Allowance for Credit Losses — The allowance for credit losses, which represents management’s estimate of probable losses related to specific borrower relationships and inherent in the various loan and lease portfolios, undrawn commitments, and standby letters of credit, is determined by management through a disciplined credit review process. Northern Trust’s accounting policies related to the estimation of the allowance for credit losses and the charging off of loans, leases and other extensions of credit deemed uncollectible are consistent across both loan and lease segments.

As of December 31, 2015, Northern Trust changed the estimation methodology for inherent losses that have been incurred in the loan and lease portfolio. The new estimation methodology is more quantitatively focused than the previous methodology as it is based on internally developed loss data specific to the Northern Trust loan and lease portfolio. The change in methodology is accounted for as a change in estimate applicable to the current period and future periods. The new estimation methodology and the related qualitative adjustment framework segregate the loan and lease portfolio into homogeneous segments. For each segment, the probability of default and the loss given default are applied to the total exposure at default to determine a quantitative inherent allowance. The estimated allowance is reviewed by the Loan Loss Reserve Committee within a qualitative adjustment framework to determine an appropriate adjustment to the quantitative inherent allowance for each segment of the loan portfolio. In determining the appropriate adjustment, management applies judgment by assessing internal risk factors, potential limitations in the quantitative methodology and environmental factors that are not contemplated in the quantitative methodology. The Loan Loss Reserve Committee is comprised of representatives from Credit Risk Management, the reporting segments and Corporate Finance. The new methodology was used to determine the inherent allowance as of June 30, 2016.

For periods prior to the methodology change, including as of June 30, 2015, the amount of inherent allowance was based on factors that incorporated management’s evaluation of historical charge-off experience and various qualitative factors such as management’s evaluation of economic and business conditions and changes in the character and size of the loan portfolio. Factors were applied to loan and lease credit exposures aggregated by shared risk characteristics and were reviewed quarterly by the Loan Loss Reserve Committee.

Loans, leases and other extensions of credit deemed uncollectible are charged to the allowance for credit losses. Subsequent recoveries, if any, are credited to the allowance. Determinations as to whether an uncollectible loan is charged-off or a specific allowance is established are based on management’s assessment as to the level of certainty regarding the amount of loss.

The following table provides information regarding changes in the total allowance for credit losses by segment during the three and six months ended June 30, 2016 and 2015.

Table 47: Changes in the Allowance for Credit Losses



	Three Months Ended June 30,
	2016									2015
(In Millions)	Commercial			Personal			Total			Commercial			Personal			Total
Balance at Beginning of Period	$	115.2		$	117.4		$	232.6		$	164.3		$	122.4		$	286.7
Charge-Offs	(0.9		)	(4.0		)	(4.9		)	(2.5		)	(3.6		)	(6.1		)
Recoveries	1.3			1.2			2.5			2.4			1.1			3.5
Net (Charge-Offs) Recoveries	0.4			(2.8		)	(2.4		)	(0.1		)	(2.5		)	(2.6		)
Provision for Credit Losses	(3.2		)	0.2			(3.0		)	(11.6		)	1.6			(10.0		)
Effect of Foreign Exchange Rates	(0.1		)	—			(0.1		)	0.1			—			0.1
Balance at End of Period	$	112.3		$	114.8		$	227.1		$	152.7		$	121.5		$	274.2



	Six Months Ended June 30,
	2016									2015
(In Millions)	Commercial			Personal			Total			Commercial			Personal			Total
Balance at Beginning of Period	$	114.8		$	118.5		$	233.3		$	169.7		$	126.2		$	295.9
Charge-Offs	(4.4		)	(5.8		)	(10.2		)	(5.2		)	(8.4		)	(13.6		)
Recoveries	2.5			2.6			5.1			4.1			2.3			6.4
Net (Charge-Offs) Recoveries	(1.9		)	(3.2		)	(5.1		)	(1.1		)	(6.1		)	(7.2		)
Provision for Credit Losses	(0.5		)	(0.5		)	(1.0		)	(15.9		)	1.4			(14.5		)
Effect of Foreign Exchange Rates	(0.1		)	—			(0.1		)	—			—			—
Balance at End of Period	$	112.3		$	114.8		$	227.1		$	152.7		$	121.5		$	274.2

The following table provides information regarding the balances of the recorded investments in loans and leases and the allowance for credit losses by segment as of June 30, 2016 and December 31, 2015.

Table 48: Information about the Recorded Investments in Loans and Leases



	June 30, 2016						December 31, 2015
(In Millions)	Commercial		Personal		Total		Commercial		Personal		Total
Loans and Leases
Specifically Evaluated for Impairment	$	55.3	$	100.8	$	156.1	$	56.3	$	101.0	$	157.3
Evaluated for Inherent Impairment	16,616.7		17,784.3		34,401.0		15,100.2		17,923.4		33,023.6
Total Loans and Leases	16,672.0		17,885.1		34,557.1		15,156.5		18,024.4		33,180.9
Allowance for Loans and Leases
Specifically Evaluated for Impairment	1.2		0.1		1.3		3.0		0.1		3.1
Evaluated for Inherent Impairment	87.5		103.2		190.7		83.3		107.4		190.7
Allowance Assigned to Loans and Leases	88.7		103.3		192.0		86.3		107.5		193.8
Allowance for Unfunded Exposures
Commitments and Standby Letters of Credit	23.6		11.5		35.1		28.5		11.0		39.5
Total Allowance for Credit Losses	$	112.3	$	114.8	$	227.1	$	114.8	$	118.5	$	233.3