Management’s estimates utilized in establishing an appropriate level of allowance for credit losses are not dependent on any single assumption. In determining an appropriate allowance level, management evaluates numerous variables, many of which are interrelated or dependent on other assumptions and estimates, and takes into consideration past events, current conditions and reasonable and supportable forecasts. Northern Trust employs multiple scenarios over a reasonable and supportable period (currently two years) to project future conditions. For periods beyond the reasonable and supportable period, Northern Trust reverts to its own historical loss experiences on a straight-line basis over four quarters. While uncertainty and volatility have increased recently due to geopolitical events and higher levels of inflation and interest rates, the primary forecast provides for continued economic growth, recognizing the current strength of the labor market, consumer spending, and business investment. An alternative scenario is also considered, which reflects a recession that incorporates the experiences of a wider set of historical economic cycles.

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


	2022
(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	$	138.4	$	34.1	$	11.2	$	1.0	$	184.7
Charge-Offs	(6.0)		—		—		—		(6.0)
Recoveries	10.2		—		—		—		10.2
Net Recoveries (Charge-Offs)	4.2		—		—		—		4.2
Provision for Credit Losses(1)	1.7		4.4		4.8		(0.2)		10.7
Balance at End of Period	$	144.3	$	38.5	$	16.0	$	0.8	$	199.6

(1) The table excludes a provision for credit losses of $1.3 million for the year ended December 31, 2022 for AFS debt securities. See further detail in Note 4, “Securities.”


	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	(0.7)		—		—		—		(0.7)
Recoveries	7.0		—		—		—		7.0
Net Recoveries (Charge-Offs)	6.3		—		—		—		6.3
Provision for Credit Losses	(58.6)		(27.0)		3.9		0.2		(81.5)
Balance at End of Period	$	138.4	$	34.1	$	11.2	$	1.0	$	184.7


	2020
(In Millions)	LOANS AND LEASES		UNDRAWN LOAN COMMITMENTS AND STANDBY LETTERS OF CREDIT		HELD TO MATURITY DEBT SECURITIES		OTHER FINANCIAL ASSETS		TOTAL
Balance at End of Prior Period	$	104.5	$	19.9	$	—	$	—	$	124.4
Cumulative Effect Adjustment	(2.2)		8.9		6.6		0.4		13.7
Balance at Beginning of Period	102.3		28.8		6.6		0.4		138.1
Charge-Offs	(9.7)		—		—		—		(9.7)
Recoveries	6.5		—		—		—		6.5
Net Recoveries (Charge-Offs)	(3.2)		—		—		—		(3.2)
Provision for Credit Losses	91.6		32.3		0.7		0.4		125.0
Balance at End of Period	$	190.7	$	61.1	$	7.3	$	0.8	$	259.9

The Provision for Credit Losses, excluding the provision for available for sale debt securities of $1.3 million, was a provision of $10.7 million for the year ended December 31, 2022, as compared to a $81.5 million release of credit reserves in the year ended December 31, 2021. The provision for loans and undrawn commitments and standby letters of credit was primarily due to an increase in the reserve evaluated on a collective basis, driven by a weaker macroeconomic outlook and growth in the commercial and institutional and commercial real estate portfolios, partially offset by improvements in credit quality, mainly within the commercial and institutional portfolio during the year ended December 31, 2022. There were net recoveries of $4.2 million during the year ended December 31, 2022, as compared to net recoveries of $6.3 million for the year ended December 31, 2021. For further detail, please see the Allowance for the Loan and Lease Portfolio and the Allowance for Held to Maturity Debt Securities Portfolio sections below.

For credit exposure and the associated allowance related to fee receivables, please refer to Note 17, “Revenue from Contracts with Clients.” For information related to the allowance for AFS debt securities, please refer to Note 4, “Securities.” For the allowance pertaining to all other financial assets recognized at amortized cost, which include Due from Banks, Other Central Bank Deposits, Interest Bearing Deposits with Banks, and Other Assets, please refer to the Allowance for Other Financial Assets section within this footnote.

Allowance for the Loan and Lease Portfolio. The following table provides information regarding changes in the total allowance for credit losses related to loans and leases, including undrawn loan commitments and standby letters of credit, by segment.


	2022
	LOANS AND LEASES						UNDRAWN LOAN COMMITMENTS AND STANDBY LETTERS OF CREDIT
(In Millions)	COMMERCIAL		PERSONAL		TOTAL		COMMERCIAL		PERSONAL		TOTAL
Balance at Beginning of Period	$	105.6	$	32.8	$	138.4	$	31.4	$	2.7	$	34.1
Charge-Offs	(5.3)		(0.7)		(6.0)		—		—		—
Recoveries	2.7		7.5		10.2		—		—		—
Net Recoveries (Charge-Offs)	(2.6)		6.8		4.2		—		—		—
Provision for Credit Losses	13.2		(11.5)		1.7		4.9		(0.5)		4.4
Balance at End of Period	$	116.2	$	28.1	$	144.3	$	36.3	$	2.2	$	38.5


	2021
	LOANS AND LEASES						UNDRAWN LOAN COMMITMENTS AND STANDBY LETTERS OF CREDIT
(In Millions)	COMMERCIAL		PERSONAL		TOTAL		COMMERCIAL		PERSONAL		TOTAL
Balance at Beginning of Period	$	142.2	$	48.5	$	190.7	$	57.6	$	3.5	$	61.1
Charge-Offs	(0.3)		(0.4)		(0.7)		—		—		—
Recoveries	0.9		6.1		7.0		—		—		—
Net Recoveries (Charge-Offs)	0.6		5.7		6.3		—		—		—
Provision for Credit Losses	(37.2)		(21.4)		(58.6)		(26.2)		(0.8)		(27.0)
Balance at End of Period	$	105.6	$	32.8	$	138.4	$	31.4	$	2.7	$	34.1


	2020
	LOANS AND LEASES						UNDRAWN LOAN COMMITMENTS AND STANDBY LETTERS OF CREDIT
(In Millions)	COMMERCIAL		PERSONAL		TOTAL		COMMERCIAL		PERSONAL		TOTAL
Balance at End of Prior Period	$	58.1	$	46.4	$	104.5	$	15.8	$	4.1	$	19.9
Cumulative Effect Adjustment	(5.9)		3.7		(2.2)		11.9		(3.0)		8.9
Balance at Beginning of Period	$	52.2	$	50.1	$	102.3	$	27.7	$	1.1	$	28.8
Charge-Offs	(6.3)		(3.4)		(9.7)		—		—		—
Recoveries	2.4		4.1		6.5		—		—		—
Net Recoveries (Charge-Offs)	(3.9)		0.7		(3.2)		—		—		—
Provision for Credit Losses	93.9		(2.3)		91.6		29.9		2.4		32.3
Balance at End of Period	$	142.2	$	48.5	$	190.7	$	57.6	$	3.5	$	61.1

The following table provides information regarding the recorded investments in loans and leases and the allowance for credit losses for loans and leases and undrawn loan commitments and standby letters of credit by segment as of December 31, 2022 and 2021.


	DECEMBER 31, 2022						DECEMBER 31, 2021
(In Millions)	COMMERCIAL		PERSONAL		TOTAL		COMMERCIAL		PERSONAL		TOTAL
Loans and Leases
Evaluated on an Individual Basis	$	63.0	$	46.1	$	109.1	$	92.1	$	74.5	$	166.6
Evaluated on a Collective Basis	21,572.6		21,211.6		42,784.2		18,395.3		21,918.7		40,314.0
Total Loans and Leases	21,635.6		21,257.7		42,893.3		18,487.4		21,993.2		40,480.6
Allowance for Credit Losses on Loans and Leases
Evaluated on an Individual Basis	10.4		—		10.4		10.1		—		10.1
Evaluated on a Collective Basis	105.8		28.1		133.9		95.5		32.8		128.3
Allowance Assigned to Loans and Leases	116.2		28.1		144.3		105.6		32.8		138.4
Allowance for Undrawn Loan Commitments and Standby Letters of Credit
Evaluated on an Individual Basis	—		—		—		—		—		—
Evaluated on a Collective Basis	36.3		2.2		38.5		31.4		2.7		34.1
Allowance Assigned to Undrawn Loan Commitments and Standby Letters of Credit	36.3		2.2		38.5		31.4		2.7		34.1
Total Allowance Assigned to Loans and Leases and Undrawn Loan Commitments and Standby Letters of Credit	$	152.5	$	30.3	$	182.8	$	137.0	$	35.5	$	172.5


	2022
(In Millions)	CORPORATE DEBT		NON-U.S. GOVERNMENT		SUB-SOVEREIGN, SUPRANATIONAL, AND NON-U.S. AGENCY BONDS		OBLIGATIONS OF STATES AND POLITICAL SUBDIVISIONS (1)		COVERED BONDS		OTHER		TOTAL
Balance at Beginning of Period	$	1.4	$	1.9	$	3.0	$	—	$	0.1	$	4.8	$	11.2
Provision for Credit Losses	0.5		1.7		1.0		1.5		—		0.1		4.8
Balance at End of Period	$	1.9	$	3.6	$	4.0	$	1.5	$	0.1	$	4.9	$	16.0


	2021
(In Millions)	CORPORATE DEBT		NON-U.S. GOVERNMENT		SUB-SOVEREIGN, SUPRANATIONAL, AND NON-U.S. AGENCY BONDS		OBLIGATIONS OF STATES AND POLITICAL SUBDIVISIONS		COVERED BONDS		OTHER		TOTAL
Balance at Beginning of Period	$	0.8	$	0.2	$	1.2	$	—	$	0.1	$	5.0	$	7.3
Provision for Credit Losses	0.6		1.7		1.8		—		—		(0.2)		3.9
Balance at End of Period	$	1.4	$	1.9	$	3.0	$	—	$	0.1	$	4.8	$	11.2

Allowance for Other Financial Assets. The allowance for Other Financial Assets consists of the allowance for Due from Banks, Other Central Bank Deposits, Interest Bearing Deposits with Banks, and Other Assets. Northern Trust’s portfolio is composed mostly of institutions within the “1 to 3” internal borrower rating category and is expected to exhibit minimal to modest likelihood of loss. The Allowance for Credit Losses related to Other Financial Assets was $0.8 million and $1.0 million as of December 31, 2022 and 2021, respectively.

Accrued Interest. Accrued interest balances are reported within Other Assets on the consolidated balance sheets. Northern Trust elected not to measure an allowance for credit losses for accrued interest receivables related to its loan and securities portfolios as its policy is to write-off uncollectible accrued interest receivable balances in a timely manner. Accrued interest is written off by reversing interest income during the period the financial asset is moved from an accrual to a nonaccrual status.

Accrued interest in 2022 increased compared to 2021, primarily due to higher interest rates. The amount of accrued interest reversed through interest income for loans and leases was immaterial and there was no accrued interest reversed through interest income related to any other financial assets during the years ended 2022 and 2021.