NORTHERN TRUST CORP

Previous wording

The following is management’s discussion and analysis of the financial condition and results of operations (MD&A) of Northern Trust Corporation (Corporation) for the year ended December 31, 2023. The following should be read in conjunction with the consolidated financial statements and related footnotes included in this report. Investors also should read the section entitled “Forward-Looking Statements.”

Current wording

The following is management’s discussion and analysis of the financial condition and results of operations (MD&A) of Northern Trust Corporation (Corporation) for the year ended December 31, 2024. The following should be read in conjunction with the consolidated financial statements and related footnotes included in this report. Investors also should read the section titled “Forward-Looking Statements.”

Previous wording

Revenue in 2023 of $6.77 billion increased $12.3 million from $6.76 billion in 2022. Noninterest Income represented 71% and 72% of total revenue in 2023 and 2022, respectively, and totaled $4.79 billion in 2023, which decreased $82.5 million, or 2%, from $4.87 billion in 2022.

Current wording

Revenue in 2024 of $8.3 billion increased $1.5 billion, or 22%, from $6.8 billion in 2023, primarily driven by higher Other Operating Income, Trust, Investment and Other Servicing Fees, and Net Interest Income. Noninterest Income represented 74% and 71% of total revenue in 2024 and 2023, respectively, and totaled $6.1 billion in 2024, which increased $1.3 billion, or 28%, from $4.8 billion in 2023.

Previous wording

Other Noninterest Income for 2023 increased from 2022, primarily due to higher Other Operating Income.

Current wording

Noninterest Income in 2024 increased primarily due to higher Other Operating Income as well as Trust, Investment and Other Servicing Fees. Other Operating Income of $1.2 billion in 2024 increased $928.7 million from $228.7 million in the prior year, primarily driven by a $896.7 million gain related to Northern Trust’s participation in an exchange offer related to shares of a class of Visa, Inc. common stock and a $68.1 million gain on the sale of an equity investment, partially offset by mark-to-market activity on existing swap agreements related to shares of a class of Visa, Inc. common stock, including a $12.8 million expense related to litigation escrow funding, as well as losses recognized as a result of a securities repositioning related to the supplemental pension plan and impairment charges taken on certain investments. Please refer to Note 24, “Commitments and Contingent Liabilities” included under Item 8, “Financial Statements and Supplementary Data,” for additional details related to the exchange offer. Trust, Investment and Other Servicing Fees of $4.7 billion in 2024 increased $366.0 million, or 8%, from $4.4 billion in 2023, primarily due to favorable markets and net new business. Investment Security Gains (Losses), net reflects $189.3 million of losses in 2024 as compared to $169.5 million of losses in 2023, both due to repositionings of the available for sale debt securities portfolio in each year.

Previous wording

Net Interest Income on a fully taxable equivalent (FTE) basis in 2023 of $2.04 billion increased $106.7 million, or 6%, from $1.93 billion in 2022, primarily due to higher average interest rates, partially offset by an unfavorable balance sheet mix. The net interest margin on an FTE basis increased to 1.56% in 2023 from 1.39% in 2022, primarily due to higher average interest rates, partially offset by an unfavorable funding mix shift. Average earning assets decreased $8.0 billion, or 6%, from $138.8 billion in 2022 to $130.8 billion in 2023, primarily due to lower client deposits, partially offset by higher borrowing activity, the net of which resulted in lower funding of earning assets.

Current wording

Net Interest Income on a fully taxable equivalent (FTE) basis in 2024 of $2.2 billion increased $169.4 million, or 8%, from $2.0 billion in 2023, primarily due to higher deposits and higher average interest rates, partially offset by an unfavorable balance sheet mix. The net interest margin on an FTE basis increased to 1.64% in 2024 from 1.56% in 2023, primarily due to higher average interest rates and a favorable funding mix shift. Average earning assets increased $3.6 billion, or 3%, from $130.8 billion in 2023 to $134.4 billion in 2024, primarily due to higher client deposits, partially offset by lower borrowing activity, the net of which resulted in higher funding of earning assets.

Previous wording

(1) Net Interest Income stated on a GAAP basis. Net Interest Income on an FTE basis includes FTE adjustments of $57.5 million, $45.6 million, and $35.6 million for 2023, 2022, and 2021, respectively. A reconciliation of total consolidated revenue, Net Interest Income and net interest margin on a GAAP basis to revenue, Net Interest Income and net interest margin on an FTE basis, respectively, (each of which is a non-GAAP financial measure) is provided in “Supplemental Information—Reconciliation to Fully Taxable Equivalent” within this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section.

Current wording

(1) Net Interest Income stated on a GAAP basis. Net Interest Income on an FTE basis includes FTE adjustments of $31.8 million, $57.5 million, and $45.6 million for 2024, 2023, and 2022, respectively. A reconciliation of total consolidated revenue, Net Interest Income and net interest margin on a GAAP basis to revenue, Net Interest Income and net interest margin on an FTE basis, respectively, (each of which is a non-GAAP financial measure) is provided in “Supplemental Information—Reconciliation to Fully Taxable Equivalent” within this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section.

Previous wording

Trust, Investment and Other Servicing Fees were $4.36 billion in 2023 compared with $4.43 billion in 2022, and are based primarily on the market value of assets held in custody, managed or serviced; the volume of transactions; securities lending volume and spreads; and fees for other services rendered. Certain market value calculations on which fees are based are performed on a monthly or quarterly basis in arrears.

Current wording

Trust, Investment and Other Servicing Fees are based primarily on the market value of assets held in custody, managed or serviced; the volume of transactions; number of accounts; securities lending volume and spreads; and fees for other services rendered. Certain market value calculations on which fees are based are performed on a monthly or quarterly basis in arrears.

Previous wording

Asset Servicing Trust, Investment and Other Servicing Fees are primarily attributable to services related to custody, fund administration, investment management, and securities lending. Custody and Fund Administration fees, the largest component of Asset Servicing fees, are driven primarily by values of client AUC/A, transaction volumes and the number of accounts. The asset values used to calculate these fees vary depending on the individual fee arrangements negotiated with each client. Custody fees related to asset values are client specific and are priced based on month-end market values, quarter-end market values, or the average of month-end market values for the quarter. The fund administration fees that are asset-value-related are priced using month-end, quarter-end, or average daily balances. Investment Management fees are based generally on market values of client AUM management throughout the period. Typically, the asset values used to calculate fee revenue are based on a one-month or one-quarter lag.

Current wording

Asset Servicing Trust, Investment and Other Servicing Fees are primarily attributable to services related to custody, fund administration, investment management, and securities lending. Custody and Fund Administration fees, are driven primarily by values of client AUC/A, transaction volumes and the number of accounts. The asset values used to calculate these fees vary depending on the individual fee arrangements negotiated with each client. Custody fees related to asset values are client specific and are priced based on month-end market values, quarter-end market values, or the average of month-end market values for the quarter. The fund administration fees that are asset-value-related are priced using month-end, quarter-end, or average daily balances. Investment Management fees are based generally on market values of client AUM management throughout the period. Typically, the asset values used to calculate fee revenue are based on a one-month or one-quarter lag.

Previous wording

Securities Lending revenue is affected by market values; the demand for securities to be lent, which drives volumes; and the interest rate spread earned on the investment of cash deposited by investment firms as collateral for securities they have borrowed. The Other fee category in Asset Servicing includes such products as investment risk and analytical services, benefit payments, and other services. Revenue from these products is based generally on the volume of services provided or a fixed fee.

Current wording

Securities Lending revenue is affected by market values; the demand for securities to be lent, which drives volumes; and the interest rate spread earned on the investment of cash deposited by investment firms as collateral for securities they have borrowed. The Other fee category in Asset Servicing includes products such as investment risk and analytical services, benefit payments, and other services. Revenue from these products is based generally on the volume of services provided or a fixed fee.

Previous wording

The following tables provide a breakdown of the Asset Servicing assets under custody and AUM.

Current wording

The following tables provide a breakdown of the Asset Servicing assets under custody and assets under management.

Previous wording

Cash and other assets deposited by investment firms as collateral for securities borrowed from custody clients are managed by Northern Trust and are included in assets under custody and under management. This securities lending collateral totaled $167.4 billion and $148.3 billion at December 31, 2023 and 2022, respectively.

Current wording

Cash and other assets deposited by investment firms as collateral for securities borrowed from custody clients are managed by Northern Trust and are included in assets under custody and assets under management. This securities lending collateral totaled $176.2 billion and $167.4 billion at December 31, 2024 and 2023, respectively.

Previous wording

Wealth Management fee income is calculated primarily based on market values and is impacted by both one-month and one-quarter lagged asset values. Fee income in the regions decreased in 2023 from 2022 primarily due to product-related asset outflows, partially offset by favorable lagged markets. Global Family Office fee income was relatively flat primarily due to unfavorable lagged markets, partially offset by lower money market fund fee waivers and asset inflows. The following tables provide a summary of Wealth Management assets under custody and under management.

Current wording

Wealth Management fee income is calculated primarily based on market values and is impacted by both one-month and one-quarter lagged asset values. Fee income in the regions increased in 2024 from 2023 primarily due to favorable markets. Global Family Office fee income increased in 2024 from 2023 primarily due to favorable markets and asset inflows.

Previous wording

The Wealth Management regions shown are comprised of the following: Central includes Illinois, Michigan, Minnesota, Missouri, Ohio and Wisconsin; East includes Connecticut, Delaware, Florida, Georgia, Massachusetts, New York, Pennsylvania, and Washington, D.C.; West includes Arizona, California, Colorado, Nevada, Texas, and Washington. Global Family Office provides customized services, including but not limited to investment consulting, global custody, fiduciary, and private banking, to meet the complex financial needs of ultra-high-net-worth individuals and family offices across the globe.

Current wording

The Wealth Management regions shown are comprised of the following: Central includes Illinois, Michigan, Minnesota, Missouri, Ohio and Wisconsin; East includes Connecticut, Delaware, Florida, Georgia, Massachusetts, New York, Pennsylvania, and Washington, D.C.; West includes Arizona, California, Colorado, Nevada, Texas, and Washington. Global Family Office provides customized services, including but not limited to investment consulting, global custody, fiduciary, private banking, family office consulting, and technology solutions, to meet the complex financial and reporting needs of ultra-high-net-worth individuals and family offices across the globe.

Previous wording

Consolidated assets under custody increased from the prior year, primarily reflecting favorable markets.

Current wording

Consolidated assets under custody increased from the prior year, primarily reflecting favorable markets and asset inflows, partially offset by unfavorable currency translation.

Previous wording

AUM at the end of 2023 increased from 2022. The increase primarily reflected favorable markets, net inflows, and favorable currency translation.

Current wording

AUM at the end of 2024 increased from 2023. The increase primarily reflected favorable markets and net asset inflows.

Previous wording

Northern Trust provides foreign exchange services in the normal course of business as an integral part of its global custody services. Active management of currency positions, within conservative limits, also contributes to foreign exchange trading income. Foreign Exchange Trading Income in 2023 decreased from 2022, primarily driven by lower volatility, a decline in client volumes, and an unfavorable impact from foreign exchange swap activity in Treasury.

Current wording

Northern Trust provides foreign exchange services in the normal course of business as an integral part of its custody services. Active management of currency positions, within conservative limits, also contributes to foreign exchange trading income. Foreign Exchange Trading Income in 2024 increased from 2023, primarily driven by higher trading volumes.

Previous wording

Security Commissions and Trading Income, generated primarily from securities brokerage services provided by Northern Trust Securities, Inc., in 2023 decreased from 2022, primarily driven by lower equity commissions from lower equity trading volumes.

Current wording

Security Commissions and Trading Income, generated primarily from securities brokerage services provided by Northern Trust Securities, Inc., in 2024 increased from 2023, primarily driven by an increase in equity commissions from higher equity trading volumes.

Previous wording

Please refer to Note 18, “Other Operating Income” included under Item 8, “Financial Statements and Supplementary Data,” for additional details related to Other Operating Income.

Current wording

Other Operating Income in 2024 increased from 2023 primarily driven by a $896.7 million gain related to Northern Trust’s participation in an exchange offer related to shares of a class of Visa, Inc. common stock and a $68.1 million gain on the sale of an equity investment, partially offset by mark-to-market activity on existing swap agreements related to shares of a class of Visa, Inc. common stock, including a $12.8 million expense related to litigation escrow funding, as well as losses recognized as a result of a securities repositioning related to the supplemental pension plan and impairment charges taken on certain investments. Please refer to Note 18, “Other Operating Income” and Note 24, “Commitments and Contingent Liabilities” included under Item 8, “Financial Statements and Supplementary Data,” for additional details related to Other Operating Income and Visa, respectively.

Previous wording

Investment Security Gains (Losses), net reflects a $176.4 million available for sale debt security loss arising from a repositioning of the portfolio during the fourth quarter of 2023 and a $6.9 million gain upon sale of certain available for sale debt securities in the first quarter of 2023. In the prior year, there was a $213.0 million loss related to an intent to sell available for sale debt securities also arising from a repositioning of the portfolio.

Current wording

Investment Security Gains (Losses), net reflects a $189.3 million loss on the sale of available for sale debt securities in the current period arising from a repositioning of the portfolio. In the prior year, there was $169.5 million of losses on sales of available for sale debt securities also arising from repositionings of the portfolio.

Previous wording

(1)Northern Trust’s non-U.S. activities are primarily related to its asset servicing, asset management, foreign exchange, cash management, and commercial banking businesses. The operations of Northern Trust are managed on a reporting segment basis and include components of both U.S and non-U.S. source income and assets. Non-U.S. source income and assets are not separately identified in Northern Trust’s internal management reporting system. However, Northern Trust is required to disclose non-U.S. activities based on the domicile of the customer. Due to the complex and integrated nature of Northern Trust’s activities, it is difficult to segregate with precision revenues, expenses and assets between U.S. and non-U.S.-domiciled customers. On the basis of averages, the percentage of total assets attributable to foreign activities was 17%, 18%, and 19% as of December 31, 2023, 2022 and 2021, respectively. On the basis of averages, the percentage of total liabilities attributable to foreign activities was 52%, 55%, and 58% as of December 31, 2023, 2022 and 2021, respectively. For additional information, refer to the Geographic Area Information section of Note 31, “Reporting Segments and Related Information,” provided in Item 8, “Financial Statements and Supplementary Data.”

Current wording

(1)Northern Trust’s non-U.S. activities are primarily related to its asset servicing, asset management, foreign exchange, cash management, and commercial banking businesses. The operations of Northern Trust are managed on a reporting segment basis and include components of both U.S and non-U.S. source income and assets. Non-U.S. source income and assets are not separately identified in Northern Trust’s internal management reporting system. However, Northern Trust is required to disclose non-U.S. activities based on the domicile of the customer. Due to the complex and integrated nature of Northern Trust’s activities, it is difficult to segregate with precision revenues, expenses and assets between U.S. and non-U.S.-domiciled customers. On the basis of averages, the percentage of total assets attributable to foreign activities was 16%, 18%, and 19% as of December 31, 2024, 2023 and 2022, respectively. On the basis of averages, the percentage of total liabilities attributable to foreign activities was 54%, 55%, and 58% as of December 31, 2024, 2023 and 2022, respectively. For additional information, refer to the Geographic Area Information section of Note 31, “Reporting Segments and Related Information,” provided in Item 8, “Financial Statements and Supplementary Data.”

Previous wording

(3)Includes the impact of balance sheet netting under master netting arrangements of approximately $29.1 billion and $3.6 billion in 2023 and 2022, respectively. Excluding the impact of netting, the average interest rate on Securities Purchased under Agreements to Resell would be approximately 5.27% and 2.23% in 2023 and 2022, respectively. Excluding the impact of netting, the average interest rate on Securities Sold under Agreements to Repurchase would be approximately 5.22% and 2.27% in 2023 and 2022, respectively. Northern Trust nets securities sold under repurchase agreements against those purchased under resale agreements when there is a legally enforceable master netting arrangement.

Current wording

(3)Includes the impact of balance sheet netting under master netting arrangements of approximately $62.4 billion and $29.1 billion in 2024 and 2023, respectively. Excluding the impact of netting, the average interest rate on Securities Purchased under Agreements to Resell would be approximately 5.29% and 5.27% in 2024 and 2023, respectively. Excluding the impact of netting, the average interest rate on Securities Sold under Agreements to Repurchase would be approximately 5.21% and 5.22% in 2024 and 2023, respectively. Northern Trust nets securities sold under repurchase agreements against those purchased under resale agreements when there is a legally enforceable master netting arrangement.

Previous wording

(8)Rate calculations are based on actual balances rather than the rounded amounts presented in the average consolidated balance sheets with analysis of Net Interest Income.

Current wording

(8)Rate calculations are based on actual balances rather than the rounded amounts presented in the table above.

Previous wording

Notes: Net Interest Income (FTE), a non-GAAP financial measure, includes adjustments to a fully taxable equivalent basis for loans, securities and other interest-earning assets. The adjustments are based on a federal income tax rate of 21.0%, where the rate is adjusted for applicable state income taxes, net of related federal tax benefit. Total taxable equivalent interest adjustments amounted to $57.5 million in 2023, $45.6 million in 2022 and $35.6 million in 2021. A reconciliation of Net Interest Income and net interest margin on a GAAP basis to Net Interest Income and net interest margin on an FTE basis (each of which is a non-GAAP financial measure) is provided in “Supplemental Information—Reconciliation to Fully Taxable Equivalent” within this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section. Net interest margin is calculated by dividing annualized net interest income by average interest-earning assets.

Current wording

Notes: Net Interest Income (FTE), a non-GAAP financial measure, includes adjustments to a fully taxable equivalent basis for Loans and Leases, Securities and Other Interest-Earning Assets. The adjustments are based on a federal income tax rate of 21.0%, where the rate is adjusted for applicable state income taxes, net of related federal tax benefit. Total taxable equivalent interest adjustments amounted to $31.8 million in 2024, $57.5 million in 2023 and $45.6 million in 2022. A reconciliation of Net Interest Income and net interest margin on a GAAP basis to Net Interest Income and net interest margin on an FTE basis (each of which is a non-GAAP financial measure) is provided in “Supplemental Information—Reconciliation to Fully Taxable Equivalent” within this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section. Net interest margin is calculated by dividing annualized net interest income by average interest-earning assets.

Previous wording

Interest revenue on cash collateral positions is reported above within Interest-Bearing Due from and Deposits with Banks and within Loans and Leases. Interest expense on cash collateral positions is reported above within Non-U.S. Offices Interest-Bearing Deposits. Related cash collateral received from and deposited with derivative counterparties is recorded net of the associated derivative contract in Other Assets and Other Liabilities, respectively.

Current wording

Interest revenue on cash collateral positions is reported above within Interest-Bearing Due from and Deposits with Banks, within Loans and Leases, and within Other Interest-Earning Assets. Interest expense on cash collateral positions is reported above within Non-U.S. Offices Interest-Bearing Deposits. Related cash collateral received from and deposited with derivative counterparties is recorded net of the associated derivative contract in Other Assets and Other Liabilities, respectively.

Previous wording

Net Interest Income in 2023 increased from 2022. Net Interest Income, stated on an FTE basis, increased from 2022, due to a higher net interest margin, partially offset by lower levels of average earning assets. Average earning assets in 2023 decreased from 2022, primarily due to lower client deposits, partially offset by higher borrowing activity, the net of which resulted in lower funding of earning assets.

Current wording

Net Interest Income in 2024 increased from 2023. Net Interest Income, stated on an FTE basis, increased from 2023, due to a higher net interest margin and higher levels of average earning assets. Average earning assets in 2024 increased from 2023, primarily due to higher client deposits, partially offset by lower borrowing activity, the net of which resulted in higher funding of earning assets.

Previous wording

The net interest margin in 2023 increased from 2022. The net interest margin on an FTE basis in 2023 increased from 2022, primarily due to higher average interest rates, partially offset by an unfavorable funding mix shift.

Current wording

The net interest margin in 2024 increased from 2023. The net interest margin on an FTE basis in 2024 increased from 2023, primarily due to higher average interest rates and a favorable funding mix shift.

Previous wording

Federal Reserve and Other Central Bank Deposits averaged $31.2 billion in 2023, which decreased $5.0 billion, or 14%, from $36.2 billion in 2022, due to deposit outflows. Interest-Bearing Due From and Deposits with Banks averaged $4.3 billion in 2023 and $4.2 billion in 2022. Average Securities were $49.9 billion and decreased $5.1 billion, or 9%, from $55.0 billion in 2022. Average taxable Securities were $46.8 billion in 2023 and $52.4 billion in 2022. Average nontaxable Securities, which represent securities that are primarily exempt from U.S. federal and state income taxes, were $3.1 billion in 2023 and $2.6 billion in 2022.

Current wording

Federal Reserve and Other Central Bank Deposits averaged $35.2 billion in 2024, which increased $4.0 billion, or 13%, from $31.2 billion in 2023, due to deposit inflows. Interest-Bearing Due From and Deposits with Banks averaged $4.8 billion in 2024 and $4.3 billion in 2023. Average Securities were $50.1 billion and increased $0.2 billion, or 0%, from $49.9 billion in 2023. Average taxable Securities were $43.9 billion in 2024 and $46.8 billion in 2023. Average nontaxable Securities, which represent securities that are primarily exempt from U.S. federal and state income taxes, were $6.2 billion in 2024 and $3.1 billion in 2023.

Previous wording

Loans averaged $42.2 billion in 2023, which increased $1.2 billion, or 3%, from $41.0 billion in 2022, primarily reflecting higher levels of commercial real estate, commercial and institutional, and private client loans, partially offset by non-U.S. loans. Commercial real estate loans averaged $5.0 billion in 2023 and increased $549.4 million, or 12%, from $4.4 billion for 2022. Commercial and institutional loans averaged $12.4 billion in 2023 and increased $180.0 million, or 1%, from $12.3 billion for 2022. Private client loans averaged $14.0 billion in 2023 and increased $122.3 million, or 1%, from $13.9 billion for 2022. Non-U.S. loans averaged $3.4 billion in 2023 and decreased $101.8 million, or 3%, from $3.5 billion for 2022. Residential real estate loans averaged $6.4 billion in 2023 and was relatively unchanged from $6.4 billion for 2022.

Current wording

Loans averaged $40.9 billion in 2024, which decreased $1.2 billion, or 3%, from $42.2 billion in 2023, primarily reflecting lower levels of commercial and institutional and non-U.S. loans, partially offset by higher levels of commercial real estate and private client loans. Commercial and institutional loans averaged $11.1 billion in 2024 and decreased $1.3 billion, or 11%, from $12.4 billion for 2023. Non-U.S. loans averaged $3.0 billion in 2024 and decreased $360.9 million, or 11%, from $3.4 billion for 2023. Residential real estate loans averaged $6.4 billion in both 2024 and 2023. Commercial real estate loans averaged $5.3 billion in 2024 and increased $316.8 million, or 6%, from $5.0 billion for 2023. Private client loans averaged $14.2 billion in 2024 and increased $171.0 million, or 1%, from $14.0 billion for 2023.

Previous wording

Average Other Interest-Earning Assets include certain community development investments, collateral deposits with certain securities depositories and clearing houses, Federal Home Loan Bank stock, money market investments, and Federal Reserve stock of $899.2 million, $825.2 million, $364.6 million, $84.3 million, and $70.0 million, respectively, which are recorded in Other Assets on the consolidated balance sheets.

Current wording

Average Other Interest-Earning Assets include certain community development investments, collateral deposits with certain securities depositories and clearing houses, Federal Home Loan Bank stock, money market investments, and Federal Reserve stock of $854.8 million, $1,369.3 million, $335.1 million, $92.3 million, and $70.0 million, respectively, which are recorded in Other Assets on the consolidated balance sheets.

Previous wording

Northern Trust utilizes a diverse mix of funding sources. Average Interest-Bearing Deposits decreased $8.8 billion, or 9%, to $87.5 billion in 2023 from $96.3 billion in 2022. Interest expense for Interest-Bearing Deposits in the current year was driven by higher interest rates. Average Non-U.S. Offices Interest-Bearing Deposits comprised 69% and 68% of total average Interest-Bearing Deposits for the years ended December 31, 2023 and 2022, respectively. Average Total Interest-Bearing Liabilities increased $1.1 billion, or 1%, to $108.7 billion in 2023 from $107.6 billion in 2022. The balances within short-term borrowing classifications vary based on funding requirements and strategies, interest rate levels, changes in the volume of lower-cost deposit sources, and the availability of collateral to secure these borrowings. Average net noninterest-bearing funds decreased $9.1 billion, or 29%, to $22.1 billion in 2023 from $31.2 billion in 2022, primarily resulting from lower levels of Demand and Other Noninterest-Bearing Deposits. Average Demand and Other Noninterest-Bearing Deposits decreased $11.6 billion, or 40%, to $17.7 billion in 2023 from $29.3 billion in 2022. The average rate on total source of funds was 4.07% in 2023 and 0.70% in 2022.

Current wording

Northern Trust utilizes a diverse mix of funding sources. Average Interest-Bearing Deposits increased $8.4 billion, or 10%, to $95.9 billion in 2024 from $87.5 billion in 2023. Interest expense for Interest-Bearing Deposits in the current year was driven by higher interest rates and higher balances. Average Non-U.S. Offices Interest-Bearing Deposits comprised 67% and 69% of total average Interest-Bearing Deposits for the years ended December 31, 2024 and 2023, respectively. Average Total Interest-Bearing Liabilities increased $4.2 billion, or 4%, to $112.9 billion in 2024 from $108.7 billion in 2023. The balances within short-term borrowing classifications vary based on funding requirements and strategies, interest rate levels, changes in the volume of lower-cost deposit sources, and the availability of collateral to secure these borrowings. Average net noninterest-bearing funds decreased $0.6 billion, or 3%, to $21.5 billion in 2024 from $22.1 billion in 2023, primarily resulting from lower levels of Demand and Other Noninterest-Bearing Deposits. Average Demand and Other Noninterest-Bearing Deposits decreased $1.0 billion, or 5%, to $16.8 billion in 2024 from $17.7 billion in 2023. The average rate on total source of funds was 5.65% in 2024 and 4.07% in 2023.

Previous wording

Stockholders’ Equity averaged $11.5 billion in 2023, compared with $11.1 billion in 2022. The increase in average Stockholders’ Equity of $415.4 million, or 4%, was primarily due to higher Retained Earnings. During the year ended December 31, 2023, the Corporation maintained its quarterly common stock dividend at $0.75 per share. During the year ended December 31, 2023, the Corporation, through common stock dividends and repurchase of 4,384,678 shares of common stock, returned $977.7 million in capital to common stockholders. During the year ended December 31, 2022, the Corporation increased its quarterly common stock dividend to $0.75 per share in the third quarter from $0.70 per share in the second quarter. During the year ended December 31, 2022, the Corporation, through common stock dividends and repurchase of 311,536 shares of common stock, returned $648.4 million in capital to common stockholders.

Current wording

Stockholders’ Equity averaged $12.3 billion in 2024, compared with $11.5 billion in 2023. The increase in average Stockholders’ Equity of $803.0 million, or 7%, was primarily due to higher Retained Earnings. During the year ended December 31, 2024, the Corporation maintained its quarterly common stock dividend at $0.75 per share. During the year ended December 31, 2024, the Corporation, through common stock dividends and repurchases of 10,489,770 shares of common stock, returned $1.5 billion in capital to common stockholders. During the year ended December 31, 2023, the Corporation, through common stock dividends and repurchases of 4,384,678 shares of common stock, returned $977.7 million in capital to common stockholders.

Previous wording

Net charge-offs in 2023 totaled $5.0 million resulting from $8.7 million of charge-offs and $3.7 million of recoveries, compared to net recoveries of $4.2 million in 2022 resulting from $6.0 million of charge-offs and $10.2 million of recoveries. For additional discussion of the Allowance for Credit Losses, refer to the “Asset Quality” section.

Current wording

Net charge-offs in 2024 totaled $11.3 million resulting from $15.5 million of charge-offs and $4.2 million of recoveries, compared to net charge-offs of $5.0 million in 2023 resulting from $8.7 million of charge-offs and $3.7 million of recoveries. For additional discussion of the Allowance for Credit Losses, refer to the “Asset Quality” section.

Previous wording

Noninterest Expense for 2023 increased from 2022, primarily reflecting increased Other Operating Expense, Equipment and Software, and Compensation.

Current wording

Noninterest Expense for 2024 increased from 2023, primarily reflecting increased Compensation, Equipment and Software, and Outside Services expense, partially offset by lower Other Operating Expense.

Previous wording

Compensation expense, the largest component of Noninterest Expense, increased in 2023 from 2022, primarily reflecting higher salary expense, partially offset by lower incentives. Severance-related charges were $36.7 million in 2023 as compared to $30.4 million in 2022. Full-time equivalent employees totaled approximately 23,100 at December 31, 2023, down 2% from approximately 23,600 at December 31, 2022.

Current wording

Compensation expense, the largest component of Noninterest Expense, increased in 2024 from 2023, primarily due to higher severance-related charges and an increase to base pay adjustments. Severance-related charges were $81.8 million in 2024 as compared to $36.7 million in 2023. Full-time equivalent employees totaled approximately 23,300 at December 31, 2024, up 1% from approximately 23,100 at December 31, 2023.

Previous wording

Outside Services expense in 2023 increased from 2022, primarily reflecting higher technical services costs, partially offset by lower consulting services.

Current wording

Outside Services expense in 2024 increased from 2023, primarily reflecting higher consulting services and higher technical services.

Previous wording

Equipment and Software expense in 2023 increased from 2022, primarily due to higher software amortization and higher software costs.

Current wording

Equipment and Software expense in 2024 increased from 2023, primarily due to higher software amortization and higher software support and rental expense.

Previous wording

Other Operating Expense in 2023 increased from 2022 primarily reflecting an $84.6 million FDIC special assessment and a $25.6 million charge related to the write-off of an investment in a client capability.

Current wording

Other Operating Expense in 2024 decreased from 2023 primarily due to an $84.6 million FDIC special assessment and a $25.6 million charge related to the write-off of an investment in a client capability, both recorded in the prior year, partially offset by a $70.0 million charitable contribution, a $10.6 million legal settlement, and $14.7 million of additional expense related to the FDIC special assessment, recorded in the current year. Please refer to Note 24, “Commitments and Contingent Liabilities” included under Item 8, “Financial Statements and Supplementary Data,” for additional details related to the FDIC special assessment.

Previous wording

The 2023 Provision for Income Taxes was $357.5 million, representing an effective rate of 24.4%. This compares with a Provision for Income Taxes of $430.3 million and an effective rate of 24.4% in 2022.

Current wording

The 2024 Provision for Income Taxes was $628.4 million, representing an effective rate of 23.6%. This compares with a Provision for Income Taxes of $357.5 million and an effective rate of 24.4% in 2023.

Previous wording

Reporting segment financial information, presented on an internal management-reporting basis, is determined by accounting systems used to allocate revenue and expense to each segment, and incorporates processes for allocating assets, liabilities, equity and the applicable interest income and expense utilizing a funds transfer pricing (FTP) methodology. Under the methodology, assets and liabilities receive a funding charge or credit that considers interest rate risk, liquidity risk, and other product characteristics on an instrument level. Additionally, segment information is presented on a fully taxable equivalent (FTE) basis as management believes an FTE presentation provides a clearer indication of net interest income. The adjustment to an FTE basis has no impact on Net Income.

Current wording

Reporting segment financial information, presented on an internal management-reporting basis, is determined by accounting systems used to allocate revenue and expense to each segment, and incorporates processes for allocating assets, liabilities, equity and the applicable interest income and expense utilizing a funds transfer pricing (FTP) methodology. Under the methodology, assets and liabilities receive a funding charge or credit that considers interest rate risk, liquidity risk, and other product characteristics on an instrument level. Additionally, segment information is presented on an FTE basis as management believes an FTE presentation provides a clearer indication of net interest income. The adjustment to an FTE basis has no impact on Net Income.

Previous wording

Equity is allocated to the reporting segments based on a variety of factors including, but not limited to, risk, regulatory considerations, and internal metrics. Allocations of capital and certain corporate expense may not be representative of levels that would be required if the segments were independent entities. The accounting policies used for management reporting are consistent with those described in Note 1, “Summary of Significant Accounting Policies.” Transfers of income and expense items are recorded at cost; there is no consolidated profit or loss on sales or transfers between reporting segments. Northern Trust’s presentations are not necessarily consistent with similar information for other financial institutions.

Current wording

Equity is allocated to the reporting segments based on a variety of factors including, but not limited to, risk, regulatory considerations, and internal metrics. Allocations of equity and certain corporate expense may not be representative of levels that would be required if the segments were independent entities. The accounting policies used for management reporting are consistent with those described in Note 1, “Summary of Significant Accounting Policies.” Transfers of income and expense items are recorded at cost; there is no consolidated profit or loss on sales or transfers between reporting segments. Northern Trust’s presentations are not necessarily consistent with similar information for other financial institutions.

Previous wording

Segment results are stated on an FTE basis which has no impact on Net Income. Net Interest Income on an FTE basis includes FTE adjustments of $57.5 million, $45.6 million, and $35.6 million for 2023, 2022, and 2021, respectively. A reconciliation of total consolidated revenue, Net Interest Income and net interest margin on a GAAP basis to revenue, Net Interest Income and net interest margin on an FTE basis, respectively, (each of which is a non-GAAP financial measure) is provided in “Supplemental Information—Reconciliation to Fully Taxable Equivalent” within this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section.

Current wording

Segment results are stated on an FTE basis which has no impact on Net Income. Net Interest Income on an FTE basis includes FTE adjustments of $31.8 million, $57.5 million, and $45.6 million for 2024, 2023, and 2022, respectively. A reconciliation of total consolidated revenue, Net Interest Income and net interest margin on a GAAP basis to revenue, Net Interest Income and net interest margin on an FTE basis, respectively, (each of which is a non-GAAP financial measure) is provided in “Supplemental Information—Reconciliation to Fully Taxable Equivalent” within this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section.