ITEM 7 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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, 2025. 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.”
BUSINESS OVERVIEW
The Corporation is a leading provider of wealth management, asset servicing, asset management and banking solutions to corporations, institutions, families and individuals. The Corporation focuses on managing and servicing client assets through its two client-focused reporting segments: Asset Servicing and Wealth Management. Asset management and related services are provided to Asset Servicing and Wealth Management clients primarily by the Asset Management business.
The Corporation conducts business through various U.S. and non-U.S. subsidiaries, including The Northern Trust Company (the Bank). The Corporation was formed as a holding company for the Bank in 1971. The Corporation has a global presence with offices in 24 U.S. states and Washington, D.C., and across 22 locations in Canada, Europe, the Middle East and the Asia-Pacific region. Except where the context requires otherwise, the terms “Northern Trust,” “we,” “us,” “our,” “its,” or similar terms refers to the Corporation and its subsidiaries on a consolidated basis.
FINANCIAL OVERVIEW
TABLE 3: FINANCIAL HIGHLIGHTS
FOR THE YEAR ENDED DECEMBER 31, CHANGE(1)
Provision for Credit Losses (7.5) (3.0) 24.5 N/M N/M
PER COMMON SHARE
Cash Dividends Declared Per Common Share 3.10 3.00 3.00 3 —
SELECTED RATIOS AND METRICS
Return on Average Common Equity 14.4 % 17.4 % 10.0 %
Average Stockholders’ Equity to Average Assets 8.3 8.4 8.1
(1) Percentage calculations are based on actual balances rather than the rounded amounts presented in the table above.
(2)2025 Noninterest Income includes a $19.2 million expense related to mark-to-market activity associated with existing Visa Class B swap agreements. 2024 Noninterest Income includes an $878.4 million net gain related to Northern Trust's participation in a Visa Exchange Offer, a $189.3 million loss on AFS debt securities sold in conjunction with a repositioning of the portfolio, a $68.1 million gain related to the sale of an equity investment, a $12.8 million expense of mark-to-market activity associated with existing Visa Class B swap agreements, a $7.6 million charge for investment impairments, and a $6.5 million loss recognized as a result of a securities repositioning related to the supplemental pension plan. 2023 Noninterest Income includes a $169.5 million loss on AFS debt securities sold in conjunction with a repositioning of the portfolio.
(3)2025 Noninterest Expense includes a $58.8 million severance-related charge and a $15.9 million release of the Federal Deposit Insurance Corporation (FDIC) special assessment reserve, including a $9.5 million released during the fourth quarter. 2024 Noninterest Expense includes an $85.2 million severance-related charge, a $70.0 million charitable contribution, a $16.4 million charge for software accelerations and dispositions, a $14.7 million expense related to the FDIC special assessment, and a $10.6 million expense related to a legal settlement. 2023 Noninterest Expense includes an $84.6 million expense related to the FDIC special assessment, a $38.7 million severance-related charge, a $25.6 million charge related to the write-off of an investment in a client capability, and a $12.8 million occupancy charge.
N/M - Not meaningful
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CONSOLIDATED RESULTS OF OPERATIONS
The following information summarizes our consolidated results of operations for 2025 compared to 2024. For a discussion related to the consolidated results of operations for 2024 compared to 2023, refer to Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in our Annual Report on Form 10-K for the year ended December 31, 2024 (2024 Form 10-K), which was filed with the United States Securities and Exchange Commission on February 24, 2025.
Revenue
Northern Trust generates the majority of its revenue from Noninterest Income that primarily consists of Trust, Investment and Other Servicing Fees. Net Interest Income comprises the remainder of revenue and consists of Interest Income generated by earning assets, net of Interest Expense on deposits and borrowed funds.
TABLE 4: REVENUE
FOR THE YEAR ENDED DECEMBER 31, CHANGE
Noninterest Income
Investment Security Gains (Losses), net — (189.3) (169.5) N/M 12
(1) Net Interest Income stated on a GAAP basis. Net Interest Income on an FTE basis includes FTE adjustments of $28.5 million, $31.8 million, and $57.5 million for 2025, 2024, and 2023, 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.
Revenue in 2025 decreased $204.0 million from 2024, reflecting:
•Trust, Investment and Other Servicing Fees increased $290.0 million in 2025 compared to 2024, primarily due to favorable markets, net new business, and favorable currency movements.
•Noninterest Income, excluding Trust, Investment and Other Servicing Fees, decreased $727.9 million in 2025 compared to 2024 primarily due to lower Other Operating Income driven by a $896.7 million gain related to Northern Trust’s participation in a Visa Exchange Offer in the prior year, partially offset by lower losses recognized on investment securities and higher Security Commissions and Trading Income.
•Net Interest Income on a fully taxable equivalent (FTE) basis in 2025 of $2.4 billion increased $230.6 million, or 10%, from $2.2 billion in 2024, primarily due to higher deposits and lower funding costs, partially offset by lower yields on interest-earning assets.
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Trust, Investment and Other Servicing Fees
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.
The components of Trust, Investment and Other Servicing Fees are provided in the following table.
TABLE 5: TRUST, INVESTMENT AND OTHER SERVICING FEES
FOR THE YEAR ENDED DECEMBER 31, CHANGE
Asset Servicing Trust, Investment and Other Servicing Fees
Wealth Management Trust, Investment and Other Servicing Fees
Asset Servicing
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 throughout the period. Typically, the asset values used to calculate fee revenue are based on a one-month or one-quarter lag.
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.
Custody and Fund Administration fees increased in 2025 from 2024 primarily due to favorable markets, net new business, and favorable currency movements. Investment Management fees increased in 2025 from 2024 primarily due to favorable markets and net new business. Securities Lending increased in 2025 from 2024 primarily due to higher volumes. Other fees increased from the prior-year, primarily due to net new business.
The following tables provide a breakdown of the Asset Servicing assets under custody and assets under management.
TABLE 6: ASSET SERVICING ASSETS UNDER CUSTODY
DECEMBER 31, CHANGE
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
TABLE 7: ASSET SERVICING ASSETS UNDER MANAGEMENT
DECEMBER 31, CHANGE
(1) 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
Wealth Management
Wealth Management fee income is calculated primarily based on market values of client AUC/A and AUM and is impacted by both one-month and one-quarter lagged asset values. Fee income in the regions increased in 2025 from 2024 primarily due to favorable markets. Global Family Office fee income increased in 2025 from 2024 primarily due to favorable markets and asset inflows.
The following tables provide a summary of Wealth Management assets under custody and assets under management.
TABLE 8: WEALTH MANAGEMENT ASSETS UNDER CUSTODY
DECEMBER 31, CHANGE
TABLE 9: WEALTH MANAGEMENT ASSETS UNDER MANAGEMENT
DECEMBER 31, CHANGE
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 family offices across the globe.
Asset Management
Asset Management, through the Corporation’s various subsidiaries, supports the Asset Servicing and Wealth Management reporting segments by providing a broad range of asset management and related services and other products to clients around the world. Investment solutions are delivered through separately managed accounts, bank common and collective funds, registered investment companies, exchange traded funds, non-U.S. collective investment funds, and unregistered private investment funds. Asset Management’s capabilities include active and passive equity; active and passive fixed income; cash management; multi-asset and alternative asset classes (such as private equity and hedge funds of funds); and multi-manager advisory services and products. Asset Management’s activities also include overlay services and other risk management services. Asset Management operates internationally through subsidiaries and distribution arrangements and its revenue and expense are allocated fully to Asset Servicing and Wealth Management.
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Market Indices
The following tables present selected market indices and the percentage changes year-over-year to provide context regarding equity and fixed income market impacts on the Corporation’s results.
TABLE 10: EQUITY MARKET INDICES
DAILY AVERAGES YEAR-END
TABLE 11: FIXED INCOME MARKET INDICES
AS OF DECEMBER 31,
Barclays Capital U.S. Aggregate Bond Index 2,349 2,189 7 %
Barclays Capital Global Aggregate Bond Index 501 463 8
Client Assets
Northern Trust, in the normal course of business, holds assets under custody/administration and management in a fiduciary or agency capacity for its clients. In accordance with GAAP, these assets are not assets of Northern Trust and are not included in its consolidated balance sheets. AUC/A and AUM are a driver of our Trust, Investment and Other Servicing Fees. For the purposes of disclosing AUC/A, to the extent that both custody and administration services are provided, the value of the assets is included only once in this amount.
At December 31, 2025, total AUC/A and AUC increased from the prior year primarily driven by favorable markets. AUM at the end of 2025 increased from 2024, primarily reflecting favorable markets and net asset inflows.
The following table presents AUC/A by reporting segment.
TABLE 12: ASSETS UNDER CUSTODY/ADMINISTRATION BY REPORTING SEGMENT
DECEMBER 31, CHANGE
The following table presents assets under custody, a component of AUC/A, by reporting segment.
TABLE 13: ASSETS UNDER CUSTODY BY REPORTING SEGMENT
DECEMBER 31, CHANGE
The following table presents the investment allocation of Northern Trust’s custodied assets by reporting segment.
TABLE 14: ALLOCATION OF ASSETS UNDER CUSTODY
DECEMBER 31,
AS WM TOTAL AS WM TOTAL AS WM TOTAL
Securities Lending Collateral 2 — 1 1 — 1 2 — 1
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following table presents Northern Trust’s assets under custody by investment type.
TABLE 15: ASSETS UNDER CUSTODY BY INVESTMENT TYPE
DECEMBER 31, CHANGE
The following table presents Northern Trust’s AUM by reporting segment.
TABLE 16: ASSETS UNDER MANAGEMENT BY REPORTING SEGMENT
DECEMBER 31, CHANGE
The following table presents the investment allocation of Northern Trust’s AUM by reporting segment.
TABLE 17: ASSETS UNDER MANAGEMENT BY INVESTMENT TYPE
DECEMBER 31,
AS WM TOTAL AS WM TOTAL AS WM TOTAL
The following table presents consolidated AUM as of December 31, 2025, 2024 and 2023 by investment type.
TABLE 18: CONSOLIDATED ASSETS UNDER MANAGEMENT BY INVESTMENT TYPE
DECEMBER 31, CHANGE
The following table presents activity in consolidated AUM by product during the years ended December 31, 2025, 2024 and 2023.
TABLE 19: ACTIVITY IN CONSOLIDATED ASSETS UNDER MANAGEMENT BY PRODUCT
Net Inflows (Outflows) by Product
Securities Lending Collateral 31.9 9.0 19.1
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Other Noninterest Income
The components of Other Noninterest Income and a discussion of significant changes during 2025 are provided below.
TABLE 20: OTHER NONINTEREST INCOME
FOR THE YEAR ENDED DECEMBER 31, CHANGE
Investment Security Gains (Losses), net — (189.3) (169.5) N/M 12
Security Commissions and Trading Income
Security Commissions and Trading Income, generated primarily from securities brokerage services provided by Northern Trust Securities, Inc., increased in 2025 from 2024, primarily driven by higher revenue from growth in outsourced trading activity.
Other Operating Income
Other Operating Income in 2025 decreased from 2024 primarily driven by a $896.7 million gain related to Northern Trust’s participation in a Visa Exchange Offer and a $68.1 million gain on the sale of an equity investment, partially offset by higher expense associated with mark-to-market activity on existing Visa Class B swap agreements, all recorded in the prior year. 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.
Investment Security Gains (Losses), Net
Investment Security Gains (Losses), net reflects a $189.3 million loss on the sale of AFS debt securities in the prior year arising from a repositioning of the portfolio.
Net Interest Income
Net Interest Income is defined as the total of Interest Income and amortized fees on earning assets, less Interest Expense on deposits and borrowed funds, adjusted for the impact of interest-related hedging activity. Earning assets—including Federal Funds Sold, Securities Purchased under Agreements to Resell, Interest-Bearing Due from and Deposits with Banks, Federal Reserve and Other Central Bank Deposits, Securities, Loans, and Other Interest-Earning Assets—are financed by a large base of interest-bearing liabilities that include client deposits, short-term borrowings, Senior Notes and Long-Term Debt. Short-term borrowings include Federal Funds Purchased, Securities Sold Under Agreements to Repurchase, and Other Borrowings. Earning assets also are funded by noninterest-bearing funds, which include demand deposits and Stockholders’ Equity. Net Interest Income is subject to variations in the level and mix of earning assets and interest-bearing funds and their relative sensitivity to interest rates. In addition, the levels of nonaccruing assets and client compensating deposit balances used to pay for services impact Net Interest Income.
Net interest margin is the difference between what we earn on our assets and what we pay for deposits and other sources of funding. The direction and level of interest rates are important factors in our earnings. Net interest margin is calculated by dividing annualized Net Interest Income by average interest-earning assets.
Net Interest Income stated on an FTE basis is a non-GAAP financial measure that facilitates the analysis of asset yields. Management believes an FTE presentation provides a clearer indication of net interest margins for comparative purposes. When adjusted to an FTE basis, yields on taxable, nontaxable, and partially taxable assets are comparable; however, the adjustment to an FTE basis has no impact on Net Income. A reconciliation of Net Interest Income on a GAAP basis to Net Interest Income on an FTE basis 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.
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following tables present an analysis of average daily balances and interest rates affecting Net Interest Income and an analysis of Net Interest Income changes.
TABLE 21: AVERAGE CONSOLIDATED BALANCE SHEETS WITH ANALYSIS OF NET INTEREST INCOME (INTEREST AND RATE ON A FULLY TAXABLE EQUIVALENT BASIS)
AVERAGE ASSETS
Debt Securities
Trading Account — — — — — — 0.1 0.5 13.50
AVERAGE SOURCE OF FUNDS
Deposits
Interest Rate Spread — — 0.87 — — 0.57 — — 0.73
Less: FTE Adjustment $ 28.5 $ — — % $ 31.8 $ — — % $ 57.5 $ — — %
(1) Rate calculations are based on actual balances rather than the rounded amounts presented in the table above.
(2) Interest-Bearing Due from and Deposits with Banks includes the interest-bearing component of Cash and Due from Banks and Interest-Bearing Deposits with Banks as presented on the consolidated balance sheets.
(3) Includes the impact of balance sheet netting under master netting arrangements of approximately $64.3 billion and $62.4 billion in 2025 and 2024, respectively, primarily related to our involvement in FICC. Northern Trust nets securities sold under repurchase agreements against those purchased under resale agreements when the GAAP requirements to net are met.
(4) Excluding the impact of netting, the average interest rate on Federal Funds Sold and Securities Purchased under Agreements to Resell would be approximately 4.33% and 5.29% in 2025 and 2024, respectively. It includes balances and rates for FICC reverse repurchase agreements, Non-FICC reverse repurchase agreements and federal funds sold of ($64.4 billion / 4.35%), ($0.9 billion / 2.67%), and ($0.8 million / 4.54%) for 2025 and ($62.5 billion / 5.30%), ($0.7 billion / 4.35%), and ($0.4 million / 5.40%) for 2024, respectively.
(5) Other Interest-Earning Assets include certain community development investments, collateral deposits with certain securities depositories and clearing houses, Federal Home Loan Bank and Federal Reserve stock, and money market investments which are classified in Other Assets on the consolidated balance sheets.
(6) Cash and Due from Banks and Other Central Bank Deposits includes the noninterest-bearing component of Federal Reserve and Other Central Bank Deposits on the consolidated balance sheets.
(7) Excluding the impact of netting, the average interest rate on Securities Sold under Agreements to Repurchase would be approximately 4.26% and 5.21% in 2025 and 2024, respectively. It includes balances and rates for FICC repurchase agreements and Non-FICC repurchase agreements of ($64.3 billion / 4.26%) and ($0.5 billion / 3.98%) for 2025 and ($62.5 billion / 5.21%) and ($0.5 billion / 4.90%) for 2024, respectively.
(8) Other Borrowings primarily includes advances from the Federal Home Loan Bank of Chicago.
(9) A reconciliation of Net Interest Income on a GAAP basis to Net Interest Income on an FTE basis 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.
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Net Interest Income, stated on an FTE basis, increased from 2024, primarily driven by higher deposits and lower funding costs, partially offset by lower yields on interest-earning assets.
Net interest margin on an FTE basis in 2025 increased from 2024, primarily driven by lower funding costs, partially offset by lower yields on interest-earning assets.
Interest-earning deposits includes Federal Reserve and Other Central Bank Deposits and Interest-Bearing Due from and Deposits with Banks. Interest-earning deposits in 2025 increased 7% from 2024, primarily driven by higher client deposits.
Average Securities in 2025 increased 8%, from 2024, reflecting higher client deposits resulting in strategic purchases of investment securities primarily in the AFS portfolio. Average taxable Securities were $45.9 billion in 2025 and $43.9 billion in 2024. Average nontaxable Securities, which represent securities that are primarily exempt from U.S. federal and state income taxes, were $8.2 billion in 2025 and $6.2 billion in 2024. For additional discussions relating to the securities portfolio, refer to the “Asset Quality” section and to Note 4, “Securities,” provided in Item 8, “Financial Statements and Supplementary Data.”
Average Loans of $41.1 billion in 2025 were relatively flat compared to average loans of $40.9 billion in 2024, primarily driven by higher private client loans, partially offset by lower commercial and institutional loans. Average balances include nonaccrual loans.
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 $892.6 million, $1.2 billion, $342.7 million, $85.0 million, and $70.0 million, respectively, which are recorded in Other Assets on the consolidated balance sheets.
Average Interest-Bearing Deposits in 2025 increased 6% from 2024, primarily due to increased client activity and higher liquidity as a result of market volatility. Average Non-U.S. Offices Interest-Bearing Deposits comprised 66% and 67% of total average Interest-Bearing Deposits for the years ended December 31, 2025 and 2024, respectively.
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
TABLE 22: ANALYSIS OF NET INTEREST INCOME CHANGES DUE TO VOLUME AND RATE(1)
Increase (Decrease) in Net Interest Income (FTE)
Debt Securities
Trading Account — — — (0.2) 0.1 (0.1)
Interest-Bearing Deposits
(1) Changes not due solely to average balance changes or rate changes are allocated proportionately to average balance and rate based on their relative absolute magnitudes.
(2) Changes due to average balance and average rate include the impact of balance sheet netting as noted in Table 21: Average Consolidated Balance Sheets with Analysis of Net Interest Income. Excluding the impact of netting, the 2025 vs. 2024 change in Federal Funds Sold and Securities Purchased under Agreements to Resell attributed to the average balance and the average rate would be $111.3 million and $(622.3) million respectively. The 2024 vs. 2023 change attributed to the average balance and the average rate would be $1.8 billion and $4.1 million respectively. Excluding the impact of netting, the 2025 vs. 2024 change in Securities Sold under Agreements to Repurchase attributed to the average balance and the average rate would be $95.4 million and $(612.6) million respectively. The 2024 vs. 2023 change attributed to the average balance and the average rate would be $1.7 billion and $(3.7) million respectively.
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 $28.5 million in 2025, $31.8 million in 2024 and $57.5 million in 2023. 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.
Interest revenue on cash collateral positions is reported above within Interest-Bearing Due from and Deposits with Banks, within Loans, and within Other Interest-Earning Assets. Interest expense on cash collateral positions is reported above within Savings, Money Market and Other and in 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.
Stockholders’ Equity
During the year ended December 31, 2025, the Corporation increased its quarterly common stock dividend to $0.80 per share from the previous $0.75 per share. The Corporation declared cash dividends totaling $600.5 million to common stockholders and repurchased 11,005,509 shares of common stock, including 450,486 shares withheld to satisfy tax withholding obligations related to share-based compensation, at a total cost of $1.3 billion ($115.72 average price per share). Through the common stock dividends and repurchases, the Corporation returned $1.9 billion in capital to common stockholders in 2025. During the year ended December 31, 2025, the Corporation declared cash dividends totaling $41.8 million to preferred stockholders.
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
During the year ended December 31, 2024, the Corporation declared cash dividends totaling $608.4 million to common stockholders and repurchased 10,489,770 shares of common stock, including 424,806 shares withheld to satisfy tax withholding obligations related to share-based compensation, at a total cost of $937.8 million ($89.41 average price per share). Through the common stock dividends and repurchases, the Corporation returned $1.5 billion in capital to common stockholders in 2024. During the year ended December 31, 2024, the Corporation declared cash dividends totaling $41.8 million to preferred stockholders.
On July 22, 2025, the stock repurchase program was terminated and replaced with a new program, under which the Board of Directors authorized the Corporation to repurchase up to $2.5 billion of the Corporation’s common stock. Repurchases prior to July 22, 2025 were made pursuant to the stock repurchase authorization approved by the Board of Directors in October 2021. Shares are repurchased by the Corporation to, among other things, manage the Corporation’s capital levels. Repurchased shares are used for general purposes, including the issuance of shares under stock option and other equity incentive plans. The repurchase authorization approved by the Board of Directors has no expiration date, thus the Corporation retains the ability to repurchase when circumstances warrant and applicable regulations permit. Please refer to Note 13, “Stockholders’ Equity,” provided in Item 8, “Financial Statements and Supplementary Data.”
Provision for Credit Losses
There was a negative Provision for Credit Losses of $7.5 million in 2025, as compared to a negative Provision for Credit Losses of $3.0 million in 2024. The negative provision during 2025 resulted primarily from a decrease in collective reserves for the Commercial Real Estate (CRE) portfolio driven by an improved industry outlook, partially offset by an increase in specific reserves related to a small number of non-performing loans. The prior-year negative provision primarily reflected a decrease in collective reserves driven by methodology changes and improvements in the held to maturity securities portfolio quality; partially offset by an increase in the CRE portfolio, driven by deterioration in portfolio quality.
Net charge-offs in 2025 totaled $0.3 million resulting from $3.9 million of charge-offs and $3.6 million of recoveries, compared to net charge-offs of $11.3 million in 2024 resulting from $15.5 million of charge-offs and $4.2 million of recoveries. For additional discussion of the Allowance for Credit Losses, refer to the “Asset Quality” section.
Noninterest Expense
Noninterest Expense for 2025 increased from 2024, primarily reflecting higher Compensation, Employee Benefits and Equipment and Software expense, partially offset by lower Other Operating Expense.
The components of Noninterest Expense and a discussion of significant changes during 2025 are provided below.
TABLE 23: NONINTEREST EXPENSE
FOR THE YEAR ENDED DECEMBER 31, CHANGE
Compensation
Compensation expense, the largest component of Noninterest Expense, increased in 2025 from 2024, primarily driven by increased headcount and higher annual base pay adjustments. Full-time equivalent employees totaled approximately 23,800 at December 31, 2025, up 2% from approximately 23,300 at December 31, 2024.
Employee Benefits
Employee Benefits expense in 2025 increased from 2024, primarily driven by higher medical costs and higher payroll taxes.
Equipment and Software
Equipment and Software expense in 2025 increased from 2024, primarily due to higher software amortization and higher software support expense, partially offset by $16.4 million of software acceleration and disposition charges recorded in the prior year.
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Other Operating Expense
Other Operating Expense in 2025 decreased from 2024 primarily due to a $70.0 million charitable contribution, a $10.6 million legal settlement, $14.7 million of additional expense related to the FDIC special assessment, all recorded in the prior year, and a $15.9 million release of the FDIC special assessment reserve recorded in the current year.
Please refer to Note 19, “Other Operating Expense” included under Item 8, “Financial Statements and Supplementary Data,” for additional details related to other operating expenses.
Provision for Income Taxes
The 2025 Provision for Income Taxes was $602.6 million, representing an effective rate of 25.8%. This compares with a Provision for Income Taxes of $628.4 million and an effective rate of 23.6% in 2024. For the year ended December 31, 2025, the increase in the effective tax rate was primarily driven by a higher net tax impact from international operations.
See Note 20, “Income Taxes,” provided in Item 8, “Financial Statements and Supplementary Data,” for more information on income taxes.
REPORTING SEGMENTS AND RELATED INFORMATION
The following information summarizes our consolidated results of operations by reporting segment for 2025 compared to 2024. For a discussion related to the consolidated results of operations by reporting segment for 2024 compared to 2023, refer to Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in our 2024 Form 10-K, which was filed with the SEC on February 24, 2025.
Northern Trust is organized around its two client-focused reporting segments: Asset Servicing and Wealth Management. Asset management and related services are provided to Asset Servicing and Wealth Management clients primarily by the Asset Management business. The revenue and expenses of Asset Management and certain other support functions are allocated fully to Asset Servicing and Wealth Management.
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. Income before Income Taxes on an FTE basis is the measure of segment profit or loss reviewed by the Chief Operating Decision Maker for purposes of assessing performance and allocating resources. The adjustment to an FTE basis has no impact on Net Income.
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,” provided in Item 8, “Financial Statements and Supplementary Data.” 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.
Revenues, expenses and average assets are allocated to Asset Servicing and Wealth Management, with the exception of non-recurring activities such as certain corporate transactions and costs incurred associated with acquisitions, divestitures, litigation, restructuring, and tax adjustments not directly attributable to a specific reporting segment, which are reported within Other.
In addition to income and expenses associated with non-recurring activities, Other includes expenses for Asset Management, corporate and other support functions not directly incurred by, but ultimately allocated back to Asset Servicing and Wealth Management. Other also includes the FTE adjustments of $28.5 million, $31.8 million, and $57.5 million for 2025, 2024, and 2023, respectively, in order to reconcile the segment results that are reported on an internal management-reporting basis into consolidated results.
Reporting segment results are subject to reclassification when organizational changes are made. The results are also subject to refinements in revenue and expense allocation methodologies, which are typically reflected on a retrospective basis unless it is impractical to do so.
Effective January 2025, certain operations support activities were moved out of Asset Servicing and Wealth Management in connection with the formation of the Enterprise Chief Operating Office. The Enterprise Chief Operating Office provides operational support to Asset Servicing and Wealth Management. Its expenses are included within Other and are fully allocated to Asset Servicing and Wealth Management. Prior-year segment results have been recast, where practical, to reflect the organizational changes.
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Effective January 2024, Northern Trust implemented certain enhancements to its FTP methodology, impacting the allocation of Net Interest Income to the Asset Servicing and Wealth Management segments. As a result, the approximate impact on the Asset Servicing and Wealth Management segments was a $132.0 million decrease and a $132.0 million increase in Net Interest Income, respectively, for the year ended December 31, 2024. Prior-year segment results have not been revised to reflect this methodology change.
The following tables reflect the earnings contribution and certain average balances of Northern Trust’s reporting segments for the years ended December 31, 2025, 2024, and 2023.
TABLE 24: RESULTS OF REPORTING SEGMENTS
($ In Millions) ASSET SERVICING(3) WEALTH MANAGEMENT(3)
Noninterest Income
Noninterest Expense
Percentage of Consolidated Net Income 51% 34% 61% 56% 45% 66%
(1) Financial measures stated on an FTE basis.
(2) Other Segment Items include Occupancy, Equipment & Software and Other Operating Expense.
(3) The current $58.8 million and prior-year $85.2 million severance-related charges, as well as, the prior-year $16.4 million software amortization acceleration and dispositions, and $6.5 million loss on securities repositioning related to the supplemental pension plan, are allocated to the Reporting Segments based on the nature of the item.
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
($ In Millions) OTHER(3) TOTAL CONSOLIDATED
Noninterest Income
Provision for Credit Losses 3.2 (7.2) — (7.5) (3.0) 24.5
Noninterest Expense
(1) Financial measures stated on an FTE basis. The FTE adjustment was $28.5 million, $31.8 million, and $57.5 million for 2025, 2024, and 2023, respectively, and is eliminated within “Other” in order for “Total Consolidated” to reconcile with the Consolidated Statement of Income.
(2) Other Segment Items include Occupancy, Equipment & Software and Other Operating Expense.
(3) Current year includes the $19.2 million expense related to mark-to-market activity associated with existing Visa Class B swap agreements and the $15.9 million release of a Federal Deposit Insurance Corporation (FDIC) special assessment reserve. Prior-year includes the $878.4 million net gain related to Northern Trust’s participation in a Visa Exchange Offer, a $68.1 million gain related to the sale of an equity investment, partially offset by a $189.3 million loss on available for sale debt securities sold in conjunction with a repositioning of the portfolio.
Asset Servicing
Asset Servicing is a leading global provider of asset servicing and related services to corporate and public retirement funds, foundations, endowments, fund managers, insurance companies, sovereign wealth funds, and other institutional investors around the globe. Asset servicing and related services encompass a full range of capabilities including but not limited to: custody; fund administration; investment operations outsourcing; investment management; investment risk and analytical services; employee benefit services; securities lending; foreign exchange; treasury management; brokerage services; transition management services; banking; and cash management. Client relationships are managed through the Bank and the Bank’s and the Corporation’s other subsidiaries, including support from locations in North America, Europe, the Middle East, and the Asia-Pacific region.
Asset Servicing Trust, Investment and Other Servicing Fees
For an explanation of Asset Servicing Trust, Investment, and Other Servicing Fees, please see the “Trust, Investment, and Other Servicing Fees” section within the Consolidated Results of Operations section.
Asset Servicing Foreign Exchange Trading Income
Foreign Exchange Trading Income for 2025 increased from 2024, primarily driven by higher trading volumes from growth in outsourced client activity, partially offset by an unfavorable impact from higher foreign exchange swap activity executed by our Treasury department that is allocated to Asset Servicing.
Asset Servicing Other Noninterest Income
Other Noninterest Income for 2025 increased from 2024, primarily due to Security Commissions and Trading Income due to growth in outsourced trading activity.
Asset Servicing Net Interest Income
Net Interest Income on an FTE basis for 2025 increased from 2024, primarily due to the favorable impact of higher deposits and lower funding costs. Net interest margin on an FTE basis increased to 1.37% for 2025 from 1.26% in 2024.
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Asset Servicing Provision for Credit Losses
There was a negative Provision for Credit Losses of $3.2 million for 2025 compared to a negative Provision for Credit Losses of $4.6 million for 2024. The 2025 negative Provision for Credit Losses was primarily driven by refinements to factors used to estimate losses for the C&I portfolio. The negative Provision for Credit Losses during 2024 was primarily in the C&I portfolio, driven by an improvement in credit quality.
Wealth Management
Wealth Management focuses on high-net-worth individuals and families, business owners, executives, professionals, retirees, and established privately-held businesses in its target markets. In supporting these targeted segments, Wealth Management provides trust, investment management, custody, and philanthropic services; financial consulting; guardianship and estate administration; family business consulting; family financial education; brokerage services; and private and business banking. Wealth Management also includes Global Family Office, which provides customized services, including but not limited to: investment management; global custody; fiduciary; and private banking; family office consulting, and technology solutions, to meet the complex financial and reporting needs of family offices across the globe. Wealth Management is one of the largest providers of advisory services in the United States with AUC/A, assets under custody, and AUM of $1.3 trillion, $1.3 trillion, and $507.2 billion, respectively, at December 31, 2025. Wealth Management services are delivered by multidisciplinary teams through a network of offices in 19 U.S. states and Washington, D.C., as well as offices in London, Guernsey, Singapore and Abu Dhabi.
Wealth Management Trust, Investment and Other Servicing Fees
For an explanation of Wealth Management Trust, Investment, and Other Servicing Fees, please see the “Trust, Investment, and Other Servicing Fees” section within the Consolidated Results of Operations section.
Wealth Management Foreign Exchange Trading Income (Loss)
Foreign Exchange Trading Income for 2025 decreased from 2024, primarily driven by an unfavorable impact from higher foreign exchange swap activity executed by our Treasury department that is allocated to Wealth Management.
Wealth Management Net Interest Income
Net Interest Income on an FTE basis for 2025 increased from 2024, primarily due to lower funding costs, partially offset by a decline in loan yields. Net interest margin on an FTE basis increased to 2.71% for 2025 from 2.63% in 2024.
Wealth Management Provision for Credit Losses
There was a negative Provision for Credit Losses of $7.5 million for 2025 compared to a Provision for Credit Losses of $8.8 million in 2024. The negative Provision for Credit Losses during 2025 was primarily due to a decrease in collective reserves for the CRE portfolio driven by an improved industry outlook; partially offset by an increase in individual reserves related to a small number of non-performing loans. The Provision for Credit Losses during 2024 reflected an increase in the collective reserve, primarily in the C&I portfolio, driven by a small number of downgrades and increased duration, and the CRE portfolio, driven by higher exposure and portfolio quality.
Wealth Management Noninterest Expense
Wealth Management Noninterest Expense, which includes the direct expense of the reporting segment, indirect expense allocations for product and operating support, and indirect expense allocations for certain corporate support services, increased in 2025 from 2024. The increase primarily reflects higher indirect expense allocations for certain corporate support services and Outside Services expense due to higher third party outsourcing expense.
Other
Other includes expenses for the Enterprise Chief Operating Office, Asset Management, corporate and support functions not directly incurred by, but ultimately allocated back to, our two client-focused reporting segments. Income and expenses associated with non-recurring activities such as certain costs associated with acquisitions, divestitures, litigation, restructuring, and tax adjustments are retained within Other. Other also includes the FTE adjustments of $28.5 million, $31.8 million, and $57.5 million for 2025, 2024, and 2023, respectively, in order to reconcile the segment results that are reported on an internal management-reporting basis into consolidated results.
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Other—Noninterest Income (Loss)
Noninterest Income (Loss) in 2025 primarily reflects expenses for swap agreements related to Visa Inc. Class B common shares. The prior year primarily reflected the gain related to the net impact from the Visa-related transactions and the gain related to the sale of an equity investment, partially offset by the loss on sale of available for sale debt securities arising from a repositioning of the portfolio in the first quarter of 2024.
Other—Noninterest Expense
Noninterest Expense in 2025 primarily reflects non-allocated occupancy expense due to early lease exits on vacant space partially offset by the release of a portion of the FDIC special assessment. The prior year primarily reflected a $70.0 million charitable contribution to the Northern Trust Foundation, a $14.7 million expense related to the FDIC special assessment, a $10.6 million legal settlement, and non-allocated occupancy expense primarily arising from early lease exits.
CONSOLIDATED BALANCE SHEET REVIEW
The following tables summarize selected consolidated balance sheet information.
TABLE 25: SELECT CONSOLIDATED BALANCE SHEET INFORMATION
Assets
Federal Reserve and Other Central Bank Deposits $ 53.5 $ 38.8 $ 14.7 38 %
Interest-Bearing Due from and Deposits with Banks(1) 6.5 5.6 0.9 18
Other Interest-Earning Assets(2) 4.1 2.7 1.4 50
Liabilities and Stockholders' Equity
Demand and Other Noninterest-Bearing Deposits 27.3 24.4 2.9 12
Federal Funds Purchased 2.1 2.2 (0.1) (1)
Securities Sold under Agreements to Repurchase 0.3 0.5 (0.2) (37)
(1) Interest-Bearing Due from and Deposits with Banks includes the interest-bearing component of Cash and Due from Banks and Interest-Bearing Deposits with Banks as presented on the consolidated balance sheets.
(2) Other Interest-Earning Assets includes certain community development investments, collateral deposits with certain securities depositories and clearing houses, Federal Home Loan Bank and Federal Reserve stock, and money market investments which are classified in Other Assets on the consolidated balance sheets.
(3) Other Borrowings primarily includes advances from the Federal Home Loan Bank of Chicago.
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Asset Quality
Securities Portfolio
The following table presents the remaining maturity and average yield of Northern Trust's available for sale (AFS) debt securities and held to maturity (HTM) debt securities by security type as of December 31, 2025. Book value is fair value for AFS debt securities and amortized cost for HTM debt securities. Depending on market conditions, Northern Trust continuously seeks to optimize its securities portfolio, including through purchases and sales of AFS debt securities from time to time.
TABLE 26: REMAINING MATURITY AND AVERAGE YIELD OF HELD TO MATURITY AND AVAILABLE FOR SALE DEBT SECURITIES
($ in Millions) BOOK YIELD BOOK YIELD BOOK YIELD BOOK YIELD BOOK YIELD
Available for Sale
Held to Maturity
Note: Yield is calculated on amortized cost and presented on a taxable equivalent basis giving effect to the applicable federal and state tax rates.
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Northern Trust maintains a high quality debt securities portfolio. The following tables provide the book value of debt securities by credit rating using ratings from Moody’s, S&P Global or Fitch Ratings. Debt securities not explicitly rated were grouped where possible under the credit rating of the issuer of the security.
TABLE 27: BOOK VALUE OF DEBT SECURITIES BY CREDIT RATING
($ In Millions) AAA AA A BBB NOT RATED TOTAL
Available for Sale
U.S. Government $ — $ 8,172.4 $ — $ — $ — $ 8,172.4
Obligations of States and Political Subdivisions 40.7 272.4 — — — 313.1
Percent of Total Available for Sale 24 % 75 % 1 % — % — % 100 %
Held to Maturity
Government Sponsored Agency — 8,424.5 — — — 8,424.5
Certificates of Deposit — — — — 444.5 444.5
Commercial Mortgage-Backed — 37.6 — — — 37.6
Percent of Total Held to Maturity 30 % 52 % 14 % — % 4 % 100 %
Percent of Total Debt Securities 27 % 65 % 6 % — % 2 % 100 %
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
($ In Millions) AAA AA A BBB NOT RATED TOTAL
Available for Sale
U.S. Government $ 7,367.5 $ — $ — $ — $ — $ 7,367.5
Obligations of States and Political Subdivisions 38.5 259.1 — — — 297.6
Percent of Total Available for Sale 96 % 3 % 1 % — % — % 100 %
Held to Maturity
Government Sponsored Agency 8,635.0 — — — — 8,635.0
Commercial Mortgage-Backed 37.6 — — — — 37.6
Percent of Total Held to Maturity 71 % 15 % 10 % 1 % 3 % 100 %
Percent of Total Debt Securities 85 % 8 % 5 % 1 % 1 % 100 %
Moody's downgraded the long-term credit rating of the U.S. from Aaa to Aa1 in May 2025. As a result, government sponsored agency securities are now AA rated in the table dated December 31, 2025 above.
As of both December 31, 2025 and December 31, 2024, HTM debt securities not rated by Moody’s, S&P Global or Fitch Ratings primarily consisted of certificates of deposit with a remaining life of less than six months, as well as 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.
For additional information relating to the securities portfolio, refer to Note 4, “Securities,” provided in Item 8, “Financial Statements and Supplementary Data.”
Loans
For additional information relating to the loan portfolio, refer to Note 5, “Loans,” and Note 7, “Concentrations of Credit Risk” provided in Item 8, “Financial Statements and Supplementary Data.”
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following table presents the remaining maturity of loans by segment and class as of December 31, 2025.
TABLE 28: REMAINING MATURITY OF LOANS
U.S.:
Commercial
Personal
Non-U.S.:
Note: Non-U.S. and Other U.S. loans primarily include short duration exposures related to custodied client investments.
TABLE 29: INTEREST RATE SENSITIVITY OF LOANS
Fixed Rate:
Commercial
Personal
Variable Rate:
Commercial
Personal
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Nonaccrual Assets and 90 Days Past Due Loans
Nonaccrual assets consist of nonaccrual loans and other real estate owned (OREO). OREO is composed of commercial and residential properties acquired in partial or total satisfaction of loans. There was no outstanding OREO as of December 31, 2025 or December 31, 2024. Loans that are delinquent 90 days or more and still accruing interest can fluctuate widely at any reporting period based on the timing of cash collections, renegotiation and renewals. For additional information relating to nonaccrual loans, refer to Note 5, “Loans,” provided in Item 8, “Financial Statements and Supplementary Data.”
The following table presents nonaccrual assets and loans that were delinquent 90 days or more and still accruing interest at December 31, 2025 and 2024.
TABLE 30: NONACCRUAL ASSETS
Nonaccrual Loans
Commercial
Commercial and Institutional $ 39.7 52 % $ 29.8 53 %
Commercial Real Estate — — 5.6 10
Personal
Private Client $ 6.7 9 % $ 2.3 4 %
Total Nonaccrual Loans $ 76.7 $ 56.0
90 Day Past Due Loans Still Accruing $ 25.0 $ 82.3
Nonaccrual Loans to Total Loans 0.18 % 0.13 %
Nonaccrual Coverage (Loans Allowance / Nonaccrual Loans) 2.1 x 3.0x
Nonaccrual assets as of December 31, 2025 increased from December 31, 2024, primarily due to downgrades of a small number of loans within the Residential Real Estate and C&I segments; partially offset by a decrease in CRE resulting from a loan sale. In addition to the negative impact on Net Interest Income and the risk of credit losses, nonaccrual assets also increase operating costs due to the expense associated with collection efforts. Changes in the level of nonaccrual assets may be indicative of changes in the credit quality of one or more loan classes. Changes in credit quality impact the allowance for credit losses through the resultant adjustment of the allowance evaluated on an individual basis and the quantitative and qualitative factors used in the determination of the allowance evaluated on a collective basis within the allowance for credit losses.
Allowance 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 exposure, 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 and CFO, which receives input from Financial Risk Management, Treasury, Corporate Finance, the Economic Research Department, and each of Northern Trust’s reporting business units.
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
As of December 31, 2025, the Allowance for Credit Losses related to loans, undrawn loan commitments and standby letters of credit, HTM debt securities, and other financial assets, was $164.3 million, $23.3 million, $9.3 million, and $1.4 million, respectively. As of December 31, 2024, the Allowance for Credit Losses related to loans, undrawn loan commitments and standby letters of credit, HTM debt securities, and other financial assets, was $168.0 million, $30.4 million, $6.5 million, and $1.0 million, respectively. For additional information relating to the Allowance for Credit Losses and the changes in the Allowance for Credit Losses during the years ended December 31, 2025 and 2024 due to charge-offs, recoveries and provisions for credit losses, refer to Note 6, “Allowance for Credit Losses,” provided in Item 8, “Financial Statements and Supplementary Data.”
The following table shows the net recoveries (charge-offs) to average loans by segment and class at December 31, 2025, 2024, and 2023.
TABLE 31: NET RECOVERIES (CHARGE-OFFS) TO AVERAGE LOANS
Net Recoveries (Charge-Offs) to Select Average Loans(1)
Commercial
Commercial and Institutional — % (0.12) % — %
Personal
Private Client — — —
Net Recoveries (Charge-Offs)
Commercial
Commercial and Institutional $ 0.1 $ (12.8) $ 0.2
Commercial Real Estate (1.3) (2.4) (5.2)
Total Select Commercial(2) (1.2) (15.2) (5.0)
Personal
Private Client (0.1) — 0.4
Residential Real Estate 1.3 3.9 1.3
Total Net Recoveries (Charge-Offs)(2) $ — $ (11.3) $ (3.3)
Average Loans
Commercial
Personal
(1) The table excludes the Other and Non-U.S. average loan segments.
(2) As ofDecember 31, 2025, there was a $0.3 million net charge-off in other commercial which was not reflected as the segment is excluded from the table above. As ofDecember 31, 2023, there was a $0.5 million net charge-off in other commercial which was not reflected as the segment is excluded from the table above.
Net recoveries (charge-offs) for the Non-U.S. segment was zero and therefore the ratio of net recoveries (charge-offs) to average loans was excluded from the above table. Total average loans for all loan portfolio categories were $41.1 billion, $40.9 billion, and $42.2 billion for the years ended December 31, 2025, 2024, and 2023, respectively.
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following table provides the allowance evaluated on an individual and collective basis for the loans portfolio by segment and class at December 31, 2025 and 2024.
TABLE 32: ALLOCATION OF THE ALLOWANCE FOR CREDIT LOSSES
DECEMBER 31,
Evaluated on an Individual Basis $ 10.2 — % $ 3.2 — %
Evaluated on a Collective Basis
Commercial
Other — 7 — 5
Personal
Other — 1 — 1
Total Allowance Evaluated on a Collective Basis $ 177.4 $ 195.2
Total Allowance for Credit Losses $ 187.6 $ 198.4
Allowance Assigned to:
Undrawn Commitments and Standby Letters of Credit(1) 23.3 30.4
Total Allowance for Credit Losses $ 187.6 $ 198.4
Allowance Assigned to Loans to Total Loans 0.39 % 0.39 %
(1) 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.
Allowance Related to Credit Exposure Evaluated on an Individual Basis: The allowance evaluated on an individual basis is determined through individual evaluations of loans and lending-related commitments that have defaulted, generally those with Borrower Ratings of 8 and 9. These evaluations are based on expected future cash flows, the value of collateral, and other factors that may impact the borrower’s ability to pay. The allowance evaluated on an individual basis for Loans increased $7.0 million from $3.2 million at December 31, 2024 to $10.2 million at December 31, 2025, primarily attributable to a small number of non-performing loans.
Allowance Related to Credit Exposure Evaluated on a Collective Basis: The allowance evaluated on a collective basis for loans decreased $10.7 million to $154.1 million at December 31, 2025, compared with $164.8 million at December 31, 2024, primarily in the CRE portfolio, driven by an improved industry outlook. The allowance evaluated on a collective basis for undrawn loan commitments and letters of credit decreased $7.1 million to $23.3 million at December 31, 2025, compared with $30.4 million at December 31, 2024, primarily in the C&I portfolio, driven by a refinement of factors used to estimate credit losses.
Capital Expenditures
The components of capital expenditures are provided in the following table.
TABLE 33: CAPITAL EXPENDITURES
Building, Leasehold Improvements, and Other 35.6 52.2
Total Capital Expenditures $ 774.2 $ 745.5
Northern Trust’s technology investments support infrastructure modernization including the use of external cloud technologies, increased operational efficiency, increased resiliency, and development of capabilities to enable growth with the delivery of secure and innovative solutions to our clients across the globe.
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Software amortization and depreciation on computer hardware are charged to Equipment and Software expense. Depreciation on building and leasehold improvements and on furnishings is charged to Occupancy expense and Equipment and Software expense, respectively.
In addition to information technology, Northern Trust continues to invest in renovation and relocation projects to optimize our real estate footprint and modernize our existing offices for new ways of working.
Deposits
The following table provides the scheduled maturity of total time deposits in denominations of $250,000 or greater at December 31, 2025. For additional information, refer to Note 11, “Deposits,” provided in Item 8, “Financial Statements and Supplementary Data.”
TABLE 34: REMAINING MATURITY OF TIME DEPOSITS $250,000 OR MORE
U.S. OFFICE NON-U.S. OFFICES
(In Millions) CERTIFICATES OF DEPOSIT OTHER TIME TOTAL
Deposits not insured by the FDIC as of December 31, 2025 and 2024 totaled $135.2 billion and $115.4 billion, respectively. These deposit amounts are derived by adding estimated U.S. office uninsured deposits as allowed by Federal Financial Institutions Examination Council instructions to all non-U.S. office deposits. Estimated uninsured U.S. office deposits are determined by calculating and totaling the deposits in excess of the deposit insurance limit on an individual account basis.
Short-Term Borrowings
Short-term borrowings includes Federal Funds Purchased, Securities Sold under Agreements to Repurchase, and Other Borrowings. These balances are primarily driven by sources of strategic funding needs. Securities purchased under agreements to resell and securities sold under agreements to repurchase are accounted for as collateralized financings and recorded at the amounts at which the securities were acquired or sold plus accrued interest. To minimize any potential credit risk associated with these transactions, the fair value of the securities purchased or sold is monitored, limits are set on exposure with counterparties, and the financial condition of counterparties is regularly assessed. It is Northern Trust’s policy to take possession, either directly or via third-party custodians, of securities purchased under agreements to resell. Securities sold under agreements to repurchase are either directly held by, or pledged to the counterparty until the repurchase. Northern Trust nets securities sold under agreements to repurchase against those purchased under agreements to resell when the requirements to net are met. See Note 24, “Commitments and Contingent Liabilities,” Note 26, “Securities Purchased Under Agreements to Resell and Securities Sold Under Agreements to Repurchase,” and Note 27, “Offsetting of Assets and Liabilities” provided in Item 8, “Financial Statements and Supplementary Data” for additional information on our repurchase and reverse repurchase agreements.
Geographic Area Information
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. Therefore, certain subjective estimates and assumptions have been made to allocate assets between U.S. and non-U.S. operations. The results are also subject to refinements in allocation methodologies, which are typically reflected on a retrospective basis unless it is impractical to do so. On the basis of averages, the percentage of total assets attributable to foreign activities was 32% as of both December 31, 2025 and 2024. On the basis of averages, the percentage of total liabilities attributable to foreign activities was 54% as of both December 31, 2025 and 2024.
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following tables present selected average assets and liabilities attributable to non-U.S. operations (based on the obligor’s domicile). For additional information refer to Note 31, “Reporting Segments and Related Information,” provided in Item 8, “Financial Statements and Supplementary Data.”
TABLE 35: SELECTED AVERAGE ASSETS AND LIABILITIES ATTRIBUTABLE TO NON-U.S. OPERATIONS
STATEMENTS OF CASH FLOWS
The following discusses the statement of cash flow activities for the years ended December 31, 2025, 2024, and 2023.
TABLE 36: CASH FLOW ACTIVITY SUMMARY
FOR THE YEAR ENDED DECEMBER 31,
Net cash provided by (used in):
Effect of Foreign Currency Exchange Rates on Cash 656.4 (504.3) (89.8)
Operating Activities
Net cash provided by operating activities of $5.5 billion for the year ended December 31, 2025 was primarily attributable to lower net collateral deposited with derivative counterparties and period earnings.
For the year ended December 31, 2024, net cash used by operating activities of $486.0 million was primarily attributable to higher net collateral deposited with derivative counterparties and pension plan contributions.
Investing Activities
Net cash used in investing activities of $20.2 billion for the year ended December 31, 2025 was primarily attributable to higher levels of deposits placed with the Federal Reserve and other central banks and net purchases of AFS and HTM debt securities.
For the year ended December 31, 2024, net cash used in investing activities of $2.6 billion was primarily attributable to net purchases of AFS debt securities and higher levels of deposits placed with the Federal Reserve and other central banks, partially offset by lower levels of loans, net proceeds from held to maturity debt securities, and the proceeds from the sale of Visa Class C common shares.
Financing Activities
Net cash provided by financing activities of $15.2 billion for the year ended December 31, 2025 was primarily attributable to increased levels of total deposits, partially offset by common stock repurchases. The increase in total deposits was primarily attributable to non-U.S. offices.
For the year ended December 31, 2024, net cash provided by financing activities of $3.4 billion was primarily attributable to increased levels of total deposits, partially offset by common stock repurchases and lower levels of federal funds purchased. The increase in total deposits was primarily attributable to non-U.S. offices and savings certificates and other time deposits.
CAPITAL MANAGEMENT
One of Northern Trust’s primary objectives is to maintain a strong capital position to merit the confidence of clients, counterparties, creditors, regulators and stockholders. A strong capital position helps Northern Trust execute its strategies and withstand unforeseen adverse developments.
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Senior management, with oversight from the Risk Committee of the Board of Directors and the full Board of Directors, is responsible for capital management and planning. Northern Trust manages its capital on both a total Corporation basis and a legal entity basis. The Capital Committee is responsible for measuring and managing capital metrics against levels set forth within the Capital Policy approved by the Risk Committee of the Board of Directors. In establishing the metrics related to capital, a variety of factors are taken into consideration, including the unique risk profiles of Northern Trust’s businesses, regulatory requirements, capital levels relative to peers, economic and market forecasts, and the impact on credit ratings.
Capital levels were higher in 2025 as average stockholders’ equity increased $376.1 million, or 3%, to $12.7 billion. Total stockholders’ equity was $13.0 billion at December 31, 2025, as compared to $12.8 billion at December 31, 2024. Preferred dividends totaling $41.8 million were declared in 2025. During 2025, the Corporation increased its quarterly common stock dividend from $0.75 to $0.80 per common share. Common dividends totaling $600.5 million were declared in 2025. During the year ended December 31, 2025, the Corporation repurchased 11,005,509 shares of common stock, including 450,486 shares withheld related to share-based compensation, at an average price per share of $115.72.
In accordance with Basel III requirements, capital ratios are calculated using both the standardized and advanced approaches. As required by the Dodd-Frank Act, the lower of each capital ratio calculated under the standardized approach and the advanced approach serves as the effective ratio for purposes of determining capital adequacy. The following table provides a reconciliation of the Corporation’s common stockholders’ equity to total risk-based capital and its risk-based capital ratios, under the applicable U.S. regulatory rules as of December 31, 2025 and 2024.
TABLE 37: CAPITAL ADEQUACY
STANDARDIZED APPROACH ADVANCED APPROACH STANDARDIZED APPROACH ADVANCED APPROACH
Common Equity Tier 1 Capital
Additional Tier 1 Capital
Tier 2 Capital
Qualifying Allowance for Credit Losses 198.4 — 205.9 —
Common Stockholders’ Equity to:
Risk-Based Capital Ratios
Supplementary Leverage N/A 8.7 N/A 8.9
(1) Risk-weighted assets exclude, as applicable under each regulatory approach, amounts primarily related to goodwill, certain other intangible assets, and net unrealized gains or losses on securities and reflect adjustments for excess allowances for credit losses that have been excluded from Tier 1 and Tier 2 capital, if any.
(2) Adjusted average fourth quarter assets exclude amounts primarily related to goodwill, other intangible assets, and net unrealized gains or losses on securities.
As of December 31, 2025 and 2024, the Corporation’s capital ratios far exceeded the requirements for classification as “well-capitalized” under applicable U.S. regulatory requirements.
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Northern Trust is a Category II institution as defined by the Federal Reserve Board which requires us to adhere to regulatory capital standards. In adhering to these standards, Northern Trust engages in a range of reporting and activities with regulators to affirm our financial strength and stability, including but not limited to, capital adequacy reporting that deducts any net unrealized losses related to AFS securities from reported capital, and stringent, annual company-run and supervisory stress testing in the form of Comprehensive Capital Analysis and Review (CCAR) exercises, which confirms our ability to remain solvent under severely adverse market conditions.
The results of the 2025 DFAST, published by the Federal Reserve Board on June 27, 2025, resulted in Northern Trust’s stress capital buffer and effective Common Equity Tier 1 capital ratio minimum requirement remaining constant at 2.5% and 7.0%, respectively, for the annual capital plan cycle, which began on October 1, 2025 and continues through September 30, 2026. On February 4, 2026, the Federal Reserve notified the Corporation that because the Stress Testing Transparency Proposal remains subject to public comment, absent further action from the Federal Reserve, the Corporation’s stress capital buffer requirement will remain at 2.5% until September 30, 2027.
In 2023, the U.S. banking agencies issued the Basel III Endgame Proposal. The Federal Reserve announced in September 2024 that it would publish a re-proposal of its regulations finalizing the Basel III standards. That re-proposal is expected in early 2026. The potential impacts on the Corporation and the Bank of a final rule remain uncertain until a final rule is published.
Further information regarding the Corporation’s and the Bank’s capital ratios and the minimum requirements for classification as “well-capitalized” is provided in the “Supervision and Regulation—Capital Adequacy Requirements” section of Item 1, “Business,” and Note 32, “Regulatory Capital Requirements,” provided in Item 8, “Financial Statements and Supplementary Data.”
CRITICAL ACCOUNTING ESTIMATES
Our significant accounting policies are described in Note 1, “Summary of Significant Accounting Policies,” provided in Item 8, “Financial Statements and Supplementary Data.” The use of estimates and assumptions is required in the preparation of financial statements in conformity with GAAP and actual results could differ from those estimates. The SEC has issued guidance relating to the disclosure of critical accounting estimates. Critical accounting estimates are those that require management to make subjective or complex judgments about the effect of matters that are inherently uncertain and may change in subsequent periods. Changes that may be required in the underlying assumptions or estimates in these areas could have a material impact on Northern Trust’s future financial condition and results of operations. Due to the inherent imprecision in accounting estimates, other estimates or assumptions could reasonably have been used in 2025 and changes in estimates are reasonably likely to occur from period to period.
For Northern Trust, accounting estimates that are viewed as critical are those relating to the allowance for credit losses and pension plan accounting. Management has discussed the development and selection of each critical accounting estimate with the Audit Committee of the Board of Directors (Audit Committee).
Allowance for Credit Losses
The Allowance for Credit Losses—which represents management’s estimate of lifetime expected credit losses related to various financial assets subject to credit risk, off-balance sheet credit exposure, 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. The allowance for a financial asset that does not share similar risk characteristics with other financial assets 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 Allowance for Credit Losses consists of the following components:
Allowance Evaluated on a Collective Basis. Northern Trust utilizes a quantitative PD/LGD approach for the calculation of its credit allowance on a collective basis. For each class, PD and LGD 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 a comprehensive qualitative adjustment framework, through which management applies judgment by assessing internal risk factors, potential limitations in the quantitative methodology, and other factors that are not fully contemplated in the forecast to compute an adjustment to the quantitative allowance for each segment and class of the loan portfolio.
The allowance estimation methodology for the collective assessment is based on data representative of the Corporation’s 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 segments and classes based on similar risk characteristics or risk monitoring methods.
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
For each class, the PD and LGD are derived for each quarter of the remaining life of each instrument. For the first two years (the reasonable and supportable period), these factors are derived by applying quarterly macroeconomic projections using models developed from historical data on macroeconomic factors and loans with similar characteristics. For periods beyond the reasonable and supportable period, Northern Trust reverts to its long-run historical loss experience on a straight-line basis over four quarters. The projected exposure at default for every quarter is based on contractual balance projections as of each quarter-end, with adjustments made for potential draws on off-balance sheet commitments.
Estimating expected lifetime losses requires the use of projected macroeconomic factors. The Corporation uses multiple forecasts approved by Northern Trust’s MSDC. The baseline forecast aligns with the Corporation’s latest thinking on macroeconomic projections for the next eight quarters. An alternative scenario is also considered, which reflects a recession that incorporates the experiences of a wider set of historical economic cycles. The forecasts are probability-weighted at each evaluation period and are management’s best estimate of future economic projections at that time.
The allowance estimate is sensitive to changes in portfolio composition, portfolio quality, and macroeconomic forecasts. Increases in the amount of borrowing and material downgrades to the quality of the lending portfolio will increase the reserve, all else equal. Similarly, deteriorating projections for macroeconomic conditions will increase the reserve. Macroeconomic factors that are particularly correlated to Northern Trust’s loan portfolio are GDP growth, unemployment, non-farm employment, corporate profits, consumer spending, personal income, commercial real estate prices, housing price index, credit spreads, and market volatility. To demonstrate the sensitivity to changes in macroeconomic conditions, Northern Trust applied a 100% probability weighting to downturn conditions, resulting in an increase to the collective component of the allowance for the loan portfolio of approximately $102.4 million as of December 31, 2025. The investment security and other financial assets portfolios are less sensitive to macroeconomic factors in terms of overall reserve impact due to factors such as high credit quality, short duration, and low historical losses.
The commercial and institutional (C&I) portfolio utilizes Northern Trust’s internal borrower rating assessments to determine initial credit quality. A sensitivity analysis was performed to determine the impact of upgrades or downgrades by shifting the rating up or down by one rating class, assuming no changes to other factors, such as macroeconomic projections or qualitative adjustments. The analysis excludes defaulted loans and does not assume a default event; hence, borrowers in the lowest non-default rating class were not downgraded. Similarly, those in the highest rating class could not be upgraded. Assuming the final forecast probability weighting, the collective component of the allowance assigned to the C&I portfolio would increase by approximately $74.4 million as of December 31, 2025 if all C&I borrowers were downgraded by one performing rating class. The C&I collective allowance would decrease by approximately $38.7 million as of December 31, 2025 if borrower ratings were upgraded by one rating class.
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 MSDC, and also reviews and approves qualitative adjustments to the collective allowance in line with Northern Trust’s qualitative adjustment framework.
Allowance Evaluated on an Individual Basis. The allowance evaluated on an individual basis is determined through individual evaluations of loans and lending-related commitments that have defaulted. These evaluations are based on expected future cash flows, the value of collateral, and other factors that may impact the borrowers’ 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.
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Pension Plan Accounting
Northern Trust maintains a noncontributory defined benefit pension plan covering substantially all U.S. employees (U.S. Qualified Plan) and a U.S. noncontributory supplemental pension plan (U.S. Non-Qualified Plan). Certain European-based employees also retain benefits in local defined benefit pension plans, of which the majority are closed to new employees and to future benefit accruals. Measuring cost and reporting liabilities resulting from defined benefit pension plans requires the use of several assumptions regarding future interest rates, asset returns, compensation increases, mortality rates, and other actuarial-based projections relating to the plans. Due to the long-term nature of this obligation and the estimates that are required to be made, the assumptions used in determining the periodic pension expense and the projected benefit obligation are closely monitored and reviewed annually for adjustments that may be required. Pension accounting guidance requires that differences between estimates and actual experience be recognized as other comprehensive income in the period in which they occur. The differences are amortized into net periodic pension expense from accumulated other comprehensive income over the average remaining service period of active participants or over the expected remaining lifetime of plan participants for plans that have been previously frozen. As a result, differences between the estimates made in the calculation of periodic pension expense and the projected benefit obligation and actual experience affect stockholders’ equity in the period in which they occur but continue to be recognized as expense systematically and gradually over subsequent periods.
Northern Trust recognizes the significant impact that pension-related assumptions have on the determination of the pension obligations and related expense and has established procedures for monitoring and setting these assumptions each year. These procedures include an annual review of actual demographic and investment experience with the pension plans’ actuaries. In addition to actual experience, adjustments to these assumptions consider observable yields on fixed income securities, known compensation trends and policies, as well as economic conditions and investment strategies that may impact the estimated long-term rate of return on plan assets.
In evaluating pension-related assumptions for the remeasurement of the U.S. pension plans as of December 31, 2025, and for determining 2026 pension expense, the following were considered:
•Discount Rate: Northern Trust estimates the discount rate for its U.S. pension plans by applying the plan specific projected cash flows for future benefit payments for each plan to the Aon AA Above Median yield curve as of the measurement date. This yield curve is composed of individual zero-coupon interest rates for 198 different time periods over a 99-year time horizon. Zero-coupon rates utilized by the yield curve are mathematically derived from observable market yields for AA-rated corporate bonds. This yield curve model referenced by Northern Trust in establishing the discount rate resulted in a rate of 5.53% and 5.22% at December 31, 2025 for the U.S. Qualified and U.S. Non-Qualified Plans, respectively.
•Compensation Level: Based on a review of actual and anticipated salary experience, the compensation scale assumption has been updated to be based on a graded schedule from 9.50% to 2.50% that averages 5.76%.
•Rate of Return on Plan Assets: The expected return on plan assets is based on an estimate of the long-term (30 years) rate of return on plan assets, which is determined using a building block approach that considers the current asset mix and estimates of return by asset class based on historical experience, giving proper consideration to diversification and rebalancing. Current market factors such as inflation and interest rates are also evaluated before long-term capital market assumptions are determined. Peer data and historical returns are reviewed to check for reasonability and appropriateness. As a result of these analyses, Northern Trust’s rate of return assumption for the U.S. Qualified Plan continues to be 7.25%.
•Mortality Table: Northern Trust adopted the aggregate Pri-2012 mortality table with a 2012 base year in 2019. Northern Trust’s pension obligations reflect proposed future improvement under scale MP-2021, which was released by the Society of Actuaries in October 2021. As in prior year, no change to these assumptions was made in 2025 since the Society of Actuaries did not release any updates to its mortality tables and improvement scales in 2025 due to the still uncertain long-term impacts of the COVID-19 pandemic. Mortality assumptions on lump sum payments remain static and continue to be in line with the IRS prescribed table for minimum lump sums in 2026.
Net pension expense in 2026 is expected to increase by approximately $22.2 million, primarily driven by higher amortization of previously incurred asset losses and expense impacts from lower discount rates.
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In order to illustrate the sensitivity of certain assumptions on the expected U.S. pension plans’ 2026 periodic pension expense and the projected benefit obligation as of December 31, 2025, the following table is presented to show the effect of increasing or decreasing each of the assumptions by 25 basis points.
TABLE 38: SENSITIVITY OF U.S. PENSION PLANS ASSUMPTIONS
(In Millions) 25 BASISPOINT INCREASE 25 BASISPOINT DECREASE
Increase (Decrease) in 2026 Pension Expense
Discount Rate Change $ (2.9) $ 3.0
Compensation Level Change 2.6 (2.3)
Rate of Return on Plan Assets Change (4.1) 4.1
Increase (Decrease) in December 31, 2025 Projected Benefit Obligation
Discount Rate Change (31.5) 32.9
Compensation Level Change 9.9 (9.6)
For the measurement of the pension obligation as of December 31, 2024, and determination of 2025 pension expense for the U.S. Qualified Plan and for the U.S. Non-Qualified Plan, Northern Trust utilized a discount rate of 5.70% and 5.55%, respectively. For both plans, the rate of increase in the compensation level was based on a graded schedule from 9.00% to 2.50% that averaged 5.56%. The expected long-term rate of return on U.S. Qualified Plan assets was 7.25% as of December 31, 2024.
Pension Contributions. The deduction limits specified by the Internal Revenue Code for contributions made by sponsors of defined benefit pension plans are based on a “Target Liability” under the provisions of the Pension Protection Act of 2006. Northern Trust contributed $125.0 million to the U.S. Qualified Plan for the 2025 plan year and $200.0 million for the 2024 plan year at the beginning of 2025 and 2024, respectively. The minimum required and the maximum deductible contributions to the U.S. Qualified Plan for 2026 are expected to be zero and $280.0 million, respectively. Annual contributions are made to the U.S. Non-Qualified Plan to fully fund the plan’s Accumulated Benefit Obligation.
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RECENT ACCOUNTING PRONOUNCEMENTS AND DEVELOPMENTS
In November 2024, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2024-03, “Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses” (ASU 2024-03). ASU 2024-03 requires disaggregated disclosures in tabular format for specific income statement expense categories as well as a narrative disclosure about selling expenses. The amendments in ASU 2024-03 do not change or remove existing income statement presentation or disclosure requirements. ASU 2024-03 is effective for annual periods beginning after December 15, 2026, and interim periods beginning after December 15, 2027. Early adoption is permitted. Upon adoption, the impact of ASU 2024-03 will be limited to certain enhancements within the notes to the consolidated financial statements and therefore is not expected to have an impact on Northern Trust’s consolidated balance sheets or consolidated statements of income.
In September 2025, the FASB issued ASU No. 2025-06, “Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Targeted Improvements to the Accounting for Internal-Use Software” (ASU 2025-06). ASU 2025-06 changes the cost capitalization threshold by removing the accounting consideration given to software project development stages and replaces it with the following criteria that must be met for entities to begin capitalizing software costs: (1) management has authorized and committed to funding the project and (2) it is ‘probable’ the project will be completed and the software used to perform its intended function (referred to as the ‘probable-to-complete’ threshold). In addition, ASU 2025-06 specifies that entities must apply the disclosure requirements in ASC 360-10, Property, Plant, and Equipment—Overall to capitalized internal-use software and related amortization, regardless of how the internal-use software is classified on the balance sheet. ASU 2025-06 is effective for interim and annual periods beginning after December 15, 2027, although early adoption is permitted. Northern Trust is currently assessing the impacts upon adoption of ASU 2025-06.
Other accounting pronouncements that were issued by the FASB but not yet adopted as of December 31, 2025 are not expected to have a material impact on Northern Trust’s consolidated balance sheets or consolidated statements of income upon adoption.
RISK MANAGEMENT
Risk Management Overview
Northern Trust employs an integrated risk management framework to enable a risk-informed profile and support its business decisions and the execution of its corporate strategies. The framework provides a methodology to identify, manage, report and govern both internal and external risks to Northern Trust, and promotes a culture of risk awareness and good conduct across the organization. Northern Trust’s risk culture encompasses the general awareness, attitude and conduct of employees with respect to risk and the management of risk across all lines of defense within the organization. Northern Trust cultivates a culture of effective risk management by defining and embedding risk management accountabilities in all employee performance expectations and provides training, development and performance rewards to reinforce this culture.
Northern Trust’s risk management framework contains three inter-related elements, designed to support consistent enterprise risk identification, management and reporting: a comprehensive risk inventory, a static taxonomy of risk categories and a dynamic taxonomy of risk themes. The risk inventory is a detailed register of the risks inherently faced by Northern Trust. The risk categories and risk themes are classification systems used for classifying and managing the risk inventory and enabling different risk profile views. All identified risks inherent in Northern Trust’s business activities are cataloged into the following risk categories: credit, operational, technology and cyber, fiduciary, compliance, liquidity, market, and strategic risk. All material risks are also dynamically cataloged into various risk themes which are defined groupings that share common characteristics, focus on business outcomes and span across risk categories.
Northern Trust implements its risk management framework through a “three lines of defense” operating model, embedding a robust risk management capability within its businesses. The model, used to communicate risk management expectations across the organization, contains three roles, each with a complementary level of risk management accountability. Within this operating model, Northern Trust’s businesses are the first line of defense for protecting it against the risks inherent in its businesses and are supported by dedicated business risk management teams. The Risk Management function, the second line of defense, sets the direction for Northern Trust’s risk management activities and provides aggregate risk oversight and reporting in support of risk governance. Audit Services, the third line of defense, provides independent assurance as to the effectiveness of the integrated risk framework.
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Risk Governance and Oversight Overview
Risk governance is an integral aspect of corporate governance at Northern Trust, and includes clearly defined accountabilities, expectations, internal controls and processes for risk-based decision-making and escalation of issues. The following diagram provides a high-level overview of Northern Trust’s risk governance structure, highlighting oversight by the Board of Directors and key risk-related committees.
TABLE 39: RISK GOVERNANCE STRUCTURE
Northern Trust Corporation Board of Directors
Global Enterprise Risk Committee (GERC)
The Board of Directors provides oversight of risk management directly and through certain of its committees: the Audit Committee, the Risk Committee, the Technology and Operations Committee, and the Human Capital and Compensation Committee.
The Board of Directors annually approves Northern Trust’s risk management framework and Corporate Risk Appetite Statement.
The Audit Committee provides oversight with respect to financial reporting and legal risk.
The Risk Committee assumes primary responsibility and oversight with respect to credit risk, operational risk, technology and cyber risk, fiduciary risk, compliance risk, market risk, liquidity risk, strategic risk, and associated risk themes. The Risk Committee also assists the Board of Directors in discharging its oversight duties with respect to capital management and resolution planning activities.
The Technology and Operations Committee assists in oversight of the technology and operations of the Corporation including related strategies, investments, and risks. The Technology and Operations Committee’s responsibility for oversight of relevant risks complements, but does not supersede, the oversight responsibility of the Risk Committee of the Board, which has primary responsibility for the risk management framework.
The Human Capital and Compensation Committee oversees the development and operation of Northern Trust’s incentive compensation program. The Committee annually reviews management’s assessment of the effectiveness of the design and performance of Northern Trust’s incentive compensation arrangements and practices in providing incentives that are consistent with Northern Trust’s safety, soundness, and culture. This assessment includes an evaluation of whether Northern Trust’s incentive compensation arrangements and practices discourage inappropriate risk-taking behavior by participants.
The Chief Risk Officer (CRO) oversees Northern Trust’s management of risk and compliance, promotes risk awareness and fosters a proactive risk management environment wherein risks inherent in the business strategy are identified, understood, appropriately monitored and mitigated. The CRO reports directly to the Risk Committee and the Corporation’s Chief Executive Officer. The CRO regularly advises the Risk Committee and reports to the Committee at least quarterly on risk exposures, risk management deficiencies and emerging risks. In accordance with the risk management framework, the Chief Risk Officer, Chief Compliance and Ethics Officer, Head of Financial Risk, Chief Operational Risk Officer, Chief Technology Risk Officer, Head of Strategic Risk, Chief Fiduciary Risk Officer, International Chief Risk Officer, Head of Enterprise Risk Management, Chief Executive Officer, President—Asset Management, President—Asset Servicing, President—Wealth Management, Chief Financial Officer, Chief Information Officer and Chief Operating Officer, meet as the Global Enterprise Risk Committee (GERC) to provide executive management oversight and guidance with respect to the management of the categories of risk and risk themes within Northern Trust. Other executive management as defined in the GERC Charter attend each GERC meeting as a non-voting member. Among other risk management responsibilities, GERC receives reports, escalations, or recommendations from senior risk committees that are responsible for the management of risk, and from time to time may delegate responsibility to such committees for risk issues. Senior risk committees include:
The Credit Risk Committee (CRC) is the most senior credit committee at Northern Trust, with responsibility for establishing, approving, and monitoring credit-related policies and programs throughout the Bank.
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The Market & Liquidity Risk Committee oversees activities relating to the management of market and liquidity risks by facilitating a focused review of market and liquidity risk exposures and providing rigorous challenge of related policies, key assumptions, and practices.
The Operational Risk Committee provides independent oversight and is responsible for setting the operational risk-related policies and developing and implementing the operational risk management framework and programs that support coordination of operational risk activities.
The Fiduciary Risk Committee is responsible for establishing and reviewing the fiduciary risk policies and establishing the fiduciary risk framework, governance and programs that support the coordination of fiduciary risk activities.
The Compliance Risk Committee provides oversight and direction with respect to compliance policies, implementation of the compliance and ethics program, and the coordination of regulatory compliance initiatives across the Corporation.
The Information Technology Risk Committee provides oversight and direction with respect to information security, technology and cyber risk. The committee is responsible for recommending the policies related to, and overseeing development and implementation of the risk management framework, standards and processes supporting coordination and governance of, information security, technology and cyber risk management activities.
In addition to the aforementioned committees, Northern Trust establishes business risk committees, and a Swap Dealer Risk Committee, that also report into GERC.
Risk Assessment, Appetite and Reporting Processes
As part of the integrated risk framework, Northern Trust has established key risk identification and risk management processes, embedded within its businesses to enable a risk-informed profile that supports its business decisions and the execution of its corporate strategies. Northern Trust’s risk assessment process consists of a series of programs across the first and second lines of defense that identify, measure, manage and report risks in line with risk appetite and guidelines.
Northern Trust defines its risk appetite as the aggregate level and types of risk the Board of Directors and senior management are willing to assume to achieve the Corporation’s strategic objectives and business plan, consistent with prudent management of risk and applicable capital, liquidity, and other regulatory requirements. It includes consideration of the likelihood and impact of risks, using both monetary loss and non-financial measures across risk categories to monitor against tolerance thresholds and guideline levels that trigger escalation to risk committees, senior management, and the Board of Directors or committees thereof, as appropriate.
Independent Review and Verification
Independent review and risk control is provided through Model Risk Management, Credit Review, and Global Compliance Testing. Model Risk Management administers the enterprise-wide model risk framework, including independent validation and ongoing review of new and existing models used to support risk management, capital estimation, financial reporting and disclosures, valuation and pricing, and portfolio management. The framework also applies to artificial intelligence, machine learning, and other advanced analytics models, which are subject to risk-based governance, independent validation, and ongoing monitoring commensurate with their complexity, materiality, and use.
Credit Review provides an independent, ongoing assessment of credit exposure and related Credit Risk Management processes across Northern Trust. Lastly, Global Compliance Testing evaluates the effectiveness of procedures and controls aligned with our Compliance Risk Assessment program which, in turn, aligns with regulatory expectations to comply with relevant laws and regulations, as well as, corresponding Northern Trust policies. The Risk Committee has oversight responsibility with respect to these independent review and control groups.
Audit Services
Audit Services is an independent control function that assesses and validates controls within Northern Trust’s risk management framework. Audit Services is managed by the Chief Audit Executive with oversight from the Audit Committee. Audit Services tests the overall adequacy and effectiveness of the system of internal controls associated with the framework on an ongoing basis and reports the results of these audits directly to the Audit Committee. Audit Services includes professionals with a broad range of audit and industry experience, including risk management expertise. The Chief Audit Executive reports directly to the Audit Committee and administratively reports to the Corporation’s Chief Executive Officer and is a non-voting member of GERC.
Credit Risk
Credit risk is the risk to interest income or principal from the failure of a borrower, issuer, or counterparty to perform on an obligation.
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Credit Risk Overview
Credit risk is inherent in many of Northern Trust’s activities. The bulk of credit risk relates to loans, securities, and wholesale counterparty-related exposures, such as over-the-counter (OTC) derivatives and securities financing activities. Northern Trust’s loan portfolio differs significantly from those of other large U.S. financial institutions in that Northern Trust is generally:
•not an originator of loan products intended to be sold into a secondary market or to be bundled into asset securitizations;
•not an agent bank or syndicator of loans, where risk management is achieved post-close through the sale of participations; and
•not a participant in leveraged financial transactions, such as project finance, hedge fund leveraging, loans to private equity sponsored companies, or prime brokerage activities.
Credit Risk Framework and Governance
The CRC is the most senior credit committee at Northern Trust, with responsibility for establishing, approving, and monitoring credit-related policies and programs throughout the Bank. The Chief Credit Officer reports directly to the CRO, chairs the CRC, and heads the Credit Risk Management function at Northern Trust.
While independent of the business units that manage client relationships, Risk Management works closely with them to achieve the goal of assuring proactive management of credit risk. To monitor and control credit risk, Risk Management maintains a framework that consists of policies, standards, and programs designed to promote a prudent credit culture and monitors adherence to those internal policies, standards, and programs, as well as external regulations. Credit Review independently evaluates the effectiveness of the credit risk framework.
The credit risk framework stipulates authority levels for approval of the extension of credit. Individual credit authority for commercial and personal loans is limited to specified amounts and maturities. Credit requests exceeding policies or standards because of amount, maturity, rating, or other conditions, are referred to the relevant Group Credit Approval Committee. Credit decisions involving requests in excess of Group Credit Approval Committee limits require the approval of the Senior Credit Committee. The Capital Markets Credit Committee has sole authority for the approval, modification, or renewal of credit exposure limits to all wholesale market counterparties. The Senior Credit Committee and Capital Markets Credit Committee are both direct sub-committees of the CRC. The Treasury Credit Committee provides similar approval for investments in assets subject to credit risk, such as bonds and equities.
Credit Risk Measurement
The credit risk framework covers a number of different measurements of credit risk at Northern Trust, including RWA, the allowance for credit losses, and stress tests using various macroeconomic scenarios, such as the internal capital adequacy approval program and CCAR.
An integral component of credit risk measurement is Northern Trust’s internal risk rating system. Northern Trust’s internal risk rating system enables identification, measurement, approval and monitoring of the Corporation’s credit risk. Calculations include entity-specific information about the obligor’s or counterparty’s probability of default (PD) and exposure-specific information about loss given default (LGD), exposure at default (EAD), and maturity. Northern Trust’s internal risk rating system is intended to rank its credit risk without any direct linkage to external credit ratings.
Obligors are assigned PDs after consideration of both quantitative and qualitative factors. Although the criteria vary, the objective is for assigned PDs to be consistent in the measurement and ranking of risk. LGD and EAD are assigned based on obligor, product, collateral and instrument characteristics.
Risk ratings are assigned at the time a counterparty or an obligation is approved, renewed, or amended. Risk ratings are reviewed annually or when new information relevant to the rating is received. Risk ratings are utilized for credit underwriting, management reporting, and the calculation of regulatory capital.
The Credit Risk Management function is responsible for the ongoing oversight of each model that supports the internal risk-rating system. Independent model governance and oversight is further supported by the activities of Model Risk Management.
Loans and Other Extensions of Credit
A significant component of credit risk relates to the loan portfolio, including contractual obligations such as legally binding commitments to extend credit, commercial letters of credit, and standby letters of credit. These contractual obligations and arrangements are discussed in Note 24, “Commitments and Contingent Liabilities,” provided in Item 8, “Financial Statements and Supplementary Data.”
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Undrawn commitments to extend credit generally have fixed expiration dates or other termination clauses. Since a significant portion of the commitments are expected to expire without being drawn upon, the total commitment amount does not necessarily represent future loans or liquidity requirements. The following table provides information about the industry sector and expiration dates of undrawn commitments to extend credit as of December 31, 2025 and 2024.
TABLE 40: UNDRAWN COMMITMENTS TO EXTEND CREDIT BY INDUSTRY SECTOR
COMMITMENTS COMMITMENTS
Commercial
Commercial and Institutional(1)
Non-U.S.
Personal
(1) The commercial and institutional industry sector information is presented on the basis of the North American Industry Classification System (NAICS).
As part of Northern Trust’s credit processes, the Credit Risk Management function oversees a range of portfolio reviews that focus on significant and/or weaker-rated credits. This approach allows management to take remedial action in an effort to deal with potential problems. An integral part of the Credit Risk Management function is a formal review of past due and potential problem loans to determine which credits, if any, need to be placed on nonaccrual status or charged off. Northern Trust maintains a loan portfolio “watch list” for adversely classified credit exposures that includes all nonaccrual credits as well as other loans with elevated risk of default. Independent from the Credit Risk Management function, Credit Review undertakes both on-site and off-site file reviews that evaluate the effectiveness of management’s implementation of Credit Risk Management’s requirements.
Counterparty Credit Risk
Counterparty credit risk for Northern Trust primarily arises from a variety of funding, treasury, trading and custody-related activities, including trading OTC foreign exchange and interest rate derivatives, indemnified securities lending transactions, and sponsored repurchase and reverse repurchase transactions. Credit exposure to counterparties is managed by use of a framework for setting limits by product type and exposure tenor.
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To calculate exposure, Northern Trust treats repurchase agreements, reverse repurchase agreements, indemnified securities lending, and sponsored repurchase and reverse repurchase transactions as repo-style transactions. Foreign exchange exposures and interest rate derivatives are treated as OTC derivatives. The exposure at default measurement methodology for each eligible type of counterparty credit exposure, including the use of netting and collateral as risk mitigants, is determined based on regulatory requirements.
Credit Risk Mitigation
Northern Trust considers cash flow to be the primary source of repayment for client-related credit exposures. However, Northern Trust employs several different types of credit risk mitigants to manage its overall credit risk in the event cash flow is not sufficient to repay a credit exposure. Northern Trust broadly groups its risk mitigation techniques into the following three primary categories.
Physical and Financial Collateral: One of Northern Trust’s primary credit risk mitigation approaches is the requirement of collateral. Residential and commercial real estate exposures are typically secured by properly margined mortgages on the property. Various other types of physical and financial collateral are also accepted for certain commercial and personal loans, in line with Northern Trust’s lending standards. In cases where loans to clients are secured by marketable securities, the daily values of the securities are monitored closely to ensure adherence to collateral coverage policies.
Netting: On-balance sheet netting is employed where applicable for counterparties with master netting arrangements. Netting is primarily related to foreign exchange transactions with major banks and institutional clients subject to eligible master netting arrangements.
Guarantees: Personal and corporate guarantees are accepted, as warranted, to reduce risk of default, facilitate potential collection efforts, and protect Northern Trust’s claims relative to other creditors.
Another important risk management practice is the avoidance of undue concentrations of exposure, such as in any single (or small number of related) obligor/counterparty, loan type, industry, geography, country or risk mitigant. Processes are in place to establish limits on certain concentrations and the monitoring of adherence to the limits.
Operational Risk
Operational risk is the risk of loss from inadequate or failed internal processes, human factors and systems, or from external events.
Operational Risk Overview
Operational risk is inherent in each of Northern Trust’s businesses and corporate functions and reflects the potential for inadequate information systems, operating problems, challenges related to reliance on third parties, product design and delivery difficulties, potential legal actions or catastrophes to result in losses. This includes the potential that continuity of service and resilience may be impacted.
Operational risk includes information technology and cybersecurity, compliance, fiduciary and legal risks, which under the Corporation’s risk structure are governed and managed explicitly.
Operational Risk Framework and Governance
To monitor and control operational risk, Northern Trust maintains a framework consisting of risk management policies, programs and practices designed to promote a sound operational environment and maintain the Corporation’s operational risk profile and losses within approved risk appetites and guidelines. The framework implements a structured approach to establishing and communicating operational risk management practices and responsibilities. This structured approach to measuring and managing operational risk addresses operational resilience which requires that Northern Trust minimize service disruptions and limit systemic impacts from adverse events as well as risk quantification. The framework is deployed consistently and globally across all businesses and its objective is to identify and measure the factors that influence risk and drive action to maintain operational resilience and reduce future loss events. The Operational Risk Management function operates within the independent second line risk function and is responsible for defining the operational risk management framework and providing independent oversight of the framework implementation and application across Northern Trust. It is the responsibility of each business and corporate function to implement the enterprise-wide operational risk framework and business and function-specific risk management programs to identify, monitor, measure, manage and report on operational risk and mitigate Northern Trust’s exposure to disruption and loss. Several key programs support the operational risk framework, including:
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•Loss Event Data Program - a program that collects internal and external loss data for use in monitoring operational risk exposure, various business analyses, and operational risk quantification, including the Basel Advanced Measurement Approach (AMA) capital quantification. Both internal and external loss data are used in the operational risk capital quantification. Data is reviewed to increase understanding of Northern Trust’s and industry-wide operational risk exposure and to identify action plans to minimize or prevent future events.
•Risk and Control Self-Assessment - a comprehensive, structured risk management process used by Northern Trust’s businesses and corporate functions to identify, measure, monitor and mitigate operational risk exposures throughout the enterprise.
•Operational Risk Scenario Analysis - a systematic process of obtaining expert opinions from business managers and risk management experts to derive reasoned assessments of the likelihood of occurrence and the potential loss impact of plausible operational losses.
•Change Risk and Product Risk Management Program - a program used for evaluating and managing risks associated with the introduction of new or modified products and services and significant changes to operating processes.
•Operational Resilience - a program designed to ensure the resilience and continuity of service delivery of Northern Trust’s most important business services.
•Third-Party Risk Management Program - a program that provides processes for evaluating, quantifying and qualifying appropriate risk assessment, measurement, monitoring and management of third and fourth parties (inclusive of external and internal, e.g., Northern Trust legal entity to legal entity relationships).