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Fair Value Measurements (Tables)

9 Months Ended

Sep. 30, 2023

Fair Value Measurement Inputs and Valuation Techniques

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.

TABLE 35: LEVEL 3 SIGNIFICANT UNOBSERVABLE INPUTS

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.

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.

TABLE 38: LEVEL 3 NONRECURRING BASIS SIGNIFICANT UNOBSERVABLE INPUTS

SEPTEMBER 30, 2023

FINANCIAL INSTRUMENT

FAIR VALUE(1)

VALUATION TECHNIQUE

UNOBSERVABLE INPUTS

INPUT VALUES

WEIGHTED-AVERAGE INPUT VALUES

Loans

$3.8 million

Market Approach

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

20.0%

(1) Includes real estate collateral-dependent loans and other collateral-dependent loans.

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%

(1) Includes real estate collateral-dependent loans and other collateral-dependent loans.

Recurring Basis Hierarchy Leveling

The following table presents assets and liabilities measured at fair value on a recurring basis as of September 30, 2023 and December 31, 2022, segregated by fair value hierarchy level.

TABLE 36: RECURRING BASIS HIERARCHY LEVELING


	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.

(1)This line consists of swaps related to the sale of certain Visa Class B common shares.


	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.

(1) This line consists of total return swap contracts.

(2) This line consists of swaps related to the sale of certain Visa Class B common shares.

Changes in Level 3 Liabilities

The following table presents the changes in Level 3 liabilities for the three and nine months ended September 30, 2023 and 2022.

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

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

Fair Value of Financial Instruments

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