Securities

6 Months Ended

Jun. 30, 2015

Securities

4. Securities — The following tables provide the amortized cost and fair values of securities at June 30, 2015, and December 31, 2014.

Table 34: Reconciliation of Amortized Cost to Fair Value of Securities Available for Sale

Securities Available for Sale	June 30, 2015
	Amortized Cost		Gross Unrealized				Fair Value
(In Millions)			Gains		Losses
U.S. Government	$	4,993.5	$	25.3	$	—	$	5,018.8
Obligations of States and Political Subdivisions		4.5		—		—		4.5
Government Sponsored Agency		16,690.1		91.4		16.1		16,765.4
Non-U.S. Government		310.3		0.7		—		311.0
Corporate Debt		3,749.1		4.8		19.1		3,734.8
Covered Bonds		1,975.5		6.9		0.2		1,982.2
Sub-Sovereign, Supranational and Non-U.S. Agency Bonds		560.0		1.2		0.5		560.7
Other Asset-Backed		3,118.5		1.2		0.5		3,119.2
Auction Rate		16.7		0.5		0.6		16.6
Commercial Mortgage-Backed		198.8		0.1		0.2		198.7
Other		123.5		0.2		—		123.7
Total	$	31,740.5	$	132.3	$	37.2	$	31,835.6

Securities Available for Sale	December 31, 2014
	Amortized Cost		Gross Unrealized				Fair Value
(In Millions)			Gains		Losses
U.S. Government	$	4,493.5	$	15.1	$	1.7	$	4,506.9
Obligations of States and Political Subdivisions		4.5		0.1		—		4.6
Government Sponsored Agency		16,326.4		82.3		19.5		16,389.2
Non-U.S. Government		309.5		0.9		—		310.4
Corporate Debt		3,617.5		1.8		41.6		3,577.7
Covered Bonds		1,899.9		7.9		0.3		1,907.5
Supranational and Non-U.S. Agency Bonds		360.0		1.5		0.9		360.6
Residential Mortgage-Backed		6.9		—		0.5		6.4
Other Asset-Backed		2,321.8		0.5		1.0		2,321.3
Auction Rate		18.4		0.5		0.8		18.1
Other		155.7		0.3		0.2		155.8
Total	$	29,514.1	$	110.9	$	66.5	$	29,558.5

Table 35: Reconciliation of Amortized Cost to Fair Value of Securities Held to Maturity

Securities Held to Maturity	June 30, 2015
	Amortized Cost		Gross Unrealized				Fair Value
(In Millions)			Gains		Losses
Obligations of States and Political Subdivisions	$	103.4	$	5.9	$	—	$	109.3
Government Sponsored Agency		11.5		0.9		—		12.4
Covered Bonds		125.9		0.1		—		126.0
Non-U.S. Government		1,363.9		6.2		0.4		1,369.7
Certificates of Deposit		3,036.8		0.1		0.6		3,036.3
Sub-Sovereign, Supranational and Non-U.S. Agency Bonds		2,266.4		8.0		0.8		2,273.6
Other		82.9		—		23.8		59.1
Total	$	6,990.8	$	21.2	$	25.6	$	6,986.4

Securities Held to Maturity	December 31, 2014
	Amortized Cost		Gross Unrealized				Fair Value
(In Millions)			Gains		Losses
Obligations of States and Political Subdivisions	$	121.9	$	7.4	$	—	$	129.3
Government Sponsored Agency		18.4		1.1		—		19.5
Non-U.S. Government		1,281.6		6.6		0.4		1,287.8
Certificates of Deposit		924.3		0.1		0.1		924.3
Supranational and Non-U.S. Agency Bonds		1,745.8		10.9		0.5		1,756.2
Other		78.8		0.3		20.1		59.0
Total	$	4,170.8	$	26.4	$	21.1	$	4,176.1

Securities held to maturity consist of debt securities that management intends to, and Northern Trust has the ability to, hold until maturity.

The following table provides the remaining maturity of securities as of June 30, 2015.

Table 36: Remaining Maturity of Securities Available for Sale and Held to Maturity

	June 30, 2015
(In Millions)	Amortized Cost		Fair Value
Available for Sale
Due in One Year or Less	$	7,716.2	$	7,738.2
Due After One Year Through Five Years		19,130.6		19,196.1
Due After Five Years Through Ten Years		3,710.9		3,713.9
Due After Ten Years		1,182.8		1,187.4
Total		31,740.5		31,835.6
Held to Maturity
Due in One Year or Less		3,950.0		3,951.8
Due After One Year Through Five Years		2,976.6		2,990.7
Due After Five Years Through Ten Years		20.6		18.4
Due After Ten Years		43.6		25.5
Total	$	6,990.8	$	6,986.4

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

Investment Security Gains and Losses. Net investment security losses of $0.4 million and net investment security gains of $0.4 million were recognized in the three months ended June 30, 2015 and 2014. Gross proceeds from the sale of securities during the three months ended June 30, 2015 of $4.5 million resulted in gross realized losses of $0.4 million. Gross proceeds from the sale of securities during the three months ended June 30, 2014 of $264.2 million resulted in gross realized gains of $0.4 million.

Net investment security losses of $0.3 million were recognized in the six months ended June 30, 2015, representing net realized losses from the sale of securities. Net investment security losses of $3.6 million were recognized in the six months ended June 30, 2014, and included $3.9 million of charges related to the other-than-temporary impairment (OTTI) of certain Community Reinvestment Act (CRA) eligible held to maturity securities. For the six months ended June 30, 2015, proceeds of $106.5 million were received from the sale of securities, resulting in gross realized gains and losses of $0.1 million and $0.4 million, respectively. For the six months ended June 30, 2014, proceeds of $463.9 million were received from the sale of securities, resulting in gross realized gains and losses of $0.7 million and $0.4 million, respectively.

Securities with Unrealized Losses. The following tables provide information regarding securities that had been in a continuous unrealized loss position for less than 12 months and for 12 months or longer as of June 30, 2015, and December 31, 2014.

Table 37: Securities with Unrealized Losses

Securities with Unrealized Losses as of June 30, 2015	Less than 12 Months				12 Months or Longer				Total
(In Millions)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Government Sponsored Agency		3,285.0		8.2		914.3		7.9		4,199.3		16.1
Non-U.S. Government		212.7		0.4		—		—		212.7		0.4
Corporate Debt		943.8		3.8		1,087.0		15.3		2,030.8		19.1
Covered Bonds		154.3		0.2		—		—		154.3		0.2
Sub-Sovereign, Supranational and Non-U.S. Agency Bonds		709.5		1.0		177.4		0.3		886.9		1.3
Other Asset-Backed		1,233.7		0.5		—		—		1,233.7		0.5
Certificates of Deposit		1,878.5		0.6		—		—		1,878.5		0.6
Auction Rate		1.5		0.1		4.6		0.5		6.1		0.6
Commercial Mortgage-Backed		52.5		0.2		—		—		52.5		0.2
Other		16.2		10.8		48.2		13.0		64.4		23.8
Total	$	8,487.7	$	25.8	$	2,231.5	$	37.0	$	10,719.2	$	62.8

Securities with Unrealized Losses as of December 31, 2014	Less than 12 Months				12 Months or Longer				Total
(In Millions)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
U.S. Government	$	998.2	$	1.7	$	—	$	—	$	998.2	$	1.7
Government Sponsored Agency		2,344.9		6.6		1,730.0		12.9		4,074.9		19.5
Non-U.S. Government		292.9		0.4		—		—		292.9		0.4
Corporate Debt		1,244.5		3.9		1,338.8		37.7		2,583.3		41.6
Covered Bonds		142.3		0.2		10.0		0.1		152.3		0.3
Supranational and Non-U.S. Agency Bonds		313.2		0.3		175.5		1.1		488.7		1.4
Residential Mortgage-Backed		—		—		4.5		0.5		4.5		0.5
Other Asset-Backed		1,297.6		1.0		—		—		1,297.6		1.0
Certificates of Deposit		438.6		0.1		—		—		438.6		0.1
Auction Rate		2.4		0.2		4.7		0.6		7.1		0.8
Other		27.1		12.1		45.6		8.2		72.7		20.3
Total	$	7,101.7	$	26.5	$	3,309.1	$	61.1	$	10,410.8	$	87.6

As of June 30, 2015, 524 securities with a combined fair value of $10.7 billion were in an unrealized loss position, with their unrealized losses totaling $62.8 million. Unrealized losses of $19.1 million within corporate debt securities primarily reflected higher market rates since purchase; 37% of the corporate debt portfolio is backed by guarantees provided by U.S. and non-U.S. governmental entities. Unrealized losses of $16.1 million related to government sponsored agency securities were primarily attributable to higher market interest rates since purchase.

Securities classified as “other asset-backed” had average lives less than 5 years, and 99.6% were rated triple-A.

The majority of the $23.8 million of unrealized losses in securities classified as “other” at June 30, 2015, related to securities primarily purchased at a premium or par by Northern Trust for compliance with the CRA. Unrealized losses on these CRA-related securities were attributable to yields that are 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 $0.6 million related to auction rate securities primarily reflected reduced market liquidity as a majority of auctions continued to fail, preventing holders from liquidating their investments at par. The remaining unrealized losses on Northern Trust’s securities portfolio as of June 30, 2015, were attributable to changes in overall market interest rates, increased credit spreads or reduced market liquidity. As of June 30, 2015, Northern Trust did not intend to sell any investment in an unrealized loss position and it was not more likely than not that Northern Trust would be required to sell any such investment before the recovery of its amortized cost basis, which may be maturity.

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 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; Northern Trust’s intent regarding the sale of the security as of the balance sheet date; 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 process for identifying credit impairment within CRA-eligible mortgage-backed securities, the security type for which Northern Trust recognized all of its OTTI in 2014, incorporates an expected loss approach using discounted cash flows on the underlying collateral pools. To evaluate whether an unrealized loss on CRA-eligible mortgage-backed securities is other-than-temporary, a calculation of the security’s present value is made using current pool data, the current delinquency pipeline, default rates and loan loss severities based on the historical performance of like collateral, and Northern Trust’s outlook for the housing market and the overall economy. If the present value of the collateral pools was found to be less than the current amortized cost of the security, a credit-related OTTI loss would be recorded in earnings equal to the difference between the two amounts.

Impairments of CRA-eligible mortgage-backed securities are influenced by a number of factors, including but not limited to, U.S. economic and housing market performance, pool credit enhancement level, year of origination and estimated credit quality of the collateral. The factors used in estimating losses related to CRA-eligible mortgage-backed securities vary by vintage of loan origination and collateral quality.

There were no OTTI losses recognized in the three or six months ended June 30, 2015 or in the three months ended June 30, 2014. There were $3.9 million of OTTI losses recognized during the six months ended June 30, 2014 related to CRA-eligible mortgage-backed securities.

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 and net impairment losses recognized in earnings, for the three and six months ended June 30, 2015 and 2014.

Table 38: Net Impairment Losses Recognized in Earnings

	Three Months Ended June 30,				Six Months Ended June 30,
(In Millions)	2015		2014		2015		2014
Changes in OTTI Losses*	$	—	$	—	$	—	$	(4.6	)
Noncredit-related Losses Recorded in / (Reclassified from) OCI**		—		—		—		0.7
Net Impairment Losses Recognized in Earnings	$	—	$	—	$	—	$	(3.9	)

* For initial OTTI in the applicable 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 OTTI in the applicable period, the balance includes the portion of the excess of amortized cost over the fair value of the impaired securities that was recorded in other comprehensive income (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.

Table 39: Cumulative Credit-Related Losses on Securities

	Three Months Ended June 30,				Six Months Ended June 30,
(In Millions)	2015		2014		2015		2014
Cumulative Credit-Related Losses on Securities Held — Beginning of Period	$	5.2	$	12.7	$	5.2	$	8.8
Plus: Losses on Newly Identified Impairments		—		—		—		1.8
Additional Losses on Previously Identified Impairments		—		—		—		2.1
Less: Current and Prior Period Losses on Securities Sold During the Period		—		—		—		—
Cumulative Credit-Related Losses on Securities Held — End of Period	$	5.2	$	12.7	$	5.2	$	12.7