Fair Value Measurements (Tables)

9 Months Ended

Sep. 30, 2014

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

The following tables present assets and liabilities measured at fair value on a recurring basis as of September 30, 2014, and December 31, 2013, segregated by fair value hierarchy level.

(In Millions)

Level 1

Level 2

Level 3

Netting

Assets/Liabilities
at Fair Value

September 30, 2014

Securities

Available for Sale

U.S. Government

3,409.6

—

3,409.6

Obligations of States and Political Subdivisions

—

4.6

—

4.6

Government Sponsored Agency

—

16,174.4

—

16,174.4

Non-U.S. Government

—

310.5

—

310.5

Corporate Debt

—

3,364.8

—

3,364.8

Covered Bonds

—

1,978.9

—

1,978.9

Supranational and Non-U.S. Agency Bonds

—

360.2

—

360.2

Residential Mortgage-Backed

—

17.6

—

17.6

Other Asset-Backed

—

2,233.1

—

2,233.1

Auction Rate

—

85.2

—

85.2

Other

—

168.8

—

168.8

Total Available for Sale

3,409.6

24,612.9

85.2

—

28,107.7

Trading Account

—

4.3

—

4.3

Total Available for Sale and Trading Securities

3,409.6

24,617.2

85.2

—

28,112.0

Other Assets

Derivative Assets

Foreign Exchange Contracts

—

4,203.8

—

4,203.8

Interest Rate Contracts

—

213.5

—

213.5

Total Derivative Assets

—

4,417.3

—

(2,358.4

)

2,058.9

Other Liabilities

Derivative Liabilities

Foreign Exchange Contracts

—

4,141.6

—

4,141.6

Interest Rate Swaps

—

123.5

—

123.5

Total Derivative Liabilities

—

4,265.1

—

(2,752.3

)

1,512.8

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, 2014, derivative assets and liabilities shown above also include reductions of $207.4 million and $601.3 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, 2013
Securities
Available for Sale
U.S. Government	$	1,917.9	$	—	$	—	$	—		$	1,917.9
Obligations of States and Political Subdivisions		—		4.6		—		—			4.6
Government Sponsored Agency		—		17,528.0		—		—			17,528.0
Non-U.S. Government		—		310.6		—		—			310.6
Corporate Debt		—		3,524.5		—		—			3,524.5
Covered Bonds		—		1,943.9		—		—			1,943.9
Supranational and Non-U.S. Agency Bonds		—		410.0		—		—			410.0
Residential Mortgage-Backed		—		48.1		—		—			48.1
Other Asset-Backed		—		2,391.8		—		—			2,391.8
Auction Rate		—		—		98.9		—			98.9
Other		—		214.5		—		—			214.5

Total Available for Sale		1,917.9		26,376.0		98.9		—			28,392.8

Trading Account		—		1.7		—		—			1.7

Total Available for Sale and Trading Securities		1,917.9		26,377.7		98.9		—			28,394.5

Other Assets
Derivative Assets
Foreign Exchange Contracts		—		2,865.7		—		—			2,865.7
Interest Rate Contracts		—		237.9		—		—			237.9

Total Derivative Assets		—		3,103.6		—		(1,369.0	)		1,734.6

Other Liabilities
Derivative Liabilities
Foreign Exchange Contracts		—		2,905.7		—		—			2,905.7
Interest Rate Swaps		—		195.2		—		—			195.2

Total Derivative Liabilities		—		3,100.9		—		(1,926.0	)		1,174.9

Contingent Consideration	$	—	$	—	$	55.4	$	—		$	55.4

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, 2013, derivative assets and liabilities shown above also include reductions of $210.7 million and $767.7 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, 2014, and 2013.


Level 3 Assets (In Millions)	Auction Rate Securities
Three Months Ended September 30,	2014			2013
Fair Value at July 1	$	98.8		$	99.1
Total Gains (Losses):
Included in Earnings		0.7			—
Included in Other Comprehensive Income (2)		0.1			0.3
Purchases, Issues, Sales, and Settlements:
Sales		(14.4	)		—

Fair Value at September 30	$	85.2		$	98.7


Nine Months Ended September 30,	2014			2013
Fair Value at January 1	$	98.9		$	97.8
Total Gains (Losses):
Included in Earnings (1)		0.7			0.1
Included in Other Comprehensive Income (2)		0.4			3.0
Purchases, Issues, Sales, and Settlements:
Sales		(14.4	)		—
Settlements		(0.4	)		(2.2	)

Fair Value at September 30	$	85.2		$	98.7

(1)

Realized gains for the three and nine months ended September 30, 2014, of $0.7 million, represent gains from sales of securities. Realized gains for the nine month period ended September 30, 2013, of $0.1 million, represent gains from redemptions by issuers. Gains on sales are recorded in investment security gains (losses) and gains on redemptions are recorded in interest income, within the consolidated statement of income.

(2)

Unrealized gains (losses) are included in net unrealized gains (losses) 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 September 30,	2014			2013
Fair Value at July 1	$	—		$	52.7
Total (Gains) Losses:
Included in Earnings (1)		—			1.3
Included in Other Comprehensive Income		—			—
Purchases, Issues, Sales, and Settlements		—			—

Fair Value at September 30	$	—		$	54.0

Unrealized (Gains) Losses Included in Earnings Related to Financial Instruments Held at September 30 (1)	$	—		$	1.3


Nine Months Ended September 30,	2014			2013
Fair Value at January 1	$	55.4		$	50.1
Total (Gains) Losses:
Included in Earnings (1)		(0.1	)		3.9
Included in Other Comprehensive Income		—			—
Purchases, Issues, Sales, and Settlements:
Settlements		(55.3	)		—

Fair Value at September 30	$	—		$	54.0

Unrealized (Gains) Losses Included in Earnings Related to Financial Instruments Held at September 30 (1)	$	—		$	3.9

(1)

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

Book and Fair Values of All Financial Instruments

The following tables summarize the fair values of all financial instruments.

(In Millions)

September 30, 2014

Book
Value

Total
Fair Value

Fair Value

Level 1

Level 2

Level 3

Assets

Cash and Due from Banks

2,918.9

—

Federal Funds Sold and Resell Agreements

1,010.0

—

1,010.0

—

Interest-Bearing Deposits with Banks

15,334.5

—

15,334.5

—

Federal Reserve Deposits

21,328.0

—

21,328.0

—

Securities

Available for Sale (1)

28,107.7

3,409.6

24,612.9

85.2

Held to Maturity

4,196.7

4,195.1

—

4,195.1

—

Trading Account

4.3

—

4.3

—

Loans (excluding Leases)

Held for Investment

29,499.6

29,522.7

—

29,522.7

Held for Sale

2.1

—

2.1

Client Security Settlement Receivables

1,538.6

—

1,538.6

—

Other Assets

Federal Reserve and Federal Home Loan Bank Stock

207.5

—

207.5

—

Community Development Investments

225.1

223.8

—

223.8

—

Employee Benefit and Deferred Compensation

145.2

147.4

97.4

50.0

—

Liabilities

Deposits

Demand, Noninterest-Bearing, Savings and Money Market

39,267.4

—

Savings Certificates and Other Time

1,869.0

1,869.5

—

1,869.5

—

Non U.S. Offices Interest-Bearing

50,586.1

—

50,586.1

—

Federal Funds Purchased

786.4

—

786.4

—

Securities Sold under Agreements to Repurchase

866.8

—

866.8

—

Other Borrowings

1,758.3

1,758.9

—

1,758.9

—

Senior Notes

1,496.9

1,526.8

—

1,526.8

—

Long Term Debt (excluding Leases)

Subordinated Debt

1,565.5

1,595.5

—

1,595.5

—

Federal Home Loan Bank Borrowings

—

Floating Rate Capital Debt

277.2

242.8

—

242.8

—

Other Liabilities

Standby Letters of Credit

57.0

—

57.0

Loan Commitments

28.7

—

28.7

Derivative Instruments

Asset/Liability Management

Foreign Exchange Contracts

Assets

71.0

—

71.0

—

Liabilities

16.1

—

16.1

—

Interest Rate Contracts

Assets

113.3

—

113.3

—

Liabilities

27.6

—

27.6

—

Client-Related and Trading

Foreign Exchange Contracts

Assets

4,132.8

—

4,132.8

—

Liabilities

4,125.5

—

4,125.5

—

Interest Rate Contracts

Assets

100.2

—

100.2

—

Liabilities

95.9

—

95.9

—

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


(In Millions)	December 31, 2013
	Book Value		Total Fair Value		Fair Value
	Book Value		Total Fair Value		Level 1		Level 2		Level 3
Assets
Cash and Due from Banks	$	3,162.4	$	3,162.4	$	3,162.4	$	—	$	—
Federal Funds Sold and Resell Agreements		529.6		529.6		—		529.6		—
Interest-Bearing Deposits with Banks		19,397.4		19,397.4		—		19,397.4		—
Federal Reserve Deposits and Other Interest-Bearing		12,911.5		12,911.5		—		12,911.5		—
Securities
Available for Sale (1)		28,392.8		28,392.8		1,917.9		26,376.0		98.9
Held to Maturity		2,325.8		2,321.4		—		2,321.4		—
Trading Account		1.7		1.7		—		1.7		—
Loans (excluding Leases)
Held for Investment		28,136.5		28,147.2		—		—		28,147.2
Held for Sale		—		—		—		—		—
Client Security Settlement Receivables		1,355.2		1,355.2		—		1,355.2		—
Other Assets
Federal Reserve and Federal Home Loan Bank Stock		194.7		194.7		—		194.7		—
Community Development Investments		228.1		227.8		—		227.8		—
Employee Benefit and Deferred Compensation		132.7		126.9		79.3		47.6		—

Liabilities
Deposits
Demand, Noninterest-Bearing, Savings and Money Market	$	33,762.0	$	33,762.0	$	33,762.0	$	—	$	—
Savings Certificates and Other Time		1,874.4		1,877.1		—		1,877.1		—
Non U.S. Offices Interest-Bearing		48,461.7		48,461.7		—		48,461.7		—
Federal Funds Purchased		965.1		965.1		—		965.1		—
Securities Sold under Agreements to Repurchase		917.3		917.3		—		917.3		—
Other Borrowings		1,558.6		1,558.6		—		1,558.6		—
Senior Notes		1,996.6		1,989.3		—		1,989.3		—
Long Term Debt (excluding Leases)
Subordinated Debt		1,537.3		1,563.5		—		1,563.5		—
Federal Home Loan Bank Borrowings		135.0		137.2		—		137.2		—
Floating Rate Capital Debt		277.1		230.2		—		230.2		—
Other Liabilities
Standby Letters of Credit		59.6		59.6		—		—		59.6
Contingent Consideration		55.4		55.4		—		—		55.4
Loan Commitments		35.7		35.7		—		—		35.7

Derivative Instruments
Asset/Liability Management
Foreign Exchange Contracts
Assets	$	21.0	$	21.0	$	—	$	21.0	$	—
Liabilities		59.5		59.5		—		59.5		—
Interest Rate Swaps
Assets		115.1		115.1		—		115.1		—
Liabilities		78.2		78.2		—		78.2		—
Client-Related and Trading
Foreign Exchange Contracts
Assets		2,844.7		2,844.7		—		2,844.7		—
Liabilities		2,846.2		2,846.2		—		2,846.2		—
Interest Rate Contracts
Assets		122.8		122.8		—		122.8		—
Liabilities		117.0		117.0		—		117.0		—

(1)	Refer to the table located on page 37 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 as of September 30, 2014.


Financial Instrument	Fair Value		Valuation Technique	Unobservable Inputs	Range of Lives and Rates
Auction Rate Securities	$	85.2 million	Discounted Cash Flow	Remaining lives Discount rates	1.7 — 8.6 years 0.2% — 7.9%

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, 2014.


Financial Instrument	Fair Value	Valuation Technique	Unobservable Input	Range of Discounts Applied
Loans	$26.6 million	Market Approach	Discount to reflect realizable value	15% — 25%
OREO	$1.5 million	Market Approach	Discount to reflect realizable value	15% — 20%

- 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