Allowance for Credit Losses

12 Months Ended

Dec. 31, 2023

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 and takes into consideration past events, current conditions, and reasonable and supportable forecasts. The primary forecast provides for continued slow, but steady, economic growth, with inflation, unemployment and interest rates gradually returning to their longer-run norms. 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 Financial Risk Management, Treasury, Corporate Finance, the Economic Research Department, and each of Northern Trust’s reporting 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.

TABLE 70: CHANGES IN THE ALLOWANCE FOR CREDIT LOSSES


	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	(7.5)		—		(1.2)		—		(8.7)
Recoveries	3.7		—		—		—		3.7
Net Recoveries (Charge-Offs)	(3.8)		—		(1.2)		—		(5.0)
Provision for (Release of) Credit Losses(1)	38.2		(11.6)		(2.1)		0.1		24.6
Balance at End of Period	$	178.7	$	26.9	$	12.7	$	0.9	$	219.2

(1) The table excludes a release of credit reserves of $0.1 million for the year ended December 31, 2023 for AFS debt securities. See further detail in Note 4, “Securities.”


	2022
(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	$	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 (Release of) 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 (Release of) 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

The Provision for Credit Losses, excluding the release of credit reserves for available for sale debt securities of $0.1 million, was a provision of $24.6 million for the year ended December 31, 2023, as compared to a $10.7 million Provision for Credit Losses, excluding the provision for available for sale debt securities of $1.3 million, for the year ended December 31, 2022. The provision for loans was primarily due to an increase in the reserve evaluated on a collective basis, which relates to pooled financial assets sharing similar risk characteristics. The increase was primarily seen in the commercial real estate portfolio, driven by an increase in the size and duration of the portfolio, weaker economic projections for the industry, methodology updates, and credit quality deterioration on a small number of loans during the year ended December 31, 2023. The release of credit reserves in undrawn loan commitments and letters of credit during the year ended December 31, 2023 is primarily in the commercial and institutional portfolio, reflecting a combination of credit quality improvements, an improved macroeconomic outlook for that segment, and methodology updates. There were net charge-offs of $5.0 million during the year ended December 31, 2023, as compared to net recoveries of $4.2 million for the year ended December 31, 2022. For further detail, please see the Allowance for the Loan 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 16, “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 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.

TABLE 71: CHANGES IN THE ALLOWANCE FOR CREDIT LOSSES RELATED TO LOANS


	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	(5.7)		(1.8)		(7.5)		—		—		—
Recoveries	0.2		3.5		3.7		—		—		—
Net Recoveries (Charge-Offs)	(5.5)		1.7		(3.8)		—		—		—
Provision for (Release of) Credit Losses	36.1		2.1		38.2		(11.4)		(0.2)		(11.6)
Balance at End of Period	$	146.8	$	31.9	$	178.7	$	24.9	$	2.0	$	26.9


	2022
	LOANS						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 (Release of) 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 (Release of) 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

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 December 31, 2023 and 2022.

TABLE 72: RECORDED INVESTMENTS IN LOANS


	DECEMBER 31, 2023						DECEMBER 31, 2022
(In Millions)	COMMERCIAL		PERSONAL		TOTAL		COMMERCIAL		PERSONAL		TOTAL
Loans
Evaluated on an Individual Basis	$	33.7	$	62.6	$	96.3	$	63.0	$	46.1	$	109.1
Evaluated on a Collective Basis	25,379.1		22,141.6		47,520.7		21,572.6		21,211.6		42,784.2
Total Loans	25,412.8		22,204.2		47,617.0		21,635.6		21,257.7		42,893.3
Allowance for Credit Losses on Loans
Evaluated on an Individual Basis	11.4		2.0		13.4		10.4		—		10.4
Evaluated on a Collective Basis	135.4		29.9		165.3		105.8		28.1		133.9
Allowance Assigned to Loans	146.8		31.9		178.7		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	24.9		2.0		26.9		36.3		2.2		38.5
Allowance Assigned to Undrawn Loan Commitments and Standby Letters of Credit	24.9		2.0		26.9		36.3		2.2		38.5
Total Allowance Assigned to Loans and Undrawn Loan Commitments and Standby Letters of Credit	$	171.7	$	33.9	$	205.6	$	152.5	$	30.3	$	182.8

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.

TABLE 73: CHANGES IN THE ALLOWANCE FOR CREDIT LOSSES RELATED TO HELD TO MATURITY DEBT SECURITIES


	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
Charge-Offs	—		—		—		—		—		(1.2)		(1.2)
Recoveries	—		—		—		—		—		—		—
Net Recoveries (Charge-Offs)	—		—		—		—		—		(1.2)		(1.2)
Provision for (Release of) Credit Losses	(1.0)		(0.1)		(1.8)		(0.3)		—		1.1		(2.1)
Balance at End of Period	$	0.9	$	3.5	$	2.2	$	1.2	$	0.1	$	4.8	$	12.7

(1) The allowance for Obligations of States and Political Subdivisions is related to (non pre-refunded) municipal securities that do not fall under Northern Trust’s zero-loss assumption.


	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

(1) The allowance for Obligations of States and Political Subdivisions is related to (non pre-refunded) municipal securities that do not fall under Northern Trust’s zero-loss assumption.


	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 $0.9 million and $0.8 million as of December 31, 2023 and 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 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.

The following table provides the amount of accrued interest excluded from the amortized cost basis of the following portfolios.

TABLE 74: ACCRUED INTEREST


(In Millions)	DECEMBER 31, 2023		DECEMBER 31, 2022
Loans	$	241.7	$	203.1
Debt Securities
Held to Maturity	72.0		63.2
Available for Sale	129.2		147.1
Other Financial Assets	86.0		43.8
Total	$	528.9	$	457.2

Accrued interest in 2023 increased compared to 2022, primarily due to higher interest rates. The amount of accrued interest reversed through interest income for loans and securities was immaterial during the years ended 2023 and 2022.