Fair Value Measurements (Tables)

3 Months Ended

Mar. 31, 2013

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, 2013 and December 31, 2012, segregated by fair value hierarchy level.

(In Millions)

Level 1

Level 2

Level 3

Netting

Assets/Liabilities
at Fair Value

March 31, 2013

Securities

Available for Sale

U.S. Government

1,782.4

—

1,782.4

Obligations of States and Political Subdivisions

—

14.7

—

14.7

Government Sponsored Agency

—

16,859.4

—

16,859.4

Corporate Debt

—

2,941.8

—

2,941.8

Covered Bonds

—

1,868.5

—

1,868.5

Supranational and Non-U.S. Agency Bonds

—

815.7

—

815.7

Residential Mortgage-Backed

—

70.9

—

70.9

Other Asset-Backed

—

2,438.7

—

2,438.7

Auction Rate

—

99.6

—

99.6

Other

—

280.2

—

280.2

Total Available for Sale

1,782.4

25,289.9

99.6

—

27,171.9

Trading Account

—

6.9

—

6.9

Total Available for Sale and Trading

1,782.4

25,296.8

99.6

—

27,178.8

Other Assets

Derivatives

Foreign Exchange Contracts

—

2,390.5

—

2,390.5

Interest Rate Swaps

—

283.5

—

283.5

Total Derivatives

—

2,674.0

—

(1,725.8

)

948.2

Other Liabilities

Derivatives

Foreign Exchange Contracts

—

2,298.4

—

2,298.4

Interest Rate Swaps

—

220.8

—

220.8

Credit Default Swaps

—

0.1

—

0.1

Total Derivatives

—

2,519.3

—

(1,979.9

)

539.4

Contingent Consideration

—

51.4

—

51.4

Note: 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, 2013, derivative assets and liabilities shown above also include reductions of $218.1 million and $472.2 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, 2012
Securities
Available for Sale
U.S. Government	$	1,784.6	$	—	$	—	$	—		$	1,784.6
Obligations of States and Political Subdivisions		—		14.1		—		—			14.1
Government Sponsored Agency		—		18,638.8		—		—			18,638.8
Corporate Debt		—		2,618.4		—		—			2,618.4
Covered Bonds		—		1,748.0		—		—			1,748.0
Supranational Bonds		—		1,060.7		—		—			1,060.7
Residential Mortgage-Backed		—		92.0		—		—			92.0
Other Asset-Backed		—		2,283.9		—		—			2,283.9
Auction Rate		—		—		97.8		—			97.8
Other		—		305.2		—		—			305.2

Total Available for Sale		1,784.6		26,761.1		97.8		—			28,643.5

Trading Account		—		8.0		—		—			8.0

Total Available for Sale and Trading		1,784.6		26,769.1		97.8		—			28,651.5

Other Assets
Derivatives
Foreign Exchange Contracts		—		1,756.6		—		—			1,756.6
Interest Rate Swaps		—		310.3		—		—			310.3

Total Derivatives		—		2,066.9		—		(1,101.1	)		965.8

Other Liabilities
Derivatives
Foreign Exchange Contracts		—		1,772.7		—		—			1,772.7
Interest Rate Swaps		—		249.3		—		—			249.3
Credit Default Swaps		—		1.0		—		—			1.0

Total Derivatives		—		2,023.0		—		(1,407.5	)		615.5

Contingent Consideration	$	—	$	—	$	50.1	$	—		$	50.1

Note: 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, 2012, derivative assets and liabilities shown above also include reductions of $118.6 million and $425.0 million, respectively, as a result of cash collateral received from and deposited with derivative counterparties.

Changes in Level 3 Assets

The following tables present the changes in Level 3 assets and liabilities for the three months ended March 31, 2013 and 2012.


Level 3 Assets (In Millions)	Auction Rate Securities
Three Months Ended March 31,	2013			2012
Fair Value at January 1	$	97.8		$	178.3
Total Gains and (Losses):
Included in Earnings (1)		0.1			(1.5	)
Included in Other Comprehensive Income (2)		2.7			(0.2	)
Purchases, Issues, Sales, and Settlements
Sales		—			—
Settlements		(1.0	)		(0.3	)

Fair Value at March 31	$	99.6		$	176.3

(1)

Realized gains for the three months ended March 31, 2013 of $0.1 million represent gains from redemptions by issuers. Realized losses for the three months ended March 31, 2012 of $1.5 million include $1.6 million of OTTI losses, partially offset by $0.1 million of gains from redemptions by issuers. Gains on redemptions are recorded in interest income and sales and impairment losses are recorded in investment security gains (losses), net, within the consolidated statement of income.

(2)

Unrealized losses related to auction rate securities are included in net unrealized gains (losses) on securities available for sale, within the consolidated statement of comprehensive income.

Changes in Level 3 Liabilities


Level 3 Liabilities (In Millions)	Contingent Consideration
Three Months Ended March 31,	2013		2012
Fair Value at January 1	$	50.1	$	56.8
Total (Gains) and Losses:
Included in Earnings (1)		1.3		1.4
Included in Other Comprehensive Income (2)		—		0.4
Purchases, Issues, Sales, and Settlements
Issues		—		—
Settlements		—		—

Fair Value at March 31	$	51.4	$	58.6

Unrealized (Gain) Losses Included in Earnings Related to Financial Instruments Held at March 31 (1)	$	1.3	$	1.4

(1)

Gains (losses) are recorded in other operating income (expense) within the consolidated statement of income.

(2)

Unrealized foreign currency related losses are included in foreign currency translation adjustments within the consolidated statement of comprehensive income.

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, 2013 and 2012, segregated by fair value hierarchy level.


(In Millions)	Level 1		Level 2		Level 3		Total Fair Value
March 31, 2013
Loans (1)	$	—	$	—	$	32.4	$	32.4
Other Real Estate Owned (2)		—		—		1.5		1.5

Total Assets at Fair Value	$	—	$	—	$	33.9	$	33.9


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

(1)

In accordance with Accounting Standard Codification (ASC) Subtopic 310-10, Northern Trust recorded individually impaired loans at fair value and, for the three months ended March 31, 2013 increased by $1.9 million the level of specific allowances on these loans. During the three months ended March 31, 2012, Northern Trust reduced by $9.5 million the level of specific allowances on 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 $0.3 million and $0.1 million through other operating expenses during the three months ended March 31, 2013 and March 31, 2012, respectively, to reduce the fair values of these OREO properties.

Book and Fair Values of Financial Instruments

The following tables summarize the fair values of financial instruments.

(In Millions)

March 31, 2013

Book Value

Total Fair
Value

Fair Value

Level 1

Level 2

Level 3

Assets

Cash and Due from Banks

3,773.5

—

Federal Funds Sold and Resell Agreements

251.5

—

251.5

—

Interest-Bearing Deposits with Banks

18,694.8

—

18,694.8

—

Federal Reserve Deposits and Other Interest-Bearing

5,828.6

—

5,828.6

—

Securities

Available for Sale ⁽¹⁾

27,171.9

1,782.4

25,289.9

99.6

Held to Maturity

2,931.7

2,943.3

—

2,943.3

—

Trading Account

6.9

—

6.9

—

Loans (excluding Leases)

Held for Investment

27,567.1

27,588.2

—

27,588.2

Held for Sale

1.1

—

1.1

Client Security Settlement Receivables

816.5

—

816.5

—

Other Assets

Federal Reserve and Federal Home Loan Bank Stock

203.7

—

203.7

—

Community Development Investments

241.5

260.3

—

260.3

—

Employee Benefit and Deferred Compensation

133.4

135.4

92.3

43.1

—

Liabilities

Deposits

Demand, Noninterest-Bearing, Savings and Money Market

33,703.6

—

Savings Certificates and Other Time

2,296.1

2,304.8

—

2,304.8

—

Non U.S. Offices Interest-Bearing

39,822.4

—

39,822.4

—

Federal Funds Purchased

1,320.5

—

1,320.5

—

Securities Sold under Agreements to Repurchase

490.2

—

490.2

—

Other Borrowings

1,435.3

—

1,435.3

—

Senior Notes

2,402.0

2,495.9

—

2,495.9

—

Long Term Debt (excluding Leases)

Subordinated Debt

823.2

850.0

—

850.0

—

Federal Home Loan Bank Borrowings

335.0

342.4

—

342.4

—

Floating Rate Capital Debt

277.1

232.3

—

232.3

—

Other Liabilities

Standby Letters of Credit

60.1

—

60.1

Contingent Consideration

51.4

—

51.4

Loan Commitments

37.7

—

37.7

Derivative Instruments

Asset/Liability Management

Foreign Exchange Contracts

Assets

53.4

—

53.4

—

Liabilities

18.2

—

Interest Rate Swaps

Assets

116.6

—

116.6

—

Liabilities

61.0

—

61.0

—

Credit Default Swaps

Liabilities

0.1

—

0.1

—

Client-Related and Trading

Foreign Exchange Contracts

Assets

2,337.1

—

2,337.1

—

Liabilities

2,280.2

—

2,280.2

—

Interest Rate Swaps

Assets

166.9

—

166.9

—

Liabilities

159.8

—

159.8

—

(1)	Refer to the table located on page 30 for the disaggregation of available for sale securities.


(In Millions)	December 31, 2012
	Book Value		Total Fair Value		Fair Value
	Book Value		Total Fair Value		Level 1		Level 2		Level 3
Assets
Cash and Due from Banks	$	3,752.7	$	3,752.7	$	3,752.7	$	—	$	—
Federal Funds Sold and Resell Agreements		60.8		60.8		—		60.8		—
Interest-Bearing Deposits with Banks		18,803.5		18,803.5		—		18,803.5		—
Federal Reserve Deposits and Other Interest-Bearing		7,619.7		7,619.7		—		7,619.7		—
Securities
Available for Sale ⁽¹⁾		28,643.5		28,643.5		1,784.6		26,761.1		97.8
Held to Maturity		2,382.0		2,394.8		—		2,394.8		—
Trading Account		8.0		8.0		—		8.0		—
Loans (excluding Leases)
Held for Investment		28,165.4		28,220.2		—		—		28,220.2
Held for Sale		11.7		11.7		—		—		11.7
Client Security Settlement Receivables		2,049.1		2,049.1		—		2,049.1		—
Other Assets
Federal Reserve and Federal Home Loan Bank Stock		197.6		197.6		—		197.6		—
Community Development Investments		253.2		275.1		—		275.1		—
Employee Benefit and Deferred Compensation		121.3		126.1		86.7		39.4		—
Liabilities
Deposits
Demand, Noninterest-Bearing, Savings and Money Market	$	39,221.5	$	39,221.5	$	39,221.5	$	—	$	—
Savings Certificates and Other Time		2,466.1		2,746.7		—		2,746.7		—
Non U.S. Offices Interest-Bearing		39,720.2		39,720.2		—		39,720.2		—
Federal Funds Purchased		780.2		780.2		—		780.2		—
Securities Sold under Agreements to Repurchase		699.8		699.8		—		699.8		—
Other Borrowings		367.4		367.4		—		367.4		—
Senior Notes		2,405.8		2,513.4		—		2,513.4		—
Long Term Debt (excluding Leases)
Subordinated Debt		1,045.4		1,065.3		—		1,065.3		—
Federal Home Loan Bank Borrowings		335.0		345.4		—		345.4		—
Floating Rate Capital Debt		277.0		228.0		—		228.0		—
Other Liabilities
Standby Letters of Credit		60.5		60.5		—		—		60.5
Contingent Consideration		50.1		50.1		—		—		50.1
Loan Commitments		38.9		38.9		—		—		38.9
Derivative Instruments
Asset/Liability Management
Foreign Exchange Contracts
Assets	$	21.3	$	21.3	$	—	$	21.3	$	—
Liabilities		42.3		42.3		—		42.3		—
Interest Rate Swaps
Assets		129.7		129.7		—		129.7		—
Liabilities		75.3		75.3		—		75.3		—
Credit Default Swaps
Liabilities		1.0		1.0		—		1.0		—
Client-Related and Trading
Foreign Exchange Contracts
Assets		1,735.3		1,735.3		—		1,735.3		—
Liabilities		1,730.4		1,730.4		—		1,730.4		—
Interest Rate Swaps
Assets		180.6		180.6		—		180.6		—
Liabilities		174.0		174.0		—		174.0		—

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

Fair Value, Measurements, Recurring

Valuation Techniques, Significant Unobservable Inputs, and Quantitative Information

The following presents the fair values of, and 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, 2013.


Financial Instrument	Fair Value		Valuation Technique	Unobservable Input	Range of Lives and Rates
Auction Rate Securities	$	99.6 million	Discounted Cash Flow	Remaining lives Discount rates	1.3 – 8.6 years 0.3 % – 7.7 %
Contingent Consideration	$	51.4 million	Discounted Cash Flow	Discount rate Business growth rates	10.5% 19% – 35%

Fair Value, Measurements, Nonrecurring

Valuation Techniques, Significant Unobservable Inputs, and Quantitative Information

The following table provides the fair value of, and the valuation technique, significant unobservable inputs, and quantitative information used to develop the significant unobservable inputs for, Northern Trust’s Level 3 assets that were measured at fair value on a nonrecurring basis as of March 31, 2013.


Financial Instrument	Fair Value		Valuation Technique	Unobservable Input	Range of Discounts Applied
Loans	$	32.4 million	Market Approach	Discount to reflect realizable value	15% – 40%
OREO	$	1.5 million	Market Approach	Discount to reflect realizable value	15% – 40%

- Definition

Tabular disclosure of assets and liabilities by class, including financial instruments measured at fair value that are classified in shareholders' equity, if any, that are measured at fair value on a nonrecurring basis in periods after initial recognition (for example, impaired assets). Disclosures may include, but are not limited to: (a) the fair value measurements recorded and the reasons for the measurements and (b) the level within the fair value hierarchy in which the fair value measurements are categorized in their entirety (levels 1, 2, 3).

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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 (loss), 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, issues, 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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Reference 1: http://www.xbrl.org/2003/role/presentationRef

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-Name Statement of Financial Accounting Standard (FAS)

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Reference 4: http://www.xbrl.org/2003/role/presentationRef

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-Number 159

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-Subparagraph a, b, c(1), d(1)

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-Name Statement of Financial Accounting Standard (FAS)

-Number 157

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-Subparagraph a, c(1), c(2), c(3), d

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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 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 (loss) 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, issues, 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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