4. Securities – The following tables provide the amortized cost and fair values of securities at June 30, 2011 and December 31, 2010.


Securities Available for Sale	June 30, 2011
	Amortized		Gross Unrealized				Fair
(In Millions)	Cost		Gains		Losses		Value
U.S. Government	$	1,393.8	$	13.6	$	.3	$	1,407.1
Obligations of States and Political Subdivisions		35.2		1.0		—		36.2
Government Sponsored Agency		13,079.6		58.3		8.5		13,129.4
Corporate Debt		2,389.9		11.3		.3		2,400.9
Non-U.S. Government Debt		212.2		—		—		212.2
Residential Mortgage-Backed		238.9		.1		31.4		207.6
Other Asset-Backed		1,642.8		1.9		2.1		1,642.6
Certificates of Deposit		3,325.4		—		—		3,325.4
Auction Rate		204.9		5.6		5.4		205.1
Other		1,590.5		8.8		2.8		1,596.5

Total	$	24,113.2	$	100.6	$	50.8	$	24,163.0


Securities Held to Maturity	June 30, 2011
	Amortized		Gross Unrealized				Fair
(In Millions)	Cost		Gains		Losses		Value
Obligations of States and Political Subdivisions	$	572.5	$	26.2	$	.2	$	598.5
Government Sponsored Agency		166.8		4.2		.1		170.9
Other		115.6		—		12.1		103.5

Total	$	854.9	$	30.4	$	12.4	$	872.9


Securities Available for Sale	December 31, 2010
	Amortized		Gross Unrealized				Fair
(In Millions)	Cost		Gains		Losses		Value
U.S. Government	$	667.2	$	1.0	$	9.8	$	658.4
Obligations of States and Political Subdivisions		35.4		.9		—		36.3
Government Sponsored Agency		11,937.0		47.0		13.3		11,970.7
Corporate Debt		2,547.7		7.8		1.5		2,554.0
Non-U.S. Government Debt		440.6		—		—		440.6
Residential Mortgage-Backed		308.0		.9		54.3		254.6
Other Asset-Backed		1,606.5		1.5		2.3		1,605.7
Certificates of Deposit		1,402.5		—		—		1,402.5
Auction Rate		357.0		14.2		3.4		367.8
Other		610.8		4.2		3.7		611.3

Total	$	19,912.7	$	77.5	$	88.3	$	19,901.9


Securities Held to Maturity	December 31, 2010
	Amortized		Gross Unrealized				Fair
(In Millions)	Cost		Gains		Losses		Value
Obligations of States and Political Subdivisions	$	635.0	$	26.2	$	.4	$	660.8
Government Sponsored Agency		169.3		4.6		.2		173.7
Other		117.9		—		10.6		107.3

Total	$	922.2	$	30.8	$	11.2	$	941.8

The following table provides the remaining maturity of securities as of June 30, 2011.


	Amortized		Fair
(In Millions)	Cost		Value
Available for Sale
Due in One Year or Less	$	11,172.2	$	11,175.5
Due After One Year Through Five Years		11,812.2		11,851.0
Due After Five Years Through Ten Years		716.2		720.3
Due After Ten Years		412.6		416.2

Total		24,113.2		24,163.0

Held to Maturity
Due in One Year or Less		153.4		154.5
Due After One Year Through Five Years		406.8		418.0
Due After Five Years Through Ten Years		264.0		274.0
Due After Ten Years		30.7		26.4

Total	$	854.9	$	872.9

Note: Mortgage-backed and asset-backed securities are included in the above table taking into account anticipated future prepayments.

Investment Security Gains and Losses. Losses totaling $16.6 million and $22.1 million were recognized for the three and six months ended June 30, 2011, respectively. Included in the losses were $16.9 million and $22.0 million, respectively, recorded in connection with the write down of residential mortgage-backed securities that were determined to be other-than-temporarily impaired. Other-than-temporary impairment (OTTI) losses totaling $.1 million were recognized for the three and six months ended June 30, 2010. There were $.3 million realized net security gains for the three months ended June 30, 2011 and $.1 million realized net security losses for the six months ended June 30, 2011. There were no realized security gains for the three months ended June 30, 2010 and realized gains for the six months ended June 30, 2010 totaled $.3 million.

Securities with Unrealized Losses. The following tables provide information regarding securities that have been in a continuous unrealized loss position for less than 12 months and for 12 months or longer as of June 30, 2011 and December 31, 2010.

Securities with Unrealized Losses as of June 30, 2011

Less than 12 Months

12 Months or Longer

Total

Fair

Unrealized

Fair

Unrealized

Fair

Unrealized

(In Millions)

Value

Losses

Value

Losses

Value

Losses

U.S. Government

199.8

0.3

—

199.8

Obligations of States and Political Subdivisions

—

3.0

3.9

Government Sponsored Agency

1,358.8

6.9

320.5

1.7

1,679.3

8.6

Corporate Debt

93.6

—

100.0

193.6

Residential Mortgage-Backed

4.0

—

200.5

31.4

204.5

31.4

Other Asset-Backed

510.8

1.8

63.8

574.6

2.1

Auction Rate

67.4

2.7

54.7

2.7

122.1

5.4

Other

465.0

4.7

44.1

10.2

509.1

14.9

Total

2,700.3

16.4

786.6

46.8

3,486.9

63.2


Securities with Unrealized Losses as of December 31, 2010	Less than 12 Months				12 Months or Longer				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
(In Millions)	Value		Losses		Value		Losses		Value		Losses
U.S. Government	$	492.9	$	9.8	$	—	$	—	$	492.9	$	9.8
Obligations of States and Political Subdivisions		3.0		—		3.2		.4		6.2		.4
Government Sponsored Agency		980.7		11.0		328.7		2.5		1,309.4		13.5
Corporate Debt		930.6		1.1		475.2		.4		1,405.8		1.5
Residential Mortgage-Backed		—		—		248.8		54.3		248.8		54.3
Other Asset-Backed		513.5		2.2		27.0		.1		540.5		2.3
Auction Rate		77.6		3.3		.7		.1		78.3		3.4
Other		482.2		6.8		36.5		7.5		518.7		14.3

Total	$	3,480.5	$	34.2	$	1,120.1	$	65.3	$	4,600.6	$	99.5

As of June 30, 2011, 286 securities with a combined fair value of $3.5 billion were in an unrealized loss position, with their unrealized losses totaling $63.2 million. The majority of the unrealized losses reflect the impact of credit and liquidity spreads on the valuations of 24 residential mortgage-backed securities with unrealized losses totaling $31.4 million that have been in an unrealized loss position for more than 12 months. Residential mortgage-backed securities rated below double-A at June 30, 2011 represented 80% of the total fair value of residential mortgage-backed securities, were comprised primarily of sub-prime and Alt-A securities, and had a total amortized cost and fair value of $196.1 million and $166.7 million, respectively. Securities classified as “other asset-backed” at June 30, 2011 were predominantly floating rate with average lives less than 5 years, and 100% were rated triple-A.

Unrealized losses of $8.6 million related to government sponsored agency securities are primarily attributable to changes in market rates since their purchase. The majority of the $14.9 million of unrealized losses in securities classified as “other” at June 30, 2011 relate to securities which Northern Trust purchases for compliance with the Community Reinvestment Act (CRA). Unrealized losses on these CRA related other securities are attributable to their purchase at below market rates for the purpose of supporting institutions and programs that benefit low to moderate income communities within Northern Trust’s market area. Unrealized losses of $5.4 million related to auction rate securities primarily reflect reduced market liquidity as a majority of auctions continue to fail preventing holders from liquidating their investments at par. Unrealized losses of $.3 million within corporate debt securities primarily reflect widened credit spreads; 83% of the corporate debt portfolio is backed by guarantees provided by U.S. and non-U.S. governmental entities. The remaining unrealized losses on Northern Trust’s securities portfolio as of June 30, 2011 are attributable to changes in overall market interest rates, increased credit spreads, or reduced market liquidity.

Security impairment reviews are conducted quarterly to identify and evaluate securities that have indications of possible OTTI. A determination as to whether a security’s decline in market value is other-than-temporary takes into consideration numerous factors and the relative significance of any single factor can vary by security. Factors Northern Trust considers in determining whether impairment is other-than-temporary include, but are not limited to, the length of time which the security has been impaired; the severity of the impairment; the cause of the impairment and the financial condition and near-term prospects of the issuer; activity in the market of the issuer which may indicate adverse credit conditions; and Northern Trust’s ability and intent not to sell, and the likelihood that it will not be required to sell, the security for a period of time sufficient to allow for the recovery of the security’s amortized cost basis. For each security meeting the requirements of Northern Trust’s internal screening process, an extensive review is conducted to determine if OTTI has occurred.

While all securities are considered, the following describes Northern Trust’s process for identifying credit impairment within mortgage-backed securities, including non-agency residential mortgage-backed securities, the security type for which Northern Trust has previously recognized OTTI. To determine if an unrealized loss on a mortgage-backed security is other-than-temporary, economic models are used to perform cash flow analyses by developing multiple scenarios in order to create reasonable forecasts of the security’s future performance using available data including servicers’ loan charge off patterns, prepayment speeds, annualized default rates, each security’s current delinquency pipeline, the delinquency pipeline’s growth rate, the roll rate from delinquency to default, loan loss severities and historical performance of like collateral, along with Northern Trust’s outlook for the housing market and the overall economy. If the present value of future cash flows projected as a result of this analysis is less than the current amortized cost of the security, a credit related OTTI loss is recorded to earnings equal to the difference between the two amounts.

Expected losses on non-agency residential mortgage-backed securities are influenced by a number of factors, including but not limited to, U.S. economic and housing market performance, security credit enhancement level, insurance coverage, year of origination, and type of collateral. The factors used in developing the expected loss on non-agency residential mortgage-backed securities vary by year of origination and type of collateral. As of June 30, 2011, the expected losses on subprime, Alt-A, prime and 2nd lien portfolios were developed using default roll rates, determined primarily by the stage of delinquency of the underlying instrument, that generally assumed ultimate default rates approximating 5% to 30% for current loans; 30% for loans 30 to 60 days delinquent; 80% for loans 60 to 90 days delinquent; 90% for loans delinquent greater than 90 days; and 100% for OREO properties and loans that are in foreclosure. June 30, 2011 amortized cost, weighted average ultimate default rates, and loss severity rates for the non-agency residential mortgage-backed securities portfolio, by security type, are provided in the following table.


(In Millions)	June 30, 2011
						Loss Severity Rates
	Amortized		Weighted Average									Weighted
Security Type	Cost		Ultimate Default Rates			Low			High			Average
Prime	$	24.8		14.5	%		38.0	%		66.0	%		52.4	%
Alt-A		41.2		43.5			52.3			73.0			68.3
Subprime		135.3		51.0			70.4			86.5			75.4
2nd Lien		37.6		33.1			99.6			100.0			99.9

Total Non-Agency Residential Mortgage-Backed Securities	$	238.9		41.7	%		38.0	%		100.0	%		75.6	%

During the three and six months ended June 30, 2011, performance metrics specific to subprime and Alt-A loans experienced additional deterioration resulting in the recognition of OTTI losses of $16.9 million and $22.0 million, respectively, in connection with residential mortgage-backed securities. OTTI losses totaled $.1 million for the three and six months ended June 30, 2010.

Credit Losses on Debt Securities. The table below provides information regarding total other-than-temporarily impaired securities, including noncredit-related amounts recognized in other comprehensive income as well as net impairment losses recognized in earnings, for the three and six months ended June 30, 2011 and 2010.


	Three Months Ended						Six Months Ended
	June 30,						June 30,
(In Millions)	2011			2010			2011			2010
Changes in OTTI Losses*	$	(1.7	)	$	(.7	)	$	(1.6	)	$	(.7	)
Noncredit-related Losses Recorded in/ (Reclassified from) OCI**		(15.2	)		.6			(20.4	)		.6

Net Impairment Losses Recognized in Earnings	$	(16.9	)	$	(.1	)	$	(22.0	)	$	(.1	)

For initial other-than-temporary impairments in the respective period, the balance includes the excess of the amortized cost over the fair value of the impaired securities. For subsequent impairments of the same security, the balance includes any additional changes in fair value of the security subsequent to its most recently recorded OTTI.

For initial other-than-temporary impairments in the respective period, the balance includes the portion of the excess of amortized cost over the fair value of the impaired securities that was recorded in OCI. For subsequent impairments of the same security, the balance includes additional changes in OCI for that security subsequent to its most recently recorded OTTI.

Provided in the table below are the cumulative credit-related losses recognized in earnings on debt securities other-than-temporarily impaired.


	Three Months Ended				Six Months Ended
	June 30,				June 30,
(In Millions)	2011		2010		2011		2010
Cumulative Credit-Related Losses on Securities – Beginning of Period	$	99.3	$	73.0	$	94.2	$	73.0
Plus: Losses on Newly Identified Impairments		1.5		—		1.5		—
Additional Losses on Previously Identified Impairments		15.4		.1		20.5		.1

Cumulative Credit-Related Losses on Securities – End of Period	$	116.2	$	73.1	$	116.2	$	73.1

The table below provides information regarding debt securities held as of June 30, 2011 and December 31, 2010, for which an OTTI loss had been recognized in the current period or previously.


	June 30,			December 31,
(In Millions)	2011			2010
Fair Value	$	85.2		$	79.9
Amortized Cost Basis		106.8			113.3
Noncredit-related Losses Recognized in OCI		(21.6	)		(33.4	)
Tax Effect		8.0			12.2

Amount Recorded in OCI	$	(13.6	)	$	(21.2	)