| Fair Value Measurement Inputs and Valuation Techniques |
The following table presents the fair values of Northern Trust’s Level 3 liabilities as of March 31, 2023 and December 31, 2022, as well as the valuation techniques, significant unobservable inputs, and quantitative information used to develop significant unobservable inputs for such liabilities as of such dates. TABLE 30: LEVEL 3 SIGNIFICANT UNOBSERVABLE INPUTS | | | | | | | | | | | | | | | | | | | | | | | | | MARCH 31, 2023 | | | FINANCIAL INSTRUMENT | FAIR VALUE | VALUATION TECHNIQUE | UNOBSERVABLE INPUTS | INPUT VALUES | WEIGHTED-AVERAGE INPUT VALUES(1) | | Swaps Related to Sale of Certain Visa Class B Common Shares | $34.6 million | Discounted Cash Flow | Conversion Rate | 1.60x | 1.60x | | Visa Class A Appreciation | 8.92% | 8.92% | | Expected Duration | 12 | - | 33 months | 20 months |
(1) Weighted average of expected duration based on scenario probability. | | | | | | | | | | | | | | | | | | | | | | | | | DECEMBER 31, 2022 | | | FINANCIAL INSTRUMENT | FAIR VALUE | VALUATION TECHNIQUE | UNOBSERVABLE INPUTS | INPUT VALUES | WEIGHTED-AVERAGE INPUT VALUES(1) | | Swaps Related to Sale of Certain Visa Class B Common Shares | $34.8 million | Discounted Cash Flow | Conversion Rate | 1.60x | 1.60x | | Visa Class A Appreciation | 8.53% | 8.53% | | Expected Duration | 12 | - | 33 months | 20 months |
(1) Weighted average of expected duration based on scenario probability.The following table presents the fair values of Northern Trust’s Level 3 assets that were measured at fair value on a nonrecurring basis as of March 31, 2023 and December 31, 2022, as well as the valuation technique, significant unobservable inputs and quantitative information used to develop the significant unobservable inputs for such assets as of such dates. TABLE 33: LEVEL 3 NONRECURRING BASIS SIGNIFICANT UNOBSERVABLE INPUTS | | | | | | | | | | | | | | | | | | | | | | | | | MARCH 31, 2023 | | | FINANCIAL INSTRUMENT | FAIR VALUE(1) | VALUATION TECHNIQUE | UNOBSERVABLE INPUTS | INPUT VALUES | WEIGHTED-AVERAGE INPUT VALUES | | Loans | $5.1 million | Market Approach | Discount factor applied to real estate collateral-dependent loans to reflect realizable value | 20.0% | 20.0% | | | | | | | | |
(1) Includes real estate collateral-dependent loans and other collateral-dependent loans. | | | | | | | | | | | | | | | | | | | | | | | | | DECEMBER 31, 2022 | | | FINANCIAL INSTRUMENT | FAIR VALUE(1) | VALUATION TECHNIQUE | UNOBSERVABLE INPUTS | INPUT VALUES | WEIGHTED-AVERAGE INPUT VALUES | | Loans | $6.6 million | Market Approach | Discount factor applied to real estate collateral-dependent loans to reflect realizable value | 15.0 | % | - | 20.0% | 17.2% | | | | | | | | |
(1) Includes real estate collateral-dependent loans and other collateral-dependent loans.
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| Recurring Basis Hierarchy Leveling |
The following table presents assets and liabilities measured at fair value on a recurring basis as of March 31, 2023 and December 31, 2022, segregated by fair value hierarchy level. TABLE 31: RECURRING BASIS HIERARCHY LEVELING | | | | | | | | | | | | | | | | | | | MARCH 31, 2023 | | (In Millions) | LEVEL 1 | LEVEL 2 | LEVEL 3 | NETTING | ASSETS/LIABILITIES AT FAIR VALUE | | Debt Securities | | | | | | | Available for Sale | | | | | | | U.S. Government | $ | 2,859.9 | | $ | — | | $ | — | | $ | — | | $ | 2,859.9 | | | Obligations of States and Political Subdivisions | — | | 291.9 | | — | | — | | 291.9 | | | Government Sponsored Agency | — | | 11,433.4 | | — | | — | | 11,433.4 | | | Non-U.S. Government | — | | 361.4 | | — | | — | | 361.4 | | | Corporate Debt | — | | 634.5 | | — | | — | | 634.5 | | | Covered Bonds | — | | 344.4 | | — | | — | | 344.4 | | | Sub-Sovereign, Supranational and Non-U.S. Agency Bonds | — | | 2,787.7 | | — | | — | | 2,787.7 | | | Other Asset-Backed | — | | 5,010.4 | | — | | — | | 5,010.4 | | | Commercial Mortgage-Backed | — | | 903.9 | | — | | — | | 903.9 | | | Total Available for Sale | 2,859.9 | | 21,767.6 | | — | | — | | 24,627.5 | | | Trading Account | — | | 0.1 | | — | | — | | 0.1 | | | Total Available for Sale and Trading Debt Securities | 2,859.9 | | 21,767.7 | | — | | — | | 24,627.6 | | | Other Assets | | | | | | | Money Market Investment | 95.0 | | — | | — | | — | | 95.0 | | | Derivative Assets | | | | | | | Foreign Exchange Contracts | — | | 2,315.0 | | — | | (1,601.1) | | 713.9 | | | Interest Rate Contracts | — | | 276.2 | | — | | (206.5) | | 69.7 | | Other Financial Derivatives(1) | — | | 0.4 | | — | | — | | 0.4 | | | Total Derivative Assets | — | | 2,591.6 | | — | | (1,807.6) | | 784.0 | | | Other Liabilities | | | | | | | Derivative Liabilities | | | | | | | Foreign Exchange Contracts | — | | 2,272.0 | | — | | (1,499.5) | | 772.5 | | | Interest Rate Contracts | — | | 369.9 | | — | | (11.8) | | 358.1 | | Other Financial Derivatives(2) | — | | 1.3 | | 34.6 | | (14.3) | | 21.6 | | | Total Derivative Liabilities | $ | — | | $ | 2,643.2 | | $ | 34.6 | | $ | (1,525.6) | | $ | 1,152.2 | |
Note: Northern Trust has elected to net derivative assets and liabilities when legally enforceable master netting arrangements or similar agreements exist between Northern Trust and the counterparty. As of March 31, 2023, derivative assets and liabilities shown above also include reductions of $539.5 million and $257.5 million, respectively, as a result of cash collateral received from and deposited with derivative counterparties. (1)This line consists of total return swap contracts. (2)This line consists of swaps related to the sale of certain Visa Class B common shares and total return swap contracts. | | | | | | | | | | | | | | | | | | | DECEMBER 31, 2022 | | (In Millions) | LEVEL 1 | LEVEL 2 | LEVEL 3 | NETTING | ASSETS/LIABILITIES AT FAIR VALUE | | Debt Securities | | | | | | | Available for Sale | | | | | | | U.S. Government | $ | 2,747.4 | | $ | — | | $ | — | | $ | — | | $ | 2,747.4 | | | Obligations of States and Political Subdivisions | — | | 787.6 | | — | | — | | 787.6 | | | Government Sponsored Agency | — | | 11,545.2 | | — | | — | | 11,545.2 | | | Non-U.S. Government | — | | 360.0 | | — | | — | | 360.0 | | | Corporate Debt | — | | 1,747.6 | | — | | — | | 1,747.6 | | | Covered Bonds | — | | 388.7 | | — | | — | | 388.7 | | | Sub-Sovereign, Supranational and Non-U.S. Agency Bonds | — | | 2,479.4 | | — | | — | | 2,479.4 | | | Other Asset-Backed | — | | 5,256.2 | | — | | — | | 5,256.2 | | | Commercial Mortgage-Backed | — | | 1,387.8 | | — | | — | | 1,387.8 | | | Total Available for Sale | 2,747.4 | | 23,952.5 | | — | | — | | 26,699.9 | | | Trading Account | 95.0 | | 0.2 | | — | | — | | 95.2 | | | Total Available for Sale and Trading Debt Securities | 2,842.4 | | 23,952.7 | | — | | — | | 26,795.1 | | | Other Assets | | | | | | | Derivative Assets | | | | | | | Foreign Exchange Contracts | — | | 3,510.1 | | — | | (2,666.4) | | 843.7 | | | Interest Rate Contracts | — | | 222.0 | | — | | (144.3) | | 77.7 | | Other Financial Derivatives(1) | — | | 0.3 | | — | | — | | 0.3 | | | Total Derivative Assets | — | | 3,732.4 | | — | | (2,810.7) | | 921.7 | | | Other Liabilities | | | | | | | Derivative Liabilities | | | | | | | Foreign Exchange Contracts | — | | 3,187.5 | | — | | (1,826.7) | | 1,360.8 | | | Interest Rate Contracts | — | | 431.8 | | — | | (5.9) | | 425.9 | | Other Financial Derivatives(2) | — | | — | | 34.8 | | (33.3) | | 1.5 | | | Total Derivative Liabilities | $ | — | | $ | 3,619.3 | | $ | 34.8 | | $ | (1,865.9) | | $ | 1,788.2 | |
Note: Northern Trust has elected to net derivative assets and liabilities when legally enforceable master netting arrangements or similar agreements exist between Northern Trust and the counterparty. As of December 31, 2022, derivative assets and liabilities shown above also include reductions of $1,140.2 million and $195.3 million, respectively, as a result of cash collateral received from and deposited with derivative counterparties. (1) This line consists of total return swap contracts. (2) This line consists of swaps related to the sale of certain Visa Class B common shares.
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| Fair Value of Financial Instruments |
The following tables present the book value and estimated fair value, including the fair value hierarchy level, of Northern Trust’s financial instruments that are not measured at fair value on the consolidated balance sheets as of March 31, 2023 and December 31, 2022. The following tables exclude those items measured at fair value on a recurring basis. TABLE 34: FAIR VALUE OF FINANCIAL INSTRUMENTS | | | | | | | | | | | | | | | | | | | MARCH 31, 2023 | | | | ESTIMATED FAIR VALUE | | (In Millions) | BOOK VALUE | TOTAL ESTIMATED FAIR VALUE | LEVEL 1 | LEVEL 2 | LEVEL 3 | | FINANCIAL ASSETS | | | | | Cash and Due from Banks | $ | 4,825.9 | | $ | 4,825.9 | | $ | 4,825.9 | | $ | — | | $ | — | | | Federal Reserve and Other Central Bank Deposits | 39,288.7 | | 39,288.7 | | — | | 39,288.7 | | — | | | Interest-Bearing Deposits with Banks | 1,588.0 | | 1,588.0 | | — | | 1,588.0 | | — | | | | | | | | | Securities Purchased under Agreements to Resell | 1,057.4 | | 1,057.4 | | — | | 1,057.4 | | — | | | Debt Securities - Held to Maturity | 24,716.2 | | 22,823.1 | | — | | 22,823.1 | | — | | | Loans | | | | | | | Held for Investment | 42,209.6 | | 42,227.1 | | — | | — | | 42,227.1 | | | | | | | | | Other Assets | 1,608.6 | | 1,591.4 | | 105.6 | | 1,485.8 | | — | | | FINANCIAL LIABILITIES | | | | | | | Deposits | | | | | | | Demand, Noninterest-Bearing, Savings, Money Market and Other Interest-Bearing | $ | 46,597.3 | | $ | 46,597.3 | | $ | 46,597.3 | | $ | — | | $ | — | | | Savings Certificates and Other Time | 2,840.1 | | 2,846.0 | | — | | 2,846.0 | | — | | | Non U.S. Offices Interest-Bearing | 64,290.0 | | 64,290.0 | | — | | 64,290.0 | | — | | | Federal Funds Purchased | 4,487.3 | | 4,487.3 | | — | | 4,487.3 | | — | | | Securities Sold Under Agreements to Repurchase | 362.9 | | 362.9 | | — | | 362.9 | | — | | | Other Borrowings | 11,365.1 | | 11,366.3 | | — | | 11,366.3 | | — | | | Senior Notes | 2,769.2 | | 2,745.8 | | — | | 2,745.8 | | — | | | Long-Term Debt | 2,070.9 | | 2,107.1 | | — | | 2,107.1 | | — | | | Unfunded Commitments | 220.1 | | 220.1 | | — | | 220.1 | | — | | | Other Liabilities | 79.2 | | 79.2 | | — | | — | | 79.2 | |
| | | | | | | | | | | | | | | | | | | | DECEMBER 31, 2022 | | | | | ESTIMATED FAIR VALUE | | | (In Millions) | BOOK VALUE | TOTAL ESTIMATED FAIR VALUE | LEVEL 1 | LEVEL 2 | LEVEL 3 | | | FINANCIAL ASSETS | | | | | | | | Cash and Due from Banks | $ | 4,654.2 | | $ | 4,654.2 | | $ | 4,654.2 | | $ | — | | $ | — | | | | Federal Reserve and Other Central Bank Deposits | 40,030.4 | | 40,030.4 | | — | | 40,030.4 | | — | | | | Interest-Bearing Deposits with Banks | 1,941.1 | | 1,941.1 | | — | | 1,941.1 | | — | | | | Federal Funds Sold | 32.0 | | 32.0 | | — | | 32.0 | | — | | | | Securities Purchased under Agreements to Resell | 1,070.3 | | 1,070.3 | | — | | 1,070.3 | | — | | | | Debt Securities - Held to Maturity | 25,036.1 | | 22,879.3 | | 50.0 | | 22,829.3 | | — | | | | Loans | | | | | | | | Held for Investment | 42,749.0 | | 42,636.5 | | — | | — | | 42,636.5 | | | | Other Assets | 1,476.9 | | 1,460.4 | | 94.7 | | 1,365.7 | | — | | | | FINANCIAL LIABILITIES | | | | | | | | Deposits | | | | | | | | Demand, Noninterest-Bearing, Savings, Money Market and Other Interest-Bearing | $ | 56,468.9 | | $ | 56,468.9 | | $ | 56,468.9 | | $ | — | | $ | — | | | | Savings Certificates and Other Time | 1,981.3 | | 1,976.1 | | — | | 1,976.1 | | — | | | | Non U.S. Offices Interest-Bearing | 65,481.9 | | 65,481.9 | | — | | 65,481.9 | | — | | | | Federal Funds Purchased | 1,896.9 | | 1,896.9 | | — | | 1,896.9 | | — | | | | Securities Sold Under Agreements to Repurchase | 567.2 | | 567.2 | | — | | 567.2 | | — | | | | Other Borrowings | 7,592.3 | | 7,592.8 | | — | | 7,592.8 | | — | | | | Senior Notes | 2,724.2 | | 2,729.8 | | — | | 2,729.8 | | — | | | | Long-Term Debt | 2,066.2 | | 2,110.7 | | — | | 2,110.7 | | — | | | | Unfunded Commitments | 218.9 | | 218.9 | | — | | 218.9 | | — | | | | Other Liabilities | 73.2 | | 73.2 | | — | | — | | 73.2 | | |
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