UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

____________________________________________________________

FORM 10-K

____________________________________________________________

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

For the fiscal year ended December 31, 2019

OR

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

For the transition period from                        to                         

Commission File No. 001-36609

____________________________________________________________

NORTHERN TRUST CORPORATION

(Exact name of registrant as specified in its charter)

____________________________________________________________

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

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

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

____________________________________________________________

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 C Non-Cumulative Perpetual Preferred Stock	NTRSP	The NASDAQ Stock Market LLC
Depositary Shares, each representing 1/1,000th interest in a share of Series E Non-Cumulative Perpetual Preferred Stock	NTRSO	The NASDAQ Stock Market LLC

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

____________________________________________________________

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ☒    No  ☐

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes  ☐    No  ☒

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

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

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

in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☒	Accelerated filer	☐	Emerging growth company	☐
Non-accelerated filer	☐	Smaller reporting company	☐

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

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

The aggregate market value of the registrant’s common stock as of June 28, 2019 (the last business day of the registrant’s most recently completed second quarter), based upon the last sale price of the common stock at June 28, 2019 as reported by The NASDAQ Stock Market LLC, held by non-affiliates was approximately $19.2 billion. Determination of stock ownership by non-affiliates was made solely for the purpose of responding to this requirement and the registrant is not bound by this determination for any other purpose.

At January 31, 2020, 209,247,666 shares of common stock, $1.66 2/3 par value, were outstanding.

Portions of the registrant’s Proxy Statement for its 2020 Annual Meeting of Stockholders are incorporated by reference into Part III hereof.

NORTHERN TRUST CORPORATION

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

		Page
PART I
Item 1	Business	1
Item 1A	Risk Factors	12
Item 1B	Unresolved Staff Comments	25
Item 2	Properties	25
Item 3	Legal Proceedings	26
Item 4	Mine Safety Disclosures	26
Supplemental Item	Information About Our Executive Officers	27
PART II
Item 5	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	29
Item 6	Selected Financial Data	31
Item 7	Management’s Discussion and Analysis of Financial Condition and Results of Operations	32
Item 7A	Quantitative and Qualitative Disclosures About Market Risk	91
Item 8	Financial Statements and Supplementary Data	92
Item 9	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	167
Item 9A	Controls and Procedures	167
Item 9B	Other Information	169
PART III
Item 10	Directors, Executive Officers and Corporate Governance	169
Item 11	Executive Compensation	169
Item 12	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	169
Item 13	Certain Relationships and Related Transactions, and Director Independence	169
Item 14	Principal Accountant Fees and Services	169
PART IV
Item 15	Exhibits and Financial Statement Schedules	170
Item 16	Form 10-K Summary	173
Signatures		174

i 2019 Annual Report | Northern Trust Corporation

PART I

ITEM 1 – BUSINESS

Northern Trust Corporation

Northern Trust Corporation (Corporation) is a leading provider of wealth management, asset servicing, asset management and banking solutions to corporations, institutions, families and individuals. The Corporation is a financial holding company conducting business through various U.S. and non-U.S. subsidiaries, including The Northern Trust Company (Bank).

The Bank is an Illinois banking corporation headquartered in Chicago and the Corporation’s principal subsidiary. Founded in 1889, the Bank conducts its business through its U.S. operations and its various U.S. and non-U.S. branches and subsidiaries. At December 31, 2019, the Bank had consolidated assets of $135.9 billion and common bank equity capital of $9.3 billion.

The Corporation was formed as a holding company for the Bank in 1971. The Corporation has a network of offices in 21 U.S. states and Washington, D.C., and across 22 locations in Canada, Europe, the Middle East and the Asia-Pacific region. At December 31, 2019, the Corporation had consolidated total assets of $136.8 billion and stockholders’ equity of $11.1 billion.

The Corporation expects that the Bank will continue in the foreseeable future to be the major source of the Corporation’s consolidated assets, revenues, and net income. Except where the context otherwise requires, references to “Northern Trust,” “we,” “us,” “our,” "its," or similar terms mean Northern Trust Corporation and its subsidiaries on a consolidated basis.

Business Overview

Northern Trust focuses on managing and servicing client assets through its two client-focused reporting segments: 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. The revenue and expenses of Asset Management and certain other support functions are allocated fully to C&IS and Wealth Management. Northern Trust reports certain income and expense items not allocated to C&IS and Wealth Management in a third reporting segment, Treasury and Other.

CORPORATE & INSTITUTIONAL SERVICES

C&IS is a leading global provider of asset servicing and related services to corporate and public retirement funds, foundations, endowments, fund managers, insurance companies, sovereign wealth funds, and other institutional investors around the globe. Asset servicing and related services encompass a full range of capabilities including, but not limited to: custody; fund administration; investment operations outsourcing; investment management; investment risk and analytical services; employee benefit services; securities lending; foreign exchange; treasury management; brokerage services; transition management services; banking; and cash management. Client relationships are managed through the Bank and the Bank’s and the Corporation’s other subsidiaries, including support from locations in North America, Europe, the Middle East, and the Asia-Pacific region. At December 31, 2019, total C&IS assets under custody/administration, assets under custody, and assets under management were $11.31 trillion, $8.50 trillion, and $917.5 billion, respectively.

WEALTH MANAGEMENT

Wealth Management focuses on high-net-worth individuals and families, business owners, executives, professionals, retirees, and established privately-held businesses in its target markets. The business also includes the Global Family Office, which provides customized services to meet the complex financial needs of individuals and family offices in the United States and throughout the world with assets typically exceeding $200 million. In supporting these targeted segments, Wealth Management provides trust, investment management, custody, and philanthropic services; financial consulting; guardianship and estate administration; family business consulting; family financial education; brokerage services; and private and business banking.

Wealth Management is one of the largest providers of advisory services in the United States, with assets under custody/administration, assets under custody, and assets under management of $738.8 billion, $735.7 billion, and $313.8 billion, respectively, at December 31, 2019. Wealth Management services are delivered by multidisciplinary teams through a network of offices in 19 U.S. states and Washington, D.C., as well as offices in London, Guernsey, and Abu Dhabi.

ASSET MANAGEMENT

Asset Management, through the Corporation’s various subsidiaries, supports the C&IS and Wealth Management reporting segments by providing a broad range of asset management and related services and other products to clients around the world. Investment solutions are delivered through separately managed accounts, bank common and collective funds, registered investment companies, exchange traded funds, non-U.S. collective investment funds, and unregistered private investment funds. Asset Management’s capabilities include active and passive equity; active and passive fixed income; cash management; alternative asset classes (such as private equity and hedge funds of funds); and multi-manager advisory services and products. Asset Management’s activities also include overlay services and other risk management services. Asset Management operates

2019 Annual Report | Northern Trust Corporation 1

internationally through subsidiaries and distribution arrangements and its revenue and expense are fully allocated to C&IS and Wealth Management. As discussed above, Northern Trust managed $1.23 trillion in assets as of December 31, 2019, including $917.5 billion for C&IS clients and $313.8 billion for Wealth Management clients.

Competition

Northern Trust faces intense competition in all aspects and areas of its business. Competition comes from both regulated and unregulated financial services organizations, whose products and services span the local, national, and global markets in which Northern Trust conducts operations. Our competitors include a broad range of financial institutions and service companies, including other custodial banks, deposit-taking institutions, asset management firms, benefits consultants, trust companies, investment banking firms, insurance companies, investment counseling firms, and various financial technology companies, including software providers and data services firms. As our businesses grow and markets evolve, we may encounter increasing and new forms of competition around the world.

Northern Trust’s business strategy is to provide quality financial services to targeted market segments in which it believes it has a competitive advantage and favorable growth prospects. As part of this strategy, Northern Trust seeks to differentiate itself from its competitors with premier, holistic solutions and exceptional experiences tailored to meet clients’ needs. In addition, Northern Trust emphasizes the development and growth of recurring sources of fee-based income and continual productivity improvements. Northern Trust also seeks to maintain its foundational strength with a strong, conservative balance sheet and a globally respected brand.

Economic Conditions And Government Policies

The earnings of Northern Trust are affected by numerous external influences. Chief among these are general economic conditions, both domestic and international, and actions that governments and their central banks take in managing their economies. These general conditions affect all of Northern Trust’s businesses, as well as the quality, value, and profitability of its loan and investment portfolios.

The Board of Governors of the Federal Reserve System (Federal Reserve Board) implements monetary policy through its open market operations in United States Government securities, its setting of the discount rate at which member banks may borrow from Federal Reserve Banks, and its changes in the reserve requirements for deposits. The policies adopted by the Federal Reserve Board directly affect interest rates and therefore what banks earn on their loans and investments and what they pay on their savings and time deposits and other purchased funds.

Supervision and Regulation

Northern Trust is subject to extensive regulation under state and federal laws in the United States and in each of the jurisdictions in which it does business. The discussion below outlines significant elements of selected laws and regulations applicable to Northern Trust. Changes in laws or regulations applicable to Northern Trust may have a material effect on its businesses and results of operations.

FINANCIAL HOLDING COMPANY REGULATION

Under U.S. law, the Corporation is a bank holding company that has elected to be a financial holding company subject to the supervision, examination, and regulation of the Federal Reserve Board. A financial holding company is permitted to engage in a broader range of financial activities than a bank holding company. To maintain the Corporation’s status as a financial holding company, the Bank and the Corporation must remain “well-capitalized” and “well-managed,” and the Bank must have received at least a “satisfactory” rating in its most recent Community Reinvestment Act (CRA) examination. Failure to meet one or more of these requirements may result in restrictions on the Corporation’s ability to exercise powers granted to financial holding companies, to engage in new activities, to continue current activities, or to make acquisitions.

SUBSIDIARY REGULATION

The Bank is a member of the Federal Reserve System, with deposits insured by the Federal Deposit Insurance Corporation (FDIC), and is subject to regulation by both agencies. As an Illinois banking corporation, the Bank is also subject to Illinois state laws and regulations and to examination and supervision by the Division of Banking of the Illinois Department of Financial and Professional Regulation. The Bank is also registered as a transfer agent with the Federal Reserve Board and is registered provisionally as a swap dealer with the U.S. Commodity Futures Trading Commission (CFTC) under the Commodity Exchange Act. As a result, the Bank is subject to supervision, examination and enforcement by certain other regulatory bodies, including the CFTC and the National Futures Association (NFA).

The Corporation’s nonbanking affiliates are subject to examination by the Federal Reserve Board and, in certain circumstances, other functional regulators. The Corporation’s broker-dealer subsidiary is a member of the Financial Industry Regulatory Authority (FINRA), is registered with the U.S. Securities and Exchange Commission (SEC) as a broker-dealer, investment adviser, and municipal securities dealer, and is subject to the rules and regulations of these bodies. Certain

2   2019 Annual Report | Northern Trust Corporation

nonbanking affiliates are registered with the CFTC as commodity trading advisors and commodity pool operators and subject to supervision and regulation by the CFTC and NFA. Other subsidiaries of the Corporation are registered with the SEC as investment advisers and are subject to regulation by the SEC. Subsidiaries may also be regulated by state regulators in various states.

THE DODD-FRANK ACT, AS AMENDED

In May 2018, the U.S. Congress passed, and the President signed, the Economic Growth, Regulatory Relief, and Consumer Protection Act (the Regulatory Relief Act), which amended parts of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) and directed the Federal Reserve Board and other federal regulators to revise parts of their regulations that implement the Dodd-Frank Act. In October 2019, the Federal Reserve Board and other federal regulators finalized the revisions required by the Regulatory Relief Act. The following items provide a brief description of certain provisions of the Dodd-Frank Act, as implemented through final rules promulgated by the Federal Reserve Board and other agencies and amended by the Regulatory Relief Act, most relevant to the Corporation and its subsidiaries, including the Bank.

Enhanced Prudential Standards. The Dodd-Frank Act, as implemented by the Federal Reserve Board through various rulemakings and amended by the Regulatory Relief Act, generally imposes enhanced prudential requirements on U.S. bank holding companies with at least $100 billion in total consolidated assets, including the Corporation. The enhanced prudential standards include more stringent risk-based capital, leverage, liquidity, risk management, and stress testing requirements and single counterparty credit limits for large bank holding companies, including the Corporation. The Federal Reserve Board also has the discretion to require these large U.S. bank holding companies to limit their short-term debt, to issue contingent capital instruments, and to provide enhanced public disclosures.

In October 2019, the Federal Reserve Board finalized a proposed rule implementing changes made by the Regulatory Relief Act. This rule introduced a new four-category framework to determine which enhanced prudential standards and other requirements are applicable to institutions with total consolidated assets of at least $100 billion, based on asset thresholds and other risk-based factors. Under the new rules, the Corporation is classified as a Category II institution.

The requirements under the new framework that apply to the Corporation are largely unchanged as a result of the Federal Reserve Board’s final tailoring rule for enhanced prudential standards. The Corporation must submit annual capital plans to the Federal Reserve Board, conduct supervisory and internal periodic stress tests to evaluate capital adequacy in adverse economic conditions, maintain enhanced risk management procedures, comply with a liquidity risk management framework (discussed below in “Liquidity Standards”) and aggregate credit exposure limits, conduct liquidity stress tests, and hold a buffer of liquid assets estimated to meet funding needs during a financial stress event. The Corporation is not subject to the total loss-absorbing capacity requirement, capital surcharge, enhanced supplementary leverage ratio, or aggregate credit exposure limit that apply to U.S. bank holding companies that are global systemically important bank holding companies.

Resolution Planning. As required by Section 165(d) of the Dodd-Frank Act, the Corporation is required to submit periodically to regulators a resolution plan for its rapid and orderly resolution in the event of material financial distress or failure. In addition, under an FDIC rule (the CIDI Resolution Plan Rule) the Bank must submit to the FDIC periodic plans for resolution in the event of its failure. The Corporation is required to submit its next Section 165(d) resolution plan by July 1, 2021. The FDIC has indicated that the Bank is not required to submit a resolution plan under the CIDI Resolution Plan Rule before the conclusion of a rulemaking regarding the CIDI Resolution Plan Rule requirements.

On March 24, 2017, the Federal Reserve Board and the FDIC provided joint written feedback to the Corporation regarding the resolution plan submitted by the Corporation in December 2015 pursuant to Section 165(d) of the Dodd-Frank Act (the 2015 165(d) Plan). The joint written feedback identified certain “shortcomings” in the Corporation’s 2015 165(d) Plan. While the identification of these shortcomings is different from a determination that the plan is not “credible,” the Corporation was required to address the shortcomings in a satisfactory manner in the Corporation’s resolution plan submitted to the Federal Reserve Board and the FDIC in December 2017 (the 2017 165(d) Plan). On March 29, 2019, the Federal Reserve Board and the FDIC jointly announced that they did not identify shortcomings or deficiencies in the 2017 165(d) Plan.

In addition, on June 27, 2018, the Bank submitted its resolution plan (the 2018 CIDI Plan) to the FDIC under the CIDI Resolution Plan Rule. To date, no formal written feedback or guidance has been received regarding the 2018 CIDI Plan.

Separately, the European Union Bank Recovery and Resolution Directive (BRRD), was adopted for European Union credit institutions, including certain of the Bank’s subsidiaries and branches, effective January 1, 2015. In accordance with applicable Commission de Surveillance du Secteur Financier (CSSF) guidance, a Simplified Recovery Plan for Northern Trust Global Services SE, a Luxembourg-registered indirect subsidiary of the Bank, has been established and will be reviewed and filed with the CSSF at least biennially. CSSF regulations also require institutions to submit resolution related data on an annual basis, a requirement for which Northern Trust Global Services SE has an established process.

Orderly Liquidation Authority. Under the Dodd-Frank Act, certain financial companies, such as the Corporation and certain of its covered subsidiaries, can be subjected to an orderly liquidation authority if in default or danger of default and their resolution under the U.S. Bankruptcy Code would have serious adverse effects on financial stability in the United States,

2019 Annual Report | Northern Trust Corporation 3

among other requirements set by statute. If the Corporation were subject to orderly liquidation authority, the FDIC would be appointed as its receiver, which would give the FDIC considerable powers to resolve the Corporation. Absent such actions, the Corporation, as a bank holding company, would remain subject to the U.S. Bankruptcy Code.

The Volcker Rule. The Volcker Rule bans proprietary trading subject to exceptions for market-making, hedging, certain trading activities in U.S. and foreign sovereign debt, certain trading activities of non-U.S. banking entities trading outside the United States, certain customer-driven matched swaps, and trading activities related to liquidity management. The Volcker Rule also imposes significant restrictions on sponsoring or investing in certain “covered funds,” such as hedge funds or private equity funds, again subject to exceptions. Northern Trust maintains an enterprise-wide compliance program to comply with the Volcker Rule.

Swaps and Other Derivatives. The Dodd-Frank Act imposed a regulatory structure on the over-the-counter derivatives market, including requirements for clearing, exchange trading, capital, margin, trade reporting, and recordkeeping. The Dodd-Frank Act also requires certain entities to register as a “major swap participant,” a “swap dealer,” a “major-security-based swap participant” or a “security-based swap dealer.” The Bank’s activities as a swap dealer are subject to the CFTC’s rules and regulations, including rules regarding internal and external business conduct standards, reporting and recordkeeping, mandatory clearing for certain swaps, trade documentation and confirmation requirements, and cross-border swap activities. The Bank is also subject to Federal Reserve Board regulations regarding mandatory posting and collection of margin by certain swap counterparties. The SEC’s rules related to security-based swaps are not currently applicable to the Bank’s swap-dealing activity and the Bank’s current trading activity does not mandate its regulation as a security-based swap dealer.

HOLDING COMPANY SUPPORT UNDER THE FEDERAL DEPOSIT INSURANCE ACT

The Dodd-Frank Act amended the Federal Deposit Insurance Act (FDIA) to obligate the Federal Reserve Board to require bank holding companies, such as the Corporation, to serve as a source of financial strength for any subsidiary depository institution. Under this requirement, the Corporation in the future could be required to provide financial assistance to the Bank should the Bank experience financial distress.

PAYMENT OF DIVIDENDS

The Corporation may pay dividends, repurchase stock, and make other capital distributions only in accordance with a capital plan that has been reviewed without objection by the Federal Reserve Board. Dividends from the Bank are a significant source of funds for the Corporation, and the Corporation’s ability to pay dividends on its common stock therefore depends on the ability of the Bank to pay sufficient dividends to the Corporation.

Various federal and state laws and regulations limit the amount of dividends that may be paid by the Bank to the Corporation without regulatory consent. The Bank may not pay any dividends if it is undercapitalized, or if the payment of the dividend would cause it to become undercapitalized. In general, the amount of dividends that may be paid in a calendar year is limited to its “recent earnings” (the current year’s net income combined with the retained net income of the two preceding years), or its “undivided profits” (generally, accumulated net profits that have not been paid out as dividends or transferred to surplus), whichever is less. The ability of the Bank to pay dividends to the Corporation may also be affected by the capital adequacy standards applicable to the Bank (discussed further below), which include minimum requirements and buffers.

CAPITAL PLANNING AND STRESS TESTING

The Corporation’s capital distributions are subject to the Federal Reserve Board’s capital plan rules, which require the Corporation to submit annual capital plans to the Federal Reserve Board for review. The Corporation and other affected bank holding companies may pay dividends, repurchase stock, and make other capital distributions only in accordance with a capital plan to which the Federal Reserve Board has not objected.

The major components of that oversight are the Federal Reserve Board’s Comprehensive Capital Analysis and Review (CCAR) and Dodd-Frank Act stress tests (DFAST). These requirements involve both company-run and supervisory-run testing of capital under various scenarios, including baseline, adverse and severely adverse scenarios provided by the appropriate banking regulator. Results from the Corporation’s and the Bank’s annual company-run stress tests are reported to the appropriate regulators and made publicly available.

The Corporation submitted its most recent capital plan to the Federal Reserve Board in April 2019 as part of the Federal Reserve Board’s 2019 CCAR exercise, and the Federal Reserve Board did not object to the Corporation’s plan and proposed capital actions, including authority to increase its dividend payments and share repurchases, in mid-2019.

The Regulatory Relief Act and the Federal Reserve Board’s tailoring rule implementing changes required by such act did not directly affect the CCAR exercise or capital plan requirements that apply to the Corporation. The Corporation remains subject to annual company-run stress testing, annual supervisory stress testing, and annual capital plan submission requirements.

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The Corporation will submit its 2020 capital plan to the Federal Reserve Board by April 6, 2020. The Federal Reserve Board is expected to publish either its objection or non-objection to the 2020 capital plan and proposed capital actions, such as dividend payments and share repurchases, in mid-2020.

Under the DFAST regulations, the Corporation is required to undergo regulatory stress tests conducted by the Federal Reserve Board annually. The Bank also is required to conduct its own annual internal stress test (although it is permitted to combine certain reporting and disclosure of its stress test results with the results of the Corporation). Results from the Corporation’s and the Bank’s annual company-run stress tests are reported to the appropriate regulators and made publicly available. Northern Trust published the results of its company-run stress tests on June 21, 2019, and the results of its company-run mid-cycle stress tests on October 31, 2019.

In April 2018, the Federal Reserve Board proposed revisions to the CCAR exercise and DFAST regulations that would in part integrate the forward-looking stress test results with the non-stress capital requirements discussed below by using the results of the annual supervisory stress test to set specific buffer requirements above minimum capital requirements, which restrict capital distributions under the capital rule and establish a single approach to capital distribution limitations. The April 2018 proposal also would replace the 2.5% capital conservation buffer requirement discussed below with a stress capital buffer requirement and establish a stress leverage buffer requirement in addition to the minimum 4% Tier 1 leverage ratio requirement. Under the April 2018 proposal, an institution would be required to maintain capital ratios above its minimum plus its buffer requirements in order to avoid restrictions on its capital distributions and discretionary bonus payments. An institution would be bound by the most stringent distribution limitations, if any, as determined by its capital conservation buffer requirement, its stress leverage buffer requirement and, if applicable, its advanced approaches capital conservation buffer requirement and enhanced supplementary leverage ratio standard.

The April 2018 proposal also would remove the stress testing assumption that an institution would make all planned capital distributions over the planning horizon, including any planned common stock dividends and repurchases of common stock. Instead, the stress buffer requirements would include only four quarters of planned common stock dividends in order to preserve the incentives for an institution to engage in disciplined, forward-looking dividend planning. Further, the April 2018 proposal would adjust the methodology used in the supervisory stress test to assume that the institution takes actions to maintain a constant level of assets, including loans, trading assets, and securities over the planning horizon and assume that the institution’s risk-weighted assets and leverage ratio denominator generally remain unchanged over the planning horizon. The April 2018 proposal also would remove the quantitative objection in CCAR and eliminate the 30 percent dividend payout ratio as a criterion for heightened scrutiny of an institution's capital plan. The Federal Reserve Board would retain the CCAR qualitative supervisory review and the ability to object to an institution’s capital plan on qualitative grounds based on the adequacy of the institution’s capital planning processes for institutions supervised by the Large Institution Supervision Coordination Committee and other large and complex institutions.

As of the date of this filing, the Federal Reserve Board has not finalized the April 2018 proposal, and the Corporation cannot predict whether it will be finalized and whether such finalization would alter the way in which the CCAR exercise and DFAST regulations are applied to the Corporation.

CAPITAL ADEQUACY REQUIREMENTS

The Corporation, as a bank holding company, is subject to risk-based and leverage capital guidelines implemented by the Federal Reserve Board that are based on industry-standard guidelines published by the International Basel Committee on Banking Supervision (Basel Committee), known as Basel III. The Bank, as an FDIC-insured depository institution, is also required to meet risk-based and leverage capital guidelines established by regulators which are generally similar to those established by the Federal Reserve Board for bank holding companies.

Under the final Basel III rules, the Corporation, with the Bank, is one of a small number of “core” banking organizations that are required to use the advanced approaches methodologies to calculate and disclose publicly their risk-based capital ratios. The Corporation also is subject to a capital floor that is based on the Basel III standardized approach to calculating risk-based capital ratios. The Corporation is therefore required to calculate its risk-based capital ratios under both the standardized and advanced approaches, and is subject to the more stringent of the two in the assessment of its capital adequacy.

2019 Annual Report | Northern Trust Corporation 5

The Bank’s risk-based and leverage capital ratios at December 31, 2019, were well above the minimum regulatory requirements established by U.S. banking regulators. The risk-based and leverage capital ratios for the Corporation and the Bank, together with the regulatory minimum ratios and the ratios required for classification as “well-capitalized,” are provided in the following chart.

TABLE 1: RISK-BASED AND LEVERAGE CAPITAL RATIOS AS OF DECEMBER 31, 2019

	COMMON EQUITY TIER 1 CAPITAL				TIER 1 CAPITAL				TOTAL CAPITAL				TIER 1 LEVERAGE				SUPPLEMENTARY LEVERAGE
	STANDARDIZED APPROACH		ADVANCED APPROACH		STANDARDIZED APPROACH		ADVANCED APPROACH		STANDARDIZED APPROACH		ADVANCED APPROACH		STANDARDIZED APPROACH		ADVANCED APPROACH		ADVANCED APPROACH
Northern Trust Corporation	12.7	%	13.2	%	14.5	%	15.0	%	16.3	%	16.8	%	8.7	%	8.7	%	7.6	%
The Northern Trust Company	12.3	%	13.0	%	12.3	%	13.0	%	14.0	%	14.6	%	7.3	%	7.3	%	6.4	%
Minimum required ratio	4.5	%	4.5	%	6.0	%	6.0	%	8.0	%	8.0	%	4.0	%	4.0	%	3.0	%
“Well-capitalized” minimum ratios, as applicable
Northern Trust Corporation	N/A		N/A		6.0	%	6.0	%	10.0	%	10.0	%	N/A		N/A		N/A
The Northern Trust Company