Securities |
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Investments, Debt and Equity Securities [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Securities | Securities Available for Sale Debt Securities. The following tables provide the amortized cost and fair values at September 30, 2021 and December 31, 2020, and remaining maturities of AFS debt securities at September 30, 2021. TABLE 39: RECONCILIATION OF AMORTIZED COST TO FAIR VALUE OF AVAILABLE FOR SALE DEBT SECURITIES
TABLE 40: REMAINING MATURITY OF AVAILABLE FOR SALE DEBT SECURITIES
Note: Mortgage-backed and asset-backed securities are included in the above table taking into account anticipated future prepayments. Available for Sale Debt Securities with Unrealized Losses. The following table provides information regarding AFS debt securities with no credit losses reported that had been in a continuous unrealized loss position for less than twelve months and for twelve months or longer as of September 30, 2021 and December 31, 2020. TABLE 41: AVAILABLE FOR SALE DEBT SECURITIES IN UNREALIZED LOSS POSITION WITH NO CREDIT LOSSES REPORTED
As of September 30, 2021, 966 AFS debt securities with a combined fair value of $11.9 billion were in an unrealized loss position, with their unrealized losses totaling $152.8 million. Unrealized losses related to AFS debt securities of $90.9 million and $27.3 million related to government-sponsored agency and obligations of states and political subdivisions, respectively, are primarily attributable to changes in market interest rates and credit spreads since their purchase. As of September 30, 2021, 15% of the AFS corporate debt securities portfolio were backed by guarantees provided by U.S. and non-U.S. governmental entities. The remaining unrealized losses on Northern Trust’s AFS debt securities portfolio as of September 30, 2021 are attributable to changes in overall market interest rates or credit spreads. As of September 30, 2021, Northern Trust did not intend to sell any AFS debt securities 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. AFS debt securities impairment reviews are conducted quarterly to identify and evaluate securities that have indications of possible credit losses. A determination as to whether a security’s decline in market value is related to credit impairment 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 credit-related include, but are not limited to, 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 Northern Trust 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 a credit loss has occurred. There was no provision for credit losses for corporate debt AFS securities for the three and nine months ended September 30, 2021 and 2020, respectively. There was no allowance for credit losses for corporate debt AFS securities as of September 30, 2021 and December 31, 2020, respectively. The process for identifying credit losses for corporate debt AFS securities is based on the best estimate of cash flows to be collected from the security, discounted using the security’s effective interest rate. If the present value of the expected cash flows is found to be less than the current amortized cost of the security, an allowance for credit losses is generally recorded equal to the difference between the two amounts, limited to the amount the amortized cost basis exceeds the fair value of the security. For additional information, please refer to Note 7 — Allowance for Credit Losses. Held to Maturity Debt Securities. The following tables provide the amortized cost and fair values at September 30, 2021 and December 31, 2020, and remaining maturities of held to maturity (HTM) debt securities at September 30, 2021. TABLE 42: RECONCILIATION OF AMORTIZED COST TO FAIR VALUE OF HELD TO MATURITY DEBT SECURITIES
As of September 30, 2021, the $20.8 billion HTM debt securities portfolio had unrealized losses of $61.1 million, $47.4 million and $41.9 million related to other residential mortgage-backed securities, government-sponsored agency, and sub-sovereign, supranational and non-U.S. agency bonds, respectively, which are primarily attributable to changes in overall market interest rates and credit spreads since their purchase. TABLE 43: REMAINING MATURITY OF HELD TO MATURITY DEBT SECURITIES
Note: Mortgage-backed and asset-backed securities are included in the above table taking into account anticipated future prepayments. HTM debt securities consist of securities that management intends to, and Northern Trust has the ability to, hold until maturity. During the three months ended September 30, 2021, no securities were transferred from AFS to HTM. During the nine months ended September 30, 2021, $6.9 billion of government sponsored agency securities were transferred from AFS to HTM for capital management purposes, all of which were transferred in the second quarter of 2021. Upon transfer of a debt security from the AFS to HTM classification, the amortized cost is reset to fair value. Any net unrealized gain or loss at the date of transfer will remain in AOCI and be amortized into net interest income over the remaining life of the securities using the effective interest method. The amortization of amounts retained in AOCI will offset the effect on interest income of the amortization of the premium or discount resulting from transferring the securities at fair value. During the three months ended September 30, 2020, no securities were transferred from AFS to HTM. During the nine months ended September 30, 2020, $301.5 million of securities reflected in U.S government were transferred from AFS to HTM, all of which were transferred in the second quarter of 2020. Credit Quality Indicators. The following table provides the amortized cost of HTM debt securities by credit rating. TABLE 44: AMORTIZED COST OF HELD TO MATURITY DEBT SECURITIES BY CREDIT RATING
Credit quality indicators are metrics that provide information regarding the relative credit risk of debt securities. Northern Trust maintains a high quality debt securities portfolio, with 93% of the HTM portfolio at both September 30, 2021 and December 31, 2020 comprised of securities rated A or higher. The remaining HTM debt securities portfolio was comprised of 2% rated BBB at September 30, 2021 and 5% and 7% not rated by Moody’s Investors Service, Standard and Poor’s or Fitch Ratings at September 30, 2021 and December 31, 2020, respectively. Securities not explicitly rated were grouped where possible under the credit rating of the issuer of the security. Investment Security Gains and Losses. During the three and nine months ended September 30, 2021, gross and net investment security gains were less than $0.1 million. There were no sales of debt securities during the three months ended September 30, 2020. Proceeds of $689.2 million from the sale of debt securities during the nine months ended September 30, 2020 resulted in gross realized debt securities gains of $3.4 million and gross realized debt securities losses of $3.3 million. There were no net investment security (losses) gains for the three months ended September 30, 2020. There was $0.1 million of net investment security gains for the nine months ended September 30, 2020.
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