Securities

3 Months Ended

Mar. 31, 2015

Securities

4. Securities — The following tables provide the amortized cost and fair values of securities at March 31, 2015, and December 31, 2014.

Table 27: Reconciliation of Amortized Cost to Fair Value of Securities Available for Sale

Securities Available for Sale	March 31, 2015
	Amortized Cost		Gross Unrealized				Fair Value
(In Millions)			Gains		Losses
U.S. Government	$	4,593.9	$	33.5	$	—	$	4,627.4
Obligations of States and Political Subdivisions		4.5		—		—		4.5
Government Sponsored Agency		16,536.9		107.6		10.3		16,634.2
Non-U.S. Government		310.5		0.9		—		311.4
Corporate Debt		3,661.5		6.7		16.9		3,651.3
Covered Bonds		2,040.5		8.8		—		2,049.3
Sub-Sovereign, Supranational and Non-U.S. Agency Bonds		560.0		1.4		0.4		561.0
Residential Mortgage-Backed		4.9		—		0.5		4.4
Other Asset-Backed		2,948.7		1.1		0.5		2,949.3
Auction Rate		18.1		0.5		1.1		17.5
Other		135.1		0.3		—		135.4
Total	$	30,814.6	$	160.8	$	29.7	$	30,945.7

Securities Available for Sale	December 31, 2014
	Amortized Cost		Gross Unrealized				Fair Value
(In Millions)			Gains		Losses
U.S. Government	$	4,493.5	$	15.1	$	1.7	$	4,506.9
Obligations of States and Political Subdivisions		4.5		0.1		—		4.6
Government Sponsored Agency		16,326.4		82.3		19.5		16,389.2
Non-U.S. Government		309.5		0.9		—		310.4
Corporate Debt		3,617.5		1.8		41.6		3,577.7
Covered Bonds		1,899.9		7.9		0.3		1,907.5
Supranational and Non-U.S. Agency Bonds		360.0		1.5		0.9		360.6
Residential Mortgage-Backed		6.9		—		0.5		6.4
Other Asset-Backed		2,321.8		0.5		1.0		2,321.3
Auction Rate		18.4		0.5		0.8		18.1
Other		155.7		0.3		0.2		155.8
Total	$	29,514.1	$	110.9	$	66.5	$	29,558.5

Table 28: Reconciliation of Amortized Cost to Fair Value of Securities Held to Maturity

Securities Held to Maturity	March 31, 2015
	Amortized Cost		Gross Unrealized				Fair Value
(In Millions)			Gains		Losses
Obligations of States and Political Subdivisions	$	112.6	$	7.0	$	—	$	119.6
Government Sponsored Agency		15.5		1.0		—		16.5
Non-U.S. Government		1,104.3		8.0		—		1,112.3
Certificates of Deposit		2,575.7		0.2		0.3		2,575.6
Sub-Sovereign, Supranational and Non-U.S. Agency Bonds		1,769.7		12.5		0.2		1,782.0
Other		78.0		—		19.0		59.0
Total	$	5,655.8	$	28.7	$	19.5	$	5,665.0

Securities Held to Maturity	December 31, 2014
	Amortized Cost		Gross Unrealized				Fair Value
(In Millions)			Gains		Losses
Obligations of States and Political Subdivisions	$	121.9	$	7.4	$	—	$	129.3
Government Sponsored Agency		18.4		1.1		—		19.5
Non-U.S. Government		1,281.6		6.6		0.4		1,287.8
Certificates of Deposit		924.3		0.1		0.1		924.3
Supranational and Non-U.S. Agency Bonds		1,745.8		10.9		0.5		1,756.2
Other		78.8		0.3		20.1		59.0
Total	$	4,170.8	$	26.4	$	21.1	$	4,176.1

Securities held to maturity consist of debt securities that management intends to, and Northern Trust has the ability to, hold until maturity.

The following table provides the remaining maturity of securities as of March 31, 2015.

Table 29: Remaining Maturity of Securities Available for Sale and Held to Maturity

	March 31, 2015
(In Millions)	Amortized Cost		Fair Value
Available for Sale
Due in One Year or Less	$	7,702.6	$	7,731.3
Due After One Year Through Five Years		18,210.8		18,295.1
Due After Five Years Through Ten Years		3,650.7		3,659.6
Due After Ten Years		1,250.5		1,259.7
Total		30,814.6		30,945.7
Held to Maturity
Due in One Year or Less		3,219.3		3,220.7
Due After One Year Through Five Years		2,374.5		2,397.5
Due After Five Years Through Ten Years		21.4		19.4
Due After Ten Years		40.6		27.4
Total	$	5,655.8	$	5,665.0

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

Investment Security Gains and Losses. Net investment security gains of $0.1 million were recognized in the three months ended March 31, 2015, representing net realized gains from the sale of securities. Net investment security losses of $4.0 million were recognized in the three months ended March 31, 2014, and included $3.9 million of charges related to the OTTI of certain Community Reinvestment Act (CRA) eligible held to maturity securities. For the three months ended March 31, 2015, proceeds of $102.0 million were received from the sale of securities, resulting in gross realized gains of $0.1 million. For the three months ended March 31, 2014, proceeds of $199.7 million were received from the sale of securities, resulting in gross realized gains and losses of $0.3 million and $0.4 million, respectively.

Securities with Unrealized Losses. The following tables provide information regarding securities that had been in a continuous unrealized loss position for less than 12 months and for 12 months or longer as of March 31, 2015, and December 31, 2014.

Table 30: Securities with Unrealized Losses

Securities with Unrealized Losses as of March 31, 2015	Less than 12 Months				12 Months or Longer				Total
(In Millions)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Government Sponsored Agency	$	1,946.0	$	3.9	$	1,091.7	$	6.4	$	3,037.7	$	10.3
Corporate Debt		391.4		0.6		1,217.8		16.3		1,609.2		16.9
Sub-Sovereign, Supranational and Non-U.S. Agency Bonds		149.8		0.2		170.7		0.4		320.5		0.6
Residential Mortgage-Backed		—		—		4.4		0.5		4.4		0.5
Other Asset-Backed		1,071.1		0.5		—		—		1,071.1		0.5
Certificates of Deposit		1,395.3		0.3		—		—		1,395.3		0.3
Auction Rate		1.4		0.2		5.5		0.9		6.9		1.1
Other		17.7		10.8		48.3		8.2		66.0		19.0
Total	$	4,972.7	$	16.5	$	2,538.4	$	32.7	$	7,511.1	$	49.2

Securities with Unrealized Losses as of December 31, 2014	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	$	998.2	$	1.7	$	—	$	—	$	998.2	$	1.7
Government Sponsored Agency		2,344.9		6.6		1,730.0		12.9		4,074.9		19.5
Non-U.S. Government		292.9		0.4		—		—		292.9		0.4
Corporate Debt		1,244.5		3.9		1,338.8		37.7		2,583.3		41.6
Covered Bonds		142.3		0.2		10.0		0.1		152.3		0.3
Supranational and Non-U.S. Agency Bonds		313.2		0.3		175.5		1.1		488.7		1.4
Residential Mortgage-Backed		—		—		4.5		0.5		4.5		0.5
Other Asset-Backed		1,297.6		1.0		—		—		1,297.6		1.0
Certificates of Deposit		438.6		0.1		—		—		438.6		0.1
Auction Rate		2.4		0.2		4.7		0.6		7.1		0.8
Other		27.1		12.1		45.6		8.2		72.7		20.3
Total	$	7,101.7	$	26.5	$	3,309.1	$	61.1	$	10,410.8	$	87.6

As of March 31, 2015, 391 securities with a combined fair value of $7.5 billion were in an unrealized loss position, with their unrealized losses totaling $49.2 million. Unrealized losses of $16.9 million within corporate debt securities primarily reflected higher market rates since purchase; 39% of the corporate debt portfolio is backed by guarantees provided by U.S. and non-U.S. governmental entities. Unrealized losses of $10.3 million related to government sponsored agency securities were primarily attributable to changes in market rates since their purchase.

Unrealized losses on residential mortgage-backed securities totaling $0.5 million reflected the impact of wider credit and liquidity spreads on the valuations of one residential mortgage-backed security since purchase, with it having been in an unrealized loss position for more than 12 months. Securities classified as “other asset-backed” had average lives less than 5 years, and 100% were rated triple-A.

The majority of the $19.0 million of unrealized losses in securities classified as “other” at March 31, 2015, related to securities primarily purchased at a premium or par by Northern Trust for compliance with the CRA. Unrealized losses on these CRA-related securities were 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. Unrealized losses of $1.1 million related to auction rate securities primarily reflected reduced market liquidity as a majority of auctions continued to fail preventing holders from liquidating their investments at par. The remaining unrealized losses on Northern Trust’s securities portfolio as of March 31, 2015, were attributable to changes in overall market interest rates, increased credit spreads or reduced market liquidity. As of March 31, 2015, Northern Trust did not intend to sell any investment in an unrealized loss position and it was not more likely than not that Northern Trust would 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, the security type for which Northern Trust recognized all of the OTTI in 2014, incorporates an expected loss approach using discounted cash flows on the underlying collateral pools. To evaluate whether an unrealized loss on CRA-eligible 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 like collateral, 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-eligible 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-eligible mortgage-backed securities vary by vintage of loan origination and collateral quality.

As of March 31, 2015, impairment estimates for CRA-eligible mortgage-backed securities were developed using default and loss severity rates sourced from industry mortgage data. Ultimate recovery value of the securities was determined by applying default and severity rates against remaining collateral balances in the pools. An expected loss amount was calculated by applying loss severity rates on defaulted amounts. Lastly, book values were compared against collateral values net of expected losses in order to determine OTTI.

There were no OTTI losses recognized in the three months ended March 31, 2015. There were $3.9 million of OTTI losses recognized during the three months ended March 31, 2014, related to CRA-eligible mortgage-backed securities.

Credit Losses on Debt Securities. The table below provides information regarding total other-than-temporarily-impaired securities, including noncredit-related amounts recognized in other comprehensive income and net impairment losses recognized in earnings, for the three months ended March 31, 2015, and 2014.

Table 31: Net Impairment Losses Recognized in Earnings

	Three Months Ended March 31,
(In Millions)	2015		2014
Changes in OTTI Losses*	$	—	$	(4.6	)
Noncredit-related Losses Recorded in / (Reclassified from) OCI**		—		0.7
Net Impairment Losses Recognized in Earnings	$	—	$	(3.9	)

* For initial OTTI in the applicable 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.

** For initial OTTI in the applicable period, the balance includes the portion of the excess of amortized cost over the fair value of the impaired securities that was recorded in other comprehensive income (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 32: Cumulative Credit-Related Losses on Securities

	Three Months Ended March 31,
(In Millions)	2015		2014
Cumulative Credit-Related Losses on Securities Held — Beginning of Period	$	5.2	$	8.8
Plus: Losses on Newly Identified Impairments		—		1.8
Additional Losses on Previously Identified Impairments		—		2.1
Less: Current and Prior Period Losses on Securities Sold During the Period		—		—
Cumulative Credit-Related Losses on Securities Held — End of Period	$	5.2	$	12.7