Off-Balance-Sheet Financial Instruments, Guarantees and Other Commitments

12 Months Ended

Dec. 31, 2019

Off-Balance-Sheet Financial Instruments, Guarantees and Other Commitments

Northern Trust, in the normal course of business, enters into various types of commitments and issues letters of credit to meet the liquidity and credit enhancement needs of its clients. The contractual amounts of these instruments represent the potential credit exposure should the instrument be fully drawn upon and the client default. To control the credit risk associated with entering into commitments and issuing letters of credit, Northern Trust subjects such activities to the same credit quality and monitoring controls as its lending activities. Commitments and letters of credit consist of the following:

Legally Binding 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.

Standby Letters of Credit obligate Northern Trust to meet certain financial obligations of its clients, if, under the contractual terms of the agreement, the clients are unable to do so. These instruments are primarily issued to support public and private financial commitments, including commercial paper, bond financing, initial margin requirements on futures exchanges, and similar transactions. Northern Trust is obligated to meet the entire financial obligation of these agreements and in certain cases is able to recover the amounts paid through recourse against collateral received or other participants.

Financial Guarantees are issued by Northern Trust to guarantee the performance of a client to a third party under certain arrangements.

Commercial Letters of Credit are instruments issued by Northern Trust on behalf of its clients that authorize a third party (the beneficiary) to draw drafts up to a stipulated amount under the specified terms and conditions of the agreement and other similar instruments. Commercial letters of credit are issued primarily to facilitate international trade.

Custody Securities Lent with Indemnification involves Northern Trust lending securities owned by clients to borrowers who are reviewed and approved by the Northern Trust Capital Markets Credit Committee, as part of its securities custody activities and at the direction of its clients. In connection with these activities, Northern Trust has issued indemnifications to certain clients against certain losses that are a direct result of a borrower’s failure to return securities when due, should the value of such securities exceed the value of the collateral required to be posted. Borrowers are required to collateralize fully securities received with cash or marketable securities. As securities are loaned, collateral is maintained at a minimum 100% of the fair value of the securities plus accrued interest. The collateral is revalued on a daily basis. The amount of securities loaned as of December 31, 2019 and 2018 subject to indemnification was $138.1 billion and $128.9 billion, respectively. Because of the credit quality of the borrowers and the requirement to fully collateralize securities borrowed, management

believes that the exposure to credit loss from this activity is not significant and no liability was recorded at December 31, 2019, or 2018 related to these indemnifications.

The following table provides details of Northern Trust's off-balance sheet financial instruments as of December 31, 2019 and 2018.

TABLE 140: SUMMARY OF OFF-BALANCE SHEET FINANCIAL INSTRUMENTS



	DECEMBER 31,
(In Millions)	2019		2018
Legally Binding Commitments to Extend Credit⁽¹⁾	$	24,406.2	$	25,023.0
Standby Letters of Credit and Financial Guarantees⁽²⁾⁽³⁾	2,416.7		2,486.2
Commercial Letters of Credit	32.3		32.3
Custody Securities Lent with Indemnification	138,085.9		128,904.8

(1) These amounts exclude $243.6 million and $242.3 million of commitments participated to others at December 31, 2019 and 2018, respectively.

(2) These amounts include $44.5 million and $72.3 million of standby letters of credit secured by cash deposits or participated to others as of December 31, 2019 and 2018, respectively.

(3) At December 31, 2019, $1.4 billion of the standby letters of credit will expire within one year or less and $845.9 million in one to five years.