Edgar Filing: NORTHERN TRUST CORP

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended September 30, 2012

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File No. 0-5965

NORTHERN TRUST CORPORATION

(Exact name of registrant as specified in its charter)


Delaware		36-2723087
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

50 South LaSalle Street Chicago, Illinois		60603
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (312) 630-6000

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer”, “accelerated filer”, and “small reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

239,799,129 Shares - $1.66 2/3 Par Value

(Shares of Common Stock Outstanding on September 30, 2012)

CONSOLIDATED FINANCIAL HIGHLIGHTS

(UNAUDITED)


	Three Months Ended September 30,									Nine Months Ended September 30,
FOR THE PERIOD ($ In Millions)	2012			2011			% Change			2012			2011			% Change
Noninterest Income
Trust, Investment and Other Servicing Fees	$	601.9		$	555.3			8	%	$	1,782.9		$	1,628.0			10	%
Foreign Exchange Trading Income		44.0			87.2			(49	)		165.3			252.8			(35	)
Treasury Management Fees		16.3			17.8			9			51.0			55.1			(7	)
Security Commissions and Trading Income		17.9			13.9			28			53.6			44.8			20
Other Operating Income		46.6			42.5			10			119.2			120.4			(1	)
Investment Security Gains (Losses), net		0.2			(2.0	)		N/M			(1.7	)		(24.1	)		(93	)

Total Noninterest Income		726.9			714.7			2			2,170.3			2,077.0			4

Net Interest Income		245.6			256.8			(4	)		756.1			737.3			3
Provision for Credit Losses		10.0			17.5			(43	)		20.0			42.5			(53	)

Net Interest Income after Provision for Credit Losses		235.6			239.3			(2	)		736.1			694.8			6

Noninterest Expense
Compensation		315.7			311.1			2			951.1			925.3			3
Employee Benefits		61.3			66.7			(8	)		194.3			188.7			3
Outside Services		126.6			139.7			(9	)		388.5			398.6			(3	)
Equipment and Software		86.0			76.3			13			276.2			232.8			19
Occupancy		43.8			45.4			(4	)		128.2			131.3			(2	)
Visa Indemnification Benefit		—			—			—			—			(10.1	)		N/M
Other Operating Expense		63.0			62.0			2			199.0			192.9			3

Total Noninterest Expense		696.4			701.2			(1	)		2,137.3			2,059.5			4

Income before Income Taxes		266.1			252.8			5			769.1			712.3			8
Provision for Income Taxes		87.3			82.4			6			249.5			238.9			4

Net Income	$	178.8		$	170.4			5	%	$	519.6		$	473.4			10	%

Average Total Assets	$	92,709.9		$	94,029.7			(1	)%	$	93,413.6		$	89,924.2			4	%

PER COMMON SHARE

Net Income – Basic	$	0.73		$	0.70			4	%	$	2.13		$	1.94			10	%
– Diluted		0.73			0.70			4			2.12			1.93			10
Cash Dividends Declared Per Common Share		0.30			0.28			7			0.88			0.84			5
Book Value – End of Period (EOP)		31.41			29.68			6			31.41			29.68			6
Market Price – EOP		46.42			34.98			33			46.42			34.98			33

RATIOS

Return on Average Common Equity		9.59	%		9.53	%					9.52	%		9.08	%
Return on Average Assets		0.77			0.72						0.74			0.70
Dividend Payout Ratio		41.1			40.0						41.5			43.5
Average Stockholders’ Equity to Average Assets		8.0			7.5						7.8			7.7


PERIOD END ($ In Millions)	September 30, 2012			December 31, 2011			% Change
Assets	$	93,632.5		$	100,223.7			(7	)%
Earning Assets		85,376.6			90,793.6			(6	)
Deposits		76,931.6			82,677.5			(7	)
Stockholders’ Equity		7,532.2			7,117.3			6

PERIOD END CLIENT ASSETS ($ In Billions)

Assets Under Custody	$	4,761.4		$	4,262.8			12	%
Assets Under Management		749.7			662.9			13

RATIOS

Tier 1 Capital to Risk-Weighted Assets – EOP		12.8	%		12.5	%
Total Capital to Risk-Weighted Assets – EOP		14.3			14.2
Tier 1 Leverage Ratio		8.1			7.3

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

THIRD QUARTER CONSOLIDATED RESULTS OF OPERATIONS

General

Northern Trust Corporation (the Corporation), together with its subsidiaries, is a leading provider of asset servicing, fund administration, asset management, fiduciary and banking solutions for corporations, institutions, families, and individuals worldwide. Northern Trust focuses on servicing and managing client assets through its two primary business units, Personal Financial Services (PFS) and Corporate & Institutional Services (C&IS). Asset management and related services are provided to PFS and C&IS clients primarily by a third business unit, Northern Trust Global Investments (NTGI). Northern Trust emphasizes quality through a high level of service complemented by the effective use of technology, delivered by a fourth business unit, Operations & Technology (O&T). Except where the context otherwise requires, the term “Northern Trust” refers to Northern Trust Corporation and its subsidiaries on a consolidated basis.

The following should be read in conjunction with the consolidated financial statements and related footnotes included in this report. Investors should also read the section entitled “Factors Affecting Future Results.”

Overview

Net income per common share on a diluted basis in the third quarter of 2012 was $0.73 compared to $0.70 per common share in the third quarter of 2011. Net income for the current quarter was $178.8 million compared to $170.4 million in the prior year quarter.

The performance in the current quarter produced an annualized return on average common equity of 9.6% compared to 9.5% in the prior year quarter. The annualized return on average assets was 0.8% in the current quarter and 0.7% in the prior year quarter.

Consolidated revenue of $972.5 million in the current quarter was up slightly from $971.5 million in the prior year quarter. Noninterest income, which represented 75% of revenue, increased $12.2 million, or 2%, to $726.9 million from the prior year quarter’s $714.7 million, primarily reflecting higher trust, investment and other servicing fees, partially offset by lower foreign exchange trading income.

Net interest income for the quarter decreased $11.2 million, or 4%, to $245.6 million compared to $256.8 million in the prior year quarter, due to a decline in the net interest margin.

Noninterest expense totaled $696.4 million in the current quarter compared to $701.2 million in the prior year quarter. The decrease of 1% primarily reflects a decrease in outside services, partially offset by an increase in equipment and software expense.

Noninterest Income

The components of noninterest income are provided below.


Noninterest Income	Three Months Ended September 30,
($ In Millions)	2012		2011			Change
Trust, Investment and Other Servicing Fees	$	601.9	$	555.3		$	46.6		8	%
Foreign Exchange Trading Income		44.0		87.2			(43.2	)	(49	)
Treasury Management Fees		16.3		17.8			(1.5	)	(9	)
Security Commissions and Trading Income		17.9		13.9			4.0		28
Other Operating Income		46.6		42.5			4.1		10
Investment Security Gains (Losses), net		0.2		(2.0	)		2.2		N/M

Total Noninterest Income	$	726.9	$	714.7		$	12.2		2	%

Trust, investment and other servicing fees are based generally on the market value of assets held in custody, managed and serviced; the volume of transactions; securities lending volume and spreads; and fees for other services rendered. Certain market value calculations on which fees are based are performed on a monthly or quarterly basis in arrears. Certain investment management fee arrangements also may provide for performance fees based on client portfolio returns that exceed predetermined levels. Based on an analysis of historical trends and current asset and product mix, management estimates that a 10% rise or fall in overall equity markets would cause a corresponding increase or decrease in Northern Trust’s trust, investment and other servicing fees of approximately 3% and in total revenues of approximately 2%.

The following tables present Northern Trust’s assets under custody and assets under management by business segment.


							Change			Change
Assets Under Custody	September 30,		June 30,		September 30,		Q3-12/			Q3-12/
($ In Billions)	2012		2012		2011		Q2-12			Q3-11
Corporate and Institutional	$	4,331.9	$	4,152.7	$	3,813.3		4	%		14	%
Personal		429.5		411.2		358.8		4			20

Total Assets Under Custody	$	4,761.4	$	4,563.9	$	4,172.1		4	%		14	%


							Change			Change
Assets Under Management	September 30,		June 30,		September 30,		Q3-12/			Q3-12/
($ In Billions)	2012		2012		2011		Q2-12			Q3-11
Corporate and Institutional	$	565.6	$	528.4	$	481.0		7	%		18	%
Personal		184.1		175.9		163.2		5			13

Total Assets Under Management	$	749.7	$	704.3	$	644.2		6	%		16	%

C&IS assets under custody totaled $4.3 trillion, up 14% from the prior year quarter, and included $2.7 trillion of global custody assets, 13% higher compared to the prior year quarter. C&IS assets under management included $97.9 billion of securities lending collateral, a 2% decrease from the prior year quarter. Changes in assets under custody and under management are in comparison to the twelve month increase in the S&P 500 index and EAFE index (USD) of 27% and 10%, respectively.

Noninterest Income (continued)

Custodied and managed assets at the current and prior year quarter ends were invested as follows:


	September 30, 2012									September 30, 2011
Assets Under Custody	C&IS			PFS			Consolidated			C&IS			PFS			Consolidated
Equities		44	%		47	%		44	%		43	%		42	%		43	%
Fixed Income Securities		36			25			36			38			29			37
Cash and Other Assets		20			28			20			19			29			20

	September 30, 2012									September 30, 2011
Assets Under Management	C&IS			PFS			Consolidated			C&IS			PFS			Consolidated
Equities		50	%		37	%		47	%		45	%		33	%		42	%
Fixed Income Securities		16			32			20			15			33			19
Cash and Other Assets		34			31			33			40			34			39

Trust, investment and other servicing fees in C&IS increased $23.5 million, or 8%, totaling $334.4 million compared to the prior year quarter’s $310.9 million.


C&IS Trust, Investment and Other Servicing Fees	Three Months Ended September 30,
($ In Millions)	2012		2011		Change
Custody and Fund Administration	$	214.4	$	205.6	$	8.8	4	%
Investment Management		73.2		64.6		8.6	13
Securities Lending		23.8		20.7		3.1	15
Other		23.0		20.0		3.0	15

Total	$	334.4	$	310.9	$	23.5	8	%

Custody and fund administration fees, the largest component of C&IS fees, increased 4%, primarily reflecting new business. C&IS investment management fees increased 13%, reflecting new business and lower waived fees in money market mutual funds. Money market mutual fund fee waivers, attributable to persistent low short-term interest rates, totaled $6.5 million in C&IS in the current quarter, compared with waived fees of $10.1 million in the prior year quarter. Securities lending revenue increased 15%, primarily reflecting higher spreads in the current quarter.

Trust, investment and other servicing fees in PFS totaled $267.5 million in the current quarter, increasing $23.1 million, or 9%, from $244.4 million in the prior year quarter. The increase in the current quarter primarily reflects new business and lower waived fees in money market mutual funds. Money market mutual fund fee waivers in PFS totaled $10.3 million in the current quarter compared with $19.0 million in the prior year quarter.

Foreign exchange trading income totaled $44.0 million, down $43.2 million, or 49%, compared with $87.2 million in the prior year quarter. The current quarter decrease is attributable to reduced currency market volatility and client volumes.

Noninterest Income (continued)

The components of other operating income are provided below.


Other Operating Income	Three Months Ended September 30,
($ In Millions)	2012		2011		Change
Loan Service Fees	$	16.7	$	16.5	$	0.2	1	%
Banking Service Fees		13.8		13.8		—	—
Other Income		16.1		12.2		3.9	32

Total Other Operating Income	$	46.6	$	42.5	$	4.1	10	%

The “other income” component of other operating income in the current quarter includes a $5.3 million gain on foreign exchange contracts related to hedges of certain investments in foreign currency denominated subsidiaries.

Net Interest Income

Net interest income for the quarter stated on a fully taxable equivalent (FTE) basis totaled $256.9 million, down $9.7 million, or 4%, from $266.6 million reported in the prior year quarter. The decrease is attributable to the current quarter’s lower net interest margin of 1.21%, down from 1.25% in the prior year quarter, partially offset by a $5.1 million adjustment in the current quarter relating to the amortization of premiums on certain investment securities. Excluding this adjustment, the net interest margin would have been 1.19%, primarily reflecting lower yields on earning assets, partially offset by a higher percentage of funding from noninterest-bearing sources. Average earning assets for the quarter were $84.5 billion compared to $84.4 billion in the prior year quarter. Net interest income is defined as the total of interest income and amortized fees on earning assets, less interest expense on deposits and borrowed funds, adjusted for the impact of interest-related hedging activity. Net interest income stated on an FTE basis is a non-GAAP financial measure that facilitates the analysis of asset yields. When adjusted to an FTE basis, yields on taxable, nontaxable, and partially taxable assets are comparable; however, the adjustment to an FTE basis has no impact on net income. A reconciliation of net interest income on a GAAP basis to net interest income on an FTE basis is provided on page 22.

Average Federal Reserve Deposits and Other Interest-Bearing assets totaled $6.1 billion for the current quarter compared to $10.8 billion for the prior year quarter, a decrease of $4.7 billion, or 43%.

Average investment securities, including Federal Reserve and Federal Home Loan Bank stock and certain affordable housing investments which are classified in other assets in the consolidated balance sheet, increased $2.3 billion, or 8%, to $29.9 billion in the current quarter, compared to $27.6 billion in the prior year quarter. Loans and leases averaged $29.0 billion, an increase of $576.9 million, or 2%, from $28.5 billion in the prior year quarter. The increase was primarily attributable to growth in commercial and institutional loans, partially offset by a decrease in residential real estate loans. Commercial and institutional loans averaged $7.4 billion in the current quarter, up $1.1 billion, or 17%, from the prior year quarter’s average of $6.3 billion. Residential real estate loans averaged $10.4 billion in the current quarter, down $412.9 million, or 4%, from the prior year quarter’s average of $10.9 billion.

Net Interest Income (continued)

Northern Trust utilizes a diverse mix of funding sources. Total interest-bearing deposits averaged $55.7 billion in the current quarter compared to $59.5 billion in the prior year quarter. The decrease of $3.8 billion, or 6%, was primarily within non-U.S. office interest-bearing deposits. Other interest-bearing funds averaged $6.4 billion in the quarter, a decrease of $1.1 billion, or 15%, as compared to $7.5 billion in the prior year quarter, primarily due to lower levels of short-term borrowings and of long-term debt. The balances within short-term borrowing classifications vary based on funding requirements and strategies, interest rate levels, changes in the volume of lower-cost deposit sources, and the availability of collateral to secure these borrowings. Average net noninterest-related funds utilized to fund earning assets increased $5.0 billion, or 28%, to $22.5 billion from $17.5 billion in the prior year quarter, resulting primarily from higher levels of U.S. office demand and other noninterest-bearing deposits.

For additional quantitative analysis of average balances and interest rate changes affecting net interest income, refer to the Average Consolidated Balance Sheet with Analysis of Net Interest Income and the Analysis of Net Interest Income Changes Due To Volume and Rate on pages 23 and 24.

Provision for Credit Losses

The provision for credit losses was $10.0 million in the current quarter and $17.5 million in the prior year quarter. Net charge-offs totaled $11.9 million for the current quarter resulting from $16.3 million of charge-offs and $4.4 million of recoveries, compared to $28.6 million of net charge-offs in the prior year quarter resulting from $34.9 million of charge-offs and $6.3 million of recoveries. Nonperforming loans and leases decreased $38.5 million, or 13%, from the prior year quarter. For additional discussion of the provision and allowance for credit losses, refer to the “Asset Quality” section below.

Noninterest Expense

The components of noninterest expense are provided below.


Noninterest Expense	Three Months Ended September 30,
($ In Millions)	2012		2011		Change
Compensation	$	315.7	$	311.1	$	4.6		2	%
Employee Benefits		61.3		66.7		(5.4	)	(8	)
Outside Services		126.6		139.7		(13.1	)	(9	)
Equipment and Software		86.0		76.3		9.7		13
Occupancy		43.8		45.4		(1.6	)	(4	)
Other Operating Expense		63.0		62.0		1.0		2

Total Noninterest Expense	$	696.4	$	701.2	$	(4.8	)	(1	)%

Noninterest expense decreased 1% in the current quarter, primarily reflecting a reduction in outside services, partially offset by higher equipment and software expense. The current quarter and prior year quarter include restructuring, acquisition, and integration related charges of $2.9 million and $4.2 million, respectively.

Noninterest Expense (continued)

Compensation expense, the largest component of noninterest expense, equaled $315.7 million, up 2% compared to $311.1 million in the prior year quarter, primarily reflecting higher performance-based compensation, as well as annual merit increases. Staff on a full-time equivalent basis at September 30, 2012 totaled approximately 14,200, up 1% from a year ago.

Employee benefit expense equaled $61.3 million, down $5.4 million, or 8%, compared to $66.7 million in the prior year quarter. The current quarter primarily reflects lower expense associated with retirement benefits.

Expense associated with outside services totaled $126.6 million, down $13.1 million, or 9%, from $139.7 million in the prior year quarter. The current quarter includes decreases within manager of manager advisory fees and sub-custodian expense, and within other categories of outside services expense.

Equipment and software expense totaled $86.0 million, an increase of $9.7 million, or 13%, from $76.3 million in the prior year quarter. The current quarter includes higher levels of software amortization and support costs associated with the continued investment in technology related assets.

The components of other operating expense are provided below.


Other Operating Expense	Three Months Ended September 30,
($ In Millions)	2012		2011		Change
Business Promotion	$	16.4	$	14.8	$	1.6		11	%
FDIC Insurance Premiums		5.7		8.8		(3.1	)	(35	)
Staff Related		10.9		9.1		1.8		20
Other Intangible Amortization		5.5		5.3		0.2		4
Other Expenses		24.5		24.0		0.5		2

Total Other Operating Expense	$	63.0	$	62.0	$	1.0		2	%

The change in FDIC insurance premium expense reflects a lower premium expense level as compared to the prior period as well as increased premium expense in the prior period in connection with a revised FDIC assessment methodology adopted in 2011.

Provision for Income Taxes

Income tax expense was $87.3 million in the current quarter, representing an effective tax rate of 32.8%, and $82.4 million in the prior year quarter, representing an effective tax rate of 32.6%.

BUSINESS UNIT REPORTING

The following tables reflect the earnings contributions and average assets of Northern Trust’s business units for the three and nine month periods ended September 30, 2012 and 2011. Business unit financial information, presented on an internal management-reporting basis, is determined by accounting systems that are used to allocate revenue and expense related to each segment and incorporates processes for allocating assets, liabilities, and equity, and the applicable interest income and expense.


Three Months Ended September 30,	Corporate and Institutional Services						Personal Financial Services						Treasury and Other						Total Consolidated
($ In Millions)	2012			2011			2012			2011			2012			2011			2012			2011
Noninterest Income
Trust, Investment and Other Servicing Fees	$	334.4		$	310.9		$	267.5		$	244.4		$	—		$	—		$	601.9		$	555.3
Other		91.5			125.0			26.0			30.7			7.5			3.7			125.0			159.4
Net Interest Income (FTE)*		68.0			71.2			157.4			157.1			31.5			38.3			256.9			266.6

Revenue*		493.9			507.1			450.9			432.2			39.0			42.0			983.8			981.3
Provision for Credit Losses		(1.6	)		(1.9	)		11.6			19.4			—			—			10.0			17.5
Noninterest Expense		394.5			375.8			285.2			300.6			16.7			24.8			696.4			701.2

Income before Income Taxes*		101.0			133.2			154.1			112.2			22.3			17.2			277.4			262.6
Provision for Income Taxes*		32.7			50.3			58.1			44.5			7.8			(2.6	)		98.6			92.2

Net Income	$	68.3		$	82.9		$	96.0		$	67.7		$	14.5		$	19.8		$	178.8		$	170.4

Percentage of Consolidated Net Income		38	%		49	%		54	%		40	%		8	%		11	%		100	%		100	%
Average Assets	$	50,638.6		$	49,755.5		$	23,530.7		$	23,809.5		$	18,540.6		$	20,464.7		$	92,709.9		$	94,029.7

*	Stated on a fully taxable equivalent basis (FTE). Total consolidated includes FTE adjustments of $11.3 million for 2012 and $9.8 million for 2011.



Nine Months Ended September 30,	Corporate and Institutional Services						Personal Financial Services						Treasury and Other						Total Consolidated
($ In Millions)	2012			2011			2012			2011			2012			2011			2012			2011
Noninterest Income
Trust, Investment and Other Servicing Fees	$	989.8		$	890.7		$	793.1		$	737.3		$	—		$	—		$	1,782.9		$	1,628.0
Other		301.2			373.8			80.1			94.9			6.1			(19.7	)		387.4			449.0
Net Interest Income (FTE)*		217.0			199.1			476.9			456.6			93.6			112.4			787.5			768.1

Revenue*		1,508.0			1,463.6			1,350.1			1,288.8			99.7			92.7			2,957.8			2,845.1
Provision for Credit Losses		(1.6	)		(18.8	)		21.6			61.3			—			—			20.0			42.5
Noninterest Expense		1,190.0			1,096.2			878.4			893.3			68.9			70.0			2,137.3			2,059.5

Income before Income Taxes*		319.6			386.2			450.1			334.2			30.8			22.7			800.5			743.1
Provision for Income Taxes*		102.1			147.4			170.2			132.7			8.6			(10.4	)		280.9			269.7

Net Income	$	217.5		$	238.8		$	279.9		$	201.5		$	22.2		$	33.1		$	519.6		$	473.4

Percentage of Consolidated Net Income		42	%		50	%		54	%		43	%		4	%		7	%		100	%		100	%
Average Assets	$	49,642.8		$	47,079.8		$	23,527.6		$	23,696.1		$	20,243.2		$	19,148.3		$	93,413.6		$	89,924.2

*	Stated on a fully taxable equivalent basis (FTE). Total consolidated includes FTE adjustments of $31.4 million for 2012 and $30.8 million for 2011.

Corporate and Institutional Services

C&IS net income for the quarter was $68.3 million, compared with $82.9 million in the prior year quarter, a decrease of $14.6 million, or 18%.


C&IS Trust, Investment and Other Servicing Fees	Three Months Ended September 30,
($ In Millions)	2012		2011		Change
Custody and Fund Administration	$	214.4	$	205.6	$	8.8	4	%
Investment Management		73.2		64.6		8.6	13
Securities Lending		23.8		20.7		3.1	15
Other		23.0		20.0		3.0	15

Total	$	334.4	$	310.9	$	23.5	8	%

Custody and fund administration fees, the largest component of C&IS fees, increased 4%, primarily reflecting new business. Investment management fees increased 13%, reflecting new business and lower waived fees in money market mutual funds. Money market mutual fund fee waivers in C&IS totaled $6.5 million in the current quarter compared with $10.1 million in the prior year quarter. Securities lending revenue increased 15%, primarily reflecting higher spreads in the current quarter.

Other noninterest income totaled $91.5 million in the current quarter, a decrease of $33.5 million, or 27%, from $125.0 million in the prior year quarter. The decrease primarily reflects lower foreign exchange trading income, attributable to reduced currency market volatility and client volumes.

Net interest income stated on an FTE basis was $68.0 million, down 4% from $71.2 million in the prior year quarter, primarily reflecting a decrease in the net interest margin. The net interest margin equaled 0.62% compared with 0.76% reported in the prior year quarter. The lower net interest margin is primarily due to lower yields on earning assets, partially offset by a reduction of borrowing rates as a result of the low interest rate environment. Earning assets averaged $43.9 billion for the quarter, an increase of $2.0 billion, or 5%, from $41.9 billion the prior year quarter. Earning assets were primarily comprised of interest-bearing deposits with banks and loans and leases. Funding sources were primarily comprised of non-U.S. custody related interest-bearing deposits.

A provision for credit losses of negative $1.6 million was recorded in the current quarter, compared with a provision of negative $1.9 million in the prior year quarter.

Total C&IS noninterest expense, which includes the direct expense of the business unit, indirect expense allocations from NTGI and O&T for product and operating support, and indirect expense allocations for certain corporate support services, totaled $394.5 million compared with $375.8 million for the prior year quarter, an increase of $18.7 million, or 5%. The increase primarily reflects higher indirect expense allocations in the current quarter, including a $6.1 million partial allocation of a software write-off initially recorded in the prior quarter in the Treasury and Other business unit, as well as higher full-time equivalent staff levels.

Personal Financial Services

PFS net income for the current quarter was $96.0 million compared to $67.7 million reported in the prior year quarter, an increase of $28.3 million, or 42%. Noninterest income was $293.5 million, up $18.4 million, or 7%, from $275.1 million in the prior year quarter. Trust, investment and other servicing fees totaled $267.5 million in the current quarter, increasing $23.1 million, or 9%, from $244.4 million in the prior year quarter. The increase in trust, investment and other servicing fees primarily reflects new business and lower waived fees in money market mutual funds. PFS waived fees in money market mutual funds, attributable to low short-term interest rates, totaled $10.3 million in the current quarter compared with $19.0 million in the prior year quarter. Other noninterest income totaled $26.0 million, down 15% from $30.7 million in the prior year quarter, reflecting lower banking and credit related service fees in the current quarter.

Net interest income stated on an FTE basis was $157.4 million in the current quarter, up slightly compared to $157.1 million in the prior year quarter. The net interest margin was 2.71% in the current quarter compared to 2.69% in the prior year quarter. The higher net interest margin is primarily due to higher internal yields received from the Treasury & Other business unit on certain deposit products, partially offset by lower yields on loans and leases.

A provision for credit losses of $11.6 million was recorded in the current quarter, compared to $19.4 million in the prior year quarter.

Total PFS noninterest expense, which includes the direct expense of the business unit, indirect expense allocations from NTGI and O&T for product and operating support, and indirect expense allocations for certain corporate support services, totaled $285.2 million compared with $300.6 million in the prior year quarter, a decrease of $15.4 million, or 5%. The decrease primarily reflects lower full-time equivalent staff levels, lower performance-based compensation, and reduced other miscellaneous expense, partially offset by a $3.5 million partial allocation of a software write-off initially recorded in the prior quarter in the Treasury and Other business unit.

Treasury and Other

Treasury and Other includes income and expense associated with the wholesale funding activities and the investment portfolios of the Corporation and its principal subsidiary, The Northern Trust Company (Bank), and certain corporate-based expense, executive level compensation, and nonrecurring items not allocated to the business units. Other noninterest income in the current quarter totaled $7.5 million, compared with $3.7 million in the prior year quarter. The current quarter includes the $5.3 million gain related to hedges of certain investments in foreign currency denominated subsidiaries. Net interest income in the current quarter was $31.5 million, compared to $38.3 million in the prior year quarter, a decrease of $6.8 million, or 18%. The decrease primarily reflects reductions of internal yields on funds provided to business units attributable to the low interest rate environment, partially offset by the $5.1 million adjustment in the current quarter relating to the amortization of premiums on certain investment securities. Average assets decreased $1.9 billion, or 9%, to $18.5 billion in the current quarter.

Treasury and Other (continued)

Noninterest expense for the quarter totaled $16.7 million compared with $24.8 million in the prior year quarter, a decrease of $8.1 million, or 33%, primarily reflecting a $9.6 million allocation during the current quarter of a $10.5 million prior quarter software write-off to C&IS and PFS.

NINE-MONTH CONSOLIDATED RESULTS OF OPERATIONS

Net income per common share of $2.12 was reported for the nine months ended September 30, 2012, compared with net income per common share of $1.93 reported in the comparable prior year period. The current period’s net income of $519.6 million compares to $473.4 million in the prior year period. Net income in the current and prior year periods include restructuring, acquisition, and integration related charges totaling $10.4 million ($6.8 million after tax, or $0.03 per common share) and $30.6 million ($25.0 million after tax, or $0.10 per common share), respectively. Net income in the prior year period also included a benefit of $10.1 million ($6.4 million after tax, or $0.03 per common share) that was recorded in connection with the reduction of a liability related to potential losses from indemnified litigation involving Visa, Inc. (Visa).

The performance in the current period produced an annualized return on average common equity of 9.5% compared to 9.1% in the prior year period. The annualized return on average assets was 0.7% in the current and prior year period.

Revenue for the nine months ended September 30, 2012 totaled $2.93 billion, up $112.1 million, or 4%, from the prior year period’s $2.81 billion. Trust, investment and other servicing fees were $1.78 billion for the period, an increase of $154.9 million, or 10%, as compared with $1.63 billion in the prior year period, partly due to acquisitions completed in June and July of 2011. Trust, investment and other servicing fees for the current period represented 61% of total revenue, and noninterest income in total represented 74% of total revenue.

Noninterest Income

The components of consolidated noninterest income are provided below.


Noninterest Income	Nine Months Ended September 30,
($ In Millions)	2012			2011			Change
Trust, Investment and Other Servicing Fees	$	1,782.9		$	1,628.0		$	154.9		10	%
Foreign Exchange Trading Income		165.3			252.8			(87.5	)	(35	)
Treasury Management Fees		51.0			55.1			(4.1	)	(7	)
Security Commissions and Trading Income		53.6			44.8			8.8		20
Other Operating Income		119.2			120.4			(1.2	)	(1	)
Investment Security Gains (Losses), net		(1.7	)		(24.1	)		22.4		(93	)

Total Noninterest Income	$	2,170.3		$	2,077.0		$	93.3		4	%

Noninterest Income (continued)

Trust, investment and other servicing fees in C&IS increased $99.1 million, or 11%, and totaled $989.8 million compared to $890.7 million in the prior year period.


C&IS Trust, Investment and Other Servicing Fees	Nine Months Ended September 30,
($ In Millions)	2012		2011		Change
Custody and Fund Administration	$	639.2	$	564.5	$	74.7	13	%
Investment Management		206.8		201.6		5.2	3
Securities Lending		76.0		68.6		7.4	11
Other		67.8		56.0		11.8	21

Total	$	989.8	$	890.7	$	99.1	11	%

Custody and fund administration fees, the largest component of C&IS fees, increased 13% in the current period, primarily reflecting revenue attributable to the 2011 acquisitions and other new business, partially offset by the negative impact of equity markets on fees. C&IS investment management fees increased 3%, reflecting new business, partially offset by higher waived fees in money market mutual funds. Money market fee waivers, attributable to the low short-term interest rates, totaled $24.1 million for C&IS in the current period, compared with $22.0 million in the prior year period. Securities lending revenue increased 11%, reflecting higher spreads in the current year period. C&IS “other” trust, investment and servicing fees increased 21%, primarily reflecting higher income attributable to investment risk and analytical services.

Trust, investment and other servicing fees in PFS increased $55.8 million, or 8%, to $793.1 million compared with $737.3 million a year ago. The increase in PFS fees resulted primarily from new business and revised fee structures. Waived fees in money market mutual funds, attributable to the low short-term interest rates, totaled $35.1 million in the current period compared with $46.4 million in the prior year period.

Foreign exchange trading income decreased $87.5 million, or 35%, and totaled $165.3 million in the period compared with $252.8 million in the prior year period. The decrease reflects reduced currency market volatility and client volumes as compared with the prior year nine-month period.

The components of other operating income are presented below.


Other Operating Income	Nine Months Ended September 30,
($ In Millions)	2012		2011		Change
Loan Service Fees	$	48.3	$	48.8	$	(0.5	)	(1	)%
Banking Service Fees		41.4		41.9		(0.5	)	(1	)
Other Income		29.5		29.7		(0.2	)	(1	)

Total Other Operating Income	$	119.2	$	120.4	$	(1.2	)	(1	)%

The “other” component of other operating income in the current period includes the $5.3 million hedge related gain, while the prior year period included a gain on the sale of a leasing asset.

Noninterest Income (continued)

Net investment security losses in the current period totaled $1.7 million compared to $24.1 million in the prior year period. Net investment security losses in the current period include $3.3 million of credit-related other-than-temporary impairment of residential mortgage backed securities and auction rate securities. Net investment security losses in the prior year period included $23.3 million of credit-related other-than-temporary impairment of residential mortgage backed securities.

Net Interest Income

Net interest income, stated on an FTE basis, totaled $787.5 million, an increase of $19.4 million, or 3%, from $768.1 million reported in the prior year period. The increase primarily reflects higher average earning assets and lower rates paid on non-U.S. office interest-bearing deposits, as well as a lower percentage of funding from interest-bearing sources. The net interest margin on an FTE basis was 1.24% for the current period, down from 1.26% in the prior year period, primarily due to lower yields across categories of earning assets, partially offset by lower rates paid on interest-bearing deposits and the $5.1 million premium amortization adjustment in the current period. Total average earning assets of $84.6 billion were $3.4 billion, or 4%, higher than a year ago, chiefly due to increased demand deposits, which were invested primarily in investment securities and interest-bearing deposits with banks.

Provision for Credit Losses

The provision for credit losses was $20.0 million for the current nine-month period compared to $42.5 million in the comparable 2011 period. Net charge-offs totaled $20.9 million in the current year period resulting from charge-offs of $46.9 million and recoveries of $26.0 million, compared to net charge-offs of $65.2 million in the prior year period resulting from charge-offs of $87.5 million and recoveries of $22.3 million. For a fuller discussion of the consolidated allowance and provision for credit losses refer to the “Asset Quality” section below.

Noninterest Expense

Noninterest expense totaled $2.14 billion for the period, up $77.8 million, or 4%, from the prior year period’s $2.06 billion. The current period and prior year period include pre-tax restructuring, acquisition, and integration related charges of $10.4 million and $30.6 million, respectively. The prior year period also includes the $10.1 million benefit from the reduction of a Visa related indemnification liability. Excluding these current and prior year period items, noninterest expense increased by $87.9 million, primarily reflecting higher equipment and software expense and the full period impact of operating costs attributable to the acquisitions completed in 2011.

Noninterest Expense (continued)

The components of noninterest expense are provided below.


Noninterest Expense	Nine Months Ended September 30,
($ In Millions)	2012		2011			Change
Compensation	$	951.1	$	925.3		$	25.8		3	%
Employee Benefits		194.3		188.7			5.6		3
Outside Services		388.5		398.6			(10.1	)	(3	)
Equipment and Software		276.2		232.8			43.4		19
Occupancy		128.2		131.3			(3.1	)	(2	)
Visa Indemnification Benefit		—		(10.1	)		10.1		N/M
Other Operating Expense		199.0		192.9			6.1		3

Total Noninterest Expense	$	2,137.3	$	2,059.5		$	77.8		4	%

Compensation expense in the prior year nine-month period included severance related restructuring charges of $21.6 million. Excluding the prior year severance related charges, compensation expense in the current period increased $47.4 million, or 5%, primarily reflecting higher full-time equivalent staff levels, the majority of which are attributable to the acquisitions completed in June and July of 2011, as well as annual merit increases and higher performance-based compensation.

The increase in employee benefit expense reflects the reversal in the prior year period of a $9.7 million employee benefit related accrual for which the 2010 goal was not met, partially offset by lower expense associated with retirement benefits in the current period.

Outside services expense decreased $10.1 million, or 3%, from the prior year period, primarily reflecting decreases within manager of manager advisory fees and consulting fees, partially offset by higher expense associated with technical services, including services attributable to the acquisitions completed in 2011.

Equipment and software expense in the current period includes software write-offs of $15.1 million and higher levels of software amortization and support costs from the continued investment in technology related assets.

The components of other operating expense are provided below.


Other Operating Expense	Nine Months Ended September 30,
($ In Millions)	2012		2011		Change
Business Promotion	$	65.1	$	63.2	$	1.9		3	%
FDIC Insurance Premiums		17.2		22.5		(5.3	)	(24	)
Staff Related		28.1		26.6		1.5		6
Other Intangible Amortization		15.8		11.5		4.3		37
Other Expenses		72.8		69.1		3.7		5

Total Other Operating Expense	$	199.0	$	192.9	$	6.1		3	%

FDIC insurance premiums decreased 24%, primarily attributable to changes in the FDIC’s assessment methodology in 2011 as well as a lower premium level in the current period. Other intangible amortization in the current year period increased 37% and includes expense associated with intangible assets acquired in 2011.

Provision for Income Taxes

Total income tax expense was $249.5 million for the nine months ended September 30, 2012, representing an effective tax rate of 32.4%. This compares with $238.9 million of income tax expense and an effective tax rate of 33.5% in the prior year period. The prior year period included increased deferred tax reserves as a result of an Illinois corporate income tax rate increase enacted in January 2011.

BALANCE SHEET

Total assets at September 30, 2012 were $93.6 billion and averaged $92.7 billion for the current quarter, compared with total assets of $96.1 billion at September 30, 2011 and average total assets of $94.0 billion in the prior year third quarter. Average balances are considered to be a better measure of balance sheet trends as period-end balances can be impacted on a short term basis by deposit and withdrawal activity involving large balances of short-term client funds. Loans and leases totaled $29.5 billion at September 30, 2012 and averaged $29.0 billion in the current quarter as compared to $28.7 billion at September 30, 2011 and a $28.5 billion average in the prior year quarter. Securities, including Federal Reserve and Federal Home Loan Bank stock and certain affordable housing investments which are classified in other assets in the consolidated balance sheet, totaled $29.7 billion at September 30, 2012 and averaged $29.9 billion for the quarter, up 1% and up 8%, respectively, compared with $29.5 billion at September 30, 2011 and $27.6 billion on average in the prior year quarter. Federal funds sold and securities purchased under agreements to resell, interest-bearing deposits with banks, and Federal Reserve Deposits and Other Interest-Bearing assets in aggregate totaled $26.1 billion at September 30, 2012 and averaged $25.6 billion in the current quarter, up 2% and down 10%, respectively, from the prior year quarter. Interest-bearing deposits at September 30, 2012 totaled $55.6 billion and averaged $55.7 billion, compared to $55.7 billion at September 30, 2011 and a $59.5 billion average in the prior year quarter. Noninterest-bearing deposits at September 30, 2012 totaled $21.4 billion and averaged $20.2 billion, compared to $22.9 billion at September 30, 2011 and a $16.9 billion average in the prior year quarter.

Total stockholders’ equity averaged $7.4 billion, up $327.4 million, or 5%, from the prior year quarter’s average of $7.1 billion. The increase primarily reflects earnings, partially offset by dividend declarations and the repurchase of common stock pursuant to the Corporation’s share buyback program. During the nine months ended September 30, 2012, the Corporation repurchased 2,196,327 shares at a cost of $100.0 million ($45.54 average price per share). Under the Corporation’s capital plan, which was reviewed without objection by the Federal Reserve in March of 2012, the Corporation may repurchase up to $140 million of common stock after September 30, 2012 through March of 2013. The Corporation is authorized to purchase up to 8.1 million additional shares after September 30, 2012.

BALANCE SHEET (continued)

Northern Trust’s risk-based capital ratios remained strong at September 30, 2012 and exceeded the minimum regulatory requirements established by U.S. banking regulators of 4% for tier 1 capital, 8% for total capital (risk-based), and 3% for leverage (tier 1 capital to period average assets). The Corporation and the Bank each had capital ratios at September 30, 2012 that were above the level required for classification as a “well capitalized” institution. Shown below are the capital ratios of the Corporation and the Bank as of September 30, 2012 and December 31, 2011.


	September 30, 2012									December 31, 2011
	Tier 1 Capital			Total Capital			Leverage Ratio			Tier 1 Capital			Total Capital			Leverage Ratio
Northern Trust Corporation		12.8	%		14.3	%		8.1	%		12.5	%		14.2	%		7.3	%
The Northern Trust Company		11.8	%		13.8	%		7.5	%		11.7	%		13.8	%		6.8	%

The following table provides the Corporation’s ratios of tier 1 capital and tier 1 common equity to risk-weighted assets, as well as a reconciliation of tier 1 capital calculated in accordance with applicable regulatory requirements and GAAP to tier 1 common equity.


($ In Millions)	September 30, 2012			December 31, 2011
Ratios
Tier 1 Capital		12.8	%		12.5	%
Tier 1 Common Equity		12.3	%		12.1	%
Tier 1 Capital	$	7,425.5		$	7,104.6

Less: Floating Rate Capital Securities		268.7			268.6

Tier 1 Common Equity	$	7,156.8		$	6,836.0

Northern Trust is providing the tier 1 common equity ratio, a non-GAAP financial measure, in addition to its capital ratios prepared in accordance with regulatory requirements and GAAP as it is a measure that Northern Trust and investors use to assess capital adequacy.

ASSET QUALITY

Securities Portfolio

Northern Trust maintains a high quality securities portfolio, with 91% of the combined available for sale, held to maturity, and trading account portfolios at September 30, 2012 composed of U.S. Treasury and government sponsored agency securities and triple-A rated corporate notes, asset-backed securities, covered bonds, supranational bonds, auction rate securities and obligations of states and political subdivisions. The remaining 9% of the portfolio was composed of corporate notes, asset-backed securities, negotiable certificates of deposit, obligations of states and political subdivisions, supranational bonds, auction rate securities and other securities, of which as a percentage of the total securities portfolio, 4% was rated double-A, 1% was rated below double-A, and 4% was not rated by Standard and Poor’s or Moody’s Investors Service (primarily negotiable certificates of deposits of banks whose long term ratings are at least A).

ASSET QUALITY (continued)

Total gross unrealized losses within the investment securities portfolio at September 30, 2012 were $31.8 million as compared to $85.0 million at December 31, 2011. Of the total gross unrealized losses on securities at September 30, 2012, $13.3 million relate to non-agency residential mortgage-backed securities. Non-agency residential mortgage-backed securities rated below double-A at September 30, 2012 represented 94% of the total fair value of non-agency residential mortgage-backed securities, were comprised primarily of sub-prime and Alt-A securities, and had a total amortized cost and fair value of $120.7 million and $109.0 million, respectively.

Northern Trust has evaluated non-agency residential mortgage-backed securities, and all other securities with unrealized losses, for possible other-than-temporary impairment in accordance with GAAP and Northern Trust's security impairment review policy. Credit related losses recognized in earnings on other-than-temporarily impaired securities totaled $148.6 thousand and $3.3 million, respectively, for the three and nine months ended September 30, 2012, and $1.3 million and $23.3 million, respectively, for the three and nine months ended September 30, 2011.

Northern Trust is a participant in the repurchase agreement market. This market is one of several alternatives used by Northern Trust to obtain short-term funding. Securities purchased under agreements to resell and securities sold under agreements to repurchase are accounted for as collateralized financings and recorded at the amounts at which the securities were acquired or sold plus accrued interest. To minimize potential credit risk associated with these transactions, the fair value of the securities purchased or sold is monitored, limits are set on exposure with counterparties, and the financial condition of counterparties is regularly assessed. It is Northern Trust’s policy to take possession of securities purchased under agreements to resell. Securities sold under agreements to repurchase are held by the counterparty until the repurchase.

Eurozone Exposure

Northern Trust continues to closely monitor developments related to the European debt crisis. Northern Trust considers Ireland, Portugal, Italy, Greece and Spain to be those eurozone countries experiencing significant economic, fiscal and/or political strains. As of September 30, 2012, Northern Trust’s gross exposure to obligors in Ireland totaled approximately $474 million, less than 1% of Northern Trust’s total consolidated assets, and there was no exposure to obligors in Portugal, Italy, Greece, or Spain. There was no exposure to sovereign debt securities as of September 30, 2012. Of the total exposure to obligors in Ireland, $5 million was to banks and $469 million was to commercial and other borrowers, primarily funds domiciled in Ireland whose assets and investment activities are broadly diversified by investment strategy, issuer type, country of risk, and/or instrument type. Exposures to these borrowers in Ireland may be secured or unsecured, committed or uncommitted, but are typically for short periods of a year or less for foreign exchange, overdraft accommodations, and loans. Exposure levels at September 30, 2012 reflect Northern Trust’s risk management policies and practices, which operate to limit exposures to higher risk European financial and sovereign entities.

ASSET QUALITY (continued)

Nonperforming Loans and Other Real Estate Owned

Nonperforming assets consist of nonperforming loans and Other Real Estate Owned (OREO). OREO is comprised of commercial and residential properties acquired in partial or total satisfaction of loans.

The following table provides the amounts of nonperforming loans, by segment and class, and of OREO that were outstanding at the dates shown, as well as the balance of loans that were delinquent 90 days or more and still accruing interest. The balance of loans delinquent 90 days or more and still accruing interest can fluctuate widely based on the timing of cash collections, renegotiations and renewals.


($ In Millions)	September 30, 2012			June 30, 2012			December 31, 2011			September 30, 2011
Nonperforming Loans and Leases
Commercial
Commercial and Institutional	$	29.9		$	32.9		$	31.3		$	35.5
Commercial Real Estate		59.7			41.1			79.5			84.0

Total Commercial		89.6			74.0			110.8			119.5

Personal
Residential Real Estate		176.6			163.1			177.6			181.9
Private Client		2.8			2.7			5.3			6.1

Total Personal		179.4			165.8			182.9			188.0

Total Nonperforming Loans and Leases		269.0			239.8			293.7			307.5
Other Real Estate Owned		20.6			25.3			21.2			30.4

Total Nonperforming Assets	$	289.6		$	265.1		$	314.9		$	337.9

90 Day Past Due Loans Still Accruing	$	32.2		$	31.6		$	13.1		$	12.4

Nonperforming Loans and Leases to Total Loans and Leases		0.91	%		0.81	%		1.01	%		1.07	%

Coverage of Loan and Lease Allowance to Nonperforming Loans and Leases		1.1x			1.3x			1.0x			1.0x

Maintaining a low level of nonperforming assets is important to the ongoing success of a financial institution. In addition to the negative impact on both net interest income and credit losses, nonperforming assets also increase operating costs due to the expense associated with collection efforts. The duration and severity of the economic downturn which began in 2008, together with its impact on equity and real estate values, had a negative effect on Northern Trust’s credit portfolio and resulted in increases from prior historical levels of credits downgraded to nonperforming, primarily in the residential real estate and commercial real estate loan classes, and of OREO properties. The $24.5 million increase in nonperforming assets during the current quarter primarily reflects the addition of commercial real estate and residential real estate loans to nonperforming status.

Importantly, Northern Trust focuses its lending efforts on clients who are looking to utilize a full range of financial services with Northern Trust. Northern Trust’s underwriting standards do not allow for the origination of loan types generally considered to be of high risk in nature, such as option ARM loans, subprime loans, loans with initial “teaser” rates, and loans with excessively high loan-to-value ratios. Residential real estate loans consist of conventional home mortgages and equity credit lines, which generally require a loan to collateral value of no more than 65% to 80% at inception. Revaluations of supporting

ASSET QUALITY (continued)

collateral are obtained upon refinancing or default or when otherwise considered warranted. Collateral revaluations for mortgages are performed by independent third parties. The commercial real estate portfolio consists of commercial mortgages and construction, acquisition and development loans extended primarily to highly experienced developers and/or investors well known to Northern Trust. Underwriting standards generally reflect conservative loan-to-value ratios and debt service coverage requirements. Recourse to borrowers through guarantees is also commonly required.

Provision and Allowance for Credit Losses

The provision for credit losses is the charge to current earnings that is determined by management, through a disciplined credit review process, to be the amount needed to maintain the allowance for credit losses at an appropriate level to absorb probable credit losses that have been identified with specific borrower relationships (specific loss component) and probable losses that are believed to be inherent in the loan and lease portfolios, unfunded commitments, and standby letters of credit (inherent loss component). Control processes and analyses employed to evaluate the appropriateness of the allowance for credit losses are reviewed on at least an annual basis and modified as considered necessary.

The amount of specific allowance is determined through an individual evaluation of loans and lending-related commitments considered impaired that is based on expected future cash flows, the value of collateral, and other factors that may impact the borrower’s ability to pay. Changes in collateral values, delinquency ratios, portfolio volume and concentration, and other asset quality metrics, including management’s subjective evaluation of economic and business conditions, result in adjustments of qualitative allowance factors that are applied in the determination of inherent allowance requirements.

A $10.0 million provision for credit losses was recorded in the current quarter and a $17.5 million provision was recorded in the prior year quarter. The current quarter provision reflects continued weakness within the residential real estate and commercial real estate loan classes. Net charge-offs totaled $11.9 million for the current quarter resulting from $16.3 million of charge-offs and $4.4 million of recoveries, compared to $28.6 million of net charge-offs in the prior year quarter resulting from $34.9 million of charge-offs and $6.3 million of recoveries. Nonperforming loans and leases decreased $38.5 million, or 13%, from the prior year quarter.

Note 6 to the consolidated financial statements includes a table that details the changes in the allowance for credit losses during the three and nine months ended September 30, 2012 and 2011 due to charge-offs, recoveries, and the provision for credit losses.

ASSET QUALITY (continued)

The following table shows the specific portion of the allowance and the inherent portion of the allowance and its components, each by loan and lease segment and class.


	September 30, 2012						June 30, 2012						December 31, 2011						September 30, 2011
($ In Millions)	Allowance Amount			Percent of Loans to Total Loans			Allowance Amount			Percent of Loans to Total Loans			Allowance Amount			Percent of Loans to Total Loans			Allowance Amount			Percent of Loans to Total Loans
Specific Allowance	$	36.6			—	%	$	30.9			—	%	$	47.3			—	%	$	49.3			—	%
Allocated Inherent Allowance
Commercial
Commercial and Institutional		80.8			25			85.8			24			90.0			24			93.7			22
Commercial Real Estate		83.6			10			82.8			10			77.1			10			77.7			10
Lease Financing, net		3.4			3			3.4			3			1.8			3			1.3			4
Non-U.S.		4.0			4			4.1			4			4.7			4			4.7			5
Other		—			2			—			3			—			1			—			2

Total Commercial		171.8			44			176.1			44			173.6			42			177.4			43

Personal
Residential Real Estate		104.7			35			107.1			36			92.0			37			92.6			37
Private Client		14.9			20			15.8			19			16.0			20			15.3			19
Other		—			1			—			1			—			1			—			1

Total Personal		119.6			56			122.9			56			108.0			58			107.9			57

Total Allocated Inherent Allowance	$	291.4			100	%	$	299.0			100	%	$	281.6			100	%	$	285.3			100	%

Total Allowance for Credit Losses		328.0						329.9						328.9						334.6

Allowance Assigned to
Loans and Leases	$	298.6					$	300.3					$	294.8					$	298.3
Unfunded Commitments and Standby Letters of Credit		29.4						29.6						34.1						36.3

Total Allowance for Credit Losses	$	328.0					$	329.9					$	328.9					$	334.6

Allowance Assigned to Loans and Leases to Total Loans and Leases		1.01	%					1.01	%					1.01	%					1.04	%

MARKET RISK MANAGEMENT

As described in the 2011 Annual Report to Shareholders, Northern Trust manages its interest rate risk through two primary measurement techniques: simulation of earnings and simulation of economic value of equity. Also, as part of its risk management activities, it regularly measures the risk of loss associated with foreign currency positions using a Value-at-Risk (VaR) model.

Based on this continuing evaluation process, Northern Trust’s interest rate risk position, as measured by current market implied forward interest rates and sensitivity analyses, and the VaR associated with the foreign exchange trading portfolio, have not changed significantly since December 31, 2011.

RECONCILIATION OF REPORTED NET INTEREST INCOME TO FULLY TAXABLE EQUIVALENT

The tables below present a reconciliation of interest income and net interest income prepared in accordance with GAAP to interest income and net interest income on a fully taxable equivalent (FTE) basis, a non-GAAP financial measure. Management believes an FTE presentation provides a clearer indication of net interest margins for comparative purposes.


	Three Months Ended
	September 30, 2012								September 30, 2011
($ In Millions)	Reported			FTE Adj.		FTE			Reported			FTE Adj.		FTE
Interest Income	$	323.1		$	11.3	$	334.4		$	347.1		$	9.8	$	356.9
Interest Expense		77.5			—		77.5			90.3			—		90.3

Net Interest Income	$	245.6		$	11.3	$	256.9		$	256.8		$	9.8	$	266.6

Net Interest Margin		1.16	%				1.21	%		1.21	%				1.25	%


	Nine Months Ended
	September 30, 2012								September 30, 2011
($ In Millions)	Reported			FTE Adj.		FTE			Reported			FTE Adj.		FTE
Interest Income	$	985.6		$	31.4	$	1,017.0		$	1,053.8		$	30.8	$	1,084.6
Interest Expense		229.5			—		229.5			316.5			—		316.5

Net Interest Income	$	756.1		$	31.4	$	787.5		$	737.3		$	30.8	$	768.1

Net Interest Margin		1.19	%				1.24	%		1.21	%				1.26	%

The following schedule should be read in conjunction with the Net Interest Income section of Management’s Discussion and Analysis of Financial Condition and Results of Operations.


AVERAGE CONSOLIDATED BALANCE SHEET		NORTHERN TRUST CORPORATION
WITH ANALYSIS OF NET INTEREST INCOME

(INTEREST AND RATE ON A FULLY TAXABLE

EQUIVALENT BASIS)


	Third Quarter
	2012								2011
($ In Millions)	Interest		Average Balance			Rate ⁽³⁾			Interest		Average Balance			Rate ⁽³⁾
Average Earning Assets
Federal Funds Sold and Securities Purchased under Agreements to Resell	$	0.1	$	285.6			0.19	%	$	0.1	$	273.4			0.07	%
Interest-Bearing Deposits with Banks		44.8		19,215.4			0.93			49.3		17,234.8			1.13
Federal Reserve Deposits and Other Interest-Bearing		4.0		6,113.7			0.26			7.1		10,808.5			0.26
Securities
U.S. Government		4.7		1,786.4			1.04			6.3		1,747.7			1.44
Obligations of States and Political Subdivisions		6.4		398.4			6.44			9.9		588.8			6.70
Government Sponsored Agency		34.7		18,694.1			0.74			26.5		14,910.6			0.71
Other (1)		31.3		8,986.2			1.38			26.7		10,395.5			1.02

Total Securities		77.1		29,865.1			1.03			69.4		27,642.6			1.00

Loans and Leases (2)		208.4		29,046.0			2.85			231.0		28,469.1			3.22

Total Earning Assets		334.4		84,525.8			1.57			356.9		84,428.4			1.68

Allowance for Credit Losses Assigned to Loans and Leases		—		(297.8	)		—			—		(300.9	)		—
Cash and Due from Banks		—		3,446.6			—			—		4,127.5			—
Buildings and Equipment		—		461.7			—			—		498.6			—
Client Security Settlement Receivables		—		434.7			—			—		406.7			—
Goodwill		—		534.8			—			—		504.7			—
Other Assets		—		3,604.1			—			—		4,364.7			—

Total Assets	$	—	$	92,709.9			—	%	$	—	$	94,029.7			—	%


Average Source of Funds
Deposits
Savings and Money Market	$	4.5	$	13,687.1			0.13	%	$	5.5	$	14,137.3			0.16	%
Savings Certificates and Other Time		5.2		3,083.6			0.67			6.7		3,625.3			0.74
Non-U.S. Offices - Interest-Bearing		34.1		38,896.8			0.35			37.9		41,688.4			0.36

Total Interest-Bearing Deposits		43.8		55,667.5			0.31			50.1		59,451.0			0.33
Short-Term Borrowings		1.4		2,200.7			0.26			1.7		3,003.8			0.22
Senior Notes		18.6		2,439.6			3.04			16.3		2,015.3			3.21
Long-Term Debt		13.0		1,452.9			3.55			21.6		2,179.8			3.92
Floating Rate Capital Debt		0.7		277.0			1.03			0.6		276.9			0.83

Total Interest-Related Funds		77.5		62,037.7			0.50			90.3		66,926.8			0.54

Interest Rate Spread		—		—			1.07			—		—			1.14
Demand and Other Noninterest-Bearing Deposits		—		20,235.8			—			—		16,851.3			—
Other Liabilities		—		3,014.5			—			—		3,157.1			—
Stockholders’ Equity		—		7,421.9			—			—		7,094.5			—

Total Liabilities and Stockholders’ Equity	$	—	$	92,709.9			—	%	$	—	$	94,029.7			—	%

Net Interest Income/Margin (FTE Adjusted)	$	256.9	$	—			1.21	%	$	266.6	$	—			1.25	%

Net Interest Income/Margin (Unadjusted)	$	245.6	$	—			1.16	%	$	256.8	$	—			1.21	%

ANALYSIS OF NET INTEREST INCOME CHANGES

DUE TO VOLUME AND RATE

Three Months 2012/2011

Change Due To

(In Millions)

Average
Balance

Rate

Total

Earning Assets (FTE)

12.8

(35.3

)

(22.5

)

Interest-Related Funds

(7.3

)

(5.5

)

(12.8

)

Net Interest Income (FTE)

20.1

(29.8

)

(9.7

)

(1)	Other securities include Federal Reserve and Federal Home Loan Bank stock and certain affordable housing investments which are classified in other assets in the consolidated balance sheet as of September 30, 2012 and 2011.

(2)	Average balances include nonaccrual loans. Lease financing receivable balances are reduced by deferred income.

(3)	Rate calculations are based on actual balances rather than the rounded amounts presented in the Average Consolidated Balance Sheet with Analysis of Net Interest Income.

Notes:

Net Interest Income (FTE Adjusted) includes adjustments to a fully taxable equivalent basis for loans and securities. Such adjustments are based on a blended federal and state tax rate of 37.7%. Total taxable equivalent interest adjustments amounted to $11.3 million and $9.8 million for the three months ended September 30, 2012 and 2011, respectively.

Interest revenue on cash collateral positions is reported above within interest-bearing deposits with banks and within loans and leases. Interest expense on cash collateral positions is reported above within non-U.S. offices interest-bearing deposits. Related cash collateral received from and deposited with derivative counterparties is recorded net of the associated derivative contract within other assets and other liabilities, respectively.

The following schedule should be read in conjunction with the Net Interest Income section of Management’s

Discussion and Analysis of Financial Condition and Results of Operations.


AVERAGE CONSOLIDATED BALANCE SHEET		NORTHERN TRUST CORPORATION
WITH ANALYSIS OF NET INTEREST INCOME

(INTEREST AND RATE ON A FULLY TAXABLE

EQUIVALENT BASIS)


	Nine Months
	2012								2011
($ In Millions)	Interest		Average Balance			Rate ⁽³⁾			Interest		Average Balance			Rate ⁽³⁾
Average Earning Assets
Federal Funds Sold and Securities Purchased under Agreements to Resell	$	0.3	$	264.3			0.16	%	$	0.2	$	265.8			0.09	%
Interest-Bearing Deposits with Banks		138.8		18,751.9			0.99			131.4		16,543.7			1.06
Federal Reserve Deposits and Other Interest-Bearing		11.2		5,815.2			0.26			23.1		11,526.2			0.27
Securities
U.S. Government		19.1		2,432.0			1.05			15.4		1,243.7			1.65
Obligations of States and Political Subdivisions		21.5		437.7			6.54			31.0		621.9			6.65
Government Sponsored Agency		93.0		18,159.9			0.68			73.5		13,448.4			0.73
Other (1)		98.6		9,831.3			1.34			86.8		9,376.6			1.24

Total Securities		232.2		30,860.9			1.00			206.7		24,690.6			1.12

Loans and Leases (2)		634.5		28,906.9			2.93			723.2		28,200.8			3.43

Total Earning Assets		1,017.0		84,599.2			1.61			1,084.6		81,227.1			1.79

Allowance for Credit Losses Assigned to Loans and Leases		—		(296.3	)		—			—		(309.4	)		—
Cash and Due from Banks		—		3,768.8			—			—		3,809.5			—
Buildings and Equipment		—		474.3			—			—		500.9			—
Client Security Settlement Receivables		—		447.9			—			—		415.1			—
Goodwill		—		534.6			—			—		442.8			—
Other Assets		—		3,885.1			—			—		3,838.2			—

Total Assets	$	—	$	93,413.6			—	%	$	—	$	89,924.2			—	%


Average Source of Funds
Deposits
Savings and Money Market	$	14.7	$	14,128.2			0.14	%	$	20.9	$	14,088.2			0.20	%
Savings Certificates and Other Time		15.5		3,084.4			0.67			22.1		3,713.7			0.80
Non-U.S. Offices - Interest-Bearing		92.7		38,105.9			0.32			144.0		39,797.9			0.48

Total Interest-Bearing Deposits		122.9		55,318.5			0.30			187.0		57,599.8			0.43
Short-Term Borrowings		4.7		3,526.6			0.18			6.7		5,075.0			0.18
Senior Notes		52.4		2,228.9			3.14			47.7		1,933.9			3.30
Long-Term Debt		47.3		1,704.8			3.71			73.3		2,551.4			3.85
Floating Rate Capital Debt		2.2		277.0			1.07			1.8		276.9			0.85

Total Interest-Related Funds		229.5		63,055.8			0.49			316.5		67,437.0			0.63

Interest Rate Spread		—		—			1.12			—		—			1.16
Demand and Other Noninterest-Bearing Deposits		—		19,809.2			—			—		12,565.2			—
Other Liabilities		—		3,255.5			—			—		2,953.1			—
Stockholders’ Equity		—		7,293.1			—			—		6,968.9			—

Total Liabilities and Stockholders’ Equity	$	—	$	93,413.6			—	%	$	—	$	89,924.2			—	%

Net Interest Income/Margin (FTE Adjusted)	$	787.5	$	—			1.24	%	$	768.1	$	—			1.26	%

Net Interest Income/Margin (Unadjusted)	$	756.1	$	—			1.19	%	$	737.3	$	—			1.21	%

ANALYSIS OF NET INTEREST INCOME CHANGES

DUE TO VOLUME AND RATE

Nine Months 2012/2011

Change Due To

(In Millions)

Average
Balance

Rate

Total

Earning Assets (FTE)

75.8

(143.4

)

(67.6

)

Interest-Related Funds

(26.5

)

(60.5

)

(87.0

)

Net Interest Income (FTE)

102.3

(82.9

)

19.4

(1)	Other securities include Federal Reserve and Federal Home Loan Bank stock and certain affordable housing investments which are classified in other assets in the consolidated balance sheet as of September 30, 2012 and 2011.

(2)	Average balances include nonaccrual loans. Lease financing receivable balances are reduced by deferred income.

(3)	Rate calculations are based on actual balances rather than the rounded amounts presented in the Average Consolidated Balance Sheet with Analysis of Net Interest Income.

Notes:

Net Interest Income (FTE Adjusted) includes adjustments to a fully taxable equivalent basis for loans and securities. Such adjustments are based on a blended federal and state tax rate of 37.7%. Total taxable equivalent interest adjustments amounted to $31.4 million and $30.8 million for the nine months ended September 30, 2012 and 2011, respectively.

FACTORS AFFECTING FUTURE RESULTS

This report contains statements that may be considered forward-looking, such as the statements relating to Northern Trust’s financial goals, capital adequacy, dividend policy, expansion and business development plans, risk management policies, anticipated expense levels and projected profit improvements, business prospects and positioning with respect to market, demographic and pricing trends, strategic initiatives, reengineering and outsourcing activities, new business results and outlook, changes in securities market prices, credit quality including allowance levels, planned capital expenditures and technology spending, anticipated tax benefits and expenses, and the effects of any extraordinary events and various other matters (including developments with respect to litigation, other contingent liabilities and obligations, and regulation involving Northern Trust and changes in accounting policies, standards and interpretations) on Northern Trust’s business and results.

Forward-looking statements are typically identified by words or phrases such as “believe”, “expect”, “anticipate”, “intend”, “estimate”, “may increase”, “may fluctuate”, “plan”, “goal”, “target”, “strategy”, and similar expressions or future or conditional verbs such as “may”, “will”, “should”, “would”, and “could.” Forward-looking statements are Northern Trust’s current estimates or expectations of future events or future results. Actual results could differ materially from the results indicated by these statements because the realization of those results is subject to many risks and uncertainties including: the health of the U.S. and international economies and particularly the continuing uncertainty in Europe; the recent downgrade of U.S. Government issued securities; the health and soundness of the financial institutions and other counterparties with which Northern Trust conducts business; changes in financial markets, including debt and equity markets, that impact the value, liquidity, or credit ratings of financial assets in general, or financial assets in particular investment funds, client portfolios, or securities lending collateral pools, including those funds, portfolios, collateral pools, and other financial assets with respect to which Northern Trust has taken, or may in the future take, actions to provide asset value stability or additional liquidity; the impact of the recent disruption and stress in the financial markets, the effectiveness of governmental actions taken in response, and the effect of such governmental actions on Northern Trust, its competitors and counterparties, financial markets generally and availability of credit specifically, and the U.S. and international economies, including special deposit assessments or potentially higher FDIC premiums; changes in foreign exchange trading client volumes, fluctuations and volatility in foreign currency exchange rates, and Northern Trust’s success in assessing and mitigating the risks arising from such changes, fluctuations and volatility; decline in the value of securities held in Northern Trust’s investment portfolio, particularly asset-backed securities, the liquidity and pricing of which may be negatively impacted by periods of economic turmoil and financial market disruptions; uncertainties inherent in the complex and subjective judgments required to assess credit risk and establish appropriate allowances therefor; difficulties in measuring, or determining whether there is other-than-temporary impairment in, the value of securities held in Northern Trust’s investment portfolio; Northern Trust’s success in managing various risks inherent in its business, including credit risk, operational risk, interest rate risk and liquidity risk, particularly during times of economic uncertainty and volatility in the credit and other markets; geopolitical risks and the risks of extraordinary events such as natural disasters, terrorist events, war and the U.S. and other governments’ responses to those events; the pace and extent of

FACTORS AFFECTING FUTURE RESULTS (continued)

continued globalization of investment activity and growth in worldwide financial assets; regulatory and monetary policy developments; failure to obtain regulatory approvals when required, including for the use and distribution of capital; changes in tax laws, accounting requirements or interpretations and other legislation in the U.S. or other countries that could affect Northern Trust or its clients, including changes in accounting rules for fair value measurements and recognizing impairments; changes in the nature and activities of Northern Trust’s competition, including increased consolidation within the financial services industry; Northern Trust’s success in maintaining existing business and continuing to generate new business in its existing markets; Northern Trust’s success in identifying and penetrating targeted markets, through acquisition, strategic alliance or otherwise; Northern Trust’s success in integrating acquisitions and strategic alliances; Northern Trust’s success in addressing the complex needs of a global client base across multiple time zones and from multiple locations, and managing compliance with legal, tax, regulatory and other requirements in areas of faster growth in its businesses, especially in immature markets; Northern Trust’s ability to maintain a product mix that achieves acceptable margins; Northern Trust’s ability to continue to generate investment results that satisfy its clients and continue to develop its array of investment products; Northern Trust’s success in generating revenues in its securities lending business for itself and its clients, especially in periods of economic and financial market uncertainty; Northern Trust’s success in recruiting and retaining the necessary personnel to support business growth and expansion and maintain sufficient expertise to support increasingly complex products and services; Northern Trust’s success in implementing its revenue enhancement and expense management initiatives; Northern Trust’s ability, as products, methods of delivery, and client requirements change or become more complex, to continue to fund and accomplish innovation, improve risk management practices and controls, and address operating risks, including human errors or omissions, data security breach risks, pricing or valuation of securities, fraud, systems performance or defects, systems interruptions, and breakdowns in processes or internal controls; Northern Trust’s success in controlling expenses, particularly in a difficult economic environment; uncertainties inherent in Northern Trust’s assumptions concerning its pension plan, including discount rates and expected contributions, returns and payouts; increased costs of compliance and other risks associated with changes in regulation and the current regulatory environment, including the requirements of the Basel II capital regime and the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), areas of increased regulatory emphasis and oversight in the U.S. and other countries such as anti-money laundering, anti-bribery, and client privacy and the potential for substantial changes in the legal, regulatory and enforcement framework and oversight applicable to financial institutions in reaction to recent adverse financial market events, including changes pursuant to the Dodd-Frank Act that may, among other things, affect the leverage limits and risk-based capital and liquidity requirements for certain financial institutions, including Northern Trust, require those financial institutions to pay higher assessments, expose them to certain liabilities of their subsidiary depository institutions, and restrict or increase the regulation of certain activities, including foreign exchange, carried on by financial institutions, including Northern Trust; risks that evolving regulations, such as Basel II, and potential legislation and regulations, including Basel III and regulations that may be promulgated under the Dodd-Frank Act, could affect required

FACTORS AFFECTING FUTURE RESULTS (continued)

regulatory capital for financial institutions, including Northern Trust, potentially resulting in changes to the cost and composition of capital for Northern Trust; risks and uncertainties inherent in the litigation and regulatory process, including the adequacy of contingent liability, tax, and other accruals; and the risk of events that could harm Northern Trust’s reputation and so undermine the confidence of clients, counterparties, rating agencies, and stockholders.

Some of these and other risks and uncertainties that may affect future results are discussed in more detail in the section of “Management’s Discussion and Analysis of Financial Condition and Results of Operations” captioned “Risk Management” in the 2011 Annual Report to Shareholders (pages 49-61), in the section of the “Notes to Consolidated Financial Statements” in the 2011 Annual Report to Shareholders captioned “Note 25 – Contingent Liabilities” (pages 111 and 112), in the sections of “Item 1 – Business” of the 2011 Annual Report on Form 10-K captioned “Government Monetary and Fiscal Policies,” “Competition” and “Regulation and Supervision” (pages 3-14), and in “Item 1A – Risk Factors” of the 2011 Annual Report on Form 10-K (pages 28-37). All forward-looking statements included in this report are based upon information presently available, and Northern Trust assumes no obligation to update any forward-looking statements.

FINANCIAL STATEMENTS

CONSOLIDATED BALANCE SHEET

NORTHERN TRUST CORPORATION


	September 30,			December 31,
($ In Millions Except Share Information)	2012			2011
Assets		(Unaudited	)
Cash and Due from Banks	$	3,396.7		$	4,315.3
Federal Funds Sold and Securities Purchased under Agreements to Resell		573.4			121.3
Interest-Bearing Deposits with Banks		19,347.8			16,696.4
Federal Reserve Deposits and Other Interest-Bearing		6,230.5			13,448.6
Securities
Available for Sale		28,136.1			30,192.5
Held to Maturity (Fair value of $1,064.2 and $817.1)		1,048.0			799.2
Trading Account		5.2			8.0

Total Securities		29,189.3			30,999.7

Loans and Leases
Commercial		12,999.6			12,354.3
Personal		16,543.1			16,709.6

Total Loans and Leases (Net of unearned income of $302.2 and $374.1)		29,542.7			29,063.9

Allowance for Credit Losses Assigned to Loans and Leases		(298.6	)		(294.8	)
Buildings and Equipment		453.7			494.5
Client Security Settlement Receivables		1,078.2			778.3
Goodwill		538.0			532.0
Other Assets		3,580.8			4,068.5

Total Assets	$	93,632.5		$	100,223.7

Liabilities
Deposits
Demand and Other Noninterest-Bearing	$	18,226.5		$	22,792.0
Savings and Money Market		13,481.6			17,470.8
Savings Certificates and Other Time		3,011.0			3,058.3
Non U.S. Offices – Noninterest-Bearing		3,136.4			3,488.4
– Interest-Bearing		39,076.1			35,868.0

Total Deposits		76,931.6			82,677.5
Federal Funds Purchased		573.7			815.3
Securities Sold Under Agreements to Repurchase		382.6			1,198.8
Other Borrowings		442.7			931.5
Senior Notes		2,610.3			2,126.7
Long-Term Debt		1,428.4			2,133.3
Floating Rate Capital Debt		277.0			276.9
Other Liabilities		3,454.0			2,946.4

Total Liabilities		86,100.3			93,106.4

Stockholders’ Equity
Common Stock, $1.66 2/3 Par Value; Authorized 560,000,000 shares; Outstanding shares of 239,799,129 and 241,008,509		408.6			408.6
Additional Paid-In Capital		1,004.8			977.5
Retained Earnings		6,607.9			6,302.3
Accumulated Other Comprehensive Loss		(215.9	)		(345.6	)
Treasury Stock (5,372,395 and 4,163,015 shares, at cost)		(273.2	)		(225.5	)

Total Stockholders’ Equity		7,532.2			7,117.3

Total Liabilities and Stockholders’ Equity	$	93,632.5		$	100,223.7

See accompanying notes to the consolidated financial statements.


CONSOLIDATED STATEMENT OF INCOME		NORTHERN TRUST CORPORATION
(UNAUDITED)


	Three Months					Nine Months
	Ended September 30,					Ended September 30,
($ In Millions Except Per Common Share Information)	2012		2011			2012			2011
Noninterest Income
Trust, Investment and Other Servicing Fees	$	601.9	$	555.3		$	1,782.9		$	1,628.0
Foreign Exchange Trading Income		44.0		87.2			165.3			252.8
Treasury Management Fees		16.3		17.8			51.0			55.1
Security Commissions and Trading Income		17.9		13.9			53.6			44.8
Other Operating Income		46.6		42.5			119.2			120.4
Investment Security Gains (Losses), net (1)		0.2		(2.0	)		(1.7	)		(24.1	)

Total Noninterest Income		726.9		714.7			2,170.3			2,077.0

Net Interest Income
Interest Income		323.1		347.1			985.6			1,053.8
Interest Expense		77.5		90.3			229.5			316.5

Net Interest Income		245.6		256.8			756.1			737.3
Provision for Credit Losses		10.0		17.5			20.0			42.5

Net Interest Income after Provision for Credit Losses		235.6		239.3			736.1			694.8

Noninterest Expense
Compensation		315.7		311.1			951.1			925.3
Employee Benefits		61.3		66.7			194.3			188.7
Outside Services		126.6		139.7			388.5			398.6
Equipment and Software		86.0		76.3			276.2			232.8
Occupancy		43.8		45.4			128.2			131.3
Visa Indemnification Benefit		—		—			—			(10.1	)
Other Operating Expense		63.0		62.0			199.0			192.9

Total Noninterest Expense		696.4		701.2			2,137.3			2,059.5

Income before Income Taxes		266.1		252.8			769.1			712.3
Provision for Income Taxes		87.3		82.4			249.5			238.9

Net Income	$	178.8	$	170.4		$	519.6		$	473.4

Net Income Applicable to Common Stock	$	178.8	$	170.4		$	519.6		$	473.4

Per Common Share
Net Income – Basic	$	0.73	$	0.70		$	2.13		$	1.94
– Diluted		0.73		0.70			2.12			1.93

Average Number of Common Shares Outstanding – Basic		240,237,014		240,991,491			240,740,803			241,529,793
– Diluted		240,697,062		241,193,993			241,205,186			242,018,750


CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME		NORTHERN TRUST CORPORATION
(UNAUDITED)


	Three Months						Nine Months
	Ended September 30,						Ended September 30,
(In Millions)	2012			2011			2012			2011
Net Income	$	178.8		$	170.4		$	519.6		$	473.4
Other Comprehensive Income (Net of Tax and Reclassifications)
Net Unrealized Gains on Securities Available for Sale		35.6			21.4			67.3			55.2
Net Unrealized Gains (Losses) on Cash Flow Hedges		3.1			(16.6	)		5.5			(9.6	)
Foreign Currency Translation Adjustments		14.2			1.2			24.1			10.6
Pension and Other Postretirement Benefit Adjustments		5.3			4.8			32.8			16.6

Other Comprehensive Income		58.2			10.8			129.7			72.8

Comprehensive Income	$	237.0		$	181.2		$	649.3		$	546.2


(1) Changes in Other-Than-Temporary-Impairment (OTTI) Losses	$	0.4		$	0.5		$	(2.7	)	$	(1.1	)
Noncredit-related OTTI Losses Recorded in/(Reclassified from) OCI		(0.6	)		(1.8	)		(0.6	)		(22.2	)
Other Security Gains (Losses), net		0.4			(0.7	)		1.6			(0.8	)

Investment Security Gains (Losses), net	$	0.2		$	(2.0	)	$	(1.7	)	$	(24.1	)

See accompanying notes to the consolidated financial statements.

CONSOLIDATED STATEMENT OF CHANGES IN

STOCKHOLDERS’ EQUITY

(UNAUDITED)

NORTHERN TRUST CORPORATION


	Nine Months Ended September 30,
(In Millions)	2012			2011
Common Stock
Balance at January 1 and September 30	$	408.6		$	408.6

Additional Paid-in Capital
Balance at January 1		977.5			920.0
Treasury Stock Transactions – Stock Options and Awards		(32.2	)		(11.9	)
Stock Options and Awards – Amortization		58.2			55.4
Stock Options and Awards – Tax Benefits		1.3			(0.6	)

Balance at September 30		1,004.8			962.9

Retained Earnings
Balance at January 1		6,302.3			5,972.1
Net Income		519.6			473.4
Dividends Declared – Common Stock		(214.0	)		(205.2	)

Balance at September 30		6,607.9			6,240.3

Accumulated Other Comprehensive Income (Loss)
Balance at January 1		(345.6	)		(305.3	)
Net Unrealized Gains on Securities Available for Sale		67.3			55.2
Net Unrealized Gains (Losses) on Cash Flow Hedges		5.5			(9.6	)
Foreign Currency Translation Adjustments		24.1			10.6
Pension and Other Postretirement Benefit Adjustments		32.8			16.6

Balance at September 30		(215.9	)		(232.5	)

Treasury Stock
Balance at January 1		(225.5	)		(165.1	)
Stock Options and Awards		52.3			16.7
Stock Purchased		(100.0	)		(78.1	)

Balance at September 30		(273.2	)		(226.5	)

Total Stockholders’ Equity at September 30	$	7,532.2		$	7,152.8

See accompanying notes to the consolidated financial statements.

CONSOLIDATED STATEMENT OF CASH FLOWS

(UNAUDITED)

NORTHERN TRUST CORPORATION


	Nine Months Ended September 30,
(In Millions)	2012			2011
Cash Flows from Operating Activities:
Net Income	$	519.6		$	473.4
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:
Investment Security (Gains) Losses, net		1.7			24.1
Amortization and Accretion of Securities and Unearned Income		(37.7	)		(19.2	)
Provision for Credit Losses		20.0			42.5
Depreciation on Buildings and Equipment		66.2			67.7
Amortization of Computer Software		134.2			117.4
Amortization of Intangibles		15.0			11.5
Qualified Pension Plan Contribution		(12.3	)		(10.6	)
Visa Indemnification Benefit		—			(10.1	)
(Increase) Decrease in Receivables		(35.6	)		104.5
Increase (Decrease) in Interest Payable		1.2			1.6
Net Change in Derivative Investments (Gains) Losses, net		(85.4	)		(1,204.2	)
Other Operating Activities, net		204.3			264.4

Net Cash Provided by (Used in) Operating Activities		791.2			(137.0	)

Cash Flows from Investing Activities:
Net Increase in Federal Funds Sold and Securities Purchased under Agreements to Resell