Northern Trust : Third Quarter 2022 Earnings Release

NEWS RELEASE

www.northerntrust.com

INVESTOR CONTACT: Jennifer Childe | 312-444-3290 | [e-mail]

MEDIA CONTACT: Doug Holt | 312-557-1571 | [e-mail]

NORTHERN TRUST CORPORATION REPORTS THIRD QUARTER

NET INCOME OF $394.8 MILLION, EARNINGS PER DILUTED COMMON

SHARE OF $1.80

	Total Revenue			Return on Average			Common Equity Tier 1
	up 7% YoY			Common Equity 14.9%			Capital 10.1%

CHICAGO, OCTOBER 19, 2022 - Northern Trust Corporation today reported third quarter net income per diluted common share of $1.80, compared to $1.86 in the second quarter of 2022 and $1.80 in the third quarter of 2021. Net income was $394.8 million, compared to $396.2 million in the prior quarter and $395.7 million in the prior-year quarter.

MICHAEL O'GRADY, CHAIRMAN AND CHIEF EXECUTIVE OFFICER:

"Northern Trust's third quarter results reflected consistent execution in the face of challenging macroeconomic and market conditions. Revenue grew 7% compared to last year, as the elimination of money market fee waivers and the favorable impact from higher interest rates more than offset market and currency-related declines in trust fees. Expenses increased 9% due to higher head count and continued inflationary cost pressures. We approach the end of the year on solid footing and remain focused on serving the needs of our clients and the communities of which we are a part, while generating value for our shareholders."

FINANCIAL SUMMARY & KEY METRICS

								% Change Q3 2022
								vs.
($ In Millions except per share data)		Q3 2022		Q2 2022		Q3 2021		Q2 2022	Q3 2021
Trust, Investment and Other Servicing Fees	$	1,078.7	$	1,143.4	$	1,111.0	(6)%		(3)%
Other Noninterest Income		163.1		166.6		176.4	(2)		(8)
Net Interest Income (FTE*)		525.3		469.8		357.1	12		47
Total Revenue (FTE*)	$	1,767.1	$	1,779.8	$	1,644.5		(1)%		7 %
Noninterest Expense	$	1,229.8	$	1,223.6	$	1,128.7	1 %		9 %
Provision for Credit Losses		0.5		4.5		(13.0)		N/M	N/M
Provision for Income Taxes		129.7		144.4		122.4	(10)		6
FTE Adjustment*		12.3		11.1		10.7	9		15
Net Income	$	394.8	$	396.2	$	395.7		- %	- %
Earnings Allocated to Common and	$	375.4	$	388.3	$	376.5	(3)%		- %
Potential Common Shares
Diluted Earnings per Common Share	$	1.80	$	1.86	$	1.80		(3)%		- %
Return on Average Common Equity		14.9 %		15.7 %		13.7 %
Return on Average Assets		1.07 %		1.03 %		1.00 %
Average Assets	$	146,402.2	$	154,084.1	$	156,452.8		(5)%		(6)%

N/M - Not meaningful

1. Net interest income and total revenue presented on a fully taxable equivalent (FTE) basis are non-generally accepted accounting principle financial measures that facilitate the analysis of asset yields. Please refer to the Reconciliation to Fully Taxable Equivalent section for further detail.

NORTHERN TRUST CORPORATION THIRD QUARTER 2022 RESULTS

ACCOUNTING RECLASSIFICATION

Beginning in the first quarter of 2022, Trust, Investment and Other Servicing fees were impacted by the change in classification of certain fees that were previously recorded in Other Operating Income or as a reduction of Other Operating Expense but resulted in no impact to net income. The accounting reclassification increased Trust, Investment and Other Servicing fees in the third quarter of 2022 by $15.6 million, with a $6.2 million decrease in Other Operating Income and a $9.4 million increase in Other Operating Expense. The classification changes are deemed to be a better representation of the underlying nature of the business as they are directly tied to client asset levels and the related services are more akin to our core service offerings. Prior-year amounts have not been reclassified.

CLIENT ASSETS

Assets under custody/administration (AUC/A) and assets under management are a driver of the Corporation's trust, investment and other servicing fees, the largest component of noninterest income.

				As of				% Change September 30, 2022 vs.
($ In Billions)		September 30,		June 30, 2022		September 30,		June 30, 2022	September 30,
	2022*			2021		2021
Assets Under Custody/Administration
Asset Servicing	$	11,954.0	$	12,812.2	$	14,800.2	(7)%	(19)%
Wealth Management		868.0		921.5		976.0	(6)	(11)
Total Assets Under Custody/Administration	$	12,822.0	$	13,733.7	$	15,776.2		(7)%	(19)%
Assets Under Custody(1)
Asset Servicing	$	9,125.5	$	9,771.2	$	11,283.6	(7)%	(19)%
Wealth Management		860.8		913.0		962.9	(6)	(11)
Total Assets Under Custody	$	9,986.3	$	10,684.2	$	12,246.5		(7)%	(18)%
Assets Under Management
Asset Servicing	$	873.7	$	950.0	$	1,159.5	(8)%	(25)%
Wealth Management		336.2		352.8		372.9	(5)	(10)
Total Assets Under Management	$	1,209.9	$	1,302.8	$	1,532.4		(7)%	(21)%

1. Assets Under Custody are a component of Assets Under Custody/Administration.

1. Client assets for the current quarter are considered preliminary until the Form 10-Q is filed with the Securities and Exchange Commission.

TRUST, INVESTMENT AND OTHER SERVICING FEES

								% Change Q3 2022 vs.
($ In Millions)		Q3 2022		Q2 2022		Q3 2021		Q2 2022	Q3 2021
Asset Servicing Trust, Investment and Other Servicing Fees
Custody and Fund Administration	$	407.3	$	433.8	$	460.2	(6)%	(12)%
Investment Management		136.0		148.4		113.6	(8)	20
Securities Lending		21.7		21.6		20.2	1	8
Other		38.2		38.9		36.2	(2)	6
Total Asset Servicing	$	603.2	$	642.7	$	630.2		(6)%	(4)%
Wealth Management Trust, Investment and Other Servicing Fees
Central	$	171.3	$	177.4	$	178.8	(3)%	(4)%
East		124.1		128.1		130.2	(3)	(5)
West		92.5		98.7		97.0	(6)	(5)
Global Family Office (GFO)		87.6		96.5		74.8	(9)	17
Total Wealth Management	$	475.5	$	500.7	$	480.8		(5)%	(1)%
Total Consolidated Trust, Investment and Other Servicing Fees	$	1,078.7	$	1,143.4	$	1,111.0		(6)%	(3)%

Asset Servicing and Wealth Management trust, investment and other servicing fees are impacted by both one-month and one- quarter lagged asset values.

Total Asset Servicing trust, investment and other servicing fees decreased sequentially and from the prior-year quarter.

• Custody and fund administration fees decreased sequentially primarily due to unfavorable markets, unfavorable currency translation and lower transaction volumes. Custody and fund administration fees decreased from the prior-year quarter primarily due to unfavorable currency translation and unfavorable markets, partially offset by new business.
• Investment management fees decreased sequentially primarily due to unfavorable markets and asset outflows. Investment management fees increased from the prior-year quarter primarily due to lower money market fund fee waivers and the accounting reclassification previously discussed, partially offset by asset outflows and unfavorable markets.

2

NORTHERN TRUST CORPORATION THIRD QUARTER 2022 RESULTS

Total Wealth Management trust, investment and other servicing fees decreased sequentially and from the prior-year quarter.

• Fees in the regions (Central, East and West) decreased sequentially primarily due to unfavorable markets. Fees in the regions decreased from the prior-year quarter primarily due to unfavorable markets, partially offset by lower money market fund fee waivers.
• Fees in GFO decreased sequentially primarily due to unfavorable markets. Fees in GFO increased from the prior-year quarter primarily due to lower money market fund fee waivers and new business, partially offset by unfavorable markets.

OTHER NONINTEREST INCOME

								% Change Q3 2022 vs.
($ In Millions)		Q3 2022		Q2 2022		Q3 2021		Q2 2022	Q3 2021
Other Noninterest Income
Foreign Exchange Trading Income	$	64.7	$	77.6	$	66.4	(17)%	(3)%
Treasury Management Fees		9.3		10.6		11.2	(13)	(18)
Security Commissions and Trading Income		32.1		32.8		36.5	(2)	(12)
Other Operating Income		57.3		45.6		62.3	26	(8)
Investment Security Gains (Losses), net		(0.3)		-		-		N/M	N/M
Total Other Noninterest Income	$	163.1	$	166.6	$	176.4		(2)%	(8)%

N/M - Not meaningful

Foreign exchange trading income decreased sequentially primarily driven by lower client volumes and decreased foreign exchange swap activity in Treasury.

Security commissions and trading income decreased compared to the prior-year quarter primarily due to lower interest rate swap activity.

Other operating income increased sequentially primarily due to lower expenses related to existing swap agreements related to Visa Inc. Class B common shares and favorable impacts of currency remeasurement. Other operating income decreased compared to the prior-year quarter primarily driven by lower miscellaneous income and the accounting reclassification previously discussed, partially offset by increased income related to a bank-owned life insurance program.

NET INTEREST INCOME

								% Change Q3 2022 vs.
($ In Millions)		Q3 2022		Q2 2022		Q3 2021		Q2 2022	Q3 2021
Net Interest Income
Interest Income (FTE*)	$	811.6	$	535.9	$	362.0	51 %	124 %
Interest Expense		286.3		66.1		4.9		N/M	N/M
Net Interest Income (FTE*)	$	525.3	$	469.8	$	357.1		12 %	47 %
Average Earning Assets	$	132,147	$	139,902	$	143,953	(6)%	(8)%
Net Interest Margin (FTE*)		1.58 %		1.35 %		0.98 %		23 bps	60 bps

1. Interest income, net interest income and net interest margin presented on an FTE basis are non-generally accepted accounting principle financial measures that facilitate the analysis of asset yields. Please refer to the Reconciliation to Fully Taxable Equivalent section for further detail.

bps - basis points

Net interest income on an FTE basis increased sequentially and from the prior-year quarter primarily due to a higher net interest margin, partially offset by lower average earning assets.

The net interest margin on an FTE basis increased sequentially primarily due to higher average interest rates. The net interest margin on an FTE basis increased from the prior-year quarter primarily due to higher average interest rates and favorable balance sheet mix shift.

Average earning assets decreased sequentially and from the prior-year quarter due to lower levels of short-term interest- bearing deposits with banks and lower levels of securities, partially offset by higher levels of loans. The decline in the size of the average balance sheet was primarily the result of lower levels of client deposits.

3

NORTHERN TRUST CORPORATION THIRD QUARTER 2022 RESULTS

PROVISION FOR CREDIT LOSSES

		As of and for the three-months ended,		% Change September 30, 2022
			vs.
($ In Millions)	September 30,		June 30, 2022	September 30,		June 30, 2022	September 30,
	2022			2021		2021
Allowance for Credit Losses
Beginning Allowance for Credit Losses	$	199.9	$	189.9	$	207.0	5 %	(3)%
Provision for Credit Losses		0.5		4.5		(13.0)		N/M	N/M
Net Recoveries (Charge-Offs)		(4.5)		5.5		1.1		N/M	N/M
Ending Allowance for Credit Losses	$	195.9	$	199.9	$	195.1	(2)%	- %
Allowance assigned to:
Loans and Leases	$	138.7	$	138.2	$	143.9		- %	(4)%
Undrawn Loan Commitments and		40.7		43.5		39.8	(7)	2
Standby Letters of Credit
Debt Securities and Other Financial Assets		16.5		18.2		11.4		(9)	44
Ending Allowance for Credit Losses	$	195.9	$	199.9	$	195.1		(2)%	- %

N/M - Not meaningful

Q3 2022

The provision in the current quarter was primarily due to an increase in the collective basis reserve, driven by a weaker macroeconomic outlook, partially offset by improvements in credit quality mainly within the commercial and institutional portfolio. The reserve evaluated on a collective basis relates to pooled financial assets sharing similar risk characteristics.

Q2 2022

The provision in the prior quarter was primarily due to an increase in the reserve evaluated on a collective basis, partially offset by recoveries in the prior quarter. The increase in the collective basis reserve was primarily driven by a projected decline in economic conditions at the time as compared to the previous period, partially offset by improvements in credit quality mainly within the commercial real estate and commercial and institutional portfolios.

Q3 2021

The release of credit reserves in the prior-year quarter was primarily due to a decrease in the reserve evaluated on a collective basis, driven by improvements in projected economic conditions at the time and portfolio credit quality, partially offset by portfolio growth. Decreases in the collective basis reserve were primarily in the commercial and institutional and commercial real estate portfolios.

4

NORTHERN TRUST CORPORATION THIRD QUARTER 2022 RESULTS

NONINTEREST EXPENSE

								% Change Q3 2022 vs.
($ In Millions)		Q3 2022		Q2 2022		Q3 2021		Q2 2022	Q3 2021
Noninterest Expense
Compensation	$	553.3	$	546.5	$	496.0	1 %	12 %
Employee Benefits		109.9		119.6		101.7	(8)	8
Outside Services		220.9		213.1		210.7	4	5
Equipment and Software		212.4		203.5		185.2	4	15
Occupancy		51.3		51.0		53.9	1	(5)
Other Operating Expense		82.0		89.9		81.2	(9)	1
Total Noninterest Expense	$	1,229.8	$	1,223.6	$	1,128.7		1 %	9 %
End of Period Full-Time Equivalent Staff		23,100		22,500		20,800	3 %	11 %

Compensation expense increased sequentially primarily due to higher salary expense, partially offset by lower incentives and favorable currency translation. Compensation expense increased compared to the prior-year quarter primarily due to higher salary expense, partially offset by favorable currency translation.

Employee benefits expense decreased sequentially primarily due to a decline in pension-related expense, inclusive of a $17.0 million pension settlement charge in the current quarter as compared to a $20.3 million charge in the prior quarter. Employee benefits expense increased compared to the prior-year quarter primarily due to a higher pension settlement charge in the current quarter as compared to the prior-year quarter.

Outside services expense increased sequentially primarily due to higher technical services costs and consulting services. Outside services expense increased compared to the prior-year quarter primarily due to higher consulting services and technical services costs, partially offset by lower third-party advisory fees.

Equipment and software expense increased sequentially primarily due to higher software amortization costs. Equipment and software expense increased compared to the prior-year quarter primarily due to higher software costs driven by continued technology investments as well as amortization.

Other operating expense decreased sequentially primarily due to lower miscellaneous expenses.

PROVISION FOR INCOME TAX

								% Change Q3 2022 vs.
($ In Millions)		Q3 2022		Q2 2022		Q3 2021		Q2 2022		Q3 2021
Net Income
Income before Income Taxes	$	524.5	$	540.6	$	518.1	(3)	%	1	%
Provision for Income Taxes		129.7		144.4		122.4	(10)		6
Net Income	$	394.8	$	396.2	$	395.7		-	%	-	%
Effective Tax Rate		24.7 %		26.7 %		23.6 %		(197)bps	113 bps

bps - basis points

The effective tax rate decreased sequentially primarily due to reserves for uncertain tax positions recognized in the prior quarter. The effective tax rate increased compared to the prior-year quarter primarily due to an increased impact of limitations on the U.S. foreign tax credit.

5