Fair Value Measurements (Tables)

3 Months Ended

Mar. 31, 2012

Assets and Liabilities Measured at Fair Value on Recurring Basis Segregated by Fair Value Hierarchy Level

The following presents assets and liabilities measured at fair value on a recurring basis as of March 31, 2012 and December 31, 2011, segregated by fair value hierarchy level.

(In Millions)

Level 1

Level 2

Level 3

Netting *

Assets/Liabilities
at Fair Value

March 31, 2012

Securities

Available for Sale

U.S. Government

2,766.5

—

2,766.5

Obligations of States and Political Subdivisions

—

15.0

—

15.0

Government Sponsored Agency

—

17,605.3

—

17,605.3

Corporate Debt

—

2,839.7

—

2,839.7

Covered Bonds

—

1,376.4

—

1,376.4

Non-U.S. Government

—

192.2

—

192.2

Supranational Bonds

—

911.1

—

911.1

Residential Mortgage-Backed

—

137.6

—

137.6

Other Asset-Backed

—

2,035.0

—

2,035.0

Certificates of Deposit

—

2,448.5

—

2,448.5

Auction Rate

—

176.3

—

176.3

Other

—

403.2

—

403.2

Total Available for Sale

2,766.5

27,964.0

176.3

—

30,906.8

Trading Account

—

9.3

—

9.3

Total Available for Sale and Trading

2,766.5

27,973.3

176.3

—

30,916.1

Other Assets

Derivatives

Foreign Exchange Contracts

—

3,142.4

—

3,142.4

Interest Rate Swaps

—

323.9

—

323.9

Interest Rate Options

—

0.1

—

0.1

Total Derivatives

—

3,466.4

—

(2,168.9

)

1,297.5

Other Liabilities

Derivatives

Foreign Exchange Contracts

—

3,109.2

—

3,109.2

Interest Rate Swaps

—

222.9

—

222.9

Interest Rate Options

—

0.1

—

0.1

Credit Default Swaps

—

0.2

—

0.2

Total Derivatives

—

3,332.4

—

(2,111.7

)

1,220.7

Other

Standby Letters of Credit

—

50.1

—

50.1

Contingent Consideration

—

58.6

—

58.6

Total Other

—

108.7

—

108.7

Northern Trust has elected to net derivative assets and liabilities when legally enforceable master netting agreements exist between Northern Trust and the counterparty. As of March 31, 2012, derivative assets and liabilities shown above also include reductions of $350.3 million and $293.1 million, respectively, as a result of cash collateral received from and deposited with derivative counterparties.


(In Millions)	Level 1		Level 2		Level 3		Netting *			Assets/Liabilities at Fair Value
December 31, 2011
Securities
Available for Sale
U.S. Government	$	4,029.4	$	—	$	—	$	—		$	4,029.4
Obligations of States and Political Subdivisions		—		15.8		—		—			15.8
Government Sponsored Agency		—		16,771.4		—		—			16,771.4
Corporate Debt		—		2,676.7		—		—			2,676.7
Covered Bonds		—		754.9		—		—			754.9
Non-U.S. Government		—		173.7		—		—			173.7
Supranational Bonds		—		972.1		—		—			972.1
Residential Mortgage-Backed		—		163.8		—		—			163.8
Other Asset-Backed		—		1,604.8		—		—			1,604.8
Certificates of Deposit		—		2,418.1		—		—			2,418.1
Auction Rate		—		—		178.3		—			178.3
Other		—		433.5		—		—			433.5

Total Available for Sale		4,029.4		25,984.8		178.3		—			30,192.5

Trading Account		—		8.0		—		—			8.0

Total Available for Sale and Trading	$	4,029.4	$	25,992.8	$	178.3	$	—		$	30,200.5

Other Assets
Derivatives
Foreign Exchange Contracts	$	—	$	3,087.3	$	—	$	—		$	3,087.3
Interest Rate Swaps		—		338.3		—		—			338.3
Credit Default Swaps		—		0.7		—		—			0.7

Total Derivatives		—		3,426.3		—		(2,243.7	)		1,182.6

Other Liabilities
Derivatives
Foreign Exchange Contracts	$	—	$	2,991.6	$	—	$	—		$	2,991.6
Interest Rate Swaps		—		231.9		—		—			231.9
Credit Default Swaps		—		0.1		—		—			0.1

Total Derivatives		—		3,223.6		—		(2,281.0	)		942.6

Other
Standby Letters of Credit		—		—		43.8		—			43.8
Contingent Consideration		—		—		56.8		—			56.8

Total Other		—		—		100.6		—			100.6

Northern Trust has elected to net derivative assets and liabilities when legally enforceable master netting agreements exist between Northern Trust and the counterparty. As of December 31, 2011, derivative assets and liabilities shown above also include reductions of $220.1 million and $257.4 million, respectively, as a result of cash collateral received from and deposited with derivative counterparties.

Changes in Level 3 Assets


(In Millions)	Auction Rate Securities
Three Months Ended March 31	2012			2011
Fair Value at January 1	$	178.3		$	367.8
Total Gains and (Losses) for the Period
Included in Earnings		(1.5	)		4.4
Included in Other Comprehensive Income		(0.2	)		(6.4	)
Purchases, Issues, Sales, and Settlements
Sales		—			(1.5	)
Settlements		(0.3	)		(79.0	)

Fair Value at March 31	$	176.3		$	285.3

Changes in Level 3 Liabilities

In Millions)	Other Liabilities *
Three Months Ended March 31	2012			2011
Fair Value at January 1	$	100.6		$	58.6
Total (Gains) and Losses for the Period
Included in Earnings		2.3			(1.6	)
Included in Other Comprehensive Income		0.4			—
Purchases, Issues, Sales, and Settlements
Issues		5.5			2.5
Settlements		(0.1	)		(10.3	)

Fair Value at March 31	$	108.7		$	49.2

*	Balances relate to standby letters of credit and contingent consideration liabilities.

Gains and Losses Recognize in Statement of Consolidated Income for Changes in Level 3

The following tables provide the amounts and locations within the consolidated statement of income of gains and losses recognized in connection with changes in Level 3 assets and liabilities for the three months ended March 31, 2012 and 2011.


2012
	Operating Income (Expense)			Interest Income		Investment Security Gains (Losses)
Total gains or losses included in earnings *	$	(2.3	)	$	0.1	$	(1.6	)


2011
	Operating Income (Expense)		Interest Income		Investment Security Gains (Losses)
Total gains or losses included in earnings **	$	1.6	$	4.3	$	0.1

Changes in unrealized gains or losses included in earnings for assets and liabilities held at period-end include operating expense of $2.3 million. There were no changes in unrealized gains or losses included in earnings for assets or liabilities held at the end of the period that were included in interest income or investment security gains or losses.

Changes in unrealized gains or losses included in earnings for assets and liabilities held at period-end include operating income of $1.6 million. There were no changes in unrealized gains or losses included in earnings for assets or liabilities held at the end of the period that were included in interest income or investment security gains or losses.

Assets Measure at Fair Value on Nonrecurring Basis

The following provides information regarding those assets measured at fair value on a nonrecurring basis at March 31, 2012 and 2011, segregated by fair value hierarchy level.


(In Millions)	Level 1		Level 2		Level 3		Total Fair Value
March 31, 2012
Loans (1)	$	—	$	—	$	25.5	$	25.5
Other Real Estate Owned (2)		—		—		1.4		1.4

Total Assets at Fair Value	$	—	$	—	$	26.9	$	26.9

March 31, 2011
Loans (1)	$	—	$	—	$	80.7	$	80.7
Other Real Estate Owned (2)		—		—		13.9		13.9

Total Assets at Fair Value	$	—	$	—	$	94.6	$	94.6

(1)

In accordance with Accounting Standard Codification (ASC) Subtopic 310-10, Northern Trust recorded individually impaired loans at fair value and reduced by $9.5 million the level of specific reserves on these loans during the three months ended March 31, 2012. An additional $3.1 million of specific reserves was provided during the three months ended March 31, 2011 to reduce the fair value of these loans.

(2)

In accordance with ASC Subtopics 310-40 and 360-10, Northern Trust recorded Other Real Estate Owned (OREO) at fair value and subsequently charged $0.1 million and $0.3 million through other operating expenses during the three months ended March 31, 2012 and 2011, respectively, to reduce the fair values of these OREO properties.

Book and Fair Values of Financial Instruments

The following tables summarize fair values of financial instruments.


(In Millions)	March 31, 2012
	Book Value		Fair Value
	Book Value		Total		Level 1		Level 2		Level 3
Assets
Cash and Due from Banks	$	4,280.3	$	4,280.3	$	4,280.3	$	—	$	—
Federal Funds Sold and Resell Agreements		290.9		290.9		—		290.9		—
Interest-Bearing Deposits with Banks		18,871.3		18,871.3		—		18,871.3		—
Federal Reserve Deposits and Other Interest-Bearing		2,228.0		2,228.0		—		2,228.0		—
Securities
Available for Sale ⁽¹⁾		30,906.8		30,906.8		2,766.5		27,964.0		176.3
Held to Maturity		709.7		727.2		—		727.2		—
Trading Account		9.3		9.3		—		9.3		—
Loans (excluding Leases)
Held for Investment		27,845.6		27,957.9		—				27,957.9
Held for Sale		0.1		0.1		—		—		0.1
Client Security Settlement Receivables		985.3		985.3		—		985.3		—
Other Assets
Federal Reserve and Federal Home Loan Bank Stock		172.9		172.9		—		172.9		—
Affordable Housing Investments		280.5		306.60		—		306.60		—
Rabbi Trust Investments		122.6		122.6		83.6		39.0		—
Liabilities
Deposits
Demand, Noninterest-Bearing, Savings and Money Market	$	34,263.8	$	34,263.8	$	34,263.8	$	—	$	—
Savings Certificates and Other Time		3,093.8		3,101.3		—		3,101.3		—
Non U. S. Offices Interest-Bearing		36,575.4		36,575.4		—		36,575.4		—
Federal Funds Purchased		1,973.7		1,973.7		—		1,973.7		—
Securities Sold under Agreements to Repurchase		284.0		284.0		—		284.0		—
Other Borrowings		1,103.0		1,103.0		—		1,103.0		—
Senior Notes		2,122.6		2,192.2		—		2,192.2		—
Long Term Debt (excluding Leases)
Subordinated Debt		1,036.6		1,055.5		—		1,055.5		—
Federal Home Loan Bank Borrowings		705.0		723.7		—		723.7		—
Floating Rate Capital Debt		277.0		232.3		—		232.3		—
Other Liabilities
Standby Letters of Credit		50.1		50.1		—		—		50.1
Contingent Consideration		58.6		58.6		—		—		58.6
Loan Commitments		28.9		28.9		—		—		28.9
Derivative Instruments
Asset/Liability Management
Foreign Exchange Contracts
Assets	$	14.6		14.6	$	—	$	14.6	$	—
Liabilities		45.6		45.6		—		45.6		—
Interest Rate Swaps
Assets		141.8		141.8		—		141.8		—
Liabilities		45.9		45.9		—		45.9		—
Credit Default Swaps
Assets		—		—		—		—		—
Liabilities		0.2		0.2		—		0.2		—
Forward Contracts
Assets		—		—		—		—		—
Liabilities		—		—		—		—		—
Client-Related and Trading
Foreign Exchange Contracts
Assets		3,127.8		3,127.8		—		3,127.8		—
Liabilities		3,063.6		3,063.6		—		3,063.6		—
Interest Rate Swaps
Assets		182.1		182.1		—		182.1		—
Liabilities		177.0		177.0		—		177.0		—
Interest Rate Options
Assets		0.1		0.1		—		0.1		—
Liabilities		0.1		0.1		—		0.1		—

(1)	Refer to the table located on page 31 for the disaggregation of available-for-sale-securities.


(In Millions)			December 31, 2011
	Book Value		Fair Value
	Book Value		Total		Level 1		Level 2		Level 3
Assets
Cash and Due from Banks	$	4,315.3	$	4,315.3	$	4,315.3	$	—	$	—
Federal Funds Sold and Resell Agreements		121.3		121.3		—		121.3		—
Interest-Bearing Deposits with Banks		16,696.4		16,696.4		—		16,696.4		—
Federal Reserve Deposits and Other Interest-Bearing		13,448.6		13,448.6		—		13,448.6		—
Securities
Available for Sale ⁽¹⁾		30,192.5		30,192.5		4,029.4		25,984.8		178.3
Held to Maturity		799.2		817.1		—		817.1		—
Trading Account		8.0		8.0		—		8.0		—
Loans (excluding Leases)
Held for Investment		27,782.7		27,913.7		—		—		27,913.7
Held for Sale		9.3		9.3		—		—		9.3
Client Security Settlement Receivables		778.3		778.3		—		778.3		—
Other Assets
Federal Reserve and Federal Home Loan Bank Stock		172.9		172.9		—		172.9		—
Affordable Housing Investments		290.8		319.9		—		319.9		—
Rabbi Trust Investments		106.3		106.3		71.4		34.9		—
Liabilities
Deposits
Demand, Noninterest-Bearing, Savings and Money Market	$	43,751.2	$	43,751.2	$	43,751.2	$	—	$	—
Savings Certificates and Other Time		3,058.3		3,065.5		—		3,065.5		—
Non U. S. Offices Interest-Bearing		35,868.0		35,868.0		—		35,868.0		—
Federal Funds Purchased		815.3		815.3		—		815.3		—
Securities Sold under Agreements to Repurchase		1,198.8		1,198.8		—		1,198.8		—
Other Borrowings		931.5		931.5		—		931.5		—
Senior Notes		2,126.7		2,197.3		—		2,197.3		—
Long Term Debt (excluding Leases)
Subordinated Debt		1,033.4		1,040.0		—		1,040.0		—
Federal Home Loan Bank Borrowings		1,055.0		1,082.1		—		1,082.1		—
Floating Rate Capital Debt		276.9		211.6		—		211.6		—
Other Liabilities
Standby Letters of Credit		43.8		43.8		—		—		43.8
Contingent Consideration		56.8		56.8		—		—		56.8
Loan Commitments		28.9		28.9		—		—		28.9
Derivative Instruments
Asset/Liability Management
Foreign Exchange Contracts
Assets	$	25.2		25.2	$	—	$	25.2	$	—
Liabilities		31.8		31.8		—		31.8		—
Interest Rate Swaps
Assets		149.6		149.6		—		149.6		—
Liabilities		47.3		47.3		—		47.3		—
Credit Default Swaps
Assets		0.7		0.7		—		0.7		—
Liabilities		0.1		0.1		—		0.1		—
Client-Related and Trading
Foreign Exchange Contracts
Assets		3,062.1		3,062.1		—		3,062.1		—
Liabilities		2,959.8		2,959.8		—		2,959.8		—
Interest Rate Swaps
Assets		188.7		188.7		—		188.7		—
Liabilities		184.6		184.6		—		184.6		—

(1)	Refer to the table located on page 32 for the disaggregation of available-for-sale-securities.

Fair Value, Measurements, Recurring

Valuation Techniques, Significant Unobservable Inputs, and Quantitative Information

The following presents the valuation techniques, significant unobservable inputs, and quantitative information used to develop significant unobservable inputs for Northern Trust’s Level 3 assets and liabilities as of March 31, 2012 and December 31, 2011.


Financial Instrument	Valuation Technique	Unobservable Input	Range of Quantitative Information
Auction Rate Securities	Discounted Cash Flow	Remaining lives Discount rates	2.4 – 8.6 years 3 – 9%
Contingent Consideration	Discounted Cash Flow	Discount rates Business growth rates	10.5% 1 – 10%
Standby Letters of Credit	Market Approach	Market fees	$50.1 million

Fair Value, Measurements, Nonrecurring

Valuation Techniques, Significant Unobservable Inputs, and Quantitative Information

The following table provides the valuation techniques, significant unobservable inputs, and quantitative information used to develop the significant unobservable inputs for Northern Trust’s Level 3 assets and liabilities that are not measured at fair value on a recurring basis as of March 31, 2012 and December, 2011.


Financial Instrument	Valuation Technique	Unobservable Input	Range of Quantitative Information
Loans	Market Approach	Discount to reflect realizable value	15 – 30%
OREO	Market Approach	Discount to reflect realizable value	15 – 30%

- Definition

Tabular disclosure of the total amount of gains or losses for the period which are included in earnings or resulted in a change to net assets which gains or losses have arisen from the use of significant unobservable inputs (Level 3) to measure the fair value of assets and liabilities. Such gains or losses are attributable to the change in unrealized gains or losses relating to those assets and liabilities so valued which are still held at the reporting date and which change are also considered for disclosure; it may be expected that a description of where those unrealized gains or losses are reported in the statement of income or the statement of financial position would also be disclosed.

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- Definition

Tabular disclosure of assets and liabilities by class, including [financial] instruments measured at fair value that are classified in stockholders' equity, if any, that are measured at fair value on a nonrecurring basis in periods after initial recognition (for example, impaired assets). The disclosures that may be required or desired include: (a) the fair value measurements recorded during the period and the reasons for the measurements and (b) the level within the fair value hierarchy in which the fair value measurements in their entirety fall, segregating fair value measurements using quoted prices in active markets for identical assets or liabilities (Level 1), significant other observable inputs (Level 2), and significant unobservable inputs (Level 3). Where the quoted price in an active market for the identical liability is not available, the Level 1 input is the quoted price of an identical liability when traded as an asset.

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- Definition

Tabular disclosure of the fair value measurement of assets using significant unobservable inputs (Level 3), a reconciliation of the beginning and ending balances, separately presenting changes during the period attributable to the following: (1) total gains or losses for the period (realized and unrealized), segregating those gains or losses included in earnings (or changes in net assets) and gains or losses recognized in other comprehensive income, and a description of where those gains or losses included in earnings (or changes in net assets) are reported in the statement of income (or activities); (2) purchases, sales, issuances, and settlements (each type disclosed separately); and (3) transfers in and transfers out of Level 3 (for example, transfers due to changes in the observability of significant inputs), by class of asset.

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- Definition

Tabular disclosure of the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments, assets, and liabilities. Such certain disclosures about the financial instruments, assets, and liabilities include: (1) the fair value of the required items together with their carrying amounts (as appropriate) and (2) the methodology and assumptions used in developing such estimates of fair value.

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- Definition

Tabular disclosure of the fair value measurement of liabilities using significant unobservable inputs (Level 3), a reconciliation of the beginning and ending balances, separately presenting changes during the period attributable to the following: (1) total gains or losses for the period (realized and unrealized), segregating those gains or losses included in earnings (or changes in net assets), and gains or losses recognized in other comprehensive income and a description of where those gains or losses included in earnings (or changes in net assets) are reported in the statement of income (or activities); (2) purchases, sales, issuances, and settlements (each type disclosed separately); and (3) transfers in and transfers out of Level 3 (for example, transfers due to changes in the observability of significant inputs) by class of liability.

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