Edgar Filing: NORTHERN TRUST CORP

Document

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, 2016



¨	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. 001-36609

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):



Large accelerated filer	x	Accelerated filer	¨

Non-accelerated filer	¨ (Do not check if a smaller reporting company)	Smaller reporting company	¨

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

226,431,104 Shares – $1.66 2/3 Par Value

(Shares of Common Stock Outstanding on September 30, 2016)

Table of Contents

NORTHERN TRUST CORPORATION

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2016

TABLE OF CONTENTS




	Page
Consolidated Financial Highlights (unaudited)	1

Part I – Financial Information
Items 2 and 3: Management’s Discussion and Analysis of Financial Condition and Results of Operations and Quantitative and Qualitative Disclosures About Market Risk	3
Item 1: Consolidated Financial Statements (unaudited)	31
Consolidated Balance Sheets	31
Consolidated Statements of Income	32
Consolidated Statements of Comprehensive Income	32
Consolidated Statements of Changes in Stockholders’ Equity	33
Consolidated Statements of Cash Flows	34
Notes to Consolidated Financial Statements	35
Item 4: Controls and Procedures	80

Part II – Other Information
Item 1: Legal Proceedings	81
Item 2: Unregistered Sales of Equity Securities and Use of Proceeds	81
Item 6: Exhibits	81

Signatures	82

Table of Contents

CONSOLIDATED FINANCIAL HIGHLIGHTS

(UNAUDITED)



	Three Months Ended September 30,								Nine Months Ended September 30,
CONDENSED INCOME STATEMENTS (In Millions)	2016			2015			% Change ⁽¹⁾		2016 ^			2015			% Change ⁽¹⁾
Noninterest Income	$	910.6		$	886.6		3	%	$	2,809.8		$	2,765.2		2	%
Net Interest Income	303.1			268.9			13		910.6			780.7			17
Provision for Credit Losses	(3.0		)	(10.0		)	(70	)	(4.0		)	(24.5		)	(84	)
Noninterest Expense	843.0			812.3			4		2,596.8			2,455.8			6
Income before Income Taxes	373.7			353.2			6		1,127.6			1,114.6			1
Provision for Income Taxes	116.1			118.6			(2	)	361.6			380.1			(5	)
Net Income	$	257.6		$	234.6		10	%	$	766.0		$	734.5		4	%



PER COMMON SHARE
Net Income — Basic	$	1.09	$	0.97	12	%	$	3.23	$	3.03	7	%
— Diluted	1.08		0.96		13		3.21		3.00		7
Cash Dividends Declared Per Common Share	0.38		0.36		6		1.10		1.05		5
Book Value — End of Period (EOP)	38.41		36.31		6		38.41		36.31		6
Market Price — EOP	67.99		68.16		—		67.99		68.16		—



SELECTED BALANCE SHEET DATA (In Millions)
	September 30, 2016		December 31, 2015		% Change ⁽¹⁾
End of Period:
Assets	$	120,085.0	$	116,749.6	3	%
Earning Assets	111,765.6		106,848.9		5
Deposits	99,471.3		96,868.9		3
Stockholders’ Equity	9,579.8		8,705.9		10



	Three Months Ended September 30,						Nine Months Ended September 30,
	2016		2015		% Change ⁽¹⁾		2016		2015		% Change ⁽¹⁾
Average Balances:
Assets	$	116,382.5	$	109,924.1	6	%	$	114,909.9	$	109,718.3	5	%
Earning Assets	107,843.8		100,809.2		7		106,363.7		101,110.5		5
Deposits	93,773.9		91,027.0		3		93,287.9		89,979.2		4
Stockholders’ Equity	9,230.6		8,710.5		6		8,906.0		8,597.9		4



CLIENT ASSETS (In Billions)	September 30, 2016		December 31, 2015		% Change ⁽¹⁾
Assets Under Custody/Administration ⁽²⁾	$	8,495.7	$	7,797.0	9	%
Assets Under Custody	6,706.8		6,072.1		10
Assets Under Management	945.8		875.3		8


⁽¹⁾	Percentage calculations are based on actual balances rather than the rounded amounts presented in the Consolidated Financial Highlights.


⁽²⁾	For the purposes of disclosing Assets Under Custody/Administration, to the extent that both custody and administration services are provided, the value of the assets is included only once.

^{(^)}

The nine months ended September 30, 2016 results have been adjusted to reflect the early adoption of ASU No. 2016-09, “Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting” (ASU No. 2016-09). Please refer to Note 2, “Recent Accounting Pronouncements,” of the Notes to Consolidated Financial Statements for further discussion on the impact to the Corporation’s previously reported quarterly results.

Table of Contents

SELECTED RATIOS AND METRICS



	Three Months Ended September 30,				Nine Months Ended September 30,
	2016		2015		2016 ^		2015
Financial Ratios:
Return on Average Common Equity	11.71	%	10.91	%	11.87	%	11.68	%
Return on Average Assets	0.88		0.85		0.89		0.90
Dividend Payout Ratio	35.2		37.5		34.3		35.0
Net Interest Margin ⁽¹⁾	1.14		1.08		1.17		1.06



	September 30, 2016				December 31, 2015
	Advanced Approach		Standardized Approach		Advanced Approach		Standardized Approach
Capital Ratios:
Northern Trust Corporation
Common Equity Tier 1	11.8	%	11.2	%	11.9	%	10.8	%
Tier 1	13.1		12.3		12.5		11.4
Total	14.5		14.0		14.2		13.2
Tier 1 Leverage	7.9		7.9		7.5		7.5
Supplementary Leverage ⁽²⁾	6.6		N/A		6.2		N/A

The Northern Trust Company
Common Equity Tier 1	12.0	%	11.1	%	11.6	%	10.4	%
Tier 1	12.0		11.1		11.6		10.4
Total	13.6		12.9		13.1		12.0
Tier 1 Leverage	7.0		7.0		6.7		6.7
Supplementary Leverage ⁽²⁾	5.9		N/A		5.6		N/A


⁽¹⁾	Net interest margin is presented on a fully taxable equivalent (FTE) basis, a non-generally accepted accounting principle (GAAP) financial measure that facilitates the analysis of asset yields. The net interest margin on a GAAP basis and a reconciliation of net interest income on a GAAP basis to net interest income on an FTE basis are presented on page 28.


⁽²⁾	Effective January 1, 2018, Northern Trust will be subject to a minimum supplementary leverage ratio of 3 percent.


^{(^)}	The nine months ended September 30, 2016 results have been adjusted to reflect the early adoption of ASU No. 2016-09. Please refer to Note 2, “Recent Accounting Pronouncements,” of the Notes to Consolidated Financial Statements for further discussion on the impact to the Corporation’s previously reported quarterly results.

Table of Contents

PART I – FINANCIAL INFORMATION

Items 2. and 3. Management’s Discussion and Analysis of Financial Condition and Results of Operations and Quantitative and Qualitative Disclosures about Market Risk

THIRD QUARTER CONSOLIDATED RESULTS OF OPERATIONS

General

Northern Trust Corporation (the Corporation) is a financial holding company that is a leading provider of asset servicing, fund administration, asset management, fiduciary and banking solutions for corporations, institutions, families and individuals worldwide. The Corporation focuses on managing and servicing client assets through its two client-focused reporting segments: Corporate & Institutional Services (C&IS) and Wealth Management. Asset management and related services are provided to C&IS and Wealth Management clients primarily by the Asset Management business. Except where the context requires otherwise, the term “Northern Trust,” “we,” “us,” “our” or similar terms mean the 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 also should read the section entitled “Forward-Looking Statements.”

Overview

Net income per diluted common share was $1.08 in the current quarter, up from $0.96 in the third quarter of 2015. Net income was $257.6 million in the current quarter as compared to $234.6 million in the prior-year quarter. Annualized return on average common equity in the current quarter was 11.7%, up from 10.9% in the prior-year quarter. The annualized return on average assets was 0.9% as compared to 0.8% in the prior-year quarter.

Revenue of $1.21 billion was up $58.2 million, or 5%, from $1.16 billion in the prior-year quarter, primarily reflecting higher trust, investment and other servicing fees and net interest income, partially offset by lower foreign exchange trading income and other operating income. Noninterest income increased $24.0 million, or 3%, to $910.6 million from $886.6 million in the prior-year quarter.

Net interest income increased 13% to $303.1 million in the current quarter as compared to $268.9 million in the prior-year quarter, due to a higher net interest margin and growth in earning assets.

The provision for credit losses was a credit of $3.0 million in the current quarter, as compared to a credit provision of $10.0 million in the prior-year quarter.

Noninterest expense totaled $843.0 million, up $30.7 million, or 4%, from $812.3 million in the prior-year quarter, primarily attributable to higher compensation, other operating expense, and employee benefits.

The components of noninterest income are provided below.

Table 1: Noninterest Income



Noninterest Income	Three Months Ended September 30,
($ In Millions)	2016		2015		Change
Trust, Investment and Other Servicing Fees	$	788.3	$	749.1	$	39.2		5	%
Foreign Exchange Trading Income	53.6		62.9		(9.3		)	(15	)
Treasury Management Fees	15.0		16.1		(1.1		)	(6	)
Security Commissions and Trading Income	20.4		20.4		—			1
Other Operating Income	33.1		38.1		(5.0		)	(14	)
Investment Security Gains (Losses), net	0.2		—		0.2			N/M
Total Noninterest Income	$	910.6	$	886.6	$	24.0		3	%

Trust, investment and other servicing fees are based primarily on: the market value of assets held in custody, managed or serviced; the volume of transactions; securities lending volume and spreads; and fees for other services rendered. Certain market-value-based fees are calculated on asset values that are a month or quarter in arrears. For a further discussion of trust, investment and other servicing fees and how they are derived, refer to the “Reporting Segments” section.

Table of Contents

THIRD QUARTER CONSOLIDATED RESULTS OF OPERATIONS (continued)

Noninterest Income (continued)

Assets under custody/administration (AUC/A) and assets under management form the primary drivers of our trust, investment and other servicing fees. For the purposes of disclosing AUC/A, to the extent that both custody and administration services are provided, the value of the assets is included only once. At September 30, 2016, AUC/A were $8.50 trillion, up $379.9 billion, or 5%, from $8.12 trillion at June 30, 2016.

The following table presents Northern Trust’s assets under custody, a component of AUC/A, by reporting segment.

Table 2: Assets Under Custody



Assets Under Custody	September 30, 2016		June 30, 2016		September 30, 2015		Change Q3-16/Q2-16		Change Q3-16/Q3-15
($ In Billions)	September 30, 2016		June 30, 2016		September 30, 2015		Change Q3-16/Q2-16		Change Q3-16/Q3-15
Corporate & Institutional	$	6,173.6	$	5,838.6	$	5,460.6	6	%	13	%
Wealth Management	533.2		514.2		495.8		4		8
Total Assets Under Custody	$	6,706.8	$	6,352.8	$	5,956.4	6	%	13	%

The following table presents the allocation of Northern Trust’s custodied assets by reporting segment.

Table 3: Allocations of Assets Under Custody



	September 30, 2016						June 30, 2016						September 30, 2015
Assets Under Custody	C&IS		WM		Total		C&IS		WM		Total		C&IS		WM		Total
Equities	43	%	55	%	44	%	42	%	54	%	43	%	43	%	53	%	44	%
Fixed Income	39		23		38		40		24		39		38		24		37
Cash and Other Assets	18		22		18		18		22		18		19		23		19

The 13% increase in consolidated assets under custody from $5.96 trillion as of September 30, 2015 to $6.71 trillion as of September 30, 2016 primarily reflected the impact of favorable markets and new business, partially offset by the unfavorable impact of foreign currency movements.

The following table presents Northern Trust’s assets under management by reporting segment.

Table 4: Assets Under Management



Assets Under Management	September 30, 2016		June 30, 2016		September 30, 2015		Change Q3-16/Q2-16		Change Q3-16/Q3-15
($ In Billions)	September 30, 2016		June 30, 2016		September 30, 2015		Change Q3-16/Q2-16		Change Q3-16/Q3-15
Corporate & Institutional	$	703.6	$	672.3	$	661.5	5	%	6	%
Wealth Management	242.2		233.9		225.3		4		8
Total Assets Under Management	$	945.8	$	906.2	$	886.8	4	%	7	%

The following table presents Northern Trust’s assets under management by investment type.

Table 5: Assets Under Management by Investment Type



($ In Billions)	September 30, 2016		June 30, 2016		September 30, 2015
Equities	$	479.3	$	456.4	$	437.8
Fixed Income	162.8		156.3		150.1
Cash and Other Assets	189.8		185.2		176.9
Securities Lending Collateral	113.9		108.3		122.0
Total Assets Under Management	$	945.8	$	906.2	$	886.8

Table of Contents

THIRD QUARTER CONSOLIDATED RESULTS OF OPERATIONS (continued)

Noninterest Income (continued)

The following table presents the allocation of Northern Trust’s assets under management by reporting segment.

Table 6: Allocations of Assets Under Management



	September 30, 2016						June 30, 2016						September 30, 2015
Assets Under Management	C&IS		WM		Total		C&IS		WM		Total		C&IS		WM		Total
Equities	52	%	47	%	51	%	52	%	46	%	50	%	51	%	44	%	49	%
Fixed Income	13		29		17		13		29		17		13		29		17
Cash and Other Assets	19		24		20		19		25		21		18		27		20
Securities Lending Collateral	16		—		12		16		—		12		18		—		14

The 7% increase in consolidated assets under management from $886.8 billion at September 30, 2015 to $945.8 billion as of September 30, 2016 was primarily due to favorable global equity markets and inflows in cash, equity and fixed income products, partially offset by lower securities lending collateral.

Changes in assets under custody and under management are in comparison to the twelve-month increase in the S&P 500 index of 12.9% and increase in the MSCI EAFE index (USD) of 3.5%.

The following table presents activity in consolidated assets under management by investment type.

Table 7: Activity in Consolidated Assets Under Management by Investment Type



		Three Months Ended
($ In Billions)		September 30, 2016			June 30, 2016			March 31, 2016
Beginning Balance of AUM		$	906.2		$	900.0		$	875.3
Inflows by Investment Type
	Equity	27.2			34.9			29.4
	Fixed Income	13.1			18.6			11.4
	Cash & Other Assets	109.5			83.6			94.6
	Securities Lending Collateral	27.1			21.5			20.4

Total Inflows		176.9			158.6			155.8

Outflows by Investment Type
	Equity	(26.6		)	(31.4		)	(28.1		)
	Fixed Income	(8.8		)	(14.9		)	(10.2		)
	Cash & Other Assets	(100.2		)	(84.7		)	(80.3		)
	Securities Lending Collateral	(21.4		)	(19.3		)	(18.2		)

Total Outflows		(157.0		)	(150.3		)	(136.8		)

Net Inflows		19.9			8.3			19.0

Market Performance, Currency & Other		19.7			(2.1		)	5.7

Ending Balance of AUM		$	945.8		$	906.2		$	900.0

Foreign exchange trading income totaled $53.6 million in the current quarter, down $9.3 million, or 15%, compared to $62.9 million in the prior-year quarter. The decrease generally reflected lower client volumes as compared to the prior-year quarter.

Table of Contents

THIRD QUARTER CONSOLIDATED RESULTS OF OPERATIONS (continued)

Noninterest Income (continued)

Other operating income totaled $33.1 million, down $5.0 million, or 14%, compared to $38.1 million in the prior-year quarter. The decrease is based primarily on impairment charges and loss on sales related to a non-strategic loan and lease portfolio. The components of other operating income are provided below.

Table 8: Other Operating Income



Other Operating Income	Three Months Ended September 30,
($ In Millions)	2016		2015		Change
Loan Service Fees	$	14.0	$	14.8	$	(0.8	)	(6	)%
Banking Service Fees	13.6		11.9		1.7			14
Other Income	5.5		11.4		(5.9		)	(53	)
Total Other Operating Income	$	33.1	$	38.1	$	(5.0	)	(14	)%

Table of Contents

THIRD QUARTER CONSOLIDATED RESULTS OF OPERATIONS (continued)

Net Interest Income

The following table presents an analysis of average balances and interest rate changes affecting net interest income.

Table 9: Average Consolidated Balance Sheets with Analysis of Net Interest Income



	NORTHERN TRUST CORPORATION
(Interest and Rate on a Fully Taxable Equivalent Basis)	THIRD QUARTER
(Interest and Rate on a Fully Taxable Equivalent Basis)	2016							2015
($ In Millions)	Interest		Average Balance			Rate ⁽⁵⁾		Interest		Average Balance			Rate ⁽⁵⁾
Average Earning Assets
Federal Funds Sold and Securities Purchased under
Agreements to Resell	$	4.4	$	1,613.2		1.08	%	$	1.3	$	1,080.4		0.49	%
Interest-Bearing Due from and Deposits with Banks ⁽¹⁾	15.4		8,232.2			0.74		22.1		11,229.7			0.78
Federal Reserve and Other Central Bank Deposits	21.8		20,829.6			0.42		13.0		17,319.7			0.30
Securities
U.S. Government	22.4		7,292.5			1.22		14.1		5,034.6			1.11
Obligations of States and Political Subdivisions	3.3		734.7			1.80		1.8		103.3			6.80
Government Sponsored Agency	38.1		17,583.7			0.86		34.9		16,198.2			0.86
Other ⁽²⁾	46.7		17,647.8			1.05		36.4		16,705.0			0.86
Total Securities	110.5		43,258.7			1.02		87.2		38,041.1			0.91
Loans and Leases ⁽³⁾	204.1		33,910.1			2.39		188.2		33,138.3			2.25
Total Earning Assets	356.2		107,843.8			1.31		311.8		100,809.2			1.23
Allowance for Credit Losses Assigned to Loans and Leases	—		(192.9		)	—		—		(256.0		)	—
Cash and Due from Banks and Other Central Bank Deposits ⁽⁴⁾	—		1,933.8			—		—		2,683.5			—
Buildings and Equipment	—		441.3			—		—		435.6			—
Client Security Settlement Receivables	—		1,200.7			—		—		1,031.8			—
Goodwill	—		525.5			—		—		532.4			—
Other Assets	—		4,630.3			—		—		4,687.6			—
Total Assets	$	—	$	116,382.5		—	%	$	—	$	109,924.1		—	%
Average Source of Funds
Deposits
Savings and Money Market	$	3.2	$	15,025.7		0.08	%	$	2.4	$	15,168.4		0.06	%
Savings Certificates and Other Time	2.1		1,450.3			0.58		2.2		1,487.0			0.57
Non-U.S. Offices — Interest-Bearing	14.7		51,468.6			0.11		13.3		50,107.9			0.11
Total Interest-Bearing Deposits	20.0		67,944.6			0.12		17.9		66,763.3			0.11
Short-Term Borrowings	6.6		6,961.0			0.38		1.1		3,878.5			0.11
Senior Notes	11.8		1,496.3			3.11		11.7		1,497.2			3.10
Long-Term Debt	6.8		1,406.9			1.91		5.5		1,374.3			1.60
Floating Rate Capital Debt	0.9		277.4			1.24		0.6		277.3			0.86
Total Interest-Related Funds	46.1		78,086.2			0.23		36.8		73,790.6			0.20
Interest Rate Spread	—		—			1.08		—		—			1.03
Demand and Other Noninterest-Bearing Deposits	—		25,829.3			—		—		24,263.7			—
Other Liabilities	—		3,236.4			—		—		3,159.3			—
Stockholders’ Equity	—		9,230.6			—		—		8,710.5			—
Total Liabilities and Stockholders’ Equity	$	—	$	116,382.5		—	%	$	—	$	109,924.1		—	%
Net Interest Income/Margin (FTE Adjusted)	$	310.1	$	—		1.14	%	$	275.0	$	—		1.08	%
Net Interest Income/Margin (Unadjusted)	$	303.1	$	—		1.12	%	$	268.9	$	—		1.06	%

Table of Contents

THIRD QUARTER CONSOLIDATED RESULTS OF OPERATIONS (continued)

Net Interest Income (continued)

ANALYSIS OF NET INTEREST INCOME CHANGES

DUE TO VOLUME AND RATE



	Three Months Ended September 30, 2016/2015
	Change Due To
(In Millions)	Average Balance		Rate		Total
Earning Assets (FTE)	$	22.9	$	21.5	$	44.4
Interest-Related Funds	2.6		6.7		9.3
Net Interest Income (FTE)	$	20.3	$	14.8	$	35.1


(1)	Interest-Bearing Due from and Deposits with Banks includes the interest-bearing component of Cash and Due from Banks and Interest-Bearing Deposits with Banks as presented on the consolidated balance sheets.


(2)	Other securities include certain community development investments and Federal Home Loan Bank and Federal Reserve stock, which are classified in other assets in the consolidated balance sheets as of September 30, 2016 and 2015.


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


(4)	Cash and Due from Banks and Other Central Bank Deposits includes the non-interest-bearing component of Federal Reserve and Other Central Bank Deposits as presented on the consolidated balance sheets on page 31.


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

Notes:

Net Interest Income (FTE Adjusted), a non-generally accepted accounting principle (GAAP) financial measure, 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 37.8% and 37.6% for the three months ended September 30, 2016 and 2015, respectively. Total taxable equivalent interest adjustments amounted to $7.0 million and $6.1 million for the three months ended September 30, 2016 and 2015, respectively. A reconciliation of net interest income and net interest margin on a GAAP basis to net interest income and net interest margin on an FTE basis (each of which is a non-GAAP financial measure) is provided on page 28.

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.

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 on a fully taxable equivalent (FTE) basis totaled $310.1 million, up $35.1 million, or 13%, compared to $275.0 million in the prior-year quarter. The increase was primarily the result of a higher net interest margin and growth in average earning assets. Average earning assets for the current quarter averaged $107.8 billion, up $7.0 billion, or 7%, from $100.8 billion in the prior-year quarter, primarily resulting from higher levels of securities. Earning asset growth was funded primarily by a higher level of borrowed funds and interest-bearing and demand deposits.

The net interest margin on an FTE basis increased to 1.14% in the current quarter from 1.08% in the prior-year quarter due to higher yields on earning assets driven by the higher interest rate environment, partially offset by higher premium amortization.

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 and net interest margin on a GAAP basis to net interest income and net interest margin on an FTE basis (each of which is a non-GAAP financial measure) is provided on page 28.

Federal Reserve and other central bank deposits averaged $20.8 billion, up $3.5 billion, or 20%, from $17.3 billion in the prior-year quarter. Average securities were $43.3 billion, up $5.3 billion, or 14%, from $38.0 billion in the prior-year quarter and include certain community development investments, Federal Home Loan Bank stock, and Federal Reserve stock of $180.0 million, $179.6 million and $53.1 million, respectively, which are recorded in other assets in the consolidated balance sheets.

Loans and leases averaged $33.9 billion, up $771.8 million, or 2%, from $33.1 billion in the prior-year quarter, primarily reflecting higher levels of private client loans, commercial and institutional loans, and commercial real estate loans, partially offset by reductions in residential real estate loans. Private client loans averaged $9.9 billion, up $1.5 billion, or 18%, from $8.4 billion for the prior-year quarter. Commercial and institutional loans averaged $10.0 billion, up $845.9 million, or 9%, from $9.2 billion for the prior-year quarter. Commercial real estate loans averaged $4.0 billion, up $294.9 million, or 8%, from $3.7 billion for the prior-year quarter. Residential real estate loans averaged $8.3 billion, down $934.6 million, or 10%, from $9.2 billion for the prior-year quarter.

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THIRD QUARTER CONSOLIDATED RESULTS OF OPERATIONS (continued)

Net Interest Income (continued)

Northern Trust utilizes a diverse mix of funding sources. Total interest-bearing deposits averaged $67.9 billion, compared to $66.8 billion in the prior-year quarter, an increase of $1.1 billion. Other interest-bearing funds averaged $10.1 billion, an increase of $3.1 billion, from $7.0 billion in the prior-year quarter, primarily attributable to increased short-term borrowings. 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 $2.7 billion, or 10%, to $29.8 billion from $27.0 billion in the prior-year quarter, primarily resulting from higher levels of demand and other noninterest-bearing deposits.

Provision for Credit Losses

The provision for credit losses was a credit of $3.0 million in the current quarter, as compared to a credit provision of $10.0 million in the prior-year quarter. Net recoveries in the current quarter were $0.8 million, resulting from charge-offs of $3.0 million and recoveries of $3.8 million. The prior-year quarter included $9.4 million of net charge-offs, resulting from $11.9 million of charge-offs and $2.5 million of recoveries. Nonperforming assets of $181.0 million decreased 13% from the prior-year quarter. Residential real estate loans and commercial loans accounted for 57% and 35%, respectively, of total nonperforming loans and leases at September 30, 2016. For additional discussion of the provision and allowance for credit losses, refer to the “Asset Quality” section beginning on page 22.

Noninterest Expense

The components of noninterest expense are provided below.

Table 10: Noninterest Expense



Noninterest Expense	Three Months Ended September 30,
($ In Millions)	2016		2015		Change
Compensation	$	382.1	$	361.6	$	20.5		6	%
Employee Benefits	73.2		69.8		3.4			5
Outside Services	157.6		158.3		(0.7		)	—
Equipment and Software	114.5		113.6		0.9			1
Occupancy	44.2		43.7		0.5			1
Other Operating Expense	71.4		65.3		6.1			9
Total Noninterest Expense	$	843.0	$	812.3	$	30.7		4	%

Compensation expense, the largest component of noninterest expense, totaled $382.1 million in the current quarter, compared to $361.6 million in the prior-year quarter. Compensation expense increased compared to the prior-year quarter, primarily reflecting higher staff levels and increased performance-based incentive compensation. Staff on a full-time equivalent basis at September 30, 2016 totaled approximately 16,900, up 6% from September 30, 2015.

Employee benefits expense totaled $73.2 million in the current quarter, compared to $69.8 million in the prior-year quarter. Employee benefits expense increased 5% compared to the prior-year quarter, primarily reflecting higher medical expense, partially offset by lower pension expense.

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THIRD QUARTER CONSOLIDATED RESULTS OF OPERATIONS (continued)

Noninterest Expense (continued)

Other operating expense totaled $71.4 million in the current quarter, up 9% from $65.3 million in the prior-year quarter, reflecting a $3.5 million charge in connection with the settlement of certain securities lending litigation as well as higher FDIC deposit protection expense. The components of other operating expense are provided below.

Table 11: Other Operating Expense



Other Operating Expense	Three Months Ended September 30,
($ In Millions)	2016		2015		Change
Business Promotion	$	19.2	$	20.4	$	(1.2	)	(6	)%
Staff Related	11.5		8.9		2.6			29
FDIC Insurance Premiums	9.5		6.6		2.9			42
Other Intangibles Amortization	2.0		2.1		(0.1		)	(8	)
Other Expenses	29.2		27.3		1.9			8
Total Other Operating Expense	$	71.4	$	65.3	$	6.1		9	%

Provision for Income Taxes

Income tax expense was $116.1 million in the current quarter, representing an effective tax rate of 31.1%, compared to $118.6 million in the prior-year quarter, representing an effective tax rate of 33.6%. The decrease in the provision for income taxes compared to the prior-year quarter was based on a lower effective tax rate driven by changes in the earnings mix in tax jurisdictions in which the Corporation operates, partially offset by increased income before income taxes. In addition, the provision for income tax expense for the three months ended September 30, 2016 includes a $6.4 million benefit related to excess tax benefits recognized in the provision for income taxes rather than additional paid-in capital as a result of the Corporation’s early adoption of ASU No. 2016-09.

REPORTING SEGMENTS

Northern Trust is organized around its two client-focused reporting segments: C&IS and Wealth Management. Asset management and related services are provided to C&IS and Wealth Management clients primarily by the Asset Management business. The revenue and expenses of Asset Management and certain other support functions are allocated fully to C&IS and Wealth Management. Income and expense associated with the wholesale funding activities and investment portfolios of the Corporation and its principal subsidiary, The Northern Trust Company (the Bank), as well as certain corporate-based expense, executive level compensation and nonrecurring items, are not allocated to C&IS and Wealth Management, and are reported in Northern Trust’s third reporting segment, Treasury and Other, in the following pages.

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REPORTING SEGMENTS (continued)

The following tables reflect the earnings contributions and average assets of Northern Trust’s reporting segments for the three- and nine- month periods ended September 30, 2016 and 2015. Reporting segment 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, equity and the applicable interest income and expense.

Table 12: Results of Reporting Segments



Three Months Ended September 30,	Corporate & Institutional Services						Wealth Management						Treasury and Other						Total Consolidated
($ In Millions)	2016			2015			2016			2015			2016			2015			2016			2015
Noninterest Income
Trust, Investment and Other Servicing Fees	$	450.8		$	429.7		$	337.5		$	319.4		$	—		$	—		$	788.3		$	749.1
Foreign Exchange Trading Income	55.2			60.0			0.9			2.9			(2.5		)	—			53.6			62.9
Other Noninterest Income	41.5			45.9			26.3			28.3			0.9			0.4			68.7			74.6
Net Interest Income*	138.2			108.6			164.1			142.5			7.8			23.9			310.1			275.0
Revenue*	685.7			644.2			528.8			493.1			6.2			24.3			1,220.7			1,161.6
Provision for Credit Losses	4.0			(2.8		)	(7.0		)	(7.2		)	—			—			(3.0		)	(10.0		)
Noninterest Expense	487.8			464.6			318.0			316.3			37.2			31.4			843.0			812.3
Income before Income Taxes*	193.9			182.4			217.8			184.0			(31.0		)	(7.1		)	380.7			359.3
Provision for Income Taxes*	61.8			58.3			82.3			69.0			(21.0		)	(2.6		)	123.1			124.7
Net Income	$	132.1		$	124.1		$	135.5		$	115.0		$	(10.0	)	$	(4.5	)	$	257.6		$	234.6
Percentage of Consolidated Net Income	51		%	53		%	53		%	49		%	(4		)%	(2		)%	100		%	100		%
Average Assets	$	75,696.5		$	74,222.5		$	26,601.7		$	25,201.2		$	14,084.3		$	10,500.4		$	116,382.5		$	109,924.1

* Non-GAAP financial measures stated on a fully taxable equivalent basis (FTE). Total consolidated includes FTE adjustments of $7.0 million for 2016 and $6.1 million for 2015. A reconciliation of revenue, net interest income and net interest margin on a GAAP basis to revenue, net interest income and net interest margin on an FTE basis (each of which is a non-GAAP financial measure) is provided on page 28.



Nine Months Ended September 30,	Corporate & Institutional Services						Wealth Management						Treasury and Other						Total Consolidated
($ In Millions)	2016			2015			2016			2015			2016^			2015			2016^			2015
Noninterest Income
Trust, Investment and Other Servicing Fees	$	1,331.1		$	1,269.0		$	982.6		$	964.4		$	—		$	—		$	2,313.7		$	2,233.4
Foreign Exchange Trading Income	169.1			199.3			7.0			10.0			2.4			—			178.5			209.3
Other Noninterest Income	113.0			131.0			79.8			83.9			124.8			107.6			317.6			322.5
Net Interest Income*	417.8			297.3			482.8			421.8			30.1			80.3			930.7			799.4
Revenue*	2,031.0			1,896.6			1,552.2			1,480.1			157.3			187.9			3,740.5			3,564.6
Provision for Credit Losses	—			(3.0		)	(4.0		)	(21.5		)	—			—			(4.0		)	(24.5		)
Noninterest Expense	1,519.9			1,387.7			975.2			960.9			101.7			107.2			2,596.8			2,455.8
Income before Income Taxes*	511.1			511.9			581.0			540.7			55.6			80.7			1,147.7			1,133.3
Provision for Income Taxes*	158.0			160.9			219.1			203.2			4.6			34.7			381.7			398.8
Net Income	$	353.1		$	351.0		$	361.9		$	337.5		$	51.0		$	46.0		$	766.0		$	734.5
Percentage of Consolidated Net Income	46		%	48		%	47		%	46		%	7		%	6		%	100		%	100		%
Average Assets	$	75,589.0		$	73,089.3		$	26,525.6		$	24,732.4		$	12,795.3		$	11,896.6		$	114,909.9		$	109,718.3

Non-GAAP financial measures stated on a fully taxable equivalent basis (FTE). Total consolidated includes FTE adjustments of $20.1 million for 2016 and $18.7 million for 2015. A reconciliation of revenue, net interest income and net interest margin on a GAAP basis to revenue, net interest income and net interest margin on an FTE basis (each of which is a non-GAAP financial measure) is provided on page 28.


(^)	The nine months ended September 30, 2016 results have been adjusted to reflect the early adoption of ASU No. 2016-09. Please refer to Note 2, “Recent Accounting Pronouncements,” of the Notes to Consolidated Financial Statements for further discussion on the impact to the Corporation’s previously reported quarterly results.

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REPORTING SEGMENTS (continued)

Corporate & Institutional Services

C&IS net income totaled $132.1 million in the current quarter compared to $124.1 million in the prior-year quarter, an increase of $8.0 million, or 6%. Noninterest income was $547.5 million in the current quarter, up $11.9 million, or 2%, from $535.6 million in the prior-year quarter, reflecting higher trust, investment and other servicing fees, partially offset by lower foreign exchange trading income and other operating income. The following table provides a summary of C&IS trust, investment and other servicing fees.

Table 13: C&IS Trust, Investment and Other Servicing Fees



	Three Months Ended September 30,
($ In Millions)	2016		2015		Change
Custody and Fund Administration	$	299.4	$	293.9	$	5.5	2	%
Investment Management	94.4		82.6		11.8		14
Securities Lending	23.1		19.8		3.3		17
Other	33.9		33.4		0.5		1
Total C&IS Trust, Investment and Other Servicing Fees	450.8		$	429.7	$	21.1	5	%

Custody and fund administration fees, the largest component of C&IS fees, are driven primarily by values of client AUC/A, transaction volumes and number of accounts. The asset values used to calculate these fees vary depending on the individual fee arrangements negotiated with each client. Custody fees related to asset values are client specific and are priced based on quarter-end or month-end values, values at the beginning of each quarter or average values for a month or quarter. The fund administration fees that are asset-value-related are priced using month-end, quarter-end, or average daily balances. Investment management fees, which are based generally on client assets under management, are based primarily on market values throughout a period.

Custody and fund administration fees increased from the prior-year quarter, as new business was partially offset by the unfavorable impact of movements in foreign exchange rates and equity markets. Investment management fees increased $11.8 million, or 14%, primarily due to lower money market mutual fund fee waivers. There were no C&IS money market mutual fund fee waivers in the current quarter compared to $12.2 million in the prior-year quarter. Securities lending fees increased primarily reflecting higher spreads in the current quarter.

Foreign exchange trading income totaled $55.2 million in the current quarter, a decrease of $4.8 million, or 8%, from $60.0 million in the prior-year quarter. The decrease generally reflected lower client volumes as compared to the prior-year quarter.

Other noninterest income in C&IS totaled $41.5 million in the current quarter, down $4.4 million, or 10%, from $45.9 million in the prior-year quarter, primarily reflecting impairment charges and loss on sales related to a non-strategic loan and lease portfolio.

For the prior-year quarter, the presentation of average assets was changed to reflect a modification to the methodology by which assets are allocated among our reporting segments. For C&IS, this change in presentation resulted in an increase to average assets and a reduction in the net interest margin.

Net interest income stated on an FTE basis was $138.2 million in the current quarter, up $29.6 million, or 27%, from $108.6 million in the prior-year quarter. The increase in net interest income was primarily attributable to an increase in the net interest margin to 0.79% from 0.64% in the prior-year quarter, primarily reflecting higher yields on earning assets. The average earning assets totaled $69.2 billion, up from $67.0 billion in the prior-year quarter. The earning assets in C&IS consisted primarily of intercompany assets and loans and leases. Funding sources were primarily comprised of non-U.S. custody-related interest-bearing deposits, which averaged $45.2 billion in the current quarter, down slightly from $45.7 billion in the prior-year quarter.

The provision for credit losses was a provision of $4.0 million in the current quarter, compared with a credit provision of $2.8 million in the prior-year quarter, reflecting a specific reserve requirement, partially offset by continued improvement in credit quality.

Total C&IS noninterest expense, which includes the direct expense of the reporting segment, indirect expense allocations for product and operating support and indirect expense allocations for certain corporate support services, totaled $487.8 million in the current quarter, up $23.2 million, or 5%, from $464.6 million in the prior-year quarter. The increase in noninterest expense

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REPORTING SEGMENTS (continued)

Corporate & Institutional Services (continued)

was primarily attributable to higher compensation expense, indirect expense allocations, and employee benefits, partially offset by lower outside services.

Wealth Management

Wealth Management net income was $135.5 million in the current quarter, up 18% from $115.0 million in the prior-year quarter. Noninterest income was $364.7 million, up from $350.6 million in the prior-year quarter, primarily reflecting higher trust, investment and other servicing fees, partially offset by lower foreign exchange trading income and other noninterest income. Trust, investment and other servicing fees in Wealth Management totaled $337.5 million in the current quarter, increasing $18.1 million, or 6%, from $319.4 million in the prior-year quarter. The following table provides a summary of Wealth Management trust, investment and other servicing fees.

Table 14: Wealth Management Trust, Investment and Other Servicing Fees



	Three Months Ended September 30,
($ In Millions)	2016		2015		Change
Central	$	135.6	$	126.8	$	8.8	7	%
East	85.1		82.1		3.0		4
West	68.0		66.8		1.2		2
Global Family Office	48.8		43.7		5.1		12
Total Wealth Management Trust, Investment and Other Servicing Fees	$	337.5	$	319.4	$	18.1	6	%

Wealth Management fee income is calculated primarily based on market values. The increase in Wealth Management fees across all regions was primarily attributable to lower money market mutual fund fee waivers and favorable equity markets. Money market mutual fund fee waivers in Wealth Management totaled $0.2 million in the current quarter compared to $15.3 million in the prior-year quarter.

Foreign exchange trading income totaled $0.9 million, down 69% from $2.9 million in the prior-year quarter, primarily reflecting decreased client activity.

Other noninterest income of $26.3 million in the current quarter was down from $28.3 million in the prior-year quarter, primarily reflecting a decrease in security commission and trading income.

For the prior-year quarter, the presentation of average assets was changed to reflect a modification to the methodology by which assets are allocated among our reporting segments. This change in presentation did not have a significant impact on the Wealth Management reporting segment.

Net interest income stated on an FTE basis was $164.1 million in the current quarter, up $21.6 million, or 15%, from $142.5 million in the prior-year quarter, primarily reflecting an increase in the net interest margin and higher levels of average earning assets. The net interest margin increased to 2.47% from 2.26% in the prior-year quarter. Average earning assets increased $1.4 billion, or 5%, to $26.4 billion from the prior-year quarter’s $25.0 billion. Earning assets and funding sources were primarily comprised of loans and domestic retail interest-bearing deposits, respectively.

The provision for credit losses was a credit provision of $7.0 million in the current quarter, compared with a credit provision of $7.2 million in the prior-year quarter, which reflected continued improvement in credit quality.

Total noninterest expense, which includes the direct expense of the reporting segment, indirect expense allocations for product and operating support and indirect expense allocations for certain corporate support services, totaled $318.0 million in the current quarter, compared to $316.3 million in the prior-year quarter, an increase of $1.7 million, or 1%, primarily attributable to higher compensation expense and indirect expense allocations, partially offset by other operating expense.

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REPORTING SEGMENTS (continued)

Treasury and Other

Treasury and Other includes income and expense associated with the wholesale funding activities and the investment portfolios of the Corporation and the Bank, and certain corporate-based expenses, executive-level compensation and nonrecurring items not allocated to C&IS and Wealth Management.

Treasury and Other noninterest income was negative $1.6 million in the current quarter, down $2.0 million from $0.4 million in the prior-year quarter, primarily due to lower foreign exchange trading income.

For the prior-year quarter, the presentation of average assets was changed to reflect a modification to the methodology by which assets are allocated among our reporting segments. For Treasury and Other, this change in presentation resulted in a decrease to average assets and an increase in the net interest margin.

Net interest income decreased $16.1 million, or 67%, to $7.8 million in the current quarter, compared to $23.9 million in the prior-year quarter. The decrease reflected a decline in the net interest margin, partially offset by higher levels of earning assets. Average earning assets increased $3.4 billion to $12.3 billion from the prior-year quarter’s $8.8 billion.

Noninterest expense totaled $37.2 million in the current quarter, up $5.8 million, or 18%, from $31.4 million in the prior-year quarter, primarily reflecting higher general overhead costs, including compensation expense and outside services, partially offset by lower indirect expense allocations to C&IS and Wealth Management, as compared to the prior-year quarter.

NINE-MONTH CONSOLIDATED RESULTS OF OPERATIONS

Overview

The Corporation early adopted ASU No. 2016-09 on July 1, 2016, with an effective date of January 1, 2016, which resulted in a reclassification of $5.9 million from additional paid-in capital to provision for income taxes, representing excess tax benefits previously recognized in additional paid-in capital during the six months ended June 30, 2016. During the three months ended September 30, 2016, the Corporation recognized a benefit of $6.4 million in provision for income taxes for excess tax benefits that occurred in the current quarter. The early adoption favorably impacted net income per diluted common share by $0.06 per share for the nine months ended September 30, 2016, respectively.

Net income per diluted common share was $3.21 for the nine months ended September 30, 2016, and $3.00 in the comparable prior-year period. Net income totaled $766.0 million, up slightly as compared to $734.5 million in the prior-year period. The performance in the current period produced an annualized return on average common equity of 11.9%, compared to 11.7% in the prior-year period. The annualized return on average assets was 0.9% in both the current and prior-year periods.

The three months ended June 30, 2016 included a gain on the sale of 1.1 million Visa Inc. Class B common shares, net of the valuation adjustment to existing swap agreements, totaling $118.2 million; a charge in connection with an agreement to settle certain securities lending litigation of $46.5 million; charges related to contractual modifications associated with existing C&IS clients of $18.6 million; severance, other personnel and related charges of $17.5 million; impairment charges and the loss on sale related to the decision to exit a portion of a non-strategic loan and lease portfolio of $14.1 million; and impairment charges related to the residual value of certain aircraft and rail cars of $7.5 million. Excluding these items, net income per diluted common share, net income and return on average common equity during the nine months ended September 30, 2016 were $3.17, $758.0 million and 11.7%, respectively.

The prior period included a net gain on the sale of 1.0 million Visa Inc. Class B common shares totaling $99.9 million; voluntary cash contributions to certain constant dollar NAV funds of $45.8 million; and the impairment of the residual value of certain aircraft under leveraged lease agreements of $17.8 million. Excluding the gain and charges, net income per diluted common share, net income, and return on average common equity were $2.91, $712.1 million and 11.3%, respectively.

Revenue for the nine months ended September 30, 2016 totaled $3.72 billion, up $174.5 million, or 5%, as compared to $3.55 billion in the prior-year period, primarily driven by increased net interest income and trust, investment and other servicing fees, partially offset by lower foreign exchange trading income. Noninterest income was $2.81 billion, up $44.6 million, or 2%, from $2.77 billion in the prior-year period.

Net interest income increased 17% to $910.6 million in the current period as compared to $780.7 million in the prior-year period, due to a higher net interest margin and growth in earning assets. Additionally, the three months ended June 30, 2016 included a

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NINE-MONTH CONSOLIDATED RESULTS OF OPERATIONS (continued)

Overview (continued)

charge of $2.7 million related to the residual value of certain aircraft and rail cars. The prior-year period included a charge of $17.8 million related to the residual value of certain aircraft under leveraged lease agreements.

The provision for credit losses was a credit of $4.0 million in the current period, as compared to a credit provision of $24.5 million in the prior-year period.

Noninterest expense totaled $2.6 billion, up $141.0 million, or 6%, from $2.5 billion in the prior-year period. The three months ended June 30, 2016 included charges in connection with an agreement to settle certain securities lending litigation of $46.5 million; charges related to contractual modifications associated with existing C&IS clients of $18.6 million; and severance, other personnel and related charges of $17.5 million. The prior-year quarter included the $45.8 million charge related to voluntary cash contributions to certain constant dollar NAV funds. Excluding the current- and prior-year period charges, noninterest expense increased $104.2 million, or 4%, primarily attributable to higher compensation, outside services expense, and a charge in connection with the settlement of the one remaining securities lending litigation claim related to the 2008 financial crisis.

Noninterest Income

The components of noninterest income are provided below.

Table 15: Nine Months Ended September 30 Noninterest Income



Noninterest Income	Nine Months Ended September 30,
($ In Millions)	2016			2015			Change
Trust, Investment and Other Servicing Fees	$	2,313.7		$	2,233.4		$	80.3		4	%
Foreign Exchange Trading Income	178.5			209.3			(30.8		)	(15	)
Treasury Management Fees	47.2			48.5			(1.3		)	(3	)
Security Commissions and Trading Income	59.9			60.2			(0.3		)	—
Other Operating Income	212.4			214.1			(1.7		)	(1	)
Investment Security Gains (Losses), net	(1.9		)	(0.3		)	(1.6		)	N/M
Total Noninterest Income	$	2,809.8		$	2,765.2		$	44.6		2	%

As illustrated in the following table, trust, investment and other servicing fees from C&IS increased $62.1 million, or 5%, totaling $1.33 billion, compared to $1.27 billion a year ago.

Table 16: Nine Months Ended September 30 C&IS Trust, Investment and Other Servicing Fees



C&IS Trust, Investment and Other Servicing Fees	Nine Months Ended September 30,
($ In Millions)	2016		2015		Change
Custody and Fund Administration	$	879.1	$	864.6	$	14.5	2	%
Investment Management	277.7		239.6		38.1		16
Securities Lending	72.5		68.2		4.3		6
Other	101.8		96.6		5.2		5
Total	$	1,331.1	$	1,269.0	$	62.1	5	%

Custody and fund administration fees, the largest component of C&IS fees, increased 2%, primarily driven by new business, partially offset by the unfavorable impact of equity markets and movements in foreign exchange rates. C&IS investment management fees increased 16%, primarily due to lower money market mutual fund fee waivers. Money market mutual fund fee waivers in C&IS totaled $1.9 million, compared to waived fees of $41.0 million in the prior-year period. Other fees in C&IS increased 5%, primarily due to new business related to investment risk and analytical services and increased other ancillary services.

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NINE-MONTH CONSOLIDATED RESULTS OF OPERATIONS (continued)

Noninterest Income (continued)

As illustrated in the following table, trust, investment and other servicing fees from Wealth Management totaled $982.6 million, up from $964.4 million a year ago.

Table 17: Nine Months Ended September 30 Wealth Management Trust, Investment and Other Servicing Fees



	Nine Months Ended September 30,
($ In Millions)	2016		2015		Change
Wealth Management Trust, Investment and Other Servicing Fees
Central	$	390.2	$	385.8	$	4.4		1	%
East	250.6		250.4		0.2			—
West	199.4		202.1		(2.7		)	(1	)
Global Family Office	142.4		126.1		16.3			13
Total	$	982.6	$	964.4	$	18.2		2	%

The net increase in Wealth Management fees, driven by Global Family Office, was primarily attributable to lower money market mutual fund fee waivers in the current period. Money market mutual fund fee waivers in Wealth Management totaled $6.2 million compared with $47.6 million in the prior-year period.

Foreign exchange trading income decreased $30.8 million, or 15%, and totaled $178.5 million compared with $209.3 million in the prior-year period. The decrease was attributable to lower client volumes compared to the prior-year period.

Other operating income decreased 1% to $212.4 million compared with $214.1 million in the prior-year period. The components of other operating income are provided below.

Table 18: Nine Months Ended September 30 Other Operating Income



Other Operating Income	Nine Months Ended September 30,
($ In Millions)	2016		2015		Change
Loan Service Fees	$	42.2	$	44.3	$	(2.1	)	(5	)%
Banking Service Fees	38.8		35.6		3.2			9	%
Other Income	131.4		134.2		(2.8		)	(2	)
Total Other Operating Income	$	212.4	$	214.1	$	(1.7	)	(1	)%

The current-year period other income included the gain on the sale of 1.1 million Visa Inc. Class B common shares, net of the valuation adjustment to existing swap agreements, totaling $118.2 million, offset by impairment charges and the loss on sale related to the decision to exit a portion of a non-strategic loan and lease portfolio as well as impairment charges related to the residual value of certain aircraft and rail cars of $18.9 million in the three months ended June 30, 2016. The prior-year period other income included a $99.9 million net gain on the sale of a portion of the Visa Inc. Class B common shares held by the Corporation. Excluding these items, other operating income decreased 1% from the prior-year period, primarily due to impairment charges and loss on sales related to a non-strategic loan and lease portfolio, partially offset by income associated with supplemental compensation plans.

Table of Contents

NINE-MONTH CONSOLIDATED RESULTS OF OPERATIONS (continued)

Net Interest Income

The following table presents an analysis of average balances and interest rate changes affecting net interest income.

Table 19: Nine Months Ended September 30 Average Consolidated Balance Sheets with Analysis of Net Interest Income



	NORTHERN TRUST CORPORATION
(Interest and Rate on a Fully Taxable Equivalent Basis)	Nine Months Ended September 30,
(Interest and Rate on a Fully Taxable Equivalent Basis)	2016						2015
($ In Millions)	Interest		Average Balance		Rate ⁽⁵⁾		Interest		Average Balance		Rate ⁽⁵⁾
Average Earning Assets
Federal Funds Sold and Securities Purchased under
Agreements to Resell	$	12.4	$	1,707.0	0.97	%	$	3.7	$	1,052.2	0.47	%
Interest-Bearing Due from and Deposits with Banks ⁽¹⁾	49.4		9,036.0		0.73		64.9		11,057.5		0.78
Federal Reserve and Other Central Bank Deposits	71.4		20,553.5		0.46		44.2		19,014.5		0.31
Securities
U.S. Government	62.6		6,890.8		1.21		40.2		4,802.9		1.12
Obligations of States and Political Subdivisions	7.5		465.6		2.16		5.7		112.3		6.77
Government Sponsored Agency	123.9		17,232.9		0.96		106.6		16,509.5		0.86
Other ⁽²⁾	128.5		16,358.8		1.05		100.6		15,838.1		0.85
Total Securities	322.5		40,948.1		1.05		253.1		37,262.8		0.91
Loans and Leases⁽³⁾	610.3		34,119.1		2.39		546.1		32,723.6		2.23
Total Earning Assets	1,066.0		106,363.7		1.34		912.0		101,110.5