(59.8)		(50.2)		(50.0)		(69.1)
Total Outflows		(334.2)		(326.9)		(328.8)		(307.5)		(313.9)
Net Inflows (Outflows)		12.1		12.3		(5.4)		(1.4)		36.2
Market Performance, Currency & Other
	Market Performance & Other	76.7		37.2		91.0		51.4		99.5
	Currency	1.5		(5.7)		8.0		3.9		2.8
Total Market Performance, Currency & Other		78.2		31.5		99.0		55.3		102.3
Ending Balance of AUM		$	1,539.4	$	1,449.1	$	1,405.3	$	1,311.7	$	1,257.8

Other Noninterest Income

The components of noninterest income are provided below.

TABLE 12: OTHER NONINTEREST INCOME


	THREE MONTHS ENDED JUNE 30,
($ In Millions)	2021		2020		CHANGE
Foreign Exchange Trading Income	$	70.6	$	71.3	$	(0.7)	(1)	%
Treasury Management Fees	11.3		11.4		(0.1)		(2)
Security Commissions and Trading Income	33.0		33.2		(0.2)		—
Other Operating Income	54.4		56.5		(2.1)		(4)
Investment Security Gains, net	—		0.1		(0.1)		N/M
Total Other Noninterest Income	$	169.3	$	172.5	$	(3.2)	(2)	%

Other Operating Income decreased compared to the prior-year quarter, primarily due to a prior-year quarter market value adjustment for a seed capital investment and lower miscellaneous income, partially offset by higher banking and credit-related service charges. The lower miscellaneous income was primarily associated with a market value decrease in the supplemental compensation plans, which also resulted in a related decrease in supplemental compensation plan expense reported in other operating expense. Please refer to Note 16 — Other Operating Income to the consolidated financial statements provided in Item 1. Consolidated Financial Statements (unaudited) for further detail.

SECOND QUARTER CONSOLIDATED RESULTS OF OPERATIONS (continued)

Net Interest Income

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

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

Net Interest Income stated on a fully taxable equivalent (FTE) basis is a non-generally accepted accounting principle (GAAP) financial measure that facilitates the analysis of asset yields. Management believes an FTE presentation provides a clearer indication of net interest margins for comparative purposes. When adjusted to an FTE basis, yields on taxable, nontaxable, and partially taxable assets are comparable; however, the adjustment to an FTE basis has no impact on Net Income. A reconciliation of Net Interest Income on a GAAP basis to Net Interest Income on an FTE basis is provided on page 32.

SECOND QUARTER CONSOLIDATED RESULTS OF OPERATIONS (continued)

Net Interest Income (continued)

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

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


(INTEREST AND RATE ON A FULLY TAXABLE EQUIVALENT BASIS)	SECOND QUARTER
	2021						2020
($ In Millions)	INTEREST		AVERAGE BALANCE		AVERAGE RATE(6)		INTEREST		AVERAGE BALANCE		AVERAGE RATE(6)
Interest-Earning Assets
Federal Reserve and Other Central Bank Deposits and Other(1)	$	1.2	$	37,424.5	0.01	%	$	3.4	$	30,299.0	0.05	%
Interest-Bearing Due from and Deposits with Banks(2)	2.7		6,736.7		0.16		4.5		5,505.7		0.33
Federal Funds Sold	—		0.1		0.41		—		0.1		0.53
Securities Purchased under Agreements to Resell	0.9		1,011.5		0.34		0.6		985.8		0.22
Securities
U.S. Government	6.9		2,676.0		1.03		17.7		4,472.3		1.60
Obligations of States and Political Subdivisions	16.8		3,373.0		1.99		11.1		1,834.7		2.43
Government Sponsored Agency	73.4		24,520.5		1.20		109.4		23,398.2		1.88
Other(3)	76.8		30,000.0		1.03		77.3		23,179.2		1.34
Total Securities	173.9		60,569.5		1.15		215.5		52,884.4		1.64
Loans and Leases(4)	172.7		36,282.1		1.91		190.0		35,506.7		2.15
Total Interest-Earning Assets	351.4		142,024.4		0.99		414.0		125,181.7		1.33
Cash and Due from Banks and Other Central Bank Deposits(5)	—		2,402.5		—		—		2,966.7		—
Other Noninterest-Earning Assets	—		9,873.2		—		—		10,622.2		—
Total Assets	$	—	$	154,300.1	—	%	$	—	$	138,770.6	—	%
Average Source of Funds
Deposits
Savings, Money Market and Other	$	3.0	$	27,427.0	0.04	%	$	7.1	$	24,017.0	0.12	%
Savings Certificates and Other Time	1.1		898.9		0.49		5.0		1,403.6		1.42
Non-U.S. Offices — Interest-Bearing	(18.9)		69,202.4		(0.11)		(12.8)		63,592.7		(0.08)
Total Interest-Bearing Deposits	(14.8)		97,528.3		(0.06)		(0.7)		89,013.3		—
Federal Funds Purchased	(0.5)		195.3		(0.95)		—		1,181.0		0.01
Securities Sold under Agreements to Repurchase	—		228.5		0.03		—		170.7		0.05
Other Borrowings	3.2		5,195.7		0.25		6.4		6,008.4		0.43
Senior Notes	13.8		3,022.9		1.82		20.0		3,332.9		2.39
Long-Term Debt	5.3		1,168.8		1.83		7.0		1,198.3		2.35
Floating Rate Capital Debt	0.5		277.8		0.76		1.5		277.7		2.24
Total Interest-Related Funds	7.5		107,617.3		0.03		34.2		101,182.3		0.14
Interest Rate Spread	—		—		0.96		—		—		1.19
Demand and Other Noninterest-Bearing Deposits	—		30,469.2		—		—		21,856.7		—
Other Noninterest-Bearing Liabilities	—		4,662.6		—		—		4,690.2		—
Stockholders’ Equity	—		11,551.0		—		—		11,041.4		—
Total Liabilities and Stockholders’ Equity	$	—	$	154,300.1	—	%	$	—	$	138,770.6	—	%
Net Interest Income/Margin (FTE Adjusted)	$	343.9	$	—	0.97	%	$	379.8	$	—	1.22	%
Net Interest Income/Margin (Unadjusted)	$	335.6	$	—	0.95	%	$	372.1	$	—	1.20	%

(1)Federal Reserve and Other Central Bank Deposits and Other includes collateral deposits with certain securities depositories and clearing houses, which are classified in Other Assets on the consolidated balance sheets.

(2)Interest-Bearing Due from and Deposits with Banks includes the interest-bearing component of Cash and Due from Banks and Interest-Bearing Deposits with Banks as presented on the consolidated balance sheets.

(3)Other securities include certain community development investments and Federal Home Loan Bank and Federal Reserve stock, which are classified in Other Assets on the consolidated balance sheets.

(4)Average balances include nonaccrual loans. Lease financing receivable balances are reduced by deferred income.

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

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

SECOND QUARTER CONSOLIDATED RESULTS OF OPERATIONS (continued)

Net Interest Income (continued)

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


(INTEREST AND RATE ON A FULLY TAXABLE EQUIVALENT BASIS)	THREE MONTHS ENDED JUNE 30, 2021/2020
	CHANGE DUE TO
(In Millions)	AVERAGE BALANCE		AVERAGE RATE		NET (DECREASE) INCREASE
Increase (Decrease) in Net Interest Income (FTE)
Federal Reserve and Other Central Bank Deposits and Other	$	0.9	$	(3.1)	$	(2.2)
Interest-Bearing Due from and Deposits with Banks	0.8		(2.6)		(1.8)
Federal Funds Sold	—		—		—
Securities Purchased under Agreements to Resell	—		0.3		0.3
Securities
U.S. Government	(5.7)		(5.1)		(10.8)
Obligations of States and Political Subdivisions	8.0		(2.3)		5.7
Government Sponsored Agency	5.1		(41.1)		(36.0)
Other	19.3		(19.8)		(0.5)
Total Securities	26.7		(68.3)		(41.6)
Loans and Leases	21.2		(38.5)		(17.3)
Total Interest Income	$	49.6	$	(112.2)	$	(62.6)

Interest-Bearing Deposits
Savings, Money Market and Other	$	0.9	$	(5.0)	$	(4.1)
Savings Certificates and Other Time	0.1		(4.0)		(3.9)
Non-U.S. Offices - Interest-Bearing	(1.1)		(5.0)		(6.1)
Total Interest-Bearing Deposits	(0.1)		(14.0)		(14.1)
Federal Funds Purchased	—		(0.5)		(0.5)
Securities Sold under Agreements to Repurchase	—		—		—
Other Borrowings	(0.8)		(2.4)		(3.2)
Senior Notes	(1.7)		(4.5)		(6.2)
Long-Term Debt	2.8		(4.5)		(1.7)
Floating Rate Capital Debt	—		(1.0)		(1.0)
Total Interest Expense	$	0.2	$	(26.9)	$	(26.7)
Increase (Decrease) in Net Interest Income (FTE)	$	49.4	$	(85.3)	$	(35.9)

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

Notes: Net Interest Income (FTE Adjusted), a non-GAAP financial measure, includes adjustments to a fully taxable equivalent basis for loans and securities. The adjustments are based on a federal income tax rate of 21.0%, where the rate is adjusted for applicable state income taxes, net of related federal tax benefit. Total taxable equivalent interest adjustments amounted to $8.3 million and $7.7 million for the three months ended June 30, 2021 and 2020, respectively. A reconciliation of Net Interest Income and net interest margin on a GAAP basis to Net Interest Income and net interest margin on an FTE basis (each of which is a non-GAAP financial measure) is provided on page 32. Net interest margin is calculated by dividing annualized Net Interest Income by average interest-earning assets.

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

Net Interest Income, stated on a FTE basis, decreased from the prior-year quarter, primarily due to a lower net interest margin, partially offset by higher average earning assets. Average earning assets increased from the prior-year quarter, primarily due to higher levels of short-term interest-bearing deposits with banks and securities. Funding of the balance sheet reflected higher levels of client deposits.

The net interest margin on an FTE basis decreased from the prior-year quarter, primarily due to lower average interest rates. Low levels of market interest rates are expected to continue to impact our net interest income.

Federal Reserve and Other Central Bank Deposits and Other averaged $37.4 billion and increased $7.1 billion, or 24%, from $30.3 billion in the prior-year quarter, resulting from significant deposit inflows. The higher level of client deposits were primarily placed in the securities portfolio and with the Federal Reserve and other central banks. Average Securities were $60.6 billion and increased $7.7 billion, or 15%, from $52.9 billion, in the prior-year quarter and include certain community development investments, Federal Home Loan Bank stock, and Federal Reserve stock of $909.9 million, $160.1 million and $70.0 million, respectively, which are recorded in Other Assets on the consolidated balance sheets. Average taxable Securities were $57.5 billion in the current quarter and $47.4 billion in the prior-year quarter. Average nontaxable Securities, which represent securities that are primarily exempt from U.S. federal and state income taxes, were $3.1 billion in the current quarter

SECOND QUARTER CONSOLIDATED RESULTS OF OPERATIONS (continued)

Net Interest Income (continued)

and $5.4 billion in the prior-year quarter. Interest-Bearing Due from and Deposits with Banks averaged $6.7 billion in the current quarter and $5.5 billion in the prior-year quarter.

Loans and Leases averaged $36.3 billion and increased $775.4 million, or 2%, from $35.5 billion in the prior-year quarter, primarily reflecting higher levels of private client, commercial real estate, non-U.S., and residential real estate loans, partially offset by lower levels of commercial and institutional loans. Private client loans averaged $13.5 billion and increased $1.9 billion, or 17%, from $11.6 billion for the prior-year quarter. Commercial real estate loans averaged $3.8 billion and increased $652.6 million, or 21%, from $3.2 billion for the prior-year quarter. Non-U.S. loans averaged $2.6 billion and increased $355.3 million or 16%, from $2.2 billion for the prior-year quarter. Residential real estate loans averaged $6.2 billion and increased $91.1 million, or 1%, from $6.1 billion for the prior-year quarter. Commercial and institutional loans averaged $9.8 billion and decreased $2.3 billion, or 19%, from $12.1 billion for the prior-year quarter.

Northern Trust utilizes a diverse mix of funding sources. Average Interest-Bearing Deposits increased $8.5 billion, or 10%, to an average of $97.5 billion in the current quarter from $89.0 billion in the prior-year quarter. Other Average Interest-Related Funds decreased $2.1 billion, or 17%, to an average of $10.1 billion in the current quarter from $12.2 billion in the prior-year quarter. The balances within short-term borrowing classifications vary based on funding requirements and strategies, interest rate levels, changes in the volume of lower-cost deposit sources, and the availability of collateral to secure these borrowings. Average net noninterest-related funds increased $10.4 billion, or 43%, to $34.4 billion in the current quarter from $24.0 billion in the prior-year quarter, primarily resulting from higher levels of Demand and Other Noninterest-Bearing Deposits.

Interest expense for Interest-Bearing Deposits in the current quarter was driven by low and negative interest rates for Non-U.S. Offices Interest-Bearing Deposits and low interest rates on domestic Interest-Bearing Deposits. Average Non-U.S. Offices Interest-Bearing Deposits comprised 71% of total average Interest-Bearing Deposits for the three months ended June 30, 2021.

Provision for Credit Losses

There was a $27.0 million release of credit reserves in the current quarter, as compared to a provision of $66.0 million in the prior-year quarter. The release of credit reserves in the current quarter was primarily due to a decrease in the reserve evaluated on a collective basis, which relates to pooled financial assets sharing similar risk characteristics. The decrease in the collective basis reserve was driven by continued improvements in overall projected economic conditions, as well as improved industry-specific conditions, partially offset by credit deterioration associated with a limited number of commercial real estate loans and overall portfolio growth.

The provision in the prior-year quarter was primarily due to an increase in the reserve evaluated on a collective basis driven by downgrades in the portfolio and more severe projected economic conditions at the time, both resulting from the ongoing COVID-19 pandemic and related market and economic impacts, with the largest increases in the commercial and institutional and commercial real estate portfolios.

Net recoveries in the current quarter were $3.2 million, reflecting $3.2 million of recoveries and de minimis charge-offs. The prior-year quarter included $2.6 million of net recoveries, reflecting $3.0 million of recoveries and $0.4 million of charge-offs. Nonaccrual assets of $106.7 million increased $7.3 million, or 7%, from $99.4 million at the end of the prior-year quarter.

Noninterest Expense

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

TABLE 15: NONINTEREST EXPENSE


	THREE MONTHS ENDED JUNE 30,
($ In Millions)	2021		2020		CHANGE
Compensation	$	486.3	$	460.3	$	26.0	6	%
Employee Benefits	118.4		90.4		28.0		31
Outside Services	218.1		176.2		41.9		24
Equipment and Software	178.3		164.2		14.1		9
Occupancy	52.2		60.0		(7.8)		(13)
Other Operating Expense	67.5		85.8		(18.3)		(21)
Total Noninterest Expense	$	1,120.8	$	1,036.9	$	83.9	8	%

Compensation expense, the largest component of Noninterest Expense, increased compared to the prior-year quarter, primarily reflecting higher cash-based incentives and unfavorable currency translation.

SECOND QUARTER CONSOLIDATED RESULTS OF OPERATIONS (continued)

Noninterest Expense (continued)

Employee Benefits expense increased compared to the prior-year quarter, primarily due to a $17.6 million pension settlement charge in the current quarter and higher medical costs.

Outside Services expense increased compared to the prior-year quarter, primarily due to higher technical services costs, third-party advisory fees, sub-custodian expenses, and consulting services.

Equipment and Software expense increased compared to the prior-year quarter, primarily due to higher software support costs and amortization.

Occupancy expense decreased compared to the prior-year quarter, primarily due to rent accelerations arising from workplace real estate strategies in the prior-year quarter.

Other Operating Expense decreased compared to the prior-year quarter, primarily due to lower miscellaneous expenses, including account servicing activities, mutual fund co-administration fees, and supplemental compensation plan expense. The lower supplemental compensation plan expense resulted in a related decrease in miscellaneous income reported in noninterest income. Please refer to Note 17 — Other Operating Expense to the consolidated financial statements provided in Item 1. Consolidated Financial Statements (unaudited) for further detail.

Provision for Income Taxes

Income tax expense for the three months ended June 30, 2021 was $118.4 million, representing an effective tax rate of 24.3%, compared to $89.9 million in the prior-year quarter, representing an effective tax rate of 22.3%.

The effective tax rate increased compared to the prior-year quarter primarily due to the deferred tax impact of the UK statutory tax rate increase enacted in the current quarter and a prior-year quarter tax benefit from dispositions of leveraged leases.

SIX-MONTH CONSOLIDATED RESULTS OF OPERATIONS

Overview of Financial Results

Net Income per diluted common share increased in the current period to $3.42 from $3.02 in the comparable prior-year period. Net income increased $69.3 million, or 10%, to $743.2 million in the current period from $673.9 million in the prior-year period. Annualized return on average common equity was 13.7% in the current period and 12.8% in the prior-year period. The annualized return on average assets was 0.97% in the current period compared to 1.03% in the prior-year period.

Revenue for the six months ended June 30, 2021 increased $69.9 million, or 2%, from $3.09 billion in the prior-year period to $3.16 billion in the current period.

Trust, Investment and Other Servicing Fees increased $174.0 million, or 9%, from $1.97 billion in the prior-year period to $2.14 billion in the current period, primarily driven by favorable markets, new business, and favorable currency translation, partially offset by higher money market mutual fund fee waivers.

Other Noninterest Income increased from $348.5 million in the prior-year period to $348.9 million in the current period, primarily driven by higher Other Operating Income, partially offset by lower Foreign Exchange Trading Income and Security Commissions and Trading Income.

Net Interest Income decreased $104.5 million, or 13%, to $675.7 million in the current period from $780.2 million in the prior-year period, primarily due to lower average interest rates, partially offset by an increase in average earning assets.

There was a $57.0 million release of credit reserves in the current period, as compared to a provision of $127.0 million in the prior-year period.

Noninterest Expense increased $135.8 million, or 6%, from $2.10 billion in the prior-year period to $2.24 billion in the current period, primarily attributable to higher Outside Services, Compensation, Employee Benefits, and Equipment and Software expense, partially offset by lower Other Operating Expense and Occupancy. Employee Benefits expense included a $17.6 million pension settlement charge in the current period.

The Provision for Income Taxes for the six months ended June 30, 2021 totaled $239.2 million, representing an effective tax rate of 24.3%. The Provision for Income Taxes for the six months ended June 30, 2020 totaled $190.4 million, representing an effective tax rate of 22.0%. The effective tax rate increased compared to the prior-year period primarily due to lower tax benefits related to share-based compensation, the deferred tax impact of the UK statutory tax rate increase enacted in the current period, and a prior-year-period tax benefit from dispositions of leveraged leases.

SIX-MONTH CONSOLIDATED RESULTS OF OPERATIONS (continued)

Trust, Investment and Other Servicing Fees

Beginning in the second quarter of 2020, the Corporation began to waive a portion of certain fees associated with money market mutual funds due to the low-interest-rate environment. Northern Trust voluntarily waived $130.0 million and $0.3 million of money market mutual fund fees for the six months ended June 30, 2021 and 2020, respectively. These fee waivers, which are impacted by the level of yields earned and account balances in certain funds, are expected to continue in the current low-interest-rate environment as the yields in these funds remain insufficient to pay the stated fees associated with such funds. This is expected to adversely impact Trust, Investment and Other Servicing Fees within the C&IS and Wealth Management reporting segments.

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

TABLE 16: TRUST, INVESTMENT AND OTHER SERVICING FEES


	SIX MONTHS ENDED JUNE 30,
($ In Millions)	2021		2020		CHANGE
C&IS Trust, Investment and Other Servicing Fees
Custody and Fund Administration	$	900.9	$	771.2	$	129.7	17	%
Investment Management	216.6		249.2		(32.6)		(13)
Securities Lending	37.7		50.7		(13.0)		(26)
Other	76.8		69.5		7.3		10
Total C&IS Trust, Investment and Other Servicing Fees	$	1,232.0	$	1,140.6	$	91.4	8	%
Wealth Management Trust, Investment and Other Servicing Fees
Central	$	338.5	$	301.5	$	37.0	12	%
East	246.2		215.7		30.5		14
West	184.6		167.0		17.6		11
Global Family Office	137.8		140.3		(2.5)		(2)
Total Wealth Management Trust, Investment and Other Servicing Fees	$	907.1	$	824.5	$	82.6	10	%
Total Consolidated Trust, Investment and Other Servicing Fees	$	2,139.1	$	1,965.1	$	174.0	9	%

Corporate & Institutional Services

Custody and Fund Administration fees, the largest component of C&IS fees, increased primarily driven by new business, favorable markets and favorable currency translation. Investment Management fees decreased primarily due to higher money market mutual fund fee waivers, partially offset by favorable markets and new business. Securities Lending fees decreased primarily driven by lower spreads, partially offset by higher volumes.

Wealth Management

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

SIX-MONTH CONSOLIDATED RESULTS OF OPERATIONS (continued)

Other Noninterest Income

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

TABLE 17: OTHER NONINTEREST INCOME


	SIX MONTHS ENDED JUNE 30,
($ In Millions)	2021		2020		CHANGE
Foreign Exchange Trading Income	$	149.3	$	160.2	$	(10.9)	(7)	%
Treasury Management Fees	22.5		22.4		0.1		—
Security Commissions and Trading Income	67.8		74.9		(7.1)		(9)
Other Operating Income	109.3		90.9		18.4		20
Investment Security Gains, net	—		0.1		(0.1)		N/M
Total Other Noninterest Income	$	348.9	$	348.5	$	0.4	—	%

Foreign Exchange Trading Income decreased from the prior-year period, primarily due to lower client volumes, decreased market volatility, and lower foreign exchange swap activity in Treasury.

Security Commissions and Trading Income decreased from the prior-year period, primarily due to lower revenue from interest rate swaps, partially offset by higher core brokerage revenue.

Other Operating Income increased from the prior-year period, primarily due to higher banking and credit-related service charges, higher miscellaneous income and a prior-year period market value adjustment for a seed capital investment, partially offset by higher expenses for existing swap agreements related to Visa Inc. Class B common shares. The higher miscellaneous income was primarily associated with a market value increase in the supplemental compensation plans, which also resulted in a related increase in supplemental compensation plan expense in Other Operating Expense. Please refer to Note 16 — Other Operating Income to the consolidated financial statements provided in Item 1. Consolidated Financial Statements (unaudited) for further detail.

SIX-MONTH CONSOLIDATED RESULTS OF OPERATIONS (continued)

Net Interest Income

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

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


(INTEREST AND RATE ON A FULLY TAXABLE EQUIVALENT BASIS)	SIX MONTHS ENDED JUNE 30,
	2021						2020
($ In Millions)	INTEREST		AVERAGE BALANCE		AVERAGE RATE(6)		INTEREST		AVERAGE BALANCE		AVERAGE RATE(6)
Average Earning Assets
Federal Reserve and Other Central Bank Deposits and Other(1)	$	1.4	$	37,283.1	0.01	%	$	26.4	$	25,062.6	0.21	%
Interest-Bearing Due from and Deposits with Banks(2)	5.1		6,601.3		0.15		17.3		5,671.9		0.61
Federal Funds Sold	—		0.2		0.41		—		3.0		1.87
Securities Purchased under Agreements to Resell	1.9		1,279.8		0.30		2.2		823.7		0.52
Securities
U.S. Government	14.1		2,775.9		1.02		39.4		4,555.8		1.74
Obligations of States and Political Subdivisions	32.4		3,286.5		1.97		21.7		1,779.0		2.44
Government Sponsored Agency	157.0		24,683.7		1.28		233.1		23,382.1		2.00
Other(3)	150.7		30,152.5		1.01		169.5		22,706.9		1.50
Total Securities	354.2		60,898.6		1.17		463.7		52,423.8		1.78
Loans and Leases(4)	345.3		35,247.4		1.98		441.7		33,911.5		2.62
Total Earning Assets	707.9		141,310.4		1.01		951.3		117,896.5		1.62
Cash and Due from Banks and Other Central Bank Deposits(5)	—		2,507.9		—		—		2,844.9		—
Other Noninterest-Earning Assets	—		9,962.5		—		—		10,729.2		—
Total Assets	$	—	$	153,780.8	—	%	$	—	$	131,470.6	—	%
Average Source of Funds
Deposits
Savings, Money Market and Other	$	6.7	$	27,083.3	0.05	%	$	37.6	$	22,134.1	0.34	%
Savings Certificates and Other Time	2.6		911.2		0.58		9.6		1,181.7		1.62
Non-U.S. Offices — Interest-Bearing	(37.5)		68,756.5		(0.11)		13.0		59,068.0		0.04
Total Interest-Bearing Deposits	(28.2)		96,751.0		(0.06)		60.2		82,383.8		0.15
Federal Funds Purchased	(0.4)		300.0		(0.27)		2.0		1,548.7		0.26
Securities Sold under Agreements to Repurchase	—		159.5		0.04		1.0		252.5		0.78
Other Borrowings	6.7		4,940.1		0.27		35.6		6,729.6		1.06
Senior Notes	27.5		3,040.2		1.82		37.9		2,974.0		2.55
Long-Term Debt	10.6		1,173.7		1.83		15.4		1,183.5		2.62
Floating Rate Capital Debt	1.1		277.8		0.79		3.2		277.7		2.32
Total Interest-Related Funds	17.3		106,642.3		0.03		155.3		95,349.8		0.33
Interest Rate Spread	—		—		0.98		—		—		1.29
Demand and Other Noninterest-Bearing Deposits	—		30,460.2		—		—		20,594.1		—
Other Liabilities	—		5,134.1		—		—		4,612.5		—
Stockholders’ Equity	—		11,544.2		—		—		10,914.2		—
Total Liabilities and Stockholders’ Equity	$	—	$	153,780.8	—	%	$	—	$	131,470.6	—	%
Net Interest Income/Margin (FTE Adjusted)	$	690.6	$	—	0.99	%	$	796.0	$	—	1.36	%
Net Interest Income/Margin (Unadjusted)	$	675.7	$	—	0.96	%	$	780.2	$	—	1.33	%

(3)Other securities include certain community development investments and Federal Home Loan Bank and Federal Reserve stock, which are classified in Other Assets on the consolidated balance sheets.

(4)Average balances include nonaccrual loans. Lease financing receivable balances are reduced by deferred income.

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

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

SIX-MONTH CONSOLIDATED RESULTS OF OPERATIONS (continued)

Net Interest Income (continued)

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


(INTEREST AND RATE ON A FULLY TAXABLE EQUIVALENT BASIS)	SIX MONTHS ENDED JUNE 30, 2021/2020
	CHANGE DUE TO
(In Millions)	AVERAGE BALANCE		AVERAGE RATE		NET (DECREASE) INCREASE
Increase (Decrease) in Net Interest Income (FTE)
Federal Reserve and Other Central Bank Deposits and Other	$	8.4	$	(33.4)	$	(25.0)
Interest-Bearing Due from and Deposits with Banks	2.4		(14.6)		(12.2)
Federal Funds Sold	—		—		—
Securities Purchased under Agreements to Resell	0.9		(1.2)		(0.3)
Securities
U.S. Government	(12.3)		(13.0)		(25.3)
Obligations of States and Political Subdivisions	15.4		(4.7)		10.7
Government Sponsored Agency	12.2		(88.3)		(76.1)
Other	47.0		(65.8)		(18.8)
Total Securities	62.3		(171.8)		(109.5)
Loans and Leases	83.9		(180.3)		(96.4)
Total Interest Income	$	157.9	$	(401.3)	$	(243.4)

Interest-Bearing Deposits
Savings, Money Market and Other	$	6.8	$	(37.7)	$	(30.9)
Savings Certificates and Other Time	0.6		(7.6)		(7.0)
Non-U.S. Offices - Interest-Bearing	1.5		(52.0)		(50.5)
Total Interest-Bearing Deposits	8.9		(97.3)		(88.4)
Federal Funds Purchased	(0.7)		(1.7)		(2.4)
Securities Sold under Agreements to Repurchase	(0.3)		(0.7)		(1.0)
Other Borrowings	(7.6)		(21.3)		(28.9)
Senior Notes	0.8		(11.2)		(10.4)
Long-Term Debt	11.5		(16.3)		(4.8)
Floating Rate Capital Debt	—		(2.1)		(2.1)
Total Interest Expense	$	12.6	$	(150.6)	$	(138.0)
(Decrease) Increase in Net Interest Income (FTE)	$	145.3	$	(250.7)	$	(105.4)

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

Notes: Net Interest Income (FTE Adjusted), a non-GAAP financial measure, includes adjustments to a fully taxable equivalent basis for loans and securities. The adjustments are based on a federal income tax rate of 21.0%, where the rate is adjusted for applicable state income taxes, net of related federal tax benefit. Total taxable equivalent interest adjustments amounted to $14.9 million and $15.8 million for the six months ended June 30, 2021 and 2020, respectively. A reconciliation of net interest income and net interest margin on a GAAP basis to net interest income and net interest margin on an FTE basis (each of which is a non-GAAP financial measure) is provided on page 32. Net interest margin is calculated by dividing annualized net interest income by average interest-earning assets.

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

Net Interest Income, stated on an FTE basis, decreased from the prior-year period, primarily due to lower average interest rates, partially offset by an increase in average earning assets. Average earning assets increased primarily due to higher levels of short-term interest-bearing deposits with banks, securities and loans. Funding of the balance sheet reflected higher levels of client deposits. Average non-U.S. offices interest-bearing deposits comprised 71% of total average interest-bearing deposits for the six months ended June 30, 2021.

The net interest margin on an FTE basis decreased from the prior-year period, primarily due to lower average interest rates. Low levels of market interest rates are expected to continue to impact our net interest income.

Federal Reserve and Other Central Bank Deposits and Other averaged $37.3 billion and increased $12.2 billion, or 49%, from $25.1 billion in the prior-year period, resulting from significant deposit inflows. The higher level of client deposits were primarily placed with the Federal Reserve and other central banks and in the securities portfolio. Average Securities were $60.9 billion and increased $8.5 billion, or 16%, from $52.4 billion in the prior-year period and include certain community development investments, Federal Home Loan Bank stock, and Federal Reserve stock of $910.9 million, $178.2 million and $70.0 million, respectively, which are recorded in Other Assets on the consolidated balance sheets. Average taxable Securities were $57.5 billion in the current period and $46.9 billion in the prior-year period. Average nontaxable Securities, which represent securities that are primarily exempt from U.S. federal and state income taxes, were $3.4 billion in the current period and $5.5 billion in the prior-year period. Interest-Bearing Due from and Deposits with Banks averaged $6.6 billion in the current period and $5.7 billion in the prior-year period.

SIX-MONTH CONSOLIDATED RESULTS OF OPERATIONS (continued)

Net Interest Income (continued)

Loans and leases averaged $35.2 billion and increased $1.3 billion, or 4%, from $33.9 billion in the prior-year period, primarily reflecting higher levels of private client, commercial real estate, non-U.S., and residential real estate loans, partially offset by lower levels of commercial and institutional loans. Private client loans averaged $12.7 billion and increased $1.4 billion, or 12%, from $11.3 billion for the prior-year period. Commercial real estate loans averaged $3.7 billion and increased $622.6 million, or 20%, from $3.1 billion for the prior-year period. Non-U.S. loans averaged $2.5 billion and increased $290.8 million or 13% from $2.2 billion for the prior-year period. Residential real estate loans averaged $6.2 billion and increased $61.5 million, or 1%, from $6.1 billion for the prior-year period. Commercial and institutional loans averaged $9.8 billion and decreased $1.0 billion, or 9%, from $10.8 billion for the prior-year period.

Northern Trust utilizes a diverse mix of funding sources. Average Interest-Bearing Deposits increased $14.4 billion, or 17%, to an average of $96.8 billion in the current period from $82.4 billion in the prior-year period. Other Average Interest-Related Funds decreased $3.1 billion, or 24%, to an average of $9.9 billion in the current period from $13.0 billion in the prior-year period. The balances within short-term borrowing classifications vary based on funding requirements and strategies, interest rate levels, changes in the volume of lower-cost deposit sources, and the availability of collateral to secure these borrowings. Average net noninterest-related funds increased $12.2 billion, or 54%, to $34.7 billion in the current period from $22.5 billion in the prior-year period primarily resulting from higher levels of Demand and Other Noninterest-Bearing Deposits.

Provision for Credit Losses

There was a $57.0 million release of credit reserves for the six months ended June 30, 2021, as compared to a provision of $127.0 million in the prior-year period. The release of credit reserves was primarily due to a decrease in the reserve evaluated on a collective basis, which relates to pooled financial assets sharing similar risk characteristics. The decrease in the collective basis reserve was driven by continued improvements in overall projected economic conditions and portfolio quality, as well as improved industry-specific conditions, partially offset by credit deterioration associated with a limited number of commercial real estate loans and overall portfolio growth.

The provision in the prior-year period was primarily due to an increase in the reserve evaluated on a collective basis driven by downgrades in the portfolio and current and projected economic conditions at the time, both resulting from the ongoing COVID-19 pandemic and related market and economic impacts, with the largest increases in the commercial and institutional and commercial real estate portfolios. In addition, a $13.7 million increase in the allowance for credit losses, with a corresponding cumulative effect adjustment to decrease retained earnings of $10.1 million, net of income taxes, was recorded on January 1, 2020 upon adoption of Accounting Standards Update (ASU) No. 2016-13, “Financial Instruments—Credit Losses: Measurement of Credit Losses on Financial Instruments.”

Net recoveries in the current-year period totaled $4.1 million resulting from $0.4 million of charge-offs and $4.5 million of recoveries, compared to net recoveries of $1.9 million in the prior-year period resulting from $2.2 million of charge-offs and $4.1 million of recoveries.

Residential real estate, commercial real estate, and commercial and institutional loans accounted for 47%, 35%, and 18%, respectively, of total nonaccrual loans and leases at June 30, 2021. Residential real estate, commercial and institutional, and commercial real estate loans accounted for 65%, 32%, and 3%, respectively, of total nonaccrual loans and leases at June 30, 2020. For additional discussion of the allowance for credit losses, refer to the “Asset Quality” section beginning on page 23.

Noninterest Expense

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

TABLE 20: NONINTEREST EXPENSE


	SIX MONTHS ENDED JUNE 30,
($ In Millions)	2021		2020		CHANGE
Compensation	$	1,004.8	$	960.1	$	44.7	5	%
Employee Benefits	221.8		188.3		33.5		18
Outside Services	414.5		369.0		45.5		12
Equipment and Software	355.0		326.4		28.6		9
Occupancy	103.0		111.1		(8.1)		(7)
Other Operating Expense	139.2		147.6		(8.4)		(6)
Total Noninterest Expense	$	2,238.3	$	2,102.5	$	135.8	6	%

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

SIX-MONTH CONSOLIDATED RESULTS OF OPERATIONS (continued)

Noninterest Expense (continued)

Employee Benefits expense increased compared to the prior-year period, primarily due to a $17.6 million pension settlement charge, higher medical costs, and higher payroll taxes.

Outside Services expense increased compared to the prior-year period, primarily reflecting higher technical services costs, third-party advisory fees, and sub-custodian expenses.

Equipment and Software expense increased compared to the prior-year period, primarily due to higher software support costs and amortization.

Occupancy expense decreased compared to the prior-year period, primarily due to rent accelerations arising from workplace real estate strategies in the prior-year period.

Other Operating Expense decreased compared to the prior-year period, primarily due to lower other miscellaneous expenses and business promotion, partially offset by higher supplemental compensation plan expense. The higher supplemental compensation plan expense resulted in a related increase in miscellaneous income reported in noninterest income. Please refer to Note 17 — Other Operating Expense to the consolidated financial statements provided in Item 1. Consolidated Financial Statements (unaudited) for further detail.

Provision for Income Taxes

Income tax expense for the six months ended June 30, 2021 was $239.2 million, representing an effective tax rate of 24.3%, compared to $190.4 million for the six months ended June 30, 2020, representing an effective tax rate of 22.0%.

The effective tax rate increased compared to the prior-year period primarily due to lower tax benefits related to share-based compensation, the deferred tax impact of the UK statutory tax rate increase enacted in the current period, and a prior-year-period tax benefit from dispositions of leveraged leases.

REPORTING SEGMENTS

Northern Trust is organized around its two client-focused reporting segments: C&IS and Wealth Management. Asset management and related services are provided to C&IS 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 C&IS 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.

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

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

Effective January 1, 2021, Northern Trust implemented enhancements to its FTP methodology, including enhancements impacting the allocation of net interest income between C&IS and Wealth Management. These methodology enhancements affect the results of each of these reporting segments. Due to the lack of historical information, segment results for periods ended prior to January 1, 2021 have not been revised to reflect the methodology enhancements.

REPORTING SEGMENTS (continued)

The following table presents the earnings contributions and average assets of Northern Trust’s reporting segments for the three- and six- month periods ended June 30, 2021 and 2020.

TABLE 21: RESULTS OF REPORTING SEGMENTS


($ In Millions)	CORPORATE & INSTITUTIONAL SERVICES						WEALTH MANAGEMENT						OTHER						TOTAL CONSOLIDATED
THREE MONTHS ENDED JUNE 30,	2021			2020			2021			2020			2021			2020			2021			2020
Noninterest Income
Trust, Investment and Other Servicing Fees	$	611.5		$	566.2		$	463.9		$	395.3		$	—		$	—		$	1,075.4		$	961.5
Foreign Exchange Trading Income	67.9			68.3			2.7			3.0			—			—			70.6			71.3
Other Noninterest Income	68.9			69.0			38.3			40.8			(8.5)			(8.6)			98.7			101.2
Total Noninterest Income	748.3			703.5			504.9			439.1			(8.5)			(8.6)			1,244.7			1,134.0
Net Interest Income(1)	153.1			165.4			190.8			214.4			—			—			343.9			379.8
Revenue(1)	901.4			868.9			695.7			653.5			(8.5)			(8.6)			1,588.6			1,513.8
Provision for Credit Losses	(16.8)			28.8			(10.2)			37.2			—			—			(27.0)			66.0
Noninterest Expense	703.6			655.6			398.5			372.0			18.7			9.3			1,120.8			1,036.9
Income before Income Taxes(1)	214.6			184.5			307.4			244.3			(27.2)			(17.9)			494.8			410.9
Provision for Income Taxes(1)	53.0			41.3			80.5			60.8			(6.8)			(4.5)			126.7			97.6
Net Income	$	161.6		$	143.2		$	226.9		$	183.5		$	(20.4)		$	(13.4)		$	368.1		$	313.3
Percentage of Consolidated Net Income	44		%	45		%	62		%	59		%	(6)		%	(4)		%	100		%	100		%
Average Assets	$	119,502.3		$	107,051.3		$	34,797.8		$	31,719.3		$	—		$	—		$	154,300.1		$	138,770.6

(1)Non-GAAP financial measures stated on a fully taxable equivalent basis (FTE). Total consolidated includes FTE adjustments of $8.3 million for 2021 and $7.7 million for 2020. 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 on page 32.



($ In Millions)	CORPORATE & INSTITUTIONAL SERVICES						WEALTH MANAGEMENT						OTHER						TOTAL CONSOLIDATED
SIX MONTHS ENDED JUNE 30,	2021			2020			2021			2020			2021			2020			2021			2020
Noninterest Income
Trust, Investment and Other Servicing Fees	$	1,232.0		$	1,140.6		$	907.1		$	824.5		$	—		$	—		$	2,139.1		$	1,965.1
Foreign Exchange Trading Income	142.4			153.4			6.9			6.8			—			—			149.3			160.2
Other Noninterest Income	129.2			110.8			82.5			83.2			(12.1)			(5.7)			199.6			188.3
Total Noninterest Income	1,503.6			1,404.8			996.5			914.5			(12.1)			(5.7)			2,488.0			2,313.6
Net Interest Income(1)	313.8			376.7			376.8			419.3			—			—			690.6			796.0
Revenue(1)	1,817.4			1,781.5			1,373.3			1,333.8			(12.1)			(5.7)			3,178.6			3,109.6
Provision for Credit Losses	(22.2)			54.5			(34.8)			72.5			—			—			(57.0)			127.0
Noninterest Expense	1,416.7			1,314.9			801.6			766.4			20.0			21.2			2,238.3			2,102.5
Income before Income Taxes(1)	422.9			412.1			606.5			494.9			(32.1)			(26.9)			997.3			880.1
Provision for Income Taxes(1)	103.1			91.2			159.0			121.7			(8.0)			(6.7)			254.1			206.2
Net Income	$	319.8		$	320.9		$	447.5		$	373.2		$	(24.1)		$	(20.2)		$	743.2		$	673.9
Percentage of Consolidated Net Income	43		%	48		%	60		%	55		%	(3)		%	(3)		%	100		%	100		%
Average Assets	$	119,820.7		$	99,910.1		$	33,960.1		$	31,560.5		$	—		$	—		$	153,780.8		$	131,470.6

(1) Non-GAAP financial measures stated on a fully taxable equivalent basis (FTE). Total consolidated includes FTE adjustments of $14.9 million for 2021 and $15.8 million for 2020. 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 on page 32.

Corporate & Institutional Services

C&IS Net Income

For the quarter ended June 30, 2021, Net Income increased $18.4 million, or 13%, from the prior-year quarter, primarily reflecting a release of credit reserves in the current quarter as compared to a provision in the prior-year quarter and higher Trust, Investment and Other Servicing Fees, partially offset by higher Noninterest Expense, lower Net Interest Income and an increase in the Provision for Income Taxes.

REPORTING SEGMENTS (continued)

Corporate & Institutional Services (continued)

For the six months ended June 30, 2021, Net Income was down from the prior-year period, primarily reflecting higher Noninterest Expense and lower Net Interest Income, partially offset by higher Trust, Investment and Other Servicing Fees and a release of credit reserves in the current period as compared to a provision in the prior-year period.

C&IS Trust, Investment and Other Servicing Fees

For an explanation of C&IS 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.

C&IS Foreign Exchange Trading Income

For the six months ended June 30, 2021, Foreign Exchange Trading Income decreased $11.0 million, or 7%, from the prior-year period, primarily due to lower client volumes, decreased market volatility, and lower foreign exchange swap activity.

C&IS Other Noninterest Income

For the six months ended June 30, 2021, Other Noninterest Income increased $18.4 million, or 17%, from the prior-year period, primarily due to higher Other Operating Income.

C&IS Net Interest Income

For the quarter ended June 30, 2021, Net Interest Income stated on an FTE basis decreased $12.3 million, or 7%, from the prior-year quarter and decreased $62.9 million, or 17%, from the prior-year period for the six months ended June 30, 2021. The decrease for the three and six months ended June 30, 2021 primarily reflected a lower net interest margin driven by declining short-term average interest rates, partially offset by higher earning asset levels funded by higher deposit balances. Average earning assets increased $14.0 billion to $109.9 billion in the current quarter from $95.9 billion in the prior-year quarter and increased $20.6 billion to $109.4 billion in the six-month period ended June 30, 2021 from $88.8 billion in the prior-year period. The earning assets and funding sources in C&IS for the three and six months ended June 30, 2021 consisted primarily of intercompany assets and of loans and non-U.S. custody-related interest-bearing deposits, respectively.

C&IS Provision for Credit Losses

For the three and six months ended June 30, 2021, there was a $16.8 million and $22.2 million release of credit reserves, respectively, compared with a $28.8 million and $54.5 million provision for credit losses for the three and six months ended June 30, 2020, respectively.

The release of credit reserves for the three and six months ended June 30, 2021, reflected a decrease in the reserve evaluated on a collective basis driven by continued improvements in overall projected economic conditions and portfolio quality, as well as improved industry-specific conditions, partially offset by overall portfolio growth.

C&IS Noninterest Expense

For the quarter ended June 30, 2021, 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 $48.0 million, or 7%, from the prior-year quarter, primarily due to higher expense allocations, compensation expense, outside services and employee benefit expense, primarily offset by lower account servicing activities.

For the six months ended June 30, 2021, Noninterest Expense increased $101.8 million, or 8%, from the prior-year period, primarily reflecting higher expense allocations, compensation expense, outside services and employee benefit expense, partially offset by lower business promotion expense.

REPORTING SEGMENTS (continued)

Wealth Management

Wealth Management Net Income

For the quarter ended June 30, 2021, Net Income increased $43.4 million, or 24%, from the prior-year quarter primarily due to higher Trust, Investment and Other Servicing Fees and a release of credit reserves in the current quarter as compared to a provision in the prior-year quarter, partially offset by higher Noninterest Expense, lower Net Interest Income and a higher Provision for Income Taxes.

For the six months ended June 30, 2021, Net Income increased $74.3 million, or 20%, from the prior-year period primarily due to a release of credit reserves in the current period as compared to a provision in the prior-year period and higher Trust, Investment and Other Servicing Fees, partially offset by lower Net Interest Income, a higher Provision for Income Taxes and higher Noninterest Expense.

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 Net Interest Income

For the quarter ended June 30, 2021, Net Interest Income stated on an FTE basis decreased $23.6 million, or 11%, from the prior-year quarter and decreased $42.5 million, or 10%, from the prior-year period for the six months ended June 30, 2021. The decrease for the three and six months ended June 30, 2021 primarily reflected lower average interest rates, partially offset by higher deposit and loan balances. Average earning assets increased $3.0 billion to $32.2 billion in the current quarter from $29.2 billion in the prior-year quarter and increased $2.8 billion to $31.9 billion in the six-month period ended June 30, 2021 from $29.1 billion in the prior-year period. Earning assets and funding sources for the three and six months ended June 30, 2021 were primarily comprised of loans and domestic interest-bearing deposits, respectively.

Wealth Management Provision for Credit Losses

For the three and six months ended June 30, 2021, there was a $10.2 million and $34.8 million release of credit reserves, respectively, compared with a $37.2 million and $72.5 million provision for credit losses for the three and six months ended June 30, 2020, respectively.

The release of credit reserves for the three and six months ended June 30, 2021, reflected a decrease in the reserve evaluated on a collective basis driven by continued improvement in overall projected economic conditions, partially offset by credit deterioration associated with a limited number of commercial real estate loans and overall portfolio growth.

Wealth Management Noninterest Expense

For the quarter ended June 30, 2021, Noninterest Expense, which includes the direct expenses of the reporting segment, indirect expense allocations for product and operating support and indirect expense allocations for certain corporate support services, increased $26.5 million or 7% from the prior-year quarter, primarily reflecting higher expense allocations, compensation expense and employee benefits.

For the six months ended June 30, 2021, Noninterest Expense increased $35.2 million, or 5%, from the prior-year period, primarily reflecting higher expense allocations, compensation expense, employee benefits and outside services.

Other

Other Noninterest Income

For the quarter ended June 30, 2021, Other Noninterest Income remained relatively unchanged from the prior-year quarter. For the six months ended June 30, 2021, Other Noninterest Income decreased $6.4 million from the prior-year period, due to higher expenses for existing swap agreements related to Visa Inc. Class B common shares.

Other Noninterest Expense

For the quarter ended June 30, 2021, Other Noninterest Expense increased $9.4 million from the prior-year quarter, primarily due to a $17.6 million pension settlement charge in the current quarter, partially offset by costs in the prior-year quarter associated with executing workplace real estate strategies. For the six months ended June 30, 2021, noninterest expense decreased $1.2 million, or 6%, from the prior-year period, primarily due to costs in the prior-year period associated with executing workplace real estate strategies and a one-time supplemental payment to employees in response to the COVID-19 pandemic, partially offset by a $17.6 million pension settlement charge in the current-year period.

CONSOLIDATED BALANCE SHEETS

The following tables summarize selected consolidated balance sheet information.

TABLE 22: SELECT CONSOLIDATED BALANCE SHEET INFORMATION


($ In Billions)	JUNE 30, 2021		DECEMBER 31, 2020		CHANGE
Assets
Federal Reserve and Other Central Bank Deposits and Other(1)	$	54.2	$	55.4	$	(1.2)	(2)	%
Interest-Bearing Due from and Deposits with Banks(2)	7.0		6.6		0.4		6
Securities Purchased under Agreements to Resell	0.9		1.6		(0.7)		(41)
Total Securities(3)	59.8		61.1		(1.3)		(2)
Loans and Leases	37.4		33.8		3.6		11
Total Earning Assets	159.4		158.5		0.9		1
Total Assets	172.3		170.0		2.3		1
Liabilities and Stockholders' Equity
Total Interest-Bearing Deposits	104.2		100.8		3.4		3
Demand and Other Noninterest-Bearing Deposits	42.0		43.1		(1.1)		(3)
Federal Funds Purchased	—		0.3		(0.3)		(100)
Securities Sold under Agreements to Repurchase	0.5		—		0.5		N/M
Other Borrowings	5.1		4.0		1.1		28
Total Stockholders’ Equity	11.8		11.7		0.1		1

(1) Federal Reserve and Other Central Bank Deposits and Other includes collateral deposits with certain securities depositories and clearing houses for the purpose of presenting earning assets; such deposits are presented in Other Assets on the consolidated balance sheets.

(2) Interest-Bearing Due from and Deposits with Banks includes the interest-bearing component of Cash and Due from Banks and Interest-Bearing Deposits with Banks as presented on the consolidated balance sheets.

(3) Total Securities includes certain community development investments and Federal Home Loan Bank and Federal Reserve stock, which are classified in Other Assets on the consolidated balance sheets.

TABLE 23: SELECT AVERAGE CONSOLIDATED BALANCE SHEET INFORMATION


	THREE MONTHS ENDED JUNE 30,								SIX MONTHS ENDED JUNE 30,
($ In Billions)	2021		2020		CHANGE				2021		2020		CHANGE
Assets
Federal Reserve and Other Central Bank Deposits and Other(1)	$	37.4	$	30.3	$	7.1	24	%	$	37.3	$	25.1	$	12.2	49	%
Interest-Bearing Due from and Deposits with Banks(2)	6.7		5.5		1.2		22		6.6		5.7		0.9		16
Securities Purchased under Agreements to Resell	1.0		1.0		—		3		1.3		0.8		0.5		55
Total Securities(3)	60.6		52.9		7.7		15		60.9		52.4		8.5		16
Loans and Leases	36.3		35.5		0.8		2		35.2		33.9		1.3		4
Total Earning Assets	142.0		125.2		16.8		13		141.3		117.9		23.4		20
Total Assets	154.3		138.8		15.5		11		153.8		131.5		22.3		17
Liabilities and Stockholders' Equity
Total Interest-Bearing Deposits	97.5		89.0		8.5		10		96.8		82.4		14.4		17
Demand and Other Noninterest-Bearing Deposits	30.5		21.9		8.6		39		30.5		20.6		9.9		48
Federal Funds Purchased	0.2		1.2		(1.0)		(83)		0.3		1.5		(1.2)		(81)
Securities Sold under Agreements to Repurchase	0.2		0.2		—		34		0.2		0.3		(0.1)		(37)
Other Borrowings	5.2		6.0		(0.8)		(14)		4.9		6.7		(1.8)		(27)
Total Stockholders’ Equity	11.6		11.0		0.6		5		11.5		10.9		0.6		6

(2) Interest-Bearing Due from and Deposits with Banks includes the interest-bearing component of Cash and Due from Banks and Interest-Bearing Deposits with Banks as presented on the consolidated balance sheets.

(3) Total Securities includes certain community development investments and Federal Home Loan Bank and Federal Reserve stock, which are classified in Other Assets on the consolidated balance sheets.

Average balances are considered to be a better measure of balance sheet trends, as period-end balances can be impacted by the timing of deposit and withdrawal activity involving large client balances. The current-quarter growth in both the period-end and average consolidated balance sheets was primarily driven by higher customer deposit balances.

Stockholders’ Equity. The increase in average Stockholders’ Equity was primarily attributable to Retained Earnings and Accumulated Other Comprehensive Income, partially offset by the repurchase of common stock pursuant to the Corporation’s share repurchase program.

CONSOLIDATED BALANCE SHEETS (continued)

During the three and six months ended June 30, 2021, the Corporation declared cash dividends totaling $148.1 million and $299.1 million to common stockholders, and cash dividends totaling $4.7 million and $20.9 million to preferred stockholders, respectively.

On December 18, 2020, the Federal Reserve extended its capital distribution limits into the first quarter of 2021 with certain modifications, which included continuing to limit dividend payments and share repurchases based on recent income. During the first quarter of 2021, the Corporation restarted its share repurchase program in accordance with such limitations. On June 24, 2021, the Federal Reserve Board released the results of the annual bank stress tests and announced the additional capital distribution restrictions that were put in place in response to the COVID-19 pandemic would expire on June 30, 2021.

For the three months ended June 30, 2021, the Corporation repurchased 252,304 shares of common stock, including 1,480 shares withheld related to share-based compensation, at a total cost of $30.2 million ($119.59 average price per share). During the six months ended June 30, 2021, the Corporation repurchased 1,651,977 shares of common stock, including 367,177 shares withheld related to share-based compensation, at a total cost of $165.8 million ($100.38 average price per share).

ASSET QUALITY

Securities Portfolio

Northern Trust maintains a high quality debt securities portfolio. Debt securities not explicitly rated were grouped where possible under the credit rating of the issuer of the security.

The following tables provide the fair value of available for sale (AFS) debt securities and amortized cost of held to maturity (HTM) debt securities by credit rating.

TABLE 24: FAIR VALUE OF AVAILABLE FOR SALE DEBT SECURITIES BY CREDIT RATING


	AS OF JUNE 30, 2021
($ In Millions)	AAA			AA			A			BBB			NOT RATED			TOTAL
U.S. Government	$	2,559.0		$	—		$	—		$	—		$	—		$	2,559.0
Obligations of States and Political Subdivisions	1,057.8			2,431.1			—			—			—			3,488.9
Government Sponsored Agency	17,645.8			—			—			—			—			17,645.8
Non-U.S. Government	585.3			38.5			—			—			—			623.8
Corporate Debt	477.1			659.6			1,210.1			63.9			52.2			2,462.9
Covered Bonds	466.7			44.5			24.2			—			—			535.4
Sub-Sovereign, Supranational and Non-U.S. Agency Bonds	2,175.3			727.2			156.0			—			—			3,058.5
Other Asset-Backed	5,278.1			—			—			—			—			5,278.1
Commercial Mortgage-Backed	1,211.6			—			—			—			—			1,211.6
Total	$	31,456.7		$	3,900.9		$	1,390.3		$	63.9		$	52.2		$	36,864.0
Percent of Total	85		%	11		%	4		%	—		%	—		%	100		%

ASSET QUALITY (continued)

Securities Portfolio (continued)


	AS OF DECEMBER 31, 2020
($ In Millions)	AAA			AA			A			BBB			NOT RATED			TOTAL
U.S. Government	$	2,799.9		$	—		$	—		$	—		$	—		$	2,799.9
Obligations of States and Political Subdivisions	918.1			2,165.5			—			—			—			3,083.6
Government Sponsored Agency	24,956.7			—			—			—			—			24,956.7
Non-U.S. Government	669.8			38.8			5.4			—			—			714.0
Corporate Debt	426.3			790.0			1,123.5			—			199.8			2,539.6
Covered Bonds	453.3			—			24.9			—			74.9			553.1
Sub-Sovereign, Supranational and Non-U.S. Agency Bonds	1,622.0			566.0			157.8			—			—			2,345.8
Other Asset-Backed	3,947.5			—			—			—			50.0			3,997.5
Commercial Mortgage-Backed	1,031.8			—			—			—			—			1,031.8
Total	$	36,825.4		$	3,560.3		$	1,311.6		$	—		$	324.7		$	42,022.0
Percent of Total	88		%	8		%	3		%	—		%	1		%	100		%

As of June 30, 2021, the less than 1% of AFS debt securities not rated by Moody’s Investors Service, Standard and Poor’s or Fitch Ratings consisted of corporate debt securities.

As of December 31, 2020, the 1% of AFS debt securities not rated by Moody’s Investors Service, Standard and Poor’s or Fitch Ratings consisted of corporate debt, covered bonds, and other asset-backed securities.

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


	AS OF JUNE 30, 2021
($ In Millions)	AAA			AA			A			BBB			NOT RATED			TOTAL
U.S. Government	$	99.0		$	—		$	—		$	—		$	—		$	99.0
Obligations of States and Political Subdivisions	—			1.0			—			—			—			1.0
Government Sponsored Agency	6,499.2			—			—			—			—			6,499.2
Non-U.S. Government	517.6			306.6			2,637.0			341.0			—			3,802.2
Corporate Debt	3.6			412.9			464.4			—			—			880.9
Covered Bonds	2,933.1			—			—			—			—			2,933.1
Certificates of Deposit	—			—			—			—			906.2			906.2
Sub-Sovereign, Supranational and Non-U.S. Agency Bonds	3,777.0			1,522.4			32.5			1.2			—			5,333.1
Other Asset-Backed	734.8			—			—			—			—			734.8
Other	—			—			—			—			465.8			465.8
Total	$	14,564.3		$	2,242.9		$	3,133.9		$	342.2		$	1,372.0		$	21,655.3
Percent of Total	67		%	10		%	14		%	2		%	7		%	100		%


	AS OF DECEMBER 31, 2020
(In Millions)	AAA			AA			A			BBB			NOT RATED			TOTAL
U.S. Government	$	90.0		$	—		$	—		$	—		$	—		$	90.0
Obligations of States and Political Subdivisions	—			1.0			—			1.1			—			2.1
Government Sponsored Agency	3.0			—			—			—			—			3.0
Non-U.S. Government	319.8			1,337.4			6,630.6			48.8			—			8,336.6
Corporate Debt	3.8			279.1			305.1			—			—			588.0
Covered Bonds	3,184.6			—			—			—			—			3,184.6
Certificates of Deposit	—			—			—			—			807.2			807.2
Sub-Sovereign, Supranational and Non-U.S. Agency Bonds	2,590.9			1,057.1			—			—			—			3,648.0
Other Asset-Backed	677.0			—			—			—			—			677.0
Other	—			—			—			—			454.6			454.6
Total	$	6,869.1		$	2,674.6		$	6,935.7		$	49.9		$	1,261.8		$	17,791.1
Percent of Total	39		%	15		%	39		%	—		%	7		%	100		%

As of both June 30, 2021 and December 31, 2020, the 7% of HTM debt securities not rated by Moody’s Investors Service, Standard and Poor’s or Fitch Ratings consisted of certificates of deposit with a remaining life of less than six months, as well as investments purchased by Northern Trust to fulfill its obligations under the Community Reinvestment Act (CRA). Northern

ASSET QUALITY (continued)

Securities Portfolio (continued)

Trust fulfills its obligations under the CRA by making qualified investments for purposes of supporting institutions and programs that benefit low-to-moderate income communities within Northern Trust’s market area.

Net unrealized gains within the investment securities portfolio totaled $323.7 million at June 30, 2021, compared to net unrealized gains of $872.6 million as of December 31, 2020. Net unrealized gains as of June 30, 2021 were comprised of $581.7 million and $258.0 million of gross unrealized gains and losses, respectively. Net unrealized gains as of December 31, 2020 were comprised of $981.9 million and $109.3 million of gross unrealized gains and losses, respectively.

As of June 30, 2021, the $36.9 billion AFS debt securities portfolio had unrealized losses of $64.7 million and $18.5 million related to government-sponsored agency and obligations of states and political subdivisions, respectively, which are primarily attributable to changes in market interest rates and credit spreads since their purchase. As of December 31, 2020, the $42.0 billion AFS debt securities portfolio had unrealized losses of $26.9 million and $2.8 million related to government-sponsored agency and other asset-backed securities, respectively, which are primarily attributable to changes in market interest rates and credit spreads since their purchase. As of June 30, 2021 and December 31, 2020, 16% of the AFS corporate debt securities portfolio was backed by guarantees provided by U.S. and non-U.S. government entities.

As of June 30, 2021, the $21.7 billion HTM debt securities portfolio had unrealized losses of $62.9 million, $37.4 million, $23.9 million and $19.0 million related to other residential mortgage-backed securities, non-U.S. government, government-sponsored agency, and sub-sovereign, supranational and non-U.S. agency bonds, respectively, which are primarily attributable to changes in overall market interest rates and credit spreads since their purchase. As of December 31, 2020, the $17.8 billion HTM debt securities portfolio had an unrealized loss of $76.5 million related to other residential mortgage-backed securities, which is primarily attributable to changes in overall market interest rates and credit spreads since their purchase.

HTM debt securities consist of securities that management intends to, and Northern Trust has the ability to, hold until maturity. During the three and six months ended June 30, 2021, $6.86 billion of government sponsored agency securities were transferred from AFS to HTM for capital management purposes, all of which were transferred in the second quarter of 2021. Upon transfer of a debt security from the AFS to HTM classification, the amortized cost is reset to fair value. These transferred securities had a net unrealized gain of $120.1 million included in AOCI. Any net unrealized gain or loss at the date of transfer will remain in AOCI and be amortized into net interest income over the remaining life of the securities using the effective interest method. The amortization of amounts retained in AOCI will offset the effect on interest income of the amortization of the premium or discount resulting from transferring the securities at fair value. During the three and six months ended June 30, 2020, $301.5 million of securities were transferred from AFS to HTM, all of which were transferred in the second quarter of 2020.

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

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

For additional information relating to the securities sold under agreements to repurchase, refer to Note 5 — Securities Sold Under Agreements to Repurchase to the consolidated financial statements provided in Item 1. Consolidated Financial Statements (unaudited).

Nonaccrual Loans and Leases and Other Real Estate Owned

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

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

ASSET QUALITY (continued)

Nonaccrual Loans and Leases and Other Real Estate Owned (continued)

TABLE 26: NONACCRUAL ASSETS


($ In Millions)	JUNE 30, 2021			DECEMBER 31, 2020
Nonaccrual Loans and Leases
Commercial
Commercial and Institutional	$	19.7		$	26.4
Commercial Real Estate	36.3			40.2
Total Commercial	$	56.0		$	66.6
Personal
Residential Real Estate	$	50.5		$	62.2
Private Client	—			2.9
Total Personal	$	50.5		$	65.1
Total Nonaccrual Loans and Leases	106.5			131.7
Other Real Estate Owned	0.2			0.7
Total Nonaccrual Assets	$	106.7		$	132.4
90 Day Past Due Loans Still Accruing	$	10.5		$	8.9
Nonaccrual Loans and Leases to Total Loans and Leases	0.28		%	0.39		%
Allowance for Credit Losses Assigned to Loans and Leases to Nonaccrual Loans and Leases	1.4		x	1.4		x

Nonaccrual assets of $106.7 million as of June 30, 2021 decreased from December 31, 2020 due to net payoffs in the residential real estate, commercial and institutional, commercial real estate and private client portfolios. In addition to the negative impact on net interest income and the risk of credit losses, nonaccrual assets also increase operating costs due to the expense associated with collection efforts. Changes in the level of nonaccrual assets may be indicative of changes in the credit quality of one or more loan classes. Changes in credit quality impact the allowance for credit losses through the resultant adjustment of the allowance evaluated on an individual basis and the quantitative and qualitative factors used in the determination of the allowance evaluated on a collective basis within the allowance for credit losses.

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

The commercial real estate portfolio consists of commercial mortgages and construction, acquisition and development loans extended primarily to experienced investors well known to Northern Trust. Underwriting standards generally reflect conservative loan-to-value ratios and debt service coverage requirements. Recourse to owners through guarantees also is commonly required.

For additional information relating to the loans and leases portfolio, refer to Note 6 — Loans and Leases to the consolidated financial statements provided in Item 1. Consolidated Financial Statements (unaudited).

Allowance for Credit Losses

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

Management’s estimates utilized in establishing an appropriate level of allowance for credit losses are not dependent on any single assumption. In determining an appropriate allowance level, management evaluates numerous variables, many of which are interrelated or dependent on other assumptions and estimates, and takes into consideration past events, current conditions and reasonable and supportable forecasts.

ASSET QUALITY (continued)

Allowance for Credit Losses (continued)

As of June 30, 2021, the allowance for credit losses related to loans and leases, undrawn loan commitments and standby letters of credit, HTM debt securities, and other financial assets, was $148.8 million, $46.5 million, $10.5 million, and $1.2 million, respectively. As of December 31, 2020, the allowance for credit losses related to loans and leases, undrawn loan commitments and standby letters of credit, HTM debt securities, and other financial assets, was $190.7 million, $61.1 million, $7.3 million, and $0.8 million, respectively. For additional information relating to the allowance for credit losses and the changes in the allowance for credit losses during the three and six months ended June 30, 2021 and 2020 due to charge-offs, recoveries and provisions for credit losses, refer to Note 7 — Allowance for Credit Losses to the consolidated financial statements provided in Item 1. Consolidated Financial Statements (unaudited). The following table shows the allowance evaluated on an individual and collective basis for the loans and leases portfolio by segment and class.

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


	JUNE 30, 2021					DECEMBER 31, 2020
($ In Millions)	ALLOWANCE AMOUNT			PERCENT OF LOANS TO TOTAL LOANS		ALLOWANCE AMOUNT			PERCENT OF LOANS TO TOTAL LOANS
Evaluated on an Individual Basis	$	10.9		—	%	$	10.7		—	%
Evaluated on a Collective Basis
Commercial
Commercial and Institutional	63.8			26		100.6			30
Commercial Real Estate	75.2			11		70.7			10
Lease Financing, net	0.5			—		0.4			—
Non-U.S.	11.5			6		17.7			4
Other	—			1		—			1
Total Commercial	151.0			44		189.4			45
Personal
Residential Real Estate	22.8			16		28.9			18
Private Client	9.8			39		20.6			35
Non-U.S.	0.8			1		2.2			2
Other	—			—		—			—
Total Personal	33.4			56		51.7			55
Total Allowance Evaluated on a Collective Basis	$	184.4		100	%	$	241.1		100	%
Total Allowance for Credit Losses	$	195.3		100	%	$	251.8		100	%
Allowance Assigned to
Loans and Leases	$	148.8				$	190.7
Undrawn Commitments and Standby Letters of Credit	46.5					61.1
Total Allowance for Credit Losses	$	195.3				$	251.8
Allowance Assigned to Loans and Leases to Total Loans and Leases	0.40		%			0.56		%

STATEMENTS OF CASH FLOWS

The following discusses the statement of cash flow activities for the six months ended June 30, 2021 and 2020.

TABLE 28: CASH FLOW ACTIVITY SUMMARY


	SIX MONTHS ENDED JUNE 30,
(In Millions)	2021		2020
Net cash provided by (used in):
Operating activities	$	(1,167.7)	$	498.4
Investing activities	(2,231.6)		(14,291.3)
Financing activities	3,895.1		13,870.6
Effect of Foreign Currency Exchange Rates on Cash	(86.0)		(74.7)
Change in Cash and Due from Banks	$	409.8	$	3.0

Operating Activities

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

Net cash provided by operating activities of $498.4 million for the six months ended June 30, 2020 was primarily attributable to period earnings, net changes in other operating activities, and the impact of higher non-cash charges such as amortization of computer software and the provision for credit losses, partially offset by higher net collateral deposited with derivative counterparties.

Investing Activities

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

Net cash used in investing activities of $14.3 billion for the six months ended June 30, 2020 was primarily attributable to increased levels of Federal Reserve and other central bank deposits, net purchases of HTM debt securities, higher levels of loans and leases and client security settlement receivables, partially offset by lower levels of interest-bearing deposits with banks.

Financing Activities

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

Net cash provided by financing activities of $13.9 billion for the six months ended June 30, 2020 was primarily attributable to increased levels of total deposits, proceeds from the issuance of senior notes, and increased levels of short-term borrowings, partially offset by decreased levels of securities sold under agreements to repurchase and the redemption by the Corporation of all shares of its Series C Non-Cumulative Perpetual Preferred Stock. The increase in total deposits was primarily attributable to higher levels of interest-bearing non-U.S. offices client deposits, domestic noninterest-bearing deposits, and savings, money market and other interest-bearing deposits.

CAPITAL RATIOS

The capital ratios of Northern Trust Corporation and its principal subsidiary, The Northern Trust Company, remained strong at June 30, 2021, exceeding the requirements for classification as “well-capitalized” under applicable U.S. regulatory requirements.

As a result of the stress test results published by the Federal Reserve on June 25, 2020, Northern Trust’s stress capital buffer requirement for the 2020 Capital Plan cycle was set at 2.5%. The 2020 stress capital buffer became effective October 1, 2020, and results in an effective common equity tier 1 capital ratio minimum requirement of 7.0% inclusive of this buffer. The results of the 2021 stress test, published by the Federal Reserve on June 24, 2021, will result in Northern Trust’s stress capital buffer and effective common equity tier 1 capital ratio minimum requirements remaining in effect for the 2021 Capital Plan cycle, beginning on October 1, 2021.

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

TABLE 29: REGULATORY CAPITAL RATIOS


Capital Ratios — Northern Trust Corporation	JUNE 30, 2021				MARCH 31, 2021				JUNE 30, 2020
	STANDARDIZED APPROACH		ADVANCED APPROACH		STANDARDIZED APPROACH		ADVANCED APPROACH		STANDARDIZED APPROACH		ADVANCED APPROACH		WELL-CAPITALIZED RATIOS	MINIMUM CAPITAL RATIOS
Common Equity Tier 1 Capital	12.0	%	13.1	%	12.0	%	12.8	%	13.4	%	13.9	%	N/A	4.5	%
Tier 1 Capital	13.1		14.2		13.0		14.0		14.6		15.2		6.0	6.0
Total Capital	14.5		15.5		14.5		15.2		16.5		16.8		10.0	8.0
Tier 1 Leverage	7.1		7.1		6.9		6.9		7.6		7.6		N/A	4.0
Supplementary Leverage(1)	N/A		8.2		N/A		8.1		N/A		9.0		N/A	3.0


Capital Ratios — The Northern Trust Company	JUNE 30, 2021				MARCH 31, 2021				JUNE 30, 2020
	STANDARDIZED APPROACH		ADVANCED APPROACH		STANDARDIZED APPROACH		ADVANCED APPROACH		STANDARDIZED APPROACH		ADVANCED APPROACH		WELL-CAPITALIZED RATIOS		MINIMUM CAPITAL RATIOS
Common Equity Tier 1 Capital	12.3	%	13.6	%	12.1	%	13.2	%	13.9	%	14.7	%	6.5	%	4.5	%
Tier 1 Capital	12.3		13.6		12.1		13.2		13.9		14.7		8.0		6.0
Total Capital	13.6		14.7		13.4		14.3		15.7		16.2		10.0		8.0
Tier 1 Leverage	6.7		6.7		6.4		6.4		7.3		7.3		5.0		4.0
Supplementary Leverage(1)	N/A		7.7		N/A		7.4		N/A		8.2		3.0		3.0

(1) In November 2019, the Federal Reserve and other U.S. federal banking agencies adopted a final rule that established a deduction for central bank deposits from the total leverage exposures of custodial banking organizations, including Northern Trust Corporation and The Northern Trust Company, equal to the lesser of (i) the total amount of funds the custodial banking organization and its consolidated subsidiaries have on deposit at qualifying central banks and (ii) the total amount of client funds on deposit at the custodial banking organization that are linked to fiduciary or custodial and safekeeping accounts. The rule became effective on April 1, 2020.

Further, on March 23, 2020, the Federal Reserve issued a temporary rule that required bank holding companies, including Northern Trust Corporation, to deduct their deposits with the Federal Reserve and investments in U.S. Treasury securities from their total leverage exposure. The U.S. Treasury securities deduction is applied in addition to the central bank deposits relief referred to above. This rule became effective on April 1, 2020 and expired on April 1, 2021.

On May 15, 2020, the U.S. federal banking agencies issued a temporary rule that permitted, but did not require, insured depository institutions of bank holding companies to exclude deposits with the Federal Reserve and investments in U.S. Treasury securities from their total leverage exposure. The Northern Trust Company did not elect to take this deduction.

The supplementary leverage ratios at June 30, 2021, March 31, 2021 and June 30, 2020 for the Northern Trust Corporation and The Northern Trust Company reflect the impact of these final rules.

RECENT ACCOUNTING PRONOUNCEMENTS AND DEVELOPMENTS

There are no accounting pronouncements and developments issued but not yet effective as of June 30, 2021 that are expected to have a significant impact on Northern Trust’s consolidated balance sheets or results of operations.

MARKET RISK MANAGEMENT

There are two types of market risk, interest rate risk associated with the assets and liabilities on the balance sheet, and trading risk. Interest rate risk associated with the assets and liabilities on the balance sheet is the potential for movements in interest rates to cause changes in net interest income and the market value of equity. Trading risk is the potential for movements in market variables such as foreign exchange and interest rates to cause changes in the value of trading positions.

Northern Trust uses two primary measurement techniques to manage interest rate risk: Net Interest Income (NII) sensitivity and Market Value of Equity (MVE) sensitivity. NII sensitivity provides management with a short-term view of the impact of

MARKET RISK MANAGEMENT (continued)

interest rate changes on NII. MVE sensitivity provides management with a long-term view of interest rate changes on MVE based on the period-end balance sheet.

As part of its risk management activities, Northern Trust also measures daily the risk of loss associated with all non-U.S. currency positions using a Value-at-Risk (VaR) model and applying the historical simulation methodology. The following information about Northern Trust’s management of market risk should be read in conjunction with the Annual Report on Form 10-K for the year ended December 31, 2020.

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

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

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

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

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

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

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

The following table shows the estimated NII impact over the next twelve months of 100 and 200 basis point ramps upward and 100 basis point ramp downward movements in interest rates relative to forward rates. Each rate movement is assumed to occur gradually over a one-year period.

TABLE 30: NET INTEREST INCOME SENSITIVITY AS OF JUNE 30, 2021


($ In Millions)	INCREASE (DECREASE) ESTIMATED IMPACT ON NEXT TWELVE MONTHS OF NET INTEREST INCOME
Increase in Interest Rates Above Market Implied Forward Rates
100 Basis Points	$	318
200 Basis Points	556
Decrease in Interest Rates Below Market Implied Forward Rates
100 Basis Points	$	87

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

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

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

MARKET RISK MANAGEMENT (continued)

assumptions that apply to NII sensitivity also apply to MVE sensitivity simulations, with the following separate key assumptions incorporated into the MVE simulation:

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

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

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

The following table shows the estimated impact on MVE of 100 and 200 basis point shocks up and a 100 basis point shock down from current market implied forward rates.

TABLE 31: MARKET VALUE OF EQUITY SENSITIVITY AS OF JUNE 30, 2021


($ In Millions)	INCREASE (DECREASE) ESTIMATED IMPACT ON MARKET VALUE OF EQUITY
Increase in Interest Rates Above Market Implied Forward Rates
100 Basis Points	$	323
200 Basis Points	43
Decrease in Interest Rates Below Market Implied Forward Rates
100 Basis Points	$	114

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

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

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

During the three and six months ended June 30, 2021, Northern Trust did not incur an actual GFX trading loss in excess of the daily GFX VaR estimate.

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

TABLE 32: GLOBAL FOREIGN CURRENCY VALUE-AT-RISK


($ In Millions)	TOTAL VaR (FX AND IR DRIVERS)				FX VaR (FX DRIVERS ONLY)				IR VaR (IR DRIVERS ONLY)
THREE MONTHS ENDED	JUNE 30, 2021		MARCH 31, 2021		JUNE 30, 2021		MARCH 31, 2021		JUNE 30, 2021		MARCH 31, 2021
High	$	0.3	$	0.9	$	0.3	$	0.4	$	0.2	$	0.7
Low	—		0.1		—		0.1		—		0.1
Average	0.1		0.4		0.1		0.2		0.1		0.4
Quarter-End	0.1		0.1		0.1		0.1		0.1		0.1

RECONCILIATION TO FULLY TAXABLE EQUIVALENT

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

TABLE 33: RECONCILIATION TO FULLY TAXABLE EQUIVALENT


	THREE MONTHS ENDED JUNE 30,						SIX MONTHS ENDED JUNE 30,
($ In Millions)	2021			2020			2021			2020
Net Interest Income
Interest Income - GAAP	$	343.1		$	406.3		$	693.0		$	935.5
Add: FTE Adjustment	8.3			7.7			14.9			15.8
Interest Income (FTE) - Non-GAAP	$	351.4		$	414.0		$	707.9		$	951.3

Net Interest Income - GAAP	$	335.6		$	372.1		$	675.7		$	780.2
Add: FTE Adjustment	8.3			7.7			14.9			15.8
Net Interest Income (FTE) - Non-GAAP	$	343.9		$	379.8		$	690.6		$	796.0

Net Interest Margin - GAAP	0.95		%	1.20		%	0.96		%	1.33		%
Net Interest Margin (FTE) - Non-GAAP	0.97		%	1.22		%	0.99		%	1.36		%

Total Revenue
Total Revenue - GAAP	$	1,580.3		$	1,506.1		$	3,163.7		$	3,093.8
Add: FTE Adjustment	8.3			7.7			14.9			15.8
Total Revenue (FTE) - Non-GAAP	$	1,588.6		$	1,513.8		$	3,178.6		$	3,109.6

FORWARD-LOOKING STATEMENTS

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

•the impact of the ongoing COVID-19 pandemic—and governmental and societal responses thereto—on Northern Trust’s business, financial condition, and results of operations;

•financial market disruptions or economic recession in the United States or other countries across the globe resulting from any of a number of factors;

•volatility or changes in financial markets, including debt and equity markets, that impact the value, liquidity, or credit ratings of financial assets in general, or financial assets held in particular investment funds or client portfolios, including those funds, portfolios, and other financial assets with respect to which Northern Trust has taken, or may in the future take, actions to provide asset value stability or additional liquidity;

•the impact of equity markets on fee revenue;

•the downgrade of U.S. government-issued and other securities;

•changes in foreign exchange trading client volumes and volatility in foreign currency exchange rates, changes in the valuation of the U.S. dollar relative to other currencies in which Northern Trust records revenue or accrues expenses, and Northern Trust’s success in assessing and mitigating the risks arising from all such changes and volatility;

•a decline in the value of securities held in Northern Trust’s investment portfolio, particularly asset-backed securities, the liquidity and pricing of which may be negatively impacted by periods of economic turmoil and financial market disruptions;

•Northern Trust’s ability to address operating risks, including those related to cybersecurity, data security, human errors or omissions, pricing or valuation of securities, fraud, systems performance or defects, systems interruptions, and breakdowns in processes or internal controls;

•Northern Trust’s success in responding to and investing in changes and advancements in technology;

•a significant downgrade of any of Northern Trust’s debt ratings;

•the health and soundness of the financial institutions and other counterparties with which Northern Trust conducts business;

•uncertainties inherent in the complex and subjective judgments required to assess credit risk and establish appropriate allowances therefor;

•changes in the availability of the London Interbank Offered Rate (LIBOR) or the calculation of alternative interest rate benchmarks;

•the pace and extent of continued globalization of investment activity and growth in worldwide financial assets;

•changes in interest rates or in the monetary or other policies of various regulatory authorities or central banks;

•changes in the legal, regulatory and enforcement framework and oversight applicable to financial institutions, including Northern Trust;

•increased costs of compliance and other risks associated with changes in regulation, the current regulatory environment, and areas of increased regulatory emphasis and oversight in the United States and other countries, such as anti-money laundering, anti-bribery, and data privacy;

•failure to satisfy regulatory standards or to obtain regulatory approvals when required, including for the use and distribution of capital;

•changes in tax laws, accounting requirements or interpretations and other legislation in the United States or other countries that could affect Northern Trust or its clients;

•geopolitical risks, risks related to global climate change and the risks of extraordinary events such as pandemics, natural disasters, terrorist events and war, and the responses of the United States and other countries to those events;

•the departure of the United Kingdom from the European Union, commonly referred to as “Brexit,” and any negative effects thereof on global economic conditions, global financial markets, and our business and results of operations;

•changes in the nature and activities of Northern Trust’s competition;

•Northern Trust’s success in maintaining existing business and continuing to generate new business in existing and targeted markets and its ability to deploy deposits in a profitable manner consistent with its liquidity requirements;

•Northern Trust’s ability to address the complex needs of a global client base and manage compliance with legal, tax, regulatory and other requirements;

•Northern Trust’s ability to maintain a product mix that achieves acceptable margins;

FORWARD-LOOKING STATEMENTS (continued)

•Northern Trust’s ability to continue to generate investment results that satisfy clients and to develop an array of investment products;

•the effectiveness of Northern Trust’s management of its human capital, including its success in recruiting and retaining the necessary personnel to support business growth and expansion and maintain sufficient expertise to support increasingly complex products and services;

•Northern Trust’s success in implementing its expense management initiatives;

•uncertainties inherent in Northern Trust’s assumptions concerning its pension plan, including discount rates and expected contributions, returns and payouts;

•Northern Trust’s success in continuing to enhance its risk management practices and controls and managing risks inherent in its businesses, including credit risk, operational risk, market and liquidity risk, fiduciary risk, compliance risk and strategic risk;

•risks and uncertainties inherent in the litigation and regulatory process, including the possibility that losses may be in excess of Northern Trust’s recorded liability and estimated range of possible loss for litigation exposures;

•risks associated with being a holding company, including Northern Trust’s dependence on dividends from its principal subsidiary;

•the risk of damage to Northern Trust’s reputation which may undermine the confidence of clients, counterparties, rating agencies, and stockholders; and

•other factors identified elsewhere in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2020, including those factors described in Item 1A, “Risk Factors,” and other filings with the SEC, all of which are available on Northern Trust’s website.

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

Item 1. Consolidated Financial Statements (unaudited)


CONSOLIDATED BALANCE SHEETS (UNAUDITED)			NORTHERN TRUST CORPORATION


(In Millions Except Share Information)	JUNE 30, 2021		DECEMBER 31, 2020
	(Unaudited)
ASSETS
Cash and Due from Banks	$	4,799.3	$	4,389.5
Federal Reserve and Other Central Bank Deposits	54,232.9		55,503.6
Interest-Bearing Deposits with Banks	3,848.4		4,372.6
Federal Funds Sold	0.1		0
Securities Purchased under Agreements to Resell	947.8		1,596.5
Debt Securities
Available for Sale (Amortized cost of $36,464.6 and $41,155.7)	36,864.0		42,022.0
Held to Maturity (Fair value of $21,579.6 and $17,797.4)	21,655.3		17,791.1
Trading Account	0.5		0.5
Total Debt Securities	58,519.8		59,813.6
Loans and Leases
Commercial	16,207.7		15,262.0
Personal	21,198.9		18,497.7
Total Loans and Leases (Net of unearned income of $9.7 and $9.8)	37,406.6		33,759.7
Allowance for Credit Losses	(160.5)		(198.8)
Buildings and Equipment	496.5		514.9
Client Security Settlement Receivables	2,011.6		1,160.2
Goodwill	709.4		707.2
Other Assets	9,479.2		8,384.9
Total Assets	$	172,291.1	$	170,003.9
LIABILITIES
Deposits
Demand and Other Noninterest-Bearing	$	19,057.3	$	17,728.5
Savings, Money Market and Other Interest-Bearing	31,604.7		28,631.8
Savings Certificates and Other Time	877.7		937.1
Non U.S. Offices — Noninterest-Bearing	22,965.1		25,382.2
— Interest-Bearing	71,705.4		71,198.4
Total Deposits	146,210.2		143,878.0
Federal Funds Purchased	0.2		260.2
Securities Sold Under Agreements to Repurchase	529.1		39.8
Other Borrowings	5,140.6		4,011.5
Senior Notes	3,036.0		3,122.4
Long-Term Debt	1,165.3		1,189.3
Floating Rate Capital Debt	277.8		277.8
Other Liabilities	4,108.9		5,536.6
Total Liabilities	160,468.1		158,315.6
STOCKHOLDERS' EQUITY
Preferred Stock, No Par Value; Authorized 10,000,000 shares:
Series D, outstanding shares of 5,000	493.5		493.5
Series E, outstanding shares of 16,000	391.4		391.4
Common Stock, $1.66 2/3 Par Value; Authorized 560,000,000 shares;
Outstanding shares of 208,394,779 and 208,289,178	408.6		408.6
Additional Paid-In Capital	921.1		963.6
Retained Earnings	12,630.9		12,207.7
Accumulated Other Comprehensive Income (Loss)	194.7		428.0
Treasury Stock (36,776,745 and 36,882,346 shares, at cost)	(3,217.2)		(3,204.5)
Total Stockholders’ Equity	11,823.0		11,688.3
Total Liabilities and Stockholders’ Equity	$	172,291.1	$	170,003.9

See accompanying notes to the consolidated financial statements.


CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)			NORTHERN TRUST CORPORATION


	THREE MONTHS ENDED JUNE 30,				SIX MONTHS ENDED JUNE 30,
(In Millions Except Share Information)	2021		2020		2021		2020
Noninterest Income
Trust, Investment and Other Servicing Fees	$	1,075.4	$	961.5	$	2,139.1	$	1,965.1
Foreign Exchange Trading Income	70.6		71.3		149.3		160.2
Treasury Management Fees	11.3		11.4		22.5		22.4
Security Commissions and Trading Income	33.0		33.2		67.8		74.9
Other Operating Income	54.4		56.5		109.3		90.9
Investment Security Gains, net	0		0.1		0		0.1
Total Noninterest Income	1,244.7		1,134.0		2,488.0		2,313.6
Net Interest Income
Interest Income	343.1		406.3		693.0		935.5
Interest Expense	7.5		34.2		17.3		155.3
Net Interest Income	335.6		372.1		675.7		780.2
Provision for Credit Losses	(27.0)		66.0		(57.0)		127.0
Net Interest Income after Provision for Credit Losses	362.6		306.1		732.7		653.2
Noninterest Expense
Compensation	486.3		460.3		1,004.8		960.1
Employee Benefits	118.4		90.4		221.8		188.3
Outside Services	218.1		176.2		414.5		369.0
Equipment and Software	178.3		164.2		355.0		326.4
Occupancy	52.2		60.0		103.0		111.1
Other Operating Expense	67.5		85.8		139.2		147.6
Total Noninterest Expense	1,120.8		1,036.9		2,238.3		2,102.5
Income before Income Taxes	486.5		403.2		982.4		864.3
Provision for Income Taxes	118.4		89.9		239.2		190.4
Net Income	$	368.1	$	313.3	$	743.2	$	673.9
Preferred Stock Dividends	4.7		4.8		20.9		35.3
Net Income Applicable to Common Stock	$	363.4	$	308.5	$	722.3	$	638.6
Per Common Share
Net Income – Basic	$	1.73	$	1.47	$	3.44	$	3.03
– Diluted	1.72		1.46		3.42		3.02
Average Number of Common Shares Outstanding
– Basic	208,369,188		208,068,635		208,241,714		208,474,883
– Diluted	209,138,090		208,568,357		209,042,798		209,192,590


CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)	NORTHERN TRUST CORPORATION
	THREE MONTHS ENDED JUNE 30,				SIX MONTHS ENDED JUNE 30,
(In Millions)	2021		2020		2021		2020
Net Income	$	368.1	$	313.3	$	743.2	$	673.9
Other Comprehensive Income (Loss) (Net of Tax and Reclassifications)
Net Unrealized Gains (Losses) on Available for Sale Debt Securities	100.9		318.1		(268.8)		517.8
Net Unrealized Gains (Losses) on Cash Flow Hedges	3.0		(3.3)		(2.2)		4.0
Net Foreign Currency Adjustments	2.1		2.0		7.1		27.7
Net Pension and Other Postretirement Benefit Adjustments	22.8		8.6		30.6		15.6
Other Comprehensive Income (Loss)	128.8		325.4		(233.3)		565.1
Comprehensive Income	$	496.9	$	638.7	$	509.9	$	1,239.0

See accompanying notes to the consolidated financial statements.


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


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

See accompanying notes to the consolidated financial statements.


	SIX MONTHS ENDED JUNE 30, 2020
(In Millions Except Per Share Information)	PREFERRED STOCK		COMMON STOCK		ADDITIONAL PAID-IN CAPITAL		RETAINED EARNINGS		ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)		TREASURY STOCK		TOTAL
Balance at December 31, 2019	$	1,273.4	$	408.6	$	1,013.1	$	11,656.7	$	(194.7)	$	(3,066.1)	$	11,091.0
Cumulative Effect Adjustment related to the adoption of Accounting Standards Update 2016-13	—		—		—		(10.1)		—		—		(10.1)
Net Income	—		—		—		360.6		—		—		360.6
Other Comprehensive Income (Loss) (Net of Tax and Reclassifications)	—		—		—		—		239.7		—		239.7
Dividends Declared:
Common Stock, $0.70 per share	—		—		—		(148.6)		—		—		(148.6)
Preferred Stock	—		—		—		(19.0)		—		—		(19.0)
Redemption of Preferred Stock, Series C	(388.5)		—		—		(11.5)		—		—		(400.0)
Stock Awards and Options Exercised	—		—		(74.8)		—		—		137.7		62.9
Stock Purchased	—		—		—		—		—		(296.8)		(296.8)
Balance at March 31, 2020	$	884.9	$	408.6	$	938.3	$	11,828.1	$	45.0	$	(3,225.2)	$	10,879.7
Net Income	—		—		—		313.3		—		—		313.3
Other Comprehensive Income (Loss) (Net of Tax and Reclassifications)	—		—		—		—		325.4		—		325.4
Dividends Declared:
Common Stock, $0.70 per share	—		—		—		(148.2)		—		—		(148.2)
Preferred Stock	—		—		—		(4.8)		—		—		(4.8)
Stock Awards and Options Exercised	—		—		13.2		—		—		3.8		17.0
Stock Purchased	—		—		—		—		—		(0.2)		(0.2)
Balance at June 30, 2020	$	884.9	$	408.6	$	951.5	$	11,988.4	$	370.4	$	(3,221.6)	$	11,382.2

See accompanying notes to the consolidated financial statements.


CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)			NORTHERN TRUST CORPORATION


	SIX MONTHS ENDED JUNE 30,
(In Millions)	2021		2020
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income	$	743.2	$	673.9
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities
Investment Security (Losses) Gains, net	0		(0.1)
Amortization and Accretion of Securities and Unearned Income, net	50.1		39.8
Provision for Credit Losses	(57.0)		127.0
Depreciation and Amortization	253.8		248.6
Pension Plan Contributions	(6.7)		(10.6)
Change in Receivables	(78.9)		(39.4)
Change in Interest Payable	(0.4)		(16.1)
Change in Collateral With Derivative Counterparties, net	(1,907.5)		(867.4)
Other Operating Activities, net	(164.3)		342.7
Net Cash (Used in) Provided by Operating Activities	(1,167.7)		498.4
CASH FLOWS FROM INVESTING ACTIVITIES
Change in Federal Funds Sold	(0.1)		5.0
Change in Securities Purchased under Agreements to Resell	639.7		(768.0)
Change in Interest-Bearing Deposits with Banks	534.5		2,057.8
Net Change in Federal Reserve and Other Central Bank Deposits	1,000.6		(8,444.3)
Purchases of Held to Maturity Debt Securities	(28,474.5)		(15,952.0)
Proceeds from Maturity and Redemption of Held to Maturity Debt Securities	30,847.7		12,887.2
Purchases of Available for Sale Debt Securities	(6,623.7)		(5,186.5)
Proceeds from Sale, Maturity and Redemption of Available for Sale Debt Securities	4,441.0		4,556.7
Change in Loans and Leases	(3,651.1)		(2,350.3)
Purchases of Buildings and Equipment	(39.1)		(76.6)
Purchases and Development of Computer Software	(169.3)		(187.8)
Change in Client Security Settlement Receivables	(857.7)		(1,159.2)
Other Investing Activities, net	120.4		326.7
Net Cash Used in Investing Activities	(2,231.6)		(14,291.3)
CASH FLOWS FROM FINANCING ACTIVITIES
Change in Deposits	2,961.5		13,425.2
Change in Federal Funds Purchased	(260.0)		161.8
Change in Securities Sold under Agreements to Repurchase	489.3		(453.2)
Change in Short-Term Other Borrowings	1,141.7		747.7
Proceeds from Senior Notes	0		993.2
Redemption of Preferred Stock - Series C	0		(400.0)
Treasury Stock Purchased	(165.8)		(297.0)
Net Proceeds from Stock Options	41.0		10.6
Cash Dividends Paid on Common Stock	(291.7)		(293.0)
Cash Dividends Paid on Preferred Stock	(20.9)		(25.0)
Other Financing Activities, net	0		0.3
Net Cash Provided by Financing Activities	3,895.1		13,870.6
Effect of Foreign Currency Exchange Rates on Cash	(86.0)		(74.7)
Change in Cash and Due from Banks	409.8		3.0
Cash and Due from Banks at Beginning of Period	4,389.5		4,459.2
Cash and Due from Banks at End of Period	$	4,799.3	$	4,462.2
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest Paid	$	17.2	$	174.7
Income Taxes Paid	189.7		189.7
Transfers from Loans to OREO	3.4		0.2
Transfers from Available for Sale Debt Securities to Held to Maturity Debt Securities	6,864.1		301.5

See accompanying notes to the consolidated financial statements.

Notes to Consolidated Financial Statements (unaudited)

Note 1 – Basis of Presentation

The consolidated financial statements include the accounts of Northern Trust Corporation (Corporation) and its wholly-owned subsidiary, The Northern Trust Company (Bank), and various other wholly-owned subsidiaries of the Corporation and Bank. Throughout the notes to the consolidated financial statements, the term “Northern Trust” refers to the Corporation and its subsidiaries. Intercompany balances and transactions have been eliminated in consolidation. The consolidated financial statements, as of and for the periods ended June 30, 2021 and 2020, have not been audited by the Corporation’s independent registered public accounting firm. In the opinion of management, all accounting entries and adjustments, including normal recurring accruals, necessary for a fair presentation of the financial position and the results of operations for the interim periods have been made. The accounting and financial reporting policies of Northern Trust conform to U.S. generally accepted accounting principles (GAAP) and reporting practices prescribed for the banking industry. The consolidated statements of income include results of acquired subsidiaries from the dates of acquisition. Certain prior-period balances have been reclassified to conform with the current year’s presentation. For a description of Northern Trust’s significant accounting policies, refer to Note 1 — Summary of Significant Accounting Policies included under Item 8. Financial Statements and Supplementary Data in the Annual Report on Form 10-K for the year ended December 31, 2020.

Note 2 – Recent Accounting Pronouncements

On January 1, 2021, Northern Trust adopted Accounting Standards Update (ASU) No. 2020-01, “Investments—Equity Securities (Topic 321), Investments—Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815): Clarifying the Interactions between Topic 321, Topic 323, and Topic 815” (ASU 2020-01). ASU 2020-01 addresses two accounting issues: (1) application of the measurement alternative under Topic 321 in correlation with the transition into and out of the equity method under Topic 323 and (2) the measurement of certain forward contracts and purchased options to acquire equity securities. ASU 2020-01 clarifies that an entity applying the measurement alternative under Topic 321 that must transition to the equity method under Topic 323 because of an observable transaction will remeasure its investment immediately before transition, whereas an entity applying the equity method under Topic 323 that must transition to Topic 321 because of an observable transaction will remeasure its investment immediately after transition. ASU 2020-01 also clarifies that certain forward contracts or purchased call options to acquire equity securities generally will be measured using the fair value principles of Topic 321 before settlement or exercise. Upon adoption of ASU 2020-01, there was no significant impact to Northern Trust’s consolidated balance sheets or consolidated statements of income.

On January 1, 2021, Northern Trust adopted ASU No. 2020-08, “Codification Improvements to Subtopic 310-20, Receivables—Nonrefundable Fees and Other Costs” (ASU 2020-08). ASU 2020-08 clarifies the Codification related to the standard issued in ASU No. 2017-08, “Receivables—Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities.” ASU 2020-08 clarifies that an entity should amortize premiums on purchased callable debt securities to the first call date and related call amount and at that point reassess if there is a remaining premium to amortize to a subsequent call date. Upon adoption of ASU 2020-08, there was no significant impact to Northern Trust’s consolidated balance sheets or consolidated statements of income.

On January 7, 2021, Northern Trust retrospectively adopted ASU No. 2021-01, “Reference Rate Reform (Topic 848): Scope” (ASU 2021-01). ASU 2021-01 clarifies the scope of Topic 848 to explicitly include those derivative instruments affected by changes in interest rates used for margining, discounting, or contract price alignment as eligible for certain optional expedients and exceptions in Topic 848. Upon adoption of ASU 2021-01, Northern Trust elected the expedients provided in Topic 848 with no significant impact on Northern Trust’s consolidated balance sheets or consolidated statements of income.

Note 3 – Fair Value Measurements

Fair Value Hierarchy. The following describes the hierarchy of valuation inputs (Levels 1, 2, and 3) used to measure fair value and the primary valuation methodologies used by Northern Trust for financial instruments measured at fair value on a recurring basis. Observable inputs reflect market data obtained from sources independent of the reporting entity; unobservable inputs reflect the entity’s own assumptions about how market participants would value an asset or liability based on the best information available. GAAP requires an entity measuring fair value to maximize the use of observable inputs and minimize the use of unobservable inputs and establishes a fair value hierarchy of inputs. Financial instruments are categorized within the hierarchy based on the lowest level input that is significant to their valuation. No transfers into or out of Level 3 occurred during the six months ended June 30, 2021 or the year ended December 31, 2020.

Notes to Consolidated Financial Statements (unaudited) (continued)

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

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

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

Northern Trust’s Level 2 assets include AFS and trading account debt securities, the fair values of which are determined predominantly by external pricing vendors. Prices received from vendors are compared to other vendor and third-party prices. If a security price obtained from a pricing vendor is determined to exceed pre-determined tolerance levels that are assigned based on an asset type’s characteristics, the exception is researched and, if the price is not able to be validated, an alternate pricing vendor is utilized, consistent with Northern Trust’s pricing source hierarchy. As of June 30, 2021, Northern Trust’s AFS debt securities portfolio included 2,401 Level 2 debt securities with an aggregate market value of $34.3 billion. Substantially all 2,401 debt securities were valued by external pricing vendors. As of December 31, 2020, Northern Trust’s AFS debt securities portfolio included 2,260 Level 2 debt securities with an aggregate market value of $39.2 billion. All 2,260 debt securities were valued by external pricing vendors. Trading account debt securities, which totaled $0.5 million as of each of June 30, 2021 and December 31, 2020, were all valued using external pricing vendors.

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

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

Northern Trust’s Level 3 liabilities consist of swaps that Northern Trust entered into with the purchaser of 1.1 million and 1.0 million shares of Visa Inc. Class B common stock (Visa Class B common shares) previously held by Northern Trust and sold in June 2016 and 2015, respectively. Pursuant to the swaps, Northern Trust retains the risks associated with the ultimate conversion of the Visa Class B common shares into shares of Visa Inc. Class A common stock (Visa Class A common shares), such that the counterparty will be compensated for any dilutive adjustments to the conversion ratio and Northern Trust will be compensated for any anti-dilutive adjustments to the ratio. The swaps also require periodic payments from Northern Trust to the counterparty calculated by reference to the market price of Visa Class A common shares and a fixed rate of interest. The fair value of the swaps is determined using a discounted cash flow methodology. The significant unobservable inputs used in the fair value measurement are Northern Trust’s own assumptions about estimated changes in the conversion rate of the Visa Class B common shares into Visa Class A common shares, the date on which such conversion is expected to occur and the estimated growth rate of the Visa Class A common share price. See “Visa Class B Common Shares” under Note 21 — Commitments and Contingent Liabilities for further information.

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

The following table presents the fair values of Northern Trust’s Level 3 liabilities as of June 30, 2021 and December 31, 2020, as well as the valuation techniques, significant unobservable inputs, and quantitative information used to develop significant unobservable inputs for such liabilities as of such dates.

Notes to Consolidated Financial Statements (unaudited) (continued)

TABLE 34: LEVEL 3 SIGNIFICANT UNOBSERVABLE INPUTS

JUNE 30, 2021

FINANCIAL INSTRUMENT

FAIR VALUE

VALUATION TECHNIQUE

UNOBSERVABLE INPUTS

INPUT VALUES

WEIGHTED-AVERAGE INPUT VALUES(1)

Swaps Related to Sale of Certain Visa Class B Common Shares

$38.4 million

Discounted Cash Flow

Conversion Rate

1.62x

Visa Class A Appreciation

10.49%

Expected Duration

33 months

20 months

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

DECEMBER 31, 2020

FINANCIAL INSTRUMENT

FAIR VALUE

VALUATION TECHNIQUE

UNOBSERVABLE INPUTS

INPUT VALUES

WEIGHTED-AVERAGE INPUT VALUES(1)

Swaps Related to Sale of Certain Visa Class B Common Shares

$35.3 million

Discounted Cash Flow

Conversion Rate

1.62x

Visa Class A Appreciation

8.73%

Expected Duration

33 months

20 months

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

The following table presents assets and liabilities measured at fair value on a recurring basis as of June 30, 2021 and December 31, 2020, segregated by fair value hierarchy level.

TABLE 35: RECURRING BASIS HIERARCHY LEVELING


	JUNE 30, 2021
(In Millions)	LEVEL 1		LEVEL 2		LEVEL 3		NETTING		ASSETS/LIABILITIES AT FAIR VALUE
Debt Securities
Available for Sale
U.S. Government	$	2,559.0	$	0	$	0	$	—	$	2,559.0
Obligations of States and Political Subdivisions	0		3,488.9		0		—		3,488.9
Government Sponsored Agency	0		17,645.8		0		—		17,645.8
Non-U.S. Government	0		623.8		0		—		623.8
Corporate Debt	0		2,462.9		0		—		2,462.9
Covered Bonds	0		535.4		0		—		535.4
Sub-Sovereign, Supranational and Non-U.S. Agency Bonds	0		3,058.5		0		—		3,058.5
Other Asset-Backed	0		5,278.1		0		—		5,278.1
Commercial Mortgage-Backed	0		1,211.6		0		—		1,211.6
Total Available for Sale	2,559.0		34,305.0		0		—		36,864.0
Trading Account	0		0.5		0		—		0.5
Total Available for Sale and Trading Debt Securities	2,559.0		34,305.5		0		—		36,864.5
Other Assets
Derivative Assets
Foreign Exchange Contracts	0		2,608.9		0		(884.1)		1,724.8
Interest Rate Contracts	0		207.4		0		(2.7)		204.7
Total Derivative Assets	0		2,816.3		0		(886.8)		1,929.5
Other Liabilities
Derivative Liabilities
Foreign Exchange Contracts	0		2,406.3		0		(2,021.1)		385.2
Interest Rate Contracts	0		106.2		0		(67.2)		39.0
Other Financial Derivatives(1)	0		0		38.4		0		38.4
Total Derivative Liabilities	$	0	$	2,512.5	$	38.4	$	(2,088.3)	$	462.6

Note: Northern Trust has elected to net derivative assets and liabilities when legally enforceable master netting arrangements or similar agreements exist between Northern Trust and the counterparty. As of June 30, 2021, derivative assets and liabilities shown above also include reductions of $126.4 million and $1,327.9 million, respectively, as a result of cash collateral received from and deposited with derivative counterparties.

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

Notes to Consolidated Financial Statements (unaudited) (continued)


	DECEMBER 31, 2020
(In Millions)	LEVEL 1		LEVEL 2		LEVEL 3		NETTING		ASSETS/LIABILITIES AT FAIR VALUE
Debt Securities
Available for Sale
U.S. Government	$	2,799.9	$	0	$	0	$	—	$	2,799.9
Obligations of States and Political Subdivisions	0		3,083.6		0		—		3,083.6
Government Sponsored Agency	0		24,956.7		0		—		24,956.7
Non-U.S. Government	0		714.0		0		—		714.0
Corporate Debt	0		2,539.6		0		—		2,539.6
Covered Bonds	0		553.1		0		—		553.1
Sub-Sovereign, Supranational and Non-U.S. Agency Bonds	0		2,345.8		0		—		2,345.8
Other Asset-Backed	0		3,997.5		0		—		3,997.5
Commercial Mortgage-Backed	0		1,031.8		0		—		1,031.8
Total Available for Sale	2,799.9		39,222.1		0		—		42,022.0
Trading Account	0		0.5		0		—		0.5
Total Available for Sale and Trading Debt Securities	2,799.9		39,222.6		0		—		42,022.5
Other Assets
Derivative Assets
Foreign Exchange Contracts	0		4,260.7		0		(3,505.3)		755.4
Interest Rate Contracts	0		297.5		0		(2.5)		295.0
Total Derivative Assets	0		4,558.2		0		(3,507.8)		1,050.4
Other Liabilities
Derivative Liabilities
Foreign Exchange Contracts	0		4,722.5		0		(2,718.6)		2,003.9
Interest Rate Contracts	0		125.0		0		(98.5)		26.5
Other Financial Derivatives(1)	0		0		35.3		0		35.3
Total Derivative Liabilities	$	0	$	4,847.5	$	35.3	$	(2,817.1)	$	2,065.7

Note: Northern Trust has elected to net derivative assets and liabilities when legally enforceable master netting arrangements or similar agreements exist between Northern Trust and the counterparty. As of December 31, 2020, derivative assets and liabilities shown above also include reductions of $1,867.8 million and $1,177.2 million, respectively, as a result of cash collateral received from and deposited with derivative counterparties.

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

The following table presents the changes in Level 3 liabilities for the three and six months ended June 30, 2021 and 2020.

TABLE 36: CHANGES IN LEVEL 3 LIABILITIES


(In Millions)	SWAPS RELATED TO SALE OF CERTAIN VISA CLASS B COMMON SHARES
THREE MONTHS ENDED JUNE 30,	2021		2020
Fair Value at April 1	$	34.6	$	26.5
Total (Gains) Losses:
Included in Earnings(1)	8.5		8.6
Purchases, Issues, Sales, and Settlements
Settlements	(4.7)		(3.8)
Fair Value at June 30	$	38.4	$	31.3

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



SIX MONTHS ENDED JUNE 30,	2021		2020
Fair Value at January 1	$	35.3	$	33.4
Total (Gains) Losses:
Included in Earnings(1)	12.1		5.7
Purchases, Issues, Sales, and Settlements
Settlements	(9.0)		(7.8)
Fair Value at June 30	$	38.4	$	31.3

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

Notes to Consolidated Financial Statements (unaudited) (continued)

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

Assets measured at fair value on a nonrecurring basis at June 30, 2021 and December 31, 2020, all of which were categorized as Level 3 under the fair value hierarchy, were comprised of nonaccrual loans whose values were based on real estate and other available collateral, and of other real estate owned (OREO) properties.

Fair values of real estate loan collateral were estimated using a market approach typically supported by third-party valuations and property-specific fees and taxes. The fair values of real estate loan collateral were subject to adjustments to reflect management’s judgment as to realizable value and consisted of discount factors ranging from 15.0% to 20.0% with a weighted average based on fair values of 16.3% and 16.8% as of June 30, 2021 and December 31, 2020, respectively. Other loan collateral, which typically consists of accounts receivable, inventory and equipment, is valued using a market approach adjusted for asset-specific characteristics and in limited instances third-party valuations are used. OREO assets are carried at the lower of cost or fair value less estimated costs to sell, with fair value typically based on third-party appraisals.

Collateral-based nonaccrual loans that have been adjusted to fair value totaled $8.2 million and $24.6 million at June 30, 2021 and December 31, 2020, respectively.

The following table presents the fair values of Northern Trust’s Level 3 assets that were measured at fair value on a nonrecurring basis as of June 30, 2021 and December 31, 2020, as well as the valuation technique, significant unobservable inputs and quantitative information used to develop the significant unobservable inputs for such assets as of such dates.

TABLE 37: LEVEL 3 NONRECURRING BASIS SIGNIFICANT UNOBSERVABLE INPUTS

JUNE 30, 2021

FINANCIAL INSTRUMENT

FAIR VALUE(1)

VALUATION TECHNIQUE

UNOBSERVABLE INPUTS

INPUT VALUES

WEIGHTED-AVERAGE INPUT VALUES

Loans

$8.2 million

Market Approach

Discount factor applied to real estate collateral-based loans to reflect realizable value

15.0

20.0%

16.3%

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

DECEMBER 31, 2020

FINANCIAL INSTRUMENT

FAIR VALUE(1)

VALUATION TECHNIQUE

UNOBSERVABLE INPUTS

INPUT VALUES

WEIGHTED-AVERAGE INPUT VALUES

Loans

$24.6 million

Market Approach

Discount factor applied to real estate collateral-based loans to reflect realizable value

15.0

20.0%

16.8%

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

Notes to Consolidated Financial Statements (unaudited) (continued)

The following table summarizes the fair values of all financial instruments.

TABLE 38: FAIR VALUE OF FINANCIAL INSTRUMENTS


	JUNE 30, 2021
					FAIR VALUE
(In Millions)	BOOK VALUE		TOTAL FAIR VALUE		LEVEL 1		LEVEL 2		LEVEL 3
ASSETS
Cash and Due from Banks	$	4,799.3	$	4,799.3	$	4,799.3	$	0	$	0
Federal Reserve and Other Central Bank Deposits	54,232.9		54,232.9		0		54,232.9		0
Interest-Bearing Deposits with Banks	3,848.4		3,848.4		0		3,848.4		0
Federal Funds Sold	0.1		0.1		0		0.1		0
Securities Purchased under Agreements to Resell	947.8		947.8		0		947.8		0
Debt Securities
Available for Sale(1)	36,864.0		36,864.0		2,559.0		34,305.0		0
Held to Maturity	21,655.3		21,579.6		99.0		21,480.6		0
Trading Account	0.5		0.5		0		0.5		0
Loans (excluding Leases)
Held for Investment	37,116.1		37,152.9		0		0		37,152.9
Held for Sale	131.2		150.3		0		150.3		0
Client Security Settlement Receivables	2,011.6		2,011.6		0		2,011.6		0
Other Assets
Federal Reserve and Federal Home Loan Bank Stock	230.0		230.0		0		230.0		0
Community Development Investments	903.8		903.8		0		903.8		0
Employee Benefit and Deferred Compensation	224.5		227.1		123.7		103.4		0
LIABILITIES
Deposits
Demand, Noninterest-Bearing, Savings, Money Market and Other Interest-Bearing	$	73,627.1	$	73,627.1	$	73,627.1	$	0	$	0
Savings Certificates and Other Time	877.7		879.7		0		879.7		0
Non U.S. Offices Interest-Bearing	71,705.4		71,705.4		0		71,705.4		0
Federal Funds Purchased	0.2		0.2		0		0.2		0
Securities Sold Under Agreements to Repurchase	529.1		529.1		0		529.1		0
Other Borrowings	5,140.6		5,141.1		0		5,141.1		0
Senior Notes	3,036.0		3,137.0		0		3,137.0		0
Long-Term Debt
Subordinated Debt	1,165.3		1,226.3		0		1,226.3		0
Floating Rate Capital Debt	277.8		271.9		0		271.9		0
Other Liabilities
Standby Letters of Credit	17.9		17.9		0		0		17.9
Loan Commitments	67.0		67.0		0		0		67.0
Derivative Instruments
Asset/Liability Management
Foreign Exchange Contracts
Assets	$	147.3	$	147.3	$	0	$	147.3	$	0
Liabilities	28.2		28.2		0		28.2		0
Interest Rate Contracts
Assets	8.9		8.9		0		8.9		0
Liabilities	7.2		7.2		0		7.2		0
Other Financial Derivatives
Liabilities(2)	38.4		38.4		0		0		38.4
Client-Related and Trading
Foreign Exchange Contracts
Assets	2,461.6		2,461.6		0		2,461.6		0
Liabilities	2,378.1		2,378.1		0		2,378.1		0
Interest Rate Contracts
Assets	198.5		198.5		0		198.5		0
Liabilities	99.0		99.0		0		99.0		0

(1) Refer to the table located on page 41 for the disaggregation of AFS debt securities.

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

Notes to Consolidated Financial Statements (unaudited) (continued)


	DECEMBER 31, 2020
					FAIR VALUE
(In Millions)	BOOK VALUE		TOTAL FAIR VALUE		LEVEL 1		LEVEL 2		LEVEL 3
ASSETS
Cash and Due from Banks	$	4,389.5	$	4,389.5	$	4,389.5	$	0	$	0
Federal Reserve and Other Central Bank Deposits	55,503.6		55,503.6		0		55,503.6		0
Interest-Bearing Deposits with Banks	4,372.6		4,372.6		0		4,372.6		0
Securities Purchased under Agreements to Resell	1,596.5		1,596.5		0		1,596.5		0
Debt Securities
Available for Sale(1)	42,022.0		42,022.0		2,799.9		39,222.1		0
Held to Maturity	17,791.1		17,797.4		90.0		17,707.4		0
Trading Account	0.5		0.5		0		0.5		0
Loans (excluding Leases)
Held for Investment	33,558.0		34,017.5		0		0		34,017.5
Client Security Settlement Receivables	1,160.2		1,160.2		0		1,160.2		0
Other Assets
Federal Reserve and Federal Home Loan Bank Stock	275.0		275.0		0		275.0		0
Community Development Investments	919.6		919.6		0		919.6		0
Employee Benefit and Deferred Compensation	215.8		228.9		138.6		90.3		0
LIABILITIES
Deposits
Demand, Noninterest-Bearing, Savings, Money Market and Other Interest-Bearing	$	71,742.5	$	71,742.5	$	71,742.5	$	0	$	0
Savings Certificates and Other Time	937.1		943.0		0		943.0		0
Non U.S. Offices Interest-Bearing	71,198.4		71,198.4		0		71,198.4		0
Federal Funds Purchased	260.2		260.2		0		260.2		0
Securities Sold Under Agreements to Repurchase	39.8		39.8		0		39.8		0
Other Borrowings	4,011.5		4,012.7		0		4,012.7		0
Senior Notes	3,122.4		3,222.6		0		3,222.6		0
Long-Term Debt
Subordinated Debt	1,189.3		1,250.1		0		1,250.1		0
Floating Rate Capital Debt	277.8		264.6		0		264.6		0
Other Liabilities
Standby Letters of Credit	22.4		22.4		0		0		22.4
Loan Commitments	77.0		77.0		0		0		77.0
Derivative Instruments
Asset/Liability Management
Foreign Exchange Contracts
Assets	$	15.6	$	15.6	$	0	$	15.6	$	0
Liabilities	311.8		311.8		0		311.8		0
Interest Rate Contracts
Assets	8.3		8.3		0		8.3		0
Liabilities	10.2		10.2		0		10.2		0
Other Financial Derivatives
Liabilities(2)	35.3		35.3		0		0		35.3
Client-Related and Trading
Foreign Exchange Contracts
Assets	4,245.1		4,245.1		0		4,245.1		0
Liabilities	4,410.7		4,410.7		0		4,410.7		0
Interest Rate Contracts
Assets	289.2		289.2		0		289.2		0
Liabilities	114.8		114.8		0		114.8		0

(1) Refer to the table located on page 42 for the disaggregation of AFS debt securities.

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

Notes to Consolidated Financial Statements (unaudited) (continued)

Note 4 – Securities

Available for Sale Debt Securities. The following tables provide the amortized cost and fair values at June 30, 2021 and December 31, 2020, and remaining maturities of AFS debt securities at June 30, 2021.

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


	JUNE 30, 2021
(In Millions)	AMORTIZED COST		GROSS UNREALIZED GAINS		GROSS UNREALIZED LOSSES		FAIR VALUE
U.S. Government	$	2,519.3	$	46.6	$	6.9	$	2,559.0
Obligations of States and Political Subdivisions	3,398.6		108.8		18.5		3,488.9
Government Sponsored Agency	17,558.7		151.8		64.7		17,645.8
Non-U.S. Government	628.5		0.3		5.0		623.8
Corporate Debt	2,405.7��		59.1		1.9		2,462.9
Covered Bonds	528.1		7.3		0		535.4
Sub-Sovereign, Supranational and Non-U.S. Agency Bonds	3,023.5		47.8		12.8		3,058.5
Other Asset-Backed	5,248.6		31.3		1.8		5,278.1
Commercial Mortgage-Backed	1,153.6		58.6		0.6		1,211.6
Total	$	36,464.6	$	511.6	$	112.2	$	36,864.0


	DECEMBER 31, 2020
(In Millions)	AMORTIZED COST		GROSS UNREALIZED GAINS		GROSS UNREALIZED LOSSES		FAIR VALUE
U.S. Government	$	2,728.8	$	71.1	$	0	$	2,799.9
Obligations of States and Political Subdivisions	2,927.8		155.9		0.1		3,083.6
Government Sponsored Agency	24,595.1		388.5		26.9		24,956.7
Non-U.S. Government	713.6		1.1		0.7		714.0
Corporate Debt	2,459.9		79.8		0.1		2,539.6
Covered Bonds	543.1		10.0		0		553.1
Sub-Sovereign, Supranational and Non-U.S. Agency Bonds	2,281.7		64.7		0.6		2,345.8
Other Asset-Backed	3,953.5		46.8		2.8		3,997.5
Commercial Mortgage-Backed	952.2		79.7		0.1		1,031.8
Total	$	41,155.7	$	897.6	$	31.3	$	42,022.0

Notes to Consolidated Financial Statements (unaudited) (continued)

TABLE 40: REMAINING MATURITY OF AVAILABLE FOR SALE DEBT SECURITIES


JUNE 30, 2021	ONE YEAR OR LESS				ONE TO FIVE YEARS				FIVE TO TEN YEARS				OVER TEN YEARS				TOTAL
(In Millions)	AMORTIZED COST		FAIR VALUE		AMORTIZED COST		FAIR VALUE		AMORTIZED COST		FAIR VALUE		AMORTIZED COST		FAIR VALUE		AMORTIZED COST		FAIR VALUE
U.S. Government	$	100.0	$	100.9	$	1,872.2	$	1,904.7	$	547.1	$	553.4	$	0	$	0	$	2,519.3	$	2,559.0
Obligations of States and Political Subdivisions	23.7		24.0		334.8		351.0		2,858.1		2,933.4		182.0		180.5		3,398.6		3,488.9
Government Sponsored Agency	2,601.7		2,621.0		5,641.0		5,677.2		8,047.7		8,071.1		1,268.3		1,276.5		17,558.7		17,645.8
Non-U.S. Government	340.7		340.8		126.8		126.2		161.0		156.8		0		0		628.5		623.8
Corporate Debt	359.6		363.6		2,021.6		2,074.7		17.9		18.0		6.6		6.6		2,405.7		2,462.9
Covered Bonds	105.2		105.3		422.9		430.1		0		0		0		0		528.1		535.4
Sub-Sovereign, Supranational and Non-U.S. Agency Bonds	520.6		522.8		2,013.9		2,052.8		489.0		482.9		0		0		3,023.5		3,058.5
Other Asset-Backed	1,234.1		1,248.2		2,934.1		2,949.0		915.5		915.9		164.9		165.0		5,248.6		5,278.1
Commercial Mortgage-Backed	14.0		14.0		651.7		677.5		487.9		520.1		0		0		1,153.6		1,211.6
Total	$	5,299.6	$	5,340.6	$	16,019.0	$	16,243.2	$	13,524.2	$	13,651.6	$	1,621.8	$	1,628.6	$	36,464.6	$	36,864.0

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

Available for Sale Debt Securities with Unrealized Losses. The following table provides information regarding AFS debt securities with no credit losses reported that had been in a continuous unrealized loss position for less than twelve months and for twelve months or longer as of June 30, 2021 and December 31, 2020.

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


AS OF JUNE 30, 2021	LESS THAN 12 MONTHS				12 MONTHS OR LONGER				TOTAL
(In Millions)	FAIR VALUE		UNREALIZED LOSSES		FAIR VALUE		UNREALIZED LOSSES		FAIR VALUE		UNREALIZED LOSSES
U.S. Government	$	241.3	$	6.9	$	0	$	0	$	241.3	$	6.9
Obligations of States and Political Subdivisions	1,042.2		18.5		0		0		1,042.2		18.5
Government Sponsored Agency	4,879.1		59.1		1,309.8		5.6		6,188.9		64.7
Non-U.S. Government	244.5		5.0		0		0		244.5		5.0
Corporate Debt	293.3		1.9		0		0		293.3		1.9
Sub-Sovereign, Supranational and Non-U.S. Agency Bonds	973.9		12.7		49.9		0.1		1,023.8		12.8
Other Asset-Backed	556.0		1.7		184.9		0.1		740.9		1.8
Commercial Mortgage-Backed	88.9		0.6		2.3		0		91.2		0.6
Total	$	8,319.2	$	106.4	$	1,546.9	$	5.8	$	9,866.1	$	112.2


AS OF DECEMBER 31, 2020	LESS THAN 12 MONTHS				12 MONTHS OR LONGER				TOTAL
(In Millions)	FAIR VALUE		UNREALIZED LOSSES		FAIR VALUE		UNREALIZED LOSSES		FAIR VALUE		UNREALIZED LOSSES
Obligations of States and Political Subdivisions	$	52.3	$	0.1	$	0	$	0	$	52.3	$	0.1
Government Sponsored Agency	2,402.3		13.6		2,528.7		13.3		4,931.0		26.9
Non-U.S. Government	90.5		0.7		0		0		90.5		0.7
Corporate Debt	66.6		0.1		0		0		66.6		0.1
Sub-Sovereign, Supranational and Non-U.S. Agency Bonds	162.8		0.5		49.9		0.1		212.7		0.6
Other Asset-Backed	176.8		0.2		792.3		2.6		969.1		2.8
Commercial Mortgage-Backed	44.4		0.1		0		0		44.4		0.1
Total	$	2,995.7	$	15.3	$	3,370.9	$	16.0	$	6,366.6	$	31.3

As of June 30, 2021, 738 AFS debt securities with a combined fair value of $9.9 billion were in an unrealized loss position, with their unrealized losses totaling $112.2 million. Unrealized losses related to AFS debt securities of $64.7 million and $18.5 million related to government-sponsored agency and obligations of states and political subdivisions, respectively, are primarily attributable to changes in market interest rates and credit spreads since their purchase. As of June 30, 2021, 16% of the AFS corporate debt securities portfolio were backed by guarantees provided by U.S. and non-U.S. governmental entities. The remaining unrealized losses on Northern Trust’s AFS debt securities portfolio as of June 30, 2021 are attributable to changes in overall market interest rates or credit spreads.

Notes to Consolidated Financial Statements (unaudited) (continued)

As of June 30, 2021, Northern Trust did not intend to sell any AFS debt securities in an unrealized loss position and it was more likely than not that Northern Trust would not be required to sell any such investment before the recovery of its amortized cost basis, which may be maturity.

AFS debt securities impairment reviews are conducted quarterly to identify and evaluate securities that have indications of possible credit losses. A determination as to whether a security’s decline in market value is related to credit impairment takes into consideration numerous factors and the relative significance of any single factor can vary by security. Factors Northern Trust considers in determining whether impairment is credit-related include, but are not limited to, the severity of the impairment; the cause of the impairment and the financial condition and near-term prospects of the issuer; activity in the market of the issuer, which may indicate adverse credit conditions; Northern Trust’s intent regarding the sale of the security as of the balance sheet date; and the likelihood that Northern Trust will not be required to sell the security for a period of time sufficient to allow for the recovery of the security’s amortized cost basis. For each security meeting the requirements of Northern Trust’s internal screening process, an extensive review is conducted to determine if a credit loss has occurred.

There was 0 provision for credit losses for corporate debt AFS securities for the three and six months ended June 30, 2021. The $0.2 million release of credit reserves for the three months ended June 30, 2020 reduced the ending allowance for credit losses balance for this category to 0 at June 30, 2020. There was 0 allowance for credit losses for corporate debt AFS securities as of June 30, 2021 and December 31, 2020, respectively. The process for identifying credit losses for corporate debt AFS securities is based on the best estimate of cash flows to be collected from the security, discounted using the security’s effective interest rate. If the present value of the expected cash flows is found to be less than the current amortized cost of the security, an allowance for credit losses is generally recorded equal to the difference between the two amounts, limited to the amount the amortized cost basis exceeds the fair value of the security. For additional information, please refer to Note 7 — Allowance for Credit Losses.

Held to Maturity Debt Securities. The following tables provide the amortized cost and fair values at June 30, 2021 and December 31, 2020, and remaining maturities of held to maturity (HTM) debt securities at June 30, 2021.

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


	JUNE 30, 2021
(In Millions)	AMORTIZED COST		GROSS UNREALIZED GAINS		GROSS UNREALIZED LOSSES		FAIR VALUE
U.S Government	$	99.0	$	0	$	0	$	99.0
Obligations of States and Political Subdivisions	1.0		0		0		1.0
Government Sponsored Agency	6,499.2		7.6		23.9		6,482.9
Non-U.S. Government	3,802.2		6.7		37.4		3,771.5
Corporate Debt	880.9		4.8		1.0		884.7
Covered Bonds	2,933.1		16.0		1.6		2,947.5
Certificates of Deposit	906.2		0		0		906.2
Sub-Sovereign, Supranational and Non-U.S. Agency Bonds	5,333.1		28.7		19.0		5,342.8
Other Asset-Backed	734.8		1.9		0		736.7
Other	465.8		4.4		62.9		407.3
Total	$	21,655.3	$	70.1	$	145.8	$	21,579.6


	DECEMBER 31, 2020
(In Millions)	AMORTIZED COST		GROSS UNREALIZED GAINS		GROSS UNREALIZED LOSSES		FAIR VALUE
U.S. Government	$	90.0	$	0	$	0	$	90.0
Obligations of States and Political Subdivisions	2.1		0.1		0		2.2
Government Sponsored Agency	3.0		0.3		0		3.3
Non-U.S. Government	8,336.6		7.3		0.2		8,343.7
Corporate Debt	588.0		6.5		0.1		594.4
Covered Bonds	3,184.6		24.6		0.3		3,208.9
Certificates of Deposit	807.2		0		0		807.2
Sub-Sovereign, Supranational and Non-U.S. Agency Bonds	3,648.0		43.5		0.9		3,690.6
Other Asset-Backed	677.0		0.9		0		677.9
Other	454.6		1.1		76.5		379.2
Total	$	17,791.1	$	84.3	$	78.0	$	17,797.4

Notes to Consolidated Financial Statements (unaudited) (continued)

As of June 30, 2021, the $21.7 billion HTM debt securities portfolio had unrealized losses of $62.9 million, $37.4 million, $23.9 million and $19 million related to other residential mortgage-backed securities, non-U.S. government, government-sponsored agency, and sub-sovereign, supranational and non-U.S. agency bonds, respectively, which are primarily attributable to changes in overall market interest rates and credit spreads since their purchase.

TABLE 43: REMAINING MATURITY OF HELD TO MATURITY DEBT SECURITIES


JUNE 30, 2021	ONE YEAR OR LESS				ONE TO FIVE YEARS				FIVE TO TEN YEARS				OVER TEN YEARS				TOTAL
(In Millions)	Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value
U.S. Government	$	99.0	$	99.0	$	0	$	0	$	0	$	0	$	0	$	0	$	99.0	$	99.0
Obligations of States and Political Subdivisions	1.0		1.0		0		0		0		0		0		0		1.0		1.0
Government Sponsored Agency	1,432.3		1,428.6		2,362.3		2,355.3		1,845.3		1,843.4		859.3		855.6		6,499.2		6,482.9
Non-U.S. Government	3,015.7		2,979.0		620.7		625.3		165.8		167.2		0		0		3,802.2		3,771.5
Corporate Debt	4.1		4.1		778.4		782.4		98.4		98.2		0		0		880.9		884.7
Covered Bonds	1,050.8		1,055.3		1,465.2		1,476.2		417.1		416.0		0		0		2,933.1		2,947.5
Certificates of Deposit	906.2		906.2		0		0		0		0		0		0		906.2		906.2
Sub-Sovereign, Supranational and Non-U.S. Agency Bonds	1,051.6		1,058.1		3,039.9		3,058.0		1,241.6		1,226.7		0		0		5,333.1		5,342.8
Other Asset-Backed	266.8		267.3		468.0		469.4		0		0		0		0		734.8		736.7
Other	121.9		118.1		175.6		167.5		51.0		50.0		117.3		71.7		465.8		407.3
Total	$	7,949.4	$	7,916.7	$	8,910.1	$	8,934.1	$	3,819.2	$	3,801.5	$	976.6	$	927.3	$	21,655.3	$	21,579.6

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

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

TABLE 44: AMORTIZED COST OF HELD TO MATURITY DEBT SECURITIES BY CREDIT RATING


	AS OF JUNE 30, 2021
(In Millions)	AAA			AA			A			BBB			NOT RATED			TOTAL
U.S. Government	$	99.0		$	0		$	0		$	0		$	0		$	99.0
Obligations of States and Political Subdivisions	0			1.0			0			0			0			1.0
Government Sponsored Agency	6,499.2			0			0			0			0			6,499.2
Non-U.S. Government	517.6			306.6			2,637.0			341.0			0			3,802.2
Corporate Debt	3.6			412.9			464.4			0			0			880.9
Covered Bonds	2,933.1			0			0			0			0			2,933.1
Certificates of Deposit	0			0			0			0			906.2			906.2
Sub-Sovereign, Supranational and Non-U.S. Agency Bonds	3,777.0			1,522.4			32.5			1.2			0			5,333.1
Other Asset-Backed	734.8			0			0			0			0			734.8
Other	0			0			0			0			465.8			465.8
Total	$	14,564.3		$	2,242.9		$	3,133.9		$	342.2		$	1,372.0		$	21,655.3
Percent of Total	67		%	10		%	14		%	2		%	7		%	100		%

Notes to Consolidated Financial Statements (unaudited) (continued)


	AS OF DECEMBER 31, 2020
(In Millions)	AAA			AA			A			BBB			NOT RATED			TOTAL
U.S. Government	$	90.0		$	0		$	0		$	0		$	0		$	90.0
Obligations of States and Political Subdivisions	0			1.0			0			1.1			0			2.1
Government Sponsored Agency	3.0			0			0			0			0			3.0
Non-U.S. Government	319.8			1,337.4			6,630.6			48.8			0			8,336.6
Corporate Debt	3.8			279.1			305.1			0			0			588.0
Covered Bonds	3,184.6			0			0			0			0			3,184.6
Certificates of Deposit	0			0			0			0			807.2			807.2
Sub-Sovereign, Supranational and Non-U.S. Agency Bonds	2,590.9			1,057.1			0			0			0			3,648.0
Other Asset-Backed	677.0			0			0			0			0			677.0
Other	0			0			0			0			454.6			454.6
Total	$	6,869.1		$	2,674.6		$	6,935.7		$	49.9		$	1,261.8		$	17,791.1
Percent of Total	39		%	15		%	39		%	0		%	7		%	100		%

Credit quality indicators are metrics that provide information regarding the relative credit risk of debt securities. Northern Trust maintains a high quality debt securities portfolio, with 91% and 93% of the HTM portfolio at June 30, 2021 and December 31, 2020, respectively, comprised of securities rated A or higher. The remaining HTM debt securities portfolio was comprised of 2% rated BBB at June 30, 2021 and 7% not rated by Moody’s Investors Service, Standard and Poor’s or Fitch Ratings at each of June 30, 2021 and December 31, 2020. Securities not explicitly rated were grouped where possible under the credit rating of the issuer of the security.

Investment Security Gains and Losses. There were 0 sales of debt securities during the three and six months ended June 30, 2021. Proceeds of $409.2 million and $689.2 million from the sale of debt securities during the three and six months ended June 30, 2020, respectively, resulted in gross realized debt securities gains of $2.7 million and $3.4 million, and gross realized debt securities losses of $2.6 million and $3.3 million. There were 0 net investment security (losses) gains for the three and six months ended June 30, 2021 and $0.1 million of net investment security gains for the three and six months ended June 30, 2020.

Note 5 – Securities Sold Under Agreements to Repurchase

Securities sold under agreements to repurchase are accounted for as collateralized financings and recorded at the amounts at which the securities were sold plus accrued interest. To minimize any potential credit risk associated with these transactions, the fair value of the securities sold is monitored, limits are set on exposure with counterparties, and the financial condition of counterparties is regularly assessed. Securities sold under agreements to repurchase are held by the counterparty until the repurchase.

The following table provides information regarding repurchase agreements that are accounted for as secured borrowings as of June 30, 2021 and December 31, 2020.

TABLE 45: REPURCHASE AGREEMENTS ACCOUNTED FOR AS SECURED BORROWINGS


	REMAINING CONTRACTUAL MATURITY OF THE AGREEMENTS
	OVERNIGHT AND CONTINUOUS
($ In Millions)	JUNE 30, 2021		DECEMBER 31, 2020
U.S. Treasury and Agency Securities	$	529.1	$	39.8
Total Borrowings	529.1		39.8
Gross Amount of Recognized Liabilities for Repurchase Agreements in Note 23	529.1		39.8
Amounts related to agreements not included in Note 23	0		0

Notes to Consolidated Financial Statements (unaudited) (continued)

Note 6 – Loans and Leases

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

TABLE 46: LOANS AND LEASES


(In Millions)	JUNE 30, 2021		DECEMBER 31, 2020
Commercial
Commercial and Institutional	$	9,833.8	$	10,058.3
Commercial Real Estate	3,943.9		3,558.4
Non-U.S.	2,091.1		1,345.7
Lease Financing, net	11.0		11.4
Other	327.9		288.2
Total Commercial	16,207.7		15,262.0
Personal
Private Client	14,636.7		11,815.1
Residential Real Estate	6,100.6		6,035.7
Non-U.S.	385.5		597.9
Other	76.1		49.0
Total Personal	21,198.9		18,497.7
Total Loans and Leases	$	37,406.6	$	33,759.7

Residential real estate loans consist of traditional first lien mortgages and equity credit lines that generally require a loan-to-collateral value of no more than 65% to 80% at inception. Northern Trust’s equity credit line products generally have draw periods of up to 10 years and a balloon payment of any outstanding balance is due at maturity. Payments are interest-only with variable interest rates. Northern Trust does not offer equity credit lines that include an option to convert the outstanding balance to an amortizing payment loan. As of June 30, 2021 and December 31, 2020, equity credit lines totaled $281.5 million and $304.4 million, respectively, and equity credit lines for which first liens were held by Northern Trust represented 97% of the total equity credit lines as of both June 30, 2021 and December 31, 2020.

Included within the non-U.S., commercial-other and personal-other classes are short-duration advances primarily related to the processing of custodied client investments, totaling $1.7 billion at June 30, 2021 and $1.1 billion at December 31, 2020, respectively. Demand deposit overdrafts reclassified as loan balances totaled $13.3 million and $26.4 million at June 30, 2021 and December 31, 2020, respectively. Loans classified as held for sale totaled $131.2 million at June 30, 2021 related to the decision to exit a non-strategic loan portfolio. There were 0 loans classified as held for sale at December 31, 2020. Loans classified as held for sale are recorded at the lower of cost or fair value.

As of June 30, 2021 and December 31, 2020, there were 0 leases classified as held for sale.

Paycheck Protection Program. In response to the COVID-19 pandemic, Northern Trust became a lender under the Paycheck Protection Program, as amended (PPP), which was created by the Coronavirus Aid, Relief, and Economic Security (CARES) Act and is administered by the U.S. Small Business Administration (SBA). Loans issued under the PPP are funded by Northern Trust directly to participating borrowers. The PPP loans are guaranteed by the SBA and borrowers are eligible to apply for PPP loan forgiveness for up to the full principal amount and accrued interest of the PPP loan.

To the extent a borrower uses PPP loan proceeds to cover eligible costs and has met all other SBA loan forgiveness requirements, the SBA will determine loan forgiveness under the CARES Act and will pay to Northern Trust the eligible PPP loan forgiven amount, which will be credited to the borrower’s loan to repay or pay down the PPP loan. The SBA forgiveness portal opened on August 10, 2020 and Northern Trust’s vendor portal opened on September 11, 2020 to begin processing the PPP loan forgiveness applications. When Northern Trust submits forgiveness applications to the SBA, the SBA will have at least 90 days to respond as to the approval or denial of such application. 889 applications went through the PPP loan forgiveness process and resulted in $153.1 million of loan principal and interest being forgiven as of June 30, 2021.

Notes to Consolidated Financial Statements (unaudited) (continued)

As of June 30, 2021, Northern Trust had 666 outstanding loans totaling $145.4 million under the PPP in its commercial and institutional portfolio with an average loan balance of $0.2 million. For its origination efforts, Northern Trust received approximately $2.7 million in SBA fees, net of service charges as of June 30, 2021.

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

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

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

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

•Commercial and Institutional: leverage, profit margin, liquidity, asset size and capital levels;

•Commercial Real Estate: debt service coverage, loan-to-value ratio, leasing status and guarantor support;

•Lease Financing and Commercial-Other: leverage, profit margin, liquidity, asset size and capital levels;

•Non-U.S.: leverage, profit margin, liquidity, return on assets and capital levels;

•Residential Real Estate: payment history, credit bureau scores and loan-to-value ratio;

•Private Client: cash-flow-to-debt and net worth ratios, leverage and liquidity; and

•Personal-Other: cash-flow-to-debt and net worth ratios.

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

Loan and lease segment and class balances as of June 30, 2021 and December 31, 2020 are provided in the following table, segregated by borrower ratings into “1 to 3,” “4 to 5” and “6 to 9” (watch list and nonaccrual status) categories by year of origination at amortized cost basis. Loans that are held for investment are reported at the principal amount outstanding, net of unearned income.

Notes to Consolidated Financial Statements (unaudited) (continued)

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


June 30, 2021	TERM LOANS AND LEASES												REVOLVING LOANS		REVOLVING LOANS CONVERTED TO TERM LOANS
(In Millions)	2021		2020		2019		2018		2017		PRIOR						TOTAL
Commercial
Commercial and Institutional
Risk Rating:
1 to 3 Category	$	524.2	$	654.2	$	323.0	$	218.5	$	101.5	$	606.7	$	3,701.9	$	1.0	$	6,131.0
4 to 5 Category	598.5		432.9		409.5		277.3		267.7		253.1		1,163.7		33.7		3,436.4
6 to 9 Category	29.6		27.8		71.7		31.5		25.0		22.9		57.9		0		266.4
Total Commercial and Institutional	1,152.3		1,114.9		804.2		527.3		394.2		882.7		4,923.5		34.7		9,833.8
Commercial Real Estate
Risk Rating:
1 to 3 Category	247.4		278.2		242.9		78.8		25.5		95.7		110.4		2.7		1,081.6
4 to 5 Category	375.1		772.8		658.1		243.2		104.9		504.5		66.8		10.9		2,736.3
6 to 9 Category	19.7		6.3		55.3		13.3		20.3		11.1		0		0		126.0
Total Commercial Real Estate	642.2		1,057.3		956.3		335.3		150.7		611.3		177.2		13.6		3,943.9
Non-U.S.
Risk Rating:
1 to 3 Category	910.6		87.1		17.0		0		11.1		0		318.0		0		1,343.8
4 to 5 Category	369.6		102.0		0.7		2.0		0		108.5		136.2		1.8		720.8
6 to 9 Category	0.1		0		23.1		0		0		0		3.3		0		26.5
Total Non-U.S.	1,280.3		189.1		40.8		2.0		11.1		108.5		457.5		1.8		2,091.1
Lease Financing, net
Risk Rating:

4 to 5 Category	0		0		0		0		0		11.0		0		0		11.0

Total Lease Financing, net	0		0		0		0		0		11.0		0		0		11.0
Other
Risk Rating:
1 to 3 Category	120.4		0		0		0		0		0		0		0		120.4
4 to 5 Category	207.5		0		0		0		0		0		0		0		207.5

Total Other	327.9		0		0		0		0		0		0		0		327.9
Total Commercial	3,402.7		2,361.3		1,801.3		864.6		556.0		1,613.5		5,558.2		50.1		16,207.7
Personal
Private Client
Risk Rating:
1 to 3 Category	198.4		336.7		101.1		38.4		70.0		155.1		7,958.9		51.0		8,909.6
4 to 5 Category	264.5		563.0		524.0		95.0		26.1		76.4		3,984.1		163.3		5,696.4
6 to 9 Category	1.0		5.4		0		21.3		0		0		3.0		0		30.7
Total Private Client	463.9		905.1		625.1		154.7		96.1		231.5		11,946.0		214.3		14,636.7
Residential Real Estate
Risk Rating:
1 to 3 Category	682.2		1,300.3		251.0		19.9		89.3		707.1		158.9		0		3,208.7
4 to 5 Category	252.5		919.2		296.6		105.0		116.7		856.3		229.9		1.9		2,778.1
6 to 9 Category	0.3		13.1		8.0		0.6		0.5		75.3		16.0		0		113.8
Total Residential Real Estate	935.0		2,232.6		555.6		125.5		206.5		1,638.7		404.8		1.9		6,100.6
Non-U.S.
Risk Rating:
1 to 3 Category	12.0		3.7		31.7		0		0		0.1		78.7		0		126.2
4 to 5 Category	37.0		3.8		7.6		10.7		0		7.2		179.2		13.6		259.1
6 to 9 Category	0		0		0		0		0		0.2		0		0		0.2
Total Non-U.S.	49.0		7.5		39.3		10.7		0		7.5		257.9		13.6		385.5
Other
Risk Rating:
1 to 3 Category	54.4		0		0		0		0		0		0		0		54.4
4 to 5 Category	21.7		0		0		0		0		0		0		0		21.7

Total Other	76.1		0		0		0		0		0		0		0		76.1
Total Personal	1,524.0		3,145.2		1,220.0		290.9		302.6		1,877.7		12,608.7		229.8		21,198.9
Total Loans and Leases	$	4,926.7	$	5,506.5	$	3,021.3	$	1,155.5	$	858.6	$	3,491.2	$	18,166.9	$	279.9	$	37,406.6

Notes to Consolidated Financial Statements (unaudited) (continued)


December 31, 2020	TERM LOANS AND LEASES												REVOLVING LOANS		REVOLVING LOANS CONVERTED TO TERM LOANS
(In Millions)	2020		2019		2018		2017		2016		PRIOR						TOTAL
Commercial
Commercial and Institutional
Risk Rating:
1 to 3 Category	$	663.8	$	546.0	$	204.6	$	96.0	$	396.0	$	448.8	$	3,742.4	$	5.5	$	6,103.1
4 to 5 Category	793.4		505.1		354.1		405.4		134.6		167.3		1,238.7		32.3		3,630.9
6 to 9 Category	34.3		119.8		37.3		42.8		23.0		6.0		61.1		0		324.3
Total Commercial and Institutional	1,491.5		1,170.9		596.0		544.2		553.6		622.1		5,042.2		37.8		10,058.3
Commercial Real Estate
Risk Rating:
1 to 3 Category	406.3		109.2		27.6		36.5		11.8		99.4		124.3		8.7		823.8
4 to 5 Category	703.1		811.8		332.7		107.4		184.5		382.8		60.4		11.4		2,594.1
6 to 9 Category	15.3		55.2		32.0		25.8		0		12.2		0		0		140.5
Total Commercial Real Estate	1,124.7		976.2		392.3		169.7		196.3		494.4		184.7		20.1		3,558.4
Non-U.S.
Risk Rating:
1 to 3 Category	555.2		16.8		0		11.1		0		0		78.5		0		661.6
4 to 5 Category	313.1		0.7		2.0		0		0		157.9		39.2		1.8		514.7
6 to 9 Category	0		23.1		0		0		0		0		146.3		0		169.4
Total Non-U.S.	868.3		40.6		2.0		11.1		0		157.9		264.0		1.8		1,345.7
Lease Financing, net
Risk Rating:
4 to 5 Category	0		0		0		0		0		11.4		0		0		11.4
Total Lease Financing, net	0		0		0		0		0		11.4		0		0		11.4
Other
Risk Rating:
1 to 3 Category	81.7		0		0		0		0		0		0		0		81.7
4 to 5 Category	206.5		0		0		0		0		0		0		0		206.5
Total Other	288.2		0		0		0		0		0		0		0		288.2
Total Commercial	3,772.7		2,187.7		990.3		725.0		749.9		1,285.8		5,490.9		59.7		15,262.0
Personal
Private Client
Risk Rating:
1 to 3 Category	668.6		273.7		51.7		60.4		10.2		136.1		5,392.8		47.9		6,641.4
4 to 5 Category	492.1		479.9		117.3		60.4		77.5		77.5		3,564.7		207.3		5,076.7
6 to 9 Category	6.0		0.5		22.1		3.2		0		0		63.7		1.5		97.0
Total Private Client	1,166.7		754.1		191.1		124.0		87.7		213.6		9,021.2		256.7		11,815.1
Residential Real Estate
Risk Rating:
1 to 3 Category	1,554.3		317.4		42.9		109.9		205.1		627.8		152.8		1.7		3,011.9
4 to 5 Category	854.6		359.5		115.8		163.2		209.7		896.5		273.1		7.4		2,879.8
6 to 9 Category	15.3		8.3		0.7		0.5		1.9		94.8		22.5		0		144.0
Total Residential Real Estate	2,424.2		685.2		159.4		273.6		416.7		1,619.1		448.4		9.1		6,035.7
Non-U.S.
Risk Rating:
1 to 3 Category	23.3		14.9		0		0		0		1.8		275.6		0		315.6
4 to 5 Category	12.7		26.0		11.8		0.5		0.5		7.9		217.5		5.1		282.0
6 to 9 Category	0		0		0		0		0		0.3		0		0		0.3
Total Non-U.S.	36.0		40.9		11.8		0.5		0.5		10.0		493.1		5.1		597.9
Other
Risk Rating:
1 to 3 Category	34.6		0		0		0		0		0		0		0		34.6
4 to 5 Category	14.4		0		0		0		0		0		0		0		14.4
Total Other	49.0		0		0		0		0		0		0		0		49.0
Total Personal	3,675.9		1,480.2		362.3		398.1		504.9		1,842.7		9,962.7		270.9		18,497.7
Total Loans and Leases	$	7,448.6	$	3,667.9	$	1,352.6	$	1,123.1	$	1,254.8	$	3,128.5	$	15,453.6	$	330.6	$	33,759.7

Loans and leases in the “1 to 3” category are expected to exhibit minimal to modest probabilities of default and are characterized by borrowers having the strongest financial qualities, including above average financial flexibility, cash flows and capital levels. Borrowers assigned these ratings are anticipated to experience very little to moderate financial pressure in

Notes to Consolidated Financial Statements (unaudited) (continued)

adverse down-cycle scenarios. As a result of these characteristics, borrowers within this category exhibit a minimal to modest likelihood of loss.

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

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

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

The following table provides balances and delinquency status of accrual and nonaccrual loans and leases by segment and class, as well as the other real estate owned and nonaccrual asset balances, as of June 30, 2021 and December 31, 2020.

TABLE 48: DELINQUENCY STATUS


	ACCRUAL														NONACCRUAL WITH NO ALLOWANCE
(In Millions)	CURRENT		30 – 59 DAYS PAST DUE		60 – 89 DAYS PAST DUE		90 DAYS OR MORE PAST DUE		TOTAL ACCRUAL		NONACCRUAL		TOTAL LOANS AND LEASES
June 30, 2021
Commercial
Commercial and Institutional	$	9,709.5	$	8.6	$	96.0	$	0	$	9,814.1	$	19.7	$	9,833.8	$	8.9
Commercial Real Estate	3,887.2		0		12.0		8.4		3,907.6		36.3		3,943.9		28.5
Non-U.S.	2,091.1		0		0		0		2,091.1		0		2,091.1		0
Lease Financing, net	11.0		0		0		0		11.0		0		11.0		0
Other	327.9		0		0		0		327.9		0		327.9		0
Total Commercial	16,026.7		8.6		108.0		8.4		16,151.7		56.0		16,207.7		37.4
Personal
Private Client	14,532.3		86.3		16.3		1.8		14,636.7		0		14,636.7		0
Residential Real Estate	6,048.1		0.2		1.5		0.3		6,050.1		50.5		6,100.6		50.1
Non-U.S.	385.2		0		0.3		0		385.5		0		385.5		0
Other	76.1		0		0		0		76.1		0		76.1		0
Total Personal	21,041.7		86.5		18.1		2.1		21,148.4		50.5		21,198.9		50.1
Total Loans and Leases	$	37,068.4	$	95.1	$	126.1	$	10.5	$	37,300.1	$	106.5	$	37,406.6	$	87.5
	Other Real Estate Owned										$	0.2
	Total Nonaccrual Assets										$	106.7

Notes to Consolidated Financial Statements (unaudited) (continued)


	ACCRUAL														NONACCRUAL WITH NO ALLOWANCE
(In Millions)	CURRENT		30 – 59 DAYS PAST DUE		60 – 89 DAYS PAST DUE		90 DAYS OR MORE PAST DUE		TOTAL ACCRUAL		NONACCRUAL		TOTAL LOANS AND LEASES
December 31, 2020
Commercial
Commercial and Institutional	$	9,877.0	$	153.7	$	1.2	$	0	$	10,031.9	$	26.4	$	10,058.3	$	9.1
Commercial Real Estate	3,516.2		2.0		0		0		3,518.2		40.2		3,558.4		32.3
Non-U.S.	1,345.7		0		0		0		1,345.7		0		1,345.7		0
Lease Financing, net	11.4		0		0		0		11.4		0		11.4		0
Other	288.2		0		0		0		288.2		0		288.2		0
Total Commercial	15,038.5		155.7		1.2		0		15,195.4		66.6		15,262.0		41.4
Personal
Private Client	11,765.4		29.1		9.9		7.8		11,812.2		2.9		11,815.1		2.9
Residential Real Estate	5,946.0		23.5		2.9		1.1		5,973.5		62.2		6,035.7		53.8
Non-U.S	596.7		1.2		0		0		597.9		0		597.9		0
Other	49.0		0		0		0		49.0		0		49.0		0
Total Personal	18,357.1		53.8		12.8		8.9		18,432.6		65.1		18,497.7		56.7
Total Loans and Leases	$	33,395.6	$	209.5	$	14.0	$	8.9	$	33,628.0	$	131.7	$	33,759.7	$	98.1
	Other Real Estate Owned										$	0.7
	Total Nonaccrual Assets										$	132.4

Interest income that would have been recorded for nonaccrual loans and leases in accordance with their original terms was $0.8 million and $1.7 million for the three and six months ended June 30, 2021, and $1.1 million and $2.4 million for the three and six months ended June 30, 2020, respectively.

Collateral Dependent Financial Assets. A financial asset is collateral-dependent when the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the sale or operation of the collateral. Most of Northern Trust’s collateral dependent credit exposure relates to its residential real estate portfolio for which the collateral is usually the underlying real estate property. For collateral dependent financial assets, it is Northern Trust’s policy to reserve or charge-off the difference between the amortized cost basis of the loan and the value of the collateral. The collateral dependent financial asset balance as of June 30, 2021 was immaterial to Northern Trust’s financial statements.

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

Nonaccrual Loans and Troubled Debt Restructurings (TDRs). A loan that has been modified as a concession by Northern Trust or a bankruptcy court resulting from the debtor’s financial difficulties is referred to as a troubled debt restructuring

Notes to Consolidated Financial Statements (unaudited) (continued)

(TDR). All TDRs are reported starting in the calendar year of their restructuring. In subsequent years, a TDR may cease being reported if the loan was modified at a market rate and has performed according to the modified terms for at least six payment periods. A loan that has been modified at a below market rate will return to accrual status if it satisfies the six-payment-period performance requirement.

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

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

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

Included within nonaccrual loans were $77.5 million and $38.9 million of nonaccrual TDRs, and $27.3 million and $29.3 million of accrual TDRs as of June 30, 2021 and December 31, 2020, respectively.

There were $9.9 million and $10.4 million of aggregate undrawn loan commitments and standby letters of credit at June 30, 2021 and December 31, 2020, respectively, issued to borrowers with TDR modifications of loans.

The following table provides, by segment and class, the number of TDR modifications of loans and leases during the three- and six- month periods ended June 30, 2021 and 2020, and the recorded investments and unpaid principal balances as of June 30, 2021 and 2020.

TABLE 49: TROUBLED DEBT RESTRUCTURINGS


	THREE MONTHS ENDED JUNE 30, 2021					SIX MONTHS ENDED JUNE 30, 2021
($ In Millions)	NUMBER OF LOANS AND LEASES	RECORDED INVESTMENT		UNPAID PRINCIPAL BALANCE		NUMBER OF LOANS AND LEASES	RECORDED INVESTMENT		UNPAID PRINCIPAL BALANCE
Commercial
Commercial and Institutional	0	$	0	$	0	6	$	19.6	$	19.6
Commercial Real Estate	1	6.9		11.2		2	28.3		34.5
Total Commercial	1	6.9		11.2		8	47.9		54.1
Personal
Residential Real Estate	5	0.6		0.7		7	0.8		1.0
Total Personal	5	0.6		0.7		7	0.8		1.0
Total Loans and Leases	6	$	7.5	$	11.9	15	$	48.7	$	55.1

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


	THREE MONTHS ENDED JUNE 30, 2020					SIX MONTHS ENDED JUNE 30, 2020
($ In Millions)	NUMBER OF LOANS AND LEASES	RECORDED INVESTMENT		UNPAID PRINCIPAL BALANCE		NUMBER OF LOANS AND LEASES	RECORDED INVESTMENT		UNPAID PRINCIPAL BALANCE
Commercial
Commercial and Institutional	0	$	0	$	0	2	$	24.3	$	24.5
Total Commercial	0	0		0		2	24.3		24.5
Personal
Residential Real Estate	0	0		0		6	1.0		1.2
Total Personal	0	0		0		6	1.0		1.2
Total Loans and Leases	0	$	0	$	0	8	$	25.3	$	25.7

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

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

During the three and six months ended June 30, 2021, the TDR modification of loans within residential real estate were other modifications and deferred principal. During the six months ended June 30, 2021, the TDR modification of loans within

Notes to Consolidated Financial Statements (unaudited) (continued)

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

During the six months ended June 30, 2020, the TDR modifications of loans within residential real estate were extensions of term, other modifications, interest rate concessions, and deferred principal. During the six months ended June 30, 2020, the TDR modifications within commercial and institutional were other modifications.

There were 0 residential real estate loan TDR modification during the twelve months ended March 31, 2021, which subsequently had a payment default during the three and six months ended June 30, 2021.

There were 0 residential real estate loan TDR modifications during the twelve months ended March 31, 2020, which subsequently had a payment default during the three and six months ended June 30, 2020.

Northern Trust may obtain physical possession of real estate via foreclosure on an in-substance repossession. As of June 30, 2021, Northern Trust held foreclosed real estate properties with a carrying value of $0.2 million as a result of obtaining physical possession. In addition, as of June 30, 2021, Northern Trust had loans with a carrying value of $5.6 million for which formal foreclosure proceedings were in process.

TDR Relief — COVID-19. Due to the economic environment arising from the COVID-19 pandemic, there have been two forms of relief provided for classifying loans as TDRs: the Interagency Guidance (as defined below) and the CARES Act.

Various banking regulators, including the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the National Credit Union Administration, the Office of the Comptroller of the Currency, and the Consumer Financial Protection Bureau, issued guidance in the April 7, 2020 Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus (revised) on loan modification treatment (Interagency Guidance) pursuant to which financial institutions can apply ASC 310-40 Receivables – Troubled Debt Restructurings by Creditors. In accordance with the Interagency Guidance, a loan modification is not considered a TDR if the modification is related to COVID-19; the borrower had been current (not more than 29 days past due) when the modification program was implemented; and the modification includes payment deferrals for not more than 6 months.

Under section 4013 of the CARES Act, relief provided to lenders exempting certain loan modifications which would otherwise be classified as TDRs from such classification applies for loans that were not more than 30 days past due as of December 31, 2019. The TDR relief under the CARES Act applies to COVID-19-related modifications that were made from March 1, 2020 until the earlier of (a) January 1, 2022 or (b) 60 days from the date the COVID-19 national emergency officially ends.

Financial institutions may account for eligible loan modifications under the Interagency Guidance and/or the CARES Act. Northern Trust elected to apply both the CARES Act and the Interagency Guidance, as applicable, in providing borrowers with loan modification relief in response to the COVID-19 pandemic. All other types of modifications which do not meet the CARES Act or Interagency Guidance requirements continue to be governed by existing regulations and accounting policies.

The following tables provide, by segment and class, the number of total COVID-19-related loan modifications including the loan volume and deferred principal and interest balances as of June 30, 2021, for which Northern Trust applied an exemption from TDR classification that are in active deferral (loans currently in the deferral period) or completed deferral (loans that returned to their regular payment schedule).

TABLE 50: COVID-19 LOAN MODIFICATIONS NOT CONSIDERED TDRS IN ACTIVE DEFERRAL STATUS


	JUNE 30, 2021
($ In Millions)	NUMBER OF COVID-19 RELATED MODIFICATIONS	LOAN VOLUME		DEFERRED PRINCIPAL AMOUNT		DEFERRED INTEREST AMOUNT
Personal
Residential Real Estate	13	$	4.7	$	0.2	$	0.1
Total Personal	13	$	4.7	$	0.2	$	0.1
Total Loans	13	$	4.7	$	0.2	$	0.1

Notes to Consolidated Financial Statements (unaudited) (continued)

TABLE 51: COVID-19 LOAN MODIFICATIONS NOT CONSIDERED TDRS THAT HAVE COMPLETED DEFERRAL


	JUNE 30, 2021
($ In Millions)	NUMBER OF COVID-19 RELATED MODIFICATIONS	LOAN VOLUME		DEFERRED PRINCIPAL AMOUNT		DEFERRED INTEREST AMOUNT
Commercial
Commercial and Institutional	84	$	226.7	$	0	$	1.8
Commercial Real Estate	88	443.7		0		2.6
Total Commercial	172	$	670.4	$	—	$	4.4

Personal
Private Client	31	$	153.0	$	0	$	1.0
Residential Real Estate	376	146.2		1.5		1.8
Total Personal	407	$	299.2	$	1.5	$	2.8
Total Loans	579	$	969.6	$	1.5	$	7.2

Northern Trust continues to accrue and recognize interest income during the loan deferral period, and hence has not moved these loans to nonaccrual or reported them as past due. Further, these loan balances continue to be assessed on a collective basis for purposes of measuring an allowance for expected credit losses.

During the quarter ended June 30, 2021, 41 loans with an aggregate principal amount of $57.8 million that had been granted payment deferrals were paid off.

Note 7 – Allowance for Credit Losses

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

The results of the credit reserve estimation methodology are reviewed quarterly by Northern Trust’s Credit Loss Reserve Committee, which receives input from Credit Risk Management, Treasury, Corporate Finance, the Economic Research group, and each of Northern Trust’s business units. The Credit Loss Reserve Committee determines the probability weights applied to each forecast approved by Northern Trust’s Macroeconomic Scenario Development Committee, and also reviews and approves qualitative adjustments to the collective allowance in line with Northern Trust’s qualitative adjustment framework.

The following table provides information regarding changes in the total allowance for credit losses during the three and six months ended June 30, 2021 and 2020.

TABLE 52: CHANGES IN THE ALLOWANCE FOR CREDIT LOSSES


	THREE MONTHS ENDED JUNE 30, 2021
(In Millions)	LOANS AND LEASES		UNDRAWN LOAN COMMITMENTS AND STANDBY LETTERS OF CREDIT		HELD TO MATURITY DEBT SECURITIES		OTHER FINANCIAL ASSETS		TOTAL
Balance at Beginning of Period	$	165.4	$	55.1	$	8.6	$	1.7	$	230.8
Charge-Offs	0		0		0		0		0
Recoveries	3.2		0		0		0		3.2
Net Recoveries (Charge-Offs)	3.2		0		0		0		3.2
Provision for Credit Losses	(19.8)		(8.6)		1.9		(0.5)		(27.0)
Balance at End of Period	$	148.8	$	46.5	$	10.5	$	1.2	$	207.0

Notes to Consolidated Financial Statements (unaudited) (continued)



	SIX MONTHS ENDED JUNE 30, 2021
(In Millions)	LOANS AND LEASES		UNDRAWN LOAN COMMITMENTS AND STANDBY LETTERS OF CREDIT		HELD TO MATURITY DEBT SECURITIES		OTHER FINANCIAL ASSETS		TOTAL
Balance at Beginning of Period	$	190.7	$	61.1	$	7.3	$	0.8	$	259.9
Charge-Offs	(0.4)		0		0		0		(0.4)
Recoveries	4.5		0		0		0		4.5
Net Recoveries (Charge-Offs)	4.1		0

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			Page
Consolidated Financial Highlights (unaudited)			1

Part I – Financial Information
Items 2 and 3: Management’s Discussion and Analysis of Financial Condition and Results of Operations and Quantitative and Qualitative Disclosures About Market Risk			3
Item 1: Consolidated Financial Statements (unaudited)			35
Consolidated Balance Sheets			35
Consolidated Statements of Income			36
Consolidated Statements of Comprehensive Income			36
Consolidated Statements of Changes in Stockholders’ Equity			37
Consolidated Statements of Cash Flows			38
Notes to Consolidated Financial Statements			39
Item 4: Controls and Procedures			85

Part II – Other Information
Item 1: Legal Proceedings			86
Item 2: Unregistered Sales of Equity Securities and Use of Proceeds			86
Item 6: Exhibits			86

Signatures			87

Northern Trust (NTRS) 10-Q2021 Q2 Quarterly report

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