Securities

The following tables provide the amortized cost and fair values of debt securities at June 30, 2018 and December 31, 2017.

Table 38: Reconciliation of Amortized Cost to Fair Value of Debt Securities Available for Sale



Debt Securities Available for Sale	June 30, 2018
	Amortized Cost		Gross Unrealized				Fair Value
(In Millions)	Amortized Cost		Gains		Losses		Fair Value
U.S. Government	$	5,668.7	$	26.0	$	56.2	$	5,638.5
Obligations of States and Political Subdivisions	741.3		0.1		3.6		737.8
Government Sponsored Agency	21,186.9		35.4		167.8		21,054.5
Non-U.S. Government	143.2		—		2.0		141.2
Corporate Debt	2,493.1		2.6		29.5		2,466.2
Covered Bonds	838.0		0.9		7.0		831.9
Sub-Sovereign, Supranational and Non-U.S. Agency Bonds	2,008.7		6.2		5.9		2,009.0
Other Asset-Backed	1,871.7		0.7		16.6		1,855.8
Auction Rate	2.9		—		0.1		2.8
Commercial Mortgage-Backed	433.9		—		6.2		427.7
Other	19.1		—		—		19.1
Total	$	35,407.5	$	71.9	$	294.9	$	35,184.5



Debt Securities Available for Sale	December 31, 2017
	Amortized Cost		Gross Unrealized				Fair Value
(In Millions)	Amortized Cost		Gains		Losses		Fair Value
U.S. Government	$	5,714.4	$	18.0	$	32.1	$	5,700.3
Obligations of States and Political Subdivisions	749.9		—		3.5		746.4
Government Sponsored Agency	18,745.3		39.9		108.6		18,676.6
Non-U.S. Government	179.1		—		1.9		177.2
Corporate Debt	3,013.7		2.2		22.9		2,993.0
Covered Bonds	879.0		1.0		4.4		875.6
Sub-Sovereign, Supranational and Non-U.S. Agency Bonds	1,819.8		4.0		3.8		1,820.0
Other Asset-Backed	2,297.7		1.5		7.9		2,291.3
Auction Rate	4.4		—		0.1		4.3
Commercial Mortgage-Backed	439.2		—		4.1		435.1
Other	22.3		—		—		22.3
Total	$	33,864.8	$	66.6	$	189.3	$	33,742.1

Table 39: Reconciliation of Amortized Cost to Fair Value of Debt Securities Held to Maturity



Debt Securities Held to Maturity	June 30, 2018
	Amortized Cost		Gross Unrealized				Fair Value
(In Millions)	Amortized Cost		Gains		Losses		Fair Value
U.S Government	$	115.7	$	—	$	—	$	115.7
Obligations of States and Political Subdivisions	32.6		1.1		—		33.7
Government Sponsored Agency	5.1		0.3		—		5.4
Corporate Debt	413.3		0.7		0.6		413.4
Covered Bonds	3,228.7		12.5		9.6		3,231.6
Non-U.S. Government	5,781.5		1.5		10.3		5,772.7
Certificates of Deposit	52.0		—		—		52.0
Sub-Sovereign, Supranational and Non-U.S. Agency Bonds	3,267.7		4.9		14.1		3,258.5
Other Asset-Backed	1,137.3		0.3		0.2		1,137.4
Other	191.2		—		53.8		137.4
Total	$	14,225.1	$	21.3	$	88.6	$	14,157.8



Debt Securities Held to Maturity	December 31, 2017
	Amortized Cost		Gross Unrealized				Fair Value
(In Millions)	Amortized Cost		Gains		Losses		Fair Value
U.S Government	$	35.0	$	—	$	—	$	35.0
Obligations of States and Political Subdivisions	34.6		1.4		0.1		35.9
Government Sponsored Agency	5.8		0.4		—		6.2
Corporate Debt	431.5		1.0		0.4		432.1
Covered Bonds	2,821.5		11.9		3.7		2,829.7
Non-U.S. Government	5,536.2		1.3		6.0		5,531.5
Certificates of Deposit	43.8		—		0.1		43.7
Sub-Sovereign, Supranational and Non-U.S. Agency Bonds	2,788.9		5.4		4.1		2,790.2
Other Asset-Backed	1,175.8		0.6		0.5		1,175.9
Other	175.9		—		45.2		130.7
Total	$	13,049.0	$	22.0	$	60.1	$	13,010.9

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

The following table provides the remaining maturity of debt securities as of June 30, 2018.

Table 40: Remaining Maturity of Debt Securities Available for Sale and Held to Maturity



	June 30, 2018
(In Millions)	Amortized Cost		Fair Value
Available for Sale
Due in One Year or Less	$	7,994.0	$	7,946.6
Due After One Year Through Five Years	20,901.5		20,758.0
Due After Five Years Through Ten Years	5,534.4		5,512.9
Due After Ten Years	977.6		967.0
Total	35,407.5		35,184.5
Held to Maturity
Due in One Year or Less	6,545.1		6,547.4
Due After One Year Through Five Years	7,225.5		7,200.2
Due After Five Years Through Ten Years	378.3		370.4
Due After Ten Years	76.2		39.8
Total	$	14,225.1	$	14,157.8

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

Investment Security Gains / Losses. There were no net investment security gains or losses recognized in the three months ended June 30, 2018. Net investment security losses of $0.4 million were recognized in the three months ended June 30, 2017. Gross proceeds from the sale of securities during the three months ended June 30, 2018 and 2017 were $176.6 million and $978.5 million, respectively.

Net investment security losses of $0.2 million were recognized in the six months ended June 30, 2018, all of which related to the OTTI of certain Community Reinvestment Act (CRA) eligible held to maturity securities. Net investment security losses of $0.7 million were recognized in the six months ended June 30, 2017, which include $0.1 million of charges related to the OTTI of certain CRA-eligible held to maturity securities. For the six months ended June 30, 2018, gross proceeds of $178.6 million were received from the sale of securities, resulting in gross realized gains and losses of $1.5 million each. For the six months ended June 30, 2017, proceeds of $1.5 billion were received from the sale of securities, resulting in gross realized gains and losses of $0.1 million and $0.8 million, respectively.

Debt Securities with Unrealized Losses. The following tables provide information regarding debt securities that had been in a continuous unrealized loss position for less than twelve months and for twelve months or longer as of June 30, 2018 and December 31, 2017.

Table 41: Debt Securities with Unrealized Losses



Debt Securities with Unrealized Losses as of June 30, 2018	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	$	3,374.3	$	55.5	$	199.2	$	0.7	$	3,573.5	$	56.2
Obligations of States and Political Subdivisions	678.0		3.5		7.6		0.1		685.6		3.6
Government Sponsored Agency	11,209.7		125.5		2,890.3		42.3		14,100.0		167.8
Non-U.S. Government	5,285.9		12.3		—		—		5,285.9		12.3
Corporate Debt	1,443.7		14.6		458.4		15.5		1,902.1		30.1
Covered Bonds	1,311.0		13.0		171.4		3.6		1,482.4		16.6
Sub-Sovereign, Supranational and Non-U.S. Agency Bonds	2,478.2		19.0		175.2		1.0		2,653.4		20.0
Other Asset-Backed	1,794.6		16.8		—		—		1,794.6		16.8
Auction Rate	1.1		0.1		—		—		1.1		0.1
Commercial Mortgage-Backed	228.3		4.2		181.8		2.0		410.1		6.2
Other	93.9		32.3		45.6		21.5		139.5		53.8
Total	$	27,898.7	$	296.8	$	4,129.5	$	86.7	$	32,028.2	$	383.5



Debt Securities with Unrealized Losses as of December 31, 2017	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	$	3,595.0	$	32.1	$	—	$	—	$	3,595.0	$	32.1
Obligations of States and Political Subdivisions	687.8		3.3		52.0		0.3		739.8		3.6
Government Sponsored Agency	6,495.6		81.3		2,998.9		27.3		9,494.5		108.6
Non-U.S. Government	5,181.8		7.9		—		—		5,181.8		7.9
Corporate Debt	1,547.3		9.3		922.3		14.0		2,469.6		23.3
Covered Bonds	967.5		7.2		89.1		0.9		1,056.6		8.1
Sub-Sovereign, Supranational and Non-U.S. Agency Bonds	1,692.4		7.5		235.8		0.4		1,928.2		7.9
Other Asset-Backed	2,453.7		8.3		29.9		0.1		2,483.6		8.4
Certificates of Deposit	43.7		0.1		—		—		43.7		0.1
Auction Rate	—		—		3.1		0.1		3.1		0.1
Commercial Mortgage-Backed	233.5		2.6		201.6		1.5		435.1		4.1
Other	82.9		27.3		48.1		17.9		131.0		45.2
Total	$	22,981.2	$	186.9	$	4,580.8	$	62.5	$	27,562.0	$	249.4

As of June 30, 2018, 1,340 debt securities with a combined fair value of $32.0 billion were in an unrealized loss position, with their unrealized losses totaling $383.5 million. Unrealized losses of $167.8 million and $56.2 million related to government sponsored agency and U.S. Government securities, respectively, are primarily attributable to changes in market interest rates since their purchase. Unrealized losses of $30.1 million within corporate debt securities primarily reflect higher market rates since purchase; 38% of the corporate debt portfolio is backed by guarantees provided by U.S. and non-U.S. governmental entities.

The majority of the $53.8 million of unrealized losses in debt securities classified as “other” at June 30, 2018 related to debt securities primarily purchased at a premium or par by Northern Trust to fulfill its obligations under the CRA. Unrealized losses on these CRA-related securities were attributable to yields that were 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 $0.1 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, 2018 were attributable to changes in overall market interest rates, increased credit spreads or reduced market liquidity. As of June 30, 2018, Northern Trust did not intend to sell any investment in an unrealized loss position and it was more likely than not that Northern Trust would not 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 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 the mortgage pools, 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 during the three months ended June 30, 2018 or June 30, 2017 related to CRA-eligible mortgage-backed securities. There were $0.2 million and $0.1 million of OTTI losses recognized in the six months ended June 30, 2018 and 2017, respectively, related to CRA-eligible mortgage-backed securities.

Credit Losses on Debt Securities. The table below provides the cumulative credit-related losses recognized in earnings on debt securities other-than-temporarily impaired.

Table 42: Cumulative Credit-Related Losses on Debt Securities



	Three Months Ended June 30,				Six Months Ended June 30,
(In Millions)	2018		2017		2018		2017
Cumulative Credit-Related Losses on Debt Securities Held — Beginning of Period	$	3.8	$	3.5	$	3.6	$	3.4
Plus: Losses on Newly Identified Impairments	—		—		0.2		—
Additional Losses on Previously Identified Impairments	—		—		—		0.1
Less: Current and Prior Period Losses on Debt Securities Sold During the Period	—		—		—		—
Cumulative Credit-Related Losses on Debt Securities Held — End of Period	$	3.8	$	3.5	$	3.8	$	3.5