Fair Value Hierarchy. The following describes the hierarchy of valuation inputs (Levels 1, 2, and 3) used to measure fair value and the primary valuation methodologies used by Northern Trust for financial instruments measured at fair value on a recurring basis. Observable inputs reflect market data obtained from sources independent of the reporting entity; unobservable inputs reflect the entity’s own assumptions about how market participants would value an asset or liability based on the best information available. GAAP requires an entity measuring fair value to maximize the use of observable inputs and minimize the use of unobservable inputs and establishes a fair value hierarchy of inputs. Financial instruments are categorized within the hierarchy based on the lowest level input that is significant to their valuation. No transfers into or out of Level 3 occurred during the nine months ended September 30, 2023 or the year ended December 31, 2022.

Level 2 — Observable inputs other than Level 1 prices, such as quoted active market prices for similar assets or liabilities, quoted prices for identical or similar assets in inactive markets, and model-derived valuations in which all significant inputs are observable in active markets.

Northern Trust’s Level 2 assets include AFS and certain trading account debt securities, the fair values of which are determined predominantly by external pricing vendors. Prices received from vendors are compared to other vendor and third-party prices. If a security price obtained from a pricing vendor is determined to exceed predetermined tolerance levels that are assigned based on an asset type’s characteristics, the exception is researched and, if the price is not able to be validated, an alternate pricing vendor is utilized, consistent with Northern Trust’s pricing source hierarchy. As of September 30, 2023, Northern Trust’s AFS debt securities portfolio included 1,009 Level 2 debt securities with an aggregate market value of $21.5 billion. Substantially all were valued by external pricing vendors. As of December 31, 2022, Northern Trust’s AFS debt securities portfolio included 1,163 Level 2 debt securities with an aggregate market value of $24.0 billion. All 1,163 debt securities were valued by external pricing vendors.

Level 2 assets and liabilities also include derivative contracts which are valued internally using widely accepted income-based models that incorporate inputs readily observable in actively quoted markets and reflect the contractual terms of the contracts. Observable inputs include foreign exchange rates and interest rates for foreign exchange contracts; interest rates for interest rate swap contracts and forward contracts; and interest rates and volatility inputs for interest rate option contracts. Northern Trust evaluates the impact of counterparty credit risk and its own credit risk on the valuation of its derivative instruments. Factors considered include the likelihood of default by Northern Trust and its counterparties, the remaining maturities of the instruments, net exposures after giving effect to master netting arrangements or similar agreements, available collateral, and other credit enhancements in determining the appropriate fair value of derivative instruments. The resulting valuation adjustments have not been considered material.

Northern Trust’s Level 3 liabilities consist of swaps that Northern Trust entered into with the purchaser of 1.1 million and 1.0 million shares of Visa Inc. Class B common stock (Visa Class B common shares) previously held by Northern Trust and sold in June 2016 and 2015, respectively. Pursuant to the swaps, Northern Trust retains the risks associated with the ultimate conversion of the Visa Class B common shares into shares of Visa Inc. Class A common stock (Visa Class A common shares), such that the counterparty will be compensated for any dilutive adjustments to the conversion ratio and Northern Trust will be compensated for any anti-dilutive adjustments to the ratio. The swaps also require periodic payments from Northern Trust to the counterparty calculated by reference to the market price of Visa Class A common shares and a fixed rate of interest. The fair value of the swaps is determined using a discounted cash flow methodology. The significant unobservable inputs used in the fair value measurement are Northern Trust’s own assumptions about estimated changes in the conversion rate of the Visa Class B common shares into Visa Class A common shares, the date on which such conversion is expected to occur and the estimated growth rate of the Visa Class A common share price. See “Visa Class B Common Shares” under Note 20—Commitments and Contingent Liabilities for further information.

Northern Trust believes its valuation methods for its assets and liabilities carried at fair value are appropriate; however, the use of different methodologies or assumptions, particularly as applied to Level 3 assets and liabilities, could have a material effect on the computation of their estimated fair values.

The following table presents the fair values of Northern Trust’s Level 3 liabilities as of September 30, 2023 and December 31, 2022, as well as the valuation techniques, significant unobservable inputs, and quantitative information used to develop significant unobservable inputs for such liabilities as of such dates.

SEPTEMBER 30, 2023

FINANCIAL INSTRUMENT

FAIR VALUE

VALUATION TECHNIQUE

UNOBSERVABLE INPUTS

INPUT VALUES

WEIGHTED-AVERAGE INPUT VALUES(1)

Swaps Related to Sale of Certain Visa Class B Common Shares

$28.9 million

Discounted Cash Flow

Conversion Rate

1.59x

Visa Class A Appreciation

10.15%

Expected Duration

30 months

16 months

(1) Weighted average of expected duration based on scenario probability.

DECEMBER 31, 2022

FINANCIAL INSTRUMENT

FAIR VALUE

VALUATION TECHNIQUE

UNOBSERVABLE INPUTS

INPUT VALUES

WEIGHTED-AVERAGE INPUT VALUES(1)

Swaps Related to Sale of Certain Visa Class B Common Shares

$34.8 million

Discounted Cash Flow

Conversion Rate

1.60x

Visa Class A Appreciation

8.53%

Expected Duration

33 months

20 months

(1) Weighted average of expected duration based on scenario probability.


	SEPTEMBER 30, 2023
(In Millions)	LEVEL 1		LEVEL 2		LEVEL 3		NETTING		ASSETS/LIABILITIES AT FAIR VALUE
Debt Securities
Available for Sale
U.S. Government	$	2,879.4	$	—	$	—	$	—	$	2,879.4
Obligations of States and Political Subdivisions	—		282.1		—		—		282.1
Government Sponsored Agency	—		11,656.8		—		—		11,656.8
Non-U.S. Government	—		246.9		—		—		246.9
Corporate Debt	—		380.9		—		—		380.9
Covered Bonds	—		280.4		—		—		280.4
Sub-Sovereign, Supranational and Non-U.S. Agency Bonds	—		2,959.8		—		—		2,959.8
Other Asset-Backed	—		4,771.5		—		—		4,771.5
Commercial Mortgage-Backed	—		884.3		—		—		884.3
Total Available for Sale	2,879.4		21,462.7		—		—		24,342.1
Trading Account	—		0.1		—		—		0.1
Total Available for Sale and Trading Debt Securities	2,879.4		21,462.8		—		—		24,342.2
Other Assets
Money Market Investment	95.0		—		—		—		95.0
Derivative Assets
Foreign Exchange Contracts	—		3,049.1		—		(1,266.6)		1,782.5
Interest Rate Contracts	—		363.9		—		(286.5)		77.4
Other Financial Derivatives	—		—		—		—		—
Total Derivative Assets	—		3,413.0		—		(1,553.1)		1,859.9
Other Liabilities
Derivative Liabilities
Foreign Exchange Contracts	—		2,820.2		—		(2,380.6)		439.6
Interest Rate Contracts	—		467.3		—		(2.1)		465.2
Other Financial Derivatives(1)	—		—		28.9		(27.2)		1.7
Total Derivative Liabilities	$	—	$	3,287.5	$	28.9	$	(2,409.9)	$	906.5

Note: Northern Trust has elected to net derivative assets and liabilities when legally enforceable master netting arrangements or similar agreements exist between Northern Trust and the counterparty. As of September 30, 2023, derivative assets and liabilities shown above also include reductions of $287.0 million and $1.1 billion, respectively, as a result of cash collateral received from and deposited with derivative counterparties.


	DECEMBER 31, 2022
(In Millions)	LEVEL 1		LEVEL 2		LEVEL 3		NETTING		ASSETS/LIABILITIES AT FAIR VALUE
Debt Securities
Available for Sale
U.S. Government	$	2,747.4	$	—	$	—	$	—	$	2,747.4
Obligations of States and Political Subdivisions	—		787.6		—		—		787.6
Government Sponsored Agency	—		11,545.2		—		—		11,545.2
Non-U.S. Government	—		360.0		—		—		360.0
Corporate Debt	—		1,747.6		—		—		1,747.6
Covered Bonds	—		388.7		—		—		388.7
Sub-Sovereign, Supranational and Non-U.S. Agency Bonds	—		2,479.4		—		—		2,479.4
Other Asset-Backed	—		5,256.2		—		—		5,256.2
Commercial Mortgage-Backed	—		1,387.8		—		—		1,387.8
Total Available for Sale	2,747.4		23,952.5		—		—		26,699.9
Trading Account	95.0		0.2		—		—		95.2
Total Available for Sale and Trading Debt Securities	2,842.4		23,952.7		—		—		26,795.1
Other Assets
Derivative Assets
Foreign Exchange Contracts	—		3,510.1		—		(2,666.4)		843.7
Interest Rate Contracts	—		222.0		—		(144.3)		77.7
Other Financial Derivatives(1)	—		0.3		—		—		0.3
Total Derivative Assets	—		3,732.4		—		(2,810.7)		921.7
Other Liabilities
Derivative Liabilities
Foreign Exchange Contracts	—		3,187.5		—		(1,826.7)		1,360.8
Interest Rate Contracts	—		431.8		—		(5.9)		425.9
Other Financial Derivatives(2)	—		—		34.8		(33.3)		1.5
Total Derivative Liabilities	$	—	$	3,619.3	$	34.8	$	(1,865.9)	$	1,788.2

Note: Northern Trust has elected to net derivative assets and liabilities when legally enforceable master netting arrangements or similar agreements exist between Northern Trust and the counterparty. As of December 31, 2022, derivative assets and liabilities shown above also include reductions of $1.1 billion and $195.3 million, respectively, as a result of cash collateral received from and deposited with derivative counterparties.

TABLE 37: CHANGES IN LEVEL 3 LIABILITIES


(In Millions)	SWAPS RELATED TO SALE OF CERTAIN VISA CLASS B COMMON SHARES
THREE MONTHS ENDED SEPTEMBER 30,	2023		2022
Fair Value at July 1	$	36.4	$	31.1
Total (Gains) Losses:
Included in Earnings(1)	(2.4)		1.1
Purchases, Issues, Sales, and Settlements
Settlements	(5.1)		(4.6)
Fair Value at September 30	$	28.9	$	27.6

(1) (Gains) losses are recorded in Other Operating Income on the consolidated statements of income.



NINE MONTHS ENDED SEPTEMBER 30,	2023		2022
Fair Value at January 1	$	34.8	$	37.5
Total (Gains) Losses:
Included in Earnings(1)	16.1		11.2
Purchases, Issues, Sales, and Settlements
Settlements	(22.0)		(21.1)
Fair Value at September 30	$	28.9	$	27.6

Carrying values of assets and liabilities that are not measured at fair value on a recurring basis may be adjusted to fair value in periods subsequent to their initial recognition, for example, to record an impairment of an asset. GAAP requires entities to separately disclose these subsequent fair value measurements and to classify them under the fair value hierarchy.

Assets measured at fair value on a nonrecurring basis at September 30, 2023 and December 31, 2022, all of which were categorized as Level 3 under the fair value hierarchy, were comprised of nonaccrual loans whose values were based on real estate and other available collateral, and of other real estate owned (OREO) properties.

Fair values of real estate loan collateral were estimated using a market approach typically supported by third-party valuations and property-specific fees and taxes. The fair values of real estate loan collateral were subject to adjustments to reflect management’s judgment as to realizable value and consisted of a discount factor of 20.0% with a weighted average based on fair values of 20.0%, and a range of discount factors from 15.0% to 20.0% with a weighted average of 17.2%, as of September 30, 2023 and December 31, 2022, respectively. Other loan collateral, which typically consists of accounts receivable, inventory and equipment, is valued using a market approach adjusted for asset-specific characteristics and in limited instances third-party valuations are used. OREO assets are carried at the lower of cost or fair value less estimated costs to sell, with fair value typically based on third-party appraisals.

The following table presents the fair values of Northern Trust’s Level 3 assets that were measured at fair value on a nonrecurring basis as of September 30, 2023 and December 31, 2022, as well as the valuation technique, significant unobservable inputs and quantitative information used to develop the significant unobservable inputs for such assets as of such dates.

DECEMBER 31, 2022

FINANCIAL INSTRUMENT

FAIR VALUE(1)

VALUATION TECHNIQUE

UNOBSERVABLE INPUTS

INPUT VALUES

WEIGHTED-AVERAGE INPUT VALUES

Loans

$6.6 million

Market Approach

Discount factor applied to real estate collateral-dependent loans to reflect realizable value

15.0

20.0%

17.2%

The following tables present the book value and estimated fair value, including the fair value hierarchy level, of Northern Trust’s financial instruments that are not measured at fair value on the consolidated balance sheets as of September 30, 2023 and December 31, 2022. The following tables exclude those items measured at fair value on a recurring basis.

TABLE 39: FAIR VALUE OF FINANCIAL INSTRUMENTS


	SEPTEMBER 30, 2023
					ESTIMATED FAIR VALUE
(In Millions)	BOOK VALUE		TOTAL ESTIMATED FAIR VALUE		LEVEL 1		LEVEL 2		LEVEL 3
FINANCIAL ASSETS
Cash and Due from Banks	$	4,955.7	$	4,955.7	$	4,955.7	$	—	$	—
Federal Reserve and Other Central Bank Deposits	32,316.8		32,316.8		—		32,316.8		—
Interest-Bearing Deposits with Banks	2,122.5		2,122.5		—		2,122.5		—

Securities Purchased under Agreements to Resell	384.3		384.3		—		384.3		—
Debt Securities - Held to Maturity	24,920.4		22,449.7		—		22,449.7		—
Loans
Held for Investment	43,410.2		43,384.4		—		—		43,384.4

Other Assets	1,502.1		1,485.4		89.4		1,396.0		—
FINANCIAL LIABILITIES
Deposits
Demand, Noninterest-Bearing, Savings, Money Market and Other Interest-Bearing	$	45,300.4	$	45,300.4	$	45,300.4	$	—	$	—
Savings Certificates and Other Time	4,038.6		4,070.4		—		4,070.4		—
Non U.S. Offices Interest-Bearing	60,826.9		60,826.9		—		60,826.9		—
Federal Funds Purchased	5,539.3		5,539.3		—		5,539.3		—
Securities Sold Under Agreements to Repurchase	545.9		545.9		—		545.9		—
Other Borrowings	6,870.9		6,888.1		—		6,888.1		—
Senior Notes	2,688.9		2,646.6		—		2,646.6		—
Long-Term Debt	4,060.7		4,026.1		—		4,026.1		—
Unfunded Commitments	205.5		205.5		—		205.5		—
Other Liabilities	89.5		89.5		—		—		89.5


	DECEMBER 31, 2022
					ESTIMATED FAIR VALUE
(In Millions)	BOOK VALUE		TOTAL ESTIMATED FAIR VALUE		LEVEL 1		LEVEL 2		LEVEL 3
FINANCIAL ASSETS
Cash and Due from Banks	$	4,654.2	$	4,654.2	$	4,654.2	$	—	$	—
Federal Reserve and Other Central Bank Deposits	40,030.4		40,030.4		—		40,030.4		—
Interest-Bearing Deposits with Banks	1,941.1		1,941.1		—		1,941.1		—
Federal Funds Sold	32.0		32.0		—		32.0		—
Securities Purchased under Agreements to Resell	1,070.3		1,070.3		—		1,070.3		—
Debt Securities - Held to Maturity	25,036.1		22,879.3		50.0		22,829.3		—
Loans
Held for Investment	42,749.0		42,636.5		—		—		42,636.5
Other Assets	1,476.9		1,460.4		94.7		1,365.7		—
FINANCIAL LIABILITIES
Deposits
Demand, Noninterest-Bearing, Savings, Money Market and Other Interest-Bearing	$	56,468.9	$	56,468.9	$	56,468.9	$	—	$	—
Savings Certificates and Other Time	1,981.3		1,976.1		—		1,976.1		—
Non U.S. Offices Interest-Bearing	65,481.9		65,481.9		—		65,481.9		—
Federal Funds Purchased	1,896.9		1,896.9		—		1,896.9		—
Securities Sold Under Agreements to Repurchase	567.2		567.2		—		567.2		—
Other Borrowings	7,592.3		7,592.8		—		7,592.8		—
Senior Notes	2,724.2		2,729.8		—		2,729.8		—
Long-Term Debt	2,066.2		2,110.7		—		2,110.7		—
Unfunded Commitments	218.9		218.9		—		218.9		—
Other Liabilities	73.2		73.2		—		—		73.2