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.

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

The results of the credit reserve estimation methodology are reviewed quarterly by Northern Trust’s Credit Loss Reserve Committee, which receives input from Credit Risk Management, Treasury, Corporate Finance, the Economic Research Department, and each of Northern Trust’s reporting segments. 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 Provision for Credit Losses on the consolidated statements of income represents the change in the Allowance for Credit Losses on the consolidated balance sheets after accounting for net charge-offs or recoveries and is the charge to current period earnings. It represents the amount needed to maintain the Allowance for Credit Losses on the consolidated balance sheets at an

appropriate level to absorb lifetime expected credit losses related to financial assets in scope. Actual losses may vary from current estimates and the amount of the Provision for Credit Losses may be either greater or less than actual net charge-offs.


	THREE MONTHS ENDED SEPTEMBER 30, 2023
(In Millions)	LOANS		UNDRAWN LOAN COMMITMENTS AND STANDBY LETTERS OF CREDIT		HELD TO MATURITY DEBT SECURITIES		OTHER FINANCIAL ASSETS		TOTAL
Balance at Beginning of Period	$	152.5	$	26.0	$	16.7	$	1.0	$	196.2
Charge-Offs	(0.8)		—		—		—		(0.8)
Recoveries	1.1		—		—		—		1.1
Net Recoveries (Charge-Offs)	0.3		—		—		—		0.3
Provision for (Release of) Credit Losses(1)	14.0		2.3		(1.8)		0.1		14.6
Balance at End of Period	$	166.8	$	28.3	$	14.9	$	1.1	$	211.1

(1) The table excludes a release of credit reserves of $0.6 million for the three months ended September 30, 2023 for AFS debt securities.



	NINE MONTHS ENDED SEPTEMBER 30, 2023
(In Millions)	LOANS		UNDRAWN LOAN COMMITMENTS AND STANDBY LETTERS OF CREDIT		HELD TO MATURITY DEBT SECURITIES		OTHER FINANCIAL ASSETS		TOTAL
Balance at Beginning of Period	$	144.3	$	38.5	$	16.0	$	0.8	$	199.6
Charge-Offs	(5.6)		—		—		—		(5.6)
Recoveries	3.0		—		—		—		3.0
Net Recoveries (Charge-Offs)	(2.6)		—		—		—		(2.6)
Provision for (Release of) Credit Losses(1)	25.1		(10.2)		(1.1)		0.3		14.1
Balance at End of Period	$	166.8	$	28.3	$	14.9	$	1.1	$	211.1


	THREE MONTHS ENDED SEPTEMBER 30, 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	$	138.2	$	43.5	$	15.4	$	1.1	$	198.2
Charge-Offs	(5.4)		—		—		—		(5.4)
Recoveries	0.9		—		—		—		0.9
Net Recoveries (Charge-Offs)	(4.5)		—		—		—		(4.5)
Provision for (Release of) Credit Losses(1)	5.0		(2.8)		(0.4)		(0.4)		1.4
Balance at End of Period	$	138.7	$	40.7	$	15.0	$	0.7	$	195.1



	NINE MONTHS ENDED SEPTEMBER 30, 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	(5.5)		—		—		—		(5.5)
Recoveries	9.7		—		—		—		9.7
Net Recoveries (Charge-Offs)	4.2		—		—		—		4.2
Provision for (Release of) Credit Losses(1)	(3.9)		6.6		3.8		(0.3)		6.2
Balance at End of Period	$	138.7	$	40.7	$	15.0	$	0.7	$	195.1

The Provision for Credit Losses, excluding the release of credit reserves for available for sale debt securities, was $14.6 million in the current quarter, as compared to a $1.4 million provision in the prior-year quarter. The provision was primarily due to an increase in the reserve evaluated on a collective basis, driven by a small number of large new loans and renewals and credit quality deterioration of certain commercial real estate (CRE) and commercial and institutional (C&I) loans, partially offset by a net improvement in the overall macroeconomic outlook. The reserve evaluated on a collective basis relates to pooled financial assets sharing similar risk characteristics. There were net recoveries of $0.3 million during the three months ended September 30, 2023, as compared to net charge-offs of $4.5 million for the three months ended September 30, 2022. For further detail, please see the Allowance for the Loan Portfolio and the Allowance for Held to Maturity Debt Securities Portfolio sections below.

The Provision for Credit Losses, excluding the release of credit reserves for available for sale debt securities, was $14.1 million for the nine months ended September 30, 2023, as compared to a $6.2 million provision in the prior-year period. The provision was primarily due to an increase in the collective basis reserve, driven by new loans and renewals in the CRE portfolio and expectations of higher economic stress in the CRE market, particularly office CRE, partially offset by a net improvement in the overall macroeconomic outlook and lower loss projections for certain large C&I loans. The reserve evaluated on a collective basis relates to pooled financial assets sharing similar risk characteristics. There were net charge-offs of $2.6 million during the nine months ended September 30, 2023, as compared to net recoveries of $4.2 million during the nine months ended September 30, 2022. For further detail, please see the Allowance for the Loan Portfolio and the Allowance for Held to Maturity Debt Securities Portfolio sections below.

The portion of the allowance assigned to loans, HTM debt securities, and other financial assets is presented as a contra asset in Allowance for Credit Losses on the consolidated balance sheets. The portion of the allowance assigned to undrawn loan commitments and standby letters of credit is reported in Other Liabilities on the consolidated balance sheets. For credit exposure and the associated allowance related to fee receivables, please refer to Note 13—Revenue from Contracts with Clients. For information related to the allowance for AFS debt securities, please refer to Note 4—Securities. For all other financial assets recognized at amortized cost, which include Cash and 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.

Forecasting and Reversion. Estimating expected lifetime credit losses requires the consideration of the effect of future economic conditions. Northern Trust employs multiple scenarios over a reasonable and supportable period (currently two years) to project future conditions. Key variables determined to be relevant for projecting credit losses on the portfolios in scope include macroeconomic factors, such as corporate profits, unemployment, and real estate price indices, as well as financial market factors such as equity prices, volatility, and credit spreads. For periods beyond the reasonable and supportable period, Northern Trust reverts to its own historical loss experiences on a straight-line basis over four quarters. The primary forecast in the current quarter reflects an outlook of continued slow but steady growth, with inflation, labor markets, and interest rates continuing to stabilize. Recognizing the uncertainty in the primary forecast, an alternative scenario is also considered, which reflects a recession that incorporates the experiences of a wider set of historical economic cycles.

Contractual Term. Northern Trust estimates expected credit losses over the contractual term of the financial assets adjusted for prepayments, unless prepayments are not relevant to specific portfolios or sub-portfolios. Extension and renewal options are typically not considered since it is not Northern Trust’s practice to enter into arrangements where the borrower has the unconditional option to renew, or a conditional extension option whereby the conditions are beyond Northern Trust’s control.

Allowance for the Loan Portfolio. The following table provides information regarding changes in the total allowance for credit losses related to loans, including undrawn loan commitments and standby letters of credit, by segment during the three and nine months ended September 30, 2023 and 2022.


	THREE MONTHS ENDED SEPTEMBER 30, 2023
	LOANS						UNDRAWN LOAN COMMITMENTS AND STANDBY LETTERS OF CREDIT
(In Millions)	COMMERCIAL		PERSONAL		TOTAL		COMMERCIAL		PERSONAL		TOTAL
Balance at Beginning of Period	$	124.0	$	28.5	$	152.5	$	23.3	$	2.7	$	26.0
Charge-Offs	(0.5)		(0.3)		(0.8)		—		—		—
Recoveries	—		1.1		1.1		—		—		—
Net Recoveries (Charge-Offs)	(0.5)		0.8		0.3		—		—		—
Provision for (Release of) Credit Losses	13.9		0.1		14.0		2.2		0.1		2.3
Balance at End of Period	$	137.4	$	29.4	$	166.8	$	25.5	$	2.8	$	28.3



	NINE MONTHS ENDED SEPTEMBER 30, 2023
	LOANS						UNDRAWN LOAN COMMITMENTS AND STANDBY LETTERS OF CREDIT
(In Millions)	COMMERCIAL		PERSONAL		TOTAL		COMMERCIAL		PERSONAL		TOTAL
Balance at Beginning of Period	$	116.2	$	28.1	$	144.3	$	36.3	$	2.2	$	38.5
Charge-Offs	(4.5)		(1.1)		(5.6)		—		—		—
Recoveries	0.1		2.9		3.0		—		—		—
Net Recoveries (Charge-Offs)	(4.4)		1.8		(2.6)		—		—		—
Provision for (Release of) Credit Losses	25.6		(0.5)		25.1		(10.8)		0.6		(10.2)
Balance at End of Period	$	137.4	$	29.4	$	166.8	$	25.5	$	2.8	$	28.3


	THREE MONTHS ENDED SEPTEMBER 30, 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	$	102.5	$	35.7	$	138.2	$	40.3	$	3.2	$	43.5
Charge-Offs	(4.9)		(0.5)		(5.4)		—		—		—
Recoveries	0.3		0.6		0.9		—		—		—
Net Recoveries (Charge-Offs)	(4.6)		0.1		(4.5)		—		—		—
Provision for (Release of) Credit Losses	2.7		2.3		5.0		(2.8)		—		(2.8)
Balance at End of Period	$	100.6	$	38.1	$	138.7	$	37.5	$	3.2	$	40.7



	NINE MONTHS ENDED SEPTEMBER 30, 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	(4.9)		(0.6)		(5.5)		—		—		—
Recoveries	2.7		7.0		9.7		—		—		—
Net Recoveries (Charge-Offs)	(2.2)		6.4		4.2		—		—		—
Provision for (Release of) Credit Losses	(2.8)		(1.1)		(3.9)		6.1		0.5		6.6
Balance at End of Period	$	100.6	$	38.1	$	138.7	$	37.5	$	3.2	$	40.7

Allowance Related to Credit Exposure Evaluated on a Collective Basis. Expected credit losses are measured on a collective basis as long as the financial assets included in the respective pool share similar risk characteristics. If financial assets are deemed to not share similar risk characteristics, an individual assessment is warranted.

The allowance estimation methodology for the collective assessment is primarily based on internally developed loss data specific to the Northern Trust financial asset portfolio from a historical observation period that includes both expansionary and recessionary periods. The estimation methodology and the related qualitative adjustment framework segregate the loan portfolio into homogenous segments based on similar risk characteristics or risk monitoring methods.

Northern Trust utilizes a quantitative probability of default/loss given default approach for the calculation of its credit allowance on a collective basis. For each of the different parameters, specific credit models or qualitative estimation

methodologies for the individual loan segments were developed. For each segment, the probability of default and the loss given default are applied to the exposure at default for each projected quarter to determine the quantitative component of the allowance. The quantitative allowance is then reviewed within the qualitative adjustment framework, through which management applies judgment by assessing internal risk factors, potential limitations in the quantitative methodology, and environmental factors that are not fully contemplated in the forecast to compute an adjustment to the quantitative allowance for each segment of the loan portfolio.

Allowance Related to Credit Exposure Evaluated on an Individual Basis. The allowance is determined through an individual evaluation of loans, and lending-related commitments that have defaulted, generally those with borrower ratings of 8 and 9, that is based on expected future cash flows, the value of collateral, and other factors that may impact the borrower’s ability to pay. For defaulted loans for which the amount of allowance, if any, is determined based on the value of the underlying real estate collateral, third-party appraisals are typically obtained and utilized by management. These appraisals are generally less than twelve months old and are subject to adjustments to reflect management’s judgment as to the realizable value of the collateral.

The following table provides information regarding the recorded investments in loans and the allowance for credit losses for loans and undrawn loan commitments and standby letters of credit by segment as of September 30, 2023 and December 31, 2022.


	SEPTEMBER 30, 2023						DECEMBER 31, 2022
(In Millions)	COMMERCIAL		PERSONAL		TOTAL		COMMERCIAL		PERSONAL		TOTAL
Loans
Evaluated on an Individual Basis	$	27.4	$	67.3	$	94.7	$	63.0	$	46.1	$	109.1
Evaluated on a Collective Basis	21,959.9		21,522.4		43,482.3		21,572.6		21,211.6		42,784.2
Total Loans	21,987.3		21,589.7		43,577.0		21,635.6		21,257.7		42,893.3
Allowance for Credit Losses on Loans
Evaluated on an Individual Basis	8.3		2.0		10.3		10.4		—		10.4
Evaluated on a Collective Basis	129.1		27.4		156.5		105.8		28.1		133.9
Allowance Assigned to Loans	137.4		29.4		166.8		116.2		28.1		144.3
Allowance for Undrawn Loan Commitments and Standby Letters of Credit
Evaluated on an Individual Basis	—		—		—		—		—		—
Evaluated on a Collective Basis	25.5		2.8		28.3		36.3		2.2		38.5
Allowance Assigned to Undrawn Loan Commitments and Standby Letters of Credit	25.5		2.8		28.3		36.3		2.2		38.5
Total Allowance Assigned to Loans and Undrawn Loan Commitments and Standby Letters of Credit	$	162.9	$	32.2	$	195.1	$	152.5	$	30.3	$	182.8

Northern Trust analyzes its exposure to credit losses from both on-balance-sheet and off-balance-sheet activity using a consistent methodology for the quantitative framework as well as the qualitative framework. For purposes of estimating the allowance for credit losses for undrawn loan commitments and standby letters of credit, the exposure at default includes an estimated drawdown of unused credit based on credit utilization factors, resulting in a proportionate amount of expected credit losses.

Allowance for Held to Maturity Debt Securities Portfolio. The following table provides information regarding changes in the total allowance for credit losses for HTM debt securities during the three and nine months ended September 30, 2023 and 2022.


	THREE MONTHS ENDED SEPTEMBER 30, 2023
(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	$	5.4	$	3.4	$	1.3	$	0.1	$	5.1	$	16.7
Provision for (Release of) Credit Losses	(0.1)		(0.8)		(0.5)		(0.1)		—		(0.3)		(1.8)
Balance at End of Period	$	1.3	$	4.6	$	2.9	$	1.2	$	0.1	$	4.8	$	14.9



	NINE MONTHS ENDED SEPTEMBER 30, 2023
(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	$	1.9	$	3.6	$	4.0	$	1.5	$	0.1	$	4.9	$	16.0
Provision for (Release of) Credit Losses	(0.6)		1.0		(1.1)		(0.3)		—		(0.1)		(1.1)
Balance at End of Period	$	1.3	$	4.6	$	2.9	$	1.2	$	0.1	$	4.8	$	14.9


	THREE MONTHS ENDED SEPTEMBER 30, 2022
(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	$	1.8	$	3.8	$	4.8	$	—	$	0.1	$	4.9	$	15.4
Provision for (Release of) Credit Losses	(0.3)		(0.7)		(1.0)		—		—		1.6		(0.4)
Balance at End of Period	$	1.5	$	3.1	$	3.8	$	—	$	0.1	$	6.5	$	15.0



	NINE MONTHS ENDED SEPTEMBER 30, 2022
(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	$	1.4	$	1.9	$	3.0	$	—	$	0.1	$	4.8	$	11.2
Provision for (Release of) Credit Losses	0.1		1.2		0.8		—		—		1.7		3.8
Balance at End of Period	$	1.5	$	3.1	$	3.8	$	—	$	0.1	$	6.5	$	15.0

HTM debt securities classified as U.S. government, government sponsored agency, and certain securities classified as obligations of states and political subdivisions are considered to be guarantees of the U.S. government or an agency of the U.S. government and, therefore, an allowance for credit losses is not estimated for such investments as the expected probability of non-payment of the amortized cost basis is zero.

HTM debt securities classified as “other” relate to investments purchased by Northern Trust to fulfill its obligations under the Community Reinvestment Act (CRA). Northern Trust fulfills its obligations under the CRA by making qualified investments for purposes of supporting institutions and programs that benefit low-to-moderate income communities within Northern Trust’s market area. The allowance for CRA investments is assessed using a qualitative estimation approach primarily based on internal historical performance experience and default history of the underlying CRA portfolios to determine a quantitative component of the allowance.

The allowance estimation methodology for all other HTM debt securities is developed using a combination of external and internal data. The estimation methodology groups securities with shared characteristics for which the probability of default and the loss given default are applied to the total exposure at default to determine a quantitative component of the allowance.

Allowance for 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. The Other Assets category includes other miscellaneous credit exposures reported in Other Assets on the consolidated balance sheets. The allowance estimation methodology for Other Financial Assets primarily utilizes a similar approach as the one used for the HTM debt securities portfolio. It consists of a combination of externally and internally developed loss data, adjusted for the appropriate contractual term. Northern Trust’s portfolio of Other Financial Assets 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 $1.1 million and $0.8 million as of September 30, 2023 and December 31, 2022, 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 portfolio as its policy is to write-off uncollectible accrued interest receivable balances in a timely manner. Accrued interest is written off by reversing interest income during the quarter the financial asset is moved from an accrual to a nonaccrual status.

The amount of accrued interest reversed through interest income for loans was immaterial for the three and nine months ended September 30, 2023 and 2022, and there was no accrued interest reversed through interest income related to any other financial assets for the three and nine months ended September 30, 2023 and 2022.