Securities

Debt Securities Available for Sale. The following tables provide the amortized cost, fair values, and remaining maturities of debt securities available for sale.

TABLE 51: RECONCILIATION OF AMORTIZED COST TO FAIR VALUE OF DEBT SECURITIES AVAILABLE FOR SALE



	DECEMBER 31, 2018
(In Millions)	AMORTIZED COST		GROSS UNREALIZED GAINS		GROSS UNREALIZED LOSSES		FAIR VALUE
U.S. Government	$	5,203.1	$	21.8	$	39.6	$	5,185.3
Obligations of States and Political Subdivisions	657.6		2.0		3.7		655.9
Government Sponsored Agency	22,522.7		52.4		150.5		22,424.6
Non-U.S. Government	143.3		—		1.1		142.2
Corporate Debt	2,312.6		3.2		21.1		2,294.7
Covered Bonds	832.7		1.4		4.8		829.3
Sub-Sovereign, Supranational and Non-U.S. Agency Bonds	2,087.8		11.9		3.5		2,096.2
Other Asset-Backed	2,678.9		1.7		22.9		2,657.7
Commercial Mortgage-Backed	587.4		4.0		4.2		587.2
Other	15.7		—		—		15.7

Total	$	37,041.8	$	98.4	$	251.4	$	36,888.8



	DECEMBER 31, 2017
(In Millions)	AMORTIZED COST		GROSS UNREALIZED GAINS		GROSS UNREALIZED 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 52: REMAINING MATURITY OF DEBT SECURITIES AVAILABLE FOR SALE



	DECEMBER 31, 2018				DECEMBER 31, 2017
(In Millions)	AMORTIZED COST		FAIR VALUE		AMORTIZED COST		FAIR VALUE
Due in One Year or Less	$	9,206.2	$	9,162.8	$	6,249.5	$	6,227.0
Due After One Year Through Five Years	21,012.7		20,943.9		20,017.2		19,937.8
Due After Five Years Through Ten Years	5,774.1		5,740.8		6,545.3		6,535.1
Due After Ten Years	1,048.8		1,041.3		1,052.8		1,042.2

Total	$	37,041.8	$	36,888.8	$	33,864.8	$	33,742.1

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

Debt Securities Held to Maturity. The following tables provide the amortized cost, fair values and remaining maturities of debt securities held to maturity.

TABLE 53: RECONCILIATION OF AMORTIZED COST TO FAIR VALUES OF DEBT SECURITIES HELD TO MATURITY



	DECEMBER 31, 2018
(In Millions)	AMORTIZED COST		GROSS UNREALIZED GAINS		GROSS UNREALIZED LOSSES		FAIR VALUE
U.S. Government	$	101.6	$	—	$	—	$	101.6
Obligations of States and Political Subdivisions	18.9		0.6		—		19.5
Government Sponsored Agency	4.5		0.2		—		4.7
Corporate Debt	472.9		0.4		1.8		471.5
Covered Bonds	2,877.6		9.6		9.3		2,877.9
Non-U.S. Government	6,488.2		2.1		8.7		6,481.6
Certificates of Deposit	45.1		—		—		45.1
Sub-Sovereign, Supranational and Non-U.S. Agency Bonds	2,966.8		5.8		12.3		2,960.3
Other Asset-Backed	1,146.4		—		4.0		1,142.4
Other	232.0		—		69.6		162.4

Total	$	14,354.0	$	18.7	$	105.7	$	14,267.0



	DECEMBER 31, 2017
(In Millions)	AMORTIZED COST		GROSS UNREALIZED GAINS		GROSS UNREALIZED 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

TABLE 54: REMAINING MATURITY OF DEBT SECURITIES HELD TO MATURITY



	DECEMBER 31, 2018				DECEMBER 31, 2017
(In Millions)	AMORTIZED COST		FAIR VALUE		AMORTIZED COST		FAIR VALUE
Due in One Year or Less	$	6,638.2	$	6,635.5	$	5,691.9	$	5,695.8
Due After One Year Through Five Years	7,066.0		7,040.0		6,667.8		6,663.9
Due After Five Years Through Ten Years	567.9		553.0		612.2		606.3
Due After Ten Years	81.9		38.5		77.1		44.9

Total	$	14,354.0	$	14,267.0	$	13,049.0	$	13,010.9

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

Debt securities held to maturity consist of securities that management intends to, and Northern Trust has the ability to, hold until maturity. During the twelve months ended December 31, 2018, approximately $287.9 million of securities reflected in Other Asset-Backed, Covered Bonds, Sub-Sovereign, Supranational and Non-U.S. Agency Bonds, and Corporate Debt were transferred from available for sale to held to maturity.

Investment Security Gains and Losses. Net investment security losses of $1.0 million were recognized in 2018, and include $0.5 million of charges related to the other-than-temporary impairment (OTTI) of certain Community Reinvestment Act (CRA) eligible held to maturity securities. Net investment security losses of $1.6 million, and $3.2 million were recognized in 2017, and 2016, respectively. There were $0.2 million OTTI losses in 2017 and $3.7 million OTTI losses in 2016. Proceeds of $307.3 million from the sale of securities in 2018 resulted in gross realized gains and losses of $1.5 million and $2.0 million, respectively. Proceeds of $2.2 billion from the sale of securities in 2017 resulted in gross realized gains and losses of $0.2 million and $1.6 million, respectively. Proceeds of $828.9 million from the sale of securities in 2016 resulted in gross realized gains and losses of $0.7 million and $0.2 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 12 months and for 12 months or longer as of December 31, 2018 and 2017.

TABLE 55: DEBT SECURITIES WITH UNREALIZED LOSSES



AS OF DECEMBER 31, 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	$	—	$	—	$	2,862.0	$	39.6	$	2,862.0	$	39.6
Obligations of States and Political Subdivisions	169.6		2.4		279.6		1.3		449.2		3.7
Government Sponsored Agency	8,368.8		33.5		6,822.4		117.0		15,191.2		150.5
Non-U.S. Government	5,065.2		0.8		1,274.0		9.0		6,339.2		9.8
Corporate Debt	712.7		4.1		1,097.4		18.8		1,810.1		22.9
Covered Bonds	646.4		3.7		696.9		10.4		1,343.3		14.1
Sub-Sovereign, Supranational and Non-U.S. Agency Bonds	1,105.0		4.6		1,189.2		11.2		2,294.2		15.8
Other Asset-Backed	2,507.8		15.9		954.9		11.0		3,462.7		26.9
Commercial Mortgage-Backed	22.8		0.1		274.4		4.1		297.2		4.2
Other	50.5		18.8		112.6		50.8		163.1		69.6

Total	$	18,648.8	$	83.9	$	15,563.4	$	273.2	$	34,212.2	$	357.1



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 December 31, 2018, 1,357 debt securities with a combined fair value of $34.2 billion were in an unrealized loss position, with their unrealized losses totaling $357.1 million. Unrealized losses of $150.5 million and $39.6 million related to government sponsored agency and U.S. government securities, respectively, are primarily attributable to changes in market rates since their purchase. Unrealized losses of $22.9 million within corporate debt securities primarily reflect widened credit spreads and 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.

The majority of the $69.6 million of unrealized losses in debt securities classified as “other” at December 31, 2018, relate to 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 are 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. The remaining unrealized losses on Northern Trust’s securities portfolio as of December 31, 2018, are attributable to changes in overall market interest rates, increased credit spreads, or reduced market liquidity. As of December 31, 2018, Northern Trust does not intend to sell any investment in an unrealized loss position and it is not more likely than not that Northern Trust will 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, a security type for which Northern Trust has recognized OTTI in 2018 and 2017, incorporates an expected loss approach using discounted cash flows on the underlying collateral pools. To evaluate whether an unrealized loss on CRA 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 pool or similar 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 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 mortgage-backed securities vary by vintage of loan origination and collateral quality.

There were $0.5 million and $0.2 million of OTTI losses recognized in 2018 and 2017, respectively. There were $3.7 million OTTI losses recognized during the year ended December 31, 2016.

Credit Losses on Debt Securities. The table below provides information regarding total other-than-temporarily impaired debt securities, including noncredit-related amounts recognized in other comprehensive income and net impairment losses recognized in earnings, for the years ended December 31, 2018, 2017, and 2016.

TABLE 56: NET IMPAIRMENT LOSSES RECOGNIZED IN EARNINGS



	DECEMBER 31,
(In Millions)	2018			2017			2016
Changes in Other-Than-Temporary Impairment Losses⁽¹⁾	$	(0.5	)	$	(0.2	)	$	(3.7	)
Noncredit-related Losses Recorded in / (Reclassified from) OCI⁽²⁾	—			—			—

Net Impairment Losses Recognized in Earnings	$	(0.5	)	$	(0.2	)	$	(3.7	)

(1) For initial other-than-temporary impairments in the respective 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.

(2) For initial other-than-temporary impairments in the respective period, the balance includes the portion of the excess of amortized cost over the fair value of the impaired securities that was recorded in 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 57: CUMULATIVE CREDIT-RELATED LOSSES ON DEBT SECURITIES HELD



	YEAR ENDED DECEMBER 31,
(In Millions)	2018		2017
Cumulative Credit-Related Losses on Debt Securities Held – Beginning of Year	$	3.6	$	3.4
Plus: Losses on Newly Identified Impairments	0.4		0.1
Additional Losses on Previously Identified Impairments	0.1		0.1
Less: Current and Prior Period Losses on Debt Securities Sold or Matured During the Year	—		—

Cumulative Credit-Related Losses on Debt Securities Held – End of Year	$	4.1	$	3.6