Fair Value Measurements (Tables)

6 Months Ended

Jun. 30, 2013

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 June 30, 2013 and December 31, 2012, segregated by fair value hierarchy level.

(In Millions)

Level 1

Level 2

Level 3

Netting

Assets/Liabilities
at Fair Value

June 30, 2013

Securities

Available for Sale

U.S. Government

1,775.1

—

1,775.1

Obligations of States and Political Subdivisions

—

14.4

—

14.4

Government Sponsored Agency

—

16,625.9

—

16,625.9

Corporate Debt

—

3,550.7

—

3,550.7

Covered Bonds

—

1,845.0

—

1,845.0

Supranational, Sovereign and Non-U.S. Agency Bonds

—

719.4

—

719.4

Residential Mortgage-Backed

—

61.0

—

61.0

Other Asset-Backed

—

2,529.8

—

2,529.8

Auction Rate

—

99.1

—

99.1

Other

—

256.1

—

256.1

Total Available for Sale

1,775.1

25,602.3

99.1

—

27,476.5

Trading Account

—

11.0

—

11.0

Total Available for Sale and Trading

1,775.1

25,613.3

99.1

—

27,487.5

Other Assets

Derivatives

Foreign Exchange Contracts

—

4,676.1

—

4,676.1

Interest Rate Swaps

—

265.7

—

265.7

Interest Rate Options

—

0.1

—

0.1

Total Derivatives

—

4,941.9

—

(1,555.9

)

3,386.0

Other Liabilities

Derivatives

Foreign Exchange Contracts

—

4,606.3

—

4,606.3

Interest Rate Swaps

—

182.8

—

182.8

Interest Rate Options

—

0.1

—

0.1

Credit Default Swaps

—

0.1

—

0.1

Total Derivatives

—

4,789.3

—

(3,680.3

)

1,109.0

Contingent Consideration

—

52.7

—

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 June 30, 2013, derivative assets and liabilities shown above also include reductions of $68.8 million and $2,193.2 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, 2012
Securities
Available for Sale
U.S. Government	$	1,784.6	$	—	$	—	$	—		$	1,784.6
Obligations of States and Political Subdivisions		—		14.1		—		—			14.1
Government Sponsored Agency		—		18,638.8		—		—			18,638.8
Corporate Debt		—		2,618.4		—		—			2,618.4
Covered Bonds		—		1,748.0		—		—			1,748.0
Supranational Bonds		—		1,060.7		—		—			1,060.7
Residential Mortgage-Backed		—		92.0		—		—			92.0
Other Asset-Backed		—		2,283.9		—		—			2,283.9
Auction Rate		—		—		97.8		—			97.8
Other		—		305.2		—		—			305.2

Total Available for Sale		1,784.6		26,761.1		97.8		—			28,643.5

Trading Account		—		8.0		—		—			8.0

Total Available for Sale and Trading		1,784.6		26,769.1		97.8		—			28,651.5

Other Assets
Derivatives
Foreign Exchange Contracts		—		1,756.6		—		—			1,756.6
Interest Rate Swaps		—		310.3		—		—			310.3

Total Derivatives		—		2,066.9		—		(1,101.1	)		965.8

Other Liabilities
Derivatives
Foreign Exchange Contracts		—		1,772.7		—		—			1,772.7
Interest Rate Swaps		—		249.3		—		—			249.3
Credit Default Swaps		—		1.0		—		—			1.0

Total Derivatives		—		2,023.0		—		(1,407.5	)		615.5

Contingent Consideration	$	—	$	—	$	50.1	$	—		$	50.1

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, 2012, derivative assets and liabilities shown above also include reductions of $118.6 million and $425.0 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 six months ended June 30, 2013 and 2012.


Level 3 Assets (In Millions)	Auction Rate Securities
Three Months Ended June 30,	2013			2012
Fair Value at April 1	$	99.6		$	176.3
Total Gains and (Losses):
Included in Earnings (1)		—			(20.8	)
Included in Other Comprehensive Income (2)		—			6.2
Purchases, Issues, Sales, and Settlements
Sales		—			(54.6	)
Settlements		(0.5	)		(1.9	)

Fair Value at June 30	$	99.1		$	105.2


Level 3 Assets (In Millions)	Auction Rate Securities
Six Months Ended June 30,	2013			2012
Fair Value at January 1	$	97.8		$	178.3
Total Gains and (Losses):
Included in Earnings (1)		0.1			(22.3	)
Included in Other Comprehensive Income (2)		2.7			6.0
Purchases, Issues, Sales, and Settlements
Sales		—			(54.6	)
Settlements		(1.5	)		(2.2	)

Fair Value at June 30	$	99.1		$	105.2

(1)

Realized gains for the six months ended June 30, 2013 of $0.1 million represent gains from redemptions by issuers. Realized losses for the three month period ended June 30, 2012 of $20.8 million include $21.1 million of losses from sales of securities partially offset by $0.3 million of gains from redemptions by issuers. Realized losses for the six month period ended June 30, 2012 of $22.3 million include $21.1 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. 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.

(2)

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)	Contingent Consideration
Three Months Ended June 30,	2013		2012
Fair Value at April 1	$	51.4	$	58.6
Total (Gains) and Losses:
Included in Earnings (1)		1.3		(0.7	)
Included in Other Comprehensive Income (2)		—		(0.7	)
Purchases, Issues, Sales, and Settlements
Issues		—		—
Settlements		—		—

Fair Value at June 30	$	52.7	$	57.2

Unrealized (Gain) Losses Included in Earnings Related to Financial Instruments Held June 30 (1)	$	1.3	$	(0.7	)


Level 3 Liabilities (In Millions)	Contingent Consideration
Six Months Ended June 30,	2013		2012
Fair Value at January 1	$	50.1	$	56.8
Total (Gains) and Losses:
Included in Earnings (1)		2.6		0.7
Included in Other Comprehensive Income (2)		—		(0.3	)
Purchases, Issues, Sales, and Settlements
Issues		—		—
Settlements		—		—

Fair Value at June 30	$	52.7	$	57.2

Unrealized (Gain) Losses Included in Earnings Related to Financial Instruments Held at June 30 (1)	$	2.6	$	0.7

(1)

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

(2)

Unrealized foreign currency related losses are included in foreign currency translation adjustments within the consolidated statement of comprehensive income.

Book and Fair Values of Financial Instruments

The following tables summarize the fair values of financial instruments.

(In Millions)

June 30, 2013

Book

Total

Fair Value

Value

Fair Value

Level 1

Level 2

Level 3

Assets

Cash and Due from Banks

4,630.9

—

Federal Funds Sold and Resell Agreements

531.2

—

531.2

—

Interest-Bearing Deposits with Banks

17,838.5

—

17,838.5

—

Federal Reserve Deposits and Other Interest-Bearing

6,765.7

—

6,765.7

—

Securities

Available for Sale ⁽¹⁾

27,476.5

1,775.1

25,602.3

99.1

Held to Maturity

2,766.1

2,767.8

—

2,767.8

—

Trading Account

11.0

—

11.0

—

Loans (excluding Leases)

Held for Investment

27,534.7

27,452.8

—

27,452.8

Held for Sale

1.1

—

1.1

Client Security Settlement Receivables

1,486.2

—

1,486.2

—

Other Assets

Federal Reserve and Federal Home Loan Bank Stock

194.7

—

194.7

—

Community Development Investments

229.9

242.8

—

242.8

—

Employee Benefit and Deferred Compensation

135.5

133.4

89.1

44.3

—

Liabilities

Deposits

Demand, Noninterest-Bearing, Savings and Money Market

33,835.0

—

Savings Certificates and Other Time

2,001.5

2,007.1

—

2,007.1

—

Non U.S. Offices Interest-Bearing

40,698.4

—

40,698.4

—

Federal Funds Purchased

2,283.3

—

2,283.3

—

Securities Sold under Agreements to Repurchase

777.7

—

777.7

—

Other Borrowings

1,949.2

—

1,949.2

—

Senior Notes

2,398.3

2,401.7

—

2,401.7

—

Long Term Debt (excluding Leases)

Subordinated Debt

806.8

823.9

—

823.9

—

Federal Home Loan Bank Borrowings

135.0

140.0

—

140.0

—

Floating Rate Capital Debt

277.1

228.6

—

228.6

—

Other Liabilities

Standby Letters of Credit

61.3

—

61.3

Contingent Consideration

52.7

—

52.7

Loan Commitments

39.9

—

39.9

Derivative Instruments

Asset/Liability Management

Foreign Exchange Contracts

Assets

51.6

—

51.6

—

Liabilities

17.6

—

17.6

—

Interest Rate Swaps

Assets

123.0

—

123.0

—

Liabilities

47.3

—

47.3

—

Credit Default Swaps

Liabilities

0.1

—

0.1

—

Client-Related and Trading

Foreign Exchange Contracts

Assets

4,624.5

—

4,624.5

—

Liabilities

4,588.7

—

4,588.7

—

Interest Rate Swaps

Assets

142.7

—

142.7

—

Liabilities

135.5

—

135.5

—

Interest Rate Options

Assets

0.1

—

0.1

—

Liabilities

0.1

—

0.1

—

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


(In Millions)	December 31, 2012
	Book		Total		Fair Value
	Value		Fair Value		Level 1		Level 2		Level 3
Assets
Cash and Due from Banks	$	3,752.7	$	3,752.7	$	3,752.7	$	—	$	—
Federal Funds Sold and Resell Agreements		60.8		60.8		—		60.8		—
Interest-Bearing Deposits with Banks		18,803.5		18,803.5		—		18,803.5		—
Federal Reserve Deposits and Other Interest-Bearing		7,619.7		7,619.7		—		7,619.7		—
Securities
Available for Sale ⁽¹⁾		28,643.5		28,643.5		1,784.6		26,761.1		97.8
Held to Maturity		2,382.0		2,394.8		—		2,394.8		—
Trading Account		8.0		8.0		—		8.0		—
Loans (excluding Leases)
Held for Investment		28,165.4		28,220.2		—		—		28,220.2
Held for Sale		11.7		11.7		—		—		11.7
Client Security Settlement Receivables		2,049.1		2,049.1		—		2,049.1		—
Other Assets
Federal Reserve and Federal Home Loan Bank Stock		197.6		197.6		—		197.6		—
Community Development Investments		253.2		275.1		—		275.1		—
Employee Benefit and Deferred Compensation		121.3		126.1		86.7		39.4		—
Liabilities
Deposits
Demand, Noninterest-Bearing, Savings and Money Market	$	39,221.5	$	39,221.5	$	39,221.5	$	—	$	—
Savings Certificates and Other Time		2,466.1		2,746.7		—		2,746.7		—
Non U.S. Offices Interest-Bearing		39,720.2		39,720.2		—		39,720.2		—
Federal Funds Purchased		780.2		780.2		—		780.2		—
Securities Sold under Agreements to Repurchase		699.8		699.8		—		699.8		—
Other Borrowings		367.4		367.4		—		367.4		—
Senior Notes		2,405.8		2,513.4		—		2,513.4		—
Long Term Debt (excluding Leases)
Subordinated Debt		1,045.4		1,065.3		—		1,065.3		—
Federal Home Loan Bank Borrowings		335.0		345.4		—		345.4		—
Floating Rate Capital Debt		277.0		228.0		—		228.0		—
Other Liabilities
Standby Letters of Credit		60.5		60.5		—		—		60.5
Contingent Consideration		50.1		50.1		—		—		50.1
Loan Commitments		38.9		38.9		—		—		38.9
Derivative Instruments
Asset/Liability Management
Foreign Exchange Contracts
Assets	$	21.3	$	21.3	$	—	$	21.3	$	—
Liabilities		42.3		42.3		—		42.3		—
Interest Rate Swaps
Assets		129.7		129.7		—		129.7		—
Liabilities		75.3		75.3		—		75.3		—
Credit Default Swaps
Liabilities		1.0		1.0		—		1.0		—
Client-Related and Trading
Foreign Exchange Contracts
Assets		1,735.3		1,735.3		—		1,735.3		—
Liabilities		1,730.4		1,730.4		—		1,730.4		—
Interest Rate Swaps
Assets		180.6		180.6		—		180.6		—
Liabilities		174.0		174.0		—		174.0		—

(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 June 30, 2013.


Financial Instrument	Fair Value	Valuation Technique	Unobservable Input	Range of Lives and Rates
Auction Rate Securities	$99.1 million	Discounted Cash Flow	Remaining lives Discount rates	1.0 – 8.6 years 0.3% – 8.5%
Contingent Consideration	$52.7 million	Discounted Cash Flow	Discount rate 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 June 30, 2013.

Financial

Instrument

Fair Value

Valuation
Technique

Unobservable Input

Range of
Discounts
Applied

Loans

45.6 million

Market Approach

Discount to reflect realizable value

15% – 40%

OREO

2.9 million

Market Approach

Discount to reflect realizable value

15% – 40%

- 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.

+ References+ Details

- Definition

Tabular disclosure of the fair value of financial instruments, including financial assets and financial liabilities, and the measurements of those instruments, assets, and liabilities.

+ References+ 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.

+ References+ Details