Concentrations of Credit Risk

12 Months Ended

Dec. 31, 2024

Concentrations of credit risk exist if a number of borrowers or other counterparties are engaged in similar activities and have similar economic characteristics that would cause their ability to meet contractual obligations to be similarly affected by changes in economic or other conditions. The fact that a credit exposure falls into one of these groups does not necessarily indicate that the credit has a higher than normal degree of credit risk. These groups are: banks and bank holding companies, residential real estate, and commercial real estate.

Banks and Bank Holding Companies. At December 31, 2024, on-balance sheet credit risk to banks and bank holding companies, both U.S. and non-U.S., consisted primarily of Interest-Bearing Deposits with Banks of $1.9 billion, demand balances maintained at correspondent banks of $4.7 billion and Securities Purchased under Agreements to Resell of $426.0 million. At December 31, 2023, on-balance sheet credit risk to banks and bank holding companies, both U.S. and non-U.S., consisted primarily of Interest-Bearing Deposits with Banks of $1.9 billion, demand balances maintained at correspondent banks of $4.7 billion, and Securities Purchased under Agreements to Resell of $784.7 million. Credit risk associated with U.S. and non-U.S. banks and bank holding companies deemed to be counterparties by Credit Risk Management is managed by the Capital Markets Credit Committee. Credit limits are established through a review process that includes an internally-prepared financial analysis, use of an internal risk rating system, and consideration of external market indicators as well as regulatory single counterparty credit limits. Northern Trust places deposits with banks that have strong internal and external credit ratings, and the average life to maturity of deposits with banks is maintained on a short-term basis in order to respond quickly to changing credit conditions.

Residential Real Estate. Residential real estate loans totaled $6.1 billion at December 31, 2024 and $6.3 billion at December 31, 2023, representing 15% and 14%, respectively, of total U.S. loans. Residential real estate loans consist of traditional first lien mortgages and equity credit lines, which generally require a loan-to-collateral value ratio of 65% to 80% at inception. Revaluations of supporting collateral are obtained upon refinancing or default or when otherwise considered warranted. Collateral revaluations for mortgages are performed by independent third parties. Legally binding undrawn commitments to extend residential real estate credit, which are primarily equity credit lines, totaled $679.5 million and $804.2 million at December 31, 2024 and 2023, respectively. The table below provides additional detail regarding residential real estate loans by geographic region.

TABLE 65: RESIDENTIAL REAL ESTATE LOANS BY GEOGRAPHIC REGION


	DECEMBER 31,
(In Millions)	2024		2023
Residential Real Estate by geographic region:
Florida	$	1,636.5	$	1,648.1
California	1,371.9		1,463.8
Illinois	591.3		640.3
New York	510.8		505.4
Colorado	309.9		344.1
Texas	308.7		318.7
All other(1)	1,380.8		1,406.7
Total Residential Real Estate	$	6,109.9	$	6,327.1

(1) The remainder is distributed throughout the other geographic regions within the U.S. served by Northern Trust.

Commercial Real Estate. Commercial real estate loans totaled $5.3 billion at December 31, 2024 and $5.1 billion at December 31, 2023, representing 13% and 12%, respectively, of total U.S. loans. In managing its credit exposure, management has defined a commercial real estate loan as one where: (1) the borrower’s principal business activity is the acquisition or the development of real estate for commercial purposes; (2) the principal collateral is real estate held for commercial purposes, and loan repayment is expected to flow from the operation of the property; or (3) the loan repayment is expected to flow from the sale or refinance of real estate as a normal and ongoing part of the business. 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-collateral value (LTV) ratios and debt service coverage requirements. LTV ratios, calculated as the outstanding amount of the loan divided by the estimated value of the property, are a critical component of Northern Trust’s underwriting standards. Northern Trust utilizes LTV ratios in various stages of the lending and risk management process. Northern Trust’s policy related to LTV limits is more conservative than what is prescribed by current supervisory regulations. LTV ratios are monitored and updated on a quarterly basis utilizing the most recent outstanding amounts and appraisal values based on models, automated valuation services, or updated appraisals.

All commercial real estate transactions, regardless of size, require an independent appraisal at loan origination, unless permissible and approved regulatory exemptions can be applied. Real estate appraisals are, at a minimum, performed in accordance with generally accepted appraisal standards as applicable under local regulations. Northern Trust considers obtaining a new appraisal as part of the loan renewal process or whenever credit quality or market conditions have materially and adversely changed to the point where it is prudent to reassess the value of the real estate collateral. For defaulted loans, appraisals are updated on an, at least, annual basis. Appraisal values might be discounted based upon Northern Trust’s experience with actual liquidation values and management’s judgement as to the realizable value of the property.

Recourse to borrowers through guarantees is also generally required. Commercial mortgage financing is provided for the acquisition or refinancing of income-producing properties. Cash flows from the properties generally are sufficient to amortize the loan. These loans are primarily located in the California, Illinois, Florida, Texas, and New York markets. Construction, acquisition and development loans provide financing for commercial real estate prior to rental income stabilization. The intent is generally that the borrower will sell the project or refinance the loan through a commercial mortgage with Northern Trust or another financial institution upon completion. At December 31, 2024, legally binding commitments to extend credit and standby letters of credit to commercial real estate borrowers totaled $376.5 million and $81.9 million, respectively. At December 31, 2023, legally binding commitments to extend credit and standby letters of credit to commercial real estate borrowers totaled $413.0 million and $82.1 million, respectively.

The table below provides additional detail regarding commercial real estate loan types.

TABLE 66: COMMERCIAL REAL ESTATE LOANS


	DECEMBER 31,
(In Millions)	2024		2023
Commercial Mortgages
Office	$	944.4	$	1,035.1
Apartment/ Multi-family	1,599.9		1,633.9
Retail	665.6		620.9
Industrial/ Warehouse	906.1		687.1
Other	630.3		575.3
Total Commercial Mortgages	4,746.3		4,552.3
Construction, Acquisition and Development Loans	567.9		581.9
Total Commercial Real Estate Loans	$	5,314.2	$	5,134.2