Fair Value Measurements (Tables)

9 Months Ended

Sep. 30, 2012

Assets and Liabilities Measured at Fair Value on Recurring Basis Segregated by Fair Value Hierarchy Level

The following presents assets and liabilities measured at fair value on a recurring basis as of September 30, 2012 and December 31, 2011, segregated by fair value hierarchy level.

(In Millions)

Level 1

Level 2

Level 3

Netting *

Assets/Liabilities
at Fair Value

September 30, 2012

Securities

Available for Sale

U.S. Government

1,787.8

—

1,787.8

Obligations of States and Political Subdivisions

—

14.3

—

14.3

Government Sponsored Agency

—

18,585.1

—

18,585.1

Corporate Debt

—

2,173.6

—

2,173.6

Covered Bonds

—

1,733.8

—

1,733.8

Supranational Bonds

—

1,046.6

—

1,046.6

Residential Mortgage-Backed

—

115.8

—

115.8

Other Asset-Backed

—

2,239.6

—

2,239.6

Auction Rate

—

99.5

—

99.5

Other

—

340.0

—

340.0

Total Available for Sale

1,787.8

26,248.8

99.5

—

28,136.1

Trading Account

—

5.2

—

5.2

Total Available for Sale and Trading

1,787.8

26,254.0

99.5

—

28,141.3

Other Assets

Foreign Exchange Contracts

—

2,121.2

—

2,121.2

Interest Rate Swaps

—

335.6

—

335.6

Total Derivatives

—

2,456.8

—

(1,558.6

)

898.2

Other Liabilities

Derivatives

Foreign Exchange Contracts

—

2,077.1

—

2,077.1

Interest Rate Swaps

—

267.3

—

267.3

Credit Default Swaps

—

1.1

—

1.1

Total Derivatives

—

2,345.5

—

(1,747.2

)

598.3

Other

Contingent Consideration

—

48.9

—

48.9

Total Other

—

48.9

—

48.9

Northern Trust has elected to net derivative assets and liabilities when legally enforceable master netting agreements exist between Northern Trust and the counterparty. As of September 30, 2012, derivative assets and liabilities shown above also include reductions of $541.8 million and $730.5 million, respectively, as a result of cash collateral received from and deposited with derivative counterparties.


(In Millions)	Level 1		Level 2		Level 3		Netting *			Assets/Liabilities at Fair Value
December 31, 2011
Securities
Available for Sale
U.S. Government	$	4,029.4	$	—	$	—	$	—		$	4,029.4
Obligations of States and Political Subdivisions		—		15.8		—		—			15.8
Government Sponsored Agency		—		16,771.4		—		—			16,771.4
Corporate Debt		—		2,676.7		—		—			2,676.7
Covered Bonds		—		754.9		—		—			754.9
Non-U.S. Government		—		173.7		—		—			173.7
Supranational Bonds		—		972.1		—		—			972.1
Residential Mortgage-Backed		—		163.8		—		—			163.8
Other Asset-Backed		—		1,604.8		—		—			1,604.8
Certificates of Deposit		—		2,418.1		—		—			2,418.1
Auction Rate		—		—		178.3		—			178.3
Other		—		433.5		—		—			433.5

Total Available for Sale		4,029.4		25,984.8		178.3		—			30,192.5

Trading Account		—		8.0		—		—			8.0

Total Available for Sale and Trading		4,029.4		25,992.8		178.3		—			30,200.5

Other Assets
Derivatives
Foreign Exchange Contracts		—		3,087.3		—		—			3,087.3
Interest Rate Swaps		—		338.3		—		—			338.3
Credit Default Swaps		—		0.7		—		—			0.7

Total Derivatives		—		3,426.3		—		(2,243.7	)		1,182.6

Other Liabilities
Derivatives
Foreign Exchange Contracts		—		2,991.6		—		—			2,991.6
Interest Rate Swaps		—		231.9		—		—			231.9
Credit Default Swaps		—		0.1		—		—			0.1

Total Derivatives		—		3,223.6		—		(2,281.0	)		942.6

Other
Contingent Consideration		—		—		56.8		—			56.8

Total Other	$	—	$	—	$	56.8	$	—		$	56.8

Northern Trust has elected to net derivative assets and liabilities when legally enforceable master netting agreements exist between Northern Trust and the counterparty. As of December 31, 2011, derivative assets and liabilities shown above also include reductions of $220.1 million and $257.4 million, respectively, as a result of cash collateral received from and deposited with derivative counterparties.

Changes in Level 3 Assets

The following tables present the changes in Level 3 assets and liabilities for the three and nine months ended September 30, 2012 and 2011.


Level 3 Assets (In Millions)	Auction Rate Securities
Three Months Ended September 30,	2012			2011
Fair Value at July 1	$	105.2		$	205.1
Total Gains (Losses) for the Period
Included in Earnings*		0.3			0.6
Included in Other Comprehensive Income**		(1.1	)		(5.2	)
Purchases, Issues, Sales, and Settlements
Sales		(0.1	)		—
Settlements		(4.8	)		(10.9	)

Fair Value at September 30	$	99.5		$	189.6


Nine Months Ended September 30,	2012			2011
Fair Value at January 1	$	178.3		$	367.8
Total Gains (Losses) for the Period
Included in Earnings*		(22.0	)		10.2
Included in Other Comprehensive Income**		4.9			(15.8	)
Purchases, Issues, Sales, and Settlements
Sales		(54.7	)		(1.5	)
Settlements		(7.0	)		(171.1	)

Fair Value at September 30	$	99.5		$	189.6

Realized gains for the three month period ended September 30, 2012 of $0.3 million represent gains from redemptions by issuers. Realized losses for the nine month period ended September 30, 2012 of $22.0 million include $20.8 million of losses from sales of securities and $1.6 million of impairment losses, partially offset by $0.4 million of gains from redemptions by issuers. Realized gains for the three month period ended September 30, 2011 of $0.6 million represent redemptions by issuers. Realized gains for the nine month period ended September 30, 2011 of $10.2 million include $10.1 million from redemptions by issuers and $0.1 million from sales of securities. Gains on redemptions are recorded in interest income and sales and impairment losses are recorded in investment security gains (losses), within the consolidated statement of income.

**	Unrealized losses related to auction rate securities are included in net unrealized gains on securities available for sale, within the consolidated statement of comprehensive income.

Changes in Level 3 Liabilities


Level 3 Liabilities (In Millions)	Other Liabilities *
Three Months Ended September 30	2012			2011
Fair Value at July 1	$	57.2		$	26.4
Total (Gains) Losses for the Period
Included in Earnings**		0.1			—
Included in Other Comprehensive Income***		(0.2	)		—
Purchases, Issues, Sales, and Settlements
Purchases		—			43.5
Issuances		—			—
Settlements		(8.2	)		—

Fair Value at September 30	$	48.9		$	69.9

Unrealized (Gains) Losses Included in Earnings Related to Financial Instruments Held at September 30 **	$	1.3		$	—


Nine Months Ended September 30	2012			2011
Fair Value at January 1	$	56.8		$	23.1
Total (Gains) Losses for the Period
Included in Earnings**		0.8			—
Included in Other Comprehensive Income***		(0.5	)		—
Purchases, Issues, Sales, and Settlements
Purchases		—			56.9
Issuances		—			—
Settlements		(8.2	)		(10.1	)

Fair Value at September 30	$	48.9		$	69.9

Unrealized (Gains) Losses Included in Earnings Related to Financial Instruments Held at September 30**	$	3.5		$	—

*	Current balances relate to contingent consideration liabilities; 2011 balances also include a Visa indemnification liability.

**	Gains (losses) are recorded in other operating income (expense) within the consolidated statement of income

***	Unrealized foreign currency related losses on contingent consideration liabilities are included in foreign currency translation adjustments, within the consolidated statement of comprehensive income.

Assets Measure at Fair Value on Nonrecurring Basis

The following provides information regarding those assets measured at fair value on a nonrecurring basis at September 30, 2012 and 2011, segregated by fair value hierarchy level.


(In Millions)	Level 1		Level 2		Level 3		Total Fair Value
September 30, 2012
Loans (1)	$	—	$	—	$	27.7	$	27.7
Other Real Estate Owned (2)		—		—		1.0		1.0

Total Assets at Fair Value	$	—	$	—	$	28.7	$	28.7

September 30, 2011
Loans (1)	$	—	$	—	$	46.6	$	46.6
Other Real Estate Owned (2)		—		—		4.0		4.0

Total Assets at Fair Value	$	—	$	—	$	50.6	$	50.6

(1)

In accordance with Accounting Standard Codification (ASC) Subtopic 310-10, Northern Trust recorded individually impaired loans at fair value and, for the three and nine months ended September 30, 2012, respectively, increased by $5.7 million and reduced by $8.5 million the level of specific allowances on these loans. During the three and nine months ended September 30, 2011, Northern Trust provided an additional $3.0 million and $10.5 million, respectively, of specific allowances to reduce the fair value of these loans.

(2)

In accordance with ASC Subtopics 310-40 and 360-10, Northern Trust recorded Other Real Estate Owned (OREO) at fair value and subsequently charged $0.2 million and $0.4 million through other operating expenses during the three and nine months ended September 30, 2012, respectively, to reduce the fair values of these OREO properties. Charges of $1.7 million and $1.8 million were recorded through other operating expenses during the three and nine months ended September 30, 2011, respectively, to reduce the fair values of these OREO properties.

Book and Fair Values of Financial Instruments

The following tables summarize the fair values of financial instruments.

(In Millions)

September 30, 2012

Book
Value

Total
Fair Value

Fair Value

Level 1

Level 2

Level 3

Assets

Cash and Due from Banks

3,396.7

—

Federal Funds Sold and Resell Agreements

573.4

—

573.4

—

Interest-Bearing Deposits with Banks

19,347.8

—

19,347.8

—

Federal Reserve Deposits and Other Interest-Bearing

6,230.5

—

6,230.5

—

Securities

Available for Sale ⁽¹⁾

28,136.1

1,787.8

26,248.8

99.5

Held to Maturity

1,048.0

1,064.2

—

1,064.2

—

Trading Account

5.2

—

5.2

—

Loans Held for Investment (excluding Leases)

28,235.9

28,347.4

—

28,347.4

Client Security Settlement Receivables

1,078.2

—

1,078.2

—

Other Assets

—

Federal Reserve and Federal Home Loan Bank Stock

197.6

—

197.6

—

Affordable Housing Investments

295.3

322.5

—

322.5

—

Employee Benefit and Deferred Compensation

121.4

127.0

88.9

38.1

—

Liabilities

Deposits

Demand, Noninterest-Bearing, Savings and Money Market

34,844.5

—

Savings Certificates and Other Time

3,011.0

3,024.8

—

3,024.8

—

Non U.S. Offices Interest-Bearing

39,076.1

—

39,076.1

—

Federal Funds Purchased

573.7

—

573.7

—

Securities Sold under Agreements to Repurchase

382.6

—

382.6

—

Other Borrowings

442.7

—

442.7

—

Senior Notes

2,610.3

2,731.4

—

2,731.4

—

Long Term Debt (excluding Leases)

Subordinated Debt

1,051.2

1,067.3

—

1,067.3

—

Federal Home Loan Bank Borrowings

335.0

348.0

—

348.0

—

Floating Rate Capital Debt

277.0

231.7

—

231.7

—

Other Liabilities

Standby Letters of Credit

65.8

—

65.8

Contingent Consideration

48.9

—

48.9

Loan Commitments

39.0

—

39.0

Derivative Instruments

Asset/Liability Management

Foreign Exchange Contracts

Assets

36.0

—

36.0

—

Liabilities

39.2

—

39.2

—

Interest Rate Swaps

Assets

139.3

—

139.3

—

Liabilities

77.2

—

77.2

—

Credit Default Swaps

Liabilities

1.1

—

1.1

—

Client-Related and Trading

Foreign Exchange Contracts

Assets

2,085.2

—

2,085.2

—

Liabilities

2,037.9

—

2,037.9

—

Interest Rate Swaps

Assets

196.3

—

196.3

—

Liabilities

190.1

—

190.1

—

(1)	Refer to the table located on page 35 for the disaggregation of available for sale securities.


(In Millions)	December 31, 2011
	Book Value		Total Fair Value		Fair Value
	Book Value		Total Fair Value		Level 1		Level 2		Level 3
Assets
Cash and Due from Banks	$	4,315.3	$	4,315.3	$	4,315.3	$	—	$	—
Federal Funds Sold and Resell Agreements		121.3		121.3		—		121.3		—
Interest-Bearing Deposits with Banks		16,696.4		16,696.4		—		16,696.4		—
Federal Reserve Deposits and Other Interest-Bearing		13,448.6		13,448.6		—		13,448.6		—
Securities
Available for Sale ⁽¹⁾		30,192.5		30,192.5		4,029.4		25,984.8		178.3
Held to Maturity		799.2		817.1		—		817.1		—
Trading Account		8.0		8.0		—		8.0		—
Loans (excluding Leases)
Held for Investment		27,782.7		27,913.7		—		—		27,913.7
Held for Sale		9.3		9.3		—		—		9.3
Client Security Settlement Receivables		778.3		778.3		—		778.3		—
Other Assets
Federal Reserve and Federal Home Loan Bank Stock		172.9		172.9		—		172.9		—
Affordable Housing Investments		290.8		319.9		—		319.9		—
Employee Benefit and Deferred Compensation		106.3		117.3		82.4		34.9		—
Liabilities
Deposits
Demand, Noninterest-Bearing, Savings and Money Market	$	43,751.2	$	43,751.2	$	43,751.2	$	—	$	—
Savings Certificates and Other Time		3,058.3		3,065.5		—		3,065.5		—
Non U.S. Offices Interest-Bearing		35,868.0		35,868.0		—		35,868.0		—
Federal Funds Purchased		815.3		815.3		—		815.3		—
Securities Sold under Agreements to Repurchase		1,198.8		1,198.8		—		1,198.8		—
Other Borrowings		931.5		931.5		—		931.5		—
Senior Notes		2,126.7		2,197.3		—		2,197.3		—
Long Term Debt (excluding Leases)
Subordinated Debt		1,033.4		1,040.0		—		1,040.0		—
Federal Home Loan Bank Borrowings		1,055.0		1,082.1		—		1,082.1		—
Floating Rate Capital Debt		276.9		211.6		—		211.6		—
Other Liabilities
Standby Letters of Credit		61.3		61.3		—		—		61.3
Contingent Consideration		56.8		56.8		—		—		56.8
Loan Commitments		45.5		45.5		—		—		45.5
Derivative Instruments
Asset/Liability Management
Foreign Exchange Contracts
Assets	$	25.2	$	25.2	$	—	$	25.2	$	—
Liabilities		31.8		31.8		—		31.8		—
Interest Rate Swaps
Assets		149.6		149.6		—		149.6		—
Liabilities		47.3		47.3		—		47.3		—
Credit Default Swaps
Assets		0.7		0.7		—		0.7		—
Liabilities		0.1		0.1		—		0.1		—
Client-Related and Trading
Foreign Exchange Contracts
Assets		3,062.1		3,062.1		—		3,062.1		—
Liabilities		2,959.8		2,959.8		—		2,959.8		—
Interest Rate Swaps
Assets		188.7		188.7		—		188.7		—
Liabilities		184.6		184.6		—		184.6		—

(1)	Refer to the table located on page 36 for the disaggregation of available for sale securities.

Fair Value, Measurements, Recurring

Valuation Techniques, Significant Unobservable Inputs, and Quantitative Information

The following presents the fair values of, and the valuation techniques, significant unobservable inputs, and quantitative information used to develop significant unobservable inputs for, Northern Trust’s Level 3 assets and liabilities as of September 30, 2012.


Financial Instrument	Fair Value	Valuation Technique	Unobservable Input	Range of Lives and Rates
Auction Rate Securities	$99.5 million	Discounted Cash Flow	Remaining lives Discount rates	2.4 – 8.6 years 0.22 % – 9 %
Contingent Consideration	$48.9 million	Discounted Cash Flow	Discount rates Business growth rates	10.5% 19% – 35%

Fair Value, Measurements, Nonrecurring

Valuation Techniques, Significant Unobservable Inputs, and Quantitative Information

The following table provides the fair value of, and the valuation technique, significant unobservable inputs, and quantitative information used to develop the significant unobservable inputs for, Northern Trust’s Level 3 assets that were measured at fair value on a nonrecurring basis as of September 30, 2012.


Financial Instrument	Fair Value	Valuation Technique	Unobservable Input	Range of Discounts Applied
Loans	$27.7 million	Market Approach	Discount to reflect realizable value	15% – 30%
OREO	$1.0 million	Market Approach	Discount to reflect realizable value	15% – 30%

- Definition

Tabular disclosure of assets and liabilities by class, including financial instruments measured at fair value that are classified in shareholders' equity, if any, that are measured at fair value on a nonrecurring basis in periods after initial recognition (for example, impaired assets). Disclosures may include, but are not limited to: (a) the fair value measurements recorded and the reasons for the measurements and (b) the level within the fair value hierarchy in which the fair value measurements are categorized in their entirety (levels 1, 2, 3).

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- Definition

Tabular disclosure of the fair value measurement of assets using significant unobservable inputs (Level 3), a reconciliation of the beginning and ending balances, separately presenting changes during the period attributable to the following: (1) total gains or losses for the period (realized and unrealized), segregating those gains or losses included in earnings (or changes in net assets) and gains or losses recognized in other comprehensive income (loss), and a description of where those gains or losses included in earnings (or changes in net assets) are reported in the statement of income (or activities); (2) purchases, sales, issues, and settlements (each type disclosed separately); and (3) transfers in and transfers out of Level 3 (for example, transfers due to changes in the observability of significant inputs), by class of asset.

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- Definition

Tabular disclosure of the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments, assets, and liabilities. Such certain disclosures about the financial instruments, assets, and liabilities include: (1) the fair value of the required items together with their carrying amounts (as appropriate) and (2) the methodology and assumptions used in developing such estimates of fair value.

+ References

Reference 1: http://www.xbrl.org/2003/role/presentationRef

-Publisher FASB

-Name Statement of Financial Accounting Standard (FAS)

-Number 107

-Paragraph 14

-Subparagraph a

-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 2: http://www.xbrl.org/2003/role/presentationRef

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-Number 159

-Paragraph 18

-Subparagraph c(2), d, e, f

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-Name Accounting Standards Codification

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Reference 4: http://www.xbrl.org/2003/role/presentationRef

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-Topic 825

-SubTopic 10

-Section 50

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-Name Statement of Financial Accounting Standard (FAS)

-Number 159

-Paragraph 19

-Subparagraph a, b, c(1), d(1)

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Reference 9: http://www.xbrl.org/2003/role/presentationRef

-Publisher FASB

-Name Statement of Financial Accounting Standard (FAS)

-Number 157

-Paragraph 32

-Subparagraph a, c(1), c(2), c(3), d

-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 10: http://www.xbrl.org/2003/role/presentationRef

-Publisher FASB

-Name Statement of Financial Accounting Standard (FAS)

-Number 107

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+ Details

- Definition

Tabular disclosure of the fair value measurement of liabilities using significant unobservable inputs (Level 3), a reconciliation of the beginning and ending balances, separately presenting changes attributable to the following: (1) total gains or losses for the period (realized and unrealized), segregating those gains or losses included in earnings (or changes in net assets), and gains or losses recognized in other comprehensive income (loss) and a description of where those gains or losses included in earnings (or changes in net assets) are reported in the statement of income (or activities); (2) purchases, sales, issues, and settlements (each type disclosed separately); and (3) transfers in and transfers out of Level 3 (for example, transfers due to changes in the observability of significant inputs) by class of liability.

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